With reference to the regulation of different NBFCs, which of the following statements is correct?

Nidhi Companies, a type of NBFC are regulated by Ministry of corporate affairs

NBFCs form the part of payment and settlement system

Like Banks, Pri or ity sector lending are also applicable to NBFCs

Peer to Peer lenders are registered as NBFCs and are regulated by SEBI (Security and Exchange board of India)

Which of the following describes "Taylor Rule"?

A monetary policy approach that helps a central bank set rates keeping in mind the current inflation and growth rates

A policy approach used by the government to set fiscal targets

An instrument used in the budget to curtail funding for specific projects

A method to define the rate of unemployment in the country

UPSC Prelims PYQ › Economy › Money & Banking

Money & Banking — UPSC Prelims Economy previous year questions — page 3

195 solved previous year questions on Money & Banking, papers from 1995 to 2023, drawn from UPSC CSE Prelims, UPPCS, UPSC CDS. Each carries the printed answer key and the explanation from the source compilation.

195 questions

5 pages

Economy

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#81Practice set
Arrange the following-mentioned events in chronological order with earliest to the latest. 1. Nationalization of Coal Mines 2. Nationalization of LIC 3. Nationalization of Air India 4. Nationalization of 14 BanksChoose the correct answer using the options given below
- A4-2-3-1
- B3-1-2-4
- C3-2-4-1
- D4-1-3-2
Answer: (C) 3-2-4-1
Explanation
Option c is the correct in continuation with socialistic policies, several steps for nationalization of various different times. Some of those l - Coal mines were nationalised pursuant to the (Taking Over of Management) Act, 2 - The first step towards nationalisation of was taken on 19 January 1956 by the the Life Insurance (Emergency Provisions) 3 - Under the Air Corporations Act, 1953, nine 4 - On July 19, 1969, 14 major lenders that of bank deposits in the country at that time In 1980, six more banks were nationalised
#82Practice set
Consider the following statements with regard to the surplus income of RBI: 1. RBI is exempt from paying income tax on its surplus income but has to pay wealth tax. 2. The amount of transfer of surplus to the Centre is decided solely by the government. 3. Surplus income transfer by RBI to the Government forms part of capital receipts of the Government. 4. The Banking Regulations Act of 1949 provides for the transfer of surplus income by the RBI to the Centre.How many of the above given statements are incorrect?
- AOnly one
- BOnly two
- COnly three
- DAll four
Answer: (D) All four
Explanation
Option d is the correct Reserve Bank of India (RBI) transfers its surplus the Government every year. Surplus profit is the after making various contingency provisions for bad debts, depreciation in assets, contributions to superannuation funds, 1 is incorrect. RBI is exempted from tax or any other tax, including wealth tax. of the RBI Act, 1934 provides that the Bank shall not to pay income-tax or super-tax on any of its or 2 is incorrect. The amount of transfer to the Centre is decided by the central bank with the government. The decision to transfer surplus is taken at the meeting of the Central Board of 3 is incorrect. Surplus transfer is put head 'non-tax revenue' in the revenue budget as it It helps the government narrow its deficit 4 incorrect. It is not the Danking 1949, hut the section 47 of Act 1935 which the surplus transfer income of RBI to the Centre. Important Tips Source of
#83Practice set
With reference to the regulation of different NBFCs, which of the following statements is correct?
- ANBFCs form the part of payment and settlement system
- BLike Banks, Pri or ity sector lending are also applicable to NBFCs
- CNidhi Companies, a type of NBFC are regulated by Ministry of corporate affairs
- DPeer to Peer lenders are registered as NBFCs and are regulated by SEBI (Security and Exchange board of India)
Answer: (C) Nidhi Companies, a type of NBFC are regulated by Ministry of corporate affairs
Explanation
Option c is the correct a is incorrect.NBFCs do not form part of and settlement system and cannot issue on b is incorrect. No priority sector is required in case of c is correct. Nidhi companies, a type of NBFC by Ministry of corporate d is incorrect. Peer to Peer lenders as NBFCs are proposed to be regulated by all the directives are passes on by RBI
#84Practice set
With reference to regulatory forbearance adopted by RBI, consider the following statements: 1. In case of India, Regulatory forbearance for banks involved relaxing the norms for restructuring assets. 2. Regulatory forbearance implies stringent norms and control of financial institutions by the regulators. 3. It may result into overcapitalization of banks.How many of the statements given above are correct? (;i) Only one
- AOnly one
- BOnly two
- CAll three
- DNone 4
Answer: (C) All three
Explanation
Option c is the correct l is correct: Regulatory forbearance for relaxing the norms for restructuring 2 is incorrect: Regulatory Forbearance norms and control of financial institutions by 3 is incorrect. It results into Banks and not overcapitalization. Important Tips Regulatory forbearance: It refers to policy adopted by central banks and other government institutions which permit banks and financial institutions to continue operating even when their capital is depleted. RBI adopted regulatory forbearance in 2008 in aftermath of 2008 global financial crisis
#85Practice set
Consider the following statements with reference to 'Regional Rural Banks' (RRBs): 1. Their area of operation is restricted only to rural areas. 2. They are regulated by National Bank for Agriculture and Rural Development. 3. The RRBs are required to provide of their total credit as priority sector lending.How many of the statements given above are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (A) Only one
Explanation
Option a is the correct l is incorrect: Regional rural banks (RRBs) operations and branches in urban or semi-urban apart from rural 2 is incorrect: Although NABARD is the responsibility for conduct of statutory RRBs under banking regulation Act 1949, but the regulate RRBs is vested with Reserve Bank of India 3 is correct: The RRBs are required to of their total credit as priority sector lending
#86Practice set
With reference to the National Payments Corporation of India (N.PCI), consider the following: 1. It was incorporated in 2007 replacing the Internet and Mobile Association of India (IAMAI). 2. It is a statutory body established under the provisions of the Payment and Settlement Systems Act, 2007. 3. It is an initiative of Reserve Bank of India (RBI) and Indian Banks' Association (IBA). 4. It developed the National Electronic Toll Collection (NETC) program and PractkebookHow many of the statements given above are correct?
- AOnly one
- BOnly two
- COnly three
- DAll four
Answer: (C) Only three
Explanation
Option c is the correct l is incorrect. National Payments India (NPCI) was incorporated in 2008 as an for operating retail payments and in 2 and 3 are correct. It is an initiative of of India (RBI) and Indian Banks' Association the provisions of the Payment and Act, 4 is correct. National Payments Corporation (NPCI) has developed the National Electronic (NETC) and
#87Practice set
Consider the following statements regarding different type of ATMs. 1. In Brown Label ATM, the hardware is owned by sponsor bank. 2. White Label ATMs, are setup, owned and operated by non-bank entities.Which of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Answer: (B) 2 only
Explanation
Option b is the correct l is incorrect. In Brown Label ATM, the (hardware) is owned by a service provider management and connectivity to banking networks by a sponsor 2 is correct. White label ATMs are setup, operated by non-banks
#88Practice set
With reference to the helicopter money, consider the following statements: 1. It is the large sums of money printed by the central bank and distributed to the public. 2. Unlike Quantitative easing, there is no repayment liability in case of helicopter money.Which of the statements give above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Answer: (C) Both 1 and 2
Explanation
Option c is the correct 1 is correct. Helicopter money basically money transfer from the central bank to OPMENT government. It involves printing large sums of money it to the 2 is correct. However, in case of currency is distributed to the public without liability. Important Tips In case of quantitative easing, printed money is used by central banks to buy government bonds and the government has to pay back for the assets that the central bank buys
#89Practice set
With reference to the Basel norms, consider the following: 1. Liquidity Coverage Ratio refers to the amount of high-quality liquid assets banks need to hold to fund cash outflows for 30 days. 2. Net Stable Funding Ratio (NSFR) is defined as the amount of available stable funding relative to the amount of required stable funding. 3. Countercyclical capital buffer is only held in common equity tier 1 capital in addition to the regulatory minimum capital requirements.How many of the statements given above are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (C) All three
Explanation
Option c is the correct l is correct. The liquidity coverage is a requirement under Basel whereby banks to hold an amount of high-quality liquid enough to fund cash outflows for 30 2 is correct. The NSFR is expressed as a must equal or exceed The ratio relates the stable funding to its required stable 3 is correct. The is limited between of risk-weighted assets and must be held in tier l capital in addition to the capital requirement and other regulatory Important Tips Countercyclical capital buffers require banks to hold capital at times when credit is growing rapidly
#90Practice set
to the Supervisory Action Framework (SAF) by RBI banking sector in India, consider the following: 1. It seeks to ensure expeditious resolution of financial stress faced by the Urban Cooperative Banks (UCBs). 2. It is similar to the Prompt Corrective Action (PCA) framework which is imposed on commercial banks.Which of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Answer: (C) Both 1 and 2
Explanation
Option c is the correct 1 is correct. The Reserve Bank of India revised the Supervisory Action Framework Urban Co-operative Banks (UCBs). It seeks to resolution of financial stress faced by some 2 is correct. It is similar to the Prompt (PCA) framework which is imposed on
#91Practice set
Consider the following statements to the monetary policy tools and their impact: 1. Monetary policy tool includes direct lending to banks. 2. Open market operations (OMO) refer to the government directly buying or selling short-term treasuries and other securities in the open market. 3. Reducing CRR and SLR requirements for banks may lead to a decline in the interest rates.How many of the statements given above are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (B) Only two
Explanation
Option b is the correct l is correct. Monetary Policy tools include operations, direct lending to banks, bank unconventional emergency lending managing market expectations-subject to the 2 is incorrect. Open market operations to a central bank and not the government buying short-term treasuries and other securities in the 3 is correct. Lowering reserve requirements sir) releases more capital for the banks to offer loans buy other assets and hence the interest rate declines
#92Practice set
Which of the following affect the value of the money multiplier? 1. Statutory Liquidity Ratio 2. Cash Reserve Ratio 3. Currency Deposit Ratio of the publicSelect the correct answer using the code given below
- A1 only
- B2 only
- C2 and 3 only
- D1, 2 and 3
Answer: (D) 1, 2 and 3
Explanation
Option d is the correct I and 2 are correct: A high (or low) value of SLR helps increase (or decrease) the value of ratio, thus diminishing (or increasing) the value money multiplier and money supply in the economy similar 3 is correct: The size of money multiplier by the currency ratio (Cr) of the public, reserve ratio of the central bank and reserve ratio of commercial banks. The ratios, higher the money multiplier
#93Practice set
to the Basel HI guidelines, consider the following statements: 1. It requires the maintenance of capital adequacy ratio in banks at 2. RBI currently applies banking rules strictly based on Basel 3 to ensure capital adequacy.Which of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2 SOCI
Answer: (D) Neither 1 nor 2 SOCI
Explanation
Option d is the correct l is incorrect. The capital adequacy ratio is to at In addition, banks have to maintain conservation buffer of 2 is incorrect. Currently, the RBI applies and not those specified under Basel for leading banks to set aside higher capital for loans
#94Practice set
With reference to 'Marginal Standing Facility', consider the following statements: 1. It is an interbank borrowing facility for banks in an emergency situation. 2. The scheme was introduced by the Reserve Bank of India in 2011-12. 3. Under the scheme the interest rate for borrowing funds is always higher than the repo rate. 4. The funds can be availed overnight, upto one percent of their respective Net Demand and Time Liabilities.How many of the statements given above are correct?
- AOnly one
- BOnly two
- COnly three
- DAll four
Answer: (C) Only three
Explanation
Option c is the correct l is incorrect. Marginal Standing Facility window for banks to borrow from the Reserve Bank in an emergency situation when inter-bank up 2 is correct. MSF is a new scheme announced RBI in its Monetary Policy, 2011-12, which came from May, 3 and 4 are correct. Under this scheme, borrow overnight upto 1 per cent of their net time liabilities (NDTL) from the RBI, at the interest per cent (100 basis points) higher than the current
#95Practice set
With reference to 'bad bank' recently in news, consider the following statements: 1. It is an asset reconstruction company. 2. It cannot lend money but can take deposits.Which of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Answer: (A) 1 only
Explanation
Option a is the correct l is correct: A bad bank is an asset (ARC) that takes over the bad loans of manages them and finally recovers the money over 2 is incorrect: The bad bank is not involved and taking deposits but helps in resolving the in the commercial banks
#96Practice set
Which of the following describes "Taylor Rule"?
- AA monetary policy approach that helps a central bank set rates keeping in mind the current inflation and growth rates
- BA policy approach used by the government to set fiscal targets
- CAn instrument used in the budget to curtail funding for specific projects
- DA method to define the rate of unemployment in the country
Answer: (A) A monetary policy approach that helps a central bank set rates keeping in mind the current inflation and growth rates
Explanation
Option a is the correct Taylor rule is a monetary policy approach that can central bank set rates keeping in mind current growth rates. It provides a formula to determine a central bank should target an increase or decrease rates depending on the economy's health
#97Practice set
Which of the following statements are correct regarding Chit Funds? 1. The registration and regulation of chit funds are carried out by state governments. 2. Chit funds fall under the definition of NBFCs under subhead miscellaneous non-banking company (MNBC). 3. In Chit Funds, members make periodical subscriptions to the fund.Select the correct answer using the code given below
- A1 and 2 only
- B1 and 3 only
- C1, 2 and 3
- D3 only
Answer: (C) 1, 2 and 3
Explanation
Option c is the correct l is correct. Registration and regulation of are carried out by state 2 is correct. Functionally, chit funds are the definition of NBFCs by the RBI under the non-banking company 3 is correct. Chit funds have regular make periodical subscriptions to the fund. The is given to some member of the chit funds the basis of previously agreed criterion
#98Practice set
Which of the following instruments of Monetary Policy Transmission are available with the Reserve Bank of India? 1. Open Market Operations 2. Varying of Cash Reserve Ratio and Statutory Liquidity Ratio k 3. Sterilization by buying and selling of foreign currency in the exchange market. 4. Moral suasionSelect the correct answer using the code given below
- A1, 2 and 4 only
- B2, 3 and 4 only
- C3 and 4 only
- D1, 2, 3 and 4
Answer: (A) 1, 2 and 4 only
Explanation
Option a is the correct 1 is correct. Open Market Operations (OMO) (or sells) government securities to the in a bid to increase (or decrease) the stock of high powered money in the 2 is correct. A high (or low) value of CRR or (or decreases) the value of reserve deposit diminishing (or increasing) the value of and money supply in the economy in a 4 is correct. Moral Suasion can be undertaken by persuade commercial banks to follow the monetary given by the Monetary Policy 3 is incorrect. Sterilization is one of the of RBI where it sterilizes the economy external shocks. However, it is not an instrument policy
#99Practice set
With reference to Monetary Policy Committee (MPC), consider the following statements: 1. The committee is constituted by the Reserve Bank of India. 2. The MPC determines the policy interest rate required to achieve the inflation target. 3. The decisions of the committee are based on consensus.How many of the statements given above are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (A) Only one
Explanation
Option a is the correct 1 is incorrect: The MPC is a constituted by the Central government in the official 2 is correct. The MPC determines the rate required to achieve the inflation 3 is incorrect: Each member of the MPC vote and in case of equality of votes, the Governor has or casting vote. Thus, the decisions are not based consensus
#100Practice set
Consider the following statements regarding the Marginal Standing Facility (MSF) of RBI: 1. It is used by all financial institutions. 2. It is a part of the liquidity adjustment facility. 3. It is a cheaper route to fulfil the overnight requirement of funds. 4. Banks use this route only if they exhaust all other channels to raise short-term funds.How many of the statements given above are correct?
- AOnly one
- BOnly two
- COnly three
- DAll four
Answer: (A) Only one
Explanation
Option a is the correct 1 is incorrect. Marginal Standing Facility is banks (not for other financial 2 is incorrect. Though it is on the lines of Adjustment Facility (LAF) but it is not a part of LAF which helps banks to adjust their daily 3 is incorrect. MSF is a penal rate and thus cheap way and remains higher than the repo rate. It at a rate of l percent higher than the current but it is not fixed and can be 4 is correct. Banks use this facility only if all other means to raise short term funds
#101Practice set
Which of the following are the constituents of 'aggregate monetary resources (M3)' in an economy? 1. Currency and coin with the public 2. Net demand deposits held by commercial banks 3. Net time deposits of commercial banksSelect the correct answer using the code given below
- A1 and 2 only
- B1 and 3 only
- C2 and 3 only
- D1, 2 and 3
Answer: (D) 1, 2 and 3
Explanation
Option dis the correct CU (currency held by the public) DD (net held by commercial Ml Savings deposits with Post Office savings Ml Net time deposits of commercial M3 Total deposits with Post Office ( Savings and M2 are known as narrow money. M3 and M4 as broad money
#102Practice set
With reference to Liquidity Adjustment Facility (LAF), which of the following statements is/are Correct? 1. LAP was introduced on the recommendations of the Narsimham Committee on Banking Sector Reforms. 2. Through LAP, RBI manages the inflation in the economy. 3. LAP in recent years, has been extended to certain Scheduled Urban Cooperative Banks (UCBs).Select the correct answer using the code given below
- A1 Only
- B1 and 2 Only
- C1 and 3 Only
- D1, 2 and 3
Answer: (D) 1, 2 and 3
Explanation
Option dis the correct l is correct. The LAF was introduced in 1998 based on the recommendations of on Banking Sector Reforms. Statement 2 is correct. Through LAF tools like Repo, manages the inflation in the range between 2 and 3 is correct. From 2014, Liquidity (LAF) was extended to Scheduled Urban (UCBs) which are Core Banking System
#103Practice set
What is the purpose of setting up of Small Finance Banks (SFBs) in India? I. To supply credit to small business units 2. To supply credit to small and marginal farmers 3. To encourage young entrepreneurs to set up business particularly in rural areas.Select the correct answer using the code given below
- A1 and 2 only
- B2 and 3 only
- C1 and 3 only
- D1, 2 and 3
Answer: (A) 1 and 2 only
Explanation
Option a is the correct 1 and 2 are correct. The objectives of setting small banks is to further financial inclusion by: Provision of savings vehicles Supply of credit to small business units; small and marginal farmers; micro and small 11nd other unorganized sector entities, through high technology low cost 3 is incorrect. To encourage young set up business particularly in rural areas was not one purposes of setting the bank
#104Practice set
Which of the following is/are the possible consequences of rising non-performing asset (NPA)? 1. RBI can mandate banks to maintain higher provisioning norms. 2. Banks may invoke Act 2002 and Insolvency and Bankruptcy Code 2016.Select the correct answer using the code given below
- A1 Only
- B2 Only
- CBoth 1 and 2
- DNeither 1 nor 2 38, With reforcnce to the Basel accord
Answer: (C) Both 1 and 2
Explanation
Option c is the correct l is correct. Recently RBI mandated banks to provisioning for all which are 2 is correct. The Act banks and other financial institutions to residential or commercial properties that pledged with them to recover loans from and Bankruptcy Code, 2016 provides a time bound process for resolving insolvency in companies individuals. Important Tips The Narsimham Committee prescribed a standardized norm for provisioning of NPAs against Non Performing Assets
#105Practice set
With to financial indusion, the following statements: 1. Crealion of basic banking accounts is considered necessary and sufficient for financial inclusion. 2. Availing loans from a local moneylender at exorbitant interest rates is a form of financial inclusion. of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth L and 2
- DNeither 1 nor 2
Answer: (D) Neither 1 nor 2
Explanation
Option d h the l is incorrect: A banking account is necessary sufficient for financial inclusion.For example, accounts opened under PM Tan Dhan Yojana hut number of accounts are zero-balance 2 is incorrect: Financial inclusion doesn't access to financial services but rather means affordable financial services. In rural areas, people to local moneylenders. But these loans at very high rates of interest, which the borrowers into debt-trap. Hence, because of people are excluded from the benefits access to financial services. Important Tips financial is a lirnad-based concept that includes the following aspects - basic banking account, access to affordable credit, availability of banking and financial infrastructure in a region, financial literacy etc
#106Practice set
If the central bank of a country is following a dear monetary policy, it shall necessarily result in 1. Depreciation in the value of the Rupee 2. Increase in economic growth of the country 3. Decrease in amount of equated monthly instalments (EMI)How many of the statements given above are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (D) None
Explanation
Option dis the correct 1 is incorrect. Dear monetary policy the interest rates in the market. As a the increased rates the supply of the currency will This in turn would lead to appreciation in 2 is incorrect. Dear monetary policy is control the inflation in the economy. With fall in the growth momentum of the economy is there is fall in the economic 3 is incorrect. As the money supply in market The lending rates of banks will rise this will lead to increase in amount of equated
#107Practice set
Which of the following statements is/are correct with respect to Statutory Liquidity Ratio (SLR)? 1. Statutory Liquidity Ratio is an instrument of RBI to maintain a healthy reserve deposit ratio. 2. It is maintained as a fraction of their total demand and time deposits with RBI. 3. It is prescribed by the Banking Regulation Act, 1949.Select the correct answer using the code given below
- A1 only
- B1 and 3 only
- C2 only
- D1, 2 and 3
Answer: (B) 1 and 3 only
Explanation
Option b is the correct l is correct. Reserve deposit ratio (rdr) is of the total deposits commercial banks reserves. To maintain a health rdr RBI uses various like cash reserve ratio and statutory 2 is incorrect. SLR is the amount which a required to maintain with itself (and not RBI) in a of their total demand and time deposits in of specified liquid 3 is correct. The SLR is prescribed by Section of Banking Regulation Act, 1949
#108Practice set
With respect to bank rate of RBI which of the following statements is/are correct? 1. It is a route through which RBI lends money to the general public. 2. An increase in bank rate means that RBI is following an expansionist monetary policy 3. Bank rate is the interest rate which RBI charges on its long-term lending.Select the correct answer using the code given below
- A1 and 2 only
- B2 and 3 only
- C3 only
- D1, 2 and 3
Answer: (C) 3 only
Explanation
Option c is the correct l is incorrect. RBI does not iend money the general public. Bank rate is the route of borrowing of India, state governments, commercial etc. Statement 2 is incorrect. Bank rate is used to control supply in the market. If it is increased then would be restricted and this is a sign of tight expansionist) monetary policy 3 is correct. Bank rate is the interest rate that on its long term lendings. This rate is aligned Marginal Standing Facility
#109Practice set
Which of the following is part of Liquidity Adjustment Facility used by Reserve Bank of India?
- ALIBOR
- BBank Rate
- CReverse Repo Rate
- DMarginal Standing Facility
Answer: (C) Reverse Repo Rate
Explanation
Option c is the correct liquidity adjustment facility (LAF) is a tool used policy, primarily by the Reserve Bank of that allows banks to borrow money through (repos) or to make loans to the RBI repo a is incorrect. LIBOR (London Interbank is the benchmark interest rate at which major lend to one another. LIBOR is administered by Exchange, which asks major global much they would charge other banks for b is incorrect. Bank Rate-the rate of interest charged by a central bank while lending loans to bank. It is used for long term lending c is correct. The interest rate at which the money from banks for the short term is defined Repo Rate. The Reverse Repo Rate helps the RBI from the banks in times of need. In return, the attractive interest rates to d is incorrect. Marginal Standing Facility-a which is the last resort for banks once they all borrowing options including facility. Under it bank
#110Practice set
With reference to Small Finance Banks (SFBs), consider the following statements: 1. SFBs are required to lend at least of the loans to the priority sedurs as by the RBI. 2. SFBs are bound by Statutory Liquidity Ratio and Cash Reserve Ratio rules. 3. SFBs are covered by deposit insurance for account holders.How many of the statements given are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (C) All three
Explanation
Option c is the correct l is correct: SFBs are required to lend at least the loans to priority sectors as defined by the RBI and of the loans need to be below 2 is correct: SFBs, like commercial banks, follow Statutory Liquidity Ratio and Cash Reserve They are required to maintain a capital adequacy and cannot lend more than l of their capital to 3 is correct: SFBs are covered by deposit like other banks, for up to lakh per account holder
#111Practice set
Consider the following statements: 1. Financial Stability Report is released by Ministry of Finance. 2. Higher Capital Adequacy Ratio of a bank indicates that bank is at higher risk of insolvency. of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Answer: (D) Neither 1 nor 2
Explanation
Option dis the correct 1 is incorrect: Financial Stability Report (FSR) by the Reserve Bank of 2 is incorrect: CRAR is also known as Ratio (CAR). It is the ratio of a bank's capital to its risk weighted assets and current liabilities. decided by central banks and bank regulators to banks from taking excess leverage and in the process. Higher CRAR indicates that a better capitalized, hence at lower risk of insolvency
#112Practice set
Consider the following statements regarding credit disbursal in rural India: 1. Most of the credit to agriculture sector is provided by micro finance institutions. 2. NABARD provides funds to Co-operative Banks to promote credit flow in rural areas. 3. Microfinance institutions normally charge a high rate of interest when compared to commercial banks.How many of the statements given above are correct?
- AOnly one
- BOnly two
- CAll three
- DNone
Answer: (B) Only two
Explanation
Option b is the correct 1 is incorrect. Scheduled commercial banks cent) provides most of credit to agriculture sector. It by rural cooperative banks (15 per cent), banks (5 per cent) and micro finance institutions 2 is correct. National Bank for Agriculture Development (NABARD) provides loans and Co-operative Banks and Regional Rural Banks by way The basic objective of this refinance provision supplement the resources of banks and to improve at the ground level in rural 3 is correct. Most Microfinance a very high rate of interest to commercial banks (8-12 Microfinance, microcredit, is a type of banking service unemployed or low-income individuals or groups farmers who otherwise would have no to financial financial success of is limited when commercial banks in India. The centuries-old has a strong foothold in Indian grounds and is to meet the needs of the times
#113Practice set
Which of the following are the components of Statutory Liquidity Ratio (SLR)? 1. Cash 2. Gold 3. Treasury Bills 4. Dated securities issued under market stabilisation schemes 5. State development loansSelect the correct answer using the code given below
- A2, 3 and 4 only
- B3 and 4 only
- C1, 2 and 5 only
- D1, 2, 3, 4 and 5
Answer: (D) 1, 2, 3, 4 and 5
Explanation
Option dis the correct Liquidity Ratio or SLR is a minimum deposits that a commercial bank has to maintain of liquid cash, gold or other securities. It is requirement that banks are expected to keep offering credit to customers. Following are the and unencumbered bills of the Government of securities issued under market market stabilisation schemes Development Loans (SDLs) of the from time to time under other instrument as may be of India
#114Practice set
Consider the following statements with respect to the money supply: 1. Credit and loans are not taken into account while measuring money supply in an economy. 2. An increase in the supply of money can lower the interest rates and generate investment. 58.Which of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Answer: (B) 2 only
Explanation
Option b is the correct answer. The total stock of money circulating in an economy is the money supply. The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets. Statement 1 is incorrect. Different measures of money supply take into account non-cash items like credit and loans as well. The money supply roughly includes both cash and deposits that can be used almost as easily as cash. Statement 2 is correct. If there is an increase in supply of money the interest rate is likely to decrease, which in turn, generates more investment and puts more money in the hands of consumers, thereby stimulating spending
#115Practice set
Which one of the following statements regarding 'Banking Ombudsman' in India is incorrect?
- AIt is a quasi-judicial authority formed with an intent to resolve the complaints of the customers of the Bank
- BBanking Ombudsman members are appointed by Reserve Bank of India
- CThe jurisdiction of Banking Ombudsman is limited only to Scheduled Commercial Banks in India
- DAny complaint can be rejected by the Ombudsman on the grounds of being frivoious
Answer: (C) The jurisdiction of Banking Ombudsman is limited only to Scheduled Commercial Banks in India
Explanation
Option c is the correct answer. Statement a is correct. Banking ombudsman is a quasi judicial authority. It is formed with an intent to resolve the complaints of the customers of the Bank. Section of the Banking Regulation Act, 1949 deals with Banking Ombudsman Scheme. It came into effect in 1995 and presently the Banking Ombudsman Scheme 2006 is in operation. Statement b is correct. Under Banking Ombudsman Scheme, 2006, Reserve Bank of India appoint one or more of its officers in the rank of Chief General Manager or General Manager to be known as Banking Ombudsmen to carry out the functions entrusted to them by or under the Scheme. Statement c is incorrect. Banking Ombudsman scheme covers not just scheduled Commercial Banks but also Regional Rural Banks and Scheduled Primary Co- operative Banks. Recently, RBI also extended the concept of Banking Ombudsman to NBFC's as well. Statement d
#116Practice set
One of the following statements regarding the functions of 'Reserve Bank of India is incorrect?
- AIt is mandated with the Right to issue bank notes as one of the key central banking functions. lmli
- BIt is the right and obligation of RBI to accept monies on account of the Central Government of India
- CIt establishes Monetary Policy Committee with an intent to stabilise money supply in the market
- DIt can authorize any person to be known as authorized person to deal in foreign exchange or in foreign securities
Answer: (C) It establishes Monetary Policy Committee with an intent to stabilise money supply in the market
Explanation
Option c is the correct answer. Statement a is correct. Section 22 of the RBI Act confers the RBI with the sole right to issue bank notes in India. The issue of bank notes shall conducted by a department called the Issue shall be separated and kept wholly distinct from the Department. Right to issue bank notes is one of the central banking functions the RBI is mandated to do so. b is correct. tion 18 of the RBI Act facilitates the RBI to act as a der of Last Resort'. These provisions of the RBI Act t. le the RBI to act as banker to Central Government and Governments. Under Sections 20 and 21 of the RBI Act, shall have an obligation and right respectively to monies for account of the Central Government and payments up to the amount standing to the credit. of its account, and to carry out its exchange, remittance banking operations, including the management of debt of the c is HI-F of the
#117Practice set
Which of the following statements is incorrect about the challenges of a bad bank in India?
- AIt will be difficult to arrive at the prices at which bad bank buys the stressed loans from the banks
- BThe reduction in net NPA will be limited to the extent of un-provided exposure
- CIt does not address the root cause of quality of credit provided by bank
- DPlenty of buyers present in resolution process creates problem in Price discovery
Answer: (B) The reduction in net NPA will be limited to the extent of un-provided exposure
Explanation
Option b is the correct l is correct. Contingency Fund of India at the disposal of the president, and he can out of it to meet unforeseen expenditure authorization by the Parliament. The fund is held by secretary on behalf of the President. Like the of India, it is also operated by executive 2 is correct. Consolidated Fund of India is to which all receipts are credited and all payments are debited. No money out of this fund can be or drawn) except in accordance with 3 is incorrect. Provident fund deposits, deposits, remittances etc are credited to the The Public Account is operated by the i.e., payment from this account can be made appropriation. Public Account of India public money (other than those which are credited Consolidated Fund of India) received by or on the Government of India shall be credited to the of India. Important Tips The Constitution of India provides for the followin
#118Practice set
With reference to the financial sector, consider the following statements: 1. The financial institutions which operate in both the physical and digital world are called Neo banks. 2. No interest rate is charged in case of the Islamic banking. 3. The Non-Banking Financial Companies are part of the Shadow Banking in India. 4. The Regional Rural Banks and Cooperative banks are the part of differential banking in India.How many of the statements given above are correct?
- AOnly one
- BOnly two
- COnly three
- DAll four
Answer: (B) Only two
Explanation
Option b is the correct Type Statement Neo Banks These are the financial l is technology (fintech) incorrect companies that operate solely digitally or via mobile apps. In other words, it can be said that neo-banks are online-only or digital banks without any physical branches. Statement Islamic Islamic banking is a banking 2 is correct Banking system that works in accordance with the Shariat. In Islam, money has no intrinsic value. Therefore, it cannot be sold at a profit. It prohibits paying any fee for renting of money (called riba) for specific periods of time. It allows sharing reasonable share of profit instead of charging interest rates or also loss in case of loss incurred by borrower. Statement Shadow It has gained popularity in 3 is correct banking India over the last 30 years following the financial deregulation since It refers to the non-banking financial companies (NBFCs) wh
#119Practice set
Which of the following is correct with reference to Digital payment index?
- Ais released by the National Payments Corporation of India
- BIt aims to capture the extent of digitization of payments across the world
- CIt comprises of 5 broad parameters that enable measurement of deepening and penetration of digital payments in the country over different time periods
- DIt is published on an annual basis
Answer: (C) It comprises of 5 broad parameters that enable measurement of deepening and penetration of digital payments in the country over different time periods
Explanation
Option c is the correct a is incorrect: Reserve Bank of India has the Digital Payments Index (DPI) on a semiannual basis from March 2021 onwards with a lag of This means that the DPI will be released by RBI and September every year in the months of July b is incorrect: The Reserve Bank of India (RBI) a composite Digital Payments Index (DPI) the extent of digitization of payments across (And not across the c is correct: The RBI-DPI comprises 5 that enable measurement of deepening of digital payments in the country over d is incorrect: Reserve Bank of India has the Digital Payments Index (DPI) on a semiannual basis from March 2021 onwards with a lag of This means that the DPI will be released by RBI and September every year in the months of July respectively
#120Practice set
Consider the following statements:75. 1. If Reserve bank of India reduces the cash reserve ratio it will decrease the money supply in economy. 2. The lowering of bank rate by the Reserve bank of India leads to more liquidity in the market. 3. An increase in Statutory Liquidity Ratio rate means that commercial banks shall have to invest more money in Government and other approved securities. 4. Loan-to-value is a ratio used in mortgage lending to determine the amount necessary to put in a down-payment.How many of the statements given above are correct?
- AOnly one
- BOnly two
- COnly three
- DAll four
Answer: (C) Only three
Explanation
Option c is the correct l is incorrect: The Reserve Bank of India or that banks store a proportion of their the form of cash so that the same can be given to customers if the need arises. The percentage of to be kept in reserves, vis-a-vis a bank's is called the Cash Reserve Ratio. The cash either stored in the bank's vault or is sent to the RBI. not get any interest on the money that is with the the CRR 2 is correct: Any reduction in the bank rate repo rate will lead to borrowers getting loans at rates. The lowering of the Bank Rate makes banks borrow money at a cheap rate which in the liquidity in the 3 is correct: The SLR regulation is binding the commercial banks in India. RBI is with the power the SLR rate, as and when it desires to do so. in SLR rate means that commercial banks to invest more money in Government and securities which deplete lendable sources of 4 is correct: Loan-to

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