What is the difference between CRR and LRR?

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Answer

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Create refers to cash reserve ratio which means total percentage of deposits of commercial banks with central banks.

whereas lrr refers to total percentage of deposits in which commercial banks kept itself. known as legal reserve ratio.

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Difference between CRR and LRR

CRR

CRR stands for Cash Reserve Ratio.

It is a percentage of total deposits that banks are required to maintain with the central bank in the form of cash reserves.

The primary objective of CRR is to control the money supply in the economy and inflation.

By increasing the CRR, the central bank reduces the lendable amount with the banks, leading to a reduction in the money supply in the economy.

If the central bank decreases the CRR, it increases the lendable amount with the banks, leading to an increase in the money supply in the economy.

CRR is a monetary policy tool used by the central bank to regulate the credit flow in the economy.

LRR

LRR stands for Liquidity Reserve Ratio.

It is the percentage of liquid assets that banks are required to keep in their possession to meet their short-term obligations.

LRR is a prudential tool that aims to strengthen the financial stability of banks.

By increasing the LRR, the central bank increases the liquidity position of the banks, making them more stable and less prone to insolvency.

If the central bank decreases the LRR, it reduces the liquidity position of the banks, making them less stable and more prone to insolvency.

LRR is a regulatory tool used by the central bank to ensure the safety and soundness of the banking system.

Key Differences between CRR and LRR

CRR is a monetary policy tool, whereas LRR is a regulatory tool.

CRR regulates the credit flow in the economy, whereas LRR ensures the safety and soundness of the banking system.

CRR controls the money supply in the economy, whereas LRR controls the liquidity position of banks.

CRR is expressed as a percentage of total deposits, whereas LRR is expressed as a percentage of liquid assets.

CRR is maintained with the central bank, whereas LRR is maintained with the individual banks.

In conclusion, while both CRR and LRR are reserve ratios, they serve different purposes and are used by the central bank for different reasons. CRR is used to regulate the credit flow in the economy, while LRR is used to ensure the safety and soundness of the banking system.

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Crr is the ratio determined by RBI.. and we can also say that CRR is our legal reserve ratio.. hence both are equal...in cases banks have to use LRR word

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CRR is a part of LRR. LRR includes CRR & SLR

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Thanks Gaurav...

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I think crr includes lrr & slr

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