CRR - Definition

CRR is also know as Cash Reserve Ratio. It is the Amount of money banks need to keep with the Central Bank. It is a common term used in India's banking sector and refers to the money that Indian banks leave with the RBI (Reserve Bank of India). When the reserve bank decides to increase the percentage, the available amount with the banks comes down. RBI uses this method (increase of CRR rate), to drain out the excessive money from the banks and control Inflation. The CRR (Cash reserve ratio) is also related to the Repo Rate.

In the American system it is referred simply as Reserve ratio and is the amount of money and liquid assets that Federal Reserve System member banks must hold in cash or on deposit with the Federal Reserve System, usually a specified percentage of their demand deposits and time deposits. It is also called the Federal Reserve requirement or reserve requirement.

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