Click to edit Master subtitle styleOF ARTS, SHANKAR NARAYAN COLLEGE

COMMERCE AND SCIENCE THIRD YEAR BANKING AND INSURANCE [T.Y.B.B.I]

PROFESSOR NAME :- CA. NAVIN SARAF

SUBJECT:-FINANCIAL REPORTING AND ANALYSIS. 4/15/12

TOPIC

SIGNIFICA NT OF :*CASH
Click to edit Master subtitle style
NAME:DEVESH VERMA AARTI YADAV PINTU YADAV POONAM YADAV SUNIL YADAV ROLL NO:41 42 43 44 45
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INTRODUCTION
RESERVE BANK OF INDIA As you are aware, the Reserve Bank of India has from time to time, issued a number of circulars containing instructions to banks on matters relating to maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). In order to enable the banks to have all the extant operating instructions on 4/15/12 the subject at one place, this Master

CASH RESERVE RATIO(CRR) :CRR Stands for Cash Reserve Ratio. CRR fluctuate between 3% to 20% imposed by RBI. A CRR is the % of bank Reserve to Deposit and Notes under section 42 (1) of the Reserve Bank of India Act, 1934. CRR is the amount of Funds that the banks have to keep with RBI. If RBI decides to increase the % of this, the available amount with the banks comes down. RBI increases CRR rate to pull out the excessive money from the banks. It is also Known as Cash Asset Ratio or Liquidity Ratio. CRR is used as tool in Monetary Policy, which influence Countrys Economy, Borrowing and Interest Rates across the country.

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OBJECTIVE OF C.R.R
v CRR
1.

:-

RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. A portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the system.
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2.

3.

CRR and liquidity(e.g):For e.g. say:-the CRR is declared by RBI at 10%. ifa bank receives Rs. 100 as deposit, then they can lend Rs. 90 as a loan and will have to keep the balance Rs. 10 in customers deposit account with RBI.

Now, the borrower who has received Rs. 90 as a loan will deposit the same in his bank.

The borrower's bank will now lend out Rs. 81 (Rs.90 X 90%) and keep Rs. 9 in his deposit account

As this process continues, the banking system can expand the initial deposit of Rs.100 into a maximum of Rs. 1000 (Rs. 100 + Rs. 90 + Rs.81.=Rs. 1000)

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STUDENT NAME:SUNIL YADAV AARTI YADAV PINTU YADAY DEVESH VERMA POONAM YADAV

CHARACTER PLAY BY THEM:RESERVE BANK OF INDIA. BANKER CUSTUMER BORROWER(LOAN) CUSTOMER

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So :The higher the cash reserve (CRR) required, the lower the money available for lending

Every time the borrowed money comes into a deposit account of a customer, the bank has to compulsorily keep a part of it as reserves

This reduces credit expansion by controlling the amount of money that goes out by way of loans

This directly affects money creation process and in turn affects the economic 4/15/12 activity

STATUTORY LIQUIDITY RATIO (SLR) :SLR standsCRR & SLR is used as a tool in 1. for Statutory Liquidity Reserve/Ratio monetary policy, Influencing the Statutory Liquidity Reserve/Ratio(SLR) is country's economy, borrowing and percentage interest rates. Section 24 of the Banking of deposits under Regulation Act, 1949. The bank has to maintain in form of 1. CRR works like brakes on the gold, economy's money supply. cash or other approved securities. 1. CRR requirements affect the It regulates potential growth in India system to the credit of the banking create higher or lower money Every financial institute is required to maintain a supply. Statutory Liquidity reserve (SLR) of 24% to 40% on total demand and time liabilities. 1. Let us now understand how CRR requirement affects the potential of banks to create higheror lower money supply.

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OBJECTIVE OF S.L.R
v

SLR:-

Every bank is required to maintain Clicktheedit Master subtitle style at to 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 approved securities. 2. An increase in SLR also restricts the banks leverage position to pump more money into the economy. 1. we can say that it is ratio of cash and some other approved to 4/15/12 liabilities (deposits) It regulates the
1.

Effects on money supply by CRR & SLR:1. CRR & SLR is used as a tool in monetary policy, Influencing the country's economy, borrowing and interest rates. 1. CRR works like brakes on the economy's money supply. 1. CRR requirements affect the potential of the banking system to create higher or lower money supply.

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DIFFERENCE BETWEEN CRR & SLR SLR CRR

MEANING:SLR is a statutory liquidity ratio, which every bank have to maintain in form of :a) b)
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CRR is a cash reserve ratio which every bank have to maintain into cash as deposit with RBI.

CASH, OR GOLD, OR APPROVED

c)

HISTORY:SLR was introduced in 1967.

CRR was introduced in 1950.

OBJECTIVE:To control the inflation & money supply of country.

a)

To restrict the expansion of bank credit. To augment the investment of the banks in Government securities. To ensure solvency

b)

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c)

RESERVE

RATIO:As per 42(1) of RBI act ,1934. CRR is maintained between 3% to 20%.

As per under Section 24 of the Banking Regulation Act, 1949. SLR is maintained between 24% to 40%.

MAINTAINANCE:

SLR should maintain at the end of every day.

CRR should maintain after every 14 days with 4/15/12 RBI

10 9 8 7 6 5 PERCENTAGE 4 3 2 1 0 4/15/12

10 9 8 7 6 5 4 3 2 1 0 4/15/12

THANK YOU

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Hope you have now understood the concept of :Cash Reserve Ratio and statutory liquidity ratio.

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Any question .?

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THANK YOU

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