In the context of Indian economy which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?

To enable the Central Bank to control the amount of advances the banks can create
To make the people’s deposits with banks safe and liquid
To prevent commercial banks from making excessive profits
To force the banks to have sufficient vault cash to meet their day-to-day requirements

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Question

In the context of Indian economy which of the following is/are the purpose/purposes of &lsquo;Statutory Reserve Requirements&rsquo;?

To enable the Central Bank to control the amount of advances the banks can create
To make the people&rsquo;s deposits with banks safe and liquid
To prevent commercial banks from making excessive profits
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.

Accepted Answer

1 only

Explanation: ✅ Statement 1 – Correct: Statutory Reserve Requirements (CRR and SLR) are the primary quantitative tools used by the RBI to control the credit-creation capacity and advances that commercial banks can make, thereby regulating money supply in the economy.❌ Statement 2 – Incorrect: While reserves help liquidity management, the safety of deposits is ensured by DICGC (Deposit Insurance and Credit Guarantee Corporation) and Basel norms (Capital Adequacy Requirements), not by statutory reserves as a primary purpose.❌ Statement 3 – Incorrect: Statutory reserves are monetary policy instruments designed to control liquidity and credit, not to regulate or prevent bank profits.❌ Statement 4 – Incorrect: CRR is maintained with the RBI and SLR in liquid assets like government securities; banks maintain separate vault cash for daily operational needs, which is distinct from statutory requirements.

Detailed Explanation:

Question 13 of 17 Monetary Policy

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