Money and Banking (part – II)

Accepting the recommendations of Narasimham Committee, RBI had reduced the SLR from 38.5% in 1991 to 25% in 1997. CRR was also changed with time. In May, 1996 CRR was at 13% and there was a tendency to decrease in it overtime. In November, 1999, CRR was reduced to 9%. As on 7 June, 2024, CRR is at 4.50% and SLR is at18%.

The Reserve Bank of India (RBI) mandates the commercial banks to store a proportion of their deposits in the form of cash so that the same can be given to the bank's customers if the need arises. The percentage of cash required to be kept in reserves, vis-a-vis a bank's total deposits, is called the Cash Reserve Ratio (CRR). By definition, CRR is the average daily balance that a bank is required to maintain with the Reserve Bank as a share of such percent of its NDTL (Net Demand and Time Liabilities) that the Reserve Bank may notify from time to time. The cash reserve is either stored in the bank's vault or is sent to the RBI.

The Reserve Bank of India mandates the commercial bank to hold a certain minimum amount of deposits as reserves with the RBI. The percentage of cash required to be kept in reserve as against the bank's total deposits (NDTL), is called Cash Reserve Ratio (CRR) . A higher CRR means there is less availability of loanable funds, in turn it reduces the supply of money (liquidity) in the econonmy.

Cash Reserve Ration (CRR) is described as a particular percentage of cash deposits that must be maintained by every bank in India as per the requirements of the RBI. If RBI lower the CRR, the banks will have higher leverage to liquidity because it increases, the loanable funds with the bank. The bank in turn can sanction further loans to businesses and industry for different investment purpose and the economy may see increased investment. It also increase investment. It also increases the overall supply of money in the economy . Hence, Statement 1, 2 and 3 are correct while statement 4 is incorrect.

Cash Reserve Ration (CRR) is described as a particular percentage of cash deposits that must be maintained by every bank in India as per the requirements of the RBI. If RBI lower the CRR, the banks will have higher leverage to liquidity because it increases, the loanable funds with the bank. The bank in turn can sanction further loans to businesses and industry for different investment purpose and the economy may see increased investment. It also increase investment. It also increases the overall supply of money in the economy . Hence, Statement 1, 2 and 3 are correct while statement 4 is incorrect.

Increase in CRR means that the banks have to deposits more with the RBI and will have less money to lend to the borrowers. Through this act, RBI tries to reduce the money supply and control the inflation.

Increase in CRR means that the banks have to deposits more with the RBI and will have less money to lend to the borrowers. Through this act, RBI tries to reduce the money supply and control the inflation.

Increase in CRR means that the banks have to deposits more with the RBI and will have less money to lend to the borrowers. Through this act, RBI tries to reduce the money supply and control the inflation.

Repo (Repurchase Option) Rate is the key monetary policy rate of interest at which the Central Bank or the Reserve Bank of India (RBI) lends short term money to banks, essentially to control credit availability, inflation and the economic growth. Repo Rate in India is the primary tool in the RBI's Monetary and Credit Policy. Other Policy rates, such as Reverse Repo Rate and Marginal Standing Facility Rate, are often directly linked with Repo Rate of RBI. Reverse Repo Rate is, one the other hand, an exact opposite of the Repo Rate. Banks park money with the RBI for short term the prevailing Reverse Repo Rate.

'Repurchase Option' (or Repo Rate) is used by the Reserve Bank of India (RBI) to regulate the money supply and inflation in the economy. Hence, option (d) is the correct answer.