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    Question

    Which of the following is a direct opportunity cost to

    banks due to maintaining Cash Reserve Ratio (CRR)?
    A Loss of interest income on parked funds Correct Answer Incorrect Answer
    B Payment of higher deposit insurance premium Correct Answer Incorrect Answer
    C Increase in NPA provisioning Correct Answer Incorrect Answer
    D Increase in cash handling costs Correct Answer Incorrect Answer
    E Increase in capital adequacy requirements Correct Answer Incorrect Answer

    Solution

    Since CRR earns 0% interest, banks lose potential income they could have earned if those funds were lent or invested.

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