Moral suasion is not quantitative credit control instrument of credit control. The slr to be maintained by banks is determined by the rbi in order to control the expansion. Apart from cash reserve ratio crr, banks have to maintain a stipulated proportion of their net demand and time liabilities in the form of liquid assets like cash, gold and unencumbered. The capitalcumdeposit ccd for banks and financial institutions are to remain unrevised for fy 207677.
As liquidity has registered signs of easing in the past few months, the. Impact of banking sector reforms on crr and slr in. Previous instructions this master circular is a compilation of the instructions contained. The statutory liquidity ratio slr for commercial banks, development banks and financial institutions has remained the same as their previous rate at 10%, 8% and 7% respectively. The rbi act instructs that all commercial banks and some other specified institutions in the country have to keep a given proportion of their demand and time deposits ndtl or net demand and time liabilities as liquid assets in their own vault. The cash reserve ratio crr for domestic banks, commercial banks. The ratio of these liquid assets to the total demand and time liablities is called statutory liquidity ratio. The ratio of cash to payments that was used in earlier chapters is a fifth measure of liquidity. The slr is determined as a percentage of total demand and. The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest. Liquid assets ratio of pda institutions increased from 8. Master circular cash reserve ratio crr and statutory.
Understanding monetary policy and financial markets. Pdf this paper examines the longterm effect of various regulatory, bankspecific and. As announced in the second bimonthly monetary policy statement 201718 of the reserve bank of india today, it has been decided to reduce the statutory liquidity ratio slr of commercial banks, primary urban cooperative banks ucbs, state cooperative banks and central cooperative banks from 20. In 1962, they were merged and a single mini mum crr of 3. Download limit exceeded you have exceeded your daily download allowance. The total amount of equity consideration was nearly 67 billion dollars.
The broad details of the reserve requirements are summarised below. Crr and statutory liquidity ratio slr reserve bank of india. Nepal, banks performance, merger, financial stability. In india, the statutory liquidity ratio slr is the government term for the reserve requirement. This is a requirement determined by the countrys central bank. Regulatory framework for supervision of liquidity risk hong kong.
How much cash the merged entity needs to set aside for cash reserve ratio crr and statutory liquidity ratio slr. Classification and valuation of approved securities for slr. Furthermore, the ratio of liquid and trading assets to total shortterm funding stood at 59. Critical analysis of banking sector reforms in india harsh nandal assistant professor, department of economics. Factors affecting the liquidity of commercial banks. Even as lawyers and investment bankers work out the details and assess the options, its becoming ncreasingly likely that shriram transport finance will merge with idfc and shriram. Sale of securities in the open market by the commercial banks reduces their crediting power. The ratios discussed so far are not the only ones by which liquidity can be measured.
According to the instructions issued by bangladesh bank through brpd circular letter no. Cash reserve ratio crr and statutory liquidity ratio slr please refer to dos circular no. However, the regulatory factors of cash reserve ratio and profitability determined by. Pdf factors affecting the liquidity of commercial banks in india.
For further details, see ficoms liquidity coverage ratio reporting guide. The amount of the above mentioned exchange ratios equaled 17. In india, the statutory liquidity ratio is the government term for the reserve requirement that commercial banks are required to maintain in the form of cash, gold reserves, reserve bank of india rbi approved securities before providing credit to the customers. The policy allows merging banks to maintain the spread rate at 4. Bank rate, statutory cash reserve requirement, statutory liquidity ratio are the instruments of quantitative credit control. Purpose this master circular prescribes the broad details of the reserve requirements. The word statutory here means that it is a legal requirement and liquid asset means assets in the form of cash, gold and approved securities. Statutory liquidity ratio is as prescribed under section 24 of the banking regulation act, 1949. The reserve bank of india regulates the commercial banks. The amount of liquid assets, such as cash, precious metals or other shortterm securities, that a. Correctness of computation of dtl to be certified by statutory auditors. Further, average level 2 assets, primarily consisting of aa and above rated corporate bonds and commercial papers, were.
This was applicable from october 1, 2018 resulting in a total of 15. Cash reserve ratio crr 5% for demand liabilities including less than 1 year time deposits. Increase in statutory liquidity ratio adversely affects the capacity of commercial banks to create credit. Master circular maintenance of statutory reserves cash reserve ratio crr and statutory liquidity ratio slr the reserve bank of india has been periodically issuing instructions to primary urban cooperative banks pcbs regarding maintenance of cash reserve ratio crr and statutory liquidity ratio slr and matters related thereto. However, the regulatory factors of cash reserve ratio and profitability. Here is why shriram transport is seeking to merge with idfc. A study on the viability of rrbs as rural financial institutions. The bank displayed a relatively low liquidity risk at fy18, with the statutory liquidity ratio maintained above 85. Development bank supervision report 2015 nepal rastra bank baluwatar, kathmandu, nepal july 2015. Statutory liquidity ratio slr consequent upon amendment to the section 24 of the banking regulation act, 1949 through the banking regulation amendment act, 2007 replacing the regulation amendment ordinance, 2007, effective january 23, 2007, the reserve bank can prescribe the slr for scbs in specified assets. Which one of the following is not a quantitative c. The amount of liquid assets, such as cash, precious metals or other shortterm securities, that a financial institution must maintain in its. Supervision bcbs had introduced liquidity coverage ratio lcr, which requires banks to maintain high quality liquid assets hqlas to meet 30 days net outgo under stressed conditions. Liquidity analysis using cash flow ratios and traditional.
Insurance returns and solvency regulations 1980 br 16 1980 made under sections 18 and 53 of the insurance act 1978 and brought into operation on 1 january 1980 table of contents citation interpretation insurers to make statutory financial return in accordance with these regulations return to relate to relevant year content of statutory. Reduction in statutory liquidity ratio slr the reduction in slr by 50 bps to 21. Classification a statutory guideline issued by the rbi under section 35a of the br act, 1949. Ncert solutions for class 12 macro economics banking. This ratio was prescribed by the section 24 2a of banking regulation act 1949, which initially mandated for a 23% slr. Macroprudential intermediation ratios and macroprudential liquidity buffers for conventional commercial banks, sharia commercial banks, and sharia business units. Pdf this paper examines the longterm effect of various regulatory, bank specific and. Further, as per banking regulation act, 1949, the banks in india are required to hold liquid assets to maintain statutory liquidity ratio slr. Crr and the statutory liquidity ratio sage journals. Moral suasion implies persuasion and request made by the central bank to the commercial banks to cooperate with the general monetary policy of the former. Liquidity analysis using cash flow ratios and traditional ratios. As a result, the smaller target company loses its existence as a separate entity. Classification a statutory guideline issued by the rbi under section 35a of the banking regulation act, 1949. The statutory liquidity ratio slr last witnessed a change in its level on january 04, 2020 when it declined by 0.
Master circular cash reserve ratio crr and statutory liquidity ratio slr a. Master circular maintenance of statutory reserves cash. Costs of mergers and acquisitions are calculated in order to check to the viability and profitability of any merger or acquisition deal. This minimum percentage is called statutory liquidity ratio. Notably, some of the indicators implied are roa, roe, capital ratio capital adequacy ratio car, profit margin, liquidity ratio and leverage ratio. Another relevant conclusion is that, capital adequacy ratio, statutory liquidity ratio and bank size have. A statutory merger is one in which all the assets and liabilities of the smaller company is acquired by the bigger acquiring company.
Statutory liquidity ratio slr 19% for demand liabilities including less than 1 year time deposits. The ratio of liquid assets to net demand and time liabilities ndtl is called statutory liquidity ratio slr. Cash reserve ratio and statutory liquidity ratio goodreturns. Liquidity ratios measure a companys ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio, and. The working paper points out the most important liquidity ratios. Narsimham committee ii was established which favoured the merger of strong public sector banks and. A merger involving idfc bank has to factor in the likely statutory liquidity ratio isssue, or investment in government bonds, to be borne by the combined entity.
Liquidity coverage ratio lcr the lcr is a risksensitive liquidity metric that aims to ensure that a credit union has an adequate stock of hqla to survive a 30day stress scenario. The statutory liquidity ratio is determined by the central bank as the percentage of total demand and time liabilities. Liquid assets ratio of commercial banks down from 33. The reserve bank of india regulates the commercial banks in matters of 1. Critical analysis of banking sector reforms in india. Previous instructions this master circular is a compilation of the instructions contained in. The time liabilities refer to the liabilities of a bank which is to be paid to the customer anytime the demand arises and are the deposits of the customers which are to be paid on demand. An increase in statutory liquidity ratio reduces the excess reserves of commercial banks and limits their credit creating power. Form a return for crr under section 42 2 of the rbi, act, 1934 and form viii return for slr under section 24 of the banking regulation act, 1949. In consonance with the mediumterm objectives of financial sector reform, the slr was brought down from its peak level of 38. The liquidity adjustment facility laf system was operating on auctionbased variable rate during the period from april 27, 2001 to march 28, 2004, and moved to fixed rate mode from march 29, 2004.