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Cash reserve ratio

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  1. Introduction
  2. Maintenance of CRR
  3. Cash Reserve Requirement (C.R.R)
  4. Additional cash reserve
  5. Changes in cash reserve requirement in India
  6. Overall limit for CRR raised to 20%
  7. Interest rate on CRR
  8. Recent changes in statutory cash reserve with reserve bank
  9. CRR hike affects the common man
  10. Procedure for calculation of CRR
  11. The RBI hike CRR
  12. RBI increases cash reserve ratio (CRR)
  13. Cash reserve ratio and interest rates
  14. Effects on money supply
  15. Statutory liquid ratio
    1. Meaning and objectives
    2. Basis for maintenance of S.L.R
    3. Valuation of securities
    4. Liabilities in India
    5. Statutory liquid ratio excludes CRR
    6. Procedure for computation of demand and time liabilities for SLR
    7. Classification and valuation of approved securities for SLR
    8. Effect of higher statutory liquid ratio
  16. Prime lending rate
    1. Meaning
    2. Prime lending rate
    3. Will the prime lending rate be available to you
    4. Credit cards and the prime rate
    5. Interest

This is the amount of money that the banks have to necessarily park with the Reserve Bank of India. The base of this is the total of the deposits that a bank has. The Reserve Bank of India pays the bank interest on the amount parked with it. Among the tools available to the RBI to influence and control the monetary aggregates in the country, the most powerful is that relating to cash reserve requirements imposed on banks. Under section 42 (1) of RBI act, 1934, every scheduled commercial bank was required to maintain with the RBI every fortnight a minimum average daily cash reserve equivalent to 3% of its Net Demand and Time Liabilities (NDTL) outstanding as on the Friday of previous week. RBI uses the CRR either to impound the excess liquidity or release funds needed for the economy from time to time. CRR is the amount the commercial banks need to maintain with the Reserve Bank of India. The amount is based on a fixed percentage computed on each bank's total time and demand liabilities. A CRR of 7.5 per cent means that the banks need to set aside Rs 7.5 for every Rs 100 they receive in deposits. The CRR imposes a cost on the banking system. This is because banks do not receive more than 6.5 per cent interest on the CRR, while they earn higher returns if the money is lent to customers or invested in bonds.

[...] Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) General With a view to monitoring compliance with statutory reserve requirements viz. Cash Reserve Ratio and Statutory Liquidity Ratio by the Scheduled Commercial Banks (SCBs), Reserve Bank of India has prescribed statutory returns i.e. Form A return (for CRR) under Section 42 of the RBI, Act and Form VIII return (for SLR) under Section 24 of the Banking Regulation Act The terms CRR and SLR. CRR, or cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. [...]

[...] The Reserve Bank of India reduced Cash Reserve Ratio substantially in stage from 15% in 1995 to 10% in January These changes took place in view of the changing requirement of the banking system and in compliance with the recommendation of the Narasimham committee. The CRR was reduced as follow during this period: On July Reserve Bank of India announce an increase in CRR by point to in two stages by point each effective form July 29 and August The obvious objective of this rise was to absorb resources of scheduled commercial banks to the extent of Rs crore at each stage. [...]

[...] Penalties From the fortnight beginning June penal interest will be charged as under in cases of default in maintenance of CRR by Scheduled Commercial Banks: In cases of default in maintenance of CRR requirement on a daily basis which is presently 70% of the total Cash Reserve Ratio requirement, penal interest will be recovered for that day at the rate of three per cent per annum above the bank rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day and if the shortfall continues on the next succeeding day/s, penal interest will be recovered at a rate of five per cent per annum above the bank rate. [...]

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