CA Foundation · Business Economics · Money Market
Banks in an economy have net demand and time liabilities (NDTL) of ₹4,00,000 crore. The RBI raises the CRR from 4% to 4.5%. Banks hold no excess reserves and wish to meet the new requirement purely by curtailing loans. Ignoring any multiplier effect, by how much must the banks' lendable funds fall, and what is the new CRR balance required?
Lendable funds fall by ₹2,000 crore and the new CRR balance is ₹18,000 crore. The old balance is 4% of ₹4,00,000 crore, which is ₹16,000 crore, and the new one is 4.5%, which is ₹18,000 crore. The difference is ₹2,000 crore.
- AFall ₹2,000 crore; new CRR balance ₹18,000 croreCorrect
- BFall ₹2,000 crore; new CRR balance ₹16,000 crore
- CFall ₹1,800 crore; new CRR balance ₹18,000 crore
- DFall ₹20,000 crore; new CRR balance ₹18,000 crore
Explanation
Old CRR balance = 4% of 4,00,000 = ₹16,000 crore. New = 4.5% of 4,00,000 = ₹18,000 crore. The increase of 0.5% of 4,00,000 = ₹2,000 crore is the fall in lendable funds. Option B gives the old balance as the new one; option D confuses 0.5% with 5%.
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