Money, banking & monetary policy

Answer: (a) Aiding the flow of remittances from India and maintaining India's creditworthiness

The Commission fixed the rupee at 1s. 6d., above the pre-war 1s. 4d. The Government of India had to pay large sterling sums in London every year (the Home Charges: interest on debt, pensions, stores), and a dearer rupee meant fewer rupees for each pound remitted while keeping India's sterling credit sound.

• ✓ (a) A high rupee-sterling rate cut the rupee cost of the Home Charges and other remittances to Britain, and a firmly held rate reassured holders of India's sterling debt. The Currency Act of 1927 put 1s. 6d. into law.
• ✗ (b) Cheaper imports were a side-effect that mainly helped British goods; Indian business and later the Congress attacked the ratio for giving imports an unfair edge.
• ✗ (c) An over-valued rupee makes Indian goods dearer abroad, so it discouraged exports such as raw cotton rather than encouraging them.

Remember · Hilton-Young Commission (1926): rupee at 1s. 6d. (Currency Act 1927) to ease sterling Home Charges; also recommended a central bank, leading to the RBI in 1935.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (c) Access, Usage, and Quality

The RBI’s FI-Index has three sub-indices: Access, Usage and Quality, weighted 35, 45 and 20 per cent. Credit, insurance, pension and financial literacy appear only as dimensions inside these sub-indices.

• ✓ (c) Access reflects the supply side (banking, digital, pension, insurance); Usage the demand side (savings and investments, digital, pension, insurance, credit); Quality has three dimensions: financial literacy, consumer protection and inequality.
• ✗ (a) Credit, insurance and pension are dimensions within Access or Usage, not the three sub-indices.
• ✗ (b) ‘GDP contribution’ is not part of the index, and financial literacy is only one dimension of the Quality sub-index.
• ✗ (d) Affordability and Transparency are not sub-indices of the FI-Index.

Remember · FI-Index (0–100): Access 35%, Usage 45%, Quality 20%. Quality covers financial literacy, consumer protection and inequality.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks.

The Digital Rupee is legal tender issued by the RBI and is a direct liability of the central bank, so it is not a liability of users or their banks. Option (d) wrongly says the liability lies with users and banks in both cases.

• ✓ (d) RBI’s concept note says CBDC appears as a liability on the central bank’s balance sheet, and retail CBDC is a direct liability of the Central Bank. So (d) is the statement that is not correct.
• ✗ (a) This is a correct statement, so it is not the answer: the RBI describes the Digital Rupee as akin to sovereign paper currency in a different form, while UPI is a real-time payment system.

Remember · Digital Rupee (e₹) = RBI liability, akin to a digital banknote; UPI = instant payment over bank accounts, where bank deposits are bank liabilities.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) 2 and 4

Rows 2 and 4 are fully matched: SEBI appointed the L.C. Gupta Committee on derivatives, and the RBI constituted the Malegam sub-committee on microfinance. Row 1 fails because the Malhotra Committee (1993) came years before IRDA existed (2000), and row 3 fails because the Urjit Patel Committee dealt with the monetary policy framework, not housing credit.

• ✗ 1. The Malhotra Committee on insurance sector reforms was set up in 1993 and reported in 1994; IRDA was formed only in 2000 after the IRDA Act, 1999, so IRDA could not have formed it.
• ✓ 2. SEBI appointed the L.C. Gupta Committee, which recommended the introduction of derivatives trading.
• ✗ 3. The RBI’s Urjit R. Patel Committee (report January 2014) was set up to revise and strengthen the monetary policy framework, not to reform bank lending to the housing sector.
• ✓ 4. In October 2010 the RBI constituted a sub-committee under Y.H. Malegam to study issues and concerns of the microfinance sector; its 2011 report proposed NBFC-MFIs as a new category.

Remember · Malhotra: insurance reform (1993, before IRDA); L.C. Gupta: derivatives (SEBI); Urjit Patel: monetary policy framework (RBI, 2014); Malegam: microfinance (RBI, 2010).

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) 1 and 4

RBI’s FAQ on NBFCs lists three differences from banks: no demand deposits, no place in the payment and settlement system (so no cheques drawn on themselves), and no DICGC deposit insurance. Statement 2 fails because some NBFCs regulated by other regulators are exempt from RBI registration.

• ✓ 1. NBFCs cannot accept demand deposits.
• ✗ 2. To avoid dual regulation, certain categories regulated by other regulators are exempt from registration with the RBI, for example NBFCs such as stock broking companies registered with SEBI, insurance companies, Nidhi companies and chit funds.
• ✗ 3. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on themselves.
• ✓ 4. DICGC deposit insurance is not available to depositors of deposit-taking NBFCs.

Remember · NBFC vs bank: no demand deposits, no cheques drawn on itself, no payment-system membership, no DICGC cover. Not every NBFC needs RBI registration.

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Answer: (a) I and II only

The RBI earns mainly on the assets it holds and trades: interest and trading gains on rupee government securities, and interest and exchange gains on its foreign currency assets. Printing notes is shown in its accounts as an expense, and the RBI neither manages pension funds nor lends to private companies.

• ✓ I The RBI holds and trades government securities (for example in open market operations); interest on them and profit on their sale or redemption are part of its income.
• ✓ II Exchange gains from foreign exchange transactions and interest on foreign securities are a large part of the RBI's earnings from foreign sources.
• ✗ III Pension funds are managed by pension fund managers under the PFRDA; no such item appears among the RBI's income heads.
• ✗ IV The RBI is a banker to governments and banks. It lends to banks and governments, not to private companies, so this is not an income source.
• ✗ V The RBI's income statement lists 'Printing of Notes' under expenditure (about ₹5,101 crore in 2023-24), so it is a cost, not income.

Remember · RBI income = interest and gains on rupee and foreign securities plus forex dealings. Printing currency notes is an expenditure for the RBI.

Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) I only

Only statement I is correct. RTGS settles each payment individually and continuously, whereas NEFT settles in half-hourly batches. Inward RTGS transactions carry no customer charge, and both systems run 24x7x365, so statements II and III fail.

• ✓ I RTGS processes payments continuously, one transaction at a time; NEFT collects payments and settles them in batches, now at half-hourly intervals.
• ✗ II RBI's framework for RTGS says inward transactions are free, with no charge to be levied on the customer.
• ✗ III RTGS has been available 24x7x365 since 14 December 2020, and NEFT also runs round the clock on all days, so neither has day-wise restrictions.

Remember · RTGS: continuous, gross settlement, 24x7x365 since 14 Dec 2020, inward transactions free. NEFT: half-hourly batches, also 24x7x365.

Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) Only three

Of the five, UPI payments work in the United Arab Emirates, France and Singapore, so three is the count. Germany and Bangladesh are not among the countries where the Government lists UPI as live.

• ✓ I The UAE is among the countries where UPI is live.
• ✓ II France is among the countries where UPI is live.
• ✗ III Germany is not among the countries the Government names as having UPI live.
• ✓ IV Singapore is among the countries where UPI is live.
• ✗ V Bangladesh is not among the countries the Government names as having UPI live.
• • Since then The list has grown since the exam. The Ministry of Electronics and IT told the Rajya Sabha on 6 February 2026 that UPI is live in over eight countries, including the UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, Mauritius and Qatar; Germany and Bangladesh are still not named (PIB, 6 Feb 2026).

Remember · UPI abroad, exam-year answer: UAE, France and Singapore yes; Germany and Bangladesh no. Other live countries include Bhutan, Nepal, Sri Lanka, Mauritius and Qatar.

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Answer: (c) Money market

Collateralised Borrowing and Lending Obligations (CBLO) are money market instruments: short-term loans in which the borrower gives securities as collateral. The Reserve Bank of India itself describes CBLO as a money market instrument, run through the Clearing Corporation of India Ltd (CCIL) from 20 January 2003.

• ✓ (c) CBLO let banks, mutual funds and other participants borrow and lend funds for short periods against collateral. Short-term borrowing and lending is what the money market does.
• ✗ (a) The bond market trades long-term debt securities. CBLO is a short-term borrowing and lending tool, not a bond.
• ✗ (b) The forex market deals in currencies. CBLO involves rupee funds and collateral, not currency exchange.
• ✗ (d) The stock market trades company shares. CBLO is a debt-like short-term funding instrument.

Remember · CBLO (Collateralised Borrowing and Lending Obligation) is a money market instrument operated through CCIL, used for short-term collateralised funding.

Question and answer: UPSC's official GS Paper I (2024, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (c) 1, 2 and 3

All three statements hold. RBI's repo and reverse repo auctions (the LAF window) are open to scheduled commercial banks and Primary Dealers, and Standalone Primary Dealers are NBFCs registered with RBI. Foreign portfolio investors may hold G-Secs within RBI's limits, and stock exchanges run separate debt-market platforms.

• ✓ 1. LAF auctions are open to scheduled commercial banks (not RRBs) and Primary Dealers. A Standalone Primary Dealer is an NBFC registered with RBI, so this category of NBFC does reach the window. An ordinary lending NBFC has no such access, which is why the statement is loosely worded.
• ✓ 2. RBI's primer on the G-Secs market says foreign portfolio investors may take part in it within limits set from time to time (now the Fully Accessible Route), so foreign institutional money can hold G-Secs.
• ✓ 3. Exchanges host a separate debt segment. Corporate bonds trade there on an anonymous order-matching platform open to institutional and retail investors.

Remember · LAF (repo/reverse repo) is open to scheduled commercial banks and Primary Dealers, and standalone PDs are NBFCs. Foreign portfolio investors can hold G-Secs; exchanges run separate debt platforms.

Question and answer: UPSC's official GS Paper I (2024, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) Neither 1 nor 2

Both statements are wrong. RBI's scheme for wholly owned subsidiaries (WOS) of foreign banks sets an initial minimum paid-up voting equity capital of ₹5 billion (₹500 crore). On the board, the 50 per cent rule counts Indian nationals, NRIs and PIOs together, with a separate condition that one-third of the directors are Indian nationals resident in India.

• ✗ 1. A WOS must start with at least ₹5 billion (₹500 crore) of paid-up voting equity capital, and a newly set up WOS must bring in all of it upfront from its parent.
• ✗ 2. The rule is wider than 'Indian nationals': not less than 50 per cent of directors must be Indian nationals, NRIs or PIOs, and one-third of the directors must be Indian nationals resident in India. The statement misstates it.
• • Since then RBI has since issued the Reserve Bank of India (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Guidelines, 2025, amended in March 2026. The points above follow the 2013 scheme that applied in the exam year.

Remember · A foreign bank's Indian WOS needs at least ₹5 billion (₹500 crore) paid-up capital. Its board needs 50% Indian nationals/NRIs/PIOs, including one-third resident Indian nationals.

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UPSC dropped this question from evaluation in its final answer key.

UPSC dropped this question from evaluation in its final answer key. On the facts, a syndicated loan is one loan made by a group of lenders to a single borrower, so each lender carries only part of the default risk and Statement-I holds. Syndicated loans come both as fixed-amount term loans and as credit lines, so Statement-II is wrong.

• ✓ Statement-I In a syndicate, a group of financial institutions funds parts of one loan, so the risk of the borrower defaulting is shared among them. The BIS says the syndicated loan market allows a more efficient geographical and institutional sharing of risk.
• ✗ Statement-II A syndicated loan need not be a lump sum. BIS data on syndicated loans show credit lines and term loans both in large numbers: credit lines are 50% of bank loans and 41% of non-bank loans, term loans 40% and 48%.

Remember · A syndicated loan is one loan from several lenders to one borrower, which spreads the risk. It can be a fixed-amount term loan or a credit line.

Question and answer: UPSC's official GS Paper I (2024, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) 1, 2 and 4

Statements 1, 2 and 4 are features RBI lists for the digital rupee: a sovereign currency issued in line with monetary policy, a liability on the central bank's balance sheet, and freely convertible against commercial bank money and cash. Statement 3 is not: nothing in RBI's design promises protection against inflation, and e₹ is a digital ₹ note that pays no interest.

• ✓ 1. RBI's concept note describes a central bank digital currency as sovereign currency issued by the central bank in alignment with its monetary policy.
• ✓ 2. Like a paper note, it is a direct liability of the central bank and appears on its balance sheet, not on a commercial bank's.
• ✗ 3. RBI calls it a safe store of value, but that is not a promise against rising prices. The design carries no such cover, and no interest is paid on e₹ wallet balances, exactly as with cash.
• ✓ 4. The concept note lists free convertibility against commercial bank money and cash among its features.

Remember · Digital rupee: sovereign currency issued by RBI in line with monetary policy, an RBI liability, freely convertible with bank money and cash. No interest, no inflation cover.

Question and answer: UPSC's official GS Paper I (2024, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

After the pandemic and the Russia-Ukraine war pushed prices up, central banks led by the US Federal Reserve raised policy rates in step with one another. They did so because they believe that dearer money cools demand and brings inflation down, so Statement-II explains Statement-I.

• ✓ Statement-I The Economic Survey 2022-23 records synchronised policy rate hikes by central banks across economies to curb inflation, with the US Federal Reserve raising rates at its fastest pace since the 1970s.
• ✓ Statement-II Monetary policy is the main tool central banks use against inflation; in India the RBI Act makes price stability the primary objective of monetary policy, with a flexible inflation target.

Remember · Inflation up → central bank raises policy rate (repo) → borrowing costlier → demand cools → prices ease. RBI: primary objective is price stability, keeping growth in mind.

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) Conducting ‘Open Market Operations’

Sterilisation means offsetting the effect of the RBI's foreign-exchange dealings on domestic money supply. When the RBI buys dollars it releases rupees; it then sells government securities through open market operations to mop those rupees back up.

• ✓ (a) The RBI's own Working Group on Instruments of Sterilisation calls open market operations, in which the RBI sells securities, the commonly used instrument of sterilisation; the sale mops up the rupees released by forex purchases.
• ✗ (c) Debt and cash management is the RBI's role as banker and debt manager to governments; it does not by itself neutralise the liquidity impact of capital flows.
• ✗ (b) Overseeing payment and settlement systems is a regulatory function about safe transfers of money, not about controlling the money supply.

Remember · Sterilisation = RBI neutralising liquidity from forex intervention, mainly via OMOs (and the Market Stabilisation Scheme). OMO sale absorbs liquidity; OMO purchase injects it.

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Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink · Report an error

Answer: (b) Only two

The capital market deals in long-term funds (more than a year), such as government bonds and shares, while the money market deals in funds for up to one year, such as call money and treasury bills. So only the government bond market and the stock market are capital markets.

• ✓ 1. Government bonds, or dated securities, have an original maturity of one year or more, so they are long-term capital-market instruments.
• ✗ 2. Call money is overnight inter-bank borrowing and lending, a money-market transaction.
• ✗ 3. Treasury bills are short-term (91, 182 and 364 days) zero-coupon government securities, which the RBI classes as money market instruments.
• ✓ 4. Shares traded on the stock market are long-term (perpetual) claims on companies, the core of the capital market.

Remember · Money market: up to 1 year (call money, T-bills, CPs, CDs, repos). Capital market: over 1 year (shares, dated G-secs/bonds, debentures).

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) 2 only

Only statement 2 is correct. RBI's priority sector lending rules say that all bank loans to MSMEs qualify as priority sector loans, while the MSMED Act's medium-enterprise ceiling was never a band of ₹15 crore to ₹25 crore.

• ✗ 1. At the time of the exam (2023), the 2020 classification under the MSMED Act treated a medium enterprise as one with investment in plant and machinery up to ₹50 crore and turnover up to ₹250 crore. The ₹15-25 crore band does not exist.
• ✓ 2. The RBI Master Direction on priority sector lending says that all bank loans to MSMEs qualify for classification under priority sector lending.
• • Since then Budget 2025-26 announced higher ceilings: for a medium enterprise, investment up to ₹125 crore and turnover up to ₹500 crore (PIB, 1 February 2025).

Remember · All bank loans to MSMEs qualify as priority sector lending. Medium enterprise under the 2020 norms: investment up to ₹50 crore and turnover up to ₹250 crore.

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (c) Both 1 and 2

Both statements are correct. A central bank digital currency (CBDC) is the central bank's own money in digital form, so it can be moved directly between participants without a dollar leg or the SWIFT messaging network, and it can be programmed with rules such as an expiry date.

• ✓ 1. Multi-CBDC platforms such as the BIS-led Project mBridge let central banks and banks exchange their digital currencies peer to peer on a shared network, as an alternative to routing cross-border payments through correspondent banks and the dollar.
• ✓ 2. RBI's concept note on CBDC says money can be programmed by tying its end use, and that tokens may carry an expiry date by which they must be spent.

Remember · CBDC is sovereign money in digital form; it can settle cross-border payments directly between currencies and can be programmed, for example with an expiry date or a restricted use.

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) Only two

Only statements 2 and 3 are correct. The SHG-Bank Linkage Programme was started by NABARD, not the State Bank of India, but in an SHG the group as a whole stands behind each member's loan, and banks lend to and refinance SHGs.

• ✗ 1. NABARD launched the SHG-Bank Linkage pilot in 1992-93, linking about 500 SHGs to banks. The State Bank of India did not initiate the programme.
• ✓ 2. The group decides on loans and is responsible for repayment, and other members follow up seriously if any one member does not repay; this collective responsibility is why banks lend to poor households without collateral.
• ✓ 3. Banks finance SHGs with 100% refinance support from NABARD, and Regional Rural Banks (RRBs) are among the rural financial institutions that promote and link SHGs to credit. Commercial banks take part in the same bank linkage.

Remember · SHG-Bank Linkage began with NABARD in 1992-93. SHG members share responsibility for repayment, and banks (commercial banks, RRBs, cooperatives) lend to SHGs with NABARD refinance.

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Answer: (c) Statement-I is correct but Statement-II is incorrect

Switzerland is one of the world's main centres for refining and trading gold, so it ranks among the leading gold exporters by value. But it is far from having the second largest gold reserves: the Swiss National Bank holds 1,040 tonnes, several times less than the United States and Germany.

• ✓ Statement-I Switzerland refines and trades most of the world's gold, and it was the largest exporter of unwrought non-monetary gold by value in 2022 (about US$90 billion, ahead of the United States and the UAE), according to World Bank WITS trade data.
• ✗ Statement-II The Swiss National Bank holds 1,040 tonnes. The Deutsche Bundesbank states that Germany holds the second largest gold reserve in the world after the United States, so Switzerland is not second.

Remember · Switzerland is a gold refining and trading hub, hence a leading exporter by value, but its own official reserve (1,040 tonnes) is far below the top holders, the USA and Germany.

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Answer: (b) 2 and 3 only

When the RBI buys government securities it pays out money and raises the money supply, which would feed inflation, so statement 1 is wrong. Selling dollars supports a falling rupee, and a fall in US or EU interest rates draws funds into India, which the RBI soaks up by buying dollars.

• ✗ 1. Buying bonds in open market operations adds reserves to the banking system and expands money supply. To fight high inflation the RBI would do the opposite and sell securities to absorb money.
• ✓ 2. Under India's managed float the RBI intervenes in the currency market. Selling dollars from its reserves raises the supply of dollars and eases the pressure on a rapidly weakening rupee.
• ✓ 3. Funds move to where returns are higher. Lower rates in the USA or EU make Indian assets more attractive, dollars flow in and the rupee tends to rise; the RBI buys those dollars to smooth the rise and add to reserves.

Remember · RBI buys bonds = injects money (not an anti-inflation step). RBI sells dollars = defends a falling rupee. Capital inflows = RBI buys dollars.

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Answer: (c) Both 1 and 2

The government borrows at home from the public — directly through small savings schemes and indirectly through banks, insurers and provident funds that hold household money — so part of household savings finances it. Most of the Centre's internal debt is in dated securities sold at auctions.

• ✓ 1. Household deposits in small savings schemes are lent to the Centre through the National Small Savings Fund, and bank deposits flow into government bonds that banks must hold under the SLR.
• ✓ 2. At end-March 2022, dated securities alone made up 66.5 per cent of the Centre's public debt, most of which is internal debt; they are sold through auctions at market-determined yields.

Remember · Centre's internal debt: dominated by auctioned dated securities (about two-thirds of public debt, 2022); household savings reach the government via small savings (NSSF) and banks' SLR holdings.

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UPSC dropped this question from evaluation in its final answer key.

UPSC dropped this question from evaluation in its final answer key. The facts it tests: tighter US monetary policy can pull capital out of emerging economies (statement 1), and a weaker domestic currency raises, not lowers, the currency risk on foreign-currency borrowing (statement 3 is wrong).

• ✓ 1. When the US Federal Reserve tightens, spillovers to emerging market economies can trigger capital outflows and currency depreciation, as the RBI's Financial Stability Report of June 2022 noted.
• • 2. Arguable, which is probably why the question was dropped. Capital flight weakens the rupee and raises risk premia, so servicing dollar loans costs more in rupee terms; whether the interest cost itself rises depends on whether the loan carries a floating rate.
• ✗ 3. Most ECBs are in US dollars, so a fall in the rupee raises the rupee cost of interest and principal. That increases the currency risk unless the borrower has hedged; about 56 per cent of ECB loans were hedged in 2022.

Remember · Fed tightening can trigger capital flight from emerging markets; a weaker rupee makes unhedged dollar borrowing (ECB) costlier to repay, so currency risk rises.

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Answer: (b) 2 and 3 only

The Banks Board Bureau recommended who should head public sector banks and helped them with strategy and capital-raising plans, so statements 2 and 3 are correct. Its chairman was not the RBI Governor: the first Chairman was Vinod Rai, former CAG, and the RBI was represented only by a Deputy Governor as ex-officio member.

• ✗ 1. The Bureau was chaired by Vinod Rai, a former Comptroller and Auditor General. The RBI's seat was that of a Deputy Governor, an ex-officio member.
• ✓ 2. The Bureau was set up to recommend the selection of heads of public sector banks and financial institutions.
• ✓ 3. It was also mandated to help banks develop strategies and capital-raising plans.

Remember · Banks Board Bureau (from 1 April 2016): recommends PSB heads and helps with strategy and capital raising; Chairman Vinod Rai; RBI Deputy Governor an ex-officio member.

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Answer: (d) Reserve Bank of India

The Reserve Bank of India is responsible for price stability and for keeping inflation on target. Its Monetary Policy Committee sets the policy rate to meet the inflation target that the Central Government notifies.

• ✓ (d) Under the RBI Act, 1934 the primary objective of monetary policy is price stability, keeping growth in mind. The Act gives a statutory basis to flexible inflation targeting, and the RBI controls money supply through the bank rate, open market operations and reserve ratios.
• ✗ (a) The Department of Consumer Affairs is a government department and has no power over money supply or the policy rate, so it cannot be the body that controls inflation through monetary policy.
• ✗ (c) The Financial Stability and Development Council is a coordination forum for financial-sector regulators; the inflation target and policy rate are the RBI's job.

Remember · Price stability and the inflation target (4 per cent CPI, with a 2-6 per cent band) are the RBI's mandate, delivered by its six-member Monetary Policy Committee.

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Answer: (c) 1 and 3 only

Everything in this question comes from the Reserve Bank of India Act, 1934, not from the Constitution. The Act lets the Centre appoint the Governor and give the RBI directions in the public interest, and it is also the source of the Governor's own powers. So only statement 2 is wrong.

• ✓ 1. Section 8(1)(a) of the RBI Act provides that the Governor and the Deputy Governors (not more than four) are appointed by the Central Government.
• ✗ 2. The Constitution contains no such provision. The power to direct the RBI is statutory: Section 7(1) of the RBI Act lets the Centre, after consulting the Governor, issue directions it considers necessary in the public interest.
• ✓ 3. Section 7(3) of the RBI Act gives the Governor powers of general superintendence and direction of the Bank's affairs and business, subject to regulations made by the Central Board.

Remember · RBI Act, 1934: Section 7 lets the Centre direct the RBI in public interest after consulting the Governor; Section 8 has the Centre appoint the Governor and Deputy Governors.

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Answer: (b) 2 and 3 only

Urban cooperative banks (UCBs) are under dual control: the RBI regulates and supervises their banking functions, while the Registrar of Cooperative Societies handles registration and management. There are no 'local boards' of the State for this. They came under the Banking Regulation Act from 1 March 1966 and can raise capital through shares, including preference shares.

• ✗ 1. The RBI (through its Urban Banks Department) regulates and supervises UCBs' banking functions under the Banking Regulation Act, 1949 (AACS); the State's role is through the Registrar of Cooperative Societies, not local boards.
• ✓ 2. UCBs raise share capital by issuing shares to members, and the RBI also permits them to issue preference shares and certain debt instruments to strengthen their capital.
• ✓ 3. Cooperative banks were brought under the Banking Regulation Act, 1949 with effect from 1 March 1966, which began the dual control of RBI and the Registrar.

Remember · UCBs: dual control since 1 March 1966 — RBI for banking functions (BR Act, 1949 AACS), Registrar of Cooperative Societies for registration, management and audit.

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Answer: (d) 1, 2 and 3

A bond's yield moves opposite to its price, and the RBI lists all three as forces that move the prices of Indian government securities (G-secs): interest rates and expected inflation at home, RBI policy actions, and developments in US Treasuries, which follow the Federal Reserve.

• ✓ 1. When the US Federal Reserve raises rates, US Treasury yields rise and foreign money can leave Indian bonds, pushing Indian yields up; the RBI notes that US Treasury developments affect G-sec prices.
• ✓ 2. RBI actions such as changing the repo rate or CRR, or buying and selling bonds in open market operations, change G-sec prices and therefore yields.
• ✓ 3. Investors demand a higher yield when expected inflation or short-term rates rise, so G-sec prices fall and yields go up.

Remember · Bond price and yield move in opposite directions. Indian G-sec yields respond to domestic inflation and interest rates, RBI policy, and global (especially US) yields.

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Answer: (c) Increase in the banking habit of the people

Banks create money by lending out deposits, which come back to the banking system as fresh deposits and are lent again. The more of their money people keep in banks rather than as cash, the more rounds of lending take place, so the multiplier rises. Higher reserve ratios do the opposite.

• ✓ (c) A stronger banking habit lowers the share of money held as cash, so more of each loan returns as a deposit and supports further lending.
• ✗ (a) A higher CRR forces banks to keep a larger share of deposits as reserves with the RBI, leaving less to lend and shrinking the multiplier.
• ✗ (b) A higher SLR likewise locks more deposits into liquid assets such as government securities, reducing the funds available for lending.

Remember · Money multiplier rises when people hold less cash and more deposits; it falls when CRR or SLR is raised.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)

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Answer: (b) 1 and 2

Retail investors can bid for Treasury Bills and dated government bonds in RBI's primary auctions through the non-competitive route, using stock exchanges as aggregators and holding the securities in demat form. NDS-OM is RBI's electronic trading platform for government securities. CDSL was sponsored by the Bombay Stock Exchange and Bank of India; the RBI is not a promoter.

• ✓ 1. Specified stock exchanges act as aggregators in RBI's primary auctions, submitting consolidated non-competitive bids for their clients and transferring the allotted securities to them, so a demat account holder can buy in the primary market.
• ✓ 2. The RBI introduced the Negotiated Dealing System-Order Matching (NDS-OM), an anonymous screen-based order matching system for secondary-market trading in government securities, in August 2005.
• ✗ 3. SEBI's 1998 registration release says CDSL is sponsored by the Bombay Stock Exchange (BSE) and Bank of India. The RBI is not a promoter, and the depository is regulated by SEBI.

Remember · NDS-OM: RBI's screen-based G-sec trading platform (2005). Depositories: NSDL and CDSL (CDSL sponsored by BSE and Bank of India), both regulated by SEBI.

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