In Indian banking terminology, what is meant by the Cash Reserve Ratio CRR maintained by commercial banks with the Reserve Bank of India?

Introduction / Context:
This question is a core concept from banking and monetary policy. Cash Reserve Ratio, commonly abbreviated as CRR, is one of the tools used by the Reserve Bank of India to manage liquidity in the banking system. A clear understanding of CRR is essential for anyone studying banking awareness, macroeconomics or preparing for competitive exams involving financial systems.

Given Data / Assumptions:

• The term under discussion is Cash Reserve Ratio, CRR.
• The context is the relationship between commercial banks and the Reserve Bank of India.
• The options include deposits in government securities, borrowing rates and reserves maintained as cash with the central bank.
• We assume that the reader knows that CRR is expressed as a percentage of bank deposits.

Concept / Approach:
CRR refers to the percentage of a bank's net demand and time liabilities that must be maintained as cash reserves with the central bank. This cash is kept with the Reserve Bank of India and cannot be used by banks for lending or investment. By raising or lowering the CRR, the central bank can influence the amount of funds banks have available to lend, thereby controlling liquidity and credit in the economy. It is not a rate of interest and it is distinct from other tools like the repo rate or statutory liquidity ratio.

Step-by-Step Solution:
Step 1: Recall that CRR is a mandatory reserve maintained by commercial banks with the Reserve Bank of India.Step 2: Note that this reserve is held in the form of cash balances and is calculated as a percentage of the bank's deposits, specifically net demand and time liabilities.Step 3: Recognise that CRR does not refer to investments in government securities; that concept is related more to statutory liquidity ratio.Step 4: Understand that CRR is also not a borrowing rate; borrowing rates are represented by terms like repo rate and marginal standing facility rate.Step 5: From the options, identify that the description matching CRR is the portion of deposits kept as cash reserves with the Reserve Bank of India.Step 6: Select option C as the correct definition.

Verification / Alternative check:
Standard banking textbooks and Reserve Bank of India publications define CRR clearly as the requirement for banks to maintain a certain percentage of their deposits as cash with the RBI. When the central bank raises CRR, banks must keep more money idle with the RBI, leaving them with less to lend. When CRR is reduced, the opposite happens and liquidity in the system increases. None of the other options accurately describe this mechanism, confirming that the chosen definition is correct.

Why Other Options Are Wrong:

• Deposits of banks in government securities is wrong because that corresponds more closely to statutory liquidity ratio requirements, not CRR.
• Rate at which banks borrow funds from the Reserve Bank of India is wrong because this is the repo rate or related borrowing rate, not CRR.
• Rate at which the Reserve Bank of India borrows money from the banks is wrong because that would refer to other instruments, not to CRR, which is a reserve requirement.

Common Pitfalls:
Many learners confuse CRR with SLR since both involve percentages of deposits that must be held in certain forms. The key difference is that CRR is held as cash with the central bank, while SLR can be maintained in government securities and other approved assets. Another pitfall is to mistake CRR for an interest rate due to its percentage representation. Remember that CRR is a ratio describing a required reserve, not a cost of borrowing.

Final Answer:
Portion of deposits kept as cash reserves with the Reserve Bank of India is the correct description of Cash Reserve Ratio, CRR, in Indian banking.