Cash Reserve Ratio (CRR): Recently, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) cut the policy repo rate by 50 basis points to 5.50% to stimulate economic growth.
o Additionally, the RBI announced a staggered reduction of 100 basis points in the Cash Reserve Ratio (CRR) over the year.
o Main objective: to ensure banks maintain a minimum level of liquidity relative to their liabilities.
o This helps prevent liquidity shortages during times of increased demand for funds.
o Calculated as a percentage of Net Demand and Time Liabilities (NDTL).
o NDTL refers to the total demand and time liabilities of a bank, including aggregate savings and deposits.
o It enables banks to meet short-term liquidity requirements by borrowing money.
o Banks provide securities as collateral and agree to repurchase them later at a higher price that includes interest.
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