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Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.
ADVANTAGES OF MAINTAINING CRR:1) To ensure liquidity and solvency position of scheduled commercial banks . 2) To monitor and regulate the flow of credit given by commercial banks. 3) To ensure a stable flow of credit in the economy. 4) When RBI increases CRR the SCB restrict the flow of credit to the public which sucks the money from the general public . 5) When RBI decreases CRR the SCB grant more credit loans and other facilities to the general public which increase the flow of money in the hands of many.
DRAWBACKS OF MAINTAINING CRR :1) Affects industrial growth ,when commercil banks have to maintain high rate of crr with rbi the restrict the credit to general public who are none other that business developers ,entrepreneurs and other industrialists who seek pre and post shipment finance. 2) Reduces the standard of living of people when crr is increased. 3)Banks loose their valuable customers when they are in a situation not to provide credit to general public.
CHANGES IN CRR:-
The SLR is commonly used to contain inflation and fuel growth, by increasing or decreasing it respectively This counter acts by decreasing or increasing the money supply in the system respectively. To control the expansion of bank credit- By changing the level of SLR, the Reserve Bank of India can increase or decrease bank credit expansion.
CHANGES IN SLR:Statutory Liquidity Ratio (SLR) 23%(w.e.f. 11/08/2012) (announced on 31/07/2012) Decreased from 24% which was continuing since 18/12/2010
IMPACT OF CRR:-
IMPACT OF CRR:
CRR Hike Help In Lowering Inflation Impact on Interest rates Reduces credit expansion
IMPACT OF SLR: