Cash Reserve Ratio
The proportion of deposits banks must hold as cash with the Reserve Bank, earning no interest.
Formula
Required Reserves = Net Demand and Time Liabilities x Cash Reserve Ratio
Unit
%
In depth
The CRR is a blunt liquidity instrument: raising it removes money from the banking system immediately and permanently until reversed, unlike open market operations which are more surgical. Because the reserves earn nothing, the ratio is also a tax on banking, and its cost is passed into lending spreads. A change of 50 basis points on the Indian banking system's deposit base moves well over a lakh crore of rupees, which is why the tool is used sparingly. It affects the money multiplier directly, since a higher ratio means each rupee of deposits supports less lending.
Worked example
At a 4% CRR, a bank with ₹2,00,000 crore of deposits must hold ₹8,000 crore with the Reserve Bank earning nothing. Raising the ratio to 4.5% locks up a further ₹1,000 crore of lendable funds.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Cash Reserve Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.