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What is CRR, SLR, Repo Rate & Reverse Repo Rate and their linkage with Loan Rate?

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What is CRR, SLR, Repo Rate & Reverse Repo Rate and their linkage with Loan Rate?
posted Sep 5, 2017 by Raghav Choudhary

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1 Answer

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CRR:- Quantitative controls are designed to regulate the volume of credit created by the banking system Qualitative measures or selective methods are designed to regulate the flow of credit in specific uses.
To control inflation and the growth, RBI uses certain tools like CASH RESERVE RATIO, STATUTORY LIQUIDITY RATIO, REPO RATE, and REVERSE REPO RATE.

SLR:- Besides CRR, Banks have to invest certain percentage of their deposits in specified financial securities like Central Government or State Government securities. This percentage is known as SLR.
This money is predominantly invested in government approved securities (bonds), Gold, which mean the banks can earn some amount as 'interest' on these investments as against CRR where they do not earn anything.

Repo Rate:- Repo Rate is the rate at which RBI lends money to commercial banks against the pledge of government securities whenever the banks are in need of funds to meet their day-to-day obligations.

Reverse Repo Rate:- Reverse repo rate is the rate of interest offered by RBI, when banks deposit their surplus funds with the RBI for short periods. When banks have surplus funds but have no lending (or) investment options, they deposit such funds with RBI. Banks earn interest on such funds.

answer Sep 6, 2017 by Reshmi S
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