CRR full form in Banking is the Cash Reserve Ratio. It shows how much cash is with the banks of the Reserve Bank of India. CRR is the ratio of the total cash held by a bank. It is likely to change from one period to another. This is because the Reserve Bank decided on another bank, and the CRR is required to maintain a certain proportion of its RBI deposits.
RBI requires banks to have a specific percentage of their deposits in the form of cash, so when the requirement occurs, it can be offered to bank customers. To sum up, Cash Reserve Ratio is called the proportion of money required to be stored in reserves.
What are the objectives of CRR?
Following are the significant objective of the Cash Reserve Ratio:
- Cash security is assured as the bank’s share is deposited with the Reserve Bank of India. If customers want to deposit or withdraw cash, they make it available immediately.
- The cash reserve ratio is a concept that helps to manage cash under the track. The Reserve Bank of India is raising the CRR in times of high economic increase, so banks need to reserve more cash.
How to calculate CRR?
- Banks are not allowed to use the funds to invest or loan
- Banks must reserve 4 percent of the overall Net Demand and Time Liabilities in the form of money when the CRR rate is 4 percent.