UPSC General Studies Solved Paper - General Studies-2015

  • question_answer
    When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

    A)  India's GDP growth rate increases drastically

    B)  Foreign Institutional Investors may bring more capital into our country

    C)  Schedule Commercial Banks may cut their lending rates

    D)  It may drastically reduce the liquidity to the banking system

    Correct Answer: C

    Solution :

    Exp. [c] Statutory Liquidity Ratio (SLR) is the amount of money that is invested in certain specified securities predominantly Central and State government securities. This percentage is of the percentage of the total bank deposits available as far as the particular bank is concerned. The SLR is maintained in order to control the expansion of Bank Credit. By changing the level of SLR, Reserve Bank of India can increase or decrease bank credit expansion. When the RBI reduces the SLR by 50 basis points, then scheduled Commercial Banks may cut their lending rates.

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