Commercial banks play a major role in the creation of credit in the economy. When a person deposits money in a bank, the bank does not keep the entire amount as cash reserve. Instead, it keeps only a small fraction (as required by the Reserve Bank of India) and lends out the remaining money to borrowers. This process is called credit creation. It increases the money supply in the economy. The amount that banks are required to keep as reserves is known as the Cash Reserve Ratio (CRR). The ability of banks to create credit depends on this ratio. Lower CRR means more funds for lending and hence, higher credit creation.