CRR: – Cash Reserve Ratio
Cash Reserve Ratio indicates the specified percentage of the deposits of a Commercial Bank in India required in maintaining as cash deposit with the Reserve Bank of India (RBI). In General, CRR is set according to the guidelines of the central bank of the country and the prerequisite applies homogeneously to all banks in the country irrespective of an individual bank’s financial situation or size. Meanwhile, certain countries e.g. China lay down separate reserve requirements for ‘large’ and ‘small’ banks.
Historically, CRR is used by a central bank as a regulatory tool but after the liberalization of the Indian economy in the early 1990s, CRR assumed importance as one of the important quantitative tools to control liquidity in the banking system and the banks do not run out of cash to meet the demands of depositors. The RBI Act 1934 states that to cater to the CRR requirement, all public and private sector banks, foreign banks, co-operative banks and regional rural banks are mandatory to maintain a cash balance on a fortnightly basis on average with the RBI. Non Bank Financial Corporation’s (NBFCs) are outside the purview of this reserve requirement. The RBI website (www.rbi.org.in) has all the information on the prevailing policy rates including CRR.