CMA Intermediate · Financial Management and Business Data Analytics · Financial Institutions
A commercial bank must maintain a Cash Reserve Ratio (CRR) of 4% of its net demand and time liabilities (NDTL) with the RBI. The bank has NDTL of Rs 800 crore and currently holds Rs 25 crore as cash balance with the RBI. How much additional balance must it place with the RBI to meet the CRR requirement?
The bank needs an additional Rs 7 crore. CRR requirement is 4% of Rs 800 crore, which is Rs 32 crore. Since Rs 25 crore is already held with the RBI, the shortfall is Rs 32 crore minus Rs 25 crore, giving Rs 7 crore.
- ARs 7 croreCorrect
- BRs 32 crore
- CRs 57 crore
- DRs 0, since it already holds Rs 25 crore
Explanation
Required CRR balance = 4% x 800 = Rs 32 crore. The bank already holds Rs 25 crore, so the shortfall is 32 - 25 = Rs 7 crore. Rs 32 crore ignores the existing balance, and Rs 57 crore wrongly adds the existing balance to the requirement.
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