Question

The minimum percentage of deposits that needs to be maintained by commercial banks in the form of liquid assets, cash, gold, government securities, etc. refers to
1. Cash Reserve Rate
2. Statutory Liquidity Ratio
3. Reverse Repo Rate
4. None of the above

Answer 1

Correct Answer - Option 2 : Statutory Liquidity Ratio

The correct answer is Statutory Liquidity Ratio.

• Statutory Liquidity Ratio 
  • It is the amount of money that the banks are required to maintain with themselves as liquid assets, i.e. cash, gold, approved securities. etc. Hence, Option 2 is correct.
  • Banks usually earn interest as a return on the funds kept as SLR.
  • It is maintained by Banks themselves.

• Reverse Repo Rate 
  • It is the rate at which RBI borrows money from banks.
  • It is lower than the repo rate.
  • It is used to manage cash flow in the market.
• Cash Reserve Ratio         
  • It is the amount of money that the banks are required to deposit with the RBI, in the form of cash.
  • The amount of money should not be less than the specified percentage of Net Demand & Time Liabilities.