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Which committee's recommendations led to the introduction of liquidity adjustment facility in India?
- a)Narsimham Committee.
- b)Chakravarty Committee.
- c)Vijay Kelkar Committee.
- d)Bimal Jalan Committee.
Correct answer is option 'A'. Can you explain this answer?
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Which committee's recommendations led to the introduction of liquidity...
The introduction of the Liquidity Adjustment Facility (LAF) in India was based on the recommendations of the Narsimham Committee. LAF is a tool used by the Reserve Bank of India (RBI) to manage liquidity and interest rates in the financial system.
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Which committee's recommendations led to the introduction of liquidity...
Introduction to Liquidity Adjustment Facility (LAF)
The Liquidity Adjustment Facility (LAF) is a pivotal monetary policy tool employed by the Reserve Bank of India (RBI) to manage liquidity and stabilize the economy. It allows banks to borrow money through repurchase agreements, thus ensuring there is adequate liquidity in the banking system.
Recommendations of the Narsimham Committee
The Narsimham Committee, established in 1991, aimed at reforming the Indian banking sector. Its recommendations were instrumental in shaping modern banking practices.
Impact of LAF
The introduction of LAF has significantly impacted the banking landscape in India.
In summary, the Narsimham Committee laid the groundwork for the introduction of the Liquidity Adjustment Facility in India, revolutionizing the way liquidity is managed in the banking sector.
The Liquidity Adjustment Facility (LAF) is a pivotal monetary policy tool employed by the Reserve Bank of India (RBI) to manage liquidity and stabilize the economy. It allows banks to borrow money through repurchase agreements, thus ensuring there is adequate liquidity in the banking system.
Recommendations of the Narsimham Committee
The Narsimham Committee, established in 1991, aimed at reforming the Indian banking sector. Its recommendations were instrumental in shaping modern banking practices.
- Objective of LAF: The committee emphasized the need for a systematic framework to manage liquidity efficiently, leading to the introduction of LAF.
- Market-Driven Approach: The committee advocated for a more market-oriented approach to monetary policy, which LAF embodies by allowing banks to manage their liquidity positions effectively.
- Monetary Policy Transmission: It aimed to enhance the transmission of monetary policy, making it easier for the RBI to control inflation and stabilize the economy.
Impact of LAF
The introduction of LAF has significantly impacted the banking landscape in India.
- Liquidity Management: Banks can now manage their short-term liquidity needs more effectively, ensuring stability in financial markets.
- Interest Rate Control: LAF plays a crucial role in influencing short-term interest rates, aiding the RBI in controlling inflation and guiding overall economic policy.
- Enhanced Financial Stability: It has contributed to greater financial stability by providing banks with a reliable mechanism to address liquidity mismatches.
In summary, the Narsimham Committee laid the groundwork for the introduction of the Liquidity Adjustment Facility in India, revolutionizing the way liquidity is managed in the banking sector.
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Which committee's recommendations led to the introduction of liquidity adjustment facility in India?a)Narsimham Committee.b)Chakravarty Committee.c)Vijay Kelkar Committee.d)Bimal Jalan Committee.Correct answer is option 'A'. Can you explain this answer?
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