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What is CRR and LRR |
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Answer» Hi yogita in which class you study? LRR (Legal Reserve Ratio) refers to that legal minimum fraction of deposits which the banks are mandate to keep as cash with themselves. The LRR is fixed by the Central Bank. It has two components:1. Cash Reserve Ratio2. Statutory Liquidity RatioCash Reserve Ratio (CRR):: It refers to the minimum amount of funds that a commercial bank has to maintain with the Reserve Bank of India, in the form of deposits. For example, suppose the total assets of a bank are worth Rs 200 crore and the minimum cash reserve ratio is 10%. Then the amount that the commercial bank has to maintain with RBI is Rs 20 crore. If this ratio rises to 20%, then the reserve with RBI increases to Rs 40 crore. Thus, less money will be left with the commercial bank for lending. This will eventually lead to considerable decrease in the money supply. On the contrary, a fall in CRR will lead to an increase in the money supply. |
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