DIRECT INSTRUMENTS OF MONETARY POLICY OF RBI:
1. CRR (Cash Reserve Ratio)
- It is the certain percentage of net demand and time liability (NDTL) of banks that must be maintained with RBI.
- The refinance fund from NABARD, SIDBI, RBI are exempted from CRR provision.
- There is a penal charge for not maintaining CRR at the rate of 3%.
2. SLR (Statutory Liquidity Ratio):
- It is a requirement that, commercial banks have to keep a specified portion of their NDTL (Net Demand & Time Liability) in liquid assets.
- SLR is maintained in the form of cash, gold or bond (govt. security).
- Penal charge for not maintaining CRR, SLR is 3%.
3. Refinance Facility:
- RBI provides refinance facility which includes foreign exchange and currency swap facility.
- Swap is a derivative contract for exchange of one instrument for another.
- In RBI currency swap, RBI buys foreign currency and release equivalent amount in Indian Rupee in Indian market.
