7 Difference Between CRR and SLR

CRR and SLR are the two terms which are used for the obligated money by the banks. CRR are the percentage of the money which is obligated by the commercial banks to the RBI. SLR is the money obligated by the commercial banks by itself.

Banking becomes the backbone of our financial system. Banks are used vastly these days. After the digitalization every little money transaction is held through the banks. Per day millions of transactions and investments are done with the banks. CRR and SLR both the terms are used to regulate the money flow in the market. CRR is an effective tool of the RBI to regulate money in the market.

CRR and SLR rates are decided by the RBI. Before understanding the difference between CRR and SLR we have to know about the CRR and SLR. In this article we will discuss in detail about the definition of the CRR and SLR and differences between CRR and SLR.

CRR vs SLR

Sr. No	CRR	SLR
1	Cash Reserve Ratio	Statutory Liquidity Ratio
2	Percentage obligated by the banks to the RBI.	Percentage of obligated money for the net demand and time liability.
3	CRR is always cash	SLR may be gold, cash and investment in government bills.
4	No interest on the CRR money.	Banks get interest on the SLR money.
5	CRR is used to regulate the cash flow in the economy or market.	SLR used to maintain solvency of banks
6	CRR is responsible for managing the liquidity of the country.	SLR is essential for the credit growth of the country.
7	CRR is maintained by the central bank.	SLR is maintained by the bank itself.

CRR

        CRR is Cash Reserve Ratio CRR is introduced in the year of 1959. The percentage of the net demand and time deposit in commercial banks are obligated to deposit in the RBI as cash. This money is not used by the banks for their commercial and economic purposes. CRR is an effective tool of the RBI to maintain the cash flow in the market.

 In case the RBI wants to increase cash flow in the market and economy. It lowers the rate of the CRR. On the other side if cash flow is higher in the economy and market. RBI increased the CRR rate. Due to CRR rate banks’ lending capacity increases or decreases. Higher the CRR rate indicates that banks have lower amounts of credit to the customers. RBI does not give any interest on CRR deposit.

CRR rate lies between 3% to 15%. When the rate is 3% it means that bank have to obligated 3 rs on the deposit of 100 rs

SLR

      Statutory Liquidity Ratio is the net demand and time deposit amount which have to be obligated themselves. Banks every day maintain their NDTL as liquid assets. This money or assets are used for the customer on time demand of money and time demand like FD mature at fixed time.

Main reason to have a huge SLR is to fulfill the unexpected demand of the customers.

SLR may be as

1. Cash
2. Gold
3. And investments like government bills, state development loans or any other instruments by the central bank.

Main objective of SLR

1. To increase commercial banks investment in the government securities.
2. To control inflation.
3. Ensures the solvency of banks.

SLR rate

SLR rate is decided by the central bank. The Central bank is authorized to increase SLR rate up to 40%. Higher SLR rates reflect the bank’s less money for commercial transactions.

SLR rate is responsible for the changes in interest of the loans. When SLR rate is higher interest rate of loans and advance are higher and vice versa.

Main difference between CRR and SLR

1. CRR is the percentage obligated by the banks to the RBI. While SLR is the percentage of obligated money for the net demand and time liability.
2. CRR is always cash. While SLR may be gold, cash and investment in government bills.
3. No interest in the CRR money. Banks get interest on the SLR money.
4. CRR is used to regulate the cash flow in the economy or market. SLR used to maintain solvency of banks
5. CRR is responsible for managing the liquidity of the country. SLR is essential for the credit growth of the country
6. CRR is maintained by the central bank while SLR is maintained by the bank itself.

Conclusion

Both CRR and SLR are used to keep money for future security. CRR tool is used by the RBI to regulate the money for the economy. SLR is used for the credit growth of the country. CRR and SLR both have their own benefits for the country. Without CRR and SLR banking regulation is not possible.

This is all about the difference between CRR and SLR. We hope your doubts are clear. For more interesting differences please go through our website.