Definition
The Cash Reserve Ratio (CRR) is the percentage of a bank's total deposits that must be kept as cash with the Reserve Bank of India (RBI). Banks cannot use this money for lending or investment. It is used by the RBI to control the money supply in the economy.
Example
For example, if the CRR is 4% and a bank has 100,000 in deposits, it must keep 4,000 with the RBI. The remaining amount can be used for loans and other banking activities.
Caution
A higher CRR means banks have less money available for lending, which can slow economic activity. A lower CRR increases lending capacity but may contribute to higher inflation, so the RBI adjusts it carefully based on economic conditions.