Cash reserve ratio (CRR) , Cash reserve ratio
The proportion of deposits which banks need to keep with Reserve Bank of India as cash.
CRR or the portion of deposits banks have to park with the
RBI now stands at 4.25 per cent while the repo rate, at which RBI lends to the
system, has been retained at 8 per cent.
The proportion of deposits which banks need to keep with Reserve Bank of India as cash.
It has been used for
liquidity management and indicates the policy stance of the central bank.
RBI prescribes a CRR
or the minimum amount of cash that banks have to maintain with it. The CRR is
fixed as a percentage of total deposits.
As more money chases the same number
of borrowers, interest rates come down.
Cash reserve ratio,
refers to a portion of deposits (as cash) which banks have to keep/maintain
with the RBI. This serves two purposes. It ensures that a portion of bank
deposits is totally risk-free and secondly it enables that RBI control
liquidity in the system, and thereby, inflation.
it an instrument in the hands of a central bank through
which it can control the amount that banks lend. Thus, it is a tool used
by RBI to control liquidity in the banking system.
Besides the CRR, banks are required to invest a portion of
their deposits in government securities as a part of their statutory liquidity
ratio (SLR) requirements.
CRR is the minimum amount of cash that banks have to
maintain with it.
The CRR is fixed as a
percentage of total deposits. As more money chases the same number of
borrowers, interest rates come down.
RBI uses CRR either to drain excess liquidity or to release
funds needed for the growth of the economy from time to time. Increase in CRR
means that banks have less funds available and money is sucked out of
circulation.
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