Quick Guide to Terms Used in

Day to Day Banking

Jyot Shukla – Vadodara

 Index
 What is CRR?
 What is SLR?
 What is PLR?
 What is Repo Rate?
 What is Reverse Repo Rate?
 What is Sub prime lending?
 Basel II

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 WHAT IS CRR ?
 CRR Stands for Cash Reserve Ratio
 A CRR is the % of bank Reserve to Deposit and
Notes, CRR is the amount of Funds that the banks
have to keep with RBI
 If RBI decides to increase the % of this, the
available amount with the banks comes down
 RBI increases CRR rate to pull out the excessive
money from the banks
 It is also Known as Cash Asset Ratio or Liquidity
Ratio
 CRR is used as tool in Monetary Policy, which
influence Country’s Economy, Borrowing and
Interest Rates across the country
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 WHAT IS SLR?
 SLR stands for Statutory Liquidity
Reserve/Ratio
 Statutary Liquidity Reserve/Ratio(SLR) is
percentage of deposits the bank has to mai
ntain in form of gold, cash or other approve
d securities. It regulates the credit growth i
n India
 Every financial institute is required to
maintain a Statutory Liquidity reserve (SLR)
of 25% (including CRR) on all its liabilities.

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 WHAT IS PLR?
 PLR stands for Prime Lending Rate.
 The interest rate that commercial
banks charge their best, most credit-w
orthy customers.
 It is minimum lending rate at which
credit line is offered to prime
borrowers

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 WHAT IS REPO RATE?
 When the banks are having Shortages
of Funds, they borrow it from RBI.
 Repo Rate is the Rate at which banks
borrow money from RBI.
 Low Repo Rate means banks are
getting cheaper rate loans from RBI.
 When Repo Rate increases borrowing
from RBI becomes more expensive
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WHAT IS REVERSE REPO RATE?
 Reverse Repo rate is the rate at which RBI
borrows money from banks.
 Banks lend the money to RBI for
safeguarding the money with good amount
of interest
 An increase in Reverse repo rate can cause
the banks to transfer more funds to RBI
due to this attractive interest rates. It can
cause the money to be drawn out of the
banking system.

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 WHAT IS SUB PRIME LENDING?
 Sub Prime Lending is lending at a higher
rate than the Prime Rate.
 Type of Loan offered at Rate above Prime to
individuals who do not qualify from Prime
Lending Rate loans.
 A subprime loan is offered at a rate higher
than Business loans due to the perceived
increased risk.
 Subprime lending includes a variety of
credit instruments, including subprime
mortgages, subprime car loans, and
subprime credit cards etc.
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 BASEL II NORMS
 The Basel Committee consists of representatives from
central banks and regulatory authorities of the G 10
countries, plus others (specifically Luxembourg and Spain).

 Basel II defines three approaches for calculating credit risk

weights to accommodate different levels of sophistication
across banks:
 The first pillar deals with maintenance of regulatory capital
calculated for three major components of risk that a bank
faces: Credit Risk, Operational Risk & market Risk. Other
risks are not considered fully quantifiable at this stage.
 The second pillar deals with the regulatory response to the
first pillar, giving Regulators much improved 'tools' over
those available to them under Basel I. It also provides a
framework for dealing with all the other risks a bank may
face, such as Systemic Risk, Pension Risk, Strategic Risk,
Reputation Risk, Liquidity Risk & Legal Risk, which the
accord combines under the title of residual risk
 The third pillar greatly increases the Disclosure that the
bank must make. This is designed to allow the market to
have a better picture of
07/29/08 Jyotthe
Shukla overall
- Vadodara risk position of the 9
bank and to allow the counterparties of the bank to price