Q. With reference to the Narasimham committee recommendations, which of the following statements is/are correct?
1. Cash Reserve Ratio (CRR) is fixed at 15%.
2. Statutory Liquidity Ratio is fixed at 40%.
Select the correct answer using the codes given below:

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: D
Notes:
  • The RBI was advised not to use the CRR as a principal instrument of monetary and credit control, in place it should rely on open market operations (OMOs) increasingly. Two proposals advised regarding the CRR:
    • CRR should be progressively reduced from the present high level of 15 per cent to 3 to 5 per cent; and
    • RBI should pay interest on the CRR of banks above the basic minimum at a rate of interest equal to the level of banks, one year deposit.
  • Concerning the SLR it was advised to cut it to the minimum level (i.e., 25 per cent) from the present high level of 38.5 per cent in the next 5 years (it was cut down to 25 per cent in October 1997). The government was also suggested to progressively move towards market-based borrowing programme so that banks get economic benefits on their SLR investments.

Source: Source