The ratio of total deposits that a Commercial Banks must keep with Reserve Bank of India is called
Cash Reserve Ratio
That ratio is the Cash Reserve Ratio — option 3.
The definition. The CRR is the percentage of a bank’s net demand and time liabilities that it must keep as cash with the Reserve Bank of India. The two features that identify it are that it is held in cash and that it is held with the RBI — both of which are exactly what the question states.
| Cash Reserve Ratio | Statutory Liquidity Ratio | |
|---|---|---|
| Held with | The Reserve Bank of India | The bank itself |
| Held as | Cash only | Cash, gold, or approved government securities |
| Does it earn interest ? | No | Yes, on the securities held |
| Governing law | RBI Act, 1934 | Banking Regulation Act, 1949 |
Option 2 is therefore the sharpest distractor: the SLR is also a compulsory ratio of deposits, but it is maintained by the bank in its own hands, not with the RBI.
What it does. The CRR is a quantitative instrument of monetary policy. Raising it locks up more of every rupee deposited, reduces the money multiplier and the volume of credit banks can create, and so tightens liquidity; lowering it releases funds and eases credit. Because the funds earn no interest, the CRR is also a cost to banks, and changes in it act quickly on lending.
The other options. “Legal Reserve Ratio” is a textbook term sometimes used for the CRR and SLR taken together, and “Deposit Ratio” is not a defined term at all — both are included to test the precise vocabulary.
The other quantitative tools are the repo and reverse repo rates, the bank rate and open market operations; the qualitative tools include margin requirements, moral suasion and selective credit controls.
Hence, the answer is Cash Reserve Ratio.
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