Key Changes Announced:

• Cash Reserve Ratio (CRR) reduced by 1% in four tranches, bringing it down to 3% by November 29, 2025.
• This CRR cut will release ₹2.5 lakh crore liquidity into the banking system by December 2025.
• Statutory Liquidity Ratio (SLR) remains unchanged at 18% of Net Demand and Time Liabilities (NDTL).

• CRR is the percentage of a bank’s total deposits that must be maintained as liquid cash with the RBI.
• Banks cannot use this amount for lending or investment. No interest is earned on CRR.
• It is used to control liquidity and inflation in the economy.
• Increasing CRR reduces bank lending capacity; decreasing it increases liquidity.
• Current CRR is 4.5% of Net Demand and Time Liabilities (NDTL).

• SLR is the minimum percentage of NDTL that banks must maintain in liquid form.
• It includes cash, gold, or approved government securities, kept with the bank itself.
• It helps ensure bank solvency and restricts excessive credit growth.
• Raising SLR reduces funds available for lending; lowering it boosts credit and growth.

• It also helps the government ensure demand for its securities.

• It includes public deposits and balances held with other banks.
• It excludes deposits the bank itself has with other banks.
• Demand liabilities include current accounts and demand drafts.
• Time liabilities include fixed deposits and recurring deposits.
• CRR and SLR are calculated as a percentage of NDTL.

• The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities.
• Banks sell securities to RBI with an agreement to repurchase them later.
• Lower repo rate makes borrowing cheaper and boosts liquidity.
• Higher repo rate makes borrowing costlier, reducing liquidity.
• It is a key monetary policy tool to regulate inflation and money supply.

• VRR auction is a method where RBI conducts repo operations at variable interest rates.
• Interest rate is determined through competitive bidding by banks.
• It reflects real-time demand and supply of liquidity.
• Enables more flexible and efficient liquidity management by RBI.

• SDF allows banks to deposit surplus funds with the RBI without providing any collateral.
• Banks earn interest at a rate set by the RBI.
• It is used to absorb excess liquidity from the system.
• Part of RBI’s liquidity management framework.

• WACR is the weighted average interest rate at which banks borrow and lend overnight funds in the interbank call money market.
• It is an important indicator of short-term liquidity conditions.
• RBI monitors WACR to guide monetary policy decisions.

1. Cut and optimise the Statutory Liquidity Ratio.

2. Increase the Marginal Standing Facility Rate.

3. Cut the Bank Rate and Repo Rate.

Select the correct answer using the code given below:

Options: (a) 1 and 2 only (b) 2 only* (c) 1 and 3 only (d) 1, 2 and 3