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Banking Awareness Study Material – Banking Regulation System of India

Banking Awareness Study Material Computer Awareness Marketing Aptitude

The nature of banking business can be summarised in two words i.e. financial intermediation, which needs to be carried out efficiently for stimulating the real sectors of the economy. Another essential characteristic of banks is that they are highly leveraged and hence, need to be regulated for protecting the interest of depositors.
Banking in India, as elsewhere, takes diverse forms viz, banks formed under special statutes, companies registered under the Companies Act, 1956 or foreign companies and cooperative societies registered under the Cooperative Societies Act. Banks are classified on their ownership pattern such as Public Sector Banks, Private Sector Banks and Foreign Banks.

Indian Companies (Amendment) Act, 1936
The Indian Companies Act that was passed in 1913 introduced the institution of private companies in corporate sector in India. But the Act of 1913 did not provide the peculiar environment for Indian commerce, hence to remove these deficiencies, the Indian Companies (Amendment) Act was passed in 1936. The Amendment Act, 1936 introduced various provisions relating to functioning of directors, guaranteeing payment of provident fund to employess etc. Further in October 1942, Companies Act was amended so that any company which uses world ‘bank’, ‘banking’ or ‘banker’ shall be deemed to be a banking company.

Banking Regulation Act, 1949
The Banking Regulation Act, enacted in 1949, has been a milestone in the history of banking in India. This act provides a framework for regulation and supervision of commercial banking activity.

Reserve Bank of India
Reserve Bank of India is the Central Bank of our country. On the recommendation of Hilton Young Commission, it was established on 1st April, 1935 and in 1949 it was nationalised. The central office of the RBI is Bombay (now Mumbai). In terms of the preamble to the Reserve Bank of India Act, 1934, ‘The main functions of the bank are to regulate the issuing of bank notes and keeping the reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage’.

Governor of RBI
Its first Governor was Sir Osborne Smith. RBI was nationalised on 1st Jan, 1949 and its first Indian Governor was CD Deshmukh. Banking crisis during 1913-1917 and failure of 588 banks in various parts of the country underlined the need for regulating and controlling the commercial banks.

Governors of RBI and their Time -period

Organisation and Management of RBI
Reserve Bank of India is managed by the Central Board of Directors. Presently, this board consists of 21 members. Besides, Governor and four Deputy Governors, four directors are nominated, each by the four Local Boards for 4 yr term. Besides, ten directors and two government officer are nominated by the Government of India.
These boards have been established, in Mumbai, Kolkata, Chennai and New Delhi respectively. According to the Reserve Bank of India Act, the term of nominated members is for 4 yr. Governor and Deputy Governors are appointed by the government for a period of not more than 5 yr. Bank’s Head Office is located in Mumbai. The bank has 28 regional offices, most of which are in state capitals. The financial year of RBI starts from 1st July to 30th June. The annual report is released in August each year.

Central Board of RBI
RBI is wholly owned by the government in India. Central Board of directors oversees the Reserve Bank’s business. It delegates specific functions through its committees and sub-committees. It includes the Governor, Deputy Governors and a few Directors (of relevant local boards).
Sub-Committees of the Central Board:
It includes those on inspection and audit, staff and building. Focus of each sub-committee is on specific areas of operations. Its important subsidiary institutions are as follows

Board for Financial Supervision: It regulates and supervises Commercial Banks, Non-Banking Finance Companies (NBFCs), development finance institutions, urban Co-operative Banks and primary dealers.
Board for Payment and Settlement: Systems Regulates and supervises the payment and settlement systems.
Research Institutes: There are various RBI funded institutions to advance training and research on banking issues, economic growth and banking technology, such as, National Institute of Bank Management (NIBM) at Pune, Indira Gandhi Institute of Development Research (IGIDR) at Mumbai and Institute for Development and Research in Banking Technology (IDRBT) at Hyderabad.
Subsidiaries: Fully-owned subsidiaries include National Housing Bank (NHB), Deposit Insurance and Credit Guarantee Corporation (DICGC), Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL). The Reserve Bank also has a majority stake in the National Bank of Agriculture and Rural Development (NABARD).

Central Banking Functions
Central banking functions of RBI are as under

Issue of Paper Currency: The Reserve Bank is nation’s sole note issuing authority except one rupee notes which are issued by ministry of finance. It issues notes of the denomination of ₹ 2, ₹ 5, ₹ 10, ₹ 20, ₹ 50, ₹ 100, ₹ 500 and ₹ 2000. The bank has a separate department for note issuing. This is known as Issue Department.
Banker of the Government: The RBI has to work as an agent of the Central and State Governments. It performs various banking functions such as to accept deposits, taxes and make payments on behalf of the government. It works as a representative of the government even at the international level. It maintains government accounts, provides financial advice to the government. It provides overdraft facility to the government in case of financial crunch.
Banker of Banks and Lender of the Last Resort RBI: acts as a banker for all the Commercial Banks. All scheduled banks come under the direct control of RBI. All commercial as well as schedule banks have to keep a minimum reserve (3%) with the RBI. They have to submit weekly reports to RBI about their transactions. By performing 3 functions, the RBI helps the member banks significantly.

They are given below:

It acts as the lender of the last resort.
It is the custodian of cash reserves of Commercial Banks.
It clears and transfers the transaction. It acts as the central clearing house.

Regulatory Functions
Control of credit is the principal function of the Reserve Bank of India, Control of credit means expansion or contraction of credit. Reserve Bank of India makes use of all those methods of credit control that are adopted by other Central Banks in the world. The methods adopted by the Reserve Bank to control credit are studied under two parts

Quantitative Credit Control
To control the flow of quantum of credit, Reserve Bank adopts the measures which are as under

Bank Rate Rate: of interest that the Reserve Bank charges from other scheduled banks on the loans given to them is called bank rate.
Open Market Operations: It means that the bank controls the flow of credit through the sale and purchase of government securities in the open market.
Cash Reserve Ratio: (CRR) It is the amount of funds that the banks have to keep with RBI. If RBI decides to increase this rate the available amount with the banks comes down. RBI uses this method (increase of CRR rate), to drain out the excessive money from the banks.
Statutory Liquidity Ratio: (SLR) It is the ratio of liquid asset, which all Commercial Banks have to keep in the form of cash, gold and . unencumbered approved securities equal to not more than 40% of their total demand and time deposits liabilities.
Base Rate: It is the minimum rate set by the RBI below which banks are not allowed to lend to its customers. Base rate is decided in order to enhance transparency in the credit market and ensure that banks pass on the lower cost of fund to their customers.
Marginal Cost of Funds based Lender Rate: The RBI has issued new guidelines for setting lending rate by commercial banks under the name Marginal Cost of Funds based Lending Rate (MCLR). It has replaced the Base Rate system from April 2016, onwards. The MCLR regime is applicable on floating rate home loans and term loans to small and medium sized enterprises and , middle level corporates.
Marginal Standing Facility: MSF was announced by Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the Central Bank. MSF is always 1% greater than RRR. MSF came into effect from 9th May, 2014.
Priority Sector Lending: RBI introduced the system of Priority Sector lending to ensure that banks increase their involvement in the financing of priority sectors like agriculture, small industries, etc.
Liquidity Adjustment Facility: LAF is a monetary policy fool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day-to-day mismatches in liquidity. LAF was introduced for the first time in June, 2000 onwards. LAF consists of repo and reverse repo operations.
Repo Rate The rate: at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds, they can borrow from the RBI. Reduction in repo rate helps the commercial banks to get money at a cheaper rate and increase in repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Repo operations inject liquidity into the system.
Reverse Repo Rate: Reverse repo rate operation is when RBI borrows money from banks by lending securities. The interest rate paid by RBI in this case is called the reverse repo rate. Reverse repo operations absorb the liquidity in the system. The reverse repo will be 100 basis points below repo rate.

Tit-Bits

RBI continued to serve as the Central Bank to Burma (Myanmar), until Japanese occupation of Myanmar in April, 1947.
RBI continued to serve as Central Bank to Pakistan, until June, 1948.
The reverse repo rate will be kept 100 basis points lower than the repo rate. On the other . hand, Marginal Standing Facility (MSF) will be kept 100 basis points, higher than the repo rate.

RBI Controls; Inflation and Growth
RBI can influence Inflation and growth in the economy to a large extent through its instruments of control.
RBI squeezes out liquidity from the economy by selling securites, increasing repo rates, increasing CRR etc, then the demand in the economy is reduced and inflation is brought under control.
However, in case inflation is due to supply side shortages, RBI controls have less influence. Similarly, increasing liquidity in economy means that households have more money to consume, industries have more money to invest in plant and machinery etc., all of which lead to increase in economic activity

Monetary Policy: In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth. The Union Government on 29th Sep, 2016 notified the constitution of the Monetary Policy Committee (MPC). As per the provisions, out of the six Members of monetary Policy Committee, three members will be from the RBI. The other three members MPC will be appointed by the Central Government.

Qualitative or Selective Credit Control
This refers to the control of specific credit mean for certain specific objectives, e.g. If the government wants to check the rising prices of wheat in India, the Reserve Bank may instruct the member banks not to give loans against the security of wheat. Traders will not get credit for the purchase of wheat and therefore, they will not be able to buy large quantities of wheat. This would bring down wheat prices as the credit squeeze is directed towards wheat alone. It is thus called selective control. These measures are as under

Change in Margin Requirements on: Loans Reserve Bank directs the member banks to change their margin requirement from time to time. First such direction was given by the Reserve Bank in May and September, 1956 regarding rice trade.
Maximum Limit of the Loans: With a view to checking speculation, Reserve Bank has fixed maximum limits of loans by the Commercial Banks. No scheduled bank is allowed to grant, loan exceeding ? 1 crore to any single party without the prior permission of Reserve Bank of India, according to its 20th Nov, 1965 Credit Policy. This restriction has since been withdrawn.
Rationing of Credit: It is yet another technique of selective credit control. Under this programme, the Reserve Bank fixed credit quota for member banks as well as their limits for the payment of bills’. Quota system was introduced in 1960.
Moral Persuasion: From time to time, Reserve Bank holds meetings with the member banks to seek their cooperation in effectively controlling the monetary system of the country. It advises against the expansion of credit, except to priority sector i.e. agriculture, small industries, etc.

Other Functions of RBI
Besides the above stated specific functions, the Reserve Bank of India performs the following other functions

Export Assistance: Reserve Bank gives loans to the export industries. These loans are given indirectly by refinancing the loans given by Export Import Bank and other banks.
Clearing House Functions: Being Central Bank of the country, the Reserve Bank also functions as clearing house. Interbanking obligations are conveniently settled through this house.
Change of Currency: The bank changes big notes into small ones and small notes into coins.
Transfer of Currency: The bank also facilitates the transfer of currency. It also issues demand Hundies on its branches.

Limitations on RBI
It has certain limitations as the RBI cannot function as the commercial banks, cannot give loans against the fixed assets. RBI cannot give unsecured loans to others.

Foreign Exchange Management
It is an essential function of the RBI. Being the Central Bank of the Country, Reserve Bank of India also regulates exchange rate of rupee in terms of foreign currencies. It tries to maintain stability of exchange rate.
In order to maintain the exchange rate stability, it has to bring demand and supply of the foreign currency close to each other. Reserve Bank deals with the currencies of only those countries which are members of IMF.

Percentage ratio of a financial institution’s primary capital to its assets (loans and investment), used as a measure of its financial strength and stability.

Tier-1 and Tier-2 Capital
These are as follows

Tier-1 Capital: is the core measure of bank’s financial strength from a regulator’s point of view. It is composed of core capital, which consists primarily of common stock and disclosed reserves (or retained earnings), but may also include non-redeemable non-cumulative preferred stock.
Tier-2 Capital: or supplementary capital, include a number of important- and legitimate constituents of a bank’s capital base.

Major Efforts of International Banking
Basel I Norms: Basel norms are set by Bank of International Settlement (BIS) in Basel, Switzerland. Central Bank of 55 countries are members to the BIS.

Basel II Norms: It is a guide to capital adequacy standards for lenders. The aim of Basel II is to better align the minimum capital required by Regulators (socalled regulatory capital) with risk.

Basel III Norms: It will become operational from 1st Jan, 2013 in a phased manner. It will be fully implemented by 31st Mar, 2019.

Banks to increase their core tier 1 capital ratio to 4.5%.
Provision for a counter-cyclical capital conservation buffer of 2.5% by 2019.
The total Capital to Risk Assets Ratio (CRAR) required Basel III is proposed at 10.5%.

Principles for Basel III
RBI released its guideline on Basel III capital regulation on 2nd May, 2012.

Indian banks have to maintain tier 1 capital or core capital atleast 7% of their risk weightage assets or ongoing basis.
The total capital ratio including tier 1 and tier 2 must be atleast 9%.
For tousle year ending 31st Mar, 2013 bank will have to disclose capital ratio computed under existing guidelines.

Basel III Guidelines, 2015
The Reserve Bank of India (RBI) released on 28th May, 2015, the draft guidelines on the Net Stable Funding Ratio (NSFR) under Basel III framework on liquidity standards for banks. The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.
The objective of the NSFR is to ensure that banks maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. In draft guidelines released, the Central Bank said that banks will have to maintain Net Stable Funding Ratio (NSFR) from January, 2018.

Base Rate System

Base Rate system introduced in banking sector by the RBI with effect 1st July, 2010.
Base Rate system replaced by Benchmark Prime Lending Rate (BPLR) in 2003.
Base Rate System introduced on recommendation of Deepak Mohanty Committee-aims at enhancing transparency in lending rate of banks and enabling better transmission of monetary policy.

Money
It plays an important role in our life. Modern form of money includes paper notes and coins. In India, the Reserve Bank of India (RBI) is authorised to issue currency notes, on behalf of the Government of India. Further, there is legal sanction behind every currency, that implies that a rupee cannot be refused as a means of settling transactions in India. Thus, rupee is the universally accepted means of exchange in India.

Measures of Money Supply in India
Money supply is the stock of liquid assets held by the public which can be freely exchanged for goods and services. RBI calculates various concepts of money supply. These are known as measures of monetary aggregates or money stock measures. Various monetary and liquidity aggregates compiled in India are as follows

Reserve Money (M₀ )= Currency in Circulation + Bankers’ Deposits with the RBI + Other Deposits with the RBI
M₁= Currency with the Public + Demand Deposits with the Banking System + Other Deposits with the RBI
M₂ – M₁+ Post Office Savings Banks
M₃ =M₁+ Time Deposits with the^Banking System
M₄ = M₃+ Office Savings of Banks (Excluding National Savings Certificates)

The working group under the chairmanship of Dr YB Reddy then Deputy Government of RBI (Now Former Governor of RBI) has suggested four new monetary measures (M_0,M_1, M₂, M_3.). Here, M₀ is reserve money which is most liquid measure of money supply. M₁termed as narrow money and M₃ as broad money. The decreasing order of liquidity of these monetary aggregates is M₀ > M₁> M₂> M₃. The decline in liquidity indicates the shifting of ‘medium of exchange to store of value’. These monetary measures are arranged in decreasing order of liquidity, with M₁, being the most liquid.

The Indian Currency System
The present monetary system of India is based on on in convertible paper currency and is managed by the Reserv e Bank of India. The present currency system is based on minimum reserve system of note issue. It was adopted in 1957. Under the mini- mum reserve system, RBI has to keep a minimum reserve of ₹ 200 crore comprising of gold coins and foreign currencies. Out of the total ₹ 200 crores, ₹ 115 crore should be in form of gold.

Mints
Coins are minted by the Government of India. RBI is the agent of government for distribution, issue and handling of coins. Four mints are operation at Mumbai, Noida (UP), Kolkata and Hyderabad.

Tit- Bits

The symbol of Indian rupee (₹) came into use on 15th July, 2010.
The new symbol was designed by D Udaya Kumar. This symbol is an amalgamation of Devenagri ‘Ra’ and the Roman ‘R’ without the stem.

Languages in Currency

PMO has directed the coins and currency division of RBI to take appropriate steps to include Maithili as well as the remaining four languages i.e. Manipuri, Santhali, Dogri and Bodo, on the rupee note. Out of 22 languages havings been accorded official languages status as per eight schedule of the constitution of India, only 17 find a place on the Indian currency till now.

Features of New ₹2000 Notes
The new currency note of magenta colour 2000 rupees will have an image of the Mangalyaan celebrating success of India’s Mars mission. Also, it will have the following identification marks. The size of new note is 66mm x 166mm. Obverse:

See through register with denominational numeral 2000 can be seen when the note is held against light.
Portrait of Mahatma Gandhi in the centre. Micro letters ‘RBI’ and ‘2000’.
Colour shift windowed security thread with inscriptions ‘Bharat’, RBI and 2000. Colour of the thread changes from green to blue when the note is tited
Number panel with numerals growing from small to big on the top left side and bottom right side.
Ashoka Pillar emblem on the right.
Raised printing of Mahatma Gandhi portrait, Ashoka Pillar emblem, based and identification mark.
Horizontal rectangle with ? 2000 in raised print on the right.
Seven angular bleed lines on left and right side in raised print.
Swachh Bharat logo with slogan.

Features of New ₹ 500 Notes
The size of new of stone grey colour note of ₹ 500 is 63mm x 150mm. Obverse:

Latent image of the denomination numeral. Denomination numeral in Devanagari.
Orientation and relative position of Mahatma Gandhi portrait changed.
Number panel with numerals growing from small to big on the top left side and bottom right side.
Denomination in numerals with rupee symbol in colour changing ink (green to blue) on bottom right.
Ashoka pillar emblem on the right.
Raised printing of Mahatma Gandhi portrait, Ashok pillar emblem, based and identification mark. Five bleed lines on left and right in raised print.
Year of printing of the note on left. Swachh Bharat logo with slogon. Red Fort-an image of Indian heritage site with Indian flag.

Printing of Securities and Minting in India

Relaunched ₹ 1 Note
Alter 20 yrs, RBI relaunched ₹ 1 note in Mar, 2015. In Nov, 1994, printing of ₹ 1 note was stopped ) mainly due to higher cost and for freeing capacity to print currency notes of higher denomination. Printing of ₹ 2 and ₹ 5 notes too were discontinued in 1995.

Cheque and Draft Services of Bank

Cheque
It is a bill of exchange dramon on a specified samker expressed to be payable on demand. From 1st April, 2012 cheques, drafts, pay orders and banker’s cheques will be valid for only 3 months.

Drawer Person who has an account in bank and who draws a cheque for making payment.
Drawee A drawee is a person by whom the cheque is drawn.
Payee A payee is the person to whom the amount stated in the cheque is payable.

Types of Cheques

Order Cheque: A cheque payable to particular person or his order is called an order cheque.
Bearer Cheque: A cheque which is payable to a person, whosoever bears, is called a bearer cheque.
Blank Cheque: A cheque on which the drawer puts his signature and leaves all other columns blank, is called a blank cheque.
Stale Cheque: The cheque which is more than 3 months old is a stale cheque.
Multilated Cheque: If a cheque is torn into two or more pieces, it is termed as multilated cheque.
Post-Dated Cheque: If a cheque bears a date later than the date of issue, it is termed as post-dated cheque.
Open Cheque: A cheque which has not been crossed, is called an open cheque. Even if a cheque is crossed and subsequently the drawer has cancelled the crossing at the request of the payee and affixes his full signature with words ‘crossing cancelled pay cash’, it becomes an open cheque.
Crossed Cheque: A cheque which carries too parallel transverse lines across the face of cheque with/without words ‘and co’, is said to be crossed.
Account Payee Cheque: Account Payee cheque simply means drawing two parallel lines on the left corner of the cheque and write the words ‘Account Payee’ or ‘A/c payee’ between those lines.
Gift Cheque: Gift cheques are used for offering presentations on occasions like birthday, weddings and such other situations. It is available in various denominations.
Travellers’ Cheque: It is an instrument issued by a bank for remittance of money from one place to another.
MICR Cheques: The Reserve Bank of India (RBI) has introduced mechanised cheque processing system using MICR (Magnetic Ink Character Recognition) technology initially in the four metropolitan cities of Bombay, Calcutta, Madras and New Delhi in 1987. The MICR code has nine digits.
The first three digits in the MICR code represent the city code that is the city in which the bank branch is located. The next three digits stand for the bank code while code three digits represent the bank branch code.

Tit-Bits

Now, in our country the cheque is valid for payment till 3 months only from the date of CD issuance.
The most important documents for opening a bank account is the domicile certificate.
Piggy Bank’ which is popular among the poor t or the children is a form of small saving bank.

Bank Draft
It is a bill of exchange in which a bank orders its branch or another bank specified therein, as the case may be, to repay a specified sum of money to a specified person or to his order. Usually, banks charge a standard rate of service/issue charges on these drafts.

Difference between a Cheque and a Demand Draft
A cheque is issued by an individual, whereas a demand draft is issued by a bank. A cheque is drawn by an account holder of a bank whereas a draft is drawn by one branch of a bank on another i branch of the same bank. A cheque can be made payable either to a bearer or order. But a demand draft is always payable to order of certain person.

Question Bank

1. The banking regulation act, 1949 provides

A frame work of regulation
Supervision of Commercial banking activities
1 and 2
Supervision of private sector bond
None of the above

2. Drawing, accepting, making or issuing of any promissory note, hundi or bill of exchange expressed to be payable to bearer on demand by a person other than the Reserve Bank of India or the Central Government is prohibited under

Banking Regulation Act, 1949
Section 31 (1) of the Reserve Bank of India Act, 1934
Negotiable Instruments Act, 1881
Indian Contract Act, 1872
None of the above

3. In terms of Section 24 of the Reserve Bank of India Act, 1934, the Reserve Bank of India may issue bank notes for the maximum denomination of

₹ 500
₹ 5000
₹ 10000
₹ 1000
None of these

4. Which of the following is the sole authority for issue of currency in India?

Government of India
Reserve Bank of India
Controller of Currency
All of the above
None of the above

5. The minting of Indian comes under the act coin

Coinage Act, 1906
Reserve Bank of India Act, 1934
Banking Regulation Act, 1949
Currency Act, 1902
None of the above

6. One rupee notes and coins are issued by

Reserve Bank of India
State Bank of India on behalf of Government of India
Government of India
Finance Minister of Central Government
None of the above

7. Which of the following instruments of credit control adopted by Reserve Bank of India does not fall within ‘general’ or ‘quantitative’ methods of credit control?

Stipulation of certain minimum margin in respect of advance against specified commodities
Open market operations
Bank rate
Variable reserve requirements
None of the above

8. The opening of branches by banks is governed by the provisions of

Section 23 of the Banking Regulation Act,
1949
Section 24 of Reserve Bank of India Act, 1934
Section 131 of the Negotiable Instruments Act, 1881
Section 45 of Bank Nationalisation Act, 1969
None of the above

9. Which of the following fall under the qualitative methods of credit control adopted by Reserve Bank of India ?

Selective Credit Control
Credit Authorisation Scheme
Moral Suasion
All of the above
None of the above

10. The term ‘moral suasion’ refers to

the moral duty of a borrower to deal with only one bank
the banker’s duty of secrecy as regards the affairs and accounts of his customers
the advice given by Reserve Bank to banks/financial institutions in the matter of their lending land other operations with the objective that they might implement or follow it
All of the above
None of the above

11. Bank rate means

the rate of interest charged by commercial banks on advances
the rate at which commercial banks discount bills of exchange for their clients
the rate of interest allowed by banks on the deposits
the standard rate at which the Reserve Bank of India is prepared to buy or rediscount bills of exchange other commercial paper are eligible for purchase under the Reserve Bank of India Act, 1934.
None of the above

12. The monetary authority in India, viz Reserve Bank of India, is bound to maintain a reserve against the notes issued, whatever may be the amount. This system is called as

minimum reserve system
proportional reserve system
maximum fiduciary issue system
simple deposit system
None of the above

13. Banks and other financial institutions in India are required to maintain a certain amount of liquid assets like cash, precious metals and other short term securities as a reserve all the time in banking world, this is known as

CRR
Fixed asset
SLR
PLR
None of these

14. The term ‘Currency of India’ refers to

one rupee notes and coins
bank notes issued by Reserve Bank of India viz., ₹ 2, ₹ 5, ₹ 10, ₹ 20, ₹ 50, ₹ 100 and for other higher denominations
one rupee notes and coins and bank notes issued by Reserve Bank of India
one rupee notes only
None of the above

15. The ratio of the Cash Reserves that the banks are required to keep with the RBI is known as

Liquidity Ratio
SLR
CRR
Net Demand and Time Liability
None of the above

16. The term ‘Ways and Means’ advances refers to

the advances allowed under DRI Scheme by commercial banks
the advances allowed by commercial banks under Twenty Point Economic Programme
the temporary advances made to the government by its bankers to bridge the interval between expenditure and the flow of receipts of revenues
All of the above
None of the above

17. The rate of interest banks charge its main/major and prime customers is popularly called as

Risk Premium
Prime Lending Rate
Repo Rate
Reverse Repo Rate
Cost of fund

18. The term ‘BSR’ refers to

Bank’s Selling Rate
Basic Statistical Returns
Annual returns submitted by banks to RBI in respect of priority sector advances
Quarterly statement of advances to agriculture
None of the above

19. The note-issue system in India is based on

Gold Deposit System
Minimum Reserve System
Proportional Reserve System
Simple Deposit System
None of the above

20. The Indian rupee is a

token coin
standard token coin
standard coin
gold coin
None of the above

21. The currency notes are issued by the Reserve Bank of India under the signature of

Executive Director
Deputy Governor
Governor
Secretary
None of the above

22. Which of the following training establishment is not run by Reserve Bank of India?

Bankers Training College, Bombay
College of Agricultural Banking, Pune
NIBM
All of the above
None of the above

23. In periods of depression when the Reserve Bank desires to encourage the banking system to create more credit, it

reduces the bank rate
raises the bank rate
permits the bank rate to be decided by market forces
All of the above
None of the above

24. For the performance of its duties as the regulator of credit, the Reserve Bank of India possesses the usual instruments of general credit control, viz.

bank rate
open market operation
the power to vary the reserve requirement of banks
All of the above
None of the above

25. When the Reserve Bank desires to restrict expansion of credit, it

raises the bank rate
reduces the bank rate
freezes the bank rate
None of these
All of these

26. The currency notes issued by RBI have a cent per cent cover in

approved assets
gold
foreign exchange
trustee securities
None of these

27. Which of the following do not fall within the functions of the Reserve Bank of India?

Regulation of currency
Control of credit
Banker to the government, banker’s bank and lender of the last resort
Accepting deposits and making loans and advances to public
None of the above

28. The approved assets against which currency notes are issued by RBI comprise of

gold coin and bullion and rupee coin
foreign securities and Government of India rupee securities of any maturity
bills of exchange and promissory notes payable in India which are eligible for purchase by RBI
All of the above
None of the above

29. The Public Debt Office of the Reserve Bank of India

is a central depository for all types of Government securities except Treasury Bills
attends to the function of note issue by the Reserve Bank of India
is responsible for maintaining external value of rupee
controls balance of payment position of the Government of India
None of the above

30. RBI has directed banks that the exercise of verification of asset classification and income recognition should be done as part of the audit work by the branch and statutory Auditors effective from the year ending

31st Mar, 1993
31st Mar, 1994
31st Mar, 1995
31st Mar, 1996
None of the above

31. Which of the following is not a function of the RBI?

Maintaining Forex
Deciding Bank Rate, CRR and SLR from time to time.
Opening Savings Accounts for general public
Prescribing the Capital Adequancy Ratio
Currency Management

32. RBI’s open market operation transactions are carried out with a view to regulate

liquidity in the economy
prices of essential commodities conflation
borrowing power of the banks
All of the above
None of the above

33. The instance of RBI monetary policy is

inflation control with adequate liquidity for growth
improving credit quality of the banks
strengthening credit delivery mechanism
supporting investment demand in the economy
All of the above

34. What does the letter ‘L’ denote in the term ‘LAF as referred every now and then in relation to monetary policy of the RBI?

Liquidity
Liability
Leveraged
Longitudinal
Linear

35. Which of the following is not a measure adopted by the Government or RBI to control inflation?

Monetary policy
Fiscal policy
Public distribution system
Price control
Financial inclusion

36. Whenever RBI does some Open Market Operation transactions, actually it wishes to regulate which of the following?

Inflation only
Liquidity in economy
Borrowing powers of the banks
Flow of foreign direct investments
None of the above

37. Interest rates on which of the following deposit schemes is fixed by the Reserve Bank of India?

Fixed deposits above 5 yr maturity
Recurring deposits
Savings bank
Flexi Deposit Scheme
None of the above

38. Under Section 19 of the Reserve Bank of India Act, 1934, the RBI has been prohibited from

making loans or advances
drawing or accepting bills payable
allowing interest on deposits or current accounts
All of the above
None of the above

39. RBI has recently deregulated the rates of interest to be provided by various banks to their depositors/customers with effect from 25th October, on their accounts.

Time deposit
Saving bank
Loan
Fixed deposit
Current

40. Which of the following functions are not being performed by the Reserve Bank of India?

Regulation of banks in India
Regulation of foreign direct investment in India
Foreign currency management in India
Control and supervision of money supply
Currency management in India

41. Which of the following is not a function of the Reserve Bank of India?

Fiscal policy functions
Exchange control functions
Insurance, exchange and destruction of currency notes
Monetary authority functions
Supervisory and control function

42. The Reserve Bank of India has directed all the banks to ensure that the names of their customers, individuals or corporate, do not appear in any list published by the Security Council Committee. This act/directive of the RBI is to ensure which of the following?

To ensure that the bank loans/advances taken by the individuals/organisations are used only in those activities for which they are taken
To ensure that money deposited in the bank has not come from unknown and unauthorised sources
To ensure that no one visits a f6reign nation for any illegal activity by purchasing foreign currency from a bank
To ensure that Indians do not go to a nation where they are being targeted for racial discrimination
None of the above

43. As per newspaper reports, inflation in India and China was at a very high level. In such a situation the Central Banks of these countries are required to follow

a more liberal credit policy
a very tight credit policy
create an atmosphere of easy liquidity in the market
raise the limits of personal and corporate income taxes
None of the above

44. As we all know, banks in India are required to maintain a portion of their demand and time liabilities with the Reserve Bank of India. This portion is called

statutory liquidity ratio
cash reserve ratio
bank deposit
reverse repo
government securities

45. Reserve Bank of India is the lender of the last resort to scheduled commercial banks because

the parties can approach RBI when their limits are exhausted
they are not able to get loans from other banks
RBI meets directly or indirectly all their reasonable demands for financial accommodation subject to certain terms and conditions which constitute its discount rate policy
All of the above
None of the above

46. Banks without the prior approval of the RBI, cannot

own a new place of business in India or abroad
shift within the same centres (city/town/village) of the existing place of business
shift their sole rural branch outside the centre/village as such shifting would render the centre unbanded
All of the above
None of the above

47. The interest rate at which the RBI lends to commercial banks in the short term to maintain liquidity is known as

interest rate
repo rate
reverse repo rate
bank rate
None of the above

48. Who is the final authority for deciding the design, form and material of bank notes?

Central Government
Reserve Bank of India
Indian Banks Association
Note Issuing Authority of India
None of the above

49. The bank rate is

free to fluctuate according to the forces of demand and supply
set by the RBI
set by the RBI is directed by the Union Ministry of Finance
set by the RBI as advised by the Indian Banks Association
set by the Government of India on the recommendation of the Planning Commission

50. As per the reports in various newspapers many private companies are trying to obtain the licences to launch a banking company in India. Which of the following organisations/agencies issue the licence for the same?

Securities and Exchange Board of India (SEBI)
Indian Institute of Banking and Finance (IIBF)
Indian Banks’ Association
Registrar of Companies
None of the above

51. Reverse Repo is a tool used by RBI to

inject liquidity
absorb liquidity
increase the liquidity with banking system
to keep the liquidity at one level
None of the above

52. What are the co-operative banks at the village level known as?

Central co-operative banks
Primary agricultural co-operative societies
Village co-operative banks
State co-operative banks
None of the above

53. Which of the following would result in a fall in asset prices?

Low liquidity in the economy
1 Iigh liquidity in the economy
RBI increasing the Reserve Repo Rates
RBI allowing more banks to pay
None of the above

54. What is Repo Rate?

It is a rate at which RBI sell government securities to banks
It is a rate at which RBI buys government securities from banks
It is a rate at which RBI allows small loans in the market
It is a rate which is offered by banks to their most valued customers or prime customers
None of the above

55. A customer wishes to purchase some US dollars in India. He/ she should go to

Public Debt Division of the RBI
American Express Bank
RBI or any branch of a bank which is authorised for such business
Ministry of Foreign Affairs
None of the above

56. The names of which of the following rates/ ratios cannot be seen in financial newspapers?

Bank Rate
Repo Rate
Statutory Liquidity Ratio
Cash Reserve Ratio
Pulse Rate

57. Prior approval (as also a licence) of RBI is required for opening

personal banking branches
merchant banking branches
asset recovery branches
All of the above
None of the above

58. For the first time, in which year Basel Committee came up with Capital Accords for banks?

1985
1988
1990
1992
1998

59. Which among the following is not a part of Tier-1 capital?

Issued Capital
Fully Paid-up Capital
Disclosed reserves
Undisclosed reserves
None of the above

60. In 1988, the BCBS in Basel, Switzerland, published a set of minimum capital requirements for banks. What is BCBS?

Basel Committee on Banking Supervision
Basel Council on Banking Supervision
Basel Committee on Banking System
Basel Council on Banking System
Basel Council on Supervision on Bad Assets

61. Under Basel HI accord, Indian’s banks have to maintain Tier-1 capital (equity and reserves) at how much………. per cent of risk weighted assets (RWA).

8%
7%
9%
5%
None of these

62. According to the recent RBI financial stability report, how much additional capital does an Indian bank will require to comply with Basel HI norms?

₹ 3 lakh crore
₹ 1.75 lakh crore
₹ 5 lakh crore
₹ 4.5 lakh crore
None of these

63. Where is headquarter of Basel Committee on Banking Supervision (BCBS)?

Rome
Switzerland
Belgium
Washington DC
None of the above

64. In India, the system of decimal coinage was introduced on

15th Aug, 1947
26th Jan, 1950
1st April, 1957
All of the above
None of the above

65. Which of the following is/are,the composition of Liquidity aggregate-2 (L2) other than Liquidity aggregate-1 (LI) in the Indian Monetary System?

Term deposits with Term Lending Institutions and Refinancing Institutions
Term Borrowing by Refinancing Institutions
Certificates of Deposit issued by Refinancing Institutions
All of the above
None of the above

66. Consider the following.
I. New Broad Money (NM₃)
II. New Narrow Money
III. All Deposits with the Post Office Savings Banks
IV. National Savings Certificates
Which of the components given above are correct included in the Liquidity Aggregates (LI) in the Indian economy?

II and IV
II and III
I and III
III and IV
All of the above

67. Consider the following measures.
I. Repo Rate
II. Cash Reserve Requirement
III. Reverse Repo Rate
Which of the measures given above is/are major instruments used in the Liquidity Adjustment Facility (LAF)?

I and II
I and III
II and III
All of these
None of these

68. Which of the following are the instruments of Credit Control in the hands of the RBI?
I. Lowering or raising the discount and interest rates.
II. Raising the minimum support price of the major agro products.
III. Lowering or raising the minimum cash reserves maintained by the commercial banks.
Select the correct answer using the codes given below

Only I
Only II
Only III
Both I and III
Both II and III

69. Which of the following are decided by the Reserve Bank of India?
I. Deposit rates
II. Base Rate
III. Prime Lending Rate
Select the correct answer using the codes given below

Only I
Only II
Only III
II and III
None of these

70. Many times we read a term ‘Hot Money’ in newspapers. What is/are the characteristics of Hot Money?
I. The term is used for fresh currency notes issued by the RBI.
II. It is the fund which flows in the market to take advantage of high interest rates.
III. It is the fund which is thrown in the market to create imbalance in the stock markets.
Select the correct answer using the codes given below

Only I
Only II
Only III
All of these
None of these

71. As per reports in the newspapers the Indian Rupee is appreciating these days. What does it really mean?
I. The value of the Rupee has gone up. It is now 110 paise and not 100 paise.
II. The exchange rate of Rupee has gone up.
III. Now we can purchase more in one Rupee. Which was not possible earlier?

Only I
Only II
Only III
Both I and II
None of the above

72. Rupee coins are the legal tender in India under the provisions of [IBPS PO 2011]

Reserve Bank of India Act, 1934
Negotiable Instruments Act, 1881
Banking Regulation Act, 1949
Indian Coinage Act, 1906
None of the above

73. Bank rate policy, open market operations, variable reserve requirements and statutory liquidity requirements employed by Reserve Bank as measures of credit control are classified as [IBPS PO 2011]

quantitative methods
qualitative methods
monetary methods
All of the above
None of the above

74. Consider the following [Corporation Bank 2011]
I. Bank Rate Policy
II. Open Market Operations
III. Devaluation of Rupee
Which of the above are called fiscal measures?

Only II
Both I and II
Both I and III
Only III
None of these

75. The Reserve Bank of India does not decide the [RBI Assistant 2012]

Rate of Repo and Reverse Repo
Marginal Standing Facility Rates
Bank Rate
Rate of Dearness Allowance to Government Employees
Statutory Liquidity Ratio

76. Coin of which of the following denominations is called Small Coin? [RBI Assistant 2012]

₹1
₹2
₹5
50 paise
₹ 10

77. A bank’s ‘fixed deposit’ is also referred to as a [IBPS PO 2013]

term deposit
savings bank deposit
current deposit
demand deposit
home savings deposit

78. With effect from July 1, 2012, for calculation of lending rates, the Reserve Bank of India has advised banks to switch over to the

MSF Rate System [IBPS PO 2013]
Reverse Repo Rate System
Bank Rate System
Repo Rate System
Base Rate System

79. Interest on savings deposit now-a-days is [SBI PO 2013]

fixed by RBI
fixed by the respective banks
fixed by the depositors
fixed as per the contract between bank and the Consumer Court
not paid by the bank

80. Interest below which a bank is not expected lend to customers is known as…………… [SBI PO 2013]

deposit rate
base rate
prime lending rate
bank rate
discount rate

81. Banks in India are required to maintain a portion of their demand and time liabilities with the Reserve Bank of India. This portion is called [SBI PO 2013]

statutory liquidity ratio
cash reserve ratio
bank deposit
reverse repo
government securities

82. The amount specified as the Cash Reserve Ratio (CRR) is held in cash and cash equivalents and is stored in bank vaults or parked with [SBI PO 2014]

Small Industries Development Bank of India (SIDBI)
Government of India (Gol)
Reserve Bank of India (RBI)
State Bank of India (SBI)
Rural Infrastructure Development Fund (RIDF)

83. The RBI policy rate which is purely an indicative rate used by the Reserve Bank of India to signal long term outlook on interest rates is [SBI PO 2014]

bank rate
repo rate
call money rate
notice money rate
reverse repo rate

84. The government of India has undertaken programme of recapitalisation of Public Sector Banks to help them enhance business growth and [SBI PO 2014]

capital adequacy norms
ratio of non-performing assets
per employee business ratio
CASA ratio
credit or deposit ratio

85. The Reserve Bank of India has been critical of home loan products with comparatively low interest rates in the initial years but higher in the subsequent years which are popularly known as the [SBI PO 2014]

teaser rates
cheater rates
twister rates
cheaper rates
trickster rates

86. Recently, India has decided to introduce plastic currenc y notes. A number of other countries are already using plastic notes, but the pioneer in this field, is [SBI Clerk 2015]

Sweden
England
France
United States of America
Australia

87. Which of the following is one of the main functions of the Reserve Bank of India? [SBI Clerk 2015]

Regulation of the stock markets
Regulation of life insurance
Regulation of general insurance
Regulation of mutual funds in India
Banker’s bank

88. One rupee note bears the signature of

President of India [SBI Clerk 2015]
Vice-President of India
Finance Secretary
Finance Minister
Commerce Minister

89. A cheque bearing the date earlier than the date of submission to the bank, is known as [SBI Clerk 2014]

Bearer Cheque
State Cheque
Crossed Cheque
Post Dated Cheque
Anti Dated Cheque

90. Liquidity is injected by the RBI in the economy through which of the following mechanisms? [SBI Clerk 2014]

Change in Bank Rate
Repo
Increase in SLR
Through Liquidity Adjustment Facility
Increase in CRR

91. Which of the following instruments of credit control adopted by the Reserve Bank of India (RBI) does not fall within ‘general’ or ‘quantitative’ methods of credit control? [IBPS Clerk 2015]

Bank rate
Open market operations
Stipulation of certain minimum margin in respect of advance against specified commodities
Variable reserve requirements
None of the above

92. In terms of Section-5 (1) (e) of the Banking Regulation Act 1949, a ‘banking company’ means any company which [IBPS Clerk 2015]

transacts the business of banking in India
undertakes lending of money
accepts deposits from public and invests the same as trade and industry
accepts deposits from public
All of the above

93. Which of the following extreme measures may be resorted to by the Reserve Bank of India (RBI), in order to safeguard the interest of the depositing public when the affairs of a bank are observed to be beyond redemption? [IBPS Clerk 2015]

Refusal of a licence or cancellation of an existing licence
Merge the bank with any public sector bank
Applying to the Central government for an order of moratorium and thereafter reconstructing or amalgamating the bank with another bank
All of the above
None of the above

94. For which of the following, the Reserve Bank of India has stipulated the maximum capital adequacy requirement? [IBPS Clerk 2015]

Private Sector Banks
Banks that undertake insurance business
Local Area Banks
Scheduled Commercial Banks
None of the above

95. ………. heads and conducts the affairs of RBI. [IBPS Clerk 2015]

Central Board
Local Board
Regional Board
All of the above
None of the above

96. The RBI provides……. for meeting day-to-day receipt and expenditure mismatch to both Central and State government. [IBPS Clerk 2015]

treasury bills
ways and means advance
date and securities
All of the above
None of the above

97. The RBI known as lender of last resort because [IBPS Clerk 2015]

it has to meet the credit need of citizens to whom no one else is willing to lend
banks lend to go to RBI as a last resort
it comes to help banks in times of crisis
All of the above
None of the above

98. An increase in CRR by RBI leads to [IBPS Clerk 2015]

decrease in deposit
increase in deposit
increase in lendable resources
decrease in lendable resources
None of the above

99. CRR funds are kept by the banks in [IBPS Clerk 2015]

cash in hand at branches
balance with other banks
balance in a special account with RBI
funds in the currency chest
None of the above

100. SLR is maintained as a percentage of [IBPS Clerk 2015]

time liabilities
demand liabilities
1 and 2
gross time and demand liabilities
net demand and time liabilities

101. ………… intervenes in markets to maintain the external value of the Indian rupee. [IBPS Clerk 2015]

Exporters
Importers
RBI
SBI
None of the above

102. The ratio of deposits to loans of a bank is known as [SBI Clerk 2015]

NPA coverage ratio
Return on asset ratio
Asset coverage ratio
CD ratio
Other than those given as options

103. In a bank’s balance sheet, which of the following is an asset? [SBI Clerk 2015]

Its paid up capital
Its saving deposits
Its investment in government securities
Its accumulated reserve funds
Its current deposits

104. Which of the following is the minimum lending rate which the banks can charge their customers? [RBI Grade B 2015]

Reverse repo rate
Other than the those given as options
Bank rate
Base rate
Repo rate

105. Security Printing and Minting Corporation of India Limited (SPMCIL) has four mints in India. These four government mints are situated in [RBI Grade B 2015]

Mumbai, Dewas, Hoshangabad and Mysore
Mumbai, Nasik, Mysore and Ghaziabad
Mumbai,’New Delhi, Nasik and Gurgaon
Mumbai, Pune, Nasik and Hoshangabad
Mumbai, Kolkata, Hyderabad and Noida

106. The Financial Stability Report is issued on a half-yearly basis by [RBI Grade B 2015]

Reserve Bank of India
World Economic Forum
International Monetary Fund
NITI Aayog
World Bank

107. The ratio of deposits in current and savings account to total deposits of a bank, is known as [RBI Grade B 2015]

Capital Adequacy Ratio
NPA ratio
NIM ratio
CD ratio
CASA ratio

108. The ‘Bank rate’ is periodically announced by the [RBI Grade B 2015]

Indian Banks Association (IBA)
State Bank of India (SBI)
Reserve Bank of India (RBI)
Ministry of Finance
Board of the respective banks

Banking Awareness Study Material – Banking Regulation System of India

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