UPSC Prelims 2015— Question 22

Correct answer: Option C. The Statutory Liquidity Ratio requires scheduled commercial banks to maintain a prescribed proportion of their net demand and time liabilities in liquid assets. Reducing SLR releases funds that banks can potentially deploy for lending. This can create downward pressure on lending rates, subject to broader monetary and market conditions. It does not automatically or drastically raise GDP or reduce liquidity. Option-wise analysis: Option A: “India’s GDP growth rate increases drastically” is incorrect. It does not match the specific fact, definition, institutional role, geographical association, or constitutional/economic principle required here. The key distinction is the one identified in the core explanation, so this option can be eliminated. Option B: “Foreign Institutional Investors may bring more capital into our country” is incorrect. It does not match the specific fact, definition, institutional role, geographical association, or constitutional/economic principle required here. The key distinction is the one identified in the core explanation, so this option can be eliminated. Option C: “Scheduled Commercial Banks may cut their lending rates” is correct. It directly matches the factual or conceptual requirement tested by the question and is supported by the principle explained above. Option D: “It may drastically reduce the liquidity to the banking, system” is incorrect. It does not match the specific fact, definition, institutional role, geographical association, or constitutional/economic principle required here. The key distinction is the one identified in the core explanation, so this option can be eliminated. Prelims takeaway: Focus on the precise institutional role, constitutional provision, geographical association, or technical definition being tested. UPSC questions often place a broadly familiar fact beside a narrowly incorrect qualifier; identifying that qualifier is essential for elimination.