BANKING ECONOMICS

When the cash reserve ratio (CRR) is increased by the RBI, it will:

• (a) Increase the supply of money in the economy

• (b) Decrease the supply of money in the economy

• (c) No impact on the supply of money in the economy

• (d) Initially increase the supply but later on decrease automatically.

Answer explanation

When RBI increases the CRR, fewer funds are available with banks as they have to keep larger portions of their cash in hand with RBI. Thus hike in CRR leads to an increase of interest rates on loans provided by the Banks. Reduction in CRR sucks money out of the system causing a decrease in the money supply.

Open Market Operations means:

• (a) Sale of agricultural products in the government regulated Mandis.

• (b) Sale and purchase of bonds and securities to the commercial banks by the RBI.

• (c) Sale and purchase of bonds and securities by the RBI to the government.

• (d) Sale and purchase of bonds and securities by the commercial banks to the customers.

Answer explanation

Open market operations (OMO) refers to when the Federal Reserve buys and sells primarily U.S. Treasury securities on the open market in order to regulate the supply of money that is on reserve in U.S. banks, and therefore available to loan out to businesses and consumers. 

Consider the following statements regarding the National Payments Corporation of India (NPCI):

It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA).

RuPay card payment scheme was launched by the NPCI.

Which of the statements given above is/are correct?

• 1 ONLY

• 2 ONLY

• BOTH 1 & 2

• NEITHER 1 NOR 2

Answer explanation

National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

Consider the following statements regarding the EASE 2.0 Index:

1. It provides Public Sector Banks a comparative evaluation showing where banks stand on the Reforms Agenda.

2. It has been released by the NITI Aayog.

Which of the statements given above is/are correct?

• 1 ONLY

• 2 ONLY

• BOTH 1 & 2

• NEITHER 1 NOR 2

Answer explanation

EASE 2.0 Index Results has been released recently by the Indian Banking Association (IBA). Bank of Baroda, State Bank of India, and erstwhile Oriental Bank of Commerce were felicitated for being the top three (in that order) in the ‘Top Performing Banks’ category according to the EASE 2.0 Index Results.

Which of the following is/are the potential impact(s) of sale of Government securities by the Reserve Bank of India?

Increase in liquidity in the market.

Increase in interest rates.

Select the correct answer using the code given below:

• 1 ONLY

• 2 ONLY

• BOTH 1 & 2

• NEITHER 1 NOR 2

Answer explanation

When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.

The Committee on Financial Sector Reforms was headed by: 

• (a) Rangarajan 

• (b) Urjit Patel

• (c) Raghuram Rajan 

• (d) Viral Acharya

Answer explanation

The Raghuram Rajan Committee on Financial Sector Reforms was a committee constituted by the Government of India in 2007 for proposing the next generation of financial sector reforms in India.

An Internal Working Group of the Reserve Bank of India (RBI) has recently recommended that corporate houses be given bank licenses. The Raghuram Rajan committee had said that it is premature to allow industrial houses to own banks.

What is the mandate of the KV Kamath Committee formed by the Reserve Bank of India?

• (a) Financial parameters for restructuring of loans

• (b) Forex Reserve Management

• (c) Potential impact of COVID-19 pandemic on MSME credit

• (d) Monetary Policy Framework Targets

Answer explanation

The RBI had formed a committee under the chairmanship of former ICICI Bank CEO KV Kamath to make recommendations on the financial parameters to be considered in the restructuring of loans impacted by the COVID-19 pandemic.

With reference to India, consider the following statements: 1. Retail investors through Demat account can invest in Treasury Bills and Government of India Debt Bonds in the primary market 2. The “Negotiated Dealing System-Ordering Matching” is a government securities trading platform of the Reserve Bank of India. 3. The “Central Depository Services Ltd” is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.Which of the statements given above is/are correct?

• 1 ONLY

• 1 AND 2 ONLY

• 3 ONLY

• 2 AND 3 ONLY

Which one of the following is likely to be one of the most inflationary in its effects?

• a) Repayment of public debt

• b) Borrowing from the public to finance a budget deficit

• c) Borrowing from the banks to finance a budget deficit

• d) Creation of new money to finance a budget deficit

In India, the Central Bank’s function as the “lender of last resort” usually refers to which of the following?

1. Lending to trade and industry bodies when they fail to borrow from other sources 2. Providing liquidity to the banks having a temporary crisis 3. Lending to governments to finance budgetary deficits

Select the correct answer using the code given below

• 1 and 2 only

• 2 only

• 2 and 3 only

• 3 only