Difference between CRR and SLR

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 Bangladesh
Bank, whereas SLR is maintained in liquid form with banks themselves.

CRR vs SLR

Not many people, except those who are in banking industry or are students of economics know
about terms like CRR and SLR. This is because these are financial instruments in the hands of
Bangladesh Bank (BB) to control liquidity available to commercial banks. Thus, despite having
similarity in nature and purpose, there are many differences between CRR and SLR that will be
highlighted in this article.

CRR stands for Cash Reserve Ratio, and specifies in percentage the money commercial banks
need to keep with themselves in the form of cash. In reality, banks deposit this amount with
Bangladesh Bank instead of keeping this money with them. This ratio is calculated by
Bangladesh Bank, and it is in the jurisdiction of the BB to keep it high or low depending upon
the cash flow in the economy. Bangladesh Bank makes judicious use of this amazing tool to
either drain excess liquidity from the economy or pump in money if so required. When
Bangladesh Bank lowers CRR, it allows banks to have surplus money that they can lend to invest
anywhere they want. On the other hand, a higher CRR means banks have lesser amount of
money at their disposal to distribute. This serves as a measure to control inflationary forces in
economy. Present rate of CRR is 6%.

SLR

t stands for Statutory Liquidity Ratio and is prescribed by Bangladesh Bank as a ratio of cash deposits
that banks have to maintain in the form of gold, cash, and other securities approved by Bangladesh
Bank. This is done by Bangladesh Bank to regulate growth of credit in India. These are un-encumbered
securities that a bank has to purchase with its cash reserves. The present SLR is 13%, but Bangladesh
BankCRR stands for Cash Reserve Ratio. It is a percentage of Bank Deposits that Banks are
supposed to maintain with Central Bank.
When Inflation is High ( Money supply is high), BB increases the CRR Rate, this will mean,
Commercial Banks will have to keep more percentage of deposits with BB. This in turn will
reduce the commercial bank's Lending capacity. When lending capacity is reduced, money
supply in the economy will be less.

SLR: Statutory Liquidity Ratio. It is a part of deposits that Commercial Banks are supposed to
maintain with THEMSELVES IN LIQUID FORM. Liquid form means:
Cash, Gold or Government Bonds. This is to ensure sufficient Liquidity with Commercial Banks.

NOTE: BANGLADESH BANK HAS INCREASED CRR TO 6% FROM EXISTING 5.5%

AND SLR TO 19% FROM EXISTING 18.5%.

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The conventional banks have to maintain with the BB the SLR at 19 per cent, including the CRR. The
banks are also allowed to maintain the CRR at 5.50 per cent on the daily basis, but the bi-weekly average
has to be 6.0 per cent.
On the other hand, the Shariah-based Islamic banks have to maintain 11.50 per cent SLR including the
CRR, as they cannot purchase any bonds and government-approved securities that involve receipt of
interest.
Call money is a short term finance repayable on demand, with maturity period of one day to fifteen
days, u sed for inter bank transactions. The money that is lend for 1day in this market is knowns as "call
money" and if exceeds 1 day it is referred to as "notice money".Commercial banks have to maintain a
minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash ratio
from time to time which h in turn affects the amount of funds available to be given as loans by
commercial banks. Call money is a method by which banks lend from each other to be able to maintain
the cash reserve ratio. The interest rate paid on call money is known as call rate. It is a highly volatile
rate that varies from day-to-day and sometimes even from hour-to-hour. There is an inverse relationship
between call rates and other short-term money market instruments such as certificates of deposit and
commercial paper. A rise in call money rates make other sources of finance such as commercial paper
and certificates of deposit cheaper in comparison for banks raise funds from these sources.so ha
Liquidity and profitability are very closely related. When one increases the other decreases. Apparently
liquidity and profitability goals conflict in most of the decisionswhich the finance manager makes. For
example, it higher inventories are kept inanticipation of increase in prices of raw materials, profitability
goal is approached but theliquidity of the firm is endangered. Similarly, the firm by following a liberal
credit policyve to maintain 6.0 per cent CRR of 11.50 per cent SLR. may be in a position to push up its
sales but its liquitidy decrease.
Capital adequacy ratio is the ratio which determines the bank's capacity to meet the time liabilities and
other risks such as credit risk, operational risk etc. In the most simple formulation, a bank's capital is the
"cushion" for potential losses, and protects the bank's depositors and other lenders. Banking regulators
in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the
banking system.[1]t its illiquidity decrease.

Capital adequacy is as a measure of financial strength and securities in a firm mostly in banks. It is
expressed as percentage ratio of a bank's capital to its assets or risks. Capital adequacy ratio is
applicable in banks and other financial institutions.

Capital adequacy ratio (CAR) is a specialized ratio used by banks to determine the adequacy of their
capital keeping in view their risk exposures. Banking regulators require a minimum capital adequacy
ratio so as to provide the banks with a cushion to absorb losses before they become insolvent. This
improves stability in financial markets and protects deposit-holders. Basel Committee on Banking
Supervision of the Bank of International Settlements develops rules related to capital adequacy which
member countries are expected to follow.
CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank
deposits,however over the years it has become an important and effective tool for directly regulating
the lendingcapacity of banks and controlling the money supply in the economy. When the RBI feels that
the moneysupply is increasing and causing an upward pressure on inflation, the RBI has the option of
increasing theCRR thereby reducing the deposits available with banks to make loans and hence reducing
the money supply and inflation.