SLR versus CRR

What Statutory Liquidity Ratio (SLR) does is it restricts the bank's leverage in pumping more money into the economy. On the other hand, Cash Reserve Ratio (CRR) is the portion of deposits that the banks have to maintain with the central bank.The higher the ratio, the lower the amount that banks can use for lending and investment.

The other difference is that to meet SLR, banks can use cash, gold or approved secu- rities whereas with CRR it has to be only cash. CRR is main- tained in cash form with NRB whereas SLR is main- tained in liquid form with the banks themselves. SLR refers to the amount that all banks require to maintain in cash or in the form of gold or approved securities. Howev er, the Monetary Policy has directed the banks to buy government bonds and securities.

The objectives of SLR are to restrict the expansion of bank credit, augment the in vestment of banks in govern ment securities and ensure solvency of banks. CRR is in the form of fiat currency stored with the central bank.

The reserve ratio is used as a tool in the Monetary Policy, influencing the country's economy, borrowing, and in terest rates. It will cause im mediate liquidity problems for banks with low excess re serves. It was increased from 5 to 5.5 per cent in the last Monetary Policy.