What is Cash Reserve Ratio (CRR) And SLR? | Indian Economy | Economics explainer series | UPSC

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In this video, Gaurav sir will explain the concept of CRR and SLR in a simple way.
🔴 CRR - Meaning ---
CRR, or Cash Reserve Ratio, is a mandatory reserve that commercial banks in India must maintain with the Reserve Bank of India (RBI). It's a percentage of their net demand and time liabilities that they can't use for lending or other business purposes.
How does it work?
Commercial banks must keep a portion of their deposits as cash with the RBI, which is then used to maintain liquidity and cash flow in the economy. This reserve is essentially a safety net to ensure that banks have enough funds to meet their customers' demands.
Why is CRR important?
By setting a minimum CRR, the RBI can regulate the amount of credit available in the economy and prevent excessive lending. This helps maintain financial stability and prevents banks from taking on too much risk.
🔴 SLR - Meaning ----
SLR, or Statutory Liquidity Ratio, is a mandatory reserve requirement that commercial banks in India must maintain. It's a percentage of their net demand and time liabilities that they must hold in the form of approved securities, such as government bonds or cash.
Why is SLR important?
SLR is a crucial tool for maintaining the stability of banks. By restricting the amount of credit they can offer, SLR helps prevent banks from over-lending and reduces the risk of a liquidity crisis. This ensures that banks have sufficient liquid assets to meet their depositors' demands whenever they arise.
How does SLR work?
Banks typically hold more than the required SLR, as per RBI norms, to maintain a buffer against unexpected withdrawals or loan defaults. This excess liquidity provides a safety net, enabling banks to honour their depositors' claims and maintain confidence in the banking system.
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