In order to inject liquidity into the banking system, the Reserve Bank of India, announced reduction in Cash Reserve Ratio (CRR) of Scheduled Banks by 50 basis points from 6.00% to 5.50% of their Net Demand and time Liabilities (NDTL) effective the fortnight beginning 28th January, 2012. This move is going to inject around 320 billion liquidity into the banking system.
CRR is the amount of funds that the banks have to maintain with RBI. Under Section 42 of RBI Act, 1934, Reserve Bank uses CRR as a tool to regulate and control the money supply in the banking system.
Source : RBI website.
Also See : Current Policy Rates and Reserve Ratios (SLR, CRR, Bank Rate, Repo, Reverse Repo)
crr ko kam karne se paisa to bank ke pass hi rahega to iske fayde kaya hai. kaise bank ko isse bank kofayada hoga.
In terms of Section 42(1) of the RBI Act 1934, Scheduled Commercial Banks are required to maintain with RBI an average cash balance of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis on the rates announced by RBI from time to time. The banks donot earn any income (interest) on these balances. Hence the amount of CRR is unproductive asses for the banks. Reduction in CRR will free/release some amount from RBI which the banks can utilize for proddctive purposes and thus earn income thereon.
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