CBSE Class 12-commerce Answered

Policy instruments are cash reserve ratio and statutory liquidity ratio.

Cash reserve ratio refers to the certain amount of a commercial bank’s total deposits required to be kept with RBI as cash reserves.

Statutory liquidity ratio refers to the certain amount of each bank’s assets is maintained in the form cash or other liquid assets. Major assets of the RBI and cash reserves with the central bank. Main components of liquid assets are cash in hand, reserves with the RBI, government and other approved securities. RBI may increase the liquidity ratio to control the flow of credit and decrease the liquidity ratio to expand the credit in the market.