HSC Science (General) 12th Board ExamMaharashtra State Board
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Give Reason Or Explain the Following.Cash Reserve Ratio (Crr) Affects the Lending Capacity of Banks. - HSC Science (General) 12th Board Exam - Economics

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Question

Give reason or explain the following.

Cash reserve ratio (CRR) affects the lending capacity of banks.

Solution

Cash reserve ratio (CRR) affects the lending capacity of banks.
Ans. By the Banking Act, commercial banks have to maintain a certain percent (3 percent to 15 percent) of cash with Central bank (RBI) as reserves against their demand and time deposits. This amount cannot be used by banks for lending activities.
If the CRR is increased the amount available for lending gets reduced and vice versa. Thus, the CRR affects the lending capacity of the banks.
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APPEARS IN

 2016-2017 (March) (with solutions)
Question 2.2.5 | 2.00 marks
Solution Give Reason Or Explain the Following.Cash Reserve Ratio (Crr) Affects the Lending Capacity of Banks. Concept: Definition - Central Bank.
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