CRR and SLR

Difference between SLR & CRR

SLR restricts the bank’s leverage in pumping more money into the economy. On the other hand, CRR, or Cash Reserve Ratio, is the portion of deposits that the banks have to maintain with the Central Bank.

The other difference is that to meet SLR, banks can use cash, gold or approved securities whereas with CRR it has to be only cash. CRR is maintained in cash form with central bank, whereas SLR is maintained in liquid form with banks themselves

SLR

Statutory Liquidity Ratio

Statutory  Liquidity  Ratio  is  the  amount  of  liquid  assets ,  such  as  cash , precious  metals  or  other approved  securities,  that  a  financial  institution  must  maintain  as  reserves  other  than  the  Cash with  the  Central  Bank . The  statutory  liquidity  ratio  is  a  term  most  commonly  used  in  India.

Objectives

The objectives of SLR are:

1.   To restrict the expansion of bank credit.

2.   To augment the investment of the banks in Government securities.

3.   To ensure solvency of banks. A reduction of SLR rates looks eminent to support the credit growth in India.

The SLR is commonly used to contain inflation and fuel growth, by increasing or decreasing it respectively. This counter acts by decreasing or increasing the money supply in the system respectively. Indian banks’ holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation. When measured in rupees, such holdings decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06.

While the recent credit boom is a key driver of the decline in banks’ portfolios of G-Sec, other factors have played an important role recently.

These include:

1.   Interest rate increases.

2.   Changes in the prudential regulation of banks’ investments in G-Sec.

Most G-Sec held by banks are long-term fixed-rate bonds, which are sensitive to changes in interest rates. Increasing interest rates have eroded banks’ income from trading in G-Sec.

Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system. This was by reducing CRR, SLR & Repo rates. This was to increase lending by the banks to the corporates and resolve liquidity crisis. Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate. However the exercise became futile with banks being over cautious of lending in highly shaky market conditions. Banks invested almost 70% of this money to rather safe Govt securities than lending it to corporates.

Current SLR Rate : 24 %
Source :  Internet  and Wikipedia

Nanavati commission ( 1984 Anti-Sikh riots)

 Nanavati commission  : The  Justice  G.T. Nanavati  commission  was  established  by  the  Indian  Government  in  2000  to  investigate  the  1984  Anti-Sikh  riots.

Creation : The  commission  was  appointed  by  the  National  Democratic  Alliance  (NDA) government  on  8  May  2000   to  look  into  certain  matters  emanating  from  the 1 984   Anti-Sikh    riots . The  one-man  commission  consisted  of f ormer  Supreme  Court  of  Indiajustice G.T. Nanavati.
Focus : The  probe  panel  had  four  points  of r eference .  It was  mandated  to  look  into  the sparks  that  led  to  the  attacks  targeting  members  of   the   Sikh   community  ;   the   sequence   of events ;  whether  these  crimes  could  have  possibly  been  averted   and   whether   there   were   any lapses  on  the  part  of  the  authorities;  to  inquire  into  the  usefulness  of  the  administrative measures taken  to  stop  an d to  deal  with  the  violence ;  and  to  recommend  solutions  to  be  adopted  to serve justice.
Report : The  report  was  185  pages  long .  The  commission  submitted  its final  report  in February  2005  detailing  accusations  and  evidence  against  senior  members  of the  Delhi  wing  of the  then r uling  Congress  Party,  including  Jagdish Tytler .  later  a  Cabinet  Minister  ,  MP  Sajjan Kumar  and  late  minister  H.K.L.  Bhagat .  They  were  accused  of  instigating  mobs  to  avenge  the assassination  of  Indira  Gandhi  by  killing  Sikhs  in their  constituencies.

CRR Rate : Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.                                             Current  CRR Rate :  6 %

Reverse Repo Rate

 Reverse Repo Rate : This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates.                                            Current Repo Rate : 7 %

Repo Rate

Repo Rate : Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.               Current Repo Rate : 8 %

Geography  is  the  science  that  deals  with  the  study  of  the  Earth  and its lands, features, inhabitants, and phenomena.  The first    person to use  the  word  "geography"  was  Eratosthenes (276-194 BC).