Question

CRR cut will improve bottom line, Says Karnataka Bank CEO" Private lender Karnatka Bank MID and CEO Mahabaleshwara MS on Friday said the Reserve Bank of India slashing the Cash Reserve Ratio by 100 basis points from 4% to 3% will improve the bottom line of Banks. The three months repayment moratorium on all loans without down gradation of assets will migrate debt servicing burden and go a long way in overcoming the financial stress caused by COVID-19" he said in a statement. Discuss how the above mentioned monetary instrument in the news report is helpful in correcting the situation of excess demand and deficient demand. Also mention one more fiscal measure to solve this situation.​

Answer 1

Explanation:

CRR cut will improve bottom line, Says Karnataka Bank CEO" Private lender Karnatka Bank MID and CEO Mahabaleshwara MS on Friday said the Reserve Bank of India slashing the Cash Reserve Ratio by 100 basis points from 4% to 3% will improve the bottom line of Banks.

Answer 2

Answer:

CRR is the minimum percentage of net demand & time liabilities,to

be kept by commercial banks with the central bank.

In case of excess demand,the central bank increases CRR.It

decreases the cash availability with the commercial banks and

reduces their credit creating power.It reduces excess demand in

the economy.

Vice versa for Deficient demand.