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Discipline: Fund Management
Subject: CRR & SLR
Category: General
Level: Basic
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CRR and SLR: Basics

What is CRR?

Every scheduled bank has to maintain a mandatory cash balance with Bangladesh Bank (BB) against its demand and time liabilities. This is called Cash Reserve Ratio (CRR) or Cash Reserve Requirement.

Demand and Time Liabilities of a bank:

The main liability of a bank is deposit. The other liability items are provision, subordinated bond, accrued expense etc.

For monetary policy purpose, these liabilities of banks are divided into two parts:

  1. demand liabilities, which are payable on demand (Example: Current Deposit) and
  2. time liabilities, which are payable on maturity (Example: Term Deposit).

Required CRR:

Presently, the required CRR is 5.50% on bi-weekly average basis and minimum 5.00% on daily basis1. It means that the average CRR maintained by a bank in every two weeks must not be less than 5.50% of its demand and time liabilities and in any day CRR must not be less than 5.00% of its demand and time liabilities. Bangladesh Bank may change the required CRR from time to time.

Component of CRR:

At present, banks are allowed to maintain cash reserve with local currency (Taka) only. The balance of a bank in taka current account with Bangladesh Bank is considered as cash reserve.

What is SLR?

Every scheduled bank has to maintain assets in cash or gold or in the form of un-encumbered approved securities against its liabilities. This is called Statutory Liquidity Ratio (SLR).

Required SLR:

The required SLR is 13% daily for conventional banks and 5.5% daily for Islamic Shari'ah based banks and Islamic Shari'ah based banking of conventional banks2.

Components of SLR3:

The eligible components for maintaining Statutory Liquidity Reserve are:

  1. Cash in tills (both local and foreign currency)

  2. Gold

  3. Daily excess reserve (excess of Cash Reserve) maintained with BB

  4. Balance maintained with the agent bank of BB

  5. Un-encumbered approved securities (Government bills, Government bonds etc.)

  6. Credit balance in Foreign Currency Clearing Account maintained with BB.

Purpose of CRR/SLR:

  • The main objective of CRR/SLR is to control money supply by central bank

  • It increases solvency of banks. CRR/SLR reserves can be used to make payment against the liabilities by a bank in the extreme case when it is running out of fund but cannot manage it from other sources.

  • Maintenance of SLR in approved securities ensures investment by banks in government bonds.

Footnote:

1MPD Circular No. 1 dated 03 April 2018

2MPD Circular No. 2 dated 10 December 2013

3DOS Circular No. 1 dated 19 January 2014

Reference

MPD Circular No. 2 dated 10 December 2013
MPD Circular No. 1 dated 3 April 2018
DOS Circular No. 1 dated 19 January 2014

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