what is crr

Cash Reserve Ratio (CRR) is a monetary policy tool used by central banks to regulate the money supply and inflation in the economy. It is the percentage of a banks total deposits that it needs to maintain as liquid cash. The Reserve Bank of India (RBI) decides the amount of CRR, and it is kept with them for financial security. The bank cannot use this amount for lending and investment purposes and does not get any interest from the RBI. CRR applies to scheduled commercial banks, while the regional rural banks and NBFCs are excluded. The amount specified as the CRR is held in cash and cash equivalents, is stored in bank vaults or parked with the RBI. The aim here is to ensure that banks do not run out of cash to meet the payment demands of their depositors. The CRR has a significant impact on lenders and the broader economy by affecting the amount of credit available, the interest rates on loans, and the level of economic activity. The current CRR rate in India is 4.5%, which has been effective since May 21, 2022.