Podcast
Questions and Answers
What is the primary objective of the Reserve Bank of India's monetary authority?
What is the primary objective of the Reserve Bank of India's monetary authority?
What impact does an increase in the Cash Reserve Ratio (CRR) have on the banking sector?
What impact does an increase in the Cash Reserve Ratio (CRR) have on the banking sector?
Which of the following does NOT represent a component of the Statutory Liquidity Ratio (SLR)?
Which of the following does NOT represent a component of the Statutory Liquidity Ratio (SLR)?
How does the Bank Rate influence lending rates?
How does the Bank Rate influence lending rates?
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What is the effect of open market operations (OMOs) conducted by the RBI?
What is the effect of open market operations (OMOs) conducted by the RBI?
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What role does the Financial Supervision (BFS) play as established by the RBI in 1993?
What role does the Financial Supervision (BFS) play as established by the RBI in 1993?
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Which result occurs when the Statutory Liquidity Ratio (SLR) is increased?
Which result occurs when the Statutory Liquidity Ratio (SLR) is increased?
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What does the RBI do if a bank fails to maintain the required Cash Reserve Ratio (CRR)?
What does the RBI do if a bank fails to maintain the required Cash Reserve Ratio (CRR)?
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Study Notes
Monetary Policy Tools
- The Reserve Bank of India (RBI) formulates, implements, and monitors monetary policy.
- RBI's aim is to maintain price stability and ensure adequate credit flow.
- Monetary policy tools include: Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Bank Rate, and Open Market Operations (OMOs).
Cash Reserve Ratio (CRR)
- CRR is the cash that all banks must maintain with the RBI.
- It's a percentage of their demand and time liabilities (DTL).
- Decreasing CRR increases loanable funds, potentially lowering call rates.
- Increasing CRR reduces lending and potentially raises call rates.
Statutory Liquidity Ratio (SLR)
- SLR is a liquid reserve requirement for banks.
- It's maintained in cash, current accounts with designated banks, unencumbered securities, or gold.
- The RBI sets SLR between 25% and 40% of DTL.
- Increasing SLR restricts bank lending, potentially increasing lending rates.
- Decreasing SLR expands lending, potentially decreasing lending rates.
Bank Rate
- Bank Rate is the standard interest rate at which the RBI rediscounts bills of exchange or other eligible commercial papers from banks.
- It influences the cost and availability of refinance, affecting interest rate of loans and deposits throughout the banking system.
Open Market Operations (OMOs)
- OMOs are the sale or purchase of government securities by the RBI in open market transactions.
- RBI uses OMOs to manage liquidity in the banking system.
- Selling securities reduces liquidity, while buying securities increases liquidity.
Banks Supervision
- The RBI's Financial Supervision Department (BFS) oversees various financial institutions, including commercial banks, state cooperative banks, financial institutions, and non-banking finance companies.
- The BFS aims to develop and maintain a sound banking system by issuing licenses, setting minimum capital and reserve requirements, inspecting banks, conducting investigations, and controlling appointments.
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Description
This quiz explores the various tools of monetary policy as defined by the Reserve Bank of India (RBI). Learn about the roles of Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and how these tools influence credit flow and price stability in the economy.
