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Cash Reserve Ratio

What is CRR (Cash Reserve Ratio)? How does CRR regulate money supply?

What is CRR (Cash Reserve Ratio)?

crr

CRR (Cash Reserve Ratio) is a ratio of total bank deposits or a portion of the banks’ NDTL (Net Demand and Time Liabilities) that the banks are required to maintain with the Central Bank of the country (in India, RBI is the central bank). In other words, we can say under CRR, the banks are required to keep and maintain a certain percentage of the total bank deposits in the current account maintained with RBI (Reserve Bank of India). RBI uses CRR as an instrument either to increase the money supply or to drain out the excessive money from the system.

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