BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is kept as reserves of gold with RBI
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It is maintained as cash with RBI
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Each bank keeps the reserve in their respective head offices
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It is maintained as investments in government bonds
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Detailed explanation-1: -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-2: -(a) Every scheduled bank shall maintain in India with the Reserve Bank, an average daily balance, the amount of which shall not be less than four per cent of the bank’s total NDTL in India as on the last Friday of the second preceding fortnight.
Detailed explanation-3: -Commercial banks are required to maintain an average cash balance with the RBI, the amount of which shall not be less than 3% of the total of Net Demand and Time Liabilities (NDTL) on a fortnightly basis.
Detailed explanation-4: -The Cash Reserve Ratio (CRR) refers to the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI. The objective of CRR is to keep inflation under control. During high inflation in the economy, the central bank raises the CRR to lower the bank’s loanable funds.