Difference Between CRR and SLR
As per the regulations, banks cannot use the whole amount deposited with them for this purpose. Banks are required to maintain a certain percentage of their deposits as cash and can use only the remaining amount for lending/investment. This percentage is known as Cash Reserve Ratio (CRR). CRR is determined by the RBI.
Besides CRR, Banks are required to invest a particular percentage of their deposits in specified financial securities such as Gold, Cash or State Government /Central Government securities. This percentage is called as Statutory Liquidity Ratio (SLR). The main point to note here is that banks can earn interest on such investment which is primarily made in government approved bonds, gold, etc. whereas they do not earn anything on the investment made under CRR.
There are many differences between CRR and SLR which are listed in the following table:
Difference between CRR and SLR
| Basis of Difference | CRR | SLR | |
|---|---|---|---|
| Full Form | Cash Reserve Ratio | Vs | Statutory Liquidity Ratio |
| Definition | The ratio of total deposit that banks are required to keep as a reserve with the RBI in the form of cash | Vs | The ratio of deposit that banks need to maintain in the form of liquid assets with them |
| Purpose | To maintain proper liquidity in the economy | Vs | To handle a sudden increase in demand of money from the depositors |
| Controlled by | Reserve Bank of India | Vs | Reserve Bank of India |
| Higher Rate results into | Deposit with the RBI increases which results into a decrease in capacity of the banks to lend | Vs | Decrease in capacity of the banks to lend |
| Earning | Banks do not earn anything on money kept as CRR | Vs | Banks earn returns on money parked as SLR |
| Reserves Maintained with | Maintained with the RBI | Vs | Maintained with respective banks |