Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

Suppose everyone in your housing society withdraws savings from the same bank on the same day. A bank that has lent out every rupee cannot pay. To stop that, the law forces every bank to keep part of what it owes depositors in a form that can be paid out at once. One part sits with the Reserve Bank, the other in safe securities and similar assets. What are these two requirements, who sets them, and what happens to a bank that falls short?

In two minutes

CRR is the share of a bank’s demand and time liabilities kept as balance with the Reserve Bank (or as cash reserve); SLR is the share held in specified liquid assets in addition; the Reserve Bank notifies both percentages and penalises a shortfall.

The rest of this chapter

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