Prelims 2014 · Economy · Question 13
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 the 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.
Answer
1 and 2 only
1. Correct. Statutory reserve requirements like CRR/SLR are monetary tools used by the central bank to limit or expand banks’ lending capacity and credit creation.
2. Correct. By requiring banks to keep a part of deposits in cash/liquid assets, these requirements improve liquidity and depositor safety to an extent.
3. Incorrect. Their purpose is not to stop commercial banks from earning excessive profits; profit control is not the objective of reserve requirements.
4. Incorrect. Banks do keep cash for daily withdrawals, but statutory reserve requirements are not primarily meant to ensure only day-to-day vault cash needs; they are broader regulatory/monetary requirements.
Therefore, statements 1 and 2 only are correct.