Cash Reserve Ratio (CRR) is the share of a bank's net demand and time liabilities that must sit as cash with the Reserve Bank of India. Statutory Liquidity Ratio (SLR) is a separate share the bank must hold in liquid form, such as cash, gold, and approved securities, including government securities, on its own books. Both ratios leave less money free for loans. They differ in where the reserve sits, whether it earns anything, and which law sets the rule.
Difference between CRR and SLR
| Feature | CRR | SLR |
|---|---|---|
| Purpose | Liquidity control and solvency | A stock of safe liquid assets, and a channel of funds to government |
| Coverage | Scheduled commercial banks | Broader than CRR, and includes cooperative banks |
| Form | Cash balances only, kept with the RBI | Cash, gold, unencumbered government securities, and approved securities |
| Interest | The RBI pays no interest on CRR balances | Banks can earn a return on government securities held for SLR |
| Law | Section 42 of the RBI Act, 1934 | Section 24 of the Banking Regulation Act, 1949 |
| Rate | 4.5% of NDTL (2024) | 18% of NDTL |
At a glance
Form
Cash only
Cash, gold, approved securities
Held with
RBI
The bank itself
Interest
No interest
Can earn a return on government securities
Example
₹100 deposit: what stays locked?
A bank receives ₹100 in deposits. If CRR is 4%, it must park ₹4 as cash with the RBI. That cash leaves the lending desk, and the RBI pays no interest on it. If SLR is 18%, another ₹18 stays with the bank in liquid assets such as government securities and gold. Those funds cannot be lent freely, though the securities can earn interest.
What this means for the exam
Under CRR the cash leaves the bank and sits with the RBI, with no interest. Under SLR the assets stay with the bank and can earn a return, though they cannot be lent freely.
CRR
CRR applies to scheduled commercial banks. Section 42 of the RBI Act, 1934 is the legal basis, and the level was 4.5% of net demand and time liabilities in 2024. The reserve is cash with the RBI. Government securities and gold do not count toward it, and the RBI pays no interest on the balances.
Raising CRR pulls cash out of banks and leaves less to lend, which tightens credit and can be used against inflation. Lowering it releases liquidity when the system is under stress. The usual slip is to treat CRR as a pile of government paper. It is cash, and it sits with the RBI.
SLR
SLR is set by Section 24 of the Banking Regulation Act, 1949. The net is wider than CRR because cooperative banks are covered as well. The ratio is 18% of net demand and time liabilities. The bank holds the assets itself: cash, gold, unencumbered government securities, and other approved securities.
Those securities can earn a return, so SLR is a locked portfolio rather than idle cash at the RBI. Holding government paper also places bank funds with the government. SLR reserves are not parked as cash with the RBI. That custody point is the one students swap most often.
Key takeaway
CRR is cash kept with the RBI, and it earns no interest. SLR is liquid assets kept by the bank, and those assets can earn a return.
Difference between CRR and SLR FAQs
What is CRR?
Cash Reserve Ratio is the share of a bank's net demand and time liabilities kept as cash with the RBI. The RBI pays no interest on those balances. Section 42 of the RBI Act, 1934 is the legal basis, and the level was 4.5% of NDTL in 2024.
What is SLR?
Statutory Liquidity Ratio is the share a bank must hold in liquid assets on its own books: cash, gold, and approved securities, including government securities. Those securities can earn a return. Section 24 of the Banking Regulation Act, 1949 applies, and the ratio is 18% of NDTL.
What is the main difference between CRR and SLR?
CRR is cash that leaves the bank and sits with the RBI, with no interest. SLR stays with the bank as liquid assets, and those assets can earn a return. Both reduce the money available for free lending.
Can CRR be maintained in the form of government securities?
No. CRR is maintained only as cash balances with the RBI.
Are SLR reserves kept with the RBI as cash?
No. SLR assets are held by the bank itself. They are not parked as cash with the RBI.
What happens when CRR or SLR is raised?
A higher ratio tightens credit, because banks have less money to lend, and that can be used against inflation. A lower ratio releases liquidity during stress.
PYQ linkage
Open Market Operations refers to: