Question

“In the Indian Banking System, the Statutory Liquidity Ratio (SLR) plays a vital role in controlling the credit creation capacity of the Commercial Banks, as it ______.”

विकल्प

• ensures that all the deposits are converted into liquid assets.

• requires banks to maintain a percentage of deposits in the form of liquid assets.

• sets the maximum interest rate which the banks can charge on loans.

• promote banks from lending beyond a specific proportion of their total reserves.

Answer 1

“In the Indian Banking System, the Statutory Liquidity Ratio (SLR) plays a vital role in controlling the credit creation capacity of the Commercial Banks, as it requires banks to maintain a percentage of deposits in the form of liquid assets.”

Explanation:

The Statutory Liquidity Ratio (SLR) mandates that commercial banks hold a specified fraction of their deposits in liquid forms (cash, gold, government securities), thereby reducing the portion of deposits available for lending. By requiring banks to hold a portion of their deposits as liquid assets, SLR directly limits their credit-creation capacity.