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Question
Write Short note on :
Cash Reserve Ratio (CRR)
Solution
CRR or the Cash Reserve Ratio refers to the minimum amount of funds that a commercial bank has to maintain with the Reserve Bank of India in the form of deposits. For example, suppose the total assets of a bank are worth Rs.200 Crores and the minimum cash reserve ratio is 10%, the amount that the commercial bank has to maintain with RBI is Rs.20 Crores. If this ratio rises to 20%, the reserve with RBI increases to Rs.40 Crores. Thus, less money will be left with the commercial bank for lending. This will eventually lead to considerable decrease in the money supply.
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