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Friday, January 27, 2023

LOVE Story of CRR & SLR | You Need to Know about this Concepts.

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 Inflation:- 

Consider you are live in 19th century now and you want to buy 1 kg apple then what should be the price of 1 kg apple consider it has 0.50 to Rs.1

But if you buy same 1 kg apple in 20th century what should be price of 1 kg apple consider it has 150 to Rs.200 or above that.

Balanced

Then i hope you understand the how inflation is works and how inflation decreases our annual turnover of our savings.

Suppose your grandfather saves rs. 50 at 19th century and now you need that 50 rs. and buy 1 kg apple then how you buy 200/kg apple for 50 rs. its impossible for us.

And,

Suppose your grandfather invest rs. 50 at 19th century and now its value is consider 50000 and you want to buy apple then think about it how many kg apple you buy this is called the power of investment.

CRR & SLR:-

Consider 100 cr. are manage by sbi bank but all this fund sbi are not allow to give in public loan thats why RBI comes to this matter and balance the rate of inflation with help of indian banks which is under the RBI.
And,

RBI comes with this 2 rules

1) CRR ( Cash Reserve Ratio ).

2) SLR ( Statutary Liquidity Ratio ).

Firstly we understand what is NDTL ( Net demand and time limit )  

NDTL basically the total fund of bank is called NDTL.

Net Demand:- It contains saving account,current account and more i.e which has no limit for withdrawing a fund 

Time Limit:- It contains FD, securities and more i.e which has limit for withdrawing the fund

How RBI Manage Inflation:-

1) Banks need to lend a x % of fund to RBI its called as CRR.
x( RBI decide % )

2) Banks need to lend y% of fund to himself its called as SLR.

and this both X & Y are decided by RBI and its changes on the basis of inflation.

Their are 2 Criteria:-

1) If RBI realize that inflation is high then rbi increase the rate of CRR & SLR then what happens if this two ratios are increases then banks give a loan with high interest and if interest is high then public are less get a loan and if public are get minimum loan then cash flow is dcreases, price are decreases and finnaly inflation are decreasese and vice versa 

And,

2) If RBI realize that inflation is very low then rbi decreases the rate of CRR & SLR then what happens bank give loan with low interest and people also get a maximum loans from banks and cashflow is increaeses, supply and demand is increases, price is increases and finally Inflation is Increases.

Thank You !

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