In the context of Indian economy, which of the following is/are the purpose/purposes of `Statutory Reserve Requirements`? 1. To enable the Central Bank to control the amount of advances the banks can create 2. To make the peoples deposits with banks safe

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Q: 33 (IAS/2014)
In the context of Indian economy, which of the following is/are the purpose/purposes of 'Statutory Reserve Requirements'?
1. To enable the Central Bank to control the amount of advances the banks can create
2. To make the people’s deposits with banks safe and liquid
3. To prevent the commercial banks from making excessive profits
4. 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.

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,33,162,33,91,11,60

keywords: 

{'statutory reserve requirements': [0, 0, 0, 1], 'central bank': [0, 0, 1, 2], 'sufficient vault cash': [0, 0, 0, 1], 'commercial banks': [0, 0, 1, 1], 'indian economy': [0, 3, 3, 5], 'banks': [5, 6, 5, 25], 'deposits': [2, 1, 3, 9], 'day requirements': [0, 0, 0, 1], 'purposes': [0, 1, 1, 3], 'purpose': [1, 0, 7, 13]}

Statutory Reserve Requirements` (SRR) is a monetary policy tool used by the central bank of a country to regulate the liquidity in the banking system. In India, the Reserve Bank of India (RBI) uses SRR to ensure that banks maintain a certain percentage of their deposits in the form of reserves with the central bank. The main objectives of SRR are to control inflation, regulate credit growth, and maintain financial stability in the economy.

Option 1 in the question is incorrect because SRR does not control the amount of advances the banks can create. Option 2 is partially correct because SRR helps in making the people`s deposits with banks safe, but not necessarily liquid. Option 3 is incorrect because SRR does not prevent commercial banks from making excessive profits. Option 4 is also incorrect because SRR does not force banks to have sufficient vault cash to meet their day-to-day requirements. Therefore, the correct answer is (b) 1 and 2 only.

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