Cash reserve ratio

Type :

Indian project

Pages :

34 pages

Format :

.doc

Published date :

04/07/2009

Category :

Economics & finance

Sub category :

Finance

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Summary :

Introduction
Maintenance of CRR
Cash Reserve Requirement (C.R.R)
Additional cash reserve
Changes in cash reserve requirement in India
Overall limit for CRR raised to 20%
Interest rate on CRR
Recent changes in statutory cash reserve with reserve bank
CRR hike affects the common man
Procedure for calculation of CRR
The RBI hike CRR
RBI increases cash reserve ratio (CRR)
Cash reserve ratio and interest rates
Effects on money supply
Statutory liquid ratio
1. Meaning and objectives
2. Basis for maintenance of S.L.R
3. Valuation of securities
4. Liabilities in India
5. Statutory liquid ratio excludes CRR
6. Procedure for computation of demand and time liabilities for SLR
7. Classification and valuation of approved securities for SLR
8. Effect of higher statutory liquid ratio
Prime lending rate
1. Meaning
2. Prime lending rate
3. Will the prime lending rate be available to you
4. Credit cards and the prime rate
5. Interest

Abstract

This is the amount of money that the banks have to necessarily park with the reserve Bank of India. The base of this is the total of the deposits that a bank has. The reserve Bank of India pays the bank interest on the amount parked with it. Among the tools available to the RBI to influence and control the monetary aggregates in the country, the most powerful is that relating to cash reserve requirements imposed on banks. Under section 42 (1) of RBI act, 1934, every scheduled commercial bank was required to maintain with the RBI every fortnight a minimum average daily cash reserve equivalent to 3% of its Net Demand and Time Liabilities (NDTL) outstanding as on the Friday of previous week. RBI uses the CRR either to impound the excess liquidity or release funds needed for the economy from time to time. CRR is the amount the commercial banks need to maintain with the reserve Bank of India. The amount is based on a fixed percentage computed on each bank's total time and demand liabilities. A CRR of 7.5 per cent means that the banks need to set aside Rs 7.5 for every Rs 100 they receive in deposits. The CRR imposes a cost on the banking system. This is because banks do not receive more than 6.5 per cent interest on the CRR, while they earn higher returns if the money is lent to customers or invested in bonds.