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RBI’s Big Move: What the CRR & SLR Cut Means for You in 2025

 

What’s is CRR and SLR? What are its impact on the Economy? Let's understand.

What is CRR?

Cash Reserve Ratio (CRR) is the minimum percentage of a bank's total Net Demand and Time Liabilities (NDTL) that must be maintained in the form of cash with the Reserve Bank of India (RBI).

Why CRR Exists:

  • The RBI uses CRR to regulate liquidity in the banking system.
  • A high CRR means banks have less money to lend, which controls inflation.
  • A low CRR means banks have more money to lend, which boosts economic growth.

Example:

Suppose a bank has ₹1,000 crore in deposits (NDTL), and the CRR is 4%.
Then, ₹40 crore must be kept with the RBI as cash and cannot be used for lending or investment.

This amount earns no interest, which makes CRR a powerful monetary tool — it directly impacts the bank’s ability to lend.

Real-Life Example:

Think of CRR like a mandatory emergency fund. You can't touch it, but it protects the system from risk. The RBI adjusts CRR to either unlock money or control overspending in the economy.

What is SLR?

Statutory Liquidity Ratio (SLR) is the percentage of NDTL that banks must maintain in the form of liquid assets — typically government securities, gold, or approved bonds — in their own vaults or balance sheets, not with the RBI.

Purpose of SLR:

  • Ensure that banks remain solvent and are not over-lending.
  • Maintain demand for government bonds, helping the government raise funds.
  • Indirectly control money supply and inflation.

Example:

If a bank has ₹1,000 crore in NDTL and the SLR is 18%, it must invest ₹180 crore in approved securities like government bonds. This amount can’t be used for giving out loans to the public.

Unlike CRR, the money invested under SLR does earn interest (on government securities), but it’s still locked and not available for commercial lending.

Real-Life Example

Think of SLR as a backup deposit for safety. Just like you might invest in fixed deposits and gold for future stability, banks do the same — but by law.

Key Differences Between CRR and SLR

Feature

CRR

SLR

Kept With

RBI

Maintained by banks themselves

Form

Cash only

Liquid assets (gold, govt securities)

Interest Earned

No

Yes (on government securities)

Purpose

Control liquidity

Ensure solvency and support govt borrowing

Impact

Directly affects loanable funds

Indirectly affects credit supply

Students Must Understand

These two tools help the RBI:

  • Manage inflation or stimulate growth
  • Ensure stability in the banking system
  • Influence interest rates and credit availability

CRR and SLR are often tested in exams through case studies, current affairs references, and short notes.

What Did the RBI Just Do?

CRR Cut = More Money to Lend

On June 6, 2025, the RBI reduced the CRR by 1% (100 basis points). That’s a big move. But instead of doing it all at once, it will happen in four small steps, starting from September 2025.

  • This decision will release around ₹2.5 lakh crore into the economy.
  • That means banks can lend more, and loans (for education, homes, business) may get cheaper.

SLR? No Change

The RBI kept the SLR at 18%, which is a sign that they still want banks to stay cautious and safe. So, no sudden changes on that front.

What Are Basis Points?

A basis point (bps) is a unit of measurement used in finance to describe changes in interest rates, yields, or percentages in a very precise way.

Definition

  • 1 basis point = 0.01%

  • So, 100 basis points = 1%

Why Use Basis Points?

In finance, even a small change in interest rates can have a big impact. Using basis points helps avoid confusion when discussing such changes.

For example:

  • If the RBI reduces the repo rate by 50 basis points, it means the rate has dropped by 0.50%.

  • If a bank increases its loan rate by 25 basis points, it has increased the rate by 0.25%.

Examples:

Change in Basis Points Change in Percentage
10 bps 0.10%
25 bps 0.25%
50 bps 0.50%
100 bps 1.00%

In the News (Contextual Example):

In June 2025, the RBI cut the CRR by 100 basis points, which means:

  • It reduced the Cash Reserve Ratio by 1%, making more money available for banks to lend.

Why Should You Care?

If you’re a student, this isn’t just “bank stuff.” This affects your future:

  • More money with banks = easier access to education loans
  • Lower interest rates = cheaper EMIs for your family or startup dreams
  • Helps economic growth, which means more jobs after you graduate

When asked about monetary policy or the tools used by the RBI, you can write:

“In June 2025, the RBI reduced the CRR by 100 basis points in phases to inject ₹2.5 lakh crore liquidity, while keeping the SLR unchanged at 18%. This move was aimed at improving credit flow and boosting economic growth.”

Simple, to the point, and impressive.

One-Minute Summary

Term

What Changed?

Why It Matters

CRR

Reduced by 1% in steps

More liquidity for banks = more loans

SLR

No change

Keeps banks financially stable

Repo Rate

Cut to 5.5%

Makes loans cheaper

RBI Stance

Changed to “Neutral”

Signals a balanced, wait-and-watch approach

Final Thoughts On This

The RBI’s latest decision is a clever balancing act. They’re supporting growth by giving banks more money to lend, but also staying careful by keeping safety measures like SLR unchanged.

For students like you, this is a real-world example of how economics works — and how central banks try to manage growth, inflation, and financial stability.

Next time someone talks about RBI policy, you’ll be ready to explain it with confidence.

Thanks for Reading.


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