Why Do Banks Need to Maintain Cash Reserve Ratio?
The overall liquidity is thoroughly managed and administered when all the commercial banks maintain the required CRR rate, which is beneficial to each bank. If the CRR rate for the amount maintained with the RBI is high, the economy’s liquidity will be low. Conversely, if the CRR reserved with the RBI is low, the economy’s overall liquidity will be higher. Keeping the specified cash reserve ratio helps banks hold the appropriate amount of funds with them and never fall short of money to meet customers’ demands.
Cash Reserve Ratio (CRR) – Meaning, Objective, Significance, & Effect
Get to know About Cash Reserve Ratio: CRR (Objective, Significance, Effect): The Reserve Bank of India (RBI) is in charge of supervising banking operations in India and implements various measures to manage money circulation in connection with the economic scenario. One of the important tools of the RBI’s monetary policy is the cash reserve ratio or CRR. All commercial banks need to abide by the guidelines regarding CRR as devised by the RBI.
In this article, we will discuss in detail the cash reserve ratio (CRR), including its definition and justification. Also, find out its objectives, significance, and how it is calculated.
Table of Content
- What is the Cash Reserve Ratio?
- Why Do Banks Need to Maintain Cash Reserve Ratio?
- Objectives of the Cash Reserve Ratio
- Significance of the Cash Reserve Ratio
- How is the Cash reserve ratio calculated?
- Effect of the Cash Reserve Ratio
- What is the Cash Reserve Ratio Changed Regularly?