Nice explain about CRR/SLR which we heard in RBI policy day by Riskyman
Let me try to explain how CRR and SLR work. CRR or cash reserve ratio is the amount of money that Banks have to keep with the RBI. This cash reserve is maintained to ensure "solvency" of the banks and at times also used to cut excess liquidity from the banking system. Higher CRR means that banks will be able to lend less.
SLR i.e statutory liquidity ratio is the percentage of banks assets in the form of gold/cash/liquidity etc that has to be kept in reserve to meet the bank's demand and time liabilities without using it for commercial purposes like investments and lending. This ratio is fixed by RBI.
Example of CRR and SLR in use. Suppose a bank has 1000 crores. If CRR is 8% and SLR 10% is then 80 crores have to be maintained in cash with the RBI. SLR @ 10% means that 100 crores (in bonds/gold/cash) has to set aside by the bank(statutorily) and so this sum total of 180 cr cannot be used for lending. Banks can only lend out the remaining 820 cr. If SLR is cut from 10% to 9% over a period then the equation will change to 8%+9% = 17% = 170 cr. The bank essentially has 10 cr extra to lend i.e 830 cr. Therefore, this is a positive development for the banks.
Decrease in SLR usually means that banks can earn interest income than just keeping the money held up. Lower SLR also means banks will lend at lower interest rates(because they have more money to deploy).
Today there was no mention of "calibrated tightening". However, the RBI outlined that if the upside risks(if any like higher oil, lower agri output) to the economy doesnt materialize then they would be more than happy to use further "policy action" ( rate cut) .
Let me try to explain how CRR and SLR work. CRR or cash reserve ratio is the amount of money that Banks have to keep with the RBI. This cash reserve is maintained to ensure "solvency" of the banks and at times also used to cut excess liquidity from the banking system. Higher CRR means that banks will be able to lend less.
SLR i.e statutory liquidity ratio is the percentage of banks assets in the form of gold/cash/liquidity etc that has to be kept in reserve to meet the bank's demand and time liabilities without using it for commercial purposes like investments and lending. This ratio is fixed by RBI.
Example of CRR and SLR in use. Suppose a bank has 1000 crores. If CRR is 8% and SLR 10% is then 80 crores have to be maintained in cash with the RBI. SLR @ 10% means that 100 crores (in bonds/gold/cash) has to set aside by the bank(statutorily) and so this sum total of 180 cr cannot be used for lending. Banks can only lend out the remaining 820 cr. If SLR is cut from 10% to 9% over a period then the equation will change to 8%+9% = 17% = 170 cr. The bank essentially has 10 cr extra to lend i.e 830 cr. Therefore, this is a positive development for the banks.
Decrease in SLR usually means that banks can earn interest income than just keeping the money held up. Lower SLR also means banks will lend at lower interest rates(because they have more money to deploy).
Today there was no mention of "calibrated tightening". However, the RBI outlined that if the upside risks(if any like higher oil, lower agri output) to the economy doesnt materialize then they would be more than happy to use further "policy action" ( rate cut) .