Economics · Monetary Policy Instruments
Which of the following statements provides the deepest conceptual distinction between the operational function of the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) in India's monetary and banking framework?
- 1CRR is maintained exclusively as cash in the bank's vault, while SLR must be compulsorily maintained in the form of physical gold and foreign currency assets only.
- 2CRR is calculated daily on Demand Liabilities only, while SLR is calculated weekly on Time Liabilities only.
- 3CRR is fundamentally a liquidity-controlling tool used by the RBI to manage systemic money supply, while SLR is primarily a prudential tool designed to ensure bank solvency and direct a portion of bank credit into government securities.✓
- 4CRR acts as a reserve for public confidence and is not used for any lending, while SLR is a statutory reserve that can be used by banks for short-term interbank lending.
Correct answer
CRR is fundamentally a liquidity-controlling tool used by the RBI to manage systemic money supply, while SLR is primarily a prudential tool designed to ensure bank solvency and direct a portion of bank credit into government securities.
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