Q. When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean? (UPSC Prelims 2010)
Answer: The commercial banks will have less money to lend
Notes: Cash Reserve Ratio (CRR) is the percentage of a bank's total deposits that must be kept as reserves with the Reserve Bank of India (RBI). An increase in CRR requires commercial banks to hold more funds with RBI, reducing the amount available for lending to customers. This tightens liquidity, curbs inflation, and slows credit growth. RBI uses CRR as a monetary policy tool; higher CRR directly limits banks' lendable funds, not RBI's or government's.