Monetary Policy Tools (RBI’s Liquidity Management Framework)

Quantitative Tools Qualitative Tools

Short-term Liquidity Margin requirements: Difference between the Loan and
1. 14-day variable-rate repo/ reverse repo auction (Main Operations) Collateral value. Different margin requirements for different
2. Variable Rate Term Repo/ Reverse Repo auction (Tenor: overnight categories of loans (Vehicle, Home, Business etc) to control
and up to 13 days) (Fine tuning Operations) credit to different sectors.
3. Fixed Rate Reverse Repo
4. Marginal Standing Facility (MSF) Consumer Credit Regulation: Rules to set the
5. Standing Deposit Facility (SDF) minimum/maximum level of down-payments and periods of
6. Standing Liquidity Facility (SLF) payments for purchase of certain goods.
Long Term Liquidity
6. Long Term Repo Operations (LTROs) Rationing of credit: Limit the maximum amount of loans and
7. Targeted LTROs (TLTROs) advances for specific categories of loans and advances.
8. Forex Swap ( Buy/Sell Swap and Sell/Buy Swap)
Priority Sector Lending Targets: Ensure loans to Vulnerable
Reserve Requirements sectors in Economy
9. Statutory Liquidity Ratio (SLR)
10.Cash Reserve Ratio (CRR) Moral Suasion: Persuade the commercial banks to co-operate
Market Operations with the general monetary policy.
11. Open Market Operations (OMOs)
12. Market Stabilization Scheme (MSS) Direct Action: Against banks that don’t fulfil conditions and
requirements.
Tool to influence Yield rates
13. Operation Twist
14. G-SAP
 Prelims 2019
Which of the following is not included in the assets of a commercial bank
in India?
(a) Advances
(b) Deposits
(c) Investments
(d) Money at call and short notice
Criteria Savings Account Current Account
Suitable for Salaried people. Businesses, Traders and companies.
However, such accounts can be opened by
Individuals also.
Minimum Balance Comparatively lower Comparatively higher
Interest Interest is paid on deposited amount No Interest is paid on deposited amount
Overdraft available No Yes
Transactions Restricted number of Daily/ Monthly Transactions No Restrictions on number of transactions
 Criteria CRR SLR
Legal Framework RBI Act, 1934 (Scheduled Banks) BR Act, 1949 ( For both Scheduled and Non-Scheduled
BR Act, 1949 (Non-Scheduled Banks) Banks)
Applicability to Commercial Banks, RRBs, Cooperative Banks, Commercial Banks, RRBs, Cooperative Banks, Small
Banks Small Finance Banks, Payment Banks, Local Area Finance Banks, Payment Banks, Local Area Banks
Banks
Applicability to Not applicable to both Deposit Taking and Non- Applicable only to Deposit Taking NBFCs.
NBFCs Deposit Taking NBFCs Not applicable to Non-Deposit Taking NBFCs.
Minimum and No Limit Maximum Limit of 40%
Maximum Limit
Maintained in Cash Cash, Gold and G-Secs
Maintained with RBI Banks
Scope for earning No. Since RBI does not pay interest on CRR Yes. Banks can earn interest on G-Secs. Banks can also
Profits Deposits. earn profits when Gold value appreciates.
Present Rate 4.5% 18%
 Prelims 2015
When the Reserve Bank of India reduces the Statutory
Liquidity Ratio by 50 basis points which of the following is
likely to happen?

(a) India's GDP growth rate increases drastically.

(b) Foreign Institutional Investors may bring more capital
into our country.
(c) Scheduled Commercial Banks may cut their lending
rates.
(d) It may drastically reduce the liquidity to the banking
system.
 Practice MCQ Practice MCQ
Which among the best describes the concept of Net Demand and Which among the following is/are included in the Time liabilities
Time Liabilities (NDTL) of Banks? of the Banks?
(a) Total Deposits with the Banks 1. Fixed Deposits
(b) Net Demand and Time Liabilities of the Banks towards Banking 2. Recurring Deposits
System 3. Time portion of Savings Account Deposits
(c) Net Demand and Time Liabilities of the Banks towards people.
(d) Sum of Net Liabilities towards Banking System and Demand and Select the correct answer using the code given below:
Time Liabilities towards people. (a) 1 only
(b) 1 and 2 only
Practice MCQ (c) 2 and 3 only
Consider the following statements related to Statutory Liquidity (d) 1, 2 and 3
Ratio (SLR) and Cash Reserve Ratio (CRR):
1. The SLR must be maintained with the RBI while the CRR must Practice MCQ
be maintained with the Banks itself. Consider the following statements related to Cash Reserve Ratio
2. Both SLR and CRR must be maintained in the form of Cash, Gold (CRR):
or G-Secs. 1. The CRR is applicable only to Scheduled Banks and not to
3. Unlike SLR, there is no scope for the Banks to earn profits on Non-Scheduled Banks.
CRR deposits. 2. Under the RBI Act, 1934, the CRR cannot be more than 4%.
4. The SLR is usually higher than CRR. 3. The RBI does not pay any interest on CRR Deposits.

Which of the statements given above is/are incorrect? Which of the statements given above is/are incorrect?
(a) 1 and 2 only (a) 1 and 2 only
(b) 1, 2 and 3 only (b) 3 only
(c) 3 and 4 only (c) 2 and 3 only
(d) 1, 3 and 4 only (d) 1 and 3 only