What are current Bank rate, Repo rate, rev. repo rate, CRR, SLR, PLR, Dep.

rate, saving rate ? (May 08, 2010)

saving rate-3.5 ,
Repo rate 5.25 ,
Rev. repo rate 3.75 ,
CRR- 6 , bank rate --6,
PLR -11-12 ,
Slr -25.

These rate is activate in apr month . W e can find these rate in economics times . Rbi
also

W hat is the difference between CRR and SLR?

CRR stands for Cash Reserve Ratio - The amount of money each bank has to maintain as
deposits with the central bank

SLR - Statutory Liquidity Ratio - The amount of money each bank has to maintain as liquid cash
to meet its daily cash requirements.

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Basically CRR (Cash Reserve Requirement), SLR (Statuary Liquid Requirement) is Central
Bank’s monetary tools used at an extreme situations when there is surplus liquidity, it reduces the
lending ability of the banking system. When the inflation is high, Central Banks hikes the Interest
rates and often conduct (OMO’s) Open Market Operations to drain excess liquidity. Excessive hike
of interest rates could be damaging for the economy, since the borrowing cost goes up resulting
higher cost of doing business. Therefore, it is the job of the Central Bank to maintain a balance
between growth and inflation. In an economy such as China and India where the growth is
tremendous, there is high risk of rising inflation, it also increases the risk of bank defaults or NPL’s (
Non Performing Loans), due to liberal and riskier lending policy of liquid banks. China and India,
both the countries, despite number of rate hikes have raised their Reserve Requirements (RR) quite a
few times. China has so far done it on 8 occasions, whereas, India has done it thrice. By increasing
the Reserve Requirements it curbs the lending ability of the bank to a certain extent, which also
means that same percentage of liquidity that has been raised through RR, instead of circulating in the
banking system goes into the Central Bank’s kitty. Now, if the interest rate were further hiked that
means borrowing cost goes up. Since money in circulation is also reduced by that amount (Increase
of Reserve Requirement), as it goes out of the banking system, as it is dumped into the Central Bank
that also helps to contain the inflation.

Indian banks are required to hold a certain proportion of their deposits as cash. In reality they don’t hold these as cash
with themselves, but with Reserve Bank of India (RBI), which is as good as holding cash. This ratio (what part of the total
deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio. When a bank’s
deposits increase by Rs100, and if the cash reserve ratio is 10, banks will hold Rs10 with the RBI and lend Rs 90. The
higher this ratio, the lower is the amount that banks can lend out. This makes the CRR an instrument in the hands of a
central bank through which it can control the amount by which banks lend. The RBI’s medium term policy is to take the
CRR rate down to 3 per cent

The hike in CRR from 4.5 to 5 per cent will increase the amount that banks have to hold with RBI. It will therefore reduce
the amount that they can lend out. The move is expected to shift Rs 8,000 crore of lendable resources to RBI. In the past
few months the money that banks have available for giving out as credit is greater than the amount they have been
lending out. This has led to “an overhang of liquidity” in the system. The objective of the CRR hike is to “mop up” some of
the “excess liquidity” in the system

The hike in CRR is not likely to lead to an immediate increase in interest rates. There is excess liquidity in the system
even after a higher amount is deposited with RBI as reserves.

Unless the demand for credit picks up to the extent that the money is all lent out, banks will not have an incentive to raise
interest rates.

The inflation rate may continue to be high, the economy may also continue to witness growth which will keep the demand
for credit high, and international trends are for rates to move up. This means that sooner or later interest rates will go up.
The first rates to get impacted are yields on government bonds. We have already seen this happening. If the inflation rate
keeps rising, RBI may raise the ‘repo rate’, the short term rate at which banks park excess funds with the RBI. This makes
it less attractive for banks to lend.

Further, RBI may raise the bank rate, the rate at which it lends to banks.

At this point you may expect interest rates on home loans and fixed deposits to go up as well. Over a year rates could go
up by as much as 3 per cent

SLR is for a liquid ratio.

Liquid ratio = Liquid Asset/Current Liablities

Liquid Asset = Current Asset-Stock

Current Asset Ratio(CAR)

Current asset/ Current Liablities

Current asset is the asset which is easily liquified with in a span of maximum 1 year.

Current liablities is the liablity which has to be payed in with in 1 year.

SLR is statutory liquid ratio, this is the % of deposits that need to be maintained as liquid thru' investing in RBI bonds. SLR
includes CRR, for example CRR is 7% and SLR is 10%, the 3% should be can non-cash investments.

SDR: The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of
member countries

PLR: Prime lending rate is the rate that the bank will lend to its best customers. Floating rate loans will be quoted as some
thing like PLR+_ 1%, when RBI changes SLR, CRR etc banks will announce chnage in PLR and other loans interest will
be changed accordingly
CAR: Capital Adequacy ratio is the amount of capital that shareholders should put in for each 100 deposits with bank. for
ex if CAR is 12.5% and a bank has a deposit base of 100, then Bank's share capital+reserves and surplus should be
atleats 12.5

Repo (Repurchase) Rate

Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they
are facing for money (loans) and how much they have on hand to lend.

If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate;
similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse Repo Rate

This is the exact opposite of repo rate.

The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse
repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system

If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a
lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely
risk free) instead of lending it out (this option comes with a certain amount of risk)

Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess
money into the economy

Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while repo
signifies the rate at which liquidity is injected.

Bank Rate

This is the rate at which RBI lends money to other banks (or financial institutions .

The bank rate signals the central bank’s long-term outlook on interest rates. If the bank rate moves up, long-
term interest rates also tend to move up, and vice-versa.

Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the
RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks
borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to
ensure it continues to make a profit.

Call Rate

Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Si nce
banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-
term requirements on a regular basis.

CRR

Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain
with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and
secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in
lending money

SLR

Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of
their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the bank’s leverage in
pumping more money into the economy.

What is Crr, Slr And Difference Between Crr And Slr?

This article tells about CRR (Cash Reserve Ration) and SLR (Statutory Liquidity Ratio) and how these
monetary tools are used to control liquidity, difference between these tools.

CRR-

Banks require keeping a certain percentage of total deposits in form of cash. Cash Reserve Ratio (CRR) is the
amount which scheduled commercial banks have to keep with RBI (Reserve Bank of India).This ratio is decided by
RBI and used to control liquidity. If RBI makes a decision to reduce CRR, then banks have to keep fewer amounts
in form of cash with RBI. There will be more amounts available with commercial banks for lending and investment,
now bank can reduce interest rates on various loans to utilize this excess fund. Thus this instrument is used by RBI
and affects ecnomy, inflation and interest rates. This is also known as the liquidity ratio and cash asset ratio. It can
be between three to twenty percent in India.
SLR-

SLR (Statutory Liquidity Ratio) is a portion of banks Net Demand and Time liabilities (NDTL) that Scheduled
Commercial Banks are required to maintain with themselves in form of Cash, Gold,Government Bonds or
unencumbered approved securities at closing of any business day. It regulates credit growth in country. RBI can
increase it up to 40% of NDTL .this monetary tool is used by the RBI to ensure sufficient liquidity with banks. an
increase in SLR will restricts banks lending capacity.
Difference between SLR and CRR

SLR restricts the bank’s leverage of pumping money into the economy. CRR, or Cash Reserve Ratio, is the portion
of deposits that the banks have to maintain with the RBI.
The other difference is that for SLR, banks can use cash, gold or unencumbered approved securities whereas with
CRR it has to be only cash.
CRR is maintained in cash form with RBI, whereas SLR is maintained in liquid form with banks themselves.