Module: | Priority Sector, Consumer Protection & Digital Lending
Q89: Identify the INCORRECT statement regarding the "Operating Procedure" of Monetary Policy:
✅ Correct Answer: C
The correct answer is C. This statement is mathematically flawed.
The Cash Reserve Ratio (CRR) is maintained as a strict percentage of a bank's Net Demand and Time Liabilities (NDTL). If the base (NDTL) shrinks, the absolute required CRR amount (in Rupee terms) will proportionally decrease, not increase, assuming the percentage rate remains constant.
Option A is correct, as CRR balances held with the RBI are a core component of Reserve Money (M0). Option B is correct, as banks frequently use their excess SLR holdings (government securities over and above the mandated requirement) as collateral to borrow funds from the RBI's LAF Repo window.
Option D is correct; cutting the SLR frees up bank capital from mandatory G-Sec investments, augmenting liquidity for commercial lending.
The Cash Reserve Ratio (CRR) is maintained as a strict percentage of a bank's Net Demand and Time Liabilities (NDTL). If the base (NDTL) shrinks, the absolute required CRR amount (in Rupee terms) will proportionally decrease, not increase, assuming the percentage rate remains constant.
Option A is correct, as CRR balances held with the RBI are a core component of Reserve Money (M0). Option B is correct, as banks frequently use their excess SLR holdings (government securities over and above the mandated requirement) as collateral to borrow funds from the RBI's LAF Repo window.
Option D is correct; cutting the SLR frees up bank capital from mandatory G-Sec investments, augmenting liquidity for commercial lending.