UPSC CSE Prelims
Question 96
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 the 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.
View correct answer and explanation
Correct answer: A
Correct Option: A
Explanation: Statutory reserve requirements principally enable the central bank to restrain credit creation by requiring banks to maintain prescribed reserves.
Statement/Pair-wise Analysis:
Statement/Item 1: Correct - Required reserves limit the loanable resources and deposit multiplication of commercial banks.
Statement/Item 2: Incorrect - Depositor protection can be an indirect benefit, but it is not the direct purpose identified by this question.
Statement/Item 3: Incorrect - Reserve requirements are not a mechanism to cap bank profits.
Statement/Item 4: Incorrect - Statutory reserves need not all be held as physical vault cash for daily customer withdrawals.
Option-wise Analysis:
A: Correct - includes all and only the correct items.
B: Incorrect - includes incorrect statement/item 2.
C: Incorrect - includes incorrect statement/items 2, 3; omits correct statement/item 1.
D: Incorrect - includes incorrect statement/items 2, 3, 4.
Review Note: Some textbooks also mention liquidity/depositor confidence as indirect benefits of reserves; the source answer key narrowly selects the monetary-control purpose.