Cash Reserve RatioCRR
The slice of every deposit a bank must park at RBI as cash, earning nothing.
Why you care
CRR is why "we have deposits but can't lend more" is true — a chunk of every deposit is frozen at RBI, earning nothing. When RBI changes CRR, it instantly changes how much the whole system can lend. Expect this whenever liquidity comes up.
Run the numbers
At 3% CRR, ₹30 cr of every ₹1,000 cr in deposits sits idle at RBI earning 0% (as of mid-2026). You pay 4–7% to raise it but earn nothing on it — which quietly raises your effective cost of funds.
Where this goes
CRR is one of two forced holdings, alongside SLR, that shrink lending and push cost of funds up. RBI uses it alongside the repo rate to control how much money flows through the system.
Why you care
The Cash Reserve Ratio (CRR) is the slice of every rupee of deposits that a bank is forced to keep with the RBI as cash, earning zero interest. It can never be lent out.
Here is something that surprises people inside banks: a chunk of every deposit you raise can't be used at all. CRR is a regulatory tax on your balance sheet that earns nothing, which means the money you can lend has to work harder to cover it. When the RBI changes CRR, it instantly changes how much money the whole banking system can lend — it's one of RBI's bluntest tools. For anyone who wonders why "we have deposits but can't lend more," CRR (and its cousin SLR) is half the answer.
Run the numbers
Suppose CRR is 3% (the mid-2026 level) and your bank has ₹1,000 crore of deposits.
- Money locked with RBI as CRR: 3% × ₹1,000 cr = ₹30 cr, earning 0%.
- This ₹30 cr earns nothing but still cost the bank ~4–7% to raise as deposits.
- So the remaining ₹970 cr of lendable money must earn enough to also cover the loss on the idle ₹30 cr.
That's why CRR quietly raises a bank's effective cost of funds: you pay for ₹1,000 cr of deposits but can only earn on ₹970 cr. A CRR cut releases lendable money into the system (and lowers that drag); a CRR hike sucks it out.
Where this goes
CRR is one of two forced holdings that shrink what you can lend; the other is SLR. Together they're why a bank's lending capacity is always less than its deposits, and why both nudge cost of funds upward. RBI uses CRR alongside the repo rate to control how much money flows through the system.