BPSC 70th CCE Re-exam Prelims General Studies · Question 89 of 142

Correct — A, Cash Reserve Ratio. Six words in the stem decide this question: 'must keep with Reserve Bank of India'. The Cash Reserve Ratio is the one Indian reserve requirement that is a deposit placed with the central bank itself. Under section 42(1) of the Reserve Bank of India Act, 1934, every scheduled bank must maintain with the Reserve Bank a cash balance calculated as a percentage of its net demand and time liabilities, held in a current account with the Bank and maintained as an average over the reporting fortnight. The money physically leaves the commercial bank's control: it sits on the RBI's balance sheet, it cannot be lent, and it cannot be counted towards the bank's own liquidity. That is why an increase in the CRR is contractionary — it removes loanable funds from the system directly rather than by making them dearer — and why the CRR sits inside the money multiplier, so that a higher ratio mechanically shrinks the deposit expansion a given quantity of base money can support. As of August 2026 the Reserve Bank publishes a CRR of 3.00 per cent against an SLR of 18.00 per cent and a policy repo rate of 5.25 per cent. Two small imprecisions in the stem are worth noticing and neither changes the answer: the base is not 'total deposits' but net demand and time liabilities, and the printed 'a Commercial Banks' is the booklet's own slip, reproduced here as printed.

• (b)Deposit Ratio — Not the name of any statutory requirement in Indian banking. The familiar ratio that this phrase gestures at is the credit–deposit ratio, which measures how much of the deposits a bank has raised it has lent out again — a diagnostic that State Level Bankers' Committees watch closely, and a long-running concern in Bihar, but a measured outcome rather than a floor the Reserve Bank imposes.
• (c)Statutory Liquidity Ratio — The real trap, and the reason the stem's wording matters. The SLR is also a reserve requirement expressed as a percentage of net demand and time liabilities, but it is prescribed by section 24 of the Banking Regulation Act, 1949, and the bank holds it itself — in cash, in gold, or in unencumbered approved securities, overwhelmingly government securities. Nothing is deposited with the Reserve Bank, and unlike CRR balances the assets earn a return.
• (d)Legal Reserve Ratio — Generic monetary-economics vocabulary rather than an Indian legal term. Textbooks use 'legal reserve ratio' or 'required reserve ratio' as the general name for whatever minimum a central bank imposes — in the United States that requirement has stood at zero since March 2020. No Indian statute, RBI circular or monetary policy statement uses the phrase, so it cannot be what a ratio 'is called' here.

Banking works because depositors do not all ask for their money at once, which lets a bank lend out most of what it takes in. A reserve requirement is the state's answer to what happens when that assumption fails, and India runs two of them side by side. The Cash Reserve Ratio, under section 42 of the RBI Act, 1934, makes a scheduled bank park a percentage of its net demand and time liabilities as cash with the Reserve Bank. The Statutory Liquidity Ratio, under section 24 of the Banking Regulation Act, 1949, makes it hold a further percentage in its own vault as cash, gold or approved securities. The two do different jobs. The CRR is a liquidity and monetary-policy instrument: money impounded at the RBI is money withdrawn from the credit-creation process, so the ratio is a direct lever on the money multiplier. The SLR is a solvency and prudential instrument, and historically also a captive market for government debt, since the approved securities that satisfy it are mainly government paper. Both are set on NDTL, which is the deposit base adjusted for interbank claims, not the headline deposit figure, and both are maintained on a fortnightly reporting cycle.

Approach any question of this family by asking three questions in order: who prescribes it, where is it held, and in what form. CRR — RBI Act 1934, held with the RBI, in cash. SLR — Banking Regulation Act 1949, held by the bank, in cash, gold or approved securities. Get those two rows straight and every variant of the question answers itself, including the ones that ask which ratio earns a return, which one directly shrinks lendable funds, and which one creates demand for government securities. Here the stem hands over the discriminator explicitly with 'must keep with Reserve Bank of India', so a candidate who knows only the location and not the statute still gets the mark. The two remaining options are eliminated on a different test: they are not names of anything. A useful habit in Indian economy questions is to ask whether an option is a term of art with a statute or a circular behind it, or merely a plausible-sounding English phrase. 'Deposit Ratio' and 'Legal Reserve Ratio' are the second kind, and BPSC uses exactly that kind of filler option often enough that recognising it is worth practising.

• CRR is prescribed by section 42(1) of the Reserve Bank of India Act, 1934, and is maintained as a cash balance with the Reserve Bank, computed on net demand and time liabilities and averaged over the reporting fortnight.
• SLR is prescribed by section 24 of the Banking Regulation Act, 1949, and is held by the bank itself in cash, gold or unencumbered approved securities — chiefly government securities.
• Rates published by the Reserve Bank as of August 2026: CRR 3.00 per cent, SLR 18.00 per cent, policy repo rate 5.25 per cent, Standing Deposit Facility 5.00 per cent, Marginal Standing Facility 5.50 per cent.
• CRR balances sit on the RBI's balance sheet and cannot be lent or counted as the bank's own liquid assets; SLR assets remain the bank's and earn a return, which is the practical difference between the two.
• A rise in the CRR lowers the money multiplier and so contracts credit directly, whereas the repo rate works on the price of funds rather than their quantity — which is why the RBI treats the CRR as a liquidity tool rather than its main policy signal.

• Swapping the statutes. CRR is the RBI Act, 1934; SLR is the Banking Regulation Act, 1949. Questions that name the Act instead of the location are common and this is the only fact that separates them.
• Assuming SLR is also parked with the RBI. It is not — the bank holds it, which is why SLR assets keep earning and CRR balances do not do the same work for the bank.
• Reading 'total deposits' literally. Both ratios are computed on net demand and time liabilities, a netted figure, not on the gross deposit total that appears in a bank's advertising.

BPSC asks the definition — four names, one description, and the mark turns on recognising which term the description fits, with two of the four options not being real terms at all. UPSC almost never asks the name; it asks the consequence, giving you the instrument and demanding the effect, as in 2010 on a CRR increase and 2015 on a 50-basis-point SLR cut. Preparing only the definitions will pass BPSC and fail UPSC.

• practice — not a real PYQ

  The Statutory Liquidity Ratio in India is prescribed under

  • (a)Section 42 of the Reserve Bank of India Act, 1934
  • (b)Section 24 of the Banking Regulation Act, 1949
  • (c)The Foreign Exchange Management Act, 1999
  • (d)The Companies Act, 2013

  Answer(b) Section 24 of the Banking Regulation Act, 1949 — SLR assets are held by the bank itself in cash, gold or unencumbered approved securities, unlike the CRR under section 42 of the RBI Act, 1934, which is a balance kept with the Reserve Bank.

• practice — not a real PYQ

  The Cash Reserve Ratio of a scheduled commercial bank in India is calculated as a percentage of its

  • (a)Total assets
  • (b)Paid-up capital and reserves
  • (c)Net demand and time liabilities
  • (d)Advances to the priority sector

  Answer(c) Net demand and time liabilities — the deposit base netted of interbank claims, on which both the CRR and the SLR are computed, and maintained as an average over the reporting fortnight.