What is CRR: Cash Reserve Ratio?
It refers to the amount of
liquid cash that every bank has to keep with Reserve Bank of India (RBI).The
ratio helps in ensuring the solvency of the banks.If RBI increases the CRR then
the available amount that banks can lend to the customers reduces hence, the
overall circulation of money in the market can be controlled. RBI uses CRR as a
tool to drain out or release the liquidity in the market to curb inflation.
The current CRR is 6%. (As
on 21st Nov, 2011)
What is Repo Rate& Reverse Repo Rate?
Repo (Repurchase) Rate is the rate at which the
RBI lends money to the banks against securities for a short period of time.
This is the temporary tool used to bridge the gap between demand and supply of
money in the banks. When banks have shortage of money they borrow money from
RBI at Repo Rate.
When banks have surplus
they deposit that funds with RBI and earn at the prevalent
Reverse
Repo Rate. Banks use this measure when they have excess funds and they
don’t have any better investment option for a short period of time.
The current repo rate (As
on 21th Nov, 2011) is 8.50 % and reverse repo rate is 7.50%.
TRIVIA: The Repo rate has been increased 13 times since March, 2010
by the RBI. The basic motive being to control the inflation rates in the Indian
economy.
What is SLR?
SLR (Statutory Liquidity
Ratio) is the amount a commercial bank needs to maintain in the form of cash,
or gold or government approved securities (Bonds) before providing credit/loan
to its customers. SLR rate is determined and maintained by the RBI (Reserve
Bank of India) in order to control the expansion of bank credit in the
economy.RBI can raise SLR up to 40%.
The current SLR is 24% (As
on 21stNov, 2011).
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