gs1medium
When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean?
- A.The commercial banks will have less money to lend
- B.The Reserve Bank of India will have less money to lend
- C.The Union Government will have less money to lend
- D.The commercial banks will have more money to lend
▶ Answer & Explanation
Correct answer: A. The commercial banks will have less money to lend
The Cash Reserve Ratio (CRR) is the percentage of a bank's total deposits that it must hold in reserve with the central bank. When the RBI increases the CRR, commercial banks are required to keep a larger portion of their deposits with the RBI. This directly reduces the amount of money available with commercial banks for lending to businesses and individuals, thereby tightening liquidity in the economy.
Source: UPSC gs1 2010