Cash Reserve Ratio

The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India, with reference to the demand and time liabilities (NDTL) to ensure the liquidity and solvency of the Banks. Please note that earlier RBI was empowered to fix RBI between 3-20% by notification. However, from 2006 onwards the RBI is empowered to fix the CRR on its discretion without any ceiling. The CRR is maintained fortnightly average basis.

What is impact of reducing CRR?

  • When CRR is reduced, more funds are available to banks for deploying in other business as they have to keep fewer amounts with RBI. This means that the banks would have more money to play and this leads to reduction of interest rates on Loans
    provided by the Banks.

What is impact of Hiking CRR?

RBI uses the method of CRR hike to drain out the excess liquidity from the banks. This is because; the banks will now have to keep more money with the Reserve Bank of India. On this money banks don`t earn any / much interest. Since they don't earn any interest, the banks are left with an option to increase the interest rates. If RBI hikes this rate substantially, banks will have to increase the loan interest rates. The home loans, car loans and EMI of floating Rate loans increase.

The following Graphic shows the history of CRR since 2000.

The above graphic shows that RBI has used this tool to contain the money supply and credit creation more frequently. Highest CRR was 9% when the Global Financial Slowdown had started taking definite shape. During the slowdown years the CRR was reduced gradually so that Banks have more money with them. Once, the signs of recovery are shown clearly, RBI made it again a little higher.

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Comments

  • Abhishek Verma
    Reply

    Superb presentation skill Sir....

  • ipsita
    Reply

    its so useful and easy to understand.thanks.

  • akhilesh
    Reply

    its really a very nice but there is a problem when download pdf there is not showing the chart........

  • rohit salotra
    Reply

    sir, its really helpfull for me being posted on very remote area nd hardly getting any magazine, thanks a lot sir, god blesss

  • ramu
    Reply

    Very Good .....Keep it up....

    ALl this information can be obtained in

    Hand Book of Banking Information

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    Reply

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  • satyajit
    Reply

    easy to understand

  • savita dharpure
    Reply

    easy to understand

  • HITESH
    Reply

    Really the most required banking search site till date......

  • nimmi
    Reply

    its a site with complete information requried for any of competitive exam. thank u soo... much :-)

  • Mathan
    Reply

    Perfect Explanation..Thank you G K Today

  • vivekkk
    Reply

    Sir CRR was explained in such a simplistic manner that menot being from a commerce background also had easily undrstood it in one reading

  • eswari
    Reply

    after read this only i got clear idea about this crr

  • niraj762
    Reply

    Please update the CRR to 4.75% w.e.f Mar 12. There was a cut of 0.75% in CRR in Mar 12.

  • Rahul
    Reply

    CRR pe interest ka kya concept hai?

    • Dravid

      No interest on CRR....This is only a ratio....

  • seema
    Reply

    Interest on CRR means if you are reserving Rs. 100 you will able to use Rs. 91 only

  • Kmasha10
    Reply

    Really great and very use full for aspiring candidates.

  • amol
    Reply

    sir suggest any books as more concepts of banking and include all information of banking....please.

  • samta
    Reply

    this is the best site i culdnt evr find... :)

  • sneha jha
    Reply

    thanks gk today for providing such a great service for youths and helping in shaping carerr by regular guide and ofcourse best site for enriching gk.

  • neha
    Reply

    thanks alot gk today group for providing such a g8 material ..........................

  • MANORANJAN
    Reply

    Kindly change current CRR Ratio 4.25% from 5.5% in the top of the paragraph. Because the current CRR Ratio is 4.25 from 1st Nov 2012

  • Tuya
    Reply

    Sir ...superb...mindblowing...U r great...U r backbone of many banking aspirants.......

  • vikas ranjan
    Reply

    Thanks a lots to GK Today Team for providing more effective GK supplements.

  • Shanmugapriya
    Reply

    Thanx a lot. Simple and easy to understand.

  • rahul
    Reply

    what is the meaning of drain out the excess liqidity ? why rbi increase crr if it is favorable to customer as well as for banks?

  • goudgyellaiah
    Reply

    THIS IS VERY VERY HELPFUL TO BANKING INTERVIEWERS

  • ravikumar
    Reply

    usefulllllllllllll infrmation thnk u s much

  • sharma gsn on 21st jun,2013
    Reply

    It is very useful for the bank staff as well as the one who wants to go for bank jobs. Thanq very much.

  • Mythili
    Reply

    THank u so much sir... very useful and informative... keep going ang keep teaching sir... thnk u again sir...

  • sammy
    Reply

    sir plz suggest me a good book for english practice.i am preparing for bank po..and very bad in english.....plz sir help me

  • tulika
    Reply

    sir,iam preparing for bank po and mah english is not good..would u please suggest me a good book for english..i will be ur thankful sir..please help me...

  • hitesh
    Reply

    sir, could you please tell me that when CRR increase or decrease, means which factors affect it ?

  • yesbeer arya
    Reply

    it so easy and useful knowledge provided
    sir for preparation.

  • praveen
    Reply

    thanks............for support us

  • raghee
    Reply

    Thank you so much. Very easy to understand and easy to access.

  • shradhnjali
    Reply

    really very useful thanks

  • Nitish Bhardwaj
    Reply

    Thanx sir....really nice & helpful

  • sneha
    Reply

    Thanks for making it so simple to understand