The other name of Legal Reserve Ratio are:
1. Reserve Deposit Ratio
2. Reserve Ratio (RR)
LRR is a very quick and direct method for controlling the credit-creating power of commercial banks. Commercial Banks are required to maintain reserves on two accounts:
(i) Cash Reserve Ratio (CRR): It refers to the minimum percentage of net demand and time liabilities, to be kept by commercial banks to create the credit. For instance, an increase in CRR reduces the excess reserves of commercial banks and limits their credit-creating power.
(ii) Statutory Liquidity Ratio (SLR): It refers to a minimum percentage of net demand and time liabilities that commercial banks are required to maintain with themselves. SLR is maintained in the form of designated liquid assets such as excess reserve, and 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 and SLR.