In the context of the Indian economy, which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?
- 1.To enable the Central Bank to control the amount of advances the banks can create.
- 2.To make the people’s deposits with banks safe and liquid.
- 3.To prevent the commercial banks from making excessive profits.
- 4.To force the banks to have sufficient vault cash to meet their day-to-day requirements.
Select the correct answer using the code given below:
- A.1 only
- B.1 and 2 only
- C.2 and 3 only
- D.1, 2, 3 and 4
▶ Answer & Explanation
Correct answer: B. 1 and 2 only
Statutory Reserve Requirements, such as the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), are crucial monetary policy tools used by the Reserve Bank of India (RBI). The primary objective of these requirements is to regulate the credit creation capacity of commercial banks by influencing the amount of funds available for lending, thereby controlling the money supply and inflation. Additionally, by mandating banks to hold a portion of their deposits in liquid forms (cash or government securities), these requirements enhance the safety and liquidity of depositors' funds.
Source: UPSC gs1 2014