CRR Full Form:- Meaning of Cash Reserve Ratio (CRR) RBI, CRR rate. The cash reserve ratio in India is decided by the Monetary Policy Committee of the RBI in its periodic monetary and credit policy. The Reserve Bank of India takes stock of the CRR in every monetary policy review, which is currently held every six weeks. CRR is one of the key weapons in the arsenal of RBI which allows it to maintain the desired level of inflation, control the money supply and also liquidity in the economy. The lower the CRR, the more liquidity is available with the banks, which in turn goes into investment and lending and vice versa. Higher CRR can also negatively impact the economy as less availability of loanable funds, in turn, slows down investment. This reduces the money supply in the economy.
What is CRR or Cash Reserve Ratio?
The Reserve Bank of India or RBI mandates that banks keep a part of their deposits in the form of cash to be given to the customers of the bank when needed. The percentage of cash required to be kept in reserve, compared to the total deposits of the bank, is called the cash reserve ratio. The cash reserve is either deposited in the bank’s vault or sent to the RBI. Banks do not earn any interest on the money that is held with RBI under CRR requirements.
How is the Cash Reserve Ratio Calculated: CRR Full Form Formula
If the current CRR rate is 4%, the bank is required to deposit 4% of the total NDTL or net demand and time liabilities in the form of cash. The bank cannot use this money for investment or lending.
CRR vs SLR
Unlike the Statutory Liquidity Ratio or SLR, which can be maintained in gold or cash, CRR needs to be maintained only in cash.
Current Repo Rate and its Impact
Apart from CRR, various measures are used by RBI to guide the supply of cash in the economy. RBI re-examines the repo rate and reverses the repo rate according to fluctuating macroeconomic conditions. When RBI changes rates, it affects every sector of the economy; yet in different ways.
Changes in repo rates can directly impact high-end advances such as home advances. An increase/decrease in repo rates may bring banks and monetary organizations to review their MCLR proportionately. MCLR (Marginal Cost of Funds Based Lending Rate) is the internal reference rate which helps the managers to ascertain the premium they can ask for on the credit.
How Does The Cash Reserve Ratio Help in Times of High Inflation: CRR Full Form
At times of high inflation, the government needs to ensure that excess money is not available in the economy. To that extent, the RBI increases the Cash Reserve Ratio, and the amount of money available with banks decreases. It prevents the excess flow of money in the economy. When the government needs to pump money into the system, it lowers the CRR rate, which in turn helps banks provide loans for investment purposes to a larger number of businesses and industries. Lower CRR also increases the growth rate of the economy.
Objectives of Cash Reserve Ratio
The cash reserve ratio serves as one of the reference rates while setting the base rate. Base rate means the minimum lending rate below which a bank is not allowed to lend money. The base rate is determined by the Reserve Bank of India (RBI).
The rate is fixed and ensures transparency with respect to borrowing and lending in the credit market. The base rate also helps banks cut down on the cost of lending to be able to provide affordable loans. Furthermore, the cash reserve ratio has two main purposes:
The cash reserve ratio ensures that a portion of bank deposits are held by the Central Bank and are therefore safe.
Another objective of CRR is to keep inflation under control. During times of high inflation in the economy, the RBI increases the CRR to reduce the balance with the banks for sanctioning loans. It reduces the flow of money into the economy, reduces investment and reduces inflation.
How Does the Cash Reserve Ratio Work?
When the RBI decides to increase the Cash Reserve Ratio, the amount of money available to the banks gets reduced. This is RBI’s way of controlling the excess flow of money in the economy. The cash balance to be maintained by scheduled banks with RBI should not be less than 4% of total NDTL, which is net demand and time liabilities. This is done on a fortnightly basis.
NDTL refers to the total demand and time liabilities (deposits) that are held by the banks. It includes deposits of the general public and balances held by the bank with other banks. Demand deposits include all liabilities that the bank needs to pay on demand such as current deposits, demand drafts, balances in overdue fixed deposits and demand liabilities of savings bank deposits.
How Does CRR Affect the Economy: CRR Full Form
Cash Reserve Ratio (CRR) is one of the main components of RBI’s monetary policy, which is used to regulate the money supply, inflation levels and liquidity in the country. The higher the CRR, the lesser will be the liquidity with the banks and vice versa. During high levels of inflation, an attempt is made to reduce the flow of money in the economy.
For this, the RBI increases the CRR, reducing the loanable funds available to the banks. This, in turn, slows down investment and reduces the money supply in the economy. As a result, the growth of the economy is negatively affected. However, it also helps in reducing inflation.
On the other hand, when the RBI wants to pump funds into the system, it lowers the CRR, thereby increasing the loanable funds with the banks. In return, the banks sanction a large number of loans to businesses and industries for various investment purposes. It also increases the overall supply of money in the economy. This ultimately increases the growth rate of the economy.
Difference Between CRR and SLR
Both CRR and SLR are essential components of monetary policy. However, there are some differences between them. The following table gives a glimpse of the disparities:
|Statutory Liquidity Ratio (SLR)
|Cash Reserve Ratio (CRR)
|In the case of SLR, banks are asked to have reserves of liquid assets, which include cash, government securities and gold.
|The CRR requires banks to have only cash reserves with the RBI
|Banks earn returns on money parked as SLR
|Banks don’t earn returns on money parked as CRR
|SLR is used to control the bank’s leverage for credit expansion. It ensures the solvency of banks
|The Central Bank controls the liquidity in the Banking system through CRR
|In the case of SLR, the securities are kept with the banks themselves, which they need to maintain in the form of liquid assets.
|In CRR, the cash reserve is maintained by the banks with the Reserve Bank of India
Why is the Cash Reserve Ratio Changed Regularly?
As per the guidelines of the Reserve Bank of India, every bank is required to maintain a proportion of its total deposits which may also be kept with currency chests. It is treated as if it is kept with RBI. RBI may change this ratio from time to time at regular intervals. When this ratio changes, it affects the economy.
For banks, profits are made by lending. In pursuit of this goal, banks lend the maximum amount they can to earn maximum profit and keep little cash with them. Banks will be unable to meet all repayment requirements due to an unprecedented rush by customers to withdraw their deposits.
Therefore, CRR is important to ensure that a certain fraction of all deposits in every bank is always kept safe with them. While ensuring liquidity against deposits is the main function of CRR, it has an equally important role in controlling interest rates in the economy.
Current Repo Rate and its Impact: CRR Full Form
Apart from CRR, there are other metrics used by RBI to regulate the money supply in the economy. RBI revises the repo rate and reverses the repo rate according to fluctuating macroeconomic conditions. Whenever RBI revises rates, it affects every sector of the economy; Albeit in different ways.
Changes in the repo rate can have a direct impact on large loans like home loans. Banks and financial institutions may revise their MCLR proportionately as a result of an increase/decrease in repo rates. MCLR (Marginal Cost of Funds Based Lending Rate) is the internal reference rate that helps banks figure out how much interest they can charge on loans.
Cash Reserve Ratio (CRR) serves as one of the reference rates while fixing the base rate. Base rate refers to the base lending rate below which a bank is not permitted to have loan reserves. Aadhaar has not been completely decided by the Reserve Bank of India (RBI).
Deploy resources to direct finance, pay 0% commission and earn up to 1.5% additional profit Contribute now. The rate is fixed and guarantees clarity regarding availing of loans in the loan market. Base rate likewise helps in saving money by reducing the cost of their loan to have the option to extend reasonable credit. Furthermore, the money-holding ratio has two primary goals:
The Cash Reserve Ratio (CRR) guarantees that a portion of a bank’s capital is held by the Reserve Bank and is consequently safe. Another arm of CRR is to monitor expansion. During times of high expansion in the economy, the RBI increases the CRR to reduce how much cash is left with banks to authorize credit. It reduces cash flow in the economy, reduces speculation and reduces expansion.
FAQs on CRR Full Form
What is CCR for the customer?
CCR or Customer Churn Rate is the percentage of customers who stop doing business with a company over a given period of time.
What is CCR in the company?
The cash conversion ratio (CCR), also known as the cash conversion rate, is a financial management tool used to determine the ratio of a company’s cash flow to net profit. In other words, it is a comparison of how much cash flow a company generates compared to its accounting profit.
What is the full form of CCR for Employees?
The nomenclature of the report will be changed from Confidential Character Roll (CCR) to Performance Appraisal Report (PAR in short). The PAR will be a confidential document.
What is CCR reporting?
CCR is a reporting system where credit providers such as banks are required to share the credit history of customers. This helps financial institutions make more informed lending decisions. Under comprehensive credit reporting, credit providers share both positive and negative credit data.
What is CCR in Banking?
Cash Certificate Scheme (CCR):
Cumulative fixed deposit scheme in which compound interest is paid at the time of maturity.
What is CCR in BPO?
Customer Controlled Routing (CCR) is the process of customizing the customer experience by routing incoming calls to specific agents trained to address the customer’s specific issue. Call Detail Record (CDR).
Why is it called CCR?
The term ‘Credence’ refers to someone named Credence Newball, who was a friend of Tom Fogerty. ‘Clearwater’ comes from a TV commercial for Olympia beer. And the ‘revival’ was a nod to the fact that the band returned in 1967 after a three-year hiatus due to the aforementioned military commitments.
What is the advantage of CCR?
The CCR does a better job of highlighting good credit behaviour, such as making your credit repayments on time. Because lenders now have more information with which to assess you for a loan, it means they can more accurately determine your risk profile and how likely you are to repay the loan.
What is CCR in HR?
CCR Employee means an IBEW employee whose terms and conditions of employment are determined in accordance with the Local 1944 Collective Bargaining Agreement of the International Brotherhood of Electrical Workers and whose job title is either Career Call Representative or any other title that Maybe later.
Who reports to CCR?
The information contained in your credit report is provided by your lenders to the Central Credit Register. Lenders do not provide any underlying document, form, record or any other document relating to your loan to the Central Credit Register.