The ratio of total deposits that a Commercial Banks must keep with Reserve Bank of India is called

Question

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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.

Why the other options are wrong — (b) 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) 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) 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.

Concept: 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.

State PCS 2025 Q89 — Economy PYQ with Answer

State PCS 2025 Q89 — Economy PYQ with Answer