Mr. Kishore, an economics teacher, was explaining the concept of 'minimum percentage of total deposits to be kept by any commercial bank with the Central bank of the country, as per norms and statute prevailing in the country'.
From the following, choose the correct alternative which specifies towards the concept explained by him:
Mr. Kishore, an economics teacher, was explaining the concept of 'minimum percentage of total deposits to be kept by any commercial bank with the Central bank of the country, as per norms and statute prevailing in the country'.
From the following, choose the correct alternative which specifies towards the concept explained by him:
Solution
Option 1 -> Cash Reserve Ratio is the minimum percentage of deposits banks must keep with the central bank.
Option 2 -> Repo Rate is the interest rate at which RBI lends to commercial banks.
Option 3 -> Bank Rate is the long-term lending rate charged by RBI to banks.
Option 4 -> Statutory Liquid Ratio is the percentage of deposits banks maintain as liquid assets with themselves, not with RBI.
Hence, Option 1: Cash Reserve Ratio -> CRR is the mandatory reserve that commercial banks must maintain with the central bank as a percentage of their net demand and time liabilities (deposits). This is a statutory requirement and serves as a monetary policy tool to control liquidity in the economy. When CRR increases, banks have less money to lend, reducing money supply, and vice versa. -> correct
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