Cash Reserve Ratio (CRR) is the minimum percentage of a commercial bankís net demand and time liabilities (NDTL) that it is required to maintain as cash with the Reserve Bank of India (RBI). CRR is a crucial monetary policy tool used by the RBI to regulate liquidity, control inflation, and maintain financial stability in the banking system.

When the RBI raises the CRR, banks have to keep a higher portion of their deposits with the central bank, reducing the funds available for lending. Conversely, a reduction in CRR increases the liquidity in the banking system, enabling banks to extend more loans to businesses and consumers. This mechanism directly influences credit availability, interest rates, and overall economic activity.

CRR does not earn any interest for banks, making it a cost of holding reserves. It is different from the Statutory Liquidity Ratio (SLR), which requires banks to maintain a portion of deposits in approved government securities. By adjusting CRR, the RBI can manage short-term money supply and curb excessive inflation or deflation in the economy.

In India, the RBI periodically reviews and announces changes to the CRR as part of its monetary policy framework. Commercial banks are mandated to comply with CRR requirements, and non-compliance may attract penalties. Effective CRR management ensures stability in the banking sector and protects the interests of depositors and the broader economy.

In summary, the Cash Reserve Ratio (CRR) is a regulatory requirement for banks to hold a fraction of their deposits with the RBI. Understanding CRR, its impact on liquidity, lending, and interest rates helps investors, businesses, and financial professionals make informed decisions and comprehend the functioning of Indiaís monetary and banking system.