Your Desire To Earn
Day Trading Shares
Welcome to the Indian Share Market
D T S
Cash Reserve Ratio
The present banking system is called a “fractional reserve banking system”, as the banks are required to keep only a fraction of their deposit liabilities in the form of liquid cash with the central bank for ensuring safety and liquidity of deposits. The Cash Reserve Ratio (CRR) refers to this liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities. For example if the CRR is 10% then a bank with net demand and time deposits of Rs 1,00,000 will have to deposit Rs 10,000 with the RBI as liquid cash.
How is CRR used as a tool of credit control?
CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank deposits, however over the years it has become an important and effective tool for directly regulating the lending capacity of banks and controlling the money supply in the economy. When the RBI feels that the money supply is increasing and causing an upward pressure on inflation, the RBI has the option of increasing the CRR thereby reducing the deposits available with banks to make loans and hence reducing the money supply and inflation.
Does RBI impose on penalty on banks for defaulting on CRR deposits?
The RBI has the authority to impose penal interest rates on the banks in respect of their shortfalls in the prescribed CRR. According to Master Circular on maintenance of statutory reserves updated up to June 2008, in case of default in maintenance of CRR requirement on daily basis, which is presently 70 per cent of the total CRR requirement, penal interest will be recovered at the rate of three 3% per annum above the bank rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day. If shortfall continues on the next succeeding days, penal interest will be recovered at a rate of 5% per annum above the bank rate. In fact if the default continues on a regular then RBI can even cancel the bank’s licence or force it to merge with a larger bank.
Does CRR apply to all scheduled banks?
The CRR is applicable to all scheduled banks including the scheduled cooperative banks and the Regional Rural Banks (RRBs). The present level of CRR is 6.5%. Previously, there was a floor of 3% and ceiling of 20% on the CRR that could be imposed by the RBI; however since 2006 there is no minimum or maximum level of CRR that needs to be fixed by the central bank of India. At present, the RBI does not pay any interest to the banks on the CRR deposits. Prior to 1962, a separate CRR was fixed in respect of demand and time liabilities, however after 1962 the separate CRRs were merged and one CRR came into effect for both demand and time deposits of banks with RBI.
Following terms to find more information
cash reserve ratio
what is cash reserve ratio
cash reserve ratio definition
cash reserve ratio India
cash reserve ratio India
cash reserve ratio crr
current cash reserve ratio
cash reserve ratio in India
bank cash reserve ratio
cash reserve ratio wikipedia
cash reserve ratios
cash reserves ratio,
banking savings account
reserve bank of India
current inflation rate
what is crr
mortgage stock market
Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice
nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes
are believed to be accurate and correctly dated, but www.daytradingshares.com does not warrant or guarantee their accuracy or date.
www.daytradingshares.com takes no responsibility for any investment decisions based on recommendations provided on website.
Financial contents like Technical charts, historical charts and quotes are taken from NSE and Yahoo sites.
Note - All quotes are delayed by 15 minutes and unless specified.
Please read at www.daytradingshares.com/disclaimer.php before using any material or advice given at www.daytradingshares.com
Copyright © 2009 DayTradingShares.com. All Rights Reserved.