Q. Consider the following statements regarding the Cash Reserve Ratio (CRR):
1. CRR needs to be maintained only in cash.
2. Banks get interest on the money that is with the RBI under the CRR requirements.
Which of the statements given above is/are NOT correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C
Notes:

The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises.

  • The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio.
  • The cash reserve is either stored in the bank’s vault or is sent to the RBI.
  • Banks do not get any interest on the money that is with the RBI under the CRR requirements.
  • Unlike Statutory Liquidity Ratio or SLR, which can be maintained in either gold or cash, CRR needs to be maintained only in cash.

Source: ForumIAS

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