Banking Financial Awareness · Economics

Banking Regulation and Monetary Policy

1,219 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 general knowledge

central national bank of India

  1. Reserve Bank of India

  2. State Bank of India

  3. ICICI

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

The Reserve Bank of India (RBI) is India's central bank, established in 1935 and nationalized in 1949. The State Bank of India (SBI) is a commercial bank (government-owned but not the central bank), while ICICI and IDBI are private/public sector commercial banks. Only the RBI has central bank authority.

Multiple choice general knowledge

He ran whole financial system without opening companies. He first launched the finance company CRB Capital Markets, followed by CRB Mutual Fund and CRB Share Custodial Services. He ruled like financial wizard 1992 to 1996 collecting money from the public through fixed deposits, bonds and debentures. The money was transferred to companies that never existed

  1. C R Bhansali - 1200 crore

  2. Harshad Mehta

  3. Kalmadi

  4. Raja
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

C R Bhansali operated a massive financial fraud through CRB Capital Markets, CRB Mutual Fund, and CRB Share Custodial Services from 1992-1996, collecting around 1200 crore from the public via fixed deposits, bonds, and debentures before transferring funds to fictitious companies. Harshad Mehta was involved in the 1992 securities scam, while Kalmadi and Raja are associated with different scams (CWG and 2G respectively).

Multiple choice general knowledge

SBI,CBI,RBI,BOI

  1. SBI

  2. CBI

  3. RBI

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

RBI (Reserve Bank of India) is the odd one out as it is the central banking institution of India and the regulatory authority, whereas SBI (State Bank of India), CBI (Central Bureau of Investigation), and BOI (Bank of India) are all organizations that operate under various regulatory frameworks. While CBI is not a bank, RBI stands out as the monetary policy regulator.

Multiple choice

Bank Rate is an RBI tool for short-term measures. State how its review affects commercial banking.

(a) An increase in Bank Rate leads to increase in deposit rates as well as Prime Lending Rate (PLR) on the part of commercial banking. (b) It reduces the EMI.

Which of the above statements is/are incorrect?

  1. (a) only

  2. (b) only

  3. Both (a) and (b)

  4. Neither (a) nor (b)

  5. Either (a) or (b)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An upward revision in Bank Rate leads to increase in PLR, thereby adversely impacting the amount payable by borrowers on account of increase in lending rate. Hence, EMI increases.

Multiple choice

When do commercial banks prefer to park their excess funds with RBI?

(a) During the increase in repo rate (b) During the increase in reverse repo rate (c) During the increase in SLR (Statutory Liquidity Ratio)

  1. (a) only

  2. (b) only

  3. (c) only

  4. (a) and (c) only

  5. (a) and (b) only
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Repo rate is the rate at which RBI lends to commercial bank. An increase in reverse repo rate ensures better return to banks and hence, they prefer to park their excess liquidity with RBI.             SLR is an obligation on the part of commercial bank to maintain quite a good chunk of their resources in liquid shape. Hence, the bank has to park a large amount of liquid money with them.

Multiple choice

To implement a monetary policy, RBI adopts the following quantitative measures:

(a) Bank rate (b) CRR and SLR (c) OMO (Open Market Operations) (d) Stipulating margin

Which of the above is/are incorrect?

  1. (a) and (b)

  2. (c)

  3. (d)

  4. None of these

  5. All of the above

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Bank rate, ratio and OMO come under quantitative measures, whereas stipulating margin requirement is classified under qualitative measures. Hence, option (3) is incorrect.

Multiple choice

As per existing policies, the cash reserve ratio of scheduled banks is fixed at a certain percentage of their NDTL. What does NDTL stand for?

  1. New Demand and Tenure Liabilities

  2. Net Demand and Time Liabilities

  3. National Deposits and Total Liquidity

  4. Net Duration and Total Liquidity

  5. New Deposits and Term Liquidity
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

NDTL stands for Net Demand and Time Liabilities. It comprises of time and demand deposits and certain percentage of these have to be deposited as cash reserve ratio.

Multiple choice

CRR and SLR tend to ensure the liquidity and solvency of the bank. Consider the following statements in the light of this:

(a) CRR tends to impound a certain portion of available lendable funds with commercial bank in case from RBI. (b) SLR is an obligation on the part of commercial bank to maintain quite a good chunk of their resources in liquid shape, viz. gold cash and approve securities, thereby curtailing their lending or in other words, exposure in loan portfolio. (c) Imposing CRR + SLR only ensures a stable govt. approved securities market in the country.

Which of the above is/are correct?

  1. (a) only

  2. (a) and (b) only

  3. (c) only

  4. (a) and (c) only

  5. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

CRR and SLR are tools with RBI aimed at curtailing the lendable resources of banks. On the other hand, banks have to park some percentage of their NDTL with RBI under CRR and under SLR, quite a good percentage of their NDTL is in liquid assets readily convertible in case of an emergency. Hence, these ratios ensure solvency and liquidity of banks.

Multiple choice

Enumerate the selective credit controls employed by RBI.

(a) Stipulating minimum margins for lending against specific securities. (b) Ceiling on credits for certain purposes. (c) Discriminatory rate of interest charged on certain type of advances.

Which of the above is incorrect?

  1. (a)

  2. (b)

  3. (c)

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

RBI uses selective credit controls to regulate credit flow to specific sectors. All three listed measures (minimum margins, credit ceilings, discriminatory interest rates) are valid tools RBI employs, so none of them is incorrect.

Multiple choice

Consider the following statements about SLR:

(a) SLR is the amount of deposits banks invest in govt. securities. (b) SLR ensures that banks do not provide all the deposits as loans. (c) SLR is the percentage deposits kept with RBI.

Which of the above is correct?

  1. (a) only

  2. (b) only

  3. (c) only

  4. None of the above

  5. All of the above

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

SLR is the amount, which banks maintain in cash, gold or approved securities as per RBI stipulation so as to meet any emergency arising out of a run on bank.

Multiple choice

Which of the following is not a qualitative measures adopted by RBI for effecting credit control?

(a) Stipulation of margins – borrowers stake (b) Consumer credit regulation (c) Rationing of credit (d) RBI ignores the non-fulfilment of conditions and requirements on the part of commercial banks

  1. (a)

  2. (b)

  3. (c)

  4. (d)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

RBI takes action against the banks that found violate the conditions and requirement by charging penal rate of interest over and above the bank rate.

Multiple choice

What does bank rate mean?

  1. It is the rate of interest charged by commercial banks.

  2. It is the rate of interest at which commercial banks discount the bills of their borrowers.

  3. It is the rate of interest allowed by commercial banks on their deposits.

  4. It is the rate at which RBI purchases or rediscounts bills of exchange of commercial banks.

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

Correct answer is (4). 

Multiple choice

Which of the following formulates, implements and monitors the monetary policy?

  1. Ministry of Finance

  2. State Bank of India

  3. Reserve Bank of India

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

The Reserve Bank of India (RBI) is India's central bank responsible for monetary policy formulation, implementation, and monitoring. The Ministry of Finance handles fiscal policy, while SBI is a commercial bank, not the monetary authority.

Multiple choice

What is a Repo Rate?

  1. It is a rate at which RBI sells government securities to banks.

  2. It is a rate at which banks borrow money from RBI.

  3. It is a rate at which RBI allows small loans in the market.

  4. It is a rate offered by banks to their most valued customers or prime customers.

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

Correct answer is (2).