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Unit 4 Ch 3 : Money and Credit — Social Studies STD 10 — Question

CBSE BoardEnglish MediumSTD 10Social StudiesUnit 4 Ch 3 : Money and Credit5 Marks
Question
How does RBI supervise banks?
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Answer

Reserve Bank of India supervises banks by laying guidelines and norms for the banks:
  1. RBI requires commercial banks to keep a certain percentage of their deposits in cash and other liquid assets. This percentage is called statutory liquidity ratio (at present this ratio is 25 per cent). After keeping a part of deposits in cash and other liquid assets, banks can use their surplus funds to give loans. The objective is to ensure that banks can meet the withdrawal requirements of deposit holders.
  2. RBI also requires commercial banks to deposit a certain percentage of their deposits with RBI in cash. This percentage is called cash reserve ratio (at present this ratio is 5.5 per cent).
  3. RBI issues guidelines for fixing rate of interest on borrowings and lending by commercial banks.
  4. RBI directs the commercial banks to give a certain percentage of loans to priority sector (agriculture, small-scale industries, self-help groups, etc.).

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