CRR

Economy

Quick Definition

CRR is the percentage of a bank’s total deposits that must be kept as reserves with the Reserve Bank of India in cash form.

Detailed Explanation

CRR is a key monetary policy tool used by the RBI to control liquidity in the banking system. Banks cannot use this portion of deposits for lending or investment—it must be maintained with RBI.

By adjusting CRR, RBI can influence how much money banks have available to lend.

How CRR Works

  • Increase in CRR:
    • Banks keep more money with RBI
    • Less money available for lending
    • Helps control inflation
  • Decrease in CRR:
    • Banks have more funds to lend
    • Increases liquidity
    • Boosts economic growth

Key Points

  • Maintained in cash form only
  • No interest is paid on CRR balances
  • Mandatory for all scheduled banks

Why CRR Matters

[Image illustrating the impact of CRR on money supply and inflation]
  • Controls money supply in the economy
  • Ensures stability of the banking system
  • Helps manage inflation

Example

"If CRR is 4% and a bank has ₹100 crore in deposits, it must keep ₹4 crore with RBI and can use the remaining ₹96 crore for lending."

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