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Finance GlossaryCash Reserve Ratio
Cash Reserve Ratio
Definition of Cash Reserve Ratio
Cash Reserve Ratio (CRR) is the amount of liquid cash a bank has to deposit with the Reserve Bank of India (RBI), calculated as a percentage of the total deposit of the bank. The latest Cash Reserve Ratio in India is 4.5%.
There are two important uses of CRR:
There are two important uses of CRR:
- It acts as a reserve or collateral because banks borrow money from the RBI
-
The RBI decides the interest rate for borrowing based on the CRR
These two pointers become extremely important during high inflation as the RBI can hike interest rates with the assurance of having collateral from banks.
Related Terms
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