Statement 1: Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are one and the same thing.
Statement 2: In CRR, Commercial Banks keep reserve with themselves, while in case of SLR, Commercial Banks keep reserve with RBI.
(a) Both the Statements are true
(b) Both the Statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Ans – (b)
Statement 1 is false, CRR and SLR are not the same and one thing.
Cash Reserve Ratio (CRR):- It refers to the minimum percentage of net demand and time liabilities, to be kept by commercial banks with the central bank. A change in CRR affects the ability of commercial banks to create credit. For instance, an increase in CRR reduces the excess reserves of commercial banks and limits their credit-creating power.
Statutory Liquidity Ratio (SLR): It refers to the minimum percentage of net demand and time liabilities that commercial banks are required to maintain themselves. SLR is maintained in the form of designated liquid assets such as excess reserve securities or current account balances with other banks. Change in SLR affects the freedom of banks to sell government securities or borrow against them from the Central bank. An increase in SLR reduces the ability of banks to give credit and vice-versa.
The Reserve Bank can influence the credit creation power of the banks by making changes in CRR or /and SLR.
Thus, Statement 2 is also false