Question

Cash reserve ratio refers to

• A. Interest on long term loans given by RBI to the Banks
• B. Percentage of NDTL that the banks keep with the RBI
• C. The percentage of NDTL, the banks have to keep within itself
• D. Auction and repurchase of GSecurities

Answer 1

The correct option is B Percentage of NDTL that the banks keep with the RBI

Banks are required to hold a certain proportion of their deposits in the form of cash with RBI. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR.
It means that banks do not have access to that much amount for any economic activity or commercial activity. Banks can’t lend the money to corporates or individual borrowers, banks can’t use that money for investment purposes. CRR remains in the current account and banks don’t earn anything on that