This method involving that, the central bank is given the power to vary the minimum cash reserves to be kept by the commercial banks with the central bank.This is also referred to as the "cash reserve ratio" (CRR).
Reserve requirements were originally sought to be enforced upon the commercial bank, with the main objective of imparting liquidity to them. However, the modern conception is that reserve requirements of commercial banks serve primarily not as means of preserving their liquidity but as medium through which concretionary or expansionist pressure can be exerted on the credit situation.