What is CRR?
The full form of CRR is Cash Reserve Ratio. CRR refers to the share of a bank's total deposits that are to be maintained compulsorily with the Reserve Bank of India, in the form of liquid cash, at any given point of time. CRR was introduced to serve as a reference rate to determine the base rate - the rate of interest below which a bank is not allowed to lend funds. CRR is determined by the RBI and fixed to ensure transparency and fairness for both borrowers and lenders in the credit market.
Apart from learning the full form of CRR, here are some quick facts for your benefit.
CRR Quick Facts
- Full Form of CRR - Cash Reserve Ratio
- Cash Reserve Ratio was introduced to determine the base rate.
- CRR is an extremely potent tool used for helping the RBI control the money flow in the economy. If the RBI feels the need to curb money in circulation, it can increase the CRR, restricting credit and restricting the money supply. If they wish to stimulate spending, the RBI can reduce the CRR, which leaves more credit available to the market.
- CRR ensures the safety of an end customer's deposit. A portion of the deposits you have will always be a part of this reserve maintained with the RBI and, thus, secure.
- Cash Reserve Ratio helps keep inflation in check for the same reason as discussed on point number 3. During a high-inflation economy, the RBI can raise the CRR to reduce the amount of credit available for the general public, bringing down inflation.
- The CRR should not be less than 4% of the total Net Demand and Time Liabilities at any point in time. The deposits are made once every 15 days.
- The term, NTDL (Net Demand and Time Liabilities), includes the deposits made by the general public and balances of the banks held by other banks, current deposits, demand drafts.
- Not to be confused with SLR (Statutory Liquidity Ratio), CRR is only maintained as cash, deposited with the RBI, without any interest earned. The purpose of CRR is not to ensure the bank's solvency but rather to control the money supply and liquidity of the banking system.
We hope this information was useful to you. Like the full form of CRR, you can learn from others our articles. This would be extremely beneficial for a banking exam.