Economics • Banking & FinanceEasy
What is the primary objective of the Statutory Liquidity Ratio maintained by scheduled commercial banks?
A. To provide emergency liquidity support exclusively to microfinance institutions
B. To ensure banks hold a specified minimum percentage of their net demand and time liabilities in liquid assets like approved government securities✓ Correct Answer
C. To regulate foreign institutional investments in domestic stock exchanges
D. To finance agricultural long-term infrastructure projects through direct treasury transfers
💡 Solution & Explanation
Under Section 24 of the Banking Regulation Act, 1949, scheduled commercial banks must maintain a prescribed percentage of their net demand and time liabilities in liquid assets such as cash, gold, or approved government securities. This instrument restricts excessive credit expansion during inflationary cycles and guarantees bank solvency. The Reserve Bank of India holds the power to alter this ratio within statutory limits.
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