What is Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)? How does a commercial bank in Bangladesh maintain CRR and SLR?

Cash Reserve Ratio (CRR)

CRR is the minimum percentage of a bank’s deposits and other specified liabilities that the bank must keep as cash with Bangladesh Bank. The bank cannot use this required cash for normal lending or other business activities. The current CRR is 4% on a bi-weekly average basis. The bank must also maintain a minimum of 3.5% on a daily basis.

Statutory Liquidity Ratio (SLR)

SLR is the minimum percentage of a bank’s deposits and other specified liabilities that the bank must keep in liquid assets. Liquid assets are assets that can be easily converted into cash. These include cash, gold and approved government securities. The current SLR is 13% for conventional banks and 5.5% for Islamic banks.

How commercial banks maintain CRR and SLR

(1) Daily Monitoring: The bank regularly checks its cash balance and liquid assets. This helps the bank know whether it is meeting the required CRR and SLR.

(2) Maintaining CRR: The bank keeps the required amount of cash with Bangladesh Bank. It makes sure that the required CRR is maintained both daily and on the required bi-weekly average basis.

(3) Maintaining SLR: The bank keeps the required amount in eligible liquid assets. It may hold cash, gold, or approved government securities to meet the SLR requirement.

(4) Proper Liquidity Planning: The bank plans its deposits, loans, and investments carefully. It ensures that enough cash and liquid assets are available when needed.

(5) Keeping a Safety Buffer: The bank may keep some extra cash and liquid assets above the minimum requirement. This helps the bank avoid a shortage and possible penalties if its liquidity position changes.