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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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