Ms. Sakshi, an economics teacher, was explaining the concept of minimum percentage of the total deposits to be kept by any commercial bank with the Central Bank of the country, as per norms and statute prevailing in the country’.
From the following, choose the correct alternative which specifies towards the concept explained by her?
(a) Cash Reserve Ratio
(b) Repo Rate
(c) Bank Rate
(d) Statutory Liquidity Ratio
Ans – (a)
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.