Cash Reserve Ratio:- There are a lot of different formulas that will be affecting the economy of the country in which we are living and all the details related to the various monetary policy instruments will be impacting the economy and the supply of money in the economy. Given below, we are answering the question of What is Cash Reserve Ratio? We have also specified the various objectives of the CRR including the specifications of the CRR Meaning, CRR Formula. You can easily calculate the CRR taking into consideration the details related to the RBI statistics.
Table of Contents
What is Cash Reserve Ratio?
The Cash Reserve Ratio is the portion of the money that must be kept aside by the Reserve Bank of India in the form of cash so that they can provide it to the bank customers if any emergency arises at any given point in time. This ratio is decided by the Reserve Bank of India monetary policy committee in the periodic monetary and credit policy. This ratio will be helping the RBI to decrease the level of high inflation, control the money supply and also help with the liquidity of the economy of the country. The high percentage of CRR definitely impacts the investment and the funding. The CRR also impacts the amount of money that is available in the economy and it also guides the cash available by the residents.
Objective of CRR
There are many objects which will be fulfilled by a good CRR and given below we are sharing all of them:-
- The CRR will ensure that a part of the brain deposit is with the central bank and hence, all of your funding and the cash you will be in a very secure hand.
- The CRR will be keeping the inflation under control because during high inflation in the economy the Reserve Bank of India will raise the CRR so that there is less money left with the banks to sanction loans. It will decrease the money flow in the economy and the investments and the inflation both things will be going down.
Cash Reserve Ratio Formula
There is a very simple formula through which you will be able to calculate the CRR and that is, Cash Reserve Ratio = Percentage of net demand and time liabilities. Time liabilities are also called NDTL which refers to the aggregate savings account, current account, and fixed deposit balances held by a bank.
FAQs For CRR
If the CRR is higher then the liquidity will be lower with the bank and if the CRR is lower then the liquidity with the bank will be higher. When there is inflation, the Reserve Bank of India will increase the CRR. If the RBI wants more money in the economy then it will lower the CRR.
SLR means the liquidity of cash, government securities, and gold however CRR means only cash reserves with the RBI.
When the cash reserve ratio is higher then it means that the banks are mandated to keep more money with the RBI and less money with themselves so that they will have less money to lend to the customers.
The monetary policy committee presented by the Reserve Bank of India will be responsible for undertaking all of the monetary policy instruments including the cash reserve ratio.
The cash balance must be maintained with the RBI by all of the commercial banks and it should not be less than 4% of the total NDTL.