Banks are required to keep some reserves in liquid form with themselves. This is called _______.

Question

Question

This question was previously asked in

SSC MTS (2022) Official Paper (Held On: 16 May, 2023 Shift 3)

Answer 1

The correct answer is Statutory liquidity ratio.Key Points

Statutory liquidity ratio (SLR) is a monetary policy tool used by the central bank of a country to regulate the liquidity in the banking system.
It requires banks to maintain a certain percentage of their net demand and time liabilities (NDTL) in the form of liquid assets such as cash, gold, or government securities.
The SLR is determined by the Reserve Bank of India (RBI) and is currently set at 18.00% of NDTL.
Banks have to maintain this SLR on a daily basis and report it to the RBI every fortnight.
SLR serves as a cushion against unforeseen liquidity shocks in the banking system.
It also ensures that banks have enough liquid assets to meet the demands of their depositors.
Banks cannot lend or invest the funds that are kept in the SLR.

Additional Information

Marginal stability scheme is a facility provided by the RBI to banks to borrow funds in case of temporary liquidity mismatches.
Open market operations are the buying and selling of government securities by the RBI to regulate the money supply in the economy.
Legal deposit ratio is not a commonly used term in banking.