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Prelims-IAS –ECONOMICS MCQ Ans-12

1..Which of the followings are regulated by the Reserve Bank of India?

  1. Scheduled banks
  2. Non-banking financial Companies
  3. Regional Rural Banks
  4. State Cooperative Banks

Select the correct answer using the codes given below.
(a) 1, 3 and 4 only
(b) 2, 3 and 4 only
(c) 3 and 4 only
(d) 1, 2, 3 and 4 only

 

  • ANS-D
  • Under the RBI Act, 1939, banks were classified as scheduled banks and non scheduled banks.
  • The scheduled banks are those which are entered in the second schedule.
  • All Commercial Banks, Regional Rural Banks, State Cooperative Banks are scheduled banks.
  • The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non- Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934.

2..Increasing Bank Rate by the RBI leads to:

  1. More liquidity in the market
  2. Less liquidity in the market
  3. Increases investment in the economy
  4. Mobilization of more deposits by commercial banks.

Which of the above statements is/are correct?
(a) 2 and 3 only
(b) 1 and 4 only
(c) 2 and 4 only
(d) 1 and 3 only

 

  • ANS-C
  • It dampens investment routine at due to dear money policy.
  • It increases the deposits as Bank offer higher interest rates.

3..With reference to the setting up of ‘Payment Banks’ to speed up the process of Financial Inclusion, consider the following statements:

  1. They will be registered as a public limited company under the Companies Act, 2013.
  2. They cannot set up subsidiaries to undertake non-banking financial activities.
  3. They can undertake lending activities and 25% of the loans must be given under priority sector lending.
  4. Like regular banks they will have to comply with CRR and SLR requirements.

Which of the statement(s) given above is/are correct?
(a) 1, 3 and 4 only
(b) 2, 3 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2 and 4 only

 

  • ANS-D
  • RBI has recently announced guidelines for licensing of Payment Banks.
  • Payment banks fall into the category of ‘niche’ or differentiated banks, meaning that they serve a specific purpose or a specific category of customers.
  • Payments Banks are targeted to serve low-income households, small businesses and other unorganized entities thus bringing hitherto those sections of populations into the banking fold which were earlier excluded.
  • The idea behind this is to facilitate high volume and low value transactions in a secure and technology-driven environment.
  • The Payments Bank will be registered as a public limited company under the Companies Act, 2013, and licensed under Banking Regulation Act, 1949.
  • .The Payments Bank cannot set up subsidiaries to undertake non-banking financial services activities.
  • The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring- fenced and not commingled with the banking and financial services business of the Payments Bank.
  • The Payments Bank cannot undertake lending activities.
  • Payments Bank will have to comply with SLR and CRR requirements.

4..Consider the following statements regarding various tools of monetary policy of RBI:

  1. Bank rate is charged on long term lendings while Repo rate is charged on short term lendings.
  2. Reverse repo rate is generally higher than repo rate in India.
  3. If repo rate is increased then money supply will decrease in the economy.

Which of the statement(s) given above is/are correct?
(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

 

  • ANS-C
  • Bank rate is charged by RBI on long term lendings such as lending to GoI, state governments, banks etc. while Repo rate is charged on short term lendings. 
  • Reverse repo rate is interest rate which RBI pays to lender while repo rate is the rate at which RBI gives loans to others.
  • So rate at which RBI gives loans is kept greater than rate at which RBI takes the loans.
  • So reverse repo rate is less than repo rate.
  • Repo rate is used to control money supply in economy.
  • If it is increased than money supply would decrease. 

5..Which of the following are eligible to participate in Liquidity Adjustment Facility (LAF) auctions?

  1. Private Banks
  2. Foreign Banks
  3. Regional Rural Banks
  4. Primary Dealers
  5. NBFCs

Select the correct answer using the code given below.
(a) 1, 2 and 3 only
(b) 1, 3 and 5 only
(c) 2, 3 and 4 only
(d) 1, 2, 4 and 5 only

 

  • ANS-D
  • Liquidity Adjustment Facility (LAF) is a monetary policy tool of Reserve Bank of India for modulating liquidity and transmitting interest rate signals to the market.
  • It is used to aid banks in adjusting the day to day mismatches in liquidity.
  • The two components of LAF are repo rate and reverse repo rate.
  • Under Repo, the banks borrow money from RBI to meet short term needs by putting government securities as collateral.
  • Under Reverse Repo, RBI borrows money from banks by lending securities.
  • Other than Regional Rural Banks, all the Scheduled Commercial Banks are eligible to participate in auctions.
  • Primary Dealers (PDs) and NBFCs are also eligible to participate in auctions.

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