The Cash Reserve Ratio refers to

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Q: (CDS-I/2020)
The Cash Reserve Ratio refers to

question_subject: 

Economics

question_exam: 

CDS-I

stats: 

0,93,113,25,124,37,20

keywords: 

{'cash reserve ratio': [0, 0, 1, 2], 'cash reserves': [0, 0, 0, 1], 'cash holding': [0, 0, 0, 1], 'reserves': [1, 0, 0, 5], 'ratio': [1, 0, 1, 12], 'banks': [5, 6, 5, 25], 'balances': [0, 0, 0, 1], 'liquid assets': [0, 0, 0, 1], 'rbi': [1, 4, 2, 23], 'net demand': [0, 0, 0, 2]}

The Cash Reserve Ratio (CRR) is a term associated with the banking sector.

Option 1 defines the Statutory Liquidity Ratio (SLR), which is different from CRR. SLR refers to the minimum percentage of deposits that a bank has to maintain in form of gold, cash or other approved securities.

Option 2 is the correct definition of CRR. It`s the portion of a bank`s Net Demand and Time Liabilities (NDTL) that it`s needed to keep as deposits with the Central Bank, herein referred to as Reserve Bank of India (RBI). It is a tool used by RBI to control liquidity in the banking system.

Option 3 is a more general description but it`s not entirely accurate. While CRR is indeed a kind of cash reserve, it`s specifically the amount that banks are obliged to keep with the RBI.

Option 4 describes a vague relationship between cash holding and reserves which doesn`t correctly define the CRR. The CRR is a specific fraction of a bank`s NDTL, not a ratio of cash holdings to reserves.