What is Cash Reserve Ratio (CRR) ?
Definition:
- Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
- CRR is set according to the guidelines of the central bank of a country.
- The amount specified as the CRR is held in cash and cash equivalents, is stored in bank vaults or parked with the Reserve Bank of India.
- The aim here is to ensure that banks do not run out of cash to meet the payment demands of their depositors.
- It is a crucial monetary policy tool and is used for controlling money supply in an economy.
- CRR specifications give greater control to the central bank over money supply.
- Commercial banks have to hold only some specified part of the total deposits as reserves.
- This is called fractional reserve banking.
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