Historically, bank funds in India have been preempted through three channels: Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and the orientation of credit towards privileged sectors according to the mornings formulated by priority sector. This article discusses the implications of the first two preemptions on banking operations. Say no to plagiarism. Get Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get Original EssayCRR is a mandatory requirement for banks to retain a certain portion of their deposits with the Reserve Bank of India (RBI) in the form of cash reserves. to meet their payment obligations. Originally, the Reserve Bank of India (RBI) Act stipulated that a bank must maintain a CRR of at least 3% of its net demand and forward liabilities. However, in 2006 this restriction was lifted by an amendment to the law. Even if the RBI freely prescribes this rate, CRRs above 3% can still be considered as a monetary tool to limit monetary expansion by influencing the monetary multiplier. But the banks' approach to CRR allowed it to serve a much broader purpose. In the mid-1990s, when there was an inflow of external assets through deposits of non-resident Indians (NRIs), differential CRR was recommended on these deposits to limit their inflows. This role, the CRR being used as an instrument for regulating the flow of NRI deposits. , was relegated to the background once the relative attractiveness of these deposits compared to rupee deposits was reduced. Now that the plot rates on NRI stores have been released, the above work of CRR may well be resurrected. In the post-2004 period, when there was a gigantic convergence of remote capital through various types of bond and non-bond flows, and the RBI ended up accumulating significant foreign exchange savings, the CRR has become an optional instrument to clean up the rupee assets freed up by these dollar purchases. This was notably made possible by not paying enthusiasm on CRR balances maintained by banks with the RBI. The alternative choices of sterilization through open market operations and repo operations through the Liquidity Adjustment Window (LAF) cost the central bank, just as the market stabilization plot cost the government fiscally regarding intrigue payments. The official vision of the CRR has changed. In the era of financial repression before the 1990s, CRR was the most favored monetary instrument. However, the Narasimham Committee of 1991 prescribed a gradual decrease in CRR and increased use of market-based backdoor instruments. This was widely accepted and the CRR decreased from over 15 for every cent to 4.5 for every cent in 2003. Regardless, since 2004 the use of the CRR as an instrument of sterilization and as a monetary tool has gained ground. back to the ground. At the same time, the ratio now stands at 4.5 for every cent, which is a historically low level. In these circumstances, the official reasoning on the CRR in the current intersection is not known. Since the CRR acts as a tax that increases their transaction costs, banks, in general, would like its role to be restored to become a prudential prerequisite not exceeding 3 for every cent. And as quantitative easing has become a central banking fad across the world, the RBI may well gradually reduce the CRR to around 3 for every cent over the 1991.