Question

When the Reserve Bank of India announces an increase in the Cash Reserve Ratio (CRR)? What does it mean?

• A. The commercial banks will have less money to lend
• B. The Reserve Bank of India will have less money to lend
• C. The Union Government will have less money to lend
• D. None of the above

Answer 1

The correct option is A The commercial banks will have less money to lend

CRR refers to the percentage of deposits banks have to keep as reserve (in cash). This reserve sum is not available for banks for lending and thus if the CRR increases, banks will have less money to lend.