Official Answer Key & Detailed Solution
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Correct Answer: Option (C) — Scheduled Commercial Banks may cut their lending rates
Concept & Option Breakdown
Standard Reference VerifiedWhen the RBI cuts the Statutory Liquidity Ratio (SLR), commercial banks are required to park a lower proportion of their Net Demand and Time Liabilities (NDTL) in safe/liquid government securities. This releases additional investible funds into the banking system, increasing liquidity and prompting banks to reduce their lending rates to encourage credit disbursement.
Extreme words like 'drastically' in options (a) and (d) are typical red flags in UPSC questions and are usually incorrect.
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