Cash Reserve Ratio - CRR


 
 
Concept Explanation
 

Cash Reserve Ratio - CRR

Cash Reserve Ratio (CRR):

It started in June 3973. Commercial Banks are required to maintain certain percentage of NDTL  (Net Demand & Time Liabilities) as cash on fortnightly average basis.  If CRR increases then excess reserve of bank decreases. If CRR decreases the excess reserve of bank increases.

The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with the Reserve Bank of India, with reference to the net demand and time liabilities (NDTL) to ensure the liquidity and solvency of the banks.

  • Every commercial/scheduled bank in India has to keep a minimum amount of cash reserves with the Reserve Bank of India (RBI). The Reserve Bank of India uses CRR as a tool to increase or decrease the reserve requirement depending on whether RBI wants to increase or decrease the money supply.
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