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    Question

    Every bank has to maintain a certain % of their deposits

    in the form of (Gold + Cash + bonds + Securities) with themselves. This ratio is termed as:
    A Cash Ratio Correct Answer Incorrect Answer
    B Reserve Ratio Correct Answer Incorrect Answer
    C Demand Ratio Correct Answer Incorrect Answer
    D Statutory Liquidity Ratio Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    CRR is a cash reserve ratio and SLR is statutory liquidity ratio. Under CRR a certain percentage of the total bank deposits has to be kept in the current account with RBI which means banks do not have access to that much amount for any economic activity or commercial activity. Banks can’t lend the money to corporates or individual borrowers. banks can’t use that money for investment purposes. So, that CRR remains in current account and banks don’t earn anything on that. SLR, statutory liquidity ratio is the amount of money that is invested in certain specified securities predominantly central government and state government securities.

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