Cash Reserve Ratio
The Cash Reserve Ratio refers to a particular percentage of total deposits the commercial banks are needed to balance either cash form reserve with the central bank. CRR & SLR are tools used by Reserve Bank of India under its monetary policy.
The aim of Cash Reserve Ratio is to ensure that banks do not run out of cash to fulfill the payment demands of their depositors. The minimum ratio (that is part of the total deposits to be held as cash) is specified by RBI and is known as CRR or Cash Reserve Ratio.
Check SLR, CRR, RBI Ratio In India Here!!!
Concept of Cash Reserve Ratio & Statutory Liquidity Ratio is quite simple but yet requires a deep understanding. So, what is CRR in the banking section? Why it is beneficial for RBI? What is the different between CRR and SLR? Well, here you’ll find every single answer.
For more details about Cash Reserve Ratio, you need to go through the below section of this page which is represented by team of www.recruitmentinboxx.com. New Cash Reserve Rates is applicable from 01-08-2018.
Cash Reserve Ratio
What is Cash Reserve Ratio (CRR) ?
Let’s begin with a small introduction of CRR. Cash Reserve Ratio is that monetary portion that the banks need to keep with RBI. This ratio engaged in securing the bank solvency and to pump out the excessive money from the banks.
For Example, if an individual has deposit Rs 2000 in a bank, the bank is not authorized to use the entire portion of Rs. 2000 for lending or investment purpose.
- They need to keep a certain percentage of their deposit in cast form & can only make use of certain portion for lending or investment purpose. The central bank determines this minimum percentage which in turn known as Cash Reserve Ratio.
- Thus, if the cash reserve ratio is 9% and when the bank’s deposit experience a boost of Rs 2000, the bank will only be able to use Rs 1820 for investment or other purposes and the remaining Rs 180 it need to keep with RBI.
- Higher CRR indicates that the bank has lower amount to use for lending and investment purpose and vice versa. CRR is used by RBI to curb inflation and also to control excessive liquidity in the market.
Here are the Current RBI Rates 2018:
|Bank Rate||6.75 %|
|Cash Reserve Ratio (CRR)||4 %|
|Statutory Liquidity Ratio (SLR)||19.50 %|
|Repo Rate (RR)||6.50 %|
|Reverse Repo Rate (RRR)||6.25 %|
|Marginal Standing Facility (MSF)||6.75 %|
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Why RBI Uses Cash Reserve Ratio ?
- RBI uses this ratio to manage currency supply in the market which in turn results in economic development. The variation in this ratio controls the currency supply in the market.
- In order to curb inflation and regulates inflation, RBI uses this ratio in productive manner.
- Decrease in CRR help people in getting loan at low rate of interest. This results in boosting up employment opportunities as the availability of funds is high when CRR is low.
- Reduction in cash reserve ratio permit banks to render more money for agriculture sector. This in turn helps the farmers to access high quality seeds and make good use of latest technology.
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What is Statutory Liquidity Ratio (SLR)
Banks also need to maintain a minimum percentage of their investment in the form of gold, cash, government bonds or other securities; this indicates that banks can earn interest upto some extent on these investments. This percentage is known by the name Statutory Liquidity Ratio.
Statutory Liquidity Ratio is decided on the basis of time liabilities and percentage of total demand. An example of Time liability is term deposit which is payable after a particular time period and not payable on demand. Deposits in a saving account acts like a example of demand liability, which is payable on demand just like cheques.
For Example: RBI is empowered to increase this ratio up to 40%. An increase in SLR also restricts the bank’s leverage position to pump more money into the economy.
Note: This is all about Cash Reserve Ratio. For more interesting facts, stay connected with us only at www.recruitmentinboxx.com
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