Explain the role of the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as RBI’s prudential and monetary tools.

Introduction: RBI maintains the Cash Reserve Ratio (CRR) at 4% and the Statutory Liquidity Ratio (SLR) at 18% of NDTL as of April 2026, governed by Section 42(1) of the RBI Act 1934 and Section 24 of the Banking Regulation Act 1949.

Body: CRR is the share of NDTL banks hold as cash with the RBI without interest; every 0.25% CRR change shifts ₹60,000 crore of liquidity and acts as a sterilisation lever for capital inflows. SLR is NDTL held in liquid assets — G-Secs, gold, cash — a prudential tool ensuring solvency and a fiscal tool creating captive demand for sovereign borrowing. SLR also underpins MSF access (2% over SLR). The N.K. Singh Committee (2017) recommended phased SLR reduction; SLR has fallen from 38.5% (1991) to 18%.

Way forward: RBI should reduce SLR by 100 bps over FY27 to free ₹2.4 lakh crore for MSME and infrastructure lending, while preserving the Basel III HQLA mandate.