Definition of Cash Reserve Ratio
Updated: Dec 23, 2015, 17:23 IST
Definition: Cash Reserve Ratio (CRR) is a certain minimum amount of deposit that the commercial banks have to hold as reserves with the central bank. CRR is set according to the guidelines of the central bank of a country.
Description: We can say that CRR is a tool used by a central bank to control liquidity in the banking system. The aim is to ensure that banks do not run out of cash to meet the payment demands of their depositors.
Example: When someone deposits Rs 100 with a bank, it increases the deposits of the bank by Rs 100. If the CRR is 9%, then the bank will have to hold additional Rs 9 with the central bank. This means that the commercial bank will be able to use only Rs 91 for investments and/or lending or credit purpose.
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