Correct answer: (c) Scheduled Commercial Banks may cut their lending rates.
Explanation
- A
India's GDP growth rate increases drastically
(a) India's GDP growth rate increases drastically. An SLR cut eases banks’ statutory lock-in of funds; any growth effect is indirect and not ‘drastic’. (a) overclaims.
- B
Foreign Institutional Investors may bring more capital into our country
(b) Foreign Institutional Investors may bring more capital into our country. FII flows respond to returns, risk and global liquidity, not mechanically to a 50 bps SLR cut. Not the keyed channel.
- C
Scheduled Commercial Banks may cut their lending rates.
(c) Scheduled Commercial Banks may cut their lending rates. Lower SLR frees a slice of deposits from government-security lock-up, raising lendable resources; banks may then ease lending rates. That is the official key.
- D
It may drastically reduce the liquidity to the banking system
(d) It may drastically reduce the liquidity to the banking system. An SLR cut increases, rather than reduces, bank liquidity. (d) reverses the direction.
Summary. Official key is (c) Scheduled Commercial Banks may cut their lending rates. Statutory Liquidity Ratio is the share of deposits banks must hold in specified liquid assets. Cutting it by 50 basis points releases funds for credit and can pull lending rates down. It does not by itself explode GDP or summon FIIs, and it does not drain liquidity. Only (c) follows.
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