Question

Distinguish between the following:
Cash Reserve Ratio and Statutory Liquidity Ratio

Answer 1

1. Cash Reserves Ratio (CRR) refers to the proportion of total deposits of the commercial banks which they must have keep as cash reserves with the central bank whereas Statutory Liquidity Ratio (SLR) refers to liquid assets that the commercial banks must hold on daily basis as a percentage of their total deposits.

2. In cash reserve ratio only cash is maintained with the central bank whereas in statutory liquidity ratio both cash and other types of assets like gold and securities can be maintained.

3. Cash reserve ratio regulates the flow of money in the economy whereas statutory liquidity ratio ensures solvency of banks in the economy.

4. Cash reserve ratio is usually lower than statutory liquidity ratio.