The Statutory Liquidity Ratio (SLR) is a crucial requirement for banks, mandating them to maintain a certain portion of their deposits in approved securities, gold, and cash. As of 2023, the SLR stands at 18%. The Reserve Bank of India (RBI) sets this rate, influencing the banking sector's liquidity and stability.
The SLR applies to various banking institutions, including Commercial Banks, Urban Cooperative Banks (UCBs), and State Cooperative Banks/Central Cooperative Banks (StCBs/CCBs). The range for SLR can vary from 0% to 40%, depending on regulatory requirements.
The primary objectives of the SLR include:
The Cash Reserve Ratio (CRR) is another important regulatory measure that requires banks to hold a certain percentage of their deposits as cash with the RBI. This requirement is outlined in the RBI Act of 1934. Currently, the CRR is set at 4.5% in 2023.
Similar to the SLR, the CRR applies to Commercial Banks, UCBs, and StCBs/CCBs. The range for the CRR can vary from 0% to 100%, depending on the economic conditions and regulatory directives.
The objectives of the CRR are to:
The Incremental Cash Reserve Ratio (ICRR) is an additional requirement that the RBI imposes on certain deposits. It is designed to manage lending based on prevailing economic conditions. In 2023, the ICRR was introduced at a rate of 10% in August to absorb excess liquidity but was withdrawn in October.
Both the SLR and CRR play significant roles in ensuring the safety and stability of banking operations. They are essential tools used by the RBI to manage liquidity in the economy:
Q1. What is the purpose of the Statutory Liquidity Ratio (SLR)?
Answer: The SLR aims to ensure financial stability by requiring banks to maintain a portion of their deposits in liquid assets, influencing money supply and interest rates.
Q2. How does the Cash Reserve Ratio (CRR) affect banks?
Answer: The CRR ensures that banks hold a percentage of their deposits as cash with the RBI, which helps regulate liquidity and maintain monetary stability.
Q3. What is the significance of the Incremental Cash Reserve Ratio (ICRR)?
Answer: The ICRR is a temporary measure to manage excess liquidity in the economy, allowing the RBI to adjust banking operations based on economic conditions.
Q4. Who does the SLR apply to?
Answer: The SLR applies to Commercial Banks, Urban Cooperative Banks, and State Cooperative Banks, ensuring they maintain required reserves for financial health.
Q5. What are the key differences between SLR and CRR?
Answer: While both are reserve requirements, SLR mandates banks to hold liquid assets, whereas CRR requires them to maintain cash reserves with the RBI for stability.
Question 1: What is the current SLR as of 2023?
A) 10%
B) 18%
C) 4.5%
D) 20%
Correct Answer: B
Question 2: Which banks are required to maintain the CRR?
A) Only Commercial Banks
B) UCBs only
C) All scheduled banks
D) Regional Rural Banks only
Correct Answer: C
Question 3: What does the ICRR aim to control?
A) Credit growth
B) Excess liquidity
C) Deposit rates
D) Loan interest rates
Correct Answer: B
Question 4: The CRR is mandated by which act?
A) Banking Regulation Act
B) RBI Act 1934
C) Companies Act
D) Financial Institutions Act
Correct Answer: B
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