EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

CRR vs SLR

By Madhuri ThakurMadhuri Thakur

Home » Finance » Blog » Economics » CRR vs SLR

CRR vs SLR

Difference Between CRR vs SLR

The Central Bank of every country is responsible to keep a check and have certain measures of control on inflation and money circulation in the industry. The central bank uses factors like CRR vs SLR to keep it under a tap.

CRR is the abbreviated version of the Cash Reserve Ratio. It is the mandatory ratio that must be retained with the central bank of the country. It is compulsory for each bank to maintain a specific percentage of their net demand and the time liabilities as cash balance with the RBI (Reserve Bank of India).

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Similarly, SLR standing for Statutory Liquidity Ratio, is an obligatory reserve to be kept by the banks, as prescribed by the bank, based on a specified percentage of net demand and time liabilities.

The factors of inflation and the growth rate of a country are highly influenced by these two ratios. Both Cash Reserve Ratio and Statutory Liquidity Ratio are financial tools that reduce the bank’s lending capacity and manages money flow in the market.

CRR – Cash Reserve Ratio

  • Percentage of total deposits with a commercial bank (Indian Commercial Bank) that must be kept with the Central Bank of India in the form of cash as reserves
  • The banks are not permitted to use this amount with the Central Bank for economic and commercial purposes.
  • It is the mode of maintaining liquidity in the economy and the flow of money.
  • If the Reserve Bank of India wishes to increase the money supply in the economy, it will reduce the CRR rate., thereby allowing banks to spend/ lend more
  • Conversely, if the RBI plans to limit the money supply in the economy, it will increase the CRR rate and hence the banks will have limited funds to lend as their greater amount of funds (or cash) shall be blocked with the Reserve Bank.

SLR – Statutory Liquidity Ratio

  • The percentage of Net Time and Demand Liabilities kept by the bank in the form of liquid assets.
  • A unique way of sustainable stability by putting a cap on the customer’s credit facility.
  • The major reason to have a huge SLR is to fulfill the unexpected demands from the depositors.
  • The banks usually maintain a higher SLR than what is required
  • Time Liabilities is the amount payable to the depositors after a specific time
  • Demand Liabilities is the amount payable to the depositors when the demand arises

For Example:

Consider a CRR rate of 4%. This means for every Rs. 100 deposited, Rs. 4 must be deposited with the Central Bank and shall not be used for any commercial purposes, and the remaining Rs. 96 can be used for commercial and lending purposes.

Consider an SLR rate of 15%. This means the banks shall keep Rs. 15 to themselves to meet the requirements of the customers and the remaining Rs. 85 shall be available to the bank for other operations and commercial purposes.

Popular Course in this category
Sale
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (3,296 ratings)
Course Price

View Course

Related Courses
Investment Banking Course (123 Courses, 25+ Projects)Mergers & Acquisition Course (with M&A Projects)Financial Modeling Course (7 Courses, 14 Projects)

Head to Head Comparison Between CRR vs SLR (Infographics)

Below is the top 6 difference between CRR vs SLR:

CRR vs SLR Infographics

Key Differences CRR vs SLR

Both CRR vs SLR are popular choices in the market; let us discuss some of the major differences :

  • The percentage of the money parked by the commercial banks with the Reserve Bank of India in form of cash is CRR. Contrastingly, SLR is a portion of liquid assets to demand and time liabilities withheld with the bank themselves.
  • CRR is maintained in the form of cash whereas the SLR is maintained in the form of liquid assets like gold, treasury bonds, etc.
  • The commercial banks earn no interest on the money they have parked with the RBI, whereas they can earn good returns upon the SLR liquid assets that they withhold.
  • CRR is to regulate the flow of money in the economy whereas SLR is to keep up with the solvency of the banks
  • Moreover, CRR is to govern the liquidity of the country and SLR is essential for the credit growth of the country.
  • CRR is maintained by the Reserve Bank of India, but it does not maintain the SLR

CRR vs SLR – Comparison Table

Let’s have a look at the Comparison between CRR vs SLR:

The basis of comparison  Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR)
Meaning Every commercial bank must keep a percentage of its total deposits with the central bank It is a ratio of Net Demand and Time Liabilities of a bank, which is to be retained with the bank in the form of liquid assets like cash, gold, etc
Functionality To limit/ enhance the supply of money in the economy. Used to limit the expansion of bank credit, to ensure high solvency
Maintained by Maintained by the RBI in the form of Liquid Cash. Commercial banks maintain liquid assets with themselves in the form of liquid assets
Returns Banks earn no interest for the money they have locked with the RBI Banks can earn returns on the SLR they withhold
Reporting Once in 14 days (selected as a Friday by the RBI), the commercial bank must report their Net Demand and Time Liabilities along with the cash to the RBI slr formula
Current Rate (in India) The Current CRR Rate in India is 4% The current SLR Rate in India is 19.5%. This can be raised to up to 40% by the RBI norms to facilitate the economy.

Conclusion

The main responsibility of the Reserve Bank of India is to keep up the supply of money in the economy and to do this, the RBI uses instruments like Repo Rate, Reverse Repo Rate, Cash Reserve Ratio, Statutory Liquidity Ratio, and Bank Rate. Based on the situation of the economy and inflation, the RBI and the Finance Ministry of the country decide the fate of the inflation rates and the growth rates of the country. To contribute to this, CRR vs SLR are important financial instruments. Both CRR vs SLR are reserves that block the money flow in the economy and thereby reduce the lending and investments in the country.

Recommended Articles

This has been a guide to the top difference between CRR vs SLR. Here we also discuss the CRR vs SLR key differences with infographics and comparison table. You may also have a look at the following articles to learn more-

  1. Economic Growth vs Economic Development
  2. Perfect Competition vs Monopolistic Competition
  3. Tax Credit vs Tax Deduction
  4. Stock vs Options

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Economics
    • What is Command Economy?
    • Tax Reform
    • Green Field Investment
    • Elastic Demand Formula
    • Tax Sale
    • Gross Income vs Net Income
    • NASDAQ vs NYSE
    • Trade Deficit
    • Tax Shelter
    • Form 10 K
    • International Investment
    • Leading vs Lagging Indicators
    • Nominal GDP vs Real GDP
    • Monetary Policy vs Fiscal Policy
    • Foreign Direct Investment
    • CRR vs SLR
    • Elasticity of Demand Example
    • Economics Example
    • Negative Correlation Example
    • Economies of Scale Example
    • Macroeconomics vs Microeconomics
    • Macroeconomics Problems
    • Perfect Competition vs Monopolistic Competition
    • CPI vs RPI
    • Elastic Demand vs Inelastic Demand
    • Primary Market vs Secondary Market
    • Monopoly vs Monopolistic Competition
    • Supply vs Demand
    • Duty vs Tariff
    • Deflation vs Disinflation
    • Inflation vs Interest Rates
    • Repo Rate vs Reverse Repo Rate
    • Price Elasticity of Demand Formula
    • Oligopoly vs Monopoly
    • Monopoly vs Perfect Competition
    • Cross Price Elasticity of Demand Formula
    • Demand Pull Inflation
    • Variance Analysis
    • Money vs Currency
    • Mean vs Median
    • Nominal vs Real Interest Rates
    • Tax Evasion vs Tax Avoidance
    • Career in Economics
    • Bank Rate vs Repo Rate
  • Accounting fundamentals (658+)
  • Asset Management Tutorial (198+)
  • Banking (44+)
  • Corporate Finance Basics (248+)
  • Credit Research Fundamentals (6+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (120+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Investment Banking Course
  • Mergers & Acquisition Course
  • Financial Modeling Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) Learn More