The CRR is calculated on a bank’s net demand and time liabilities, mainly its deposits. Money kept as CRR cannot be lent out, so a cut in CRR releases funds that banks can lend, while an increase sucks money out of the system. The RBI uses CRR changes to manage liquidity alongside the repo rate.
Finance glossary
What is Cash Reserve Ratio (CRR)?
The share of a bank's deposits that it must keep as cash with the RBI, earning no interest.
