UPSC CSE Prelims 2014
Statement 1: Statutory Reserve Requirements, such as the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), are monetary policy instruments employed by the Central Bank (Reserve Bank of India) to regulate the credit-creating capacity of commercial banks. By adjusting these ratios, the RBI influences the amount of funds available for lending, thereby controlling liquidity, credit flow, and managing inflationary or deflationary pressures in the economy. This is a primary and intended purpose.
Statement 2: The safety and liquidity of people's deposits with banks are primarily ensured by mechanisms like the Deposit Insurance and Credit Guarantee Corporation (DICGC) and comprehensive banking regulations. Statutory reserve requirements (CRR and SLR) serve as macroeconomic tools for monetary policy management, not as direct depositor safety mechanisms.
Statement 3: Statutory reserve requirements are not designed with the explicit purpose of preventing commercial banks from making excessive profits. While locking up a portion of funds in non-lendable reserves might indirectly affect a bank's profitability, this is not the primary policy objective of these requirements.
Statement 4: The requirement for banks to maintain sufficient vault cash for their day-to-day operational needs is distinct from statutory reserve requirements. Statutory reserves serve a broader monetary policy function, aiming to control overall credit and liquidity in the economy, rather than ensuring a bank's daily cash liquidity for routine transactions.