{"id":1961,"date":"2024-03-30T14:25:32","date_gmt":"2024-03-30T08:55:32","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1961"},"modified":"2024-04-03T07:07:52","modified_gmt":"2024-04-03T01:37:52","slug":"q-when-the-reserve-bank-of-india-reduces-the-statutory-liquidity-ratio-by-50-basis-points-which-of-the-following-is-likely-to-happen","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-when-the-reserve-bank-of-india-reduces-the-statutory-liquidity-ratio-by-50-basis-points-which-of-the-following-is-likely-to-happen","title":{"rendered":"Q.\u00a0When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points which of the following is likely to happen?"},"content":{"rendered":"\n<ul class=\"mcq wp-block-list\">\n<li>India\u2019s GDP growth rate increases drastically<\/li>\n\n\n\n<li>Foreign Institutional Investors may bring more capital into our country<\/li>\n\n\n\n<li>Scheduled Commercial Banks may cut their lending rates<\/li>\n\n\n\n<li>It may drastically reduce the liquidity to the banking system<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer:<\/strong>&nbsp;<strong>(c) Scheduled Commercial Banks may cut their lending rates<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"notes-hd-6607c628e1202\">Notes:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Statutory Liquidity Ratio (SLR) is the&nbsp;<strong>minimum percentage of deposits (ie. Net Demand and Time Liabilities (NDTL))<\/strong>&nbsp;that a commercial bank&nbsp;<strong>must keep with itself.<\/strong><\/li>\n\n\n\n<li>SLR is the&nbsp;<strong>percentage of deposits that banks are required to maintain in the form of liquid assets such as cash, gold, or government securities<\/strong>.<\/li>\n\n\n\n<li>The Reserve Bank of India is authorized to set SLR and change it with changing macroeconomic conditions.<\/li>\n\n\n\n<li>To keep bank credit under control, the&nbsp;<strong>Reserve Bank of India raises the SLR as inflation rises<\/strong>.&nbsp;<strong>During a recession, the RBI lowers the SLR to promote bank credit<\/strong>.<\/li>\n\n\n\n<li>A&nbsp;<strong>reduction in SLR frees up liquidity for banks<\/strong>, enabling them to lend more to borrowers. As a result,&nbsp;<strong>banks may lower their lending rates, making loans more affordable<\/strong>&nbsp;for businesses and individuals.<\/li>\n\n\n\n<li>The CRR (Cash Reserve Ratio) and SLR (Stock Liquidity Ratio) have long been used by central banks to limit credit growth, liquidity flow, and inflation in the economy.<\/li>\n\n\n\n<li>A bank is liable to pay a penalty to the Reserve Bank of India if it fails to maintain the prescribed SLR. On the deficient amount for that particular day, the defaulter bank must pay a penalty of 3% above the bank rate.<\/li>\n\n\n\n<li>The 2007 amendment to the Banking Regulation Act of 1949 removed the lower ceiling of SLR which implied it can be sr between 0-40% of NDTL of the banks.<\/li>\n\n\n\n<li>As of December 2021, the SLR is at 18.00% of the NDTL of the banks.<\/li>\n<\/ul>\n\n\n\n<h6 class=\"wp-block-heading\" id=\"Diff\">Difference between SLR and CRR<\/h6>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>Parameter<\/th><th>Statutory Liquidity Ratio<\/th><th>Cash Reserve Ratio<\/th><\/tr><\/thead><tbody><tr><td>Meaning<\/td><td>Statutory Liquidity Ratio (SLR) is the minimum percentage of deposits (NDTL) that a commercial bank must keep with itself.<\/td><td>The Cash Reserve Ratio (CRR) is the percentage of deposits (NDTL) that a commercial bank is required to retain as cash reserves with the RBI.<\/td><\/tr><tr><td>Reserves in the form of<\/td><td><strong>Liquid cash, gold, or other securities<\/strong><\/td><td><strong>Cash Only<\/strong><\/td><\/tr><tr><td>Maintained with<\/td><td>Respective Banks<\/td><td>Reserve Bank of India<\/td><\/tr><tr><td>Effect<\/td><td>Controls excess money flow in the economy.<\/td><td>Helps meet short term liquidity requirements by trading excess securities.<\/td><\/tr><tr><td>Interest on Reserve<\/td><td><strong>Banks earns interest based on the portfolio of SLR chosen.<\/strong><\/td><td><strong>Banks don\u2019t earn any interest on the CRR deposited with RBI<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>Answer:&nbsp;(c) Scheduled Commercial Banks may cut their lending rates Notes: Difference between SLR and CRR Parameter Statutory Liquidity Ratio Cash Reserve Ratio Meaning Statutory Liquidity Ratio (SLR) is the minimum percentage of deposits (NDTL) that a commercial bank must keep with itself. The Cash Reserve Ratio (CRR) is the percentage of deposits (NDTL) that a&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[58],"class_list":["post-1961","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-58"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":58,"label":"2015"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1961","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1961"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1961\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1961"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1961"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1961"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1961"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}