When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?
[amp_mcq option1=”India’s GDP growth rate increases drastically” option2=”Foreign Institutional Investors may bring more capital into our country” option3=”Scheduled Commercial Banks may cut their lending rates” option4=”It may drastically reduce the liquidity to the banking system” correct=”option3″]
This question was previously asked in
UPSC IAS – 2015
When the Reserve Bank of India reduces the Statutory Liquidity Ratio (SLR), scheduled commercial banks are likely to cut their lending rates.
SLR is the percentage of Net Demand and Time Liabilities (NDTL) that commercial banks must maintain as liquid assets (cash, gold, government securities). Reducing SLR means banks are required to hold a smaller proportion of their deposits in these prescribed liquid assets. This frees up a larger amount of funds that banks can use for lending to the public and businesses.