What is CRR and SLR in Banking Terms?

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Offline Shakil Ahmad

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What is CRR and SLR in Banking Terms?
« on: March 10, 2016, 01:16:08 PM »
CRR stands for Cash Reserve Ratio. It is a percentage of Bank Deposits that Banks are supposed to maintain with Central Bank.
When Inflation is High (Money supply is high), BB increases the CRR Rate, this will mean, Commercial Banks will have to keep more percentage of deposits with BB. This in turn will reduce the commercial bank's Lending capacity. When lending capacity is reduced, money supply in the economy will be less.

SLR: Statutory Liquidity Ratio. It is a part of deposits that Commercial Banks are supposed to maintain with THEMSELVES IN LIQUID FORM. Liquid form means:  Cash, Gold or Government Bonds. This is to ensure sufficient Liquidity with Commercial Banks.

Bangladesh Bank to ask banks to maintain CRR, SLR separately
Submitted by Hisham Bin Mustafa on Fri, 25/10/2013 - 4:32am
The central bank has moved to ensure commercial banks' maintenance of the cash reserve requirement (CRR) and the statutory liquidity ratio (SLR) separately aiming to facilitate effective implementation of its monetary policy, officials have said.
The Bangladesh Bank (BB) will issue a directive in this connection shortly asking the banks to maintain the CRR and the SLR separately in a new prescribed format.
"We're working on the issue," Mr Abu Hena Mohammad Razee Hassan, deputy governor of the BB, told the FE Thursday.
He also said the central bank would issue the directive under the Bank Company (Amended) Act 2013.
The law empowers the central bank to do the needful for maintenance of the CRR and SLR separately, according to the BB officials.
Currently the conventional banks are maintaining with the BB the SLR at 19 per cent, including the CRR.
The banks are also allowed to maintain the CRR at 5.50 per cent on the daily basis, but the bi-weekly average has to be 6.0 per cent, according to the existing rules.
Currently the banks maintain the CRR in the local currency only. The day-end balance of the account maintained with the central bank in the Bangladesh Taka (BDT) is considered the CRR.
On the other hand, the Shariah-based Islamic banks maintain 11.50 per cent SLR including the CRR, as they cannot purchase any bonds and government-approved securities that involve receipt of interest.
However, the Islamic banks and financial institutions may now meet their SLR through Islamic bonds as per the Islamic Bond Regulation 2004.
Islamic finance commenced in Bangladesh in early nineteen eighties with just one Islamic commercial bank. By now there are eight Islamic banks being run wholly based on Shariah principles.
Besides, as many as 17 conventional banks, including one globally active foreign bank, are running Islamic banking branches or windows alongside their conventional banking, according to the BB officials.
The banks are allowed to maintain the SLR in the form of assets in cash or gold or in the form of un-encumbered approved securities, the market value of which shall not be less than the 19 per cent fixed by the BB.
Three specialised banks have continued to remain exempt from maintaining the SLR.
News Source:
The Financial Express