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Ramasubr...
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Indian banks are required to hold a certain proportion of their deposits as cash. In reality they don¶t hold these as
cash with themselves, but with Reserve Bank of India (RBI), which is as good as holding cash. This ratio (what part of
the total deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio.
When a bank¶s deposits increase by Rs100, and if the cash reserve ratio is 10, banks will hold Rs10 with the RBI and
lend Rs 90. The higher this ratio, the lower is the amount that banks can lend out. This makes the CRR an instrument
in the hands of a central bank through which it can control the amount by which banks lend. The RBI¶s medium term
policy is to take the CRR rate down to 3 per cent

The hike in CRR from 4.5 to 5 per cent will increase the amount that banks have to hold with RBI. It will therefore
reduce the amount that they can lend out. The move is expected to shift Rs 8,000 crore of lendable resources to RBI.
In the past few months the money that banks have available for giving out as credit is greater than the amount they
have been lending out. This has led to ³an overhang of liquidity´ in the system. The objective of the CRR hike is to
³mop up´ some of the ³excess liquidity´ in the system

The hike in CRR is not likely to lead to an immediate increase in interest rates. There is excess liquidity in the system
even after a higher amount is deposited with RBI as reserves.

Unless the demand for credit picks up to the extent that the money is all lent out, banks will not have an incentive to
raise interest rates.

The inflation rate may continue to be high, the economy may also continue to witness growth which will keep the
demand for credit high, and international trends are for rates to move up. This means that sooner or later interest
rates will go up. The first rates to get impacted are yields on government bonds. We have already seen this
happening. If the inflation rate keeps rising, RBI may raise the µrepo rate¶, the short term rate at which banks park
excess funds with the RBI. This makes it less attractive for banks to lend.

Further, RBI may raise the bank rate, the rate at which it lends to banks.

At this point you may expect interest rates on home loans and fixed deposits to go up as well. Over a year rates could
go up by as much as 3 per cent

I dont know about the SLR CAR PLR AND SDR

But I expect SLR is for a liquid ratio.

Liquid ratio = Liquid Asset/Current Liablities

Liquid Asset = Current Asset-Stock

Current Asset Ratio(CAR)

Current asset/ Current Liablities

Current asset is the asset which is easily liquified with in a span of maximum 1 year.

Current liablities is the liablity which has to be payed in with in 1 year.





 


 


  


 

 








   



 













  





 

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This is the rate at which central bank (RBI) lends money to other banks o
institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa. Thus, it can said that i
rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit.

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Thus we can say that this serve
i.e. it not only ensures that a portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the syst
inflation by tying the hands of the banks in lending money.

 
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, RBI wants to make it more expe
banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it red
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1 *   The RBI uses th
feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI wil
from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI

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