Percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio. The cash reserve is either stored in the bank’s vault or is sent to the RBI.
Banks can’t lend the CRR money to corporates or individual borrowers, banks can’t use that money for investment purposes. And Banks don’t earn any interest on that money.
Recently RBI allowed banks to exclude loans up to Rs 25 lakh given to the micro, small and medium enterprises from its net demand and time liabilities (NDTL) for the purpose of calculating cash reserve ratio (CRR).
Cash Reserve Ratio (CRR)