Banking Financial Awareness · Economics

Banking Regulation and Monetary Policy

1,180 Questions

Banking regulation and monetary policy questions test your understanding of the Reserve Bank of India functions, regulatory frameworks, and monetary tools. Topics include KYC guidelines, repo rates, and foreign exchange reserves management. This section is crucial for candidates preparing for banking and financial awareness exams.

RBI monetary toolsKYC guidelinesInterest rate regulationsCurrency issuanceBanking business acts

Banking Regulation and Monetary Policy Questions

Multiple choice

What does CTS of RBI stands for?

  1. Cheque Truncation system

  2. Cheque Transfer system

  3. Current Tansacation System

  4. Current Truncation system

  5. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Yes, it is correct.  CTS stands for cheque truncation system.

Multiple choice

Which of the following is incorrect with respect to Regional Rural Banks(RRB)?

  1. RRB are formed under RRB act 1976.

  2. RRBs are oriented towards the needs of weaker sections of rural population.

  3. RRB's are owned by Central bank of India (60%), State govenrnment (20%), and Sponsor bank (20%).

  4. RBI gave RRBs direct access to refinance at concessional rate and maintain a lower level of SLR than a commercial bank.

  5. In Nagaland, there are four RRBs.
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

In Nagaland, there is only one Regional Rural Bank.

Multiple choice

In India, the RBI has mandated the banks to hold 24% of their net demand and time liabilities (NDTL) in a liquid portfolio under the statutory liquidity ratio (SLR) regime. What are the benefits of this system ? A) It provided strength to the financial system. B) It increases flow of credit to productive sectors. C) It provides growth to Indian economy.
Which of the above statements is/are correct?

  1. All A, B and C

  2. Only B and C

  3. Only A and B

  4. Only A

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

NDTL has provided strength to the financial system. So this is correct choice.

Multiple choice

If the Reserve Bank of India wants to block/hinder capital outflows and contain currency depreciation, which of the following would be the most possible action?

  1. Purchase Government Bonds

  2. Decrease Interest Rates

  3. Increase Interest Rates

  4. Decrease Statutory Liquidity Ratio

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Yes, it is correct. If the Reserve Bank of India wants to block/hinder capital outflows and contain currency depreciation,  Increase interest rates would be the most possible action.

Multiple choice

An increase in CRR by RBI leads to ________.

  1. decrease in deposits

  2. increase in deposits

  3. increase in lendable resources

  4. decrease in lendable resources

  5. none of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

An increase in CRR by RBI leads to decrease in lendable resources. So this is correct answer.

Multiple choice

What is not true about P-notes(Participatory notes)?

  1. They are not used within the country.

  2. It is a derivative instrument.

  3. It is used by foreign institutional investors(FIIs) not registered with SEBI.

  4. Participatory notes are also associated with Foreign Direct Investors.

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This is not true about participatory notes. Hence, it is the right anser.

P-notes are used only by Foreign Institutional Investors who are not registered with SEBI.

Multiple choice

M. Narasirnham headed:

  1. The working group constituted by the Government of India in July 1975 for the establishment of Regional Rural Banks

  2. The committee on the financial system,

  3. The committee on Banking Sector Reforms, 1997

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

M. Narasimham chaired all three: the 1975 working group on Regional Rural Banks, the 1991 Committee on Financial System (which recommended major banking reforms), and the 1998 Committee on Banking Sector Reforms. He was a key architect of India's financial liberalization. While the 1997 committee date in option C might have a slight discrepancy, option D (All of the above) is correct as he led multiple high-level banking committees.

Multiple choice

Capital Adequacy Norms declared in the year, 1996, is applicable to

  1. Foreign Banks

  2. Co-operative Banks

  3. Private Sector Banks

  4. Nationalized Bank
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Capital Adequacy Norms announced in 1996 (based on Basel I norms) were made applicable to Nationalized Banks (Public Sector Banks) as a priority, to strengthen their capital base. While foreign banks, private sector banks, and cooperative banks also came under the ambit later, the 1996 norms initially focused on nationalized banks which had the largest market share and needed regulatory compliance.

Multiple choice

Foreign Exchange and foreign currencies in India are governed by

  1. SCRA Act

  2. Banking Regulation Act

  3. FEMA Act

  4. SEBI Act
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Foreign exchange transactions in India are governed by the FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 1999. FEMA replaced the older FERA Act and provides the comprehensive legal framework for all foreign exchange and foreign currency transactions, overseen by RBI.

Multiple choice

In order to encourage investment in the country, the RBI may:

  1. Reduce CRR

  2. Increase CRR

  3. Sell Securities in the open market

  4. Increase Bank Rate
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

To encourage investment, RBI reduces CRR (Cash Reserve Ratio), which frees up more funds for banks to lend. Lower CRR = more money available for lending = lower interest rates = more investment. Conversely, increasing CRR, selling securities, or increasing Bank Rate would REDUCE money supply and DISCOURAGE investment.

Multiple choice

The Commercial Banks in India are governed by

  1. Reserve Bank of India Act, 1934

  2. Indian Company Act, 1956

  3. Indian Banking Regulation Act, 1949

  4. Securities and Exchange Board of India Act, 1992
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Commercial Banks in India are governed by the Banking Regulation Act, 1949. This is the primary legislation that regulates banking companies in India. Option A's RBI Act governs the central bank, not commercial banks. Option B's Company Act applies to all companies but isn't specific to banking. Option D's SEBI Act regulates securities markets, not banks.

Multiple choice

Which of the following statement is true?

  1. The currency notes issued by RBI are legal tender throughout the world

  2. The treasury bills are sold by the RBI for raising its working capital

  3. All commercial banks, including those owned by Government, need a licence from the RBI to do banking business

  4. The RBI is a banker to both central and state governments
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Reserve Bank of India acts as banker to both the Central Government and State Governments, managing their banking operations, payments, and public debt. Currency notes issued by RBI are legal tender only in India, not worldwide. Treasury bills are sold by the government for fiscal management, not for RBI's working capital. While commercial banks do need RBI licenses, option D is the most direct and comprehensive true statement.