Banks raise deposits for lending purpose. But Banks can not freely use it for lending. As per section 42(1) of Reserve Bank of India Act 1934,scheduled commercial Banks are required to maintain certain amount in cash with RBI in a definite proportion of their net demand and time liabilities (excluding liabilities subject to zero CRR ). It has been introduced with a view to safe guard the interest of depositors as well as to control the money supply in the economy.
All scheduled commercial Banks except RRBs are required to maintain CRR as stated above. liabilities of Banks are excluded from it
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