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What is CRR?

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bankdecides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drainout excessive money from the system.

Commercial banks are required to maintain with the RBI an average cash balance, the amount of which shall not

be less than 3% of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis and the RBI isempowered to increase the rate of CRR to such higher rate not exceeding 20% of the NDTL.What is Reverse Repo rate?

Reverse Repo rate is the rate at which the RBI borrows money from commercial banks. Banks are always

happy to lend money to the RBI since their money are in safe hands with a good interest.

An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle

cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.

What is a Repo Rate?

The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument ofmonetary

policy. Whenever banks have any shortage of funds they can borrow from the RBI.A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. The repo rate in India is

similar to the discount rate in the US.

Statutory liquidity ratio

Statutory Liquidity Ratio refers to the amount that the commercial banks require to maintain in the

form of cash, or gold or govt. approved securities before providing credit to the customers. Here by

approved securities we mean, bond and shares of different companies. Statutory Liquidity Ratio

is determined and maintained by the Reserve Bank of India in order to control the expansion of bank

credit. It is determined as percentage of total demand and percentage of time liabilities. Time

Liabilities refer to the liabilities, which the commercial banks are liable to pay to the customers on

there anytime demand. The maximum limit of SLR is 40% and minimum limit of SLR is 23%.In India

The liabilities that the banks are liable to pay within one month's time, due to completion of maturity

period, are also considered as time liabilities. The maximum limit of SLR is 40% and minimum limit of

SLR is 23%.In India, Reserve Bank of India always determines the percentage of Statutory Liquidity

Ratio. There are some statutory requirements for temporarily placing the money in Government

Bonds. Following this requirement, Reserve Bank of India fixes the level of Statutory Liquidity Ratio.

At present, the minimum limit of Statutory Liquidity Ratio that can be set by the Reserve Bank is 23%

AS ON AUGUST 2012 Objectives of SLR: The main objectives for maintaining the Statutory Liquidity

Ratio are the following: Statutory Liquidity Ratio is maintained in order to control the expansion of

Bank Credit. By changing the level of Statutory Liquidity Ratio, Reserve bank of India can increase or

decrease bank credit expansion. Statutory Liquidity Ratio in a way ensures the solvency of

commercial banks. By determining Statutory Liquidity Ratio, Reserve Bank of India, in a way,

compels the commercial banks to invest in government securities like government bonds.

If any Indian Bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes

liable to pay penalty to Reserve Bank of India. The defaulter bank pays penal interest at the rate of

3% per annum above the Bank Rate, on the shortfall amount for that particular day. But, according to

the Circular, released by the Department of Banking Operations and Development, Reserve Bank of

India; if the defaulter bank continues to default on the next working day, then the rate of penal interest

can be increased to 5% per annum above the Bank Rate. This restriction is imposed by RBI on banks

to make funds available to customers on demand as soon as possible. Gold and Government

Securities (or Gilts) are included along with cash because they are highly liquid and safe assets.

http://www.indiainfoline.com/Markets/News/RBI-CRR/4819189144http://www.indiainfoline.com/Markets/News/RBI-CRR/4819189144http://www.indiainfoline.com/Markets/News/RBI-Reverse-Repo-rate/4819173590http://www.indiainfoline.com/Markets/News/RBI-Repo-Rate/4819165813http://www.indiainfoline.com/Markets/News/RBI-Repo-Rate/4819165813http://www.indiainfoline.com/Markets/News/RBI-Reverse-Repo-rate/4819173590http://www.indiainfoline.com/Markets/News/RBI-CRR/4819189144

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The RBI can increase the Statutory Liquidity Ratio to contain inflation, suck liquidity in the market, to

tighten the measure to safeguard the customers money. In a growing economy banks would like to

invest in stock market, not in Government Securities or Gold as the latter would yield less returns.

One more reason is long term Government Securities (or any bond) are sensitive to interest rate

changes. But in an emerging economy interest rate change is a common activity.

This percentage is fixed by the central bank. The maximum and minimum limits for the SLR are 40%

and 25% respectively in India.[1]

Following the amendment of the Banking regulation Act(1949) in

January 2007, the floor rate of 23% for SLR was removed. Presently, the SLR is 23%

Difference between SLR and CRR

Both CRR and SLR are instruments in the hands of RBI to regulate money supply in the hands of

banks that they can pump in economy

SLR restricts the banks leverage in pumping more money into the economy. On the other hand,

CRR, orcash reserve ratio, is the portion of deposits that the banks have to maintain with the Central

Bank to reduce liquidity in economy. Thus CRR controls liquidity in economy while SLR regulates

credit growth in the country

The other difference is that to meet SLR, banks can use cash, gold or approved securities whereas

with CRR it has to be only cash. CRR is maintained in cash form with central bank, whereas SLR is

money deposited in govt. securities.CRR is used to control inflation.

Gross domestic product

Gross domestic product (GDP) is themarket valueof all officially recognized final goods and

services produced within a country in a given period. GDPper capitais often considered an indicator

of a country'sstandard of living;[2][3]

GDP per capita is not a measure of personal income

(SeeStandard of living and GDP). Under economic theory, GDP per capita exactly equals the gross

domestic income (GDI) per capita (SeeGross domestic income).

GDP is related tonational accounts, a subject inmacroeconomics. GDP is not to be confused

withGross National Product(GNP) which allocates production based on ownership.

Current account

Ineconomics, the current account is one of the two primary components of thebalance of

payments, the other beingcapital account. It is the sum of thebalance of trade(i.e., net earnings on

exports minus payments for imports), factor income (earnings on foreign investments minus payments

made to foreign investors) and cash transfers.

The current account balance is one of two major measures of the nature of a country's foreign trade

(the other being thenet capital outflow). A current account surplus increases a country's net foreign

assets by the corresponding amount, and a current account deficit does the reverse. Both

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government and private payments are included in the calculation. It is called the current account

because goods and services are generally consumed in the current period.[1]

If an economy is running current account deficit, it is absorbing (absorption= domestic consumption +

investment + government spending) more than that it is producing. This can only happen if some

other economies are lending their savings to it( in the form of debt to or direct/ portfolio investment inthe economy) or the economy is running down its foreign assets such official foreign currency

reserve.

Capatist countryUnited States, Canada, United Kingdom, Australia, New Zealand, Austria, Ireland, Sweden,

Switzerland, Israel, Japan, South Korea, Luxembourg, Norway, Bermuda, Iceland, Denmark,

San Marino, Belgium Netherlands, Finland, Czech Republic, Slovakia, Slovenia, Hong Kong,

Singapore, Bahrain, Chile, Estonia, Mauritius, Cyprus, Macau, Germany, Lithuania, Taiwan,

St. Lucia, Qatar, Georgia, Spain, Uruguay, Oman,Armenia, Jordan, El Salvador, Botswana,Peru, Barbados, Columbia, United Arab Emirates, Mexico, Costa Rica, Hungary, Trinidad,

Tobago, Saint Vincent, the Grenadines, Malaysia, Saudi Arabia, Macedonia, Latvia, Malta,

Jamaica, Panama, Bulgaria, Kuwait, Thailand, Romania, France, Cape Verde, Turkey,

Poland, Portugal, Albania, Belize, Croatia, Uganda, South Africa, Guatemala, Samoa, Italy,

Greece and Lebanon

SOCIALIST COUNTRYPeople's Republic of China,Republic of Cuba, Lao People's Democratic Republic, Socialist

Republic of Vietnam

MIXED ECONOMY COUNTRIES

.There are two large associations that meet annually to discuss the world economy, the G8 and

the European Union. The G8 includes the United States, France, Germany, Russia, Canada,

Italy, Japan and the United Kingdom. The European Union includes the following countries:

Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,

Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands,

Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom

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