Money, banking & monetary policy

Answer: (c) The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.

The Merchant Discount Rate (MDR) is a fee that flows from the merchant to the bank, charged as a percentage of each card payment the merchant accepts. It is not an incentive or a cashback; the RBI caps it and bars merchants from passing it on to customers.

• ✓ (c) The RBI's December 2017 circular speaks of the MDR 'levied on the merchant' and caps it as a percentage of the transaction value.
• ✗ (a) The money moves the other way: the merchant pays the bank, the bank does not pay the merchant.
• ✗ (b) That describes a cashback to cardholders; the RBI in fact tells banks to ensure merchants do not pass MDR charges on to customers.

Remember · MDR = fee a merchant pays its bank on each card/QR payment, a % of transaction value; RBI caps it (debit-card framework of 6 December 2017) and it cannot be passed to customers.

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (c) National Payments Corporation of India

The National Payments Corporation of India (NPCI) runs the National Financial Switch (NFS), the shared network that lets a card of one bank work at another bank's ATM. NPCI took over the NFS from the RBI's research institute IDRBT on 14 December 2009.

• ✓ (c) The NFS, operated by NPCI, is the largest network of shared ATMs in India, handling interoperable cash withdrawals, card-to-card transfers and cash deposits.
• ✗ (d) The RBI regulates payment systems and authorised NPCI to operate the NFS ATM network in 2009, but it does not itself run the switch.
• ✗ (a) The Indian Banks' Association is an association of bank managements; together with the RBI it promoted NPCI but it operates no ATM network.

Remember · NPCI (2008, promoted by RBI and IBA, not-for-profit) runs NFS (shared ATM switch), IMPS, UPI, RuPay, AePS, NACH and Bharat BillPay.

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) 1 only

A bank's own capital is the cushion that absorbs losses, for instance when borrowers default, and the capital adequacy ratio measures that capital against the bank's risk-weighted assets. The minimum ratio is not left to each bank: in India the Reserve Bank of India prescribes it, following the Basel norms.

• ✓ 1. Capital adequacy means holding enough own funds, relative to risk-weighted assets, so that losses on loans and other assets can be absorbed without the bank becoming insolvent.
• ✗ 2. The RBI's Basel III Master Circular (2014) requires scheduled commercial banks to keep a minimum total capital of 9% of risk-weighted assets; banks may hold more but cannot set the floor themselves.

Remember · CAR (or CRAR) = capital ÷ risk-weighted assets. RBI sets the minimum at 9% (Basel III asks for 8%); with the 2.5% conservation buffer it is 11.5%.

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) 1 only

Only statement 1 is correct: BHIM is a UPI-based app for direct bank-to-bank transfers. Statement 2 fails because a chip-and-PIN card does not use four factors of authentication; UPI, and so BHIM, uses two.

• ✓ 1. BHIM was launched in December 2016 to enable digital payments using UPI, and it allows direct bank-to-bank transfers from a mobile phone. Because UPI is interoperable, the receiver only needs a UPI-enabled bank account.
• ✗ 2. The official description of UPI says it uses two-factor authentication: the registered mobile phone and the secret UPI PIN. A chip-and-PIN card also works on two things, the card itself and its PIN, so it does not have four factors.

Remember · BHIM is the NPCI's UPI app (launched December 2016). UPI uses two-factor authentication: the registered mobile device plus the UPI PIN.

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) The money which a creditor is under compulsion to accept in settlement of his claims

Legal tender is money that the law says must be accepted in settlement of a debt, so a creditor cannot refuse it. Currency notes and coins issued by the state are legal tender.

• ✓ (b) Notes and coins are legal tender because no citizen can refuse them when settling any transaction. The creditor has to accept them.
• ✗ (c) Cheques and drafts are bank money. Anyone can refuse them as a mode of payment, so demand deposits are not legal tender.
• ✗ (d) Legal tender is defined by the compulsion to accept, not by the metal. Paper currency notes are legal tender too.
• ✗ (a) Nothing in the idea of legal tender concerns paying court fees. It only concerns settling a debt.

Remember · Legal tender = money a creditor cannot refuse (notes and coins). Cheques and other demand deposits are not legal tender.

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

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (c) 2 and 3 only

Statements 2 and 3 are correct. Only the Central Government issues treasury bills, and they are issued at a discount to face (par) value and redeemed at par. Statement 1 is wrong because the RBI also manages the public debt of State Governments.

• ✗ 1. Under the RBI Act, the RBI can manage a State's public debt by agreement, and it has done so with State Governments for their State Development Loans (SDLs).
• ✓ 2. The Central Government issues both treasury bills and dated securities, while State Governments issue only dated securities (SDLs), so there are no State treasury bills.
• ✓ 3. T-bills are zero-coupon securities that pay no interest. They are sold below face value and redeemed at face value on maturity, and the difference is the investor's return.

Remember · T-bills: issued only by the Centre, at a discount, redeemed at par (91, 182 and 364 days). States issue only SDLs, which the RBI also manages.

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) 3 – 2 – 1 – 4

The order is Air India (1953), State Bank of India (July 1955), the Kerala communist government (1957) and Goa (December 1961), so the sequence is 3-2-1-4. Fixing the years of these four landmarks of the 1950s and early 1960s settles the question.

• • 3. Air India was created under the Air Corporations Act, 1953, when the government nationalised air transport. This is the earliest event.
• • 2. The Imperial Bank of India passed into state ownership and became the State Bank of India in July 1955.
• • 1. In the March 1957 elections in Kerala the Communist Party won the most seats, and E. M. S. Namboodiripad formed a ministry. It was the first communist government to come to power through elections.
• • 4. Goa, Diu and Daman were liberated by the Indian army in December 1961, the last of the four events.

Remember · Order: Air India nationalised 1953, Imperial Bank to SBI 1955, Kerala's communist ministry 1957, Goa's liberation 1961.

📘 Read it in NCERT: Class 12 Politics in India since Independence, Ch 2 (practise this chapter) · Class 12 Politics in India since Independence, Ch 7 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) 2 only

Statement 2 is correct: SBI absorbed its five associate banks and Bharatiya Mahila Bank in 2017. Statement 1 is wrong because the Government's yearly capital infusion into public sector banks (PSBs) went up and down rather than rising steadily.

• ✗ 1. The CAG's audit records infusions of ₹1,900 crore (2008-09), ₹1,200 crore (2009-10), ₹20,117 crore (2010-11), ₹12,000 crore, ₹12,517 crore, ₹14,000 crore, ₹6,990 crore (2014-15), then ₹25,000 crore in each of 2015-16 and 2016-17. The dips in between mean it was not a steady increase; the jump to ₹88,139 crore came only in 2017-18.
• ✓ 2. With Government sanction and in consultation with the RBI, State Bank of India took over State Bank of Bikaner & Jaipur, Hyderabad, Mysore, Patiala and Travancore, plus Bharatiya Mahila Bank. The merger took effect on 1 April 2017.

Remember · SBI merged its five associate banks and Bharatiya Mahila Bank on 1 April 2017; recapitalisation of PSBs was uneven year to year before the 2017-18 surge.

Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error