Question

In banking terminology, CRR means

• A. Credit Reserve Ratio
• B. Cash Reserve Ratio
• C. Credit Rating Ratio
• D. Cash Rating Ratio

Hint:

Think of the "C" in CRR as standing for the physical cash banks must park with the RBI, not credit.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept.
CRR is one of the main tools the Reserve Bank of India uses to manage how much money banks have available to lend. It stands for Cash Reserve Ratio.

Step 2: Key Formula or Approach.
CRR is the percentage of a bank's net demand and time liabilities (broadly, the deposits it holds) that it must keep as cash with the RBI, rather than lend out or invest.

Step 3: Detailed Explanation.
When the RBI raises the CRR, banks must park more cash with the central bank, leaving less money to lend to customers. This tightens liquidity and tends to cool down inflation.
When the RBI lowers the CRR, banks free up more cash to lend, which increases liquidity in the economy.
Checking the wrong options: "Credit Reserve Ratio" and "Credit Rating Ratio" are not standard RBI terms; credit rating relates to a borrower's creditworthiness, a completely different concept. "Cash Rating Ratio" mixes up two unrelated ideas and is not used in banking at all.

Step 4: Final Answer.
CRR is officially defined as the Cash Reserve Ratio, so option (B) is correct.