Historically, bank funds in India have been advanced through three channels: the liquidity reserve ratio (CRR), the statutory liquidity ratio (SLR) and the direct credit to preferred sectors based on the mornings formulated by priority sector. This article addresses the implications of the preemptions of the first two on banking operations. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get Original EssayThe CRR is a mandatory requirement for banks to maintain a certain portion of their deposits with the Reserve Bank of India (RBI) in the form of liquidity reserves to meet their payment obligations. Originally, the Reserve Bank of India (RBI) law stipulated that a bank had to maintain a CRR of at least 3% of its net demand and time liabilities. However, in 2006, this restriction was lifted by an amendment to the law. Although the RBI freely prescribes this rate, CRRs above 3% can still be seen as a monetary tool to limit monetary expansion by influencing the money multiplier. But the banks' approach to the CRR meant that it served a much broader purpose. During the 1990s, when there was an inflow of external assets through Non-Resident Indian (NRI) deposits, a differential CRR on such deposits was recommended to limit the inflows. This role, the CRR being used as a tool for regulating flows of NRI deposits, were relegated to the background once the relative attractiveness of such deposits compared to rupee deposits was reduced. Now that the interest rates on NRI shops have been released, the above CRR work may be revived again. In the last period after 2004, when there was a gigantic convergence of remote capital through various types of mandatory and non-mandatory flows, and the RBI ended up accumulating huge foreign exchange savings, the CRR became an optional tool for cleaning up assets in rupees released from such dollar purchases. This was made possible particularly by not showing any enthusiasm on the CRR balances maintained by banks with the RBI. Alternative choices of sterilization through open market operations and repo operations through the Liquidity Adjustment Window (LAF) cost the central bank, just as the market stabilization conspiracy costs the government fiscally with respect to payments. The official view on the CRR has changed. In the period of financial suppression before the 1990s, the CRR was the most favored monetary settlement instrument. However, the 1991 Narasimham Committee prescribed a gradual decrease in CRR and increased use of indirect market instruments. This was widely accepted and the CRR fell from over 15 for every cent to 4.5 for every cent in 2003. However, since 2004, the use of the CRR as a sterilization tool and also as a monetary tool has gained ground. back on the ground. At the same time, the ratio now stands at 4.5 per cent, a noteworthy low in the past. Under these circumstances, the official reasoning on the CRR at the current crossroads is not known. Since the CRR acts as a tax that increases transaction costs, banks, in general, would like to see its work reestablished as a prudential minimum prerequisite of no more than 3 for every cent. And as quantitative easing has become a central bank craze across the world, the RBI may gradually reduce the CRR to around 3 for every penny during the current phase of 1991.