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Question
Which of the following is/are key policy rates used by RBI to influence interest rates?
A. Bank Rate and Repo Rate
B. Reverse Repo Rate
C. CRR and SLR
Which of the following is/are key policy rates used by RBI to influence interest rates?
A. Bank Rate and Repo Rate
B. Reverse Repo Rate
C. CRR and SLR
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Solution
The correct option is C Only (C)
Methods of credit control used by the RBI can be divided into Quantitative Control and Qualitative or Selective Control. Bank Rate, CRR and SLR are the methods of Quantitative control.
(i) Bank Rate:
It is the rate at which the RBI rediscounts bill of exchange or other commercial papers. In other words, it is the rate at which the RBI extends credit to the commercial bank. Bank Rate is also called Discount Rate.
(ii) Cash Reserve Ratio (CRR): The RBI Act, 1934, stipulates that a commercial bank is required to keep in cash a portion of its deposits with the RBI, this is known as Cash Reserve Ratio. The RBI can vary this ratio from 3% to 15%.
(iii) Statutory Liquidity Ratio (SLR):
The Statutory Liquidity Ratio specifies that a commercial bank invests a designated minimum proportion of its total assets in liquid assets, such as cash, gold and unencumbered approved securities (not government securities but having the status of the same). This is a method of quantitative controls in addition to the cash reserve ratio. The SLR cannot be raised beyond 40%.
Methods of credit control used by the RBI can be divided into Quantitative Control and Qualitative or Selective Control. Bank Rate, CRR and SLR are the methods of Quantitative control.
(i) Bank Rate:
It is the rate at which the RBI rediscounts bill of exchange or other commercial papers. In other words, it is the rate at which the RBI extends credit to the commercial bank. Bank Rate is also called Discount Rate.
(ii) Cash Reserve Ratio (CRR): The RBI Act, 1934, stipulates that a commercial bank is required to keep in cash a portion of its deposits with the RBI, this is known as Cash Reserve Ratio. The RBI can vary this ratio from 3% to 15%.
(iii) Statutory Liquidity Ratio (SLR):
The Statutory Liquidity Ratio specifies that a commercial bank invests a designated minimum proportion of its total assets in liquid assets, such as cash, gold and unencumbered approved securities (not government securities but having the status of the same). This is a method of quantitative controls in addition to the cash reserve ratio. The SLR cannot be raised beyond 40%.
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