Cash Reserve Ratio: Commercial banks have to keep a certain percentage of their total deposits with the Central bank in the form of cash reserves. It is very effective in credit controlling and lending capacity of the banks.
To control the credit giving capacity of the banks, central bank raises CRR and to enhance the credit giving powers of the bank, central bank reduces CRR. When the lending capacity of the bank reduces, it leads to fall in money supply and when CRR falls, it increases the money supply.