Consider the following statements with regard to Statutory Liquidity Ratio (SLR): 1. To meet SLR, commercial banks can use cash only. 2. SLR is maintained by the banks with themselves. 3. SLR restricts the banks` leverage in pumping more money into the ec

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Q: 75 (CDS-I/2010)
Consider the following statements with regard to Statutory Liquidity Ratio (SLR):
1. To meet SLR, commercial banks can use cash only.
2. SLR is maintained by the banks with themselves.
3. SLR restricts the banks' leverage in pumping more money into the economy.
Which of the statements given above is/are correct ?
If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do ? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate Q. Select the correct answer using the code given below : (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3

question_subject: 

Economics

question_exam: 

CDS-I

stats: 

0,237,76,40,16,237,20

keywords: 

{'statutory liquidity ratio': [0, 0, 1, 0], 'commercial banks': [0, 0, 1, 1], 'banks': [5, 6, 5, 25], 'leverage': [0, 0, 1, 0], 'slr': [0, 2, 1, 0], 'cash': [0, 1, 1, 3]}

The correct answer is option 3.

Statement 1 is incorrect. To meet the Statutory Liquidity Ratio (SLR), commercial banks can use not only cash but also other eligible securities such as government bonds, treasury bills, etc.

Statement 2 is correct. The SLR is maintained by the banks with themselves, meaning that banks have to keep a certain percentage of their net demand and time liabilities (NDTL) in the form of liquid assets like cash, gold, or government securities.

Statement 3 is correct. The primary purpose of maintaining the SLR is to restrict the banks` leverage in pumping more money into the economy. By keeping a certain percentage of their deposits as liquid assets, banks are limited in their ability to lend and create more credit, thus controlling the money supply and preventing excessive inflation.

In summary, statements 2 and 3 are correct, while statement 1 is incorrect. Therefore, option 3 is the correct answer.