Increase in cash reserve ratio adversely affects the capacity of commercial banks to create credit

True,

Explanation:-

An increase in the cash reserve ratio reduces the excess reserves of commercial banks and limits their credit-creating power.

Additional Information:-

Cash Reserve Ratio (CRR): It refers to the minimum percentage of net demand and time liabilities, to be kept by commercial banks with the central bank.

A change in CRR affects the ability of commercial banks to create credit.

For instance, an increase in CRR reduces the excess reserves of commercial banks and limits their credit-creating power and vice-versa.