Economy2014
In the context of the Indian economy, which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?
- To enable the Central Bank to control the amount of
- To make the people’s deposits with banks safe and
- To prevent the commercial banks from making
- To force the banks to have sufficient vault cash to meet
their day-to-day requirements. Select the correct answer using the code given below.
Explanation
The correct option is "1 only" because the primary purpose of Statutory Reserve Requirements (SRR) is to regulate the lending capacity of commercial banks, enabling the Central Bank to control the money supply in the economy by determining how much of their deposits banks must hold in reserve and not lend out. While ensuring safety and liquidity of deposits (point 2) is important, it is not the primary intent of SRR; rather, it helps achieve stability in the banking system. Points 3 and 4 are not direct objectives of SRR, as one of their main functions is not to limit banks' profit but rather to ensure they maintain an appropriate reserve level.