NOTES

Ans.
Commercial Banks are required to hold a certain proportion of their deposits in the form of cash with RBI at any given point in time which is called Cash Reserve Ratio (CRR) RBI uses CRR either to drain excess liquidity from the economy or to release additional funds needed for the growth of the economy. For example, if the RBI reduces the CRR from 5% to 4%, it means that commercial banks will now have to keep a lesser proportion of their total deposits with the RBI making more money available for business. Similarly, if RBI decides to increase the CRR, the amount available with the banks goes down.