Match the statements given under A with the correct options given under B
Match the statements given under A with the correct options given under B.
| (A) | (B) |
| (i) Cash Reserve Ratio | a. Minimum percentage of net demand and time liabilities which commercial banks are required to maintain with themselves. |
| (ii) Statutory Liquidity Ratio | b. Minimum percentage of net demand and time liabilities, to be kept by commercial banks with the central bank. |
Anurag Pathak Changed status to publish December 25, 2023
Ans:
(i) – b
(ii) – a
Explanation:-
According to Legal reserve requirements, commercial banks are obliged to maintain reserves.
It is a very quick and direct method for controlling the credit-creating power of commercial banks.
Commercial Bank is required to maintain reserves on two accounts:
(i) Cash Reserve Ratio (CRR):
It refers to the minimum percentage of net demand and time liabilities, to be kept by commercial banks with the central bank.
A change in CRR affects the ability of commercial banks to create credit.
For instance, an increase in CRR reduces the excess reserves of commercial banks and limits their credit-creating power.
(ii) Statutory Liquidity Ratio (SLR):
It refers to a minimum percentage of net demand and time liabilities that commercial banks are required to maintain with themselves.
SLR is maintained in the form of designated liquid assets such as excess reserves, unencumbered, government and other approved securities or current account balances with other banks.
Change in SLR affects the freedom of banks to sell government securities or borrow against them from the Central bank.
An increase in SLR reduces the ability of banks to give credit and vice-versa.
The Reserve Bank can influence the credit creation power of the banks by making changes in CRR or/and SLR>
Anurag Pathak Changed status to publish December 25, 2023
