Question

Assertion (A) - An increase in SLR increases the excess reserves of commercial banks and limits their lending power.
Reason (R) - A change in SLR affects the power of commercial banks to create credit.

[0.80 marks]

• A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct Explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct Explanation of Assertion (A).
• C. Assertion (A) is true but Reason (R) is false.
• D. Assertion (A) is false but Reason (R) is true.

Answer 1

The correct option is C Assertion (A) is true but Reason (R) is false.

SLR refers to the minimum percentage of total demand and time deposits to be kept by commercial banks with themselves in liquid form.
A change in SLR affects the power of commercial banks to create credit. An increase in CRR reduces the excess reserves of commercial banks and limits their lending power.