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 DifferenceCRR SLR
Full FormCash Reserve Ratio
Statutory Liquidity Ratio
DefinitionThe ratio of total deposit that banks are required to keep as a reserve with the RBI in the form of cash
The ratio of deposit that banks need to maintain in the form of liquid assets with them
PurposeTo maintain proper liquidity in the economy
To handle a sudden increase in demand of money from the depositors
Controlled byReserve Bank of India
Reserve Bank of India
Higher Rate results intoDeposit with the RBI increases which results into a decrease in capacity of the banks to lend
Decrease in capacity of the banks to lend
EarningBanks do not earn anything on money kept as CRR
Banks earn returns on money parked as SLR
Reserves Maintained withMaintained with the RBI
Maintained with respective banks