CRR (Cash Reserve Ratio)

The Cash Reserve Ratio (CRR) is the percentage of a commercial bank's total net demand and time liabilities that must be maintained as cash reserves with the Reserve Bank of India. Unlike SLR assets (which can be invested in government securities), CRR must be held as actual cash with the RBI and earns no interest. The RBI uses CRR as a direct tool for liquidity management — raising CRR reduces the money available with banks for lending, contracting credit and money supply (used to fight inflation); lowering CRR releases liquidity into the system, boosting credit availability and economic activity. CRR changes have an immediate and powerful impact on bank profitability and overall system liquidity, making them a closely watched policy variable in Indian financial markets.