馃攳
CRR & SLR - Cash Reserve Ratio & Statutory Liquidity Ratio - YouTube
Channel: Asset Yogi
[0]
Subscribe to the Asset Yogi channel and press the bell icon
[4]
To watch the latest finance videos above all
[7]
Music
[11]
Namaskar, my name is Mukul and you are welcome to the Asset Yogi
[15]
In this video, we will discuss the monetary policy of RBI
[19]
How does the RBI maintain the balance between inflation and growth?
[24]
If inflation has increased
[28]
Then maybe RBI has to take some measures then how they do it?
[32]
We are discussing this only
[34]
So there are two measures for this
[36]
Cash Reserve Ratio and Statutory Liquidity Ratio
[39]
What is the meaning of these both?
[41]
How does the RBI control liquidity
[44]
Through them?
[45]
Or if we say indirectly how does it control the inflation
[49]
Or it maintains the balance between inflation and growth.
[51]
We will see the same in this video. So stay tuned with the video
[55]
Let's go straight towards the blackboard
[57]
To understand CRR and SLR
[60]
We will take the reference of our previous video where we learned NDTL
[64]
We saw the business of a bank
[67]
People do their deposits there
[69]
Whether in the form of a savings account or current account or FD
[74]
With that, companies and government organizations also do their deposits
[78]
Whether in the form of deposits or the in the form of current account
[82]
We divide these deposits under net demand and time liabilities
[89]
What are demand liabilities?
[91]
Like saving accounts or current account
[94]
In which you can withdraw the money on demand
[96]
You can withdraw the money
[98]
Whenever you want
[99]
Time liabilities are time-bound
[101]
You can withdraw the money after a certain time
[104]
For example, FD
[105]
How is the calculation of NDTL done?
[108]
I have made a detailed video about this
[110]
You can watch that video
[112]
So once we know the
[114]
Net demand and time liabilities of the bank
[117]
On a particular day
[118]
For example, the NDTL of a particular bank is 100 crore on a particular day
[123]
So can it give this 100 crore in the form of a loan?
[127]
No, a restriction comes in the way here
[129]
and RBI come into the picture
[131]
RBI says that out of these 100 crores,
keep 4 crores with me in the form of cash
[137]
4 crores mean 4% of NDTL. So 4% of 100 crores is 4 crores
[143]
Now this 4% of NDTL is called the cash reserve ratio.
[148]
This is kept in the form of cash and cash equivalents in RBI
[153]
So basically every bank has vaults
[156]
And the cash is kept in these vaults
[158]
And the RBI has control over it.
[160]
So in this way, RBI controls this cash
[163]
And the bank can not give this in the form of a loan
[167]
So this was about the cash reserve ratio.
[169]
Other than this, the RBI puts one more restriction
[173]
Out of this, 19.5 crores
[175]
19.5 crores out of 100 crores, keep this with you
[178]
But keep it in the form of liquid assets
[181]
What is the meaning of liquid assets? We will talk about it.
[184]
The 19.5 crores in 19.5% of NDTL
[189]
We call it SLR or Statutory Liquidity Ratio.
[193]
In this, we invest the money in liquid assets.
[197]
Banks invest their money in the liquid assets
[199]
Like cash, gold reserves, or government securities whether state or central.
[206]
The main motive is that RBI wants to maintain the liquidity in the banks
[210]
If there is a crisis for the bank
[212]
Then they can overcome it easily
[215]
A kind of safety net is provided here.
[217]
The second thing to keep in mind is that the cash reserve ratio
[221]
The 4% we talked about, banks don't get interest
on this.
[226]
But if we talk about statutory liquidity ratio.
[229]
So the banks get interest income here.
[231]
So because the banks do not get the interest income on cash reserve ratio.
[234]
So the bank prefers less CRR
[237]
The less the CRR is, the more benefit they will get
[239]
Because they can give loan with that money and earn interest on that
[244]
But the bank does not face many problems in maintaining the statutory liquidity ratio.
[248]
Because if they invest money in government securities, then also they will earn interest
[254]
So in this way, the RBI maintains the liquidity of the bank.
[258]
It provides a kind of safety net through CRR and SLR to the bank.
[262]
So 4% is gone here
[265]
And 19.5% is gone here
[267]
The remaining balance is 76.5 crores
[270]
Or we will say that the remaining 76.5%
[274]
Bank can give this in the form of a loan
[277]
So we can say that the loanable funds
[280]
That the banks have are 76.5 %
[283]
Now the question that arises here is that
[285]
How is the calculation of CRR and SLR done?
[288]
Which date's NDTL do we have to take?
[290]
So for this also, the RBI has provided the guidelines
[293]
This is maintained daily. You have to clear that.
[297]
But as a percent of what?
[300]
Which date's NDTL do we have to take?
[302]
Last Friday of a second preceding fortnight.
[305]
This is mentioned in the circular of RBI.
[308]
Last Friday of two weeks earlier, the NDTL of that day
[313]
4% of that NDTL will be your CRR
[316]
And 19.5 % of that will be the SLR
[320]
If any bank doesn't do it like this, then the penalty is charged from the bank.
[325]
If there is any shortfall
[327]
Let's say, 19.5 crores were to be maintained
[330]
And the bank had only 18 crores
[333]
That means there is a shortfall of 1.5 crores
[336]
This shortfall of 1.5 crores
[339]
RBI has to pay the interest rate on this
[342]
And how much to be paid?
[343]
Bank rate + 3%
[345]
If there is a default of one day.
[347]
If there is a default for many days
[349]
Then, bank rate + 5% interest on subsequent days
[353]
So I think the concept of statutory liquidity ratio and cash reserve ratio is clear to you.
[358]
So why does RBI do this? I have already talked about this with you.
[362]
The first reason is that the liquidity and solvency of the banks should be maintained.
[365]
This is kind of a safety net. If the banks have done some bad loans
[372]
So this is a safety net against the bad loans
[376]
Otherwise, there will be a chance for the bank to be bankrupt.
[380]
The second reason is that the RBI can control inflation through them.
[385]
So how inflation is controlled?
[387]
Let's understand some history.
[390]
In 1990, the CRR was 15%, and SLR was 38.5 %
[397]
There were these many high requirements.
[398]
That means the loanable funds of the banks were only 46.5%
[404]
So in these cases, the interest rate was very high.
[408]
Because if there were fewer funds with the bank to provide the loan
[413]
Then the banks might think to earn
[415]
More and more interest from that
[416]
After that, the RBI gradually started to decrease these ratios.
[420]
Because they wanted to increase the growth
[422]
See when the interests are high then inflation decreases.
[428]
But the growth also decreases.
[431]
So we already know, if we talk about 1990 or earlier from that
[435]
Then the growth of India wasn't that good
[437]
The biggest reason for that was the interest rates were very high
[441]
In we talk about 2018, then on today's date, the CRR is 4%
[446]
And SLR is 19.5%. We are talking about today's date
[450]
It can be more or less in the future.
[452]
And we will talk about that also. Why does the RBI make it more or less?
[456]
So when we are talking about 4% and 19.5%
[460]
Then the loanable funds here are 76.5 %
[463]
And if we talk about today in comparison to 1990
[466]
Then the interest rates are quite low.
[468]
On today's date, you get a home loan at 8.5%
[473]
Earlier, home loans were about 15%
[476]
Now let's see
[477]
How does the RBI control inflation?
[480]
Or how does it maintain the balance between growth?
[482]
Assume we have our scenario.
[485]
Assume, the RBI wants to control inflation
[489]
So what will the RBI do? It will increase the CRR.
[493]
Let's say it will increase the CRR from 4 to 6%
[497]
It will also increase the SLR, it will do the SLR of 24%
[502]
So in this case the loanable funds decrease
[504]
It becomes 70%. They become 70% from 76.5%
[509]
In this case, the bank will increase the interest rates
[513]
Why will it increase the interest rate?
[514]
If the bank has fewer funds and wants to increase the profit margin
[519]
So it will increase its interest rate and maintain its profit margin
[523]
Otherwise, their stocks will fall and their market will be in a bad condition
[528]
So the interest rates start increasing in these cases
[530]
If the interest rate increases then the people will minimize taking the loans
[534]
This is a simple thing. Fewer people will take loans on higher interest rates
[538]
And if they take fewer loans then the money supply will be reduced in the market.
[541]
Because the loan amount will be finished and people will consume their savings
[547]
And expenses will also decrease.
[549]
That means the demand will also decrease
[552]
And when the demand decreases then the prices will be reduced
[555]
That means inflation will decrease.
[557]
So in this way, the RBI can control the inflation
[562]
By increasing the CRR and SLR
[564]
Assume the inflation is quite low
[568]
And RBI wants to increase the growth
[571]
Then what will it do to increase the growth?
[574]
It will reduce the CRR
[574]
And it will also decrease the SLR
[577]
Let's say the RBI makes CRR 3% from 4% and SLR 15%
[582]
So in this case, the loanable funds of the banks will be 82%
[586]
So 82% means that
[588]
There is more money in the market
[591]
And if there is more money then there is more competition
[593]
And when there is more competition then the banks have to lower the interest
[598]
Because the banks start competing, they want to attract more and more customers
[602]
Then the interest rates decrease.
[604]
Then people start to take more loans
[607]
As the money supply and liquidity increase in the market,
[611]
As the money supply increases then the demand increases
[615]
The spending power of people increases.
[617]
And as the demand increases, then the prices increase
[621]
Increased prices mean increased inflation
[623]
Of course, the prices increased but the growth also increased
[628]
As you are seeing in this case when the demand for things increased.
[632]
Then the growth also increases
[633]
People will earn more money, they will work more, more vehicles will be sold
[638]
People take more loans, production of the vehicles will be increased
[642]
Salaries of people will be increased. So in this way, the growth increases
[646]
So it is natural that after a certain time, inflation will increase over the limit.
[651]
Then the RBI has to adopt these policies once again
[655]
To control inflation, they have to adopt these policies. So this goes on and on
[661]
Sometimes, RBI tries to control inflation, and sometimes it tries to increase the growth
[666]
Every government maintains this balance according to them
[669]
RBI also decides its monetary policies according to this.
[673]
I hope that the role of CRR and SLR in monetary policy is clear to you by this video.
[680]
The balance between growth and inflation is made.
[682]
RBI has a similar tool that is called repo and reverse repo rate.
[689]
We will talk about this in the next video
[692]
So make sure to watch my next video.
[693]
If you liked this video then like and share.
[697]
If you have at suggestions or if you want to suggest
topics for the future videos
[702]
Or if you want to share your opinion with the community
[704]
Then comment it below
[706]
To get the latest finance and investing tips
[708]
Make sure to subscribe to the channel
[710]
And press the bell icon on your mobile
[712]
So that you'll get the notification of my latest videos
[715]
So let's meet in the next video
[716]
Till then keep learning, keep earning
[718]
And be happy as always
Most Recent Videos:
You can go back to the homepage right here: Homepage