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    Question

    Under Section 42 of the Reserve Bank of India Act, 1934,

    what is the penalty imposed on a scheduled bank for shortfall in maintaining the Cash Reserve Ratio (CRR)?
    A 2% above Bank Rate for the first day; 3% above Bank Rate for subsequent days of default Correct Answer Incorrect Answer
    B 5% above Bank Rate flat for every day of default throughout the period of shortfall Correct Answer Incorrect Answer
    C 3% above Bank Rate for the first day; 5% above Bank Rate for each subsequent day of the shortfall continuing Correct Answer Incorrect Answer
    D 1% above Repo Rate for the first day; 2% above Repo Rate for subsequent days Correct Answer Incorrect Answer

    Solution

    Section 42 of the RBI Act, 1934 mandates that every scheduled bank maintain a Cash Reserve Ratio (CRR) with the RBI. Where a bank fails to maintain the required CRR, it is liable to pay the RBI a penal interest at the rate of 3% per annum above the Bank Rate on the amount of shortfall for the first day, and at 5% per annum above the Bank Rate for each subsequent day during which the default continues. 

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