The Cash Reserve Ratio refers to

[amp_mcq option1=”the share of Net Demand and Time Liabilities that banks have to hold as liquid assets” option2=”the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI” option3=”the share of Net Demand and Time Liabilities that banks have to hold as part of their cash reserves” option4=”the ratio of cash holding to reserves of banks” correct=”option2″]

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UPSC CDS-1 – 2020

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The Cash Reserve Ratio (CRR) is the portion of a bank’s Net Demand and Time Liabilities (NDTL) that it must maintain as a balance with the Reserve Bank of India (RBI). This is a mandatory requirement set by the RBI. Option B accurately describes this.

– CRR is a monetary policy tool used by the RBI to control liquidity in the banking system.
– Banks do not earn any interest on the balances held with the RBI under CRR.
– It is a percentage of the bank’s total deposits (NDTL).

Statutory Liquidity Ratio (SLR) is another reserve requirement, which mandates banks to maintain a certain percentage of their NDTL in the form of liquid assets such as cash, gold, and unencumbered government securities.

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