Banking Reforms in India Essay

Cash allow Ratio (CRR) is the total of funds that the banks have to keep with the run batted in. If the central bank decides to increase the CRR, the available amount with the banks comes down. The run batted in uses the CRR to give out out excessive money from the system.Commercial banks are required to maintain with the RBI an average cash balance, the amount of which shall not be less than 3% of the total of the Net take in and Time Liabilities (NDTL), on a fortnightly basis and the RBI is empowered to increase the calculate of CRR to much(prenominal) higher rate not exceeding 20% of the NDTL. What is Reverse Repo rate?Reverse Repo rate is the rate at which the RBI borrows money from mercenary banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest. An increase in override repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to d rain excess money out of the banking system. What is a Repo Rate?The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument ofmonetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. The repo rate in India is quasi(prenominal) to the discount rate in the US.