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What is definition of CRR?

Updated: 4/25/2024
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14y ago

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5d ago

CRR stands for Cash Reserve Ratio. It is the portion of total deposits that banks are required to keep with the central bank in the form of reserves, rather than lending out or investing. This is set by the central bank as a way to control liquidity in the banking system and influence credit expansion.

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Cash Reserve Ratio or CRR in India is the amount of money that every bank has to deposit with the RBI per customer. Every time a customer deposits cash to the bank, the bank has to correspondingly deposit a portion of that cash to the RBI. RBI decides this percentage of money that each bank has to deposit with it. The RBI holds the control on the CRR because, the CRR can influence the credit conditions in our country. If the CRR is increased, the amount of liquid cash in circulation in the country would come down and similarly if the CRR is decreased, the cash circulation in the country would increase. Say if the CRR of the country is 10%, and you go to a bank to deposit Rs. 1000/- the bank will have to deposit at least Rs. 100/- with RBI. The remaining funds can be used by the bank to grant loans to other customers and earn an income for itself


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