RAS question
Cash Reserve Ratio (CRR) refers to:
Correct answer: (D) The percentage of total deposits banks must keep with RBI as cash.
Cash Reserve Ratio is the specified percentage of a bank's deposits that it must maintain with the Reserve Bank of India as cash.
Explanation
Cash Reserve Ratio, or CRR, is a reserve requirement, not an investment or lending limit. The RBI describes CRR as the amount a bank must maintain with the Reserve Bank as a specified percentage of its Net Demand and Time Liabilities, with the required proportion notified by RBI from time to time. In exam language, that means a bank has to keep a fixed share of its deposit liabilities with RBI as cash. Banks do not earn interest on CRR balances. This is why option D is the precise answer: CRR is about mandatory cash reserves held with RBI, whereas other banking rules deal with securities, lending capacity, or capital adequacy.
Why the other options are wrong
- (A) A refers to Statutory Liquidity Ratio, because SLR is the requirement to maintain assets such as approved securities, cash, gold, or RBI-notified instruments, not CRR cash balances with RBI.
- (B) CRR does not set a bank's maximum lending limit; it requires a specified share of deposit liabilities to be kept with RBI as cash.
- (C) Minimum capital requirement belongs to capital adequacy regulation, while CRR is a cash reserve requirement linked to deposits.
Concept
This tests monetary policy instruments, especially the distinction between CRR and SLR. It recurs in RAS because banking regulation and RBI liquidity tools are standard Indian Economy themes.