| Consider the following statements. |
| 1. Reserve Deposit Ratio (RDR) is the proportion of the total deposits commercial banks shall keep as reserves |
| 2. Commercial banks can borrow money from RBI at the bank rate when they run short of reserves. |
| 3. Maintaining a given fraction of their total demand and time deposits in the form of specified liquid assets by the banks is called Cash Reserve Ratio (CRR). |
| Which of the statement(s) given above is/are correct? |
A) 1 and 2
B) 1 and 3
C) Only 3
D) (d) 1 and 3
Correct Answer: A
Solution :
[a] RBI requires commercial banks to keep reserves in order to ensure that banks have a safe cushion of assets to draw on when account holders want to be paid. RBI uses various policy instruments to bring forth a healthy RDR in commercial banks. The first instrument is the Cash Reserve Ratio (CRR) which specifies the fraction of their deposits that banks must keep with RBI. There is another tool called Statutory Liquidity Ratio (SLR) which requires the banks to maintain a given fraction of their total demand and time deposits in the form of specified liquid assets. Apart from these ratios, RBI uses a certain interest rate called the bank rate to control the value of RDR. Commercial banks can borrow money from RBI at the bank rate when they run short of reserves.
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