Question

Why does the Reserve Bank of India require banks to hold back a portion of their deposits as cash with themselves?

• A. To pay the depositors back
• B. To pay employees their salaries
• C. To pay for bank expenses
• D. To lend special loans

Answer 1

The correct option is A To pay the depositors back

When people deposit their money in banks, the deposits are usually lent out as loans. However, the RBI expects the banks to keep a small proportion of their deposits as reserves. This portion of deposits is used to pay the depositors whenever they come to withdraw their money.