What is CRR?
CRR means Cash Reserve Ratio. Banks
in India are required to hold a certain proportion of their deposits in the
form of cash. However, actually Banks don’t hold these as
cash with themselves, but deposit such case with Reserve Bank of India (RBI) /
currency chests, which is considered as equivalent to holding cash with
RBI. This minimum ratio (that is the part of the total deposits to be
held as cash) is stipulated by the RBI and is known as the CRR or Cash
Reserve Ratio.
Thus, When a bank’s deposits increase by Rs100, and if the
cash reserve ratio is 6%, the banks will have to hold additional Rs 6
with RBI and Bank will be able to use only Rs 94 for investments and
lending / credit purpose. Therefore, higher the ratio (i.e. CRR),
the lower is the amount that banks will be able to use for lending and
investment. This power of RBI to reduce the lend able amount by increasing
the CRR, makes it an instrument in the hands of a central bank through
which it can control the amount that banks lend. Thus, it is a tool used
by RBI to control liquidity in the banking system.
How RBI uses CRR?
RBI uses CRR either to drain excess liquidity or to
release funds needed for the growth of the economy from time to time. Increase
in CRR means that banks have less funds available and money is sucked out of
circulation.
Thus we
can say that this serves duel purposes i.e.
(a) Ensures that a portion of
bank deposits is kept with RBI and is totally risk-free,
(b) Enables RBI
to control liquidity in the system, and thereby, inflation by tying
the hands of the banks in lending money.
CRR FOR THE PAST 4 YEARS.:
DATE RATES
24-Apr-2010
|
6.00
|
RBI
circular dated 20/04/2010
|
28-Jan-2012
|
5.50
|
RBI
circular dated 24/01/2012
|
10-March-2012
|
4.75
|
RBI
circular dated 10/3/2012
|
22nd September, 2012
|
4.50
|
RBI
circular dated 17/09/2012
|
3rd November 2012
|
4.25
|
RBI
circular dated 30/10/2012
|
9th February 2013
|
4.00
|
RBI
circular dated 29/01/2013
|
CRR IS DECREASING.......FROM PAST 4 YEARS
What is SLR?
Every bank is required to maintain at the close
of business every day, a minimum proportion of their Net Demand and Time
Liabilities as liquid assets in the form of cash, gold and un-encumbered
approved securities. The ratio of liquid assets to demand and time liabilities
is known as Statutory Liquidity Ratio (SLR).
How RBI uses SLR?
RBI is empowered to increase this ratio
up to 40%. An increase in SLR also restrict the bank’s leverage
position to pump more money into the economy.
SLR FOR THE PAST 5 YEARS.:
DATE RATES
7-Nov-2009 25 %
18-Dec-2010 24 %
11-Aug-2012 23 %
14-June-2014 22.5 %
7-Nov-2009 25 %
18-Dec-2010 24 %
11-Aug-2012 23 %
14-June-2014 22.5 %
SLR IS DECREASING.......FROM PAST 5 YEARS
What are Repo rate and Reverse Repo rate?
Repo rate
Repo (Repurchase) rate is the
rate at which the RBI lends shot-term money to the banks against securities.
How RBI uses REPO rate?
When the repo rate increases borrowing from RBI becomes more expensive.
Therefore, we can say that in case, RBI wants to make it
more expensive for the banks to borrow money, it increases the repo rate;
similarly, if it wants to make it cheaper for banks to borrow money, it reduces
the repo rate.
Reverse Repo rate is the rate at which banks park their
short-term excess liquidity with the RBI.
How RBI uses Reverse REPO rate?
The banks use this tool
when they feel that they are stuck with excess funds and are not able to invest
anywhere for reasonable returns. An increase in the reverse
repo rate means that the RBI is ready to borrow money from the banks at a
higher rate of interest. As a result, banks would prefer to keep more and
more surplus funds with RBI.
*Reverse Report rate was an independent rate till 03/05/2011.
However, in the monetary policy announced on 03/05/2011, RBI has decided that
now onwards the Reverse Repo Rate will not be announced separately, but will be
linked to Repo rate and it will always be 100 bps below the Repo rate (till RBI
decides to delink the same)
REPO RATE FROM MAY 2013..
DATE RATES
3 - May 2013
|
7.25
|
RBI
circular dated 3/5/2013
|
20 - September- 2013
|
7.50
|
RBI
circular dated 20/9/2013
|
29 - October- 2013
|
7.75
|
RBI
circular dated 29/10/2013
|
28 - january- 2014
|
8.00
|
RBI
circular dated 28/01/2014
|
REVERSE REPO RATE FROM MAY 2013..
DATE RATES
03-May-2013
|
6.25
|
RBI
circular dated 03/05/2013
|
20-September-2013
|
6.50
|
RBI
circular dated 20/09/2013
|
29-October-2013
|
6.75
|
RBI
circular dated 29/10/2013
|
28-January-2014
|
7.00
|
RBI
circular dated 28/01/2014
|
What
is Bank rate?
Bank Rate is the rate at which
central bank of the country (in India it is RBI) allows finance to
commercial banks. Bank Rate is a tool, which central bank uses for
short-term purposes. Any upward revision in Bank Rate by central bank is an
indication that banks should also increase deposit rates as well as Base Rate /
Benchmark Prime Lending Rate. Thus any revision in the Bank rate
indicates that it is likely that interest rates on your deposits are likely to
either go up or go down, and it can also indicate an increase or
decrease in your EMI.
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