Question : The ratio of cash reserves to demand and time deposits of commercial banks is known as ___________.
Option 1: Cash reserve ratio (CRR)
Option 2: Statutory liquidity ratio (SLR)
Option 3: Repo rate
Option 4: Reverse repo rate
Correct Answer: Statutory liquidity ratio (SLR)
Solution : The correct answer is (b) Statutory liquidity ratio (SLR).
The statutory liquidity ratio is the ratio of cash reserves to the total demand and time deposits of commercial banks. It is a regulatory requirement set by the central bank (such as the Reserve Bank of India) that mandates banks to maintain a certain percentage of their net demand and time liabilities in the form of cash, gold, or approved securities. The purpose of the SLR is to ensure the liquidity and solvency of banks and to control the expansion of credit in the economy. By maintaining a portion of their deposits in liquid assets, banks can meet any sudden increase in demand for withdrawals from depositors.
