CRR, or cash reserve ratio, is a requirement set by the Reserve Bank of India for domestic banks to determine the minimum amount of cash reserve they need to keep to meet payment obligations.
Under CRR, a certain percentage of total bank deposits has to be kept in a current account with the central bank, which means banks do not have access to that money for any purpose other than defined.
Banks can’t lend that money to corporates or individual borrowers or use it for investment purposes. Banks also don’t earn anything on the money held in that account.
SLR, or statutory liquidity ratio, determines the amount of money a bank needs to invest in certain specified securities, which are predominantly securities issued by the central government and state governments. RBI fixes this limit.
Unlike CRR, money invested under the SLR window earn some interests for banks. But they can’t access this fund for lending purposes.
Source: Economic Times
