What is CRR, SLR & Repo Rate?

Money Indian Economy

CRR ( Cash Reserve Ratio)

All banks have to deposit deposits in cash in the form of cash (Net Demand and Time Liability) in the form of cash held by them. This is known as CRR (Cash Reserve Ratio)

If the CRR is increased, the banks have to deposit more money in the Reserve Bank. Therefore, banks have less money to build credit money. In contrast, if the CRR rate is reduced by the Reserve Bank, the banks will have to keep the minimum amount in the Reserve Bank.

SLR: (Statutory Liquidity Ratio)

Banks have to keep some amount of their total net worth (Net Demand and Time Liability). They can be kept in cash, government securities and gold. This is the standard called statutory liquidity ratio.

If the Reserve Bank raises the SLR, the banks have to keep a lot of money in them, so they can not use it to make credit money. In contrast, if the Reserve Bank lowered the SLR rate, the banks would have to keep a low amount of money themselves.

Reserve Bank's Repo transaction:

Repo Rate: 

The Reserve Bank will offer loans to banks by buying government bonds from banks. These loans are for one day or three days for sale. On the next day, the banks repurchase the government securities and repay the loans taken by the Reserve Bank. This transaction is called repo transaction. The Reserve Bank, which charges the interest rate, is called a repo rate.

Reverse Repo Rate:

In this transaction, banks are allowed to buy government bonds for short term from the Reserve Bank. Banks in a way lend a loan to the Reserve Bank. The Reserve Bank repurchases these bonds the next day and returns the loans made by the bank. The rate at which banks charge the transaction in this transaction is called a reverse repo rate.

Bank Rate:

If the short-term capital adequacy is to be completed, the bank will deal with the repo. However, if the bank wants to increase liquidity, the bank will take loans from the Reserve Bank, the interest rate charged on that bank rate will be called a bank rate. In short, the rate at which the Reserve Bank lends to banks is a bank rate.

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