What is CRR (Cash Reserve Ratio) in banking?

What is CRR (Cash Reserve Ratio) in banking?

CRR is the percentage of a bank’s total deposits that must be kept in cash with the Reserve Bank of India (RBI). This money can’t be used for lending or investments.

How does it work?

If CRR is 4% and a bank has ₹1,00,000 in deposits, ₹4,000 must be kept with RBI. The remaining ₹96,000 can be lent or invested.

Why is CRR important?

Liquidity: Ensures banks always have cash reserves. Inflation control: A high CRR reduces the money banks can lend, helping control inflation. Safety: Protects depositors’ money and ensures financial stability.

CRR is a powerful tool RBI uses to manage the economy by regulating money flow in the system.