Reserve Bank of India (RBI), the apex body in India’s banking system is tasked with the responsibility to manage money supply, credit availability, price stability, financial stability, healthy balance of payment and controlling inflation. It uses a variety of instruments as provided in the monetary policy to control the money flow in the economy. Some of these include cash reserve ratio, statutory liquidity ratio, open market operations, bank rate policy, credit ceiling, moral suasion, repo rate, reverse repo rate and credit authorizations scheme.
Below, we will try to demystify the two terms – Cash Reserve Ratio and Statutory Liquidity Ratio and explain the reason and well as the impact of any changes in them.