RBI Policy: The Reserve Bank of India’s three-day monetary policy review started on Wednesday (December 4).
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RBI Policy
What is the Cash Reserve Ratio (CRR)?
The percentage of cash required to be kept in reserves as a percentage of the bank’s total deposits is called CRR.
All banks in India
- All Scheduled Commercial Banks (SCBs) including RRBs),
- Small Finance Banks (SFBs),
- Payments Banks,
- Primary (Urban) Co-operative Banks (UCBs),
- State Co-operative Banks (StCBs) and
- District Central Co-operative Banks (DCCBs)) ———–have to maintain CRR with RBI.
Every co-operative bank (not being a scheduled co-operative bank) and Local Area Banks shall maintain CRR with itself or with the RBI.
Banks can’t lend the CRR money to corporates or individual borrowers, banks can’t use that money for investment purposes, and Banks don’t earn any interest on that money.
What will be the impact of a CRR cut?
If RBI decides to cut the CRR by 50 bps, it would free up Rs 1.10 lakh crore to Rs 1.2 lakh crore of bank liquidity parked with the RBI.
In case of a 25-bps reduction, Rs 55 crore to Rs 60 crore of additional funds will be available with banks.
The surplus liquidity can be used by banks for lending, which would help spur economic growth.
1. With reference to Indian economy, consider the following: (2015)
1. Bank rate
2. Open market operations
3. Public debt
4. Public revenue
Which of the above is/are component/ components of Monetary Policy?
(a) 1 only
(b) 2, 3 and 4
(c) 1 and 2
(d) 1, 3 and 4
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