In the context of the Indian economy, which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?1. To enable the Central Bank to control the amount of advances the banks can create.2. To make the people’s deposits with banks safe and liquid.3. To prevent the commercial banks from making excessive profits.4. To force the banks to have sufficient vault cash to meet their day-to-day requirements.Select the correct answer using the code given below.
✓ Correct answer: b) 1 and 2 only
ExplanationStatutory Reserve Requirements, such as the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are regulatory tools employed by the Reserve Bank of India (RBI) to ensure the stability and liquidity of the banking sys- tem.These requirements mandate that commercial banks main- tain a certain percentage of their net demand and time liabilities (NDTL) in the form of liquid assetStatement 1 is correct : When the central bank wants to in- crease the money supply in the economy, it lowers the reserve ratio.Hence it enables the Central Bank to control the amount of advances the banks can create.Statement 2 is correct : RBI requires commercial banks to keep reserves in order to ensure that banks have sufficient assets to draw on when account holders want to be paid.UPSC GS Paper-I PYQs 288Statement 3 is incorrect : Reserve requirements are de- signed as “precautionary measures” to control the economy and not to stop banks from making “excessive” profit.Statement 4 is incorrect : Vault cash (cash held by banks in their vaults) is separate from CRR.CRR is the cash banks must
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