Minimalist IAS
Economy & social development

Prelims · Economy & social development · 66 questions

Money, banking & monetary policy

Every UPSC Prelims question on this topic, 2016–2026, newest first. Tap an option to check yourself; the answer and explanation open below it.

Money, banking & monetary policy questions per year: 2016: 3, 2017: 5, 2018: 5, 2019: 7, 2020: 4, 2021: 4, 2022: 2, 2023: 3, 2024: 3, 2025: 3, 2026: 2 Asked in 11 of 11 years · most in 2019 (7)

UPSC syllabus: “Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.” See the full syllabus →

Prelims 2016 · Q4

Easy

The establishment of 'Payment Banks' is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?

  1. 1.Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.
  2. 2.Payment Banks can issue both credit cards and debit cards.
  3. 3.Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below.

Answer & explanation

Answer: (b) 1 and 3 only

RBI's licensing guidelines of 27 November 2014 made payments banks narrow banks: they take small deposits and offer payment and remittance services, but they may not lend. Resident-owned mobile telephone companies and supermarket chains were expressly named as eligible promoters, and only ATM/debit cards, not credit cards, are allowed.

  • ✓ 1. The guidelines list mobile telephone companies and super-market chains, among others, as eligible promoters provided they are owned and controlled by residents.
  • ✗ 2. A payments bank may issue ATM/debit cards, but the guidelines state plainly that it cannot issue credit cards, because a credit card is a form of lending.
  • ✓ 3. The guidelines bar lending altogether; apart from CRR, at least 75 per cent of demand deposit balances must be invested in government securities or treasury bills.

Remember · Payments bank: deposits (small), remittances, debit/ATM cards, no credit cards, no loans. Promoters can be telcos, supermarket chains, PPI issuers and others owned by residents.

Sources

  • RBI: Guidelines for Licensing of Payments Banks (27 November 2014) ↗ “Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks. … ii. Issuance of ATM / Debit Cards. Payments banks, however, cannot issue credit cards. … 5. Deployment of funds The payments bank cannot undertake lending activities.”

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2016 · Q26

Easy

With reference to 'Stand Up India Scheme', which of the following statements is/are correct?

  1. 1.Its purpose is to promote entrepreneurship among SC/ST and women entrepreneurs.
  2. 2.It provides for refinance through SIDBI.

Select the correct answer using the code given below.

Answer & explanation

Answer: (c) Both 1 and 2

Stand Up India, approved by the Union Cabinet on 6 January 2016 and launched on 5 April 2016, asks every bank branch to back at least one Scheduled Caste or Scheduled Tribe borrower and at least one woman borrower for a new non-farm enterprise. Its support structure includes a refinance window through SIDBI (initially ₹10,000 crore) and credit guarantees through NCGTC, so both statements are correct.

  • ✓ 1. The Cabinet approved the scheme specifically to promote entrepreneurship among SC/ST and women entrepreneurs, with bank loans of ₹10 lakh to ₹1 crore for greenfield enterprises.
  • ✓ 2. The scheme provides a refinance window through the Small Industries Development Bank of India, with an initial amount of ₹10,000 crore.

Remember · Stand Up India (2016): loans of ₹10 lakh–₹1 crore to SC/ST and women for greenfield enterprises; SIDBI refinance, NCGTC credit guarantee, handholding support.

Sources

  • PIB: Cabinet approves Stand Up India Scheme (6 January 2016) ↗ “The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, today approved the “Stand Up India Scheme” to promote entrepreneurship among SC/ST and Women entrepreneurs. … The Stand Up India Scheme provides for: • Refinance window through Small Industries Development Bank of India (SIDBI) with an initial amount of Rs. 10,000 crore.”

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2016 · Q29

Easy

The term 'Core Banking Solutions' is sometimes seen in the news. Which of the following statements best describes/describe this term?

  1. 1.It is a networking of a bank's branches which enables customers to operate their accounts from any branch of the bank on its network regardless of where they open their accounts.
  2. 2.It is an effort to increase RBI's control over commercial banks through computerization.
  3. 3.It is a detailed procedure by which a bank with huge non-performing assets is taken over by another bank.

Select the correct answer using the code given below.

Answer & explanation

Answer: (a) 1 only

Core Banking Solutions (CBS) is a bank's centralised IT platform: all branches work on one common database, so an account-holder is a customer of the whole bank and can transact at any networked branch, not only the one where the account was opened. It is neither an RBI control device nor a merger procedure.

  • ✓ 1. This is what CBS does; the RBI expects banks on CBS to serve their customers uniformly at every branch and not to penalise transactions at 'non-home' branches.
  • ✗ 2. CBS is each bank's own operating platform for serving customers; RBI's supervisory powers come from the Banking Regulation Act, 1949, not from branch networking.
  • ✗ 3. Rescuing a weak bank by merging it with another is amalgamation (for example, under Section 45 of the Banking Regulation Act); it has nothing to do with CBS.

Remember · Core Banking Solutions: centralised, networked branch operations; the customer belongs to the bank, not the branch, enabling 'anywhere banking', ATMs, internet and mobile banking.

Sources

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2016 · Q43

Easy

What is/are the purpose/purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI?

  1. 1.These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.
  2. 2.These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

Select the correct answer using the code given below.

Answer & explanation

Answer: (c) Both 1 and 2

Both statements are correct. RBI's MCLR guidelines of 17 December 2015 aimed to make the way banks set lending rates more transparent, and to make credit available at rates fair to both borrowers and banks. They applied from 1 April 2016.

  • ✓ 1. The Ministry of Finance told Parliament that the MCLR guidelines are expected to improve transparency in the methodology banks follow in fixing interest rates on advances.
  • ✓ 2. The same reply says the guidelines are also expected to ensure availability of bank credit at rates that are fair to borrowers as well as banks.
  • • Since then For new floating-rate retail loans and loans to micro and small enterprises from 1 October 2019 (and medium enterprises from 1 April 2020), RBI now requires an external benchmark such as the repo rate or Treasury bill yields, instead of MCLR.

Remember · MCLR (from 1 April 2016) is the internal benchmark for bank loan pricing, meant to improve transparency and give fair rates to both borrowers and banks.

Sources

  • PIB, Ministry of Finance: Lending Rate Based Interest Rates (26 February 2016) ↗ “these guidelines are expected to improve transparency in the methodology followed by banks for determining interest rates on advances. These guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.”
  • Reserve Bank of India, Master Direction on Interest Rate on Advances ↗ “All floating rate rupee loans sanctioned and renewed w.e.f. April 1, 2016 shall be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) … All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans extended by banks to Micro and Small Enterprises from October 01, 2019 and floating rate loans to Medium Enterprises from April 01, 2020 shall be benchmarked to one of the following”

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2016 · Q56

Medium

With reference to 'Financial Stability and Development Council', consider the following statements:

  1. 1.It is an organ of NITI Aayog.
  2. 2.It is headed by the Union Finance Minister.
  3. 3.It monitors macroprudential supervision of the economy.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (c) 2 and 3 only

The Financial Stability and Development Council (FSDC) is an apex body of the Government of India, chaired by the Union Finance Minister, that monitors macro-prudential supervision of the economy. It belongs to the Finance Ministry's set-up, not to NITI Aayog, so statements 2 and 3 are correct.

  • ✗ 1. The Government set up the FSDC by a notification of 30 December 2010, from the Union Budget 2010-11 announcement; the Department of Economic Affairs in the Finance Ministry services it. It is not an organ of NITI Aayog.
  • ✓ 2. The Chairman of the FSDC is the Finance Minister of India; its members are the heads of the financial regulators and senior Finance Ministry officials.
  • ✓ 3. Without prejudice to the autonomy of regulators, the Council monitors macro-prudential supervision of the economy, including the functioning of large financial conglomerates.

Remember · FSDC (30 Dec 2010): non-statutory apex council chaired by the Union Finance Minister; watches financial stability, macro-prudential supervision and inter-regulatory coordination.

Sources

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2016 · Q66

Medium

With reference to 'Bitcoins', sometimes seen in the news, which of the following statements is/are correct?

  1. 1.Bitcoins are tracked by the Central Banks of the countries.
  2. 2.Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
  3. 3.Online payments can be sent without either side knowing the identity of the other.

Select the correct answer using the code given below.

Answer & explanation

Answer: (b) 2 and 3 only

Bitcoin is a peer-to-peer virtual currency with no central authority: any holder of an address can pay any other, and the parties can stay anonymous or pseudonymous. No central bank issues, authorises or tracks it, so statements 2 and 3 are correct and 1 is not.

  • ✗ 1. The RBI said in December 2013 that the creation, trading or usage of virtual currencies, including Bitcoins, is not authorised by any central bank or monetary authority, and in 2017 that it had licensed no one to deal in them.
  • ✓ 2. Payments in Bitcoins take place peer to peer, without an authorised central agency that regulates them.
  • ✓ 3. The RBI notes that counterparties in such peer-to-peer anonymous or pseudonymous systems are not identified, which is why it warned of money-laundering risks.

Remember · Bitcoin: decentralised, peer-to-peer and pseudonymous, with no issuer or regulator. Central banks do not track or authorise it; the RBI cautioned users in 2013 and 2017.

Sources

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2016 · Q73

Easy

Pradhan Mantri MUDRA Yojana is aimed at

Answer & explanation

Answer: (a) bringing the small entrepreneurs into formal financial system

MUDRA Yojana (announced 8 April 2015) gives loans to small and micro enterprises that were mostly left out of formal banking, so that they need not depend on informal lenders. Its purpose is to bring such small entrepreneurs into the formal credit system.

  • ✓ (a) The scheme was designed for the crores of small units that stand outside the formal banking system and borrow from informal sources; it offers Shishu, Kishore, Tarun (and later Tarun Plus) loans through banks, NBFCs and micro-finance institutions.
  • ✗ (b) MUDRA loans go to income-generating micro enterprises in manufacturing, trading and services. It is a business-loan scheme, not a scheme of crop loans for farmers.
  • ✗ (c) MUDRA is a credit scheme for enterprises; it does not pay pensions to anyone.
  • ✗ (d) MUDRA lends to enterprises through financial intermediaries; it does not fund voluntary organisations for skill development.

Remember · MUDRA = Micro Units Development & Refinance Agency: collateral-free loans up to a set limit to small enterprises, to bring them into formal credit.

Sources

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

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