CRR, SLR, and Repo Rate: How RBI's Treasury Tools Affect Bank Liquidity

A bank's treasury function manages its liquidity, investments, and market risk, operating within a framework of RBI-mandated ratios and rates that influence how much a bank can lend and at what cost.

Cash Reserve Ratio (CRR). The percentage of a bank's net demand and time liabilities that must be kept as cash reserves with RBI, earning no interest — a direct lever RBI uses to control the money banks have available to lend.

Statutory Liquidity Ratio (SLR). The percentage of net demand and time liabilities banks must hold in approved liquid assets, typically government securities, ensuring banks maintain a buffer of safe, liquid holdings.

Repo rate. The rate at which RBI lends short-term funds to banks against government securities; it is the key policy rate that filters through to overall interest rates in the economy, since a higher repo rate raises banks' cost of short-term funds.

Money markets. Bank treasuries actively participate in money markets — call money, treasury bills, commercial paper — to manage day-to-day liquidity mismatches between deposits and lending, using instruments with short maturities.