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With reference to the Cash Reserve Ratio (CRR), consider the following statements:
1. It is a percentage of deposits which a commercial bank must keep with itself in reserves.
2. Non-Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement.
Which of the statements given above is/are correct?`
1. It is a percentage of deposits which a commercial bank must keep with itself in reserves.
2. Non-Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement.
Which of the statements given above is/are correct?`
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
With reference to the Cash Reserve Ratio(CRR), consider the following ...
- The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises.
- The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio. The cash reserve is kept with the RBI. Hence statement 1 is not correct.
- Banks do not get any interest on the money that is with the RBI under the CRR requirements. The percentage of the CRR is decided by the RBI.
- Unlike Statutory Liquidity Ratio or SLR, which can be maintained in either gold or cash, CRR needs to be maintained only in cash.
- CRR helps in keeping inflation under control. At the time of high inflation in the economy, RBI increases the CRR, so that banks need to keep more money in reserves so that they have less money to lend further.
- As per the RBI Act 1934, all Scheduled Commercial Banks (that includes public and private sector banks, foreign banks, regional rural banks and co-operative banks) are required to maintain a cash balance on average with the RBI on a fortnightly basis to cater to the CRR requirement.
- Non Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement. Hence statement 2 is correct.
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With reference to the Cash Reserve Ratio(CRR), consider the following ...
Understanding Cash Reserve Ratio (CRR)
The Cash Reserve Ratio (CRR) is a critical component of monetary policy and regulation in the banking sector. Let's analyze the statements provided:
Statement 1: It is a percentage of deposits which a commercial bank must keep with itself in reserves.
- This statement is incorrect. The CRR refers to the percentage of a bank's total deposits that must be maintained in the form of cash reserves with the central bank, not kept with itself. This requirement helps in controlling liquidity and ensuring the stability of the financial system.
Statement 2: Non-Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement.
- This statement is correct. NBFCs do not fall under the same regulatory framework as commercial banks regarding CRR. They are not required to maintain CRR with the central bank, which gives them different operational flexibility compared to traditional banks.
Conclusion
- Therefore, given that Statement 1 is incorrect and Statement 2 is correct, the correct answer is option 'B' (2 only).
Understanding these concepts is essential for grasping how central banks regulate money supply and maintain financial stability in the economy.
The Cash Reserve Ratio (CRR) is a critical component of monetary policy and regulation in the banking sector. Let's analyze the statements provided:
Statement 1: It is a percentage of deposits which a commercial bank must keep with itself in reserves.
- This statement is incorrect. The CRR refers to the percentage of a bank's total deposits that must be maintained in the form of cash reserves with the central bank, not kept with itself. This requirement helps in controlling liquidity and ensuring the stability of the financial system.
Statement 2: Non-Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement.
- This statement is correct. NBFCs do not fall under the same regulatory framework as commercial banks regarding CRR. They are not required to maintain CRR with the central bank, which gives them different operational flexibility compared to traditional banks.
Conclusion
- Therefore, given that Statement 1 is incorrect and Statement 2 is correct, the correct answer is option 'B' (2 only).
Understanding these concepts is essential for grasping how central banks regulate money supply and maintain financial stability in the economy.
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With reference to the Cash Reserve Ratio(CRR), consider the following statements:1. It is a percentage of deposits which acommercial bank must keep with itselfin reserves.2. Non-Bank Financial Corporations(NBFCs) are outside the purview of thisreserve requirement.Which of the statements given above is/arecorrect?`a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?
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