Question

Distinguish between CRR and SLR.

Answer 1

• CRR:
  1. The Central Bank controls credit by changing the Cash Reserves Ratio.
  2. Commercial Banks have excessive cash reserves, on the basis of which they are creating too much credit, this will be harmful to the larger interest of the economy.
  3. So it will raise the cash reserve ratio, which the Commercial Banks are required to maintain with the Central Bank.
• SLR:
  1. The Statutory Liquidity Ratio (SLR) is the amount that a bank has to maintain in the form of cash, gold, or approved securities.
  2. The quantum is specified as some percentage of the total demand and time liabilities.
  3. The liabilities of the bank are payable on demand anytime, and those liabilities are accruing in one month’s time due to maturity.

Answer 2

	CRR	SLR
(i)	CRR are to be kept with the central bank.	SLR is maintained by the commercial bank concerned.
(ii)	CRR controls the liquidity in the economy	SLR controls the credit growth in the economy.
(iii)	Maintained only in cash with the Reserve Bank of India (RBI).	Maintained in liquid assets such as cash, gold, or government securities.
(iv)	Reserve Bank of India (RBI).	Maintained by the bank with itself.
(v)	Has a direct impact on the bank’s credit creation capacity.	Has a direct impact on the bank’s credit creation capacity.