BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When the economy is in deflationary condition
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When the central Bank aims credit expansion
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When the economy is in recession
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None of these
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Detailed explanation-1: -During high inflation in the economy, RBI raises the CRR to reduce the amount of money left with banks to sanction loans.
Detailed explanation-2: -RBI increases the cash reserve ratio during periods of high inflation to restrict the banks’ money available for loans. It helps remove the excess cash from the economy and credit market.
Detailed explanation-3: -A high value of CRR forces banks to keep more reserves and hence helps increase the value of reserve deposit ratio, thus diminishing the value of the money multiplier and money supply or liquidity in the economy.
Detailed explanation-4: -1) During inflation, RBI increases the Cash Reserve Ratio. 2) During deflation, RBI increases the cash Reserve Ratio.
Detailed explanation-5: -Technically, the cash reserves for a scheduled commercial bank must not fall below 6% of the total net demand and time liabilities (NDTL) that the bank holds on a fortnight basis. Earlier, CRR ranged from 3% to 20%; however, there is no upper or lower limit now.