In the context of Indian economy which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?
1. To enable the Central Bank to control the amount of advances the banks can create.
2. To make the people’s deposits with banks safe and liquid.
3. To prevent the commercial banks from making excessive profits.
4. To force the banks to have sufficient vault cash to meet their day-to-day requirements.
Select the correct answer using the code given below:
Answer:
(a)
Core Books/NCERT
Statement 1 is correct: Statutory Reserve Requirements (like CRR & SLR) are primarily monetary policy tools. By raising or lowering them, RBI controls the lending capacity of commercial banks (and thereby the money supply). Statement 2 is incorrect: Safety and liquidity of people’s deposits are ensured through prudential regulations (like deposit insurance, capital adequacy norms, etc.), not through CRR/SLR. Statement 3 is incorrect: The objective is not to curb bank profits. Profitability is indirectly affected, but that’s not the purpose. Statement 4 is incorrect: Vault cash is a very small fraction for daily transactions. CRR/SLR are not meant to force banks to keep physical cash; they are broader regulatory tools for liquidity management.