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प्रश्न
Explain the components of Legal reserve Ratio.
उत्तर
Commercial banks have to maintain minimum reserves according to the legal reserve requirements in order to control the credit creating power of these banks. They maintain reserves in the following ways:
i. Cash Reserve Ratio (CRR)
The cash reserve ratio (CRR) is the necessary minimum percentage of a bank’s total deposits which is to be kept with the Central Bank. According to the RBI Act, 1934, every commercial bank needs to maintain with the Central Bank a certain percentage of their deposits in the form of cash reserves. By an amendment of the Act in 1962, the Central Bank can vary the CRR between 3 and 15% of the total deposits of commercial banks During inflation, the Central Bank increases the CRR, and thereby, the funds for providing loans with commercial banks decrease. In this process, the flow of credit and the aggregate demand are reduced. Thus, the process of credit creation by the commercial bank is checked and helps control inflation. On the other hand, the RBI reduces the CRR to curb the deflation situation.
ii. Statuary Liquidity Ratio (SLR)
Statutory liquidity ratio (SLR) is the fixed percentage of assets in the form of cash or other liquid assets which a bank must maintain with the Central Bank. The Central Bank can vary the SLR between 20 and 40%. If there is a change in SLR, then the freedom of banks to sell government securities or borrow against them from the Central Bank will get affected.
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संबंधित प्रश्न
Explain the process of credit creation by commercial banks.
Explain the process of money creation by the commercial banks with the help of a numerical example.
Explain with reason, whether you agree or disagree with the following statement:
Commercial banks perform agency functions to earn profit.
Write answers in ‘one’ or ‘two’ paras each.
What are the primary functions of commercial banks?
Distinguish between:
Central Bank and Commercial Bank
Fill in the blank with appropriate alternatives given below
Deposits from __________ account can be withdrawn without any notice.
Fill in the blank with appropriate alternatives given below
Facility of E-banking is provided through __________
State whether the following statement is True or False.
Commercial banks are the backbone of modern economy.
State whether the following statement is True or False.
The saving bank deposit can be opened with a small amount.
Give reason or explain the following statement:
Rate of interest on fixed deposit is high.
What are the primary functions of commercial banks?
Answer in detail:
Explain the process of credit creation.
A Commercial Bank is an institution that provides services ______.
Bank credit refers to ______.
Which of the following points indicates that RBI is controlling the commercial banks?
The process of money creation or credit creation is done by ______
High Powered Money includes ______
The word 'net' implies that ______ is to be included in the money supply.
Read the following hypothetical case study carefully and answer the questions follow on the basis of the same.
Agricultural Developmental Bank of Pakistan uses the production function approach for measuring bank outputs and costs. A translog cost function is estimated to provide an assessment of the bank's scale and scope efficiency, and to quantify the extent to which its production costs are sensitive to the size and output mix. Results show that the bank enjoys both overall and product-specific economies of scale and, therefore, there exists scope for the bank to expand its operations at a declining average cost. Even though bank branches in all size categories enjoy economies of scale, the extent of such economies is larger for branches operating at a smaller scale of production. This implies that as the bank branches grow larger in size in terms of both loan and deposit accounts, they move closer to attaining increasing returns to a factor. It is also shown that the marginal costs of servicing both loan and deposit accounts decline as bank branches grow larger in size in terms of either the number of loans or the number of deposits. This confirms that branches operating at a larger scale of production have attained greater cost-efficiency in terms of servicing the loan and deposit accounts.
The increasing returns to scale in larger branches is due to ______
Which of the following statements is not true?
