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Question
Distinguish between statutory liquidity ratio and cash reserve ratio.
Solution
Cash Reserve Ratio is the necessary minimum percentage of a bank’s total deposits which is to be kept with the Central Bank. Commercial banks need to maintain with the Central Bank a certain percentage of their deposits in the form of cash reserves. The Central Bank can vary the CRR between 3 percent and 15 percent.
Statutory Liquidity Ratio is the fixed percentage of assets in the form of cash or other liquid assets which a bank must maintain with the Central Bank. The Central Bank can vary the SLR between 20 percent and 40 percent.
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