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6.1-3 Indian Specific Education Program IS Regulatory Environment, Law…

- - - - Cash Reserve Ratio (CRR) : CRR is the ratio of total deposit that banks need to keep as a reserve with RBI in form of cash not earning them any interest. High CRR decreases the capacity of banks to lend thereby tending the interest rate to increase. CRR ratio helps to reduce inflation. and
      - Statutory Liquidity Ratio (SLR) : SLR of a bank's net time and demand liabilities which it has to maintain in the form of cash, gold and other securities prescribed by RBI. SLR helps for banks to keep liquidity.
        Repo rate - is actually the rate at which commercial banks and other institutes obtain short-term loans from RBI.
        Reverse repo rate - commercial banks park their surplus money with the RBI.
        Reverse repo rate < Repo rate by at least 50 basis points.
        Banks can also borrow overnight funds from RBI equal to 1% of their net demand and time liabilities at a rate which is pegged 100 basis points above the repo rate called marginal standing facility or MSF rate.