Impact of Repo Rate, CRR, SLR

on
Indian Economy
Presented by
 Agenda :
• 1. What is Monetary Policy ?
• 2. Cash Reserve Ratio (CRR)
• How does CRR affect economy ?
• 3. Statutary Liquidity Ratio (SLR)
• How does SLR affect economy ?
• 4. Repo Rate or Repurchase Rate
• What’ll be the consequences of Repo Rate ?
• 5. Conclusion
 What is Monetary Policy?
• Policy made by the central bank (RBI).
• To control money supply in the economy.
(and thereby fight both inflation and
deflation).
• RBI implements monetary policy using
certain tools.
 Cash Reserve Ratio (CRR)
• Scheduled Commercial Banks(SCBs) in India
are required to hold a certain proportion of
their Demand and Time
• Liabilities with RBI as per Section 42(1) of the
Reserve Bank of India Act, 1934.
• This minimum ratio is stipulated by RBI and
is known as the Cash Reserve Ratio (CRR).
• Current CRR Rate is 4%.
• RBI uses CRR to

• Drain out excessive liquidity from the banks

• Release funds needed for the growth of the
economy from time to time
• Secure solvency of the banks
 How does CRR affect economy
• When the CRR is -
• Hiked
• Banks have less money for lending
• To maintain profit margin, banks
increase lending rate
• Customers borrow less and eventually
spend less
• Demands for goods and services thus
comes down
• Slow down in economy
 How does CRR affect economy
• When CRR is lowered
• Banks have more money for lending
• Lower interest rate
• Cheap loan
• More people take more loan
• Boost in economy
 Statutary Liquidity Ratio (SLR)
• It is the proportion of the total deposits which
commercial banks are required to maintain with
the Central
• bank in the form of liquid assets like cash, gold,
Govt. Bonds and securities.
• SLR = {Liquid assets/(Demand + Time Libilities)}
x 100
• RBI is empowered to increase this ratio upto
40%
• Current SLR rate is 21.5%
 Statutary Liquidity Ratio (SLR)
• Objective of SLR
• To restrict expansion of the bank credit
• To increase bank’s investment in Govt.
Securities
• To ensure solvency of the banks
 How does SLR affect economy
• When the SLR is Hiked
• Cash reserves of commercial banks decrease
• Rate of interest increase
• Price of credit increase
• Demand for credit decrease
• Credit contracts in economy
 How does SLR affect economy
• When the SLR is Lowered
• Cash reserves of commercial banks increase
• Rate of interest decrease
• Price of credit decrease
• Demand for credit increase
• Credit expands in economy
 Repo Rate or Repurchase Rate
• Repo Rate or Repurchase Rate is the rate at
which banks borrow money from the Central
Bank (RBI).
• It is for short period.
• The banks sell their securities (Financial
Assets) with an agreement to repurchase it at
future date at
• predetermined price.
• Current Repo Rate is 6.75%.
 How does Repo Rate affect economy
What if the Repo Rate is Hiked
• Decrease in money supply
• Discourage business growth
• and consumer spending
• Loans get costlier
How does Repo Rate affect economy
What if the Repo Rate is Lowered
• Increase in money supply
• Increase in demand of goods
• Increase in GDP growth
 Conclusion :
• Thus we can see that changes in Monetary policy drastically
affects the common
• people and the nations economy as a whole.
• RBI uses the tools of monetary policy periodically to infuse
and drain out excess
• liquidity out of the market.
• All the Nationalised Banks and Corporate firms count highly
on the RBI rates to
• garner business from there segments.
• In General we can conclude that a Nation’s whole economy
count heavily on the
• monetary policy of it’s Central bank for its prosperity