Define or Explain the following concepts. 5. Cash Reserve Ratio

Define or Explain the following concepts.

5. Cash Reserve Ratio

Answer: 

5. CRR or Cash Reserve Ratio refers to the minimum amount of funds that a commercial bank has to maintain with the Reserve Bank of India, in the form of deposits. CRR is used to affect the lending capacity of the commercial banks. An increase in the CRR reduces the money left with the commercial bank for lending eventually leading to a decrease in the money supply.

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