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Cash Reserve Ratio
 

  • Banks1 need to maintain a certain percentage of their Net Demand and Time Liability (NDTL)2 as cash with the RBI which is known as cash reserve ratio (CRR).
  • CRR for banks are prescribed and regulated by RBI.
  • Banks are required to maintain CRR prescribed by the RBI on an average daily basis during a reporting fortnight, with a minimum of 99%3 of the required CRR on a daily basis.
  • For the purpose of maintaining CRR, banks maintain a principal account with the Deposit Accounts Department (DAD) of the Reserve Bank at the centre where the principal office of the bank is located.

 
CRR snap shot
 

  • Chart below shows CRR trend over the years.

 
CRR trend over the years
 

  • As seen from chart above, current CRR is lowest since 1976.
  • Highest CRR has been 15%.
  • Chart below shows daily CRR maintained by banks with RBI and average daily CRR required to be maintained by banks with RBI.

 
CRR maintained by Banks
 

  • It can be observed from above that banks generally maintain higher cash reserves with RBI.

 

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Statutory Liquidity Ratio

By: Punam Sharma

  • Banks are required to invest a certain percentage of their Net Demand and Time Liability (NDTL)1 in securities approved by the RBI. The percentage of investments to NDTL is known as statutory liquidity ratio (SLR).
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  • Minimum SLR rate is prescribed and regulated by the RBI.
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  • SLR is maintained daily on a fortnightly basis as a prescribed portion of NDTL calculated as on the last Friday of second preceding fortnight.
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SLR Snap Shot

 

  • Banks ownership in government securities was around 35% in 2013.
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  • Generally banks maintain higher than required SLR by RBI for borrowing under LAF or investment purpose.
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  • Chart below shows SLR trend over the years.
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SLR Trend

 

  • As seen from chart above, RBI rarely uses SLR as a monetary policy tool.
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  • All banks as per RBI have to categorize their investments including SLR investments into Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS).
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  • Held to Maturity investments as name suggests are bought and held till maturity. These securities are not marked to market.
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  • Banks are allowed to hold SLR securities in HTM category up to 24.50% of their NDTL.
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  • Held for Trading securities are bought with intention to be traded to take advantage of short term price or interest rate movement.
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  • Securities not classified as above two falls under Available for Sale category.
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  • HFT and AFS securities are marked to market where AFS securities are generally marked to market annually.
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Credit Rating

By: Punam Sharma

Credit Rating

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