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CRR & SLR

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CRR & SLR

  1. 1. Presented By Bhavana B
  2. 2. Limit: The minimum value of CRR was statutorily fixed at 3% and the maximum was fixed at 15%. Present CRR : Cash Reserve Ratio (CRR) 4.00%(w.e.f. 09/02/2013)announced on 29/01/2013 Decreased from 4.25% which was continuing since 30/10/2012
  3. 3. Limit:The minimum value of SLR was fixed at 20% and the maximum was fixed at 40%. Present SLR: Statutory Liquidity Ratio (SLR) 23%(w.e.f. 11/08/2012) (announced on 31/07/2012) Decreased from 24% which was continuing since 18/12/2010
  4. 4. Continued… - Rate of CRR & SLR is fixed by RBI and it is changed from time to time , in the light of economic conditions including inflation. - This amount is calculated by banks with reference to their net demand and time liabilities (the major part being in the form of deposits). -This balances is maintained as an average fortnightly balance, that may fluctuate on daily basis.
  5. 5. Continued… -At any time, the minimum balances must not go below the percentage fixed by RBI as percentage of the average fortnightly balance. -In case of Default in maintaining CRR & SLR, there is provision for interest payment by banks to RBI. - If RBI decides to increase the percentage of CRR , then available amount with the banks come down. -RBI does not pay any interest to banks for the balances maintained as CRR . But banks pay interest on the deposit used for CRR.
  6. 6. Example(CRR): Amount of net demand & time liabilities = 10000 Cr Rate of CRR(assumed) = 4% Average cash balance to be maintained = 400 Cr Impact of change in CRR: -If CRR is Reduced, the cash balances maintained with RBI would decline(and liquidity with banks increases ). Corresponding amount is Increases lending capacity of banks -The increased lending increases their interest income and leads to more profits
  7. 7. Example (SLR): Amount of net demand & time liabilities = 10000 Cr Rate of SLR(assumed) = 23% Average cash balance to be maintained = 2300 Cr Impact of change in SLR: - If SLR is reduced, it changes the fund deployment pattern. -The funds freed from such investments, can be invested by banks for lending purpose, to earn better returns. - The returns on such securities are generally lower than the interest paid on loans, although the risk is negligible in investing in govt. securities

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