CRR: Cash Reserve Ratio shreecom infotech

Particularly, the CRR is the minimum amount of the total deposits of customers that need to be maintained by the commercial as a reserve bank either in cash or as deposits with RBI. The rate of CRR will be fixed as per the guidelines of the central bank. The amount of CRR is to be held or reserved in cash or cash equivalents with RBI. The main aim of CRR is to ensure that banks do not run out of cash to meet their depositors' payment demands. The cash reserve ratio is computed as a percentage of the net demand and time liabilities of each bank. In the case of depositors when the bank sincerely maintains the required CRR rate, then the depositors don't have to worry about their deposits as the portion of their money is safe in the form of reserve maintained with RBI. Both banks have to be likely to lend the maximum amount of funds to borrowers and return the very little money themselves for another purpose therefore the banks to be like it when the CRR rate is low. The rate of this CRR is to be fixed by RBI to avoid such situations where the banks cannot meet repayments due to a shortage of funds.
How Does Cash Reserve Ratio Work:
When the RBI decides to increase the CRR, the available amount of money with the banks reduces. This is the way of RBI's way that to be controlling the excess flow of money in the economy. The cash balance is to be maintained by scheduled banks with the RBI should not be less than 4% of the total NDLT. The NDLT refers to the total demand and time liabilities that are held by the banks which includes the deposits of the general public and the balances held by the bank with other banks.
Advantages of CRR:
CRR can help commercial banks to build and sustain their solvency position. RBI is to be gets to control and coordinate the credit that to be maintained by banks through the CRR rate which helps to a smooth supply of cash and credit in the economy. When the CRR rate is reduced by RBI, the commercial banks which turn increase the flow of c