Monetary policy tools — CRR, SLR, Repo Rate, MSF, SDF, Bank Rate — appear in almost every bank promotion exam. Questions range from “what is the current CRR?” to “which tool does RBI use to absorb liquidity without requiring collateral?” This page explains every instrument, the legal section that governs it, its current rate, and how it affects banks — all in one place.

For how these tools connect to the broader exam syllabus, see the Bank Promotion Exam Syllabus 2026. For the sections of the RBI Act and BR Act that govern these tools, see the RBI Act 1934 notes and BR Act 1949 notes.

The two reserve ratios — CRR and SLR

Cash Reserve Ratio (CRR)

Definition	Percentage of a bank’s Net Demand and Time Liabilities (NDTL) that must be maintained as cash with the RBI
Governing section	Section 42(1) of the RBI Act 1934
Current rate	3.00% of NDTL (effective November 2025)
Form	Cash deposited with RBI — no alternative assets permitted
Interest earned	None — RBI pays no interest on CRR balances
Floor / ceiling	No statutory floor or ceiling since 2006 amendment — RBI can prescribe any percentage
Maintenance basis	Average daily balance over a fortnight; calculated on NDTL as on last Friday of the second preceding fortnight

Effect of CRR change: If RBI cuts CRR → banks release more funds for lending → credit expansion → stimulative. If RBI raises CRR → funds absorbed from banks → credit contraction → anti-inflationary.

Statutory Liquidity Ratio (SLR)

Definition	Percentage of NDTL that banks must maintain in the form of liquid assets — cash, gold, or unencumbered approved securities
Governing section	Section 24 of the Banking Regulation Act 1949
Current rate	18.00% of NDTL
Eligible assets	Cash in hand; Gold; Unencumbered approved securities (primarily government securities — G-Secs and T-Bills)
Maximum SLR	40% of NDTL (statutory ceiling)
Timing	At close of business on every day; calculated on NDTL as on last Friday of second preceding fortnight

Key purpose of SLR: Ensures banks maintain a buffer of liquid assets that can be quickly converted to cash; also channels bank funds into government securities, helping government borrowing programs.

The LAF Corridor — Repo, SDF, and MSF

The Liquidity Adjustment Facility (LAF) is the primary tool RBI uses for day-to-day liquidity management. It operates through three rates that form a corridor:

Rate	Role in corridor	Current rate	How it works
SDF Rate (Standing Deposit Facility)	Floor — lowest rate in corridor	5.00%	Banks park excess funds with RBI without providing collateral. Introduced April 2022. Replaced reverse repo as the operative floor rate.
Repo Rate	Policy rate — centre of corridor	5.25%	RBI lends overnight funds to banks against government securities (repurchase agreement). The key signal rate — MPC decides this.
MSF Rate (Marginal Standing Facility)	Ceiling — highest rate in corridor	5.50%	Banks borrow from RBI above normal LAF limits by dipping into their SLR portfolio (up to 2% of NDTL). Emergency overnight borrowing.

Repo Rate — the policy signal

The repo rate is the rate at which RBI lends funds to commercial banks overnight against government securities. When a bank borrows under repo, it sells G-Secs to RBI with an agreement to repurchase them the next day at a slightly higher price — the difference is the repo rate. The MPC sets this rate at each bi-monthly meeting to achieve the 4% CPI inflation target.

Transmission: Repo rate cut → banks’ cost of funds falls → lending rates fall → home loan, vehicle loan EMIs reduce → demand stimulated. Repo rate hike → reverse effect → inflation controlled.

Reverse Repo Rate — now largely replaced by SDF

The reverse repo rate (currently 3.35%) is the rate at which RBI borrows from banks — or equivalently, the rate banks earn on overnight deposits with RBI under a collateral arrangement. Since April 2022, the SDF has replaced the reverse repo as the operative floor rate for absorbing liquidity. The reverse repo rate still exists in the RBI Act but is not the primary tool for absorbing excess liquidity anymore.

SDF vs Reverse Repo — key difference

Feature	Reverse Repo	SDF (Standing Deposit Facility)
Collateral required	Yes — banks must provide G-Secs to RBI	No — banks park cash directly, no collateral needed
Current rate	3.35%	5.00%
Operative status	Not the primary floor rate since April 2022	Current operative floor rate of LAF corridor
Purpose	Absorb short-term liquidity	Absorb excess liquidity — simpler, no collateral constraint

MSF — Marginal Standing Facility

MSF allows banks to borrow overnight from RBI at a penal rate (25 bps above repo) by pledging their SLR-eligible securities — even securities already counted toward their SLR requirement, up to 2% of NDTL. This is the emergency window — banks use MSF when they cannot borrow enough through the normal repo window.

Bank Rate

The Bank Rate (Section 49 of the RBI Act) is the rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial paper. Historically, it was the primary lending rate. Today it is pegged to the MSF rate (5.50%) and has limited operational significance — but it remains a common exam question.

Open Market Operations (OMO)

OMOs are RBI’s purchase or sale of government securities in the open market — not the LAF window — to manage durable liquidity in the banking system:

• OMO purchase (buying G-Secs): RBI injects rupee liquidity into the system → banks have more funds to lend
• OMO sale (selling G-Secs): RBI absorbs rupee liquidity from the system → reduces excess funds with banks

OMOs affect the longer end of the yield curve and are used when LAF operations are insufficient to manage structural liquidity surpluses or deficits.

All monetary policy tools — summary table

Tool	Governing law	Current rate	Purpose	Effect of increase
CRR	RBI Act — S.42	3.00%	Absorb/release bank liquidity	Absorbs liquidity; reduces lendable funds
SLR	BR Act — S.24	18.00%	Ensure bank solvency; fund govt borrowing	Reduces funds available for commercial lending
Repo Rate	RBI Act / LAF framework	5.25%	Signal monetary policy stance	Raises borrowing cost → reduces demand → controls inflation
SDF Rate	RBI Act / LAF framework	5.00%	Absorb excess liquidity without collateral	Higher SDF → banks prefer to park with RBI → less lending
MSF Rate	RBI Act / LAF framework	5.50%	Emergency overnight borrowing by banks	Higher MSF → costlier emergency borrowing
Bank Rate	RBI Act — S.49	5.50%	Pegged to MSF; limited operational role	Higher bank rate → historically higher lending rates
Reverse Repo	RBI Act / LAF	3.35%	Absorb liquidity (largely replaced by SDF)	Higher rate → banks park more with RBI → credit contraction
OMO	RBI Act — S.17	As required	Manage durable/structural liquidity	OMO sale → absorbs liquidity | OMO purchase → injects

What is NDTL — the common base

Both CRR and SLR are expressed as a percentage of Net Demand and Time Liabilities (NDTL):

• Demand Liabilities: Current accounts, savings accounts (demand portion), demand drafts, unclaimed deposits — payable on demand
• Time Liabilities: Fixed deposits, recurring deposits, staff security deposits — payable on a fixed future date
• Net: NDTL = Total Demand + Time Liabilities minus inter-bank liabilities (liabilities to other banks excluded)

Exam one-liners — Monetary Policy Tools

Test yourself — MCQs on Monetary Policy Tools

Frequently Asked Questions

What is the difference between CRR and SLR?

CRR (Cash Reserve Ratio) is governed by Section 42 of the RBI Act and requires banks to maintain a percentage of NDTL as cash with the RBI — no interest is paid. SLR (Statutory Liquidity Ratio) is governed by Section 24 of the Banking Regulation Act and requires banks to maintain a percentage of NDTL in the form of cash, gold, or approved securities — which can remain with the bank and can earn interest (on G-Secs). Current CRR is 3%; current SLR is 18%.

What is the SDF rate and how is it different from reverse repo?

The Standing Deposit Facility (SDF), introduced by RBI in April 2022, allows banks to park excess funds with RBI without providing collateral — unlike the reverse repo, which requires banks to provide government securities as collateral. The SDF rate (5.00%) is the current operative floor of the LAF corridor and has replaced the reverse repo as the primary liquidity absorption tool. The reverse repo rate (3.35%) still exists but is not the operative rate.

What is the current repo rate in India?

The repo rate is 5.25% as of the April 2026 MPC meeting (60th meeting, held April 6–8, 2026). The MPC kept the rate unchanged at this meeting following cumulative cuts of 125 basis points since February 2025. The MPC maintained a neutral policy stance. Verify the rate from the RBI website before your exam as it changes with each MPC meeting.

What happens to EMIs when the repo rate is cut?

A repo rate cut lowers the cost at which banks borrow from RBI. Banks typically pass on this benefit by reducing their lending rates (EBLR — External Benchmark Linked Rate, linked to repo). This reduces EMIs on floating-rate home loans, vehicle loans, and MSME loans. The transmission is faster now because most floating-rate retail loans are mandatorily linked to an external benchmark (repo rate) since October 2019.

What is the maximum SLR that RBI can prescribe?

Under Section 24 of the Banking Regulation Act 1949, the maximum SLR that RBI can prescribe is 40% of NDTL. There is no statutory minimum — RBI can set any SLR below 40%. The current SLR is 18%. The 40% ceiling is a frequently tested fact in promotion exams.

Related study material: RBI Act 1934 — Key Sections · Banking Regulation Act 1949 · Banking Ombudsman Scheme · All Bank Promotion Study Material

Disclaimer: Policy rates change with each MPC meeting. CRR and SLR are revised by RBI from time to time. All figures on this page reflect the position as of April 2026. Always verify current rates from the RBI website before your promotion exam.