Module: | Deposits, Reserve Ratios & Branch Authorisation
Q293: Consider the following statements regarding the maintenance of CRR and SLR:
1. CRR balances maintained with the RBI earn a nominal interest rate.
2. The RBI Act, 1934, does not prescribe any floor (minimum) or ceiling (maximum) for the CRR rate.
3. The Banking Regulation Act prescribes a ceiling of 40% for SLR.
Which of the statements given above is/are correct?
2. The RBI Act, 1934, does not prescribe any floor (minimum) or ceiling (maximum) for the CRR rate.
3. The Banking Regulation Act prescribes a ceiling of 40% for SLR.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B (Statements 2 and 3 only). Statement 1 is incorrect because the RBI stopped paying interest on Cash Reserve Ratio (CRR) balances entirely, effective from 2007.
Banks earn a 0% nominal interest rate on these funds, effectively making CRR a non-earning asset.
Statement 2 is correct because the Reserve Bank of India (Amendment) Act, 2006, removed both the floor (previously 3%) and the ceiling (previously 20%) for the CRR rate, giving the RBI absolute flexibility to set the rate as needed for monetary stability.
Statement 3 is correct because Section 24 of the Banking Regulation Act, 1949, legally prescribes a maximum ceiling of 40% for the SLR, preventing the RBI from forcing banks to park more than 40% of their NDTL in government securities.
Option A, C, and D are subsequently incorrect combinations based on the invalidity of Statement 1.
Banks earn a 0% nominal interest rate on these funds, effectively making CRR a non-earning asset.
Statement 2 is correct because the Reserve Bank of India (Amendment) Act, 2006, removed both the floor (previously 3%) and the ceiling (previously 20%) for the CRR rate, giving the RBI absolute flexibility to set the rate as needed for monetary stability.
Statement 3 is correct because Section 24 of the Banking Regulation Act, 1949, legally prescribes a maximum ceiling of 40% for the SLR, preventing the RBI from forcing banks to park more than 40% of their NDTL in government securities.
Option A, C, and D are subsequently incorrect combinations based on the invalidity of Statement 1.