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“In the Indian Banking System, the Statutory Liquidity Ratio (SLR) plays a vital role in controlling the credit creation…

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“In the Indian Banking System, the Statutory Liquidity Ratio (SLR) plays a vital role in controlling the credit creation capacity of commercial banks, as it __________.”
(Choose the correct option to fill in the blank)

a

Ensures that all deposits are converted into liquid assets.

b

Requires banks to maintain a percentage of deposits in the form of liquid assets.

c

Sets the maximum interest rate which banks can charge on loans.

d

Prevents banks from lending beyond a specific proportion of their total reserves.

✓ Correct answer: b)

Requires banks to maintain a percentage of deposits in the form of liquid assets.

Explanation

(B) Requires banks to maintain a percentage of deposits in the form of liquid assets.

Explanation:

SLR is the minimum percentage of deposits that commercial banks must maintain in the form of liquid assets such as cash, gold, and government securities. Higher SLR reduces banks’ lending capacity and controls credit creation.

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