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When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?
  • a)
    Foreign institutional investors may bring more capital into our country.
  • b)
    India's GDP growth rate increases drastically.
  • c)
    It may drastically reduce the liquidity to the banking system.
  • d)
    Scheduled Commercial Banks may cut their lending rates.
  • e)
    All of these
Correct answer is option 'D'. Can you explain this answer?
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When the Reserve Bank of India reduces the Statutory Liquidity Ratio ...
The reduction in the SLR by 50 basis points means more liquidity into the system. This likely prods the banks to cut their lending rates.
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When the Reserve Bank of India reduces the Statutory Liquidity Ratio ...
Reduction in Statutory Liquidity Ratio (SLR) and its impact

Introduction:
The Reserve Bank of India (RBI) has the authority to control the monetary policy in the country. One of the tools it uses to regulate liquidity in the banking system is the Statutory Liquidity Ratio (SLR). The SLR refers to the percentage of deposits that banks are required to maintain in the form of liquid assets such as cash, gold, or government securities. When the RBI reduces the SLR by 50 basis points (0.5%), it has several implications for the economy.

Impact of SLR reduction:

1. Foreign institutional investors may bring more capital into our country: When the SLR is reduced, banks have more freedom to utilize their funds for lending and investment purposes. This can attract foreign institutional investors (FIIs) who may be interested in investing in the Indian market. The increased inflow of capital can strengthen the country's economy and financial markets.

2. India's GDP growth rate increases drastically: While the reduction in SLR can contribute to economic growth, it is unlikely to result in a drastic increase in India's GDP growth rate. GDP growth depends on various factors like government policies, global economic conditions, and domestic demand. While the reduction in SLR can provide some stimulus to the economy, it is not sufficient to cause a significant change in the GDP growth rate.

3. It may drastically reduce the liquidity to the banking system: When the SLR is reduced, banks are required to maintain a lower percentage of their deposits as liquid assets. This implies that banks have more flexibility to lend or invest the freed-up funds. However, it also means that the overall liquidity in the banking system may decrease. This can have implications for the availability of credit and the cost of borrowing.

4. Scheduled Commercial Banks may cut their lending rates: With the reduction in SLR, banks have more funds available for lending. In order to attract borrowers and stimulate credit demand, banks may choose to lower their lending rates. This can make borrowing more affordable for individuals and businesses, encouraging investment and consumption.

5. All of these: Out of the given options, option 'D' is the correct answer as it captures the most likely outcome of a 50 basis points reduction in the SLR. While the other options may also have some impact on the economy, they are not directly influenced by the SLR reduction.

Overall, a reduction in the SLR can have multiple implications for the economy, including increased lending, possible reduction in lending rates, and potential inflow of foreign capital. However, the magnitude and extent of these effects depend on various other factors and cannot be solely attributed to the SLR reduction.
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Clearly, as the student had suspected, the examiners were looking at the textbook answer while correcting the examination papers instead of verifying its correctness.The behaviour of these examiners is a breakdown of institutional morals, with consequences for the skills acquired by students. I say institutional morals, for the failure of these examiners is not a personal failure. At the same conference I met a whole range of college teachers, all of whom were drafted as examiners at some time or the other. Without exception, they were dedicated individuals who cared about the education and welfare of their students. However, when put in the institutional role of evaluating an anonymous individual, they fail in fulfilling their responsibilities. When some of our best colleges are run in this fashion, is it any wonder that we turn outunskilledengineers and scientists ? 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When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?a)Foreign institutional investors may bring more capital into our country.b)India's GDP growth rate increases drastically.c)It may drastically reduce the liquidity to the banking system.d)Scheduled Commercial Banks may cut their lending rates.e)All of theseCorrect answer is option 'D'. Can you explain this answer?
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When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?a)Foreign institutional investors may bring more capital into our country.b)India's GDP growth rate increases drastically.c)It may drastically reduce the liquidity to the banking system.d)Scheduled Commercial Banks may cut their lending rates.e)All of theseCorrect answer is option 'D'. Can you explain this answer? for Banking Exams 2025 is part of Banking Exams preparation. The Question and answers have been prepared according to the Banking Exams exam syllabus. Information about When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?a)Foreign institutional investors may bring more capital into our country.b)India's GDP growth rate increases drastically.c)It may drastically reduce the liquidity to the banking system.d)Scheduled Commercial Banks may cut their lending rates.e)All of theseCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for Banking Exams 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?a)Foreign institutional investors may bring more capital into our country.b)India's GDP growth rate increases drastically.c)It may drastically reduce the liquidity to the banking system.d)Scheduled Commercial Banks may cut their lending rates.e)All of theseCorrect answer is option 'D'. Can you explain this answer?.
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