Both CRR and SLR are regulatory tools of the Reserve Bank of India and serve different purposes. Understanding the difference between them is essential for the Indian banking system. They may appear similar, but they perform distinct functions within the banking system.
| BASIS | CASH RESERVE RATIO (CRR) | STATUTORY LIQUIDITY RATIO (SLR) |
| Definition | CRR is the percentage of Net Demand and Time Liabilities (NDTL) that the bank must maintain with the Reserve Bank of India (RBI) in cash. | SLR is the percentage of Net Demand and Time Liabilities that the bank must maintain as liquid assets held in cash, gold, or government-approved securities. |
| Objective | Controls money supply and liquidity, therefore controlling inflation | To ensure the bank has enough liquidity and doesn’t go bankrupt |
| Maintanence | By the Reserve Bank of India (RBI) | By the bank itself |
| Form of Reserves | Cash | Gold, cash, or government-approved securities |
| Impact of Controlling | Reduces the liquidity available for lending | Reduces the liquidity available for lending while ensuring the bank holds adequate liquid assets. |
| Can be used for lending purposes? | No | No |
| Interest Earned | No interest earned by the bank | May earn interest through government securities |
Which one is more Important?
Both CRR and SLR are equally important, as maintaining these ensures bank security and safety. It helps the bank stay financially stable. When people’s purchasing power increases and inflation rises, the RBI increases the CRR and vice versa. Therefore, the bank has to park more money with the RBI, thereby decreasing its lending power. SLR ensures the bank has enough liquid assets to meet customer financial withdrawals and financial obligations.