If the cash reserve ratio CRR is lowered by the RBI how will it impact the lending capacity of the c...........

Economic Affairs Money Supply and Monetary Policy

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If the cash reserve ratio (CRR) is lowered by the RBI, how will it impact the lending capacity of the commercial banks?

Increase

Decrease

Initially increase then decrease

No impact

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Explanation:

Under CRR a certain percentage of the total bank deposits has to be kept in the current account with RBI which means banks do not have access to that much amount for any economic activity or commercial activity. Banks can't lend the money to corporates or individual borrowers, banks can't use that money for investment purposes. So, that CRR remains in current account and banks don’t earn anything on that.