Banks require keeping a certain percentage of total deposits in form of cash.CRR is the amount which scheduled commercial banks have to keep with RBI (Reserve Bank of India).This ratio is decided by RBI and used to control liquidity. If RBI makes a decision to reduce CRR, then banks have to keep fewer amounts in form of cash with RBI. There will be more amounts available with commercial banks for lending and investment, now bank can reduce interest rates on various loans to utilize this excess fund. Thus this instrument is used by RBI and affects economy, inflation and interest rates. This is also known as the liquidity ratio and cash asset ratio. It can be between three to twenty percent in India.