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According to PRO 5 the commercial banks are required to maintain the prescribed ratio of Cash...

According to PRO 5 the commercial banks are required to maintain the prescribed ratio of Cash Reserve/Special Cash Reserve against FE 25 deposits in US Dollars? Give reasons for this regulation.

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Answer #1

The commercial banks are required to maintain the prescribed ratio of Cash Reserve/Special Cash Reserve against FE 25 deposits in US Dollars. This is because the banks need to have sufficient amount of funds to pay back to the customers who want to withdraw the deposits made by them from the banks. In such a scenario where large number of customers want to withdraw their deposits, the banks must have the availability of funds to provide the withdrawn amount to the customers. Hence it is important for the commercial banks to maintain minimum stipulated Cash Reserve/Special Cash Reserve against FE 25 deposits in US Dollars.

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