What is Cash Reserve Ratio? CRR, SLR Repo & Reverse Repo Rate Details


What is Cash Reserve Ratio

Since banking sector is growing day to day therefore transactions are also being digital. To become friendly with new rule you
need to know that what is Cash Reserve Ratio and CRR, SLR Repo & Reverse Repo Rate.  Appliers preparing for banking exams must know all the banking terms. All such questions which are common in every students mind are that what are the CRRs in the banking sector? What is the full form of CRR? Such visitors who are looking the rules of the Reserve Bank of India regarding CRR will get full details. Hey dear students get ready to receive all the answers of your questions in easy way. Meaning of all banking terms such as CRR, SLR, Repo rate and their calculations are explained in the following part of the page.

Cash reserve ratio (CRR) is the portion of the deposit which the bank has to maintain in the Reserve Bank of India (RBI). The higher the CRR tax ratio, the bank can use the same amount of credit and can be used for investment in different field of advantage related to bank. The CRR has to be maintained in the form of cash in the Reserve Bank of India. If you are excited for other information then stay connected with ejobhub.

CRR is very much important term for banking exams point of view because questions always come from this section. Best of luck to awaited and dynamic candidates for success in baking recruitment exam!!

CRR, SLR Repo & Reverse Repo Rate Details

Key RBI Policy Rates and Ratio
Current Bank Rate
6.25%
Current Repo Rate
6.00%
Current Reverse Repo rate
5.75%
Current Marginal Standing Facility Rate
6.25%
Current Cash Reserve Ratio
4%
Current Statutory Liquidity Ratio
20.00%

Cash Reserve Ration-CRR: Cash Reserve Ratio is a system of Reserve Bank of India to maintain monetary policy. Cash Reserve Ratio (CRR) is a fixed part of the total deposit of the customer, which is reserved as a deposit with the central bank. CRR is used in India from time to time according to the need to control currency supply. The CRR has been determined based on the guidelines of the central bank of one country (Reserve Bank of India). Current Cash Reserve Ratio (CRR) is 4%, the Reserve Bank of India does not pay interest on the Cash Reserve Ratio.

Cash Reserve Ratio

For Example: CRR is 6%, a person has 500 rupees in his bank Deposits. Since the CRR is 6% and 6% of the 500, it is Rs. 30, so the bank has to keep Rs.30 with the RBI and only 500-30%. = 470 Money must be made or given as a loan by the bank.


Why RBI uses cash reserve ratio (CRR)?
For the need of economic development, RBI uses CRR to control currency supply in the market. The increase and decrease of the cash reserve ratio controls the currency supply in the market.
Reserve Bank of India uses cash reserve ratio to curb inflation and regulates inflation.
To provide employment - A reduction in CRR may help young people to get loans with low interest rates, which can provide them employment opportunities, because availability of funds is high when CRR is low.
CRR helps to provide loans to farmer’s reduction in cash reserve ratio enables banks to provide more money for agriculture.


Statutory Liquidity Ratio- SLR: The full form of SLR is Statutory Liquidity Ratio. Every bank has to invest some proportion of its deposit amount in the financial securities of central government or state government. This ratio is known as SLR. This deposit is mainly invested in government securities (bonds), cash, gold and non-approved, which means banks can earn 'interest' to some extent on these investments rather than the CRR. SLR is determined based on time liabilities and percentage of total demand. Time liabilities, banks are responsible for paying customers with mutual consent after a certain period, and demand liabilities are such deposits of customers who are payable on demand.

Example of time liability: Term Deposit which is not payable on demand, but is payable only after the scheduled time.
Example of demand liability is deposited in a savings account or current account, which is payable on demand - such as checks.

Cash Reserve Ratio

For Example: You say deposit is 500 rupees in your bank then the bank gets Rs 500 and the RBI has to pay a percentage with the SLR. If the existing SLR is 20% then they will have to invest 100 rupees in government securities. SLR is usually used to increase or decrease inflation.


Repo Rate: The repo rate is the rate at which the RBI lends money to banks for a period of time. And in a bank repo transaction, the RBI repurchases the government securities from the banks and receives money in the exchange. Due to cut in repo rate, banks get money at cheaper rates, while increasing the repo rate makes RBI borrowing more expensive. If it makes banks cheaper to borrow money, then it reduces the repo rate.


Reverse Repo Rate: The reverse repo rate is the short-term borrowing rate on which the country's central bank (the Reserve Bank of India) takes money from commercial banks within the country. It is a monetary policy system that is used to control currency supply in the country.


RBI Rules regarding Reverse Repo Rate:
  • All the entries of the loan card should be in the local language.
  • Charging the effective rate of interest
  • All other terms and conditions related to the loan
  • Information that adequately recognizes the borrower and
  • Approvals by Non Banking Financial Company
  • Non-Banking Financial Company should provide credit card to the borrower
  • The loan must be a standard form of agreement
  • No penalty will be imposed on delayed payment.
  • There should be minimum time between repayment of loan and due date of grant
  • To suspend recovery of loans given in violation of rules, unless all previous loans are fully repaid

Cash Reserve Ratio


Difference between Repo Rate and Reverse Repo Rate: The major dissimilarity between the Repo Rate and Reverse Repo Rate is that Repo Rate is the interest rate at which the commercial banks borrow loans from RBI, while Reverse Repo Rate is the rate at which the RBI borrows loan from the commercial banks. The Repo Rate is always higher than the Reverse Repo Rate.

Cash Reserve Ratio
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