Read the below statements marked as Assertion (A) and Reason (R). Mark the correct option:
Assertion (A): CRR (Cash Reserve Ratio) and SLR requirements increase the lending capacity of banks.
Reason (R): These requirements reduce the amount of money banks can lend to the public.
Show answer & explanation
Correct answer: D
Explanation
The correct answer is option 4 i.e. A is false, but R is true.
The assertion is incorrect because an increase in Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) actually decreases the lending capacity of banks. CRR requires banks to keep a percentage of their deposits with the RBI, while SLR requires them to maintain liquid assets. Since a larger portion of funds is "locked away" to comply with these regulations, the Reason is correct: it reduces the surplus cash available for banks to lend to the public.