If Reserve Bank of India reduces the cash reserve ratio,

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If Reserve Bank of India reduces the cash reserve ratio, it will :

1. increase credit creation
2. decrease credit creation
3. have no impact on credit creation
4. have no definite impact on credit creation

Correct Option: A

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.Increase in CRR means that banks have less funds available and money is sucked out of circulation; on the contrary, reduction in CRR leads to credit creation. CRR is used by RBI to control liquidity in the banking system.