Cash Reserve Ratio

The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India as a portion of their Net Demand and Time Liabilities (NDTL). The objective of CRR is to ensure the liquidity and solvency of the Banks. The CRR is maintained fortnightly average basis.

Impacts of Reducing CRR

When CRR is reduced, more funds are available to banks for deploying in other businesses because they need 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.

In context with inflation, reduction in CRR leaves more money in the hands of commercial banks and this leads to increase in the money supply in system. When money supply increases, too much money chases too few goods and this leads to rise in inflation.

Impacts of Increasing CRR

When RBI increases the CRR, less funds are available with banks as they have to keep larger protions of their cash in hand with RBI. This means that banks will now have less money to play with. Moreover, Reserve Bank does not pay any interest on the CRR balances.  Since commercial banks  don’t earn any interest, the banks are left with an option than 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. Thus hike in CRR leads to increase of interest rates on Loans provided by the Banks.

Reduction in CRR sucks money out of the system causing to decrease in money supply. When money supply decreases, the inflation comes down.

Ceiling on CRR

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.

Do banks earn interest on CRR?

They used to do once upon a time. From March 31, 2007 onwards, RBI does not pay any interest on the CRR balances maintained by Scheduled Commercial Banks.
[table id=78 /]


54 Comments

  1. Abhishek Verma

    July 9, 2011 at 11:04 am

    Superb presentation skill Sir….

    Reply
  2. ipsita

    August 22, 2011 at 12:05 pm

    its so useful and easy to understand.thanks.

    Reply
  3. akhilesh

    September 4, 2011 at 8:05 pm

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

    Reply
  4. rohit salotra

    September 27, 2011 at 12:40 pm

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

    Reply
  5. ramu

    October 10, 2011 at 10:53 pm

    Very Good …..Keep it up….

    ALl this information can be obtained in

    Hand Book of Banking Information

    Reply
  6. ramu

    October 10, 2011 at 10:56 pm

    please tell me some good websites
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    banking exam coaching institutes in banalore….Please

    Reply
    • Yogesh

      November 1, 2014 at 11:54 am

      indiabix is best web site for practice

      Reply
  7. satyajit

    December 31, 2011 at 9:31 am

    easy to understand

    Reply
  8. savita dharpure

    January 16, 2012 at 5:39 pm

    easy to understand

    Reply
  9. HITESH

    January 19, 2012 at 1:34 pm

    Really the most required banking search site till date……

    Reply
  10. nimmi

    January 21, 2012 at 3:40 pm

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

    Reply
  11. Mathan

    February 26, 2012 at 7:22 pm

    Perfect Explanation..Thank you G K Today

    Reply
  12. vivekkk

    March 3, 2012 at 12:16 pm

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

    Reply
  13. eswari

    March 28, 2012 at 3:41 pm

    after read this only i got clear idea about this crr

    Reply
  14. niraj762

    April 1, 2012 at 7:07 am

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

    Reply
  15. Rahul

    April 1, 2012 at 6:53 pm

    CRR pe interest ka kya concept hai?

    Reply
    • Dravid

      May 21, 2014 at 9:33 pm

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

      Reply
  16. seema

    May 15, 2012 at 7:34 pm

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

    Reply
  17. Kmasha10

    May 22, 2012 at 11:24 am

    Really great and very use full for aspiring candidates.

    Reply
  18. amol

    July 23, 2012 at 2:38 pm

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

    Reply
  19. samta

    August 15, 2012 at 11:27 am

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

    Reply
  20. sneha jha

    August 20, 2012 at 9:52 am

    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.

    Reply
  21. neha

    October 24, 2012 at 11:31 pm

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

    Reply
  22. MANORANJAN

    November 8, 2012 at 4:55 pm

    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

    Reply
  23. Tuya

    January 26, 2013 at 3:39 pm

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

    Reply
  24. vikas ranjan

    February 4, 2013 at 7:29 pm

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

    Reply
  25. Shanmugapriya

    February 8, 2013 at 11:26 am

    Thanx a lot. Simple and easy to understand.

    Reply
  26. rahul

    February 8, 2013 at 7:13 pm

    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?

    Reply
  27. goudgyellaiah

    March 19, 2013 at 6:34 pm

    THIS IS VERY VERY HELPFUL TO BANKING INTERVIEWERS

    Reply
  28. ravikumar

    April 17, 2013 at 4:31 pm

    usefulllllllllllll infrmation thnk u s much

    Reply
  29. sharma gsn on 21st jun,2013

    June 21, 2013 at 2:57 pm

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

    Reply
  30. Mythili

    August 22, 2013 at 5:04 pm

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

    Reply
  31. sammy

    February 17, 2014 at 11:16 am

    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

    Reply
  32. tulika

    March 7, 2014 at 7:13 pm

    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…

    Reply
  33. hitesh

    May 25, 2014 at 11:15 pm

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

    Reply
  34. yesbeer arya

    June 2, 2014 at 2:51 pm

    it so easy and useful knowledge provided
    sir for preparation.

    Reply
  35. praveen

    July 29, 2014 at 11:43 am

    thanks…………for support us

    Reply
  36. raghee

    August 26, 2014 at 9:00 am

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

    Reply
  37. shradhnjali

    August 27, 2014 at 11:22 am

    really very useful thanks

    Reply
  38. Nitish Bhardwaj

    September 2, 2014 at 7:37 am

    Thanx sir….really nice & helpful

    Reply
  39. sneha

    September 5, 2014 at 1:24 pm

    Thanks for making it so simple to understand

    Reply
  40. pinak

    October 6, 2014 at 3:34 pm

    thnk u so muchhhhhhhhhhhh sir to provide this 9lg

    Reply
  41. droupadi nayak

    October 6, 2014 at 10:02 pm

    really very easy to understsnd

    Reply
  42. vishal

    October 7, 2014 at 1:13 pm

    Superbly explained

    Reply
  43. amit sarkar

    November 11, 2014 at 2:12 pm

    just want to say..great site,,,and great sir. its really helping us for update in all area and clearing all the concepts

    Reply
  44. Amit maheshwari

    November 17, 2014 at 5:42 pm

    Superb collection !!!!!!!

    Reply
  45. sreedhar

    November 20, 2014 at 10:24 pm

    thnks to admini………..

    Reply
  46. SANJEEV KUMAR

    November 24, 2014 at 5:49 pm

    It is easy to understand

    Reply
  47. eshwara pandiyan

    January 2, 2015 at 12:47 pm

    great work………. keep it up…….
    and thanks a lot……….cheers………

    Reply
  48. Avinash

    January 3, 2015 at 8:38 am

    Many thanks.. good explanation

    Reply
  49. shiv mahima ojha

    March 2, 2015 at 10:32 pm

    Its really nice…….& helpful

    Reply
  50. PIYUSH

    January 19, 2018 at 7:20 pm

    THERE MUST BE CORRECTION IN THE FOLLOWINF LINE, INSTEAD OF REDUCTION IT SHOULD BE INCREASE IN CRR
    “Reduction in CRR sucks money out of the system causing to decrease in money supply. When money supply decreases, the inflation comes down.”

    Reply
  51. J.Nisha

    February 5, 2018 at 12:31 pm

    It’s Use full

    Reply
    • Vinay

      February 5, 2018 at 12:33 pm

      It’s Awesome

      Reply

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