Cash Reserve Ratio (CRR) is the percentage of total deposits that a bank must keep in cash with the Reserve Bank of India (RBI).
This money is kept as a safety reserve and cannot be used for lending or investments.
It’s like a “rainy day fund” that banks must set aside to ensure stability in the financial system.
CRR Definition in Simple Words
CRR is the portion of your deposits that the bank cannot touch.
The bank keeps this cash with the RBI, and it earns no interest on it.
Why CRR is Important
- Controls inflation: RBI can raise CRR to reduce the money banks can lend.
- Ensures safety: Banks always have some cash in reserve.
- Manages liquidity: Helps RBI regulate how much money flows in the economy.
CRR Formula
CRR (%) = (Cash Reserve with RBI ÷ Net Demand and Time Liabilities) × 100
Net Demand and Time Liabilities (NDTL) = Total deposits banks get from customers
Simple Example
Let’s say:
- A bank has ₹1,000 crore in deposits (NDTL)
- The RBI has set CRR at 4%
Then, the bank must keep ₹40 crore (4% of ₹1,000 crore) in cash with RBI.
This ₹40 crore cannot be used for loans or investments.
Current CRR Rate (2025)
As of now, the CRR set by RBI is 4.5% (this can change based on RBI’s monetary policy).
Quick Facts About CRR
- Set by Reserve Bank of India (RBI)
- Higher CRR = Less money for banks to lend
- Lower CRR = More money for banks to lend
- CRR is one of the tools used in monetary policy to manage the economy
