CRR
                                            CRR: Cash Reserve Ratio 
Particularly, the CRR is the minimum amount of the total deposits of 
customers that need to be maintained by the commercial as a reserve 
bank either in cash or as deposits with RBI. The rate of CRR will be fixed 
as per the guidelines of the central bank. The amount of CRR is to be 
held or reserved in cash or cash equivalents with RBI. The main aim of 
CRR is to ensure that banks do not run out of cash to meet their 
depositors' payment demands. The cash reserve ratio is computed as a 
percentage of the net demand and time liabilities of each bank. In the 
case of depositors when the bank sincerely maintains the required CRR 
rate, then the depositors don't have to worry about their deposits as the 
portion of their money is safe in the form of reserve maintained with RBI. 
Both banks have to be likely to lend the maximum amount of funds to 
borrowers and return the very little money themselves for another 
purpose therefore the banks to be like it when the CRR rate is low. The 
rate of this CRR is to be fixed by RBI to avoid such situations where the 
banks cannot meet repayments due to a shortage of funds.  
How Does Cash Reserve Ratio Work: 
When the RBI decides to increase the CRR, the available amount of 
money with the banks reduces. This is the way of RBI's way that to be 
controlling the excess flow of money in the economy. The cash balance 
is to be maintained by scheduled banks with the RBI should not be less 
than 4% of the total NDLT. The NDLT refers to the total demand and 
time liabilities that are held by the banks which includes the deposits of 
the general public and the balances held by the bank with other banks.  
Advantages of CRR: 
CRR can help commercial banks to build and sustain their solvency 
position. RBI is to be gets to control and coordinate the credit that to be 
maintained by banks through the CRR rate which helps to a smooth 
supply of cash and credit in the economy.  When the CRR rate is 
reduced by RBI, the commercial banks which turn increase the flow of 
cash to the public. It helps to improve declining rates by absorbing the 
liquidity when the market interest rates go down instantly.  
Need for banks to maintain CRR: 
The cash flow of the economy is to be constantly worked and monitored 
by RBI. The overall liquidity is to be managed thoroughly when all the 
commercial banks maintain the necessary CRR rate then which benefits 
each bank. The CRR helps banks hold the right amount of funds with 
them and never fall short of it when needed by their depositors for 
personal needs.  
The CRR is to be used as a monetary policy tool by the central bank to 
influence the country's interest and borrowing rates by altering the 
available funds for banks to make loans with. When the government 
needs to pump funds into the system, then lowers the CRR rate which in 
turn helps the banks that provide loans to a large number of businesses 
and industries for investment purposes.  
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