When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

Gives a direct rule-like statement: RBI decreases SLR to increase economic growth (and increases SLR to reduce inflation).

A student could combine this rule with basic macro logic (lower reserve ratios free up bank funds for lending) to infer reduced SLR is growth‑supportive but not automatically 'drastic'.

Defines SLR as a reserve requirement that limits the amount of deposits available for banks to lend (thus constraining credit creation).

Using the definition plus a world map or national GDP data, a student can reason that lowering SLR increases credit supply, which may raise investment and GDP — magnitude depends on bank balance sheets and credit demand.

Presents the multiple-choice question that lists plausible outcomes of a 50 bps SLR cut, showing that increasing GDP drastically was offered as an option among others (e.g., banks cutting lending rates, FIIs bringing capital).

A student could use this to note that textbooks treat several effects as likely and so would seek empirical evidence (credit growth, lending rates, FII flows) rather than assume a drastic GDP jump.

Lists cutting/optimising SLR as one instrument of expansionary monetary policy, implying SLR cuts are part of a toolkit to stimulate the economy.

Combine this with knowledge of other tools (repo rate, CRR) to judge that a 50 bps SLR cut alone is one of several channels — so impact on GDP depends on the overall policy mix and economic context.

Explains overlap between SLR assets and liquidity requirements (LCR/HQLA), indicating SLR changes affect banks' liquidity management and their usable high‑quality assets.

A student could infer that a modest SLR cut changes banks' balance of liquid assets and loanable funds only to the extent those assets are binding constraints, so GDP effect depends on whether liquidity was previously tight.

Defines SLR as a reserve requirement that limits the amount of deposits banks can use to give loans (SLR acts as a limit to credit creation).

A student could infer that lowering SLR frees up funds for lending, which could increase credit supply and create room for lower lending rates.

States that cutting SLR is an action associated with an expansionary monetary policy.

Knowing expansionary policy typically aims to increase money supply/credit, a student might expect banks to face incentives to lower rates when SLR is cut.

Explains transmission mechanism that banks link lending rates to marginal cost of funds and that policy rate cuts (repo) can lead banks to reduce lending rates via deposit-rate changes.

A student could analogize this transmission mechanism to SLR cuts: if SLR reduction lowers banks' funding constraints, similar cost-based transmission could lead banks to cut lending rates.

Describes SLR as reserves banks must maintain in safe and liquid assets (government securities, gold, cash) with respect to NDTL.

A student could reason that lowering required SLR holdings lets banks reallocate assets from low-yield SLR securities into lending, potentially reducing lending spreads or rates.

Contains an answer key where the question about a 50 bps SLR reduction corresponds to option (c) — 'Scheduled Commercial Banks may cut their lending rates' — indicating an expected/standard exam inference.

A student could treat this as an authoritative pedagogical cue that standard reasoning links SLR cuts to possible lending-rate reductions, and then check real-world transmission details.

Defines SLR as the fraction of deposits kept in liquid form and states that the reserve requirement limits the amount of credit banks can create.

A student can infer that lowering SLR frees up a portion of deposits for lending, which would increase (not drastically reduce) bank liquidity; combine with deposit volumes to estimate magnitude of change from 50 bps.

Explains SLR is maintained in specified liquid assets (government securities, gold, cash) and treated as part of reserves.

One can reason that lowering the required share of these liquid assets lets banks hold fewer such assets and deploy more funds for loans or investments, thereby increasing system liquidity; estimate impact using banks' NDTL.

States RBI decreases SLR to increase economic growth and increases SLR to reduce inflation, establishing the directional policy intent.

Use this policy rule to infer that an SLR cut is intended to add liquidity/support lending, so a 50 bps cut is unlikely to be meant to 'drastically reduce' liquidity.

Presents the multiple-choice framing where one option is that reducing SLR may 'drastically reduce liquidity', implying the contrast with other likely outcomes (e.g., banks cut lending rates).

A student can treat this as an exam-style intuition check: compare plausibility of alternatives (more lending, lower rates) versus the offered 'drastic reduction' claim and use basic banking mechanics to adjudicate.

Notes that SLR-eligible assets overlap with high-quality liquid assets (HQLAs) used for liquidity coverage, linking SLR holdings to broader liquidity regulation.

A student could combine this with knowledge of banks' LCR needs to assess whether a small SLR cut (50 bps) materially changes usable liquid buffers and thus whether system liquidity would be drastically affected.