BANKING AFFAIRS

Detailed explanation-1: -Ans. Cash Reserve Ratio (CRR) is a specific part of the total deposit that is held as a reserve by the commercial banks and is mandated by the Reserve Bank of India (RBI). In India, it is decided by the Monetary Policy Committee (MPC) under the periodic Monetary and Credit Policy.

Detailed explanation-2: -All Scheduled Commercial Banks are at present required to maintain with Reserve Bank of India a Cash Reserve Ratio (CRR) of 5.00 per cent of the Net Demand and Time Liabilities (NDTL) (excluding liabilities subject to zero CRR prescriptions) under Section 42(1) of the Reserve Bank of India Act, 1934.

Detailed explanation-3: -The Cash Reserve Ratio (CRR) is the percentage of total deposits a bank must have in cash to operate risk-free. The Reserve Bank of India decides the amount and is kept with them for financial security. The bank cannot use this amount for lending and investment purposes and does not get any interest from the RBI.

Detailed explanation-4: -Statutory Liquidity Ratio (SLR) c) in unencumbered approved securities valued at a price as specified by the RBI from time to time.

Detailed explanation-5: -The SLR is fixed by the RBI. CRR (Cash Reserve Ratio) and SLR have been the traditional tools of the central bank’s monetary policy to control credit growth, flow of liquidity and inflation in the economy.