What is Cash Reserve Ratio
Since banking sector is
growing day to day therefore transactions are also being digital. To become
friendly with new rule you
need to know that what is Cash Reserve Ratio and CRR,
SLR Repo & Reverse Repo Rate.
Appliers preparing for banking exams must know all the banking terms. All
such questions which are common in every students mind are that what are the
CRRs in the banking sector? What is the full form of CRR? Such visitors who are
looking the rules of the Reserve Bank of India regarding CRR will get full
details. Hey dear students get ready to receive all the answers of your
questions in easy way. Meaning of all banking terms such as CRR, SLR, Repo rate
and their calculations are explained in the following part of the page.
Cash reserve ratio (CRR)
is the portion of the deposit which the bank has to maintain in the Reserve
Bank of India (RBI). The higher the CRR tax ratio, the bank can use the same
amount of credit and can be used for investment in different field of advantage
related to bank. The CRR has to be maintained in the form of cash in the
Reserve Bank of India. If you are excited for other information then stay
connected with ejobhub.
CRR is very much important
term for banking exams point of view because questions always come from this
section. Best of luck to awaited and dynamic candidates for success in baking
recruitment exam!!
CRR, SLR Repo & Reverse Repo Rate Details
Key RBI Policy Rates and Ratio
|
|
Current Bank Rate
|
6.25%
|
Current Repo Rate
|
6.00%
|
Current Reverse Repo rate
|
5.75%
|
Current Marginal Standing Facility Rate
|
6.25%
|
Current Cash Reserve Ratio
|
4%
|
Current Statutory Liquidity Ratio
|
20.00%
|
Cash Reserve Ration-CRR: Cash Reserve Ratio is a system of Reserve Bank of
India to maintain monetary policy. Cash Reserve Ratio (CRR) is a fixed part of
the total deposit of the customer, which is reserved as a deposit with the
central bank. CRR is used in India from time to time according to the need to
control currency supply. The CRR has been determined based on the guidelines of
the central bank of one country (Reserve Bank of India). Current Cash Reserve
Ratio (CRR) is 4%, the Reserve Bank of India does not pay interest on the Cash
Reserve Ratio.
For Example: CRR is 6%, a person has 500 rupees in his bank
Deposits. Since the CRR is 6% and 6% of the 500, it is Rs. 30, so the bank has
to keep Rs.30 with the RBI and only 500-30%. = 470 Money must be made or given
as a loan by the bank.
Why RBI uses cash reserve ratio (CRR)?
For the need of economic
development, RBI uses CRR to control currency supply in the market. The
increase and decrease of the cash reserve ratio controls the currency supply in
the market.
Reserve Bank of India uses
cash reserve ratio to curb inflation and regulates inflation.
To provide employment - A
reduction in CRR may help young people to get loans with low interest rates,
which can provide them employment opportunities, because availability of funds
is high when CRR is low.
CRR helps to provide loans
to farmer’s reduction in cash reserve ratio enables banks to provide more money
for agriculture.
Statutory Liquidity Ratio- SLR: The full form of SLR is Statutory Liquidity Ratio.
Every bank has to invest some proportion of its deposit amount in the financial
securities of central government or state government. This ratio is known as
SLR. This deposit is mainly invested in government securities (bonds), cash,
gold and non-approved, which means banks can earn 'interest' to some extent on
these investments rather than the CRR. SLR is determined based on time
liabilities and percentage of total demand. Time liabilities, banks are responsible
for paying customers with mutual consent after a certain period, and demand
liabilities are such deposits of customers who are payable on demand.
Example of time
liability: Term Deposit which is
not payable on demand, but is payable only after the scheduled time.
Example of demand
liability is deposited in a savings account or current account, which is
payable on demand - such as checks.
For Example: You say deposit is 500 rupees in your bank then the
bank gets Rs 500 and the RBI has to pay a percentage with the SLR. If the
existing SLR is 20% then they will have to invest 100 rupees in government
securities. SLR is usually used to increase or decrease inflation.
Repo Rate:
The repo rate is the rate at which the RBI lends money to banks for a period of
time. And in a bank repo transaction, the RBI repurchases the government
securities from the banks and receives money in the exchange. Due to cut in
repo rate, banks get money at cheaper rates, while increasing the repo rate
makes RBI borrowing more expensive. If it makes banks cheaper to borrow money,
then it reduces the repo rate.
Reverse Repo Rate:
The reverse repo rate is the short-term borrowing rate on which the country's
central bank (the Reserve Bank of India) takes money from commercial banks
within the country. It is a monetary policy system that is used to control
currency supply in the country.
RBI Rules regarding Reverse Repo Rate:
- All the entries of the loan card should be in the local language.
- Charging the effective rate of interest
- All other terms and conditions related to the loan
- Information that adequately recognizes the borrower and
- Approvals by Non Banking Financial Company
- Non-Banking Financial Company should provide credit card to the borrower
- The loan must be a standard form of agreement
- No penalty will be imposed on delayed payment.
- There should be minimum time between repayment of loan and due date of grant
- To suspend recovery of loans given in violation of rules, unless all previous loans are fully repaid
Difference between Repo Rate and Reverse Repo Rate: The major dissimilarity between the Repo Rate and
Reverse Repo Rate is that Repo Rate is the interest rate at which the
commercial banks borrow loans from RBI, while Reverse Repo Rate is the rate at
which the RBI borrows loan from the commercial banks. The Repo Rate is always
higher than the Reverse Repo Rate.
Read Also: 5 Best Techniques to Become Quick
Learner
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