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Questions and Answers
What is the Cash Reserve Ratio (CRR)?
What is the Cash Reserve Ratio (CRR)?
- The percentage of deposits that banks must keep as liquid assets.
- The minimum limit of cash reserves that banks must maintain.
- A ratio applicable only to national banks.
- The share of Net Demand and Time Liability that a bank must maintain with RBI in cash. (correct)
What does SLR stand for?
What does SLR stand for?
Statutory Liquidity Ratio
Which of the following is NOT an indirect tool of monetary policy?
Which of the following is NOT an indirect tool of monetary policy?
- LAF
- Bank Rate
- CRR (correct)
- MSF
The Statutory Liquidity Ratio (SLR) has no minimum limit.
The Statutory Liquidity Ratio (SLR) has no minimum limit.
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A Government Security (G-Sec) acknowledges the government's _____ obligation.
A Government Security (G-Sec) acknowledges the government's _____ obligation.
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What is the maximum percentage of current and time deposits a small finance bank can hold?
What is the maximum percentage of current and time deposits a small finance bank can hold?
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Study Notes
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Monetary Policy (मौद्रिक नीति)
- Tools of monetary policy include direct and indirect instruments.
Tools of Monetary Policy
-
Direct Tools:
- CRR (Cash Reserve Ratio): Required cash with RBI based on Net Demand and Time Liability (NDTL); no interest is paid; governed by RBI Act, 1934.
- SLR (Statutory Liquidity Ratio): Liquid assets ratio that banks must maintain; includes cash, gold, bonds; maximum limit set at 40%.
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Indirect Tools:
- LAF (Liquidity Adjustment Facility): Mechanism for banks to borrow funds through repurchase agreements.
- Bank Rate: Interest rate at which RBI lends to commercial banks.
- MSF (Marginal Standing Facility): Overnight borrowing facility for banks.
- OMO (Open Market Operation): Buying/selling of government bonds in the market to regulate liquidity.
- MSS (Market Stabilisation Scheme): Aimed at absorbing excess liquidity through government securities.
Cash Reserve Ratio (CRR)
- Defines the portion of NDTL that banks must hold in cash reserves with RBI.
- Applicable to all scheduled commercial banks; lacks both minimum and maximum limits.
Statutory Liquidity Ratio (SLR)
- Mandates that banks maintain a proportion of NDTL in cash and liquid assets.
- No minimum limit; maximum limit capped at 40%.
- Liquid assets can include gold, government bonds, etc.
Investment Regulations for Small Finance Banks
- Must invest at least 75% of demand deposit balances in government securities/Treasury Bills with less than a one-year maturity for SLR maintenance.
- Up to 25% can be held in inter-bank deposits for liquidity.
Government Securities (G-Sec)
- G-Sec are tradeable instruments issued by the central or state governments.
- Acknowledges government debt obligations, categorized into short-term (Treasury Bills) and long-term (government bonds).
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