Mr. Kishore, an economics teacher, was explaining the concept of 'minimum percentage of total deposits to be kept by any commercial bank with the Central bank of the country, as per norms and statute prevailing in the country'.
From the following, choose the correct alternative which specifies towards the concept explained by him:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Cash Reserve Ratio
Mr. Kishore is referring to the minimum percentage of total deposits that commercial banks are required to keep with the Central Bank (RBI) in the form of cash reserves. This is known as the Cash Reserve Ratio (CRR). CRR is a monetary tool used by the central bank to control liquidity in the banking system. It is mandated by law and regulation, hence matches the phrase "as per norms and statute" in the question.
Other terms:
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Repo Rate: Interest rate at which RBI lends to commercial banks.
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Bank Rate: Long-term lending rate by the RBI without repurchase agreement.
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Statutory Liquidity Ratio (SLR): Minimum percentage of deposits that banks must maintain in the form of gold, cash, or approved securities with themselves (not with the RBI).