52. Which of the following would constitute repression on the Liability side of banks, while discussing “Double Financial Repression”?
52. Which of the following would constitute repression on the Liability side of banks, while discussing “Double Financial Repression”?
The correct option is C High Inflation and relative diminishing of household savings
Double Financial Repression is a phenomenon when the banks are faced with financial repression both on the asset and liability side.
Repression on asset side:
Financial repression on asset side is due to SLR requirement (Statutory Liquidity Ratio) i.e. the amount of liquid assets which banks are required to hold in form of cash, government bonds and gold. Provision of 40% of Priority Sector Lending has led the allocation of cash to less than fully efficient ways.
Repression on Liability side:
Financial repression on the liability side is the result of continued inflation since 2007. This has had a direct effect on real interest rates and hence reduction in household savings as people has to spend more on daily food items.
Double Financial Repression is a phenomenon when the banks are faced with financial repression both on the asset and liability side.
Repression on asset side:
Financial repression on asset side is due to SLR requirement (Statutory Liquidity Ratio) i.e. the amount of liquid assets which banks are required to hold in form of cash, government bonds and gold. Provision of 40% of Priority Sector Lending has led the allocation of cash to less than fully efficient ways.
Repression on Liability side:
Financial repression on the liability side is the result of continued inflation since 2007. This has had a direct effect on real interest rates and hence reduction in household savings as people has to spend more on daily food items.
