Economy
2015
Monetary Policy
Banking in India
RBI and Functions
When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?
B.Foreign Institutional Investors may bring more capital into our country
C.Scheduled Commercial Banks may cut their lending rates
D.It may drastically reduce the liquidity to the banking system.
A.India’s GDP growth rate increases drastically
Correct Answer: Option C
The Statutory Liquidity Ratio (SLR) is the percentage of deposits that banks must maintain in the form of liquid assets like government securities.
When the Reserve Bank of India (RBI) reduces the SLR, it releases funds held by banks, thereby increasing their liquidity and lending capacity.
With more funds available, Scheduled Commercial Banks are likely to reduce their lending rates to encourage borrowing and deploy the excess liquidity.
Hence, Scheduled Commercial Banks may cut their lending rates.
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