Explanation: The RBI decides a certain percentage of deposits which every bank must keep as reserves.

• This is done to ensure that no bank is ‘over lending’. This is a legal requirement and is binding on the banks.
• This is called the ‘Required Reserve Ratio’ or the ‘Reserve Ratio’ or ‘Cash Reserve Ratio’ (CRR).
• Cash Reserve Ratio (CRR) = Percentage of deposits which a bank must keep as cash reserves with the bank.

Source: NCERT – Macro economics