Cash reserve requirement: Cash reserve ratio is the amount of cash that the banks have to keep up with

the central bank. This ratio is basically to secure the solvency of banks and to drain out the excessive money from the banks. If the central bank decides to increase the percent of this, the available amount with the banks come down , and if the central bank reduces the CRR then the available amount with banks increased and they are able to lend more. This serves two purposes. First, it ensures that some bank deposits are totally risk-free and second it enables the central bank to control liquidity in the system, and thereby, inflation by restricting lending of money. Statutory reserve requirement: SLR is the amount a commercial bank needs to maintain cash or gold or Govt approved securities (bonds) before providing credits to its customers. SLR rate is determined and maintained by central bank in order to control the expansion of bank credit. The objectives of SLR are: 1. To restrict the expansion of bank credit. 2. To augment the investment of the banks in Government securities. 3. To ensure solvency of banks Working : SLR and CRR ratios are maintained to ensure bank solvency. Higher ratio of SLR and CRR makes bank relatively safe as higher ratio means they have more of their funds deposited in liquid securities and they can fulfill the demand on redemption of deposits from the banks, lets take an example: suppose a bank has taken a deposit of 100 from public CRR is 9 and SLR is 25 so the funds available with the bank is 100-9-25= 66 , so there is a direct relation between CRR,SLR and the funds available with bank to lend to public out of deposit received from public. Difference between SLR & CRR: SLR restricts the banks leverage in pumping more money into the economy. On the other hand, CRR, or Cash Reserve Ratio, is the portion of deposits that the banks have to maintain with the Central Bank. The other difference is that to meet SLR, banks can use cash, gold or approved securities whereas with CRR it has to be only cash. CRR is maintained in cash form with central bank, whereas SLR is maintained in liquid form with banks themselves. Cash reserve requirement in Pakistan: At present, the Cash Reserve Ratio fixed by the SBP is 5 per cent on weekly average basis subject to daily minimum of 4 per cent of time and demand liabilities. Statutory reserve requirement in Pakistan: At present, the statutory reserve requirement fixed by SBP is 15% of their time and demand liabilities.