Which of the following reserves is kept with the commercial banks?a)Cash Reserve Ratiob)Statuary Liquidity Ratioc)Both (a) and (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer?

Question

Answer

Statutory Liquidity Ratio (SLR) is the reserve that commercial banks are required to maintain in the form of liquid assets such as government securities, cash, and gold. SLR is mandated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.

SLR is a type of reserve that commercial banks hold to ensure their solvency and liquidity. It is a percentage of deposits that banks must maintain as a reserve. The RBI sets the SLR rate, and currently, it is set at 18% of net demand and time liabilities (NDTL) of banks.

SLR is different from Cash Reserve Ratio (CRR), which is the percentage of deposits that banks must keep with the RBI. CRR is a tool used by the RBI to control the money supply in the economy, whereas SLR is a tool used to ensure the solvency and liquidity of commercial banks.

In conclusion, the correct answer is option B, as SLR is the reserve that commercial banks are required to maintain in the form of liquid assets such as government securities, cash, and gold.

Answer

SLR is the fraction of total deposit that each commercial bank must reserve with themselves in liquid assets.

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