Difference between SLR and CRR

Key Difference: SLR, short for, Statutory Liquidity Ratio, is the ratio of liquid assets to demand and time liabilities. CRR, short for, Cash Reserve Ratio, also know as Reserve Requirement is the minimum ratio that is guaranteed by the RBI.

SLR and CRR both are banking terms. These are the financial instruments in the hands of the Reserve Bank of India (RBI), which has the authority to control the liquidity available to monetary banks. Though there is a similarity, there are many differences between both the terms: SLR and CRR.

SLR, short for, Statutory Liquidity Ratio, is the ratio of liquid assets to demand and time liabilities. In simple words, it is the amount of liquid assets such as precious metals (gold) or other approved securities, which a financial institution must maintain as reserves other than cash. The term Statutory Liquidity Ratio is most commonly heard or used in India. Maximum limit of SLR is 40% and minimum limit of SLR is 23%.

The formula of Statutory Liquidity Ratio is: SLR rate = (liquid assets / (demand + time liabilities)) × 100%

CRR, short for, Cash Reserve Ratio is also known as Reserve Requirement and it is regulated by the Central Bank. As per Section 42 (1) of the Reserve Bank of India Act, 1934, the monetary banks hold a certain proportion of their Demand and Time Liabilities (DTL) with RBI. The minimum Cash Reserve Ratio is guaranteed by the RBI. It is a general and basic tools used by RBI to control liquidity in the banking system.

For example: If you deposit Rs. 100/- in the bank, CRR being 9% and SLR being 11%, then the bank can use 100-9-11= Rs. 80/- for giving loans or for investment purposes.

Comparison between SLR and CRR:

 

SLR

CRR

Description

The ratio of liquid assets to demand and time liabilities are known as SLR.

The minimum ratio as stipulated by the RBI is known as CRR.

Stands for

Statutory Liquidity Ratio

Cash Reserve Ratio

How they can meet the guidelines

They can meet the SLR by cash, gold or approved securities.

They can meet the CRR only by cash.

Controls

SLR limits the influences that banks have in putting more money into the economy. It also effectively regulates the credit growth in the Indian economy.

CRR regulates the liquidity in the economy and staves off inflation.

Maintained

It is maintained in liquid form with banks themselves.

It is maintained in cash form with RBI.

Intended

It intended to make banks invest in government securities.

It is intended to maintain the purchasing power of money in order to curb inflation.

Image Courtesy: karvywealth.blogspot.in, thehindubusinessline.com

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