gs1medium

When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

  1. A.India’s GDP growth rate increases drastically
  2. B.Foreign Institutional Investors may bring more capital into our country
  3. C.Scheduled Commercial Banks may cut their lending rates
  4. D.It may drastically reduce the liquidity to the banking system.
▶ Answer & Explanation

Correct answer: C. Scheduled Commercial Banks may cut their lending rates

Reducing the Statutory Liquidity Ratio (SLR) means banks are required to hold a lower percentage of their net demand and time liabilities in liquid assets like government securities. This frees up a larger portion of their funds, enabling them to lend more. With increased lendable funds, banks are likely to compete by lowering their lending rates to attract borrowers, thus stimulating credit growth.

Source: UPSC gs1 2015

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