Repo Rate, Reverse Repo, CRR and SLR Explained

Four RBI rates shape every BFSI company’s credit cost, and all four appear in placement aptitude tests because financial employers want freshers who can read a monetary policy signal, not just balance a ledger.

The Four Rates at a Glance

Rate	Current Value	Direction of Fund Flow	Primary Purpose
Repo Rate	5.25%	Banks borrow from RBI	Controls short-term liquidity
Reverse Repo Rate	3.35%	Banks lend to RBI	Sets floor on overnight rates
CRR	3.00%	Banks park cash at RBI	Limits lending base
SLR	18.00%	Banks hold liquid assets	Ensures solvency buffer

Values as of the RBI’s April 2026 Monetary Policy Committee decision. All four are subject to revision at each bi-monthly MPC meeting.

Repo Rate: Banks Borrowing from RBI

Repo stands for repurchase agreement. When a commercial bank needs short-term funds, it approaches RBI, pledges government securities as collateral, receives cash, and agrees to buy those securities back at a fixed future date. The interest on that transaction is the Repo Rate.

Think of it as a pawnshop arrangement: the bank hands over a government bond as collateral and gets cash for up to overnight or a few days. When the Repo Rate drops, this cash costs the bank less, so the bank can afford to lend to businesses and home buyers at lower rates. When the Repo Rate rises, the bank’s funding cost increases, and lending rates follow.

As Business Standard reported on the April 8, 2026 MPC outcome, the RBI held the Repo Rate at 5.25% with a neutral stance, signalling it was neither tightening nor loosening credit at that point.

Exam angle: a question asking “which rate does RBI use to inject liquidity into the banking system?” has Repo Rate as the answer.

Reverse Repo Rate: Banks Lending to RBI

The Reverse Repo Rate reverses the direction. Banks that have surplus funds can deposit them at RBI and earn interest at the current rate of 3.35%, per the RBI’s April 2026 MPC decision.

A high Reverse Repo Rate makes parking money at RBI attractive: banks earn a safe return and have less incentive to lend into a possibly risky economy. A low Reverse Repo Rate pushes banks away from RBI and toward lending in the market. The gap between the Repo Rate and the Reverse Repo Rate defines the corridor within which overnight lending rates trade.

Exam angle: “which rate does RBI use to absorb excess liquidity from the banking system?” has Reverse Repo Rate as the answer. Common trick question: the Repo Rate and Reverse Repo Rate are not the same value.

CRR: Cash Locked Away from Lending

The Cash Reserve Ratio is the percentage of a bank’s total net demand and time liabilities (NDTL) that it must hold as a cash deposit at RBI. The current CRR is 3%, per the RBI’s April 2026 MPC decision.

A worked example with clean numbers:

• Assume a bank holds ₹100 crore in deposits (total NDTL).
• CRR at 3% means ₹3 crore must sit at RBI, earning no interest.
• The bank can lend out at most the remaining ₹97 crore (subject to SLR requirements below).
• When RBI raises CRR, the locked portion grows and the lendable pool shrinks.
• When RBI cuts CRR, more deposits become available for lending without any new money entering the system.

That movement in the lendable pool is how CRR controls the money multiplier. For campus placement evaluation tests at BFSI firms, CRR questions often test whether you understand that CRR funds earn no return and cannot be used for any lending purpose.

SLR: Liquid Asset Floor

The Statutory Liquidity Ratio requires banks to maintain a minimum fraction of their NDTL in approved liquid assets. The current SLR is 18%, per the same April 2026 MPC decision.

Approved liquid assets include:

• Central and state government securities
• Treasury bills
• Gold
• Approved bonds notified by RBI

Unlike CRR, SLR assets stay on the bank’s own books. The bank can hold them as investments and earn interest, but it cannot lend against them or count them toward regular operations.

The combined effect in a simplified example:

• From the same ₹100 crore NDTL: CRR locks away ₹3 crore at RBI.
• SLR requires ₹18 crore in liquid assets on the bank’s books.
• That leaves roughly ₹79 crore available for open-market lending.

SLR also ensures that banks hold enough government paper to remain solvent through short-term liquidity crises.

How RBI Adjusts the Dials

No single tool works alone. When inflation is rising sharply, RBI typically raises the Repo Rate, raises CRR, and raises SLR in combination. Each lever pulls from a different part of the credit chain:

• Higher Repo Rate raises the cost of new funds the bank borrows.
• Higher CRR reduces the base of deposits available to lend.
• Higher SLR forces more of those deposits into government paper instead of loans.

The result compounds: banks have costlier funds, fewer lendable funds, and more paper they cannot deploy. Credit in the economy contracts, spending slows, and inflation moderates.

The reverse sequence applies during an economic slowdown: lower Repo Rate, lower CRR, lower SLR, and more money flows into productive loans.

Placement aptitude tests at BFSI companies occasionally ask “which combination of measures would RBI take to control inflation?” The correct answer names all three tightening moves, not just the Repo Rate. For a BFSI-sector aptitude test overview, FACE Prep’s Bank of America aptitude test guide covers the financial reasoning topics that appear most often.

Understanding this cascading logic also builds the quantitative reasoning muscle that shows up in other aptitude sections. FACE Prep’s quantitative aptitude preparation guide covers the problem-solving methods that BFSI aptitude tests share with general campus placement tests.

Aptitude Questions Built Around These Rates

Banking and financial services placement tests return to these four rates every year. Three question formats appear most often:

• Direct recall: “What is the current Repo Rate?” This is straightforward multiple-choice. Keep the most recent MPC decision date alongside the value; some tests ask which MPC meeting held the rate at 5.25%, and the answer is April 2026.

• Directional reasoning: “If RBI raises the CRR, what happens to the available money supply?” A full-mark answer covers three links: locked cash at RBI grows, the lendable deposit pool shrinks, and credit expansion slows. Partial answers lose marks in descriptive-format tests.

• Quantitative ripple: Some tests ask for an approximate EMI impact from a rate change. A benchmarkable number: a 25 basis point Repo Rate cut on a ₹50 lakh, 20-year home loan at a starting rate of 9.0% reduces the monthly EMI by ₹800, moving from ₹44,986 to ₹44,186 per month. This follows directly from the standard EMI formula, and most examiners accept a stated range of ₹800 to ₹1,000 when a calculator is not permitted.

The same layered, cause-and-effect reasoning that lets you trace how a repo rate cut flows through bank funding costs into a borrower’s EMI is the thinking that analytical AI practice reinforces. TinkerLLM at ₹299 is where students who have this conceptual foundation start applying that reasoning to real AI prompts and quantitative tasks.