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What does the Cash Reserve Ratio (CRR) mandate for banks in India?
- a)Maintaining a part of total deposits with themselves in liquid assets
- b)Maintaining a part of total deposits with the RBI in cash form
- c)Paying banks an interest income by the RBI
- d)Allowing banks to lend more without any reserve requirements
Correct answer is option 'B'. Can you explain this answer?
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What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)M...
The Cash Reserve Ratio (CRR) requires banks to maintain a certain percentage of their total deposits with the Reserve Bank of India (RBI) in cash form. This regulation aims to ensure that banks have a proportion of their assets readily available in cash to meet withdrawal demands and to control the liquidity in the economy. By adjusting the CRR, the RBI can influence the lending capacity of banks and thereby impact the overall money supply in the economy.
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What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)M...
Understanding Cash Reserve Ratio (CRR)
The Cash Reserve Ratio (CRR) is a crucial monetary policy tool used by the Reserve Bank of India (RBI) to regulate the amount of funds that banks must hold as reserves.
CRR Mandate for Banks
- The CRR mandates that banks in India must maintain a certain percentage of their total deposits with the RBI in cash form.
- This requirement is significant as it ensures the liquidity and stability of the banking system, allowing the RBI to control inflation and ensure financial discipline among banks.
Purpose of Maintaining CRR
- Liquidity Management: By requiring banks to hold a portion of their deposits as reserves, the RBI can manage the liquidity in the economy effectively.
- Control of Inflation: A higher CRR reduces the amount of money banks can lend, which can help in controlling inflation.
- Financial Stability: This requirement acts as a safeguard against bank runs and ensures that banks have sufficient funds available to meet withdrawal demands.
Impact on Banking Operations
- Banks cannot utilize the money held as CRR for lending or investment purposes, which directly impacts their ability to generate income.
- However, maintaining CRR is crucial for building trust and ensuring that banks are functioning within regulatory frameworks.
In summary, option 'B' is correct as it accurately describes the requirement for banks to maintain a part of their total deposits with the RBI in cash form, which is essential for the overall health of the financial system in India.
The Cash Reserve Ratio (CRR) is a crucial monetary policy tool used by the Reserve Bank of India (RBI) to regulate the amount of funds that banks must hold as reserves.
CRR Mandate for Banks
- The CRR mandates that banks in India must maintain a certain percentage of their total deposits with the RBI in cash form.
- This requirement is significant as it ensures the liquidity and stability of the banking system, allowing the RBI to control inflation and ensure financial discipline among banks.
Purpose of Maintaining CRR
- Liquidity Management: By requiring banks to hold a portion of their deposits as reserves, the RBI can manage the liquidity in the economy effectively.
- Control of Inflation: A higher CRR reduces the amount of money banks can lend, which can help in controlling inflation.
- Financial Stability: This requirement acts as a safeguard against bank runs and ensures that banks have sufficient funds available to meet withdrawal demands.
Impact on Banking Operations
- Banks cannot utilize the money held as CRR for lending or investment purposes, which directly impacts their ability to generate income.
- However, maintaining CRR is crucial for building trust and ensuring that banks are functioning within regulatory frameworks.
In summary, option 'B' is correct as it accurately describes the requirement for banks to maintain a part of their total deposits with the RBI in cash form, which is essential for the overall health of the financial system in India.
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What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer?
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What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer?.
What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer?.
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What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer?, a detailed solution for What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer? has been provided alongside types of What does the Cash Reserve Ratio (CRR) mandate for banks in India?a)Maintaining a part of total deposits with themselves in liquid assetsb)Maintaining a part of total deposits with the RBI in cash formc)Paying banks an interest income by the RBId)Allowing banks to lend more without any reserve requirementsCorrect answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
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