Cash Reserve Ratio

The Cash Reserve Ratio (CRR) is a monetary policy instrument of the Reserve Bank of India (RBI) that mandates commercial banks to maintain a specified percentage of their Net Demand and Time Liabilities (NDTL) as cash reserves with the RBI — earning no interest on these balances. By adjusting the CRR, the RBI directly controls the liquidity available in the banking system — a CRR increase reduces the funds available for lending and tightens monetary conditions, while a CRR reduction releases liquidity and stimulates credit growth. The CRR is distinct from the Statutory Liquidity Ratio (SLR), which requires banks to maintain a proportion of liabilities in liquid assets such as government securities rather than cash. Changes in CRR have an immediate and powerful multiplier effect on the money supply — each percentage point change in CRR affects the banking system's lending capacity by several times the absolute amount, due to the money multiplier mechanism. The current CRR in India is set by the RBI's Monetary Policy Committee at its bi-monthly policy meetings.