The full form of CRR is Cash Reserve Ratio. The CRR reflects the amount of money RBI (Reserve Bank of India) banks must retain. It is a percentage of the whole cash that a bank has on hand. From one period to the next, CRR is prone to change. The RBI determines the CRR, and banks must hold back a specific percentage of their deposits with the RBI.
The RBI mandates that banks retain a portion of their deposits in cash so that, in an emergency, bank customers can access them. The amount of money that must be retained in reserves is known as the CRR. Putting the remaining cash in the bank safe or forwarding it to RBI.
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How is CRR determined?
- When the current CRR rate is 4%, a bank must hold 4% of the entire NDTL (Net Demand and Time Liabilities) in cash.
- The bank is not permitted to lend or invest the money.
Objectives of CRR
The CRR’s two primary goals are as follows:
- The safety of the money is guaranteed because the RBI holds a share of the bank’s deposits. Customers can get their money or deposit it back immediately if they want it.
- CRR aids in cost control below the track.