| Consider the following statements: |
| 1. CRR (Cash reserve Ratio) deposits in RBI earn interest for banks. |
| 2. OMO (Open market operations) of the RBI is nothing but purchase and sale of Government |
| Securities in the open market. Which of the statements given above is/are incorrect? |
A) 1 only
B) 2 only
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: A
Solution :
[a] Reserve Bank does not pay any interest on the CRR balances maintained by Scheduled Commercial Banks. At present, the CRR is prescribed at 4.00 per cent of a bank's total of DTL adjusted for the exemptions prescribed. There has been passionate demand in some quarters that the Reserve Bank of India pay interest on the cash reserves that banks maintain with it as part of its monetary policy. In case of default in maintenance of CRR requirement on a daily basis which is presently 70 per cent of the total CRR requirement, penal interest will be recovered for that day at the rate of three per cent per annum above the Bank Rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day and if the shortfall continues on the next succeeding day/s, penal interest will be recovered at the rate of five per cent per annum above the Bank Rate.
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