Cash Reserve Ratio (CRR)
Contributed by - Arihant Bhandawat
What is Cash Reserve Ratio (CRR)?
It is the percentage of total deposits (both time and demand deposits) that commercial banks need to keep with the Central Bank of any country. In India the CRR rate as on 30.10.2012 was 4.5% (w.e.f 22.09.2012). These rates are subject to regular changes as per Reserve Bank of India's notifications.
What is the purpose of Cash Reserve Ratio (CRR)?
Cash Reserve Ratio (CRR) began with the purpose for providing following policy support:
- Providing safety net to both time and demand deposit holders' money kept with commercial banks.
- Source of liquidity and fund transfers in the financial sector of any country.
- Providing platform that aids in inter-bank transactions.
- Providing financial stability to the financial sector.
- CRR is also used as an important policy tool to control inflation, interest rates and availability of credit facilities and money supply in the economy. It, therefore, provides Reserve Bank of India (or any other Central Bank) an important Monetary Policy tool to boost investments and business sentiments in the country.
