Answer / suresh wadhwani

No CRR and SLR are not just to keep cash with RBI. Both are
different.

CRR(for bankers): RBI uses CRR either to drain excess
liquidity or to release funds needed for the economy from
time to time. Increase in CRR means that banks have less
funds available and money is sucked out of circulation.
Thus we can say that this serves duel purposes i.e. it not
only ensures that a portion of bank deposits is totally
risk-free, but also enables RBI to control liquidity in the
system, and thereby, inflation by tying the hands of the
banks in lending money.

CRR(for non bankers): CRR means Cash Reserve Ratio. Banks
in India are required to hold a certain proportion of their
deposits in the form of cash. However, actually Banks
don’t hold these as cash with themselves, but deposit such
case with Reserve Bank of India (RBI) / currency chests,
which is considered as equivlanet to holding cash with
themselves.. This minimum ratio (that is the part of the
total deposits to be held as cash) is stipulated by the RBI
and is known as the CRR or Cash Reserve Ratio. Thus, When
a bank’s deposits increase by Rs100, and if the cash reserve
ratio is 9%, the banks will have to hold additional Rs 9
with RBI and Bank will be able to use only Rs 91 for
investments and lending / credit purpose. Therefore, higher
the ratio (i.e. CRR), the lower is the amount that banks
will be able to use for lending and investment. This power
of RBI to reduce the lendable amount by increasing the CRR,
makes it an instrument in the hands of a central bank
through which it can control the amount that banks lend.
Thus, it is a tool used by RBI to control liquidity in the
banking system.

SLR(for bankers): Every bank is required to maintain at
the close of business every day, a minimum proportion of
their Net Demand and Time Liabilities as liquid assets in
the form of cash, gold and un-encumbered approved
securities. The ratio of liquid assets to demand and time
liabilities is known as Statutory Liquidity Ratio (SLR).
Present SLR is 24%. (reduced w.e.f. 8/11/208, from earlier
25%) RBI is empowered to increase this ratio up to 40%. An
increase in SLR also restrict the bank’s leverage position
to pump more money into the economy.

SLR(for non bankers): SLR stands for Statutory Liquidity
Ratio. This term is used by bankers and indicates the
minimum percentage of deposits that the bank has to maintain
in form of gold, cash or other approved securities. Thus,
we can say that it is ratio of cash and some other approved
to liabilities (deposits) It regulates the credit growth in
India.

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