What is crr
This query is : Resolved
28 August 2012
What is crr?
when it is used?
when it is used?
28 August 2012
CRR - Cash Reserve Ratio
CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank deposits, however over the years it has become an important and effective tool for directly regulating the lending capacity of banks and controlling the money supply in the economy. When the RBI feels that the money supply is increasing and causing an upward pressure on inflation, the RBI has the option of increasing the CRR thereby reducing the deposits available with banks to make loans and hence reducing the money supply and inflation.
CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank deposits, however over the years it has become an important and effective tool for directly regulating the lending capacity of banks and controlling the money supply in the economy. When the RBI feels that the money supply is increasing and causing an upward pressure on inflation, the RBI has the option of increasing the CRR thereby reducing the deposits available with banks to make loans and hence reducing the money supply and inflation.
28 August 2012
The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate ( [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].
RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e.(a) ensures that a portion of bank deposits is kept with RBI and is totally risk-free, (b) enables RBI to control liquidity in the system, and thereby, inflation by tying the hands of the banks in lending money.
RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e.(a) ensures that a portion of bank deposits is kept with RBI and is totally risk-free, (b) enables RBI to control liquidity in the system, and thereby, inflation by tying the hands of the banks in lending money.
30 August 2012
What is capital redemption reserve?
03 August 2025
Hey! Here’s a clear explanation of CRR and Capital Redemption Reserve for you:
1. What is CRR?
CRR usually stands for Cash Reserve Ratio in banking and finance.
It is the percentage of a bank’s total deposits that it must keep as reserves with the central bank (like RBI in India).
This reserve cannot be lent out or invested.
The purpose is to ensure that banks always have a certain amount of liquid cash to meet withdrawal demands and maintain financial stability.
When is CRR used?
It is used by central banks as a monetary policy tool.
By increasing CRR, the central bank reduces the money available for banks to lend, which can help control inflation.
By decreasing CRR, more money is available for lending, which can stimulate the economy.
2. What is Capital Redemption Reserve?
Capital Redemption Reserve (CRR) is an accounting reserve created in a company’s books.
It is created when a company redeems its own preference shares or buys back its shares out of profits.
Since the company is reducing its capital (shares), it cannot just reduce the capital without maintaining the capital base.
So, the amount used for redemption is transferred to Capital Redemption Reserve to protect creditors and maintain capital integrity.
Why is Capital Redemption Reserve used?
To comply with company law requirements (like Companies Act in India).
To ensure the company’s capital is maintained and not reduced unfairly.
This reserve is part of the company’s reserves and surplus on the balance sheet but cannot be distributed as dividends.
Summary
Term Meaning Use Case
CRR (Cash Reserve Ratio) % of deposits banks must keep with RBI Monetary policy tool to control money supply
Capital Redemption Reserve Reserve created when company redeems shares Maintains capital integrity on redemption of shares
1. What is CRR?
CRR usually stands for Cash Reserve Ratio in banking and finance.
It is the percentage of a bank’s total deposits that it must keep as reserves with the central bank (like RBI in India).
This reserve cannot be lent out or invested.
The purpose is to ensure that banks always have a certain amount of liquid cash to meet withdrawal demands and maintain financial stability.
When is CRR used?
It is used by central banks as a monetary policy tool.
By increasing CRR, the central bank reduces the money available for banks to lend, which can help control inflation.
By decreasing CRR, more money is available for lending, which can stimulate the economy.
2. What is Capital Redemption Reserve?
Capital Redemption Reserve (CRR) is an accounting reserve created in a company’s books.
It is created when a company redeems its own preference shares or buys back its shares out of profits.
Since the company is reducing its capital (shares), it cannot just reduce the capital without maintaining the capital base.
So, the amount used for redemption is transferred to Capital Redemption Reserve to protect creditors and maintain capital integrity.
Why is Capital Redemption Reserve used?
To comply with company law requirements (like Companies Act in India).
To ensure the company’s capital is maintained and not reduced unfairly.
This reserve is part of the company’s reserves and surplus on the balance sheet but cannot be distributed as dividends.
Summary
Term Meaning Use Case
CRR (Cash Reserve Ratio) % of deposits banks must keep with RBI Monetary policy tool to control money supply
Capital Redemption Reserve Reserve created when company redeems shares Maintains capital integrity on redemption of shares
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