UGC NET COMMERCE December 2018 Q97
| LIST-I | LIST-II |
| (a) NPA | (i) The percentage of deposits to be kept with RBI in the form of cash. |
| (b) SLR | (ii) The rate at which RBI lends money to commercial banks. |
| (c) Repo Rate | (iii) Loans and advances not paid for more than 90 days. |
| (d) CRR | (iv) The percentage of net demand and time liabilities to be kept in the form of liquid assets. |
CODES
| (a) | (b) | (c) | (d) | |
| 1 | (iii) | (ii) | (iv) | (i) |
| 2 | (iii) | (iv) | (ii) | (i) |
| 3 | (iii) | (iv) | (i) | (ii) |
| 4 | (ii) | (iii) | (iv) | (i) |
- Option : B
- Explanation : Cash Reserve Ratio (CRR)
CRR is the most powerful tool to influence and control the monetary aggregates of the country. Under section 42(1) of RBI act, 1934, every scheduled commercial bank was required to maintain with the RBI every fortnight a minimum average daily cash reserve equivalent to 3% of its Net Demand and Time Liabilities (NDTL) outstanding as on the Friday of the previous week. The RBI is empowered to vary the CRR between 3% and 15%. RBI is using the CRR either to impound the excess liquidity or to release funds needed for the economy from time to time.
Statutory Liquidity Ratio (SLR)
Under section 24(b) of the Banking Regulation Act: 1949, every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). The RBI is empowered to increase the SLR upto 40%.
Non-Performing (NPA)
RBI has defined NPA as follows (credit facility wise)
NPA - Term Loan: If interest and/instalment of principal remains overdue for a period of more than 180 days.
NPA - Cash credit & overdraft: A CC/OD account will have to be treated as NPA if account remains out of order for more than 180 days.
NPA - Bills purchased & Discounted: If the bill remains overdue for a period of more than 180 days.
Reverse Repo Rate
A Reverse Repo Rate is a rate that RBI offers to banks when they deposit their surplus cash with RBI for shorter periods. In other words, it is the rate at which the RBI borrows from the commercial banks. When banks have excess funds, but don’t have any other lending or investment options, they deposit/ lend the surplus funds with the RBI. This way banks can raise additional interest from their funds.
The reverse repo rate has an inverse relationship with the money supply in the economy. During high levels of inflation in the economy, the RBI increases the reverse repo. It encourages the banks to park more funds with the RBI to earn higher returns on idle cash. As a result, every excess rupee is put to use in banking system. Banks are left with lesser cash to extend loans, curbing the purchasing power of individuals.
Repo Rate
Repo rate refers to the rate at which commercial banks borrow money from the Reserve Bank of India (RBI) in case of shortage of funds. It is one of the main tools of RBI to keep inflation under control.
