The percentage of demand and time liabilities that banks have to keep ...
The percentage of demand and time liabilities that banks have to keep with RBI is called cash reserve ratio.
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The percentage of demand and time liabilities that banks have to keep ...
Explanation:
The percentage of demand and time liabilities that banks have to keep with the Reserve Bank of India (RBI) is known as the Cash Reserve Ratio (CRR).
Cash Reserve Ratio (CRR):
- The CRR is a monetary policy tool used by the RBI to control the liquidity in the economy.
- It refers to the portion of bank deposits that banks are required to keep with the RBI in the form of cash reserves.
- The CRR is determined as a percentage of the bank's net demand and time liabilities (NDTL).
- NDTL refers to the total demand and time liabilities of a bank, which includes the total deposits held by the bank.
- The CRR is applicable to both scheduled commercial banks and cooperative banks.
Impact of CRR:
- By increasing the CRR, the RBI reduces the liquidity in the banking system as banks have to keep a higher portion of their deposits with the RBI.
- On the other hand, by decreasing the CRR, the RBI increases the liquidity in the banking system as banks have more funds available for lending and investment.
Significance of CRR:
- The CRR serves as a tool for the RBI to control inflation and money supply in the economy.
- By increasing the CRR, the RBI reduces the excess liquidity in the economy, which helps in controlling inflation.
- Additionally, the CRR helps in maintaining the stability of the banking system by ensuring that banks have a certain amount of funds readily available in the form of cash reserves.
Difference between CRR and SLR:
- SLR stands for Statutory Liquidity Ratio, which is the percentage of NDTL that banks have to maintain in the form of specified liquid assets such as cash, gold, and government securities.
- While both CRR and SLR are tools used by the RBI to control liquidity, the key difference is that the CRR is in the form of cash reserves held with the RBI, whereas the SLR is in the form of liquid assets held by the banks themselves.
In conclusion, the correct answer to the question is option 'B', CRR. The CRR refers to the percentage of demand and time liabilities that banks have to keep with the RBI in the form of cash reserves. It is an important tool used by the RBI to control liquidity in the banking system and maintain stability in the economy.