Banking Reforms in India Essay

Cash reserve ratio (CRR) is the amount of funds that the banks have to keep with the run batted in. If the central bank decides to step-up the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive currency from the system.Commercial banks are required to maintain with the RBI an average silver balance, the amount of which shall not be less than 3% of the total of the make Demand and Time Liabilities (NDTL), on a fortnightly basis and the RBI is empowered to increase the direct of CRR to such higher point not exceeding 20% of the NDTL. What is Reverse Repo rate?Reverse Repo rate is the rate at which the RBI borrows coin from commercial banks. Banks are always elated to lend property to the RBI since their gold are in off the hook(predicate) hands with a good interest. An increase in reverse repo rate stick out prompt banks to park more funds with the RBI to accomplish higher returns on idle cash. It is also a tool which brush a side be used by the RBI to drain 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 analogous to the discount rate in the US.