Give tips. CRR Cash Reserve Ratio and Statutory Liquidity Proof (SLR)

 Give tips. CRR Cash Reserve Ratio 
(Cash Reserve Ratio CRR)

Statutory Liquidity Proof (SLR)

North :

Section 42 (1) of the Reserve Bank of India Act empowers the central bank to make changes in the cash reserves of commercial banks. Accordingly, the central bank controls the credit formation of commercial banks by changing the number of cash reserves.

"Cash reserves The amount of cash deposited by a commercial bank with a certain amount of their total deposit as a reserve fund is called a cash reserve fund."

The central bank has the right to decide what the ratio should be.

The central bank may change it from time to time depending on the situation. That change affects the creditworthiness of commercial banks. At a time when the country is in a boom. Commodity prices are rising, inflation is on the rise, and money in the economy is running high. The central bank's objective is to curb it. Central banks then increase the number of cash reserves. As a result, high-powered money from commercial banks is reduced. This reduces the lending and credit formation capacity of commercial banks and reduces the amount of money in the economy. The value of money increases as commodity prices fall. The overall effect of this is to reduce inflation and stabilize the economy.

Conversely, when the economy is in recession, commodity prices fall. This results in a decline in investment, employment, and income. This creates a barrier to economic growth. The central bank then reduces the number of cash reserves. This results in an increase in the cash reserves of the commercial banks and a large increase in credit growth, thereby increasing production, investment, employment income, and profits. This creates a conducive environment for economic growth and accelerates growth.

 Give a tip. - Statutory Liquidity Proof (SLR)

Statutory Liquidity Ratio :

North :

In order to maintain the trust of the people in the commercial banks, the commercial banks have to keep a certain amount with them so that the depositors can repay their deposits on demand. This is called a statutory liquidity fund. These deposits are kept in cash, bonds, and gold reserves. The central bank is empowered to make changes to this statutory liquidity fund. Accordingly, the Central Bank regulates the liquidity of the commercial banks by changing the statutory liquidity fund as per the circumstances in order to control the credit formation of the commercial banks through credit expansion and credit crunch.

The minimum and maximum limits of statutory liquidity funds range from 25 to 38.5%. This means that the rate can be increased to a minimum of 25% and a maximum of 38.5%. At present, the rate is 25%. In an economy when there is a boom or bust. When

In the statutory liquidity fund to reduce the money in the central bank economy And when the economy is in a recession. So liquidity reduces funding to increase the amount of money in the economy. Thus economic growth is achieved by increasing or decreasing the amount of money in the economy.