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CRR SLR
14
The reserve require ments (or cash reserve ratio) is a state bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes . It would normally be in the form of fiat currency stored in a bank vault (vault cash), or with a central bank . The reserve ratio is sometimes used as a tool in the monetary policy , influencing the country's economy, borrowing, and interest rates [1] . Western central banks rarely alter the reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves ; they prefer to use open market operations to implement their monetary policy. The People's Bank of China uses changes in reserve requirements as an inflation-fighting tool, [2] and raised the reserve requirement nine times in 2007. As of 2006 the required reserve ratio in the United States was 10% on transaction deposits (component of money supply "M1"), and zero on time deposits and all other deposits. An institution that holds reserves in excess of the required amount is said to hold excess reserves . [edit ] Effects on money supply MS = MB * mm mm = (1 + c) / (c + R) MS = Money Supply Mb = Monetary base mm = money multiplier c = rate at which people hold cash (as opposed to depositing it) R = the reserve requirement (the percent of deposits that banks are not allowed to lend) if banks only have to hold 10% of deposits,they will lend the other 90% of deposits. The person with that loan will then choose to deposit the money from the loan back into the bank at a rate of 'c' (for simplicity say c=0%.) then the bank can again loan 90% of the second deposit which was 90% of the first deposit.
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Transcript of CRR SLR
The reserve requirements (or cash reserve ratio) is a state bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes It would
normally be in the form of fiat currency stored in a bank vault (vault cash) or with a central bank
The reserve ratio is sometimes used as a tool in the monetary policy influencing the countrys economy borrowing and interest rates[1] Western central banks rarely alter the
reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves they prefer to use open market operations to implement their
monetary policy The Peoples Bank of China uses changes in reserve requirements as an inflation-fighting tool[2] and raised the reserve requirement nine times in 2007 As of 2006 the required reserve ratio in the United States was 10 on transaction deposits
(component of money supply M1) and zero on time deposits and all other deposits
An institution that holds reserves in excess of the required amount is said to hold excess reserves
[edit] Effects on money supply
MS = MB mm
mm = (1 + c) (c + R)
MS = Money Supply
Mb = Monetary base
mm = money multiplier
c = rate at which people hold cash (as opposed to depositing it)
R = the reserve requirement (the percent of deposits that banks are not allowed to lend)
if banks only have to hold 10 of depositsthey will lend the other 90 of deposits The
person with that loan will then choose to deposit the money from the loan back into the bank at a rate of c (for simplicity say c=0) then the bank can again loan 90 of the second deposit which was 90 of the first deposit
Reserve requirements affect the potential of the banking system to create transaction deposits If the reserve requirement is 10 for example a bank that receives a $100
deposit may lend out $90 of that deposit If the borrower then writes a check to someone who deposits the $90 the bank receiving that deposit can lend out $81 As the process
continues the banking system can expand the change in excess reserves of $90 into a maximum of $1000 of money ($100+$90+81+$7290+=$1000) eg$100010=$1000 In contrast with a 20 reserve requirement the banking system
would be able to expand the initial $100 deposit into a maximum of ($100+$80+$64+$5120+=$500) eg$100020=$500 Thus higher reserve
requirements reduce money creation and help maintain the purchasing power of the currency previously in use
Reserve requirements in the US apply only to transaction accounts which are components of M1 a narrowly defined measure of money Deposits that are components
of M2 and M3 (but not M1) such as savings accounts and time deposits such as CDs have no reserve requirements and therefore can expand without regard to reserve levels
Because of the exponential impact that reserve requirements have on the money supply
and the large time lag between their implementation and the corresponding effect of inflation the Federal reserve does not frequently change reserve requirements for the
purpose of affecting monetary policy
[edit] Reserve ratios
A cash reserve ratio (or CRR) is the percentage of bank reserves to deposits and notes The cash reserve ratio is also known as the cash asset ratio or liquidity ratio In the
United States the Board of Governors of the Federal Reserve System requires zero percent (0) fractional reserves from depository institutions having net transactions accounts of up to $107 million[3] Depository institutions having over $107 million and
up to $552 million in net transaction accounts must have fractional reserves totaling three percent (3) of that amount[3] Finally depository institutions having over $552
million in net transaction accounts must have fractional reserves totaling ten percent (10) of that amount[3] However under current policy these numbers do not apply to time deposits from domestic corporations or deposits from foreign corporations or
governments called nonpersonal time deposits and eurocurrency liabilities respectively For these account classes the fractional reserve requirement is zero percent
(0) regardless of net account value[3]
The Bank of England holds to a voluntary reserve ratio system In 1998 the average cash reserve ratio across the entire United Kingdom banking system was 31 Other countries have required reserve ratios (or RRRs) that are statutorily enforced (sourced
from Lecture 8 Slide 4 Central Banking and the Money Supply by Dr Pinar Yesin University of Zurich based on 2003 survey of CBC participants at the Study Center
Gerzensee[4])
Country Required reserve Note
(in )
Australia None Statutory Reserve Deposits abolished in 1988
replaced with 1 Non-callable Deposits[5]
Canada None
Mexico None
New Zealand None 1999[2]
Sweden None
United Kingdom
None
Czech Republic
200 Since 7 October
Eurozone 200
South Africa 250
Switzerland 250
Poland 300
Chile 450
India 575 as per RBI
Bangladesh 550 Raised from 500 Effective from 15 May 2010
Lithuania 600
Pakistan 500 Since 1 November 2008
Latvia 800
Jordan 800
Malawi 1500
Zambia 800
Burundi 850
Hungary 20
Ghana 900
United States 1000
Sri Lanka 1000
Bulgaria 1200 Raised from 8 effective from 2007-01-09
Croatia 1400 Down from 17 effective from 2009-01-14[6]
Costa Rica 1500
Estonia 1500
China 1650
Rate is for major Chinese Banks up from 16
effective from 2010-02-25[7] Small and medium-size banks have a lower rate of
135
Hong Kong 1800
Tajikistan 2000
Suriname 2500 Down from 27 effective from 2007-01-01[8]
Lebanon 3000 [3]
Brazil 4300 [4]
In some countries the cash reserve ratios have decreased over time (sourced from IMF Financial Statistic Yearbook)
Country 1968 1978 1988 1998
United Kingdom 205 159 50 31
Turkey 583 627 308 180
Germany 190 193 172 119
United States 123 101 85 103
(Ratios are expressed in percentage points)
This article needs attention from an expert on the subject See the talk page for details WikiProject Economics or the Economics Portal may be able to help recruit an
expert (November 2008)
Capital adequacy ratio (CAR) also called Capital to Risk (Weighted) Assets Ratio (CRAR)[9] is a ratio of a banks capital to its risk National regulators track a banks CAR
to ensure that it can absorb a reasonable amount of loss [10] and are complying with their statutory capital requirements
[edit] Formula
Capital adequacy ratios (CAR) are a measure of the amount of a banks capital
expressed as a percentage of its risk weighted credit exposures
Capital adequacy ratio is defined as
where Risk can either be weighted assets () or the respective national regulators minimum total capital requirement If using risk weighted assets
ge 8[9]
The percent threshold (8 in this case a common requirement for regulators conforming
to the Basel Accords) is set by the national banking regulator
Two types of capital are measured tier one capital (T1 above) which can absorb losses
without a bank being required to cease trading and tier two capital (T2 above) which can
absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors
[edit] Use
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of
meeting the time liabilities and other risk such as credit risk operational risk etc In the most simple formulation a banks capital is the cushion for potential losses which protect the banks depositors or other lenders Banking regulators in most countries define
and monitor CAR to protect depositors thereby maintaining confidence in the banking system[9]
CAR is similar to leverage in the most basic formulation it is comparable to the inverse
of debt-to-equity leverage formulations CAR uses equity divided by assets instead of debt-to-equity (total debt divided by shareholders equity or other invested capital) It is
important to note that the assets of a bank are its outstanding loans (not the deposits it has taken in) In accounting generally total assets are by definition equal to debt plus equity Therefore the capital adequacey ratio is equivalent to the proportion of Capital (generally
what shareholders paid to the bank to purchase common stock but Capital may also include other types of securities issuances) to the assets it hold on its books (ie the
loans that bank customers have to pay back to the bank -- such as a home mortgage) Unlike traditional leverage however CAR recognizes that assets can have different levels of risk The safer the asset the more the bank is allowed to discount that asset in
its CAR calculation in other words banks do not have to hold so much in reserves if their assets (the loan dollars owed to them) are very safe (ie highly likely to be paid
back) For example if the bank buys and holds a bond from a corporation there is a better likelihood the corporation will pay off its bond than that a homeowner will pay off his mortgage
[edit] Risk weighting
Since different types of assets have different risk profiles CAR primarily adjusts for assets that are less risky by allowing banks to discount lower-risk assets The specifics of CAR calculation vary from country to country but general approaches tend to be
similar for countries that apply the Basel Accords In the most basic application government debt is allowed a 0 risk weighting - that is they are subtracted from total
assets for purposes of calculating the CAR
[edit] Risk weighting example
Local regulations establish that cash and government bonds have a 0 risk weighting and residential mortgage loans have a 50 risk weighting All other types of assets (loans
to customers) have a 100 risk weighting
Bank A has assets totaling 100 units consisting of
Cash 10 units Government bonds 15 units
Mortgage loans 20 units Other loans 50 units
Other assets 5 units
Bank A has deposits of 95 units all of which are deposits (remember deposits to a bank are its debt) By definition equity is equal to assets minus debt or 5 units
Bank As risk-weighted assets are calculated as follows
Cash 10 0 = 0
Government bonds 15 0 = 0
Mortgage loans 20 50 = 10
Other loans 50 100 = 50
Other assets 5 100 = 5
Total risk
Weighted assets 65
Equity 5
CAR (EquityRWA) 769
Even though Bank A would appear to have a debt-to-equity ratio of 955 or equity-to-assets of only 5 its CAR is substantially higher It is considered less risky because some of its assets are less risky than others
[edit] Types of capital
The Basel rules recognize that different types of equity are more important than others To recognize this different adjustments are made
1 Tier I Capital Actual contributed equity plus retained earnings
2 Tier II Capital Preferred shares plus 50 of subordinated debt
Different minimum CAR ratios are applied minimum Tier I equity to risk-weighted assets may be 4 while minimum CAR including Tier II capital may be 8
There is usually a maximum of Tier II capital that may be counted towards CAR
depending on the jurisdiction
[edit] See also
Bank regulation Capital Requirement
Fractional- reserve banking
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
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Global
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Committee on Banking
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[hide]
By continent
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States middot Bank of Central African
States middot Bank of Algeria middot Central
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Malaysia middot Bank of Mongolia middot
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of the Philippines middot Qatar
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Authority of Singapore middot Central
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of the United Arab Emirates middot
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Kong Monetary Authority middot
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Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
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Armenia middot Central Bank of
Azerbaijan middot National Bank of
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National Bank middot Croatian
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Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
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This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Reserve requirements affect the potential of the banking system to create transaction deposits If the reserve requirement is 10 for example a bank that receives a $100
deposit may lend out $90 of that deposit If the borrower then writes a check to someone who deposits the $90 the bank receiving that deposit can lend out $81 As the process
continues the banking system can expand the change in excess reserves of $90 into a maximum of $1000 of money ($100+$90+81+$7290+=$1000) eg$100010=$1000 In contrast with a 20 reserve requirement the banking system
would be able to expand the initial $100 deposit into a maximum of ($100+$80+$64+$5120+=$500) eg$100020=$500 Thus higher reserve
requirements reduce money creation and help maintain the purchasing power of the currency previously in use
Reserve requirements in the US apply only to transaction accounts which are components of M1 a narrowly defined measure of money Deposits that are components
of M2 and M3 (but not M1) such as savings accounts and time deposits such as CDs have no reserve requirements and therefore can expand without regard to reserve levels
Because of the exponential impact that reserve requirements have on the money supply
and the large time lag between their implementation and the corresponding effect of inflation the Federal reserve does not frequently change reserve requirements for the
purpose of affecting monetary policy
[edit] Reserve ratios
A cash reserve ratio (or CRR) is the percentage of bank reserves to deposits and notes The cash reserve ratio is also known as the cash asset ratio or liquidity ratio In the
United States the Board of Governors of the Federal Reserve System requires zero percent (0) fractional reserves from depository institutions having net transactions accounts of up to $107 million[3] Depository institutions having over $107 million and
up to $552 million in net transaction accounts must have fractional reserves totaling three percent (3) of that amount[3] Finally depository institutions having over $552
million in net transaction accounts must have fractional reserves totaling ten percent (10) of that amount[3] However under current policy these numbers do not apply to time deposits from domestic corporations or deposits from foreign corporations or
governments called nonpersonal time deposits and eurocurrency liabilities respectively For these account classes the fractional reserve requirement is zero percent
(0) regardless of net account value[3]
The Bank of England holds to a voluntary reserve ratio system In 1998 the average cash reserve ratio across the entire United Kingdom banking system was 31 Other countries have required reserve ratios (or RRRs) that are statutorily enforced (sourced
from Lecture 8 Slide 4 Central Banking and the Money Supply by Dr Pinar Yesin University of Zurich based on 2003 survey of CBC participants at the Study Center
Gerzensee[4])
Country Required reserve Note
(in )
Australia None Statutory Reserve Deposits abolished in 1988
replaced with 1 Non-callable Deposits[5]
Canada None
Mexico None
New Zealand None 1999[2]
Sweden None
United Kingdom
None
Czech Republic
200 Since 7 October
Eurozone 200
South Africa 250
Switzerland 250
Poland 300
Chile 450
India 575 as per RBI
Bangladesh 550 Raised from 500 Effective from 15 May 2010
Lithuania 600
Pakistan 500 Since 1 November 2008
Latvia 800
Jordan 800
Malawi 1500
Zambia 800
Burundi 850
Hungary 20
Ghana 900
United States 1000
Sri Lanka 1000
Bulgaria 1200 Raised from 8 effective from 2007-01-09
Croatia 1400 Down from 17 effective from 2009-01-14[6]
Costa Rica 1500
Estonia 1500
China 1650
Rate is for major Chinese Banks up from 16
effective from 2010-02-25[7] Small and medium-size banks have a lower rate of
135
Hong Kong 1800
Tajikistan 2000
Suriname 2500 Down from 27 effective from 2007-01-01[8]
Lebanon 3000 [3]
Brazil 4300 [4]
In some countries the cash reserve ratios have decreased over time (sourced from IMF Financial Statistic Yearbook)
Country 1968 1978 1988 1998
United Kingdom 205 159 50 31
Turkey 583 627 308 180
Germany 190 193 172 119
United States 123 101 85 103
(Ratios are expressed in percentage points)
This article needs attention from an expert on the subject See the talk page for details WikiProject Economics or the Economics Portal may be able to help recruit an
expert (November 2008)
Capital adequacy ratio (CAR) also called Capital to Risk (Weighted) Assets Ratio (CRAR)[9] is a ratio of a banks capital to its risk National regulators track a banks CAR
to ensure that it can absorb a reasonable amount of loss [10] and are complying with their statutory capital requirements
[edit] Formula
Capital adequacy ratios (CAR) are a measure of the amount of a banks capital
expressed as a percentage of its risk weighted credit exposures
Capital adequacy ratio is defined as
where Risk can either be weighted assets () or the respective national regulators minimum total capital requirement If using risk weighted assets
ge 8[9]
The percent threshold (8 in this case a common requirement for regulators conforming
to the Basel Accords) is set by the national banking regulator
Two types of capital are measured tier one capital (T1 above) which can absorb losses
without a bank being required to cease trading and tier two capital (T2 above) which can
absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors
[edit] Use
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of
meeting the time liabilities and other risk such as credit risk operational risk etc In the most simple formulation a banks capital is the cushion for potential losses which protect the banks depositors or other lenders Banking regulators in most countries define
and monitor CAR to protect depositors thereby maintaining confidence in the banking system[9]
CAR is similar to leverage in the most basic formulation it is comparable to the inverse
of debt-to-equity leverage formulations CAR uses equity divided by assets instead of debt-to-equity (total debt divided by shareholders equity or other invested capital) It is
important to note that the assets of a bank are its outstanding loans (not the deposits it has taken in) In accounting generally total assets are by definition equal to debt plus equity Therefore the capital adequacey ratio is equivalent to the proportion of Capital (generally
what shareholders paid to the bank to purchase common stock but Capital may also include other types of securities issuances) to the assets it hold on its books (ie the
loans that bank customers have to pay back to the bank -- such as a home mortgage) Unlike traditional leverage however CAR recognizes that assets can have different levels of risk The safer the asset the more the bank is allowed to discount that asset in
its CAR calculation in other words banks do not have to hold so much in reserves if their assets (the loan dollars owed to them) are very safe (ie highly likely to be paid
back) For example if the bank buys and holds a bond from a corporation there is a better likelihood the corporation will pay off its bond than that a homeowner will pay off his mortgage
[edit] Risk weighting
Since different types of assets have different risk profiles CAR primarily adjusts for assets that are less risky by allowing banks to discount lower-risk assets The specifics of CAR calculation vary from country to country but general approaches tend to be
similar for countries that apply the Basel Accords In the most basic application government debt is allowed a 0 risk weighting - that is they are subtracted from total
assets for purposes of calculating the CAR
[edit] Risk weighting example
Local regulations establish that cash and government bonds have a 0 risk weighting and residential mortgage loans have a 50 risk weighting All other types of assets (loans
to customers) have a 100 risk weighting
Bank A has assets totaling 100 units consisting of
Cash 10 units Government bonds 15 units
Mortgage loans 20 units Other loans 50 units
Other assets 5 units
Bank A has deposits of 95 units all of which are deposits (remember deposits to a bank are its debt) By definition equity is equal to assets minus debt or 5 units
Bank As risk-weighted assets are calculated as follows
Cash 10 0 = 0
Government bonds 15 0 = 0
Mortgage loans 20 50 = 10
Other loans 50 100 = 50
Other assets 5 100 = 5
Total risk
Weighted assets 65
Equity 5
CAR (EquityRWA) 769
Even though Bank A would appear to have a debt-to-equity ratio of 955 or equity-to-assets of only 5 its CAR is substantially higher It is considered less risky because some of its assets are less risky than others
[edit] Types of capital
The Basel rules recognize that different types of equity are more important than others To recognize this different adjustments are made
1 Tier I Capital Actual contributed equity plus retained earnings
2 Tier II Capital Preferred shares plus 50 of subordinated debt
Different minimum CAR ratios are applied minimum Tier I equity to risk-weighted assets may be 4 while minimum CAR including Tier II capital may be 8
There is usually a maximum of Tier II capital that may be counted towards CAR
depending on the jurisdiction
[edit] See also
Bank regulation Capital Requirement
Fractional- reserve banking
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
Central banks
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
(in )
Australia None Statutory Reserve Deposits abolished in 1988
replaced with 1 Non-callable Deposits[5]
Canada None
Mexico None
New Zealand None 1999[2]
Sweden None
United Kingdom
None
Czech Republic
200 Since 7 October
Eurozone 200
South Africa 250
Switzerland 250
Poland 300
Chile 450
India 575 as per RBI
Bangladesh 550 Raised from 500 Effective from 15 May 2010
Lithuania 600
Pakistan 500 Since 1 November 2008
Latvia 800
Jordan 800
Malawi 1500
Zambia 800
Burundi 850
Hungary 20
Ghana 900
United States 1000
Sri Lanka 1000
Bulgaria 1200 Raised from 8 effective from 2007-01-09
Croatia 1400 Down from 17 effective from 2009-01-14[6]
Costa Rica 1500
Estonia 1500
China 1650
Rate is for major Chinese Banks up from 16
effective from 2010-02-25[7] Small and medium-size banks have a lower rate of
135
Hong Kong 1800
Tajikistan 2000
Suriname 2500 Down from 27 effective from 2007-01-01[8]
Lebanon 3000 [3]
Brazil 4300 [4]
In some countries the cash reserve ratios have decreased over time (sourced from IMF Financial Statistic Yearbook)
Country 1968 1978 1988 1998
United Kingdom 205 159 50 31
Turkey 583 627 308 180
Germany 190 193 172 119
United States 123 101 85 103
(Ratios are expressed in percentage points)
This article needs attention from an expert on the subject See the talk page for details WikiProject Economics or the Economics Portal may be able to help recruit an
expert (November 2008)
Capital adequacy ratio (CAR) also called Capital to Risk (Weighted) Assets Ratio (CRAR)[9] is a ratio of a banks capital to its risk National regulators track a banks CAR
to ensure that it can absorb a reasonable amount of loss [10] and are complying with their statutory capital requirements
[edit] Formula
Capital adequacy ratios (CAR) are a measure of the amount of a banks capital
expressed as a percentage of its risk weighted credit exposures
Capital adequacy ratio is defined as
where Risk can either be weighted assets () or the respective national regulators minimum total capital requirement If using risk weighted assets
ge 8[9]
The percent threshold (8 in this case a common requirement for regulators conforming
to the Basel Accords) is set by the national banking regulator
Two types of capital are measured tier one capital (T1 above) which can absorb losses
without a bank being required to cease trading and tier two capital (T2 above) which can
absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors
[edit] Use
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of
meeting the time liabilities and other risk such as credit risk operational risk etc In the most simple formulation a banks capital is the cushion for potential losses which protect the banks depositors or other lenders Banking regulators in most countries define
and monitor CAR to protect depositors thereby maintaining confidence in the banking system[9]
CAR is similar to leverage in the most basic formulation it is comparable to the inverse
of debt-to-equity leverage formulations CAR uses equity divided by assets instead of debt-to-equity (total debt divided by shareholders equity or other invested capital) It is
important to note that the assets of a bank are its outstanding loans (not the deposits it has taken in) In accounting generally total assets are by definition equal to debt plus equity Therefore the capital adequacey ratio is equivalent to the proportion of Capital (generally
what shareholders paid to the bank to purchase common stock but Capital may also include other types of securities issuances) to the assets it hold on its books (ie the
loans that bank customers have to pay back to the bank -- such as a home mortgage) Unlike traditional leverage however CAR recognizes that assets can have different levels of risk The safer the asset the more the bank is allowed to discount that asset in
its CAR calculation in other words banks do not have to hold so much in reserves if their assets (the loan dollars owed to them) are very safe (ie highly likely to be paid
back) For example if the bank buys and holds a bond from a corporation there is a better likelihood the corporation will pay off its bond than that a homeowner will pay off his mortgage
[edit] Risk weighting
Since different types of assets have different risk profiles CAR primarily adjusts for assets that are less risky by allowing banks to discount lower-risk assets The specifics of CAR calculation vary from country to country but general approaches tend to be
similar for countries that apply the Basel Accords In the most basic application government debt is allowed a 0 risk weighting - that is they are subtracted from total
assets for purposes of calculating the CAR
[edit] Risk weighting example
Local regulations establish that cash and government bonds have a 0 risk weighting and residential mortgage loans have a 50 risk weighting All other types of assets (loans
to customers) have a 100 risk weighting
Bank A has assets totaling 100 units consisting of
Cash 10 units Government bonds 15 units
Mortgage loans 20 units Other loans 50 units
Other assets 5 units
Bank A has deposits of 95 units all of which are deposits (remember deposits to a bank are its debt) By definition equity is equal to assets minus debt or 5 units
Bank As risk-weighted assets are calculated as follows
Cash 10 0 = 0
Government bonds 15 0 = 0
Mortgage loans 20 50 = 10
Other loans 50 100 = 50
Other assets 5 100 = 5
Total risk
Weighted assets 65
Equity 5
CAR (EquityRWA) 769
Even though Bank A would appear to have a debt-to-equity ratio of 955 or equity-to-assets of only 5 its CAR is substantially higher It is considered less risky because some of its assets are less risky than others
[edit] Types of capital
The Basel rules recognize that different types of equity are more important than others To recognize this different adjustments are made
1 Tier I Capital Actual contributed equity plus retained earnings
2 Tier II Capital Preferred shares plus 50 of subordinated debt
Different minimum CAR ratios are applied minimum Tier I equity to risk-weighted assets may be 4 while minimum CAR including Tier II capital may be 8
There is usually a maximum of Tier II capital that may be counted towards CAR
depending on the jurisdiction
[edit] See also
Bank regulation Capital Requirement
Fractional- reserve banking
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
Central banks
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Suriname 2500 Down from 27 effective from 2007-01-01[8]
Lebanon 3000 [3]
Brazil 4300 [4]
In some countries the cash reserve ratios have decreased over time (sourced from IMF Financial Statistic Yearbook)
Country 1968 1978 1988 1998
United Kingdom 205 159 50 31
Turkey 583 627 308 180
Germany 190 193 172 119
United States 123 101 85 103
(Ratios are expressed in percentage points)
This article needs attention from an expert on the subject See the talk page for details WikiProject Economics or the Economics Portal may be able to help recruit an
expert (November 2008)
Capital adequacy ratio (CAR) also called Capital to Risk (Weighted) Assets Ratio (CRAR)[9] is a ratio of a banks capital to its risk National regulators track a banks CAR
to ensure that it can absorb a reasonable amount of loss [10] and are complying with their statutory capital requirements
[edit] Formula
Capital adequacy ratios (CAR) are a measure of the amount of a banks capital
expressed as a percentage of its risk weighted credit exposures
Capital adequacy ratio is defined as
where Risk can either be weighted assets () or the respective national regulators minimum total capital requirement If using risk weighted assets
ge 8[9]
The percent threshold (8 in this case a common requirement for regulators conforming
to the Basel Accords) is set by the national banking regulator
Two types of capital are measured tier one capital (T1 above) which can absorb losses
without a bank being required to cease trading and tier two capital (T2 above) which can
absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors
[edit] Use
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of
meeting the time liabilities and other risk such as credit risk operational risk etc In the most simple formulation a banks capital is the cushion for potential losses which protect the banks depositors or other lenders Banking regulators in most countries define
and monitor CAR to protect depositors thereby maintaining confidence in the banking system[9]
CAR is similar to leverage in the most basic formulation it is comparable to the inverse
of debt-to-equity leverage formulations CAR uses equity divided by assets instead of debt-to-equity (total debt divided by shareholders equity or other invested capital) It is
important to note that the assets of a bank are its outstanding loans (not the deposits it has taken in) In accounting generally total assets are by definition equal to debt plus equity Therefore the capital adequacey ratio is equivalent to the proportion of Capital (generally
what shareholders paid to the bank to purchase common stock but Capital may also include other types of securities issuances) to the assets it hold on its books (ie the
loans that bank customers have to pay back to the bank -- such as a home mortgage) Unlike traditional leverage however CAR recognizes that assets can have different levels of risk The safer the asset the more the bank is allowed to discount that asset in
its CAR calculation in other words banks do not have to hold so much in reserves if their assets (the loan dollars owed to them) are very safe (ie highly likely to be paid
back) For example if the bank buys and holds a bond from a corporation there is a better likelihood the corporation will pay off its bond than that a homeowner will pay off his mortgage
[edit] Risk weighting
Since different types of assets have different risk profiles CAR primarily adjusts for assets that are less risky by allowing banks to discount lower-risk assets The specifics of CAR calculation vary from country to country but general approaches tend to be
similar for countries that apply the Basel Accords In the most basic application government debt is allowed a 0 risk weighting - that is they are subtracted from total
assets for purposes of calculating the CAR
[edit] Risk weighting example
Local regulations establish that cash and government bonds have a 0 risk weighting and residential mortgage loans have a 50 risk weighting All other types of assets (loans
to customers) have a 100 risk weighting
Bank A has assets totaling 100 units consisting of
Cash 10 units Government bonds 15 units
Mortgage loans 20 units Other loans 50 units
Other assets 5 units
Bank A has deposits of 95 units all of which are deposits (remember deposits to a bank are its debt) By definition equity is equal to assets minus debt or 5 units
Bank As risk-weighted assets are calculated as follows
Cash 10 0 = 0
Government bonds 15 0 = 0
Mortgage loans 20 50 = 10
Other loans 50 100 = 50
Other assets 5 100 = 5
Total risk
Weighted assets 65
Equity 5
CAR (EquityRWA) 769
Even though Bank A would appear to have a debt-to-equity ratio of 955 or equity-to-assets of only 5 its CAR is substantially higher It is considered less risky because some of its assets are less risky than others
[edit] Types of capital
The Basel rules recognize that different types of equity are more important than others To recognize this different adjustments are made
1 Tier I Capital Actual contributed equity plus retained earnings
2 Tier II Capital Preferred shares plus 50 of subordinated debt
Different minimum CAR ratios are applied minimum Tier I equity to risk-weighted assets may be 4 while minimum CAR including Tier II capital may be 8
There is usually a maximum of Tier II capital that may be counted towards CAR
depending on the jurisdiction
[edit] See also
Bank regulation Capital Requirement
Fractional- reserve banking
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
Central banks
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
[edit] Use
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of
meeting the time liabilities and other risk such as credit risk operational risk etc In the most simple formulation a banks capital is the cushion for potential losses which protect the banks depositors or other lenders Banking regulators in most countries define
and monitor CAR to protect depositors thereby maintaining confidence in the banking system[9]
CAR is similar to leverage in the most basic formulation it is comparable to the inverse
of debt-to-equity leverage formulations CAR uses equity divided by assets instead of debt-to-equity (total debt divided by shareholders equity or other invested capital) It is
important to note that the assets of a bank are its outstanding loans (not the deposits it has taken in) In accounting generally total assets are by definition equal to debt plus equity Therefore the capital adequacey ratio is equivalent to the proportion of Capital (generally
what shareholders paid to the bank to purchase common stock but Capital may also include other types of securities issuances) to the assets it hold on its books (ie the
loans that bank customers have to pay back to the bank -- such as a home mortgage) Unlike traditional leverage however CAR recognizes that assets can have different levels of risk The safer the asset the more the bank is allowed to discount that asset in
its CAR calculation in other words banks do not have to hold so much in reserves if their assets (the loan dollars owed to them) are very safe (ie highly likely to be paid
back) For example if the bank buys and holds a bond from a corporation there is a better likelihood the corporation will pay off its bond than that a homeowner will pay off his mortgage
[edit] Risk weighting
Since different types of assets have different risk profiles CAR primarily adjusts for assets that are less risky by allowing banks to discount lower-risk assets The specifics of CAR calculation vary from country to country but general approaches tend to be
similar for countries that apply the Basel Accords In the most basic application government debt is allowed a 0 risk weighting - that is they are subtracted from total
assets for purposes of calculating the CAR
[edit] Risk weighting example
Local regulations establish that cash and government bonds have a 0 risk weighting and residential mortgage loans have a 50 risk weighting All other types of assets (loans
to customers) have a 100 risk weighting
Bank A has assets totaling 100 units consisting of
Cash 10 units Government bonds 15 units
Mortgage loans 20 units Other loans 50 units
Other assets 5 units
Bank A has deposits of 95 units all of which are deposits (remember deposits to a bank are its debt) By definition equity is equal to assets minus debt or 5 units
Bank As risk-weighted assets are calculated as follows
Cash 10 0 = 0
Government bonds 15 0 = 0
Mortgage loans 20 50 = 10
Other loans 50 100 = 50
Other assets 5 100 = 5
Total risk
Weighted assets 65
Equity 5
CAR (EquityRWA) 769
Even though Bank A would appear to have a debt-to-equity ratio of 955 or equity-to-assets of only 5 its CAR is substantially higher It is considered less risky because some of its assets are less risky than others
[edit] Types of capital
The Basel rules recognize that different types of equity are more important than others To recognize this different adjustments are made
1 Tier I Capital Actual contributed equity plus retained earnings
2 Tier II Capital Preferred shares plus 50 of subordinated debt
Different minimum CAR ratios are applied minimum Tier I equity to risk-weighted assets may be 4 while minimum CAR including Tier II capital may be 8
There is usually a maximum of Tier II capital that may be counted towards CAR
depending on the jurisdiction
[edit] See also
Bank regulation Capital Requirement
Fractional- reserve banking
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
Central banks
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Mortgage loans 20 units Other loans 50 units
Other assets 5 units
Bank A has deposits of 95 units all of which are deposits (remember deposits to a bank are its debt) By definition equity is equal to assets minus debt or 5 units
Bank As risk-weighted assets are calculated as follows
Cash 10 0 = 0
Government bonds 15 0 = 0
Mortgage loans 20 50 = 10
Other loans 50 100 = 50
Other assets 5 100 = 5
Total risk
Weighted assets 65
Equity 5
CAR (EquityRWA) 769
Even though Bank A would appear to have a debt-to-equity ratio of 955 or equity-to-assets of only 5 its CAR is substantially higher It is considered less risky because some of its assets are less risky than others
[edit] Types of capital
The Basel rules recognize that different types of equity are more important than others To recognize this different adjustments are made
1 Tier I Capital Actual contributed equity plus retained earnings
2 Tier II Capital Preferred shares plus 50 of subordinated debt
Different minimum CAR ratios are applied minimum Tier I equity to risk-weighted assets may be 4 while minimum CAR including Tier II capital may be 8
There is usually a maximum of Tier II capital that may be counted towards CAR
depending on the jurisdiction
[edit] See also
Bank regulation Capital Requirement
Fractional- reserve banking
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
Central banks
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Full-reserve banking Islamic banking
Monetary policy of central banks Money creation
Money supply Statutory Liquidity Ratio
Tier 1 capital Tier 2 capital
Basel accords
[edit] References
1 ^ httpwwwcbrruenganalyticsstandart_systemprintaspfile=policy_ehtml 2 ^ China moves to cool its inflation BBC News 2007-11-11
httpnewsbbccouk1hibusiness7089307stm 3
a b c d Reserve Requirements of Depository Institutions in February 2008 Statistical
Supplement to the Federal Reserve Bulletin Table 115 4 ^ Monetary Macroeconomics by Dr Pinar Yesin 5 ^ Inquiry into the Australian Banking Industry Reserve Bank of Australia January
1991 6 ^ [1] (in Croatian) 7 ^ Poon Terence Batson Andrew (2010-02-12) Chinas Bank Moves Jolt Markets
The Wall Street Journal httponlinewsjcomarticleSB10001424052748703525704575060813470407750htmlmod=WSJ_hps_LEFTWhatsNews
8 ^ Reserve base en Kasreserve Centrale Bank van Suriname httpwwwcbvssrenglishpublicaties-reservehtm Retrieved 2009-12-21
9 a b c Capital Adequacy Ratio - CAR Investopedia
httpwwwinvestopediacomtermsccapitaladequacyratioasp Retrieved 2007-07-10 10 ^ Capital adequacy ratios for banks - simplified explanation and example of
calculation Reserve Bank of New Zealand httpwwwrbnzgovtnzfinstabbankingregulation0091769html Retrieved 2007-07-10
[edit] External links
Capital Adequacy Ratio at Investopedia
Capital Adequacy Ratio at The Reserve Bank of New Zealands website Reserve Requirements - Fedpoints - Federal Reserve Bank of New York Reserve Requirements - The Federal Reserve Board
Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001 Dont mention the reserve ratio
[show] v bull d bull e
Central banks
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Global
Bank for International
Settlements middot Financial
Stability Board middot Basel
Committee on Banking
Supervision
[hide]
By continent
Africa
Central Bank of West African
States middot Bank of Central African
States middot Bank of Algeria middot Central
Bank of Angola middot Bank of
Botswana middot Bank of the Republic
of Burundi middot Bank of Cape
Verde middot Central Bank of the
Comoros middot Central Bank of the
Congo middot Central Bank of
Djibouti middot Central Bank of
Egypt middot Bank of Eritrea middot
National Bank of Ethiopia middot
Central Bank of The Gambia middot
Bank of Ghana middot Central Bank of
the Republic of Guinea middot Central
Bank of Kenya middot Central Bank of
Lesotho middot Central Bank of
Liberia middot Central Bank of Libya middot
Reserve Bank of Malawi middot Bank
of Mauritius middot Bank Al-Maghrib
(Morocco) middot Bank of Namibia middot
Central Bank of Nigeria middot South
African Reserve Bank middot Bank of
Somaliland middot Bank of Tanzania middot
Reserve Bank of Zimbabwe
Americas Central Bank of Argentina middot
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Central Bank of Barbados middot
Central Bank of Brazil middot Bank of
Canada middot Central Bank of Chile middot
Eastern Caribbean Central Bank middot
Bank of Mexico middot Bank of the
Republic of Haiti middot Central Bank
of Honduras middot Central Bank of
Nicaragua middot Bank of the
Republic middot Central Reserve Bank
of Peru middot Federal Reserve System
(United States) middot Central Bank of
Venezuela middot Central Bank of
Trinidad and Tobago
Oceania
Reserve Bank of Australia middot
Reserve Bank of Fiji middot Reserve
Bank of New Zealand middot Bank of
Papua New Guinea middot Central
Bank of Samoa middot Central Bank of
Solomon Islands middot National
Reserve Bank of Tonga
Asia
Central Bank of Bahrain middot
Bangladesh Bank middot Brunei
Currency and Monetary Board middot
Peoples Bank of China middot Reserve
Bank of India middot Central Bank of
Iran middot Central Bank of Iraq middot
Bank of Israel middot Bank Indonesia middot
Bank of Japan middot National Bank of
Kazakhstan middot National Bank of
the Kyrgyz Republic middot Bank of
Korea middot Central Bank of the
Democratic Peoples Republic of
Korea middot Central Bank of Kuwait middot
Banque du Liban middot Bank Negara
Malaysia middot Bank of Mongolia middot
Central Bank of Oman middot State
Bank of Pakistan middot Central Bank
of the Philippines middot Qatar
Central Bank middot Monetary
Authority of Singapore middot Central
Bank of Syria middot Central Bank of
the Republic of China (Taiwan) middot
Bank of Thailand middot Central Bank
of the United Arab Emirates middot
Central Bank of Uzbekistan middot
State Bank of Vietnam middot Hong
Kong Monetary Authority middot
Palestine Monetary Authority middot
Monetary Authority of Macao
Europe
European Central Bank
(Eurozone) middot National Bank of
the Republic of Abkhazia middot Bank
of Albania middot Central Bank of
Armenia middot Central Bank of
Azerbaijan middot National Bank of
the Republic of Belarus middot Central
Bank of Bosnia and
Herzegovina middot Bulgarian
National Bank middot Croatian
National Bank middot Czech National
Bank middot Danmarks Nationalbank middot
Bank of England middot Bank of
Estonia middot National Bank of
Georgia middot Hungarian National
Bank middot Central Bank of Iceland middot
Central Bank of Kosovo middot
National Bank of Latvia middot Bank
of Lithuania middot National Bank of
the Republic of Macedonia middot
National Bank of Moldova middot
Central Bank of Montenegro middot
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
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Expansionary monetary policy middot
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Implementation
Open market operations middot Capital
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[show]
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Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Norges Bank middot Polish National
Bank middot National Bank of
Romania middot Central Bank of
Russia middot National Bank of
Serbia middot Sveriges Riksbank middot
Swiss National Bank middot Central
Bank of the Republic of Turkey middot
National Bank of Ukraine
[show]
Policies and implementation
Policies
Expansionary monetary policy middot
Contractionary monetary policy middot
Capital requirement
Implementation
Open market operations middot Capital
control middot Discount rate middot Money
creation middot Interest rates middot
Sovereign wealth fund
[show]
Bretton Woods system
Retrieved from httpenwikipediaorgwikiReserve_requirement
Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Wikipedia articles needing style editing from July 2007 | All articles
needing style editing | Wikipedia articles needing clarification from July 2007 | Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles needing expert attention
Statutory Liquidity Ratio
From Wikipedia the free encyclopedia
Jump to navigation search
This article has multiple issues Please help improve it or discuss these issues on the
talk page
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
It does not have a lead section Tagged since March 2010
Definition Statutory Liquidity Ratio is the amount of liquid assets such as cash precious metals or other short-term securities that a financial institution must maintain in its reserves The statutory liquidity ratio is a term most commonly used in India
Contents
[hide]
1 Objective 2 Value and Formula 3 Difference between SLR amp CRR
4 See also 5 References
6 Further reading
[edit] Objective
The objectives of SLR are
1 To restrict the expansion of bank credit 2 To augment the investment of the banks in Government securities 3 To ensure solvency of banks A reduction of SLR rates looks eminent to support
the credit growth in India
The SLR is commonly used to contain inflation and fuel growth by increasing or decreasing it respectively This counter acts by decreasing or increasing the money
supply in the system respectively Indian banksrsquo holdings of government securities (Government securities) are now close to the statutory minimum that banks are required to hold to comply with existing regulation When measured in rupees such holdings
decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06
While the recent credit boom is a key driver of the decline in banksrsquo portfolios of G-Sec
other factors have played an important role recently
These include
1 Interest rate increases 2 Changes in the prudential regulation of banksrsquo investments in G-Sec
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
Most G-Sec held by banks are long-term fixed-rate bonds which are sensitive to changes in interest rates Increasing interest rates have eroded banksrsquo income from trading in G-
Sec
Recently a huge demand in G-Sec was seen by almost all the banks when RBI released around 108000 crore rupees in the financial system This was by reducing CRR SLR amp
Repo rates This was to increase lending by the banks to the corporates and resolve liquidity crisis Providing economy with the much needed fuel of liquidity to maintain the pace of growth rate However the exercise became futile with banks being over cautious
of lending in highly shaky market conditions Banks invested almost 70 of this money to rather safe Govt securities than lending it to corporates
[edit] Value and Formula
The quantum is specified as some percentage of the total demand and time liabilities ( ie the liabilities of the bank which are payable on demand anytime and those liabilities which are accruing in one months time due to maturity) of a bank
SLR Rate = Total DemandTime Liabilities x 100
This percentage is fixed by the Reserve Bank of India The maximum and minimum limits for the SLR are 40 and 25 respectively[1] Following the amendment of the Banking regulation Act(1949) in January 2007 the floor rate of 25 for SLR was
removed Presently the SLR is 25 with effect from 7 November 2009 It was raised from 24 in the RBI policy review on 27 October 2009
[edit] Difference between SLR amp CRR
SLR restricts the bankrsquos leverage in pumping more money into the economy On the
other hand CRR or Cash Reserve Ratio is the portion of deposits that the banks have to maintain with the Central Bank
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 RBI whereas SLR is maintained in liquid form with banks themselves
[edit] See also
Cash Reserve Ratio
[edit] References
1 ^ Master Circular of RBI to banks httprbidocsrbiorginrdocsnotificationPDFs55663pdf
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
[edit] Further reading
Tiwari Mansi (16 November 2008) Statutory Liquidity Ratio The Economic
Times httpeconomictimesindiatimescomFeaturesThe_Sunday_ETMoney__YouStatutory_Liquidity_Ratioarticleshow3718262cms
Retrieved from httpenwikipediaorgwikiStatutory_Liquidity_Ratio Categories Banking | Monetary policy | Financial ratios | Financial economics Hidden categories Articles needing cleanup from March 2010 | Wikipedia introduction
cleanup from March 2010
![Mrunal » [Banking] Monetary Policy_ Quantitative & Qualitative Tools, applications & limitations MSF, LAF, Repo, OMO, CRR, SLR, Revisited before upcoming Urjit Article » Print](https://static.fdocuments.in/doc/165x107/55cf994d550346d0339caf97/mrunal-banking-monetary-policy-quantitative-qualitative-tools-applications.jpg)
