The reserve requirement (or cash reserve ratio) is a central bank regulation that sets the minimum reserves each commercial bank must hold (rather than lend out) of customer deposits and notes. It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank.
The reserve ratio is sometimes used as a tool in the monetary policy,
influencing the country's borrowing and interest
rates by changing the amount
of loans available.
Cash reserve requirement (CRR) of the deposit money
banks has a significant potential to regulate money supply through affecting
money multiplier, while statutory liquidity requirement (SLR) is generally used
to affect the lending capability of the bank. Now
the CRR is 6% & SLR is 19%.