Question

Which of the following is/are NOT CORRECT?

• A. Under the Reserve Bank of India Act, 1938, every scheduled bank has to keep certain minimum cash reserves with the RBI
• B. CRR is the statutory reserve requirements to be kept by every scheduled bank with the RBI
• C. A higher SLR increases the capacity of commercial banks to grant loans and advances
• D. A high SLR can be considered as a tax on the banking system

Answer 1

The Correct Option is A, C

Analysis of Statements on Banking Regulations in India 

Option (A): Reserve Requirement Under RBI Act, 1938

• Incorrect. The requirement for scheduled banks to maintain cash reserves with the RBI is mandated under the Reserve Bank of India Act, 1934, not 1938.
• Thus, this statement is incorrect.

Option (B): CRR as a Statutory Reserve Requirement

• Correct. The Cash Reserve Ratio (CRR) is a statutory reserve requirement.
• Every scheduled bank must maintain a certain percentage of its net demand and time liabilities (NDTL) as cash reserves with the RBI.

Option (C): Higher SLR Increases Loan Capacity

• Incorrect. The Statutory Liquidity Ratio (SLR) requires banks to maintain a certain percentage of their NDTL in liquid assets such as cash, gold, or approved securities.
• A higher SLR actually reduces the capacity of banks to grant loans and advances by restricting the amount of funds available for lending.

Option (D): High SLR as a Tax on the Banking System

• Correct. A high SLR limits the lending capacity of banks.
• By reducing the funds available for profit-generating activities like lending, it effectively acts as an implicit tax on the banking system.

Conclusion:

The statements that are NOT correct are:

• (A) The requirement for scheduled banks to maintain cash reserves is under the RBI Act, 1934, not 1938.
• (C) A higher SLR actually reduces, not increases, the loan capacity of commercial banks.