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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 ______.”
Options
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.
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Solution
“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.
