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

The Cash Reserve Ratio (CRR) mandates that commercial banks must hold a specific percentage of their demand and time liabilities as reserves with the Central Bank, thereby safeguarding liquidity and enabling control over the money supply. Option (C): This option is inaccurate as CRR is a compulsory and binding requirement for all commercial banks, as stipulated by Central Bank regulations. Options (A), (B), and (D): These options are correct, accurately reflecting the nature of CRR and its function in monetary policy and credit management.