Assets & fund that are in the form of cash or can
quickly be converted to cash are Liquid assets.
These include Cash, deposits & investments
capable of being quickly converted into cash
without significant loss, either through their sale
or through the scheduled return of principal.
Under the new requirements, known as the
Basel III Liquidity Coverage Ratio, banks across
the world are required to hold a greater number
of high-quality, liquid assets to act as a buffer
during any future crisis.
. This power of RBI to
reduce the lendable amount by increasing the CRR. makes it
an instrument in the hands of a central bank through which it
can control the amount that banks lend. Therefore.
Thus. which is considered as equivalent to
holding cash with RBI. actually Banks don’t hold these as cash with
themselves. This minimum ratio is stipulated by the
Central Bank and is known as the CRR or Cash Reserve Ratio.
However. the banks will have to hold additional
Rs 6 with RBI and Bank will be able to use only Rs 94 for
investments and lending / credit purpose. When a bank’s deposits increase by Rs100. and if the
cash reserve ratio is 6%. but deposit such case with Reserve Bank of India
(RBI) / currency chests. Thus. higher
the ratio (i. CRR). Banks are required to hold a
certain proportion of their deposits in the form of cash.e. it is a tool used
by RBI to control liquidity in the banking system. the lower is the amount that banks will be
able to use for lending and investment.CRR
CRR means Cash Reserve Ratio.
It regulates the credit
growth in India. This term is
used by bankers and indicates the minimum percentage
of deposits that the bank has to maintain in form of
. we can
say that it is ratio of cash and some other approved
securities to liabilities (deposits).SLR
SLR stands for Statutory Liquidity Ratio. cash or other approved securities. Thus.
Thus Liquid Bank Assets include:
Short term Deposits with central Bank
Liquid Investments & securities.
Loan installment to be repaid by the bank borrowers in
Securities maturing in long term but salable in a ready