CRR(Cash reserve ratio) or the portion of deposits the banks have to keep with the Reserve Bank of India (RBI).

Indian banks are required to hold a certain proportion of their deposits as cash. In reality they don’t hold these as cash with themselves, but with Reserve Bank of India (RBI), which is as good as holding cash. This ratio (what part of the total deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio.

On Tuesday June/24/2008 Reserve Bank of India (RBI) increased the repo rate to 8.75 per cent — a six-year high — from 8.25 per cent, and CRR to 8.75 per cent from 8.25 per cent.

Reserve Bank of India’s move to hike repo rate (the rate at which RBI lends to banks) and cash reserve ratio (CRR or the portion of deposits the banks have to keep with the RBI), this two-pronged move will make it difficult for the economy to maintain its expected growth momentum of 8 to 8.5%.

Banks, which have been holding their lending rates so far, will be forced to hike them in the next few days by at least 100 to 150 basis points (100 basis points is one percentage point).