Dear Readers,
In recent times we have seen many regulatory issues coming up in our country. Many regulatory decisions such as 2G allocation, coal blocks allocation have been questioned. These are natural resources. The Supreme Court cancelled 122 2G licenses thereby questioning the government’s allocation process. This cancellation has also affected the foreign investor sentiment thereby affecting the economy. The foreign investors are wary of investing in the country because of confusing regulatory norms. Also, coal block allocations done to many firms are under scanner after the CAG report on some wrong doings in the process.
3 comments:
Excellent article on the food scenario.But the CRR article has only mentioned about the impact of CRR in relation to Repo.What about the impact of SLR on the banking sector.Don't you think compared to 23% 4.5% is a small number. Indirectly the government is forcing the banks i.e the common man's money into the funding of government debts.
Hi Romit,
SLR is mandatory on all signatories of BASEL III, wherein a minimum of 23% upto a ,maximum of 40% SLR is required to be maintained. India currently maintains the minimum 23% required and it cannot be decreased any further. Whereas, as regards to CRR, we can have the flexibility of having anything or nothing. While CRR is used to control liquidity directly, SLR has a more indirect control over the liquidity and its primary purpose is for expanding the Bank credit.
Both CRR and SLR are instruments in the hands of RBI to regulate money supply in the hands of banks that they can pump in the economy.
SLR restricts the bank’s leverage in pumping more money into the economy. On the other hand, CRR is the portion of deposits that the banks have to maintain with the Central Bank to reduce liquidity in economy. Thus CRR controls liquidity in economy while SLR regulates credit growth in the country
The other difference is that to meet SLR, banks can use cash, gold or approved securities whereas with CRR it has to be only cash. CRR is maintained in cash form with central bank, whereas SLR is money deposited in govt. securities. CRR is used to control inflation.
Thanks for clarifying the impact of CRR vs SLR
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