Commercial banks have to maintain a minimum cash balance known as the cash reserve ratio. Who changes this ratio from time to time?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The Reserve Bank of India
Option (1) The Reserve Bank of India — Correct. The Reserve Bank of India changes the cash reserve ratio from time to time. This changes the funds banks can lend.
Option (2) The Securities and Exchange Board of India — Incorrect. SEBI was set up to protect investors and regulate the securities market. It does not deal with the cash banks must keep.
Option (3) The Central Government — Incorrect. The Central Government borrows in the money market through treasury bills, which the RBI issues for it. It does not fix the ratio.
Option (4) The State Governments — Incorrect. State Governments are participants in the money market. They do not fix the ratio.
NCERT (Pre-rationalised Edition): “3. Call Money: Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash reserve ratio from time to time which in turn affects the amount of funds available to be given as loans by commercial banks. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate. …” |