CRR, SLR, etc.

  • RBI's main goal -> Inflation Control & Liquidity Management(Money supply)
  • CRR
    • Cash Reserve Ratio
    • The minimum ratio/ proportion of Demand and Time Liabilities (DTL) to be held with RBI by the Scheduled Commercial Banks (SCBs) in India
    • Tool used by RBI to control Liquidity in the banking System
    • Higher the CRR, lower is the amount that banks will be able to use for lending and investment
    • Increase in CRR -> Increase in interest rates -> Pulls down inflation to some extent
    • Current CRR -> 4.5%
  • Demand Liabilities
    • All liabilities that are payable on demand such as:
      1. Current Deposits
      2. Demand liabilities portion of savings bank deposits
      3. Cumulative/recurring deposits
      4. Demand Drafts
      5. Unclaimed deposits
    • In short, these are obligation of a financial institution that must be paid on demand or within a very short time frame
  • Time Liabilities
    • Payable otherwise than on demand
    • Have a predetermined maturity date/ notice period
    • payable at a specified future date or after a specific period of time.
    • Examples:
      1. Fixed Deposits
      2. Cash Certificates
      3. Cumulative & Recurring Deposits
      4. Staff Security Deposits
      5. Gold Deposits
  • SLR
    • Statutory Liquidity Ratio
    • Every SCB in India is required to maintain a minimum proportion of their Net Demand and Time Liabilities as Liquid assets in:
      1. Cash, or Gold valued at a price not exceeding Current Market Price
      2. In unencumbered investment in following instruments:
        1. Treasury Bills of the Government of India
        2. State Development Loans (SDLs)
        3. any other instrument as notified by RBI
      3. In summary, Cash, Gold, Government Securities!
    • Current Satutory Liquidity Ratio : 18%
    • Maximum SLR Limit is 40%
  • REPO
    • Repurchase Option
    • When an bank takes loan from RBI, they keep their government securities with RBI till the duration of the loan and when they come back after n days, the bank pays back to RBI with the loan and interest and thus RePurchases the government securities from it! That's why 'Repurchase Option'
    • Rate at which RBI lends money to commercial banks
    • Present Rate -> 6.5%
  • Reverse REPO
    • Reverse Repurchase option
    • Rate at which RBI can borrow money from other banks as per the need
    • Present Rate for Reverse REPO -> 3.35%

Indian Banking System - Central Bank -> RBI - Commercial Banks -> 222 - 218 Scheduled Banks - 28 -> Public Sector Banks - 27 -> Private Sector Banks (Old & New) - 29 -> Foreign Banks - 133 -> Regional Rural Banks - 4 Non Scheduled Banks