On January 29, 2013, RBI announced to reduce the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.25 per cent to 4.0 per cent of their net demand and time liabilities (NDTL). This rate is effective from the fortnight beginning February 9, 2013. The objective of this move is to inject primary liquidity of around Rs. 180 billion into the banking system.
What is CRR?
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.