In the context of Indian economy which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’? 1. To enable the Central Bank to control the amount of advances the banks can create 2. To make the people’s deposits with banks safe and liquid 3. To prevent commercial banks from making excessive profits 4. To force the banks to have sufficient vault cash to meet their day-to-day requirements Select the correct answer using the code given below.

QUESTION

Medium

Economy

Prelims 2014

In the context of Indian economy which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?

To enable the Central Bank to control the amount of advances the banks can create
To make the people’s deposits with banks safe and liquid
To prevent commercial banks from making excessive profits
To force the banks to have sufficient vault cash to meet their day-to-day requirements

Select the correct answer using the code given below.

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Explanation

A statutory reserve is an amount of cash a financial institution, such as a bank, credit union, or insurance company, must keep on hand to meet the obligations incurred by accepting deposits and premium payments.

The statutory reserves required of banks and credit unions are generally set by the nation's central bank and those required of insurance companies are set by statute or regulation by the national, state or provincial government or regulatory authority. Calculated in various ways, statutory reserves are required to ensure that financial institutions are capable of paying claims even in a calamitous situation.

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