What Repo, Reverse Repo, CRR and SLR Rates imply

From time to time one hears the terms repo, reverse repo, CRR and SLR so what does they mean well here is the answer to it

1. Repo Rate – Repo rate is the interest rate at which the reserve bank of India lends money to commercial banks. So if any bank is in need of funds then it will borrow from central bank at this rate.

2. Reverse Repo Rate – It is interest rate at which reserve bank of India borrows money from commercial banks or in other word it is the rate of interest at which commercial banks can deposit their surplus funds with the RBI. Reverse repo rate is always less than repo rate.

3. CRR – Cash reserve ratio (CRR) refers to the cash which banks have to maintain with the RBI. It is calculated on the basis of deposits of the banks.

4. SLR – Statutory Liquidity Ratio refers to the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities.

Above rates are changed from time to time by reserve bank of India so as to control inflation as well as credit growth in the economy.

3 comments… add one

  • K R Natarajan

    Can you please explain the difference between CRR and SLR in a little more detail. An example to highlight the difference would be ideal

    • Vinish Parikh

      After reading your comment i decide to write a full article on this topic. You can see it here

      • K R Natarajan

        Thank you very much for the follow up article clarifying the concept further. Much appreciated.

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