Q13.
In the context of Indian economy which of the following is/are the purpose/purposes of 'Statutory Reserve Requirements'? 1. To enable the Central Bank to control the amount of advances the banks can create. 2. To make the people's deposits with banks safe and liquid. 3. To prevent the commercial banks from making excessive profits. 4. 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.
Answer
B
Explanation
A statutory reserve is cash a financial institution, be it a bank, credit union, or insurance company, must keep to meet the obligations by virtue of accepting deposits or premium payments. The reserves required of banks and credit unions are generally set by the nation's central bank. Those required of insurance companies are set by statute or regulations at the national, state or local government or regulatory authority. Calculated in different ways, statutory reserves are required to ensure that financial institutions are capable of covering claims even in a calamitous situation.