CRR and SLR
1 Quick Explanation 1–3 min
CRR is the cash every bank must keep with RBI — no interest earned, no lending allowed.
SLR is the liquid assets (cash + gold + securities) a bank must hold — earns low return.
Both control how much banks can lend.
2 Detailed Notes
Definition
Definitions
- CRR (Cash Reserve Ratio): the minimum percentage of a bank's net demand & time liabilities (NDTL) that must be kept as cash with RBI. It earns no interest.
- SLR (Statutory Liquidity Ratio): the minimum percentage of NDTL that must be held as liquid assets (cash, gold, government securities). Earns low return.
Comparison
CRR vs SLR
| Basis | CRR | SLR |
|---|---|---|
| Held with | RBI (cash only) | Bank itself (cash, gold, securities) |
| Interest | None | Small return on securities |
| Purpose | Control liquidity & safety | Ensure solvency + fund govt borrowing |
| Regulation | Banking Regulation Act 1949 | Banking Regulation Act 1949 |
Key idea
Effect on money supply
- Raise CRR → banks keep more cash with RBI → less to lend → money supply falls → inflation controlled.
- Cut CRR → banks have more lendable funds → money supply rises → growth supported.
- SLR works the same way but also ensures banks hold government securities (helps govt finance).
Formula
Exam relation
LRR = CRR + SLR
Money multiplier = 1 ÷ LRRBoth CRR and SLR are part of the Legal Reserve Ratio which sets the limit on credit creation.
In One Minute
CRR = cash kept with RBI (no interest). SLR = liquid assets kept by the bank itself. LRR = CRR + SLR. Higher LRR → less lending → lower money supply.
Important for Exam
- ⭐ 1-mark: define CRR / SLR.
- ⭐ 3-mark: difference between CRR and SLR.
- ⭐ Effect of raising CRR on money supply (consequence questions).
- ⭐ LRR = CRR + SLR; multiplier formula.
Watch & Learn
Watch on YouTubeBanking - Chapter 6 - Class 12 - One Shot
by Rajat Arora
Why watch? Every tool with its effect on money supply.
Open on YouTube Watch on YouTubeBanking - Chapter 6 - Class 12 - One Shot
by Rajat Arora
Why watch? Comparison table driven explanation.
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