Banking Reforms in India Essay Example for Free

Banking Reforms in India EssayCash reserve ratio (CRR) is the amount of funds that the banks have to keep with the rbi. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out profusionive cash from the system.Commercial banks are required to maintain with the RBI an just cash balance, the amount of which shall not be less than 3% of the total of the Net Demand and clip Liabilities (NDTL), on a fortnightly basis and the RBI is empowered to increase the esteem of CRR to such high calculate not exceeding 20% of the NDTL. What is Reverse Repo rate?Reverse Repo rate is the rate at which the RBI borrows money from commercial 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 reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on swig cash. It is also a tool which can be used by the RBI t o 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 pecker 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 similar to the fire rate in the US.