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Being a Finance Professor, I know that understanding certain banking terms can be tricky for some. Even if we know the full form of those terms, we may not be aware of their exact meaning. One such term is CRR. Knowing what is CRR in banking is crucial not just from the finance perspective but also from a general perspective as these are certain terms that come to use in regular financial activities. So, I would like to share with you my understanding of what is CRR in banks.
Get Home Loans at as low as 6.5% rate of interest on NoBroker and finalise your dream home without any hefty paperwork.CRR or Cash Reserve Ratio is a ratio that is determined by the Monetary Policy Committee of RBI in the periodic Monetary and Credit Policy. CRR is reviewed by the RBI every 6 months. It is through CRR that the RBI is able to control the liquidity in the economy by maintaining a desired level of inflation and controlling the supply of money in the economy.
A lower CRR is always preferred because the lower the CRR, the higher will be the liquidity with the banks and hence they will be able to lend to customers more and focus on other investments. If the CRR is high it will negatively impact the liquidity of the banks and the economy since there will be a shortage of funds for loans or lending purposes which will in turn diminish the investments. All of this will lead to a reduction in the supply of money in the economy.
What is meant by CRR in Banking?CRR is the proportion of deposits the RBI asks the banks to keep in store so that they can be used to provide loans to the customers of the banks. The percentage of this deposit which is required to be kept by a bank is known as CRR.
How is Cash Reserve Ratio calculated?The CRR is calculated on the basis of its current rate. If the current rate is 5% then the banks are required to keep 5% of the total Net Demand and Time Liabilities (NDTL) in the form of cash which the banks cannot use for other purposes.
Read More: What is SLR in Banking? What is the Difference Between Bank Rate and Repo Rate?Your Feedback Matters! How was this Answer?
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What is CRR in Banking?
Trisha Pal
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3 Year
2022-05-10T19:47:12+00:00 2022-05-10T19:47:13+00:00Comment
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