Exercises · Q8
Q.Distinguish between CRR and SLR.
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Start your 14-day free trial to unlock the full solution →| Basis | CRR (Cash Reserve Ratio) | SLR (Statutory Liquidity Ratio) |
|---|---|---|
| Where kept | With the RBI | With the bank itself |
| Form | Cash only | Cash, gold, or approved government securities |
| Purpose | Ensures liquidity/solvency and gives the RBI direct control over bank lending capacity | Ensures banks hold safe, liquid assets and also creates a captive market for government securities |
| Effect of increase | Directly reduces loanable funds → contracts credit (same LRR used in the credit-multiplier formula, Section 2) | Also reduces funds available for fresh lending, but the assets remain the bank's own |
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