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Questions
Distinguish between:
Cash Reserve Ratio and Statutory Liquidity Ratio
Distinguish between cash reserve ratio (CRR) and statutory liquidity ratio (SLR).
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Solution
| Basis | Cash Reserve Ratio | Statutory Liquidity Ratio |
| Meaning | It is the minimum amount of funds that a commercial bank has to maintain with the Reserve Bank of India in the form of deposits. | It is the minimum percentage of assets, such as gold, cash, or securities, that must be maintained by the commercial banks with the central bank. |
| Purpose | To regulate the liquidity in the banking system and control inflation. | To ensure the solvency of banks and control credit expansion. |
| Held With | Maintained with the Reserve Bank of India (RBI). | Maintained with the bank itself. |
| Impact on Liquidity | Directly impacts the lending capacity of banks. | Indirectly impacts the lending capacity by reducing investable funds. |
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