The crr full form is the Cash Reserve Ratio. CRR is the money that the RBI Reserve Bank of India (Reserve Bank of India), has to keep. It represents a percentage of total bank cash. The CRR can change from one time period to another. The CRR is determined by RBI and banks are required to keep a certain percentage of their RBI deposits.
The RBI mandates that banks keep a certain percentage of their deposits in cash so that customers can get the money when they need it. The CRR refers to the amount of cash that must be kept in reserve. You can either deposit the cash balance in a bank vault or send it to RBI.
What is the formula for calculating the CRR?
- When the CRR rate is currently 4%, a bank must keep 4 % of total NDTL (Net Demand & Time Liabilities), in cash form.
- The bank is unable to lend or invest the funds.
Two main goals of the CRR are:
- The bank deposits are held with RBI. This ensures that the money is safe. Customers can request their money back or withdraw their deposit immediately.
- The CRR is used to control costs. The RBI has increased the CRR in a time when economic inflation is high. Banks will need to have more money in reserve and very little liquidity to lend.