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Question
What is the role of SLR and CRR in credit control?
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Solution
Dear Student
Cash Reserve Ratio (CRR) is the percentage of total deposits that commercial bank has to keep with RBI.
Statutory Liquidity Ratio (SLR) is the percentage of total deposits that commercial bank has to keep with itself in form of cash reserves, gold and government securities. It is an addition to CRR.
RBI has power to change both CRR and SLR. With these tools RBI controls the volume of credit in market. When RBI wants to expand credit it reduces CRR or SLR so that commercial banks are in a position to create more credit and when it wants to decrease the credit availability it increases CRR or SLR so that commercial banks can create only a small amount of credit.
Regards
.
Cash Reserve Ratio (CRR) is the percentage of total deposits that commercial bank has to keep with RBI.
Statutory Liquidity Ratio (SLR) is the percentage of total deposits that commercial bank has to keep with itself in form of cash reserves, gold and government securities. It is an addition to CRR.
RBI has power to change both CRR and SLR. With these tools RBI controls the volume of credit in market. When RBI wants to expand credit it reduces CRR or SLR so that commercial banks are in a position to create more credit and when it wants to decrease the credit availability it increases CRR or SLR so that commercial banks can create only a small amount of credit.
Regards
.
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