In the context of Indian economy; which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?

1. To enable the Central Bank to control the amount of advances the banks can create
2. To make the people’s deposits with banks safe and liquid
3. To prevent the commercial banks from making excessive profits
4. To force the banks to have sufficient vault cash to meet their day-to-day requirements

Select the correct answer using the code given below.

1. 1 only
2. 1 and 2 only
3. 2 and 3 only
4. 1, 2, 3 and 4

Explanation

Only statement 1 is correct

• Statutory Reserve Requirements (like Cash Reserve Ratio – CRR and Statutory Liquidity Ratio – SLR) primarily serve the purpose of enabling the Central Bank (RBI) to regulate the credit creation capacity of commercial banks.

Answer: (a) 1 only; Difficulty Level: Easy