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The Cash Reserve Ratio (CRR) is a regulatory requirement mandated by the Reserve Bank of India (RBI) under the Reserve Bank of India Act, 1934. It is the proportion of a commercial bank’s net demand and time liabilities (NDTL) that must be held as reserves with the RBI. Banks are required to maintain this reserve in cash, and it is not available for lending or investment purposes. Key Points About CRR: 1. Purpose: • CRR is primarily used to regulate liquidity in the banking system. • It ensures that a portion of the banks’ funds remains secure with the RBI, enhancing monetary stability. 2. Current CRR Rate: • As of December 2024, the CRR rate is 4.5% of NDTL, though this is subject to periodic changes by the RBI depending on monetary policy objectives. 3. Impact on Banks: • A higher CRR reduces the funds available for banks to lend, thus tightening liquidity in the market. • A lower CRR increases available liquidity, potentially boosting credit growth. 4. Exemptions: • CRR is calculated on a bank’s NDTL, which includes demand deposits, savings deposits, and fixed deposits. Certain liabilities like inter-bank deposits and specific types of savings accounts may be exempt from CRR calculation. 5. Frequency of Maintenance: • Banks must maintain CRR on a daily basis, ensuring compliance with the average prescribed levels over a fortnightly reporting period. 6. Penalties: • Non-compliance with CRR requirements can result in penalties from the RBI, including higher interest rates on shortfall amounts. The CRR is a critical tool in the RBI’s monetary policy arsenal, used to manage inflation, control liquidity, and ensure financial system stability. For official updates, refer to the RBI’s website or its monetary policy circulars. Circular references- https://lnkd.in/dH7qmAWZ
