At the press conference post the fifth monetary policy review on December 5, Reserve Bank of India Governor Urjit Patel said that cash reserve ratio (CRR) is not in the ambit of the Monetary Policy Committee (MPC).
About:
Cash Reserve Ratio (CRR) is a prescribed percentage of bank deposits which banks are required to keep with Central Bank in the form of reserves or balances.
The two main objectives of CRR are:
That banks should have sufficient cash at all times to meet the payment demands of their deposit customers; and
It is a tool of monetary policy to control money supply in the economy. Higher the CRR with the Central Bank, lower will be the liquidity in the system and vice versa.
CRR in India:
In terms of Section 42(1) of the RBI Act, 1934 the RBI prescribes the Cash Reserve Ratio (CRR) for Scheduled Commercial Banks (SCBs) without any floor or ceiling rate.
The current CRR prescribed is 4% of Net Demand and Time Liabilities (NDTL). So, when a bank’s deposits increase by ₹100, and if the CRR is 4%, the banks will have to park ₹4 with the RBI. The bank can use only ₹96 for investments and lending purposes.
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