Question

Identify the {incorrect statement with reference to Cash Reserve Ratio (CRR):}

• A. It is a certain percentage of demand and time deposit liabilities that every bank must keep as cash reserves with the Central Bank.
• B. It is fixed by the Central Bank.
• C. It is not binding on the commercial banks.
• D. It is a tool used by the Central Bank to control the credit creation in the economy.

Hint:

CRR is a mandatory tool used by the Central Bank to regulate liquidity and credit in the economy. It is binding on all commercial banks.

Answer 1

The Correct Option is C

Cash Reserve Ratio (CRR) is the percentage of a commercial bank's demand and time liabilities that must be kept as reserves with the Central Bank. This ensures liquidity and control over the money supply. Option (C): This is incorrect because CRR is mandatory and binding on all commercial banks as per the regulations of the Central Bank. Options (A), (B), and (D): These are correct as they accurately describe CRR and its role in monetary policy and credit control.