Introduction to Cash Reserve Ratio (CRR)
- Cash Reserve Ratio (CRR) is a term that refers to the total number of funds that all banks have to keep with the Reserve Bank of India (RBI). The amount that is available within banks for disbursal ends up decreasing when the central bank chooses to raise the CRR.
- The RBI makes use of the CRR to drain out unnecessary money from the system. Commercial banks must have an average cash balance with the RBI, the amount of which shall not be less than 3% of the Net Demand and Time Liabilities (NDTL) on a fortnightly basis. The RBI is authorised to increase the CRR up to ≤20% of the NDTL.
Calculation Of CRR
- The most essential part of the calculation of CRR is the calculation of the Demand and Time Liabilities (DTL). It is the total amount of liabilities on which the bank needs to maintain CRR with the RBI.
- DTL can include demand liabilities like current account deposits, savings account deposits, outstanding TT/MT/DD and call money borrowings. Time liabilities cover fixed deposits, cash certificates, recurring deposits etc.
- Though DTL will eliminate loans from RBI, refinance from NHB/NABARD, unrealised gains/losses from derivative transactions, income tax provisions, etc. CRR has to be maintained at 4% of this DTL.
