The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve

bank of India, with reference to the demand and time liabilities (NDTL) to ensure the li uidit! and solvenc! of the "anks# $$$$%hat is impact of reducin& CRR' %hen CRR is reduced, more funds are available to banks for deplo!in& in otherbusiness as the! have to keep fewer amounts with R"I# This means that the banks would have more mone! to pla! and this leads to reduction of interest rates on Loans provided b! the "anks# $$$$%hat is impact of (ikin& CRR' R"I uses the method of CRR hike to drain out the e)cess li uidit! from the banks# This is because* the banks will now have to keep more mone! with the Reserve "ank of India# +n this mone! banks don,t earn an! - much interest# .ince the! don/t earn an! interest, the banks are left with an option to increase the interest rates# If R"I hikes this rate substantiall!, banks will have to increase the loan interest rates# The home loans, car loans and 01I of floatin& Rate loans increase#