CRR and SLR

CRR stands for cash reserve ratio, and SLR stands for statutory liquidity ratio. These are two important tools that the Reserve Bank of India (RBI) uses to control the money supply in the economy.

  • CRR: CRR is the percentage of deposits that banks have to keep with the RBI. This means that banks cannot lend out all of their deposits. The RBI sets the CRR, and it can be changed from time to time.
  • SLR: SLR is the percentage of deposits that banks have to invest in government securities. This means that banks cannot lend out all of their deposits. The RBI sets the SLR, and it can be changed from time to time.

MCQs on CRR and SLR:

  1. Which of the following is not a function of CRR and SLR?
    • Control the money supply in the economy
    • Ensure the stability of the banking system
    • Promote economic growth
    • Provide liquidity to the market
    • Answer: Provide liquidity to the market
  2. CRR is the percentage of deposits that banks have to keep with the RBI, while SLR is the percentage of deposits that banks have to invest in government securities.
    • True
    • False
    • Answer: True
  3. The RBI sets the CRR and SLR, and it can be changed from time to time.
    • True
    • False
    • Answer: True
  4. When the RBI increases the CRR, it means that banks have to keep more money with the RBI and lend out less money. This can lead to a decrease in the money supply in the economy.
    • True
    • False
    • Answer: True
  5. When the RBI decreases the SLR, it means that banks have to invest less money in government securities and lend out more money. This can lead to an increase in the money supply in the economy.
    • True
    • False
    • Answer: True

Conclusion

CRR and SLR are important tools that the RBI uses to control the money supply in the economy. By increasing or decreasing the CRR and SLR, the RBI can influence the amount of money that is available in the economy. This can have a significant impact on inflation, economic growth, and the stability of the banking system.

Here are some additional points to keep in mind about CRR and SLR:

  • CRR and SLR are not the only tools that the RBI uses to control the money supply. The RBI also uses repo rates, reverse repo rates, and open market operations.
  • CRR and SLR can have a significant impact on the profitability of banks. When the CRR is high, banks have to keep more money with the RBI and lend out less money. This can lead to a decrease in their profits.
  • CRR and SLR can also have a significant impact on the cost of borrowing for businesses and individuals. When the SLR is low, banks have more money to lend out. This can lead to a decrease in interest rates.

It is important to understand the impact of CRR and SLR on the economy and on the financial system. Businesses and individuals should seek the advice of a financial advisor before making any decisions about borrowing or investing.