What is the difference between Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)?
statutory liquidity ratio say 25 % means to that extent the bank or an NBFC has to hold in government securities in value against demand and time liabilities toward solvency requirements [what if the bank advances the entire 100% of the deposits collected instead of investing partly in govenment securities your risk profile will increase and depositor funds are less safe?]. this is assuming that govt is the lowest credit risk. This is also one window open for funding for the government. CRR ratio enables setting aside 5% to 6% [say in the case of india] to ensure that liquidity is maintained by the bank and normally in cash or equivelents [currency chests are also taken for CRR calc]. when the central bank increases say CRR [as in india recently] lendable resources available to the bank are lower to that extent. the aim is primarily to tackle the inflationary pressures in the economy.
