Economics · Banking Sector Reforms
The Narasimham Committee on Financial System (1991) provided the blueprint for banking sector reforms. Based on the historical progression of these reforms, what was the primary rationale cited by the committee for reducing the Statutory Liquidity Ratio (SLR) from its peak levels of nearly 38.5%?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1To ensure that banks have enough physical cash in their vaults to meet the demands of a sudden bank run.
- 2To allow the Reserve Bank of India to take direct control over the board of directors of private commercial banks.
- 3To reduce the 'crowding out' effect and prevent the 'automatic monetization' of the government's fiscal deficit.✓
- 4To increase the interest rates on government securities to make them more attractive to foreign investors.
Correct answer
To reduce the 'crowding out' effect and prevent the 'automatic monetization' of the government's fiscal deficit.
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