Money, banking & monetary policy

Answer: (b) Lead Bank Scheme

The Service Area Approach was part of the Reserve Bank of India's Lead Bank Scheme. Introduced in April 1989, it assigned each rural and semi-urban bank branch a service area of 15 to 25 villages whose credit needs it had to meet.

• ✓ (b) RBI's Master Circular on the Lead Bank Scheme has a section on the Service Area Approach. It applied to all scheduled commercial banks including Regional Rural Banks and aimed to link bank credit with production, productivity and incomes.
• ✗ (a) The Integrated Rural Development Programme was an anti-poverty self-employment programme run by the government. It did not allocate villages to bank branches.
• ✗ (c) MGNREGS is a wage-employment guarantee scheme with no link to bank-branch service areas.
• • Since then RBI reviewed the approach in December 2004 and dropped its restrictive provisions. Banks are now free to lend in any rural or semi-urban area; village allocation applies only to Government-sponsored schemes (RBI Master Circular).

Remember · Service Area Approach (April 1989) sits under RBI's Lead Bank Scheme: one rural branch, 15 to 25 villages. Its village-allocation rule was relaxed in 2004.

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) Deposits

Deposits are not an asset of a bank; they are its liability, because the bank owes that money back to depositors. What a bank holds and earns from, such as loans and advances, investments, and money lent at call and short notice, are its assets.

• ✓ (b) In the prescribed bank balance sheet (Form A, Third Schedule to the Banking Regulation Act, 1949, reproduced by RBI), Deposits appear under Capital and Liabilities. NCERT's model bank balance sheet likewise records deposits as liabilities and loans and reserves as assets.
• ✗ (a) Advances (loans given to borrowers) are the bank's main earning asset and are listed under Assets in Form A.
• ✗ (c) Investments, mainly in government and other securities, are held by the bank and appear on the assets side (Form A lists Investments under Assets).
• ✗ (d) Money at call and short notice is short-term lending to other banks and is an asset; Form A lists 'Balance with banks and money at call and short notice' first among the assets after cash and balances with RBI.

Remember · For a bank, deposits are liabilities (owed to customers); loans and advances, investments, and cash and short-term lending are assets.

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

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) 1 and 3 only

IT export earnings and remittances from Indians abroad both bring foreign currency into India, which helps pay for imports and supports the rupee, so they lower the risk of a currency crisis. Higher government spending does not earn any foreign exchange and tends to push up demand and prices, so it does not reduce that risk.

• ✓ 1. NCERT notes that India is earning large foreign exchange through the export of information technology. RBI's balance of payments releases likewise credit software services exports for rising services receipts.
• ✓ 3. Private transfer receipts, mainly remittances by Indians employed overseas, are a large steady inflow of foreign currency in the balance of payments (US$ 27.4 billion in July-September 2022).
• ✗ 2. Extra government spending raises aggregate demand and is criticised as inflationary (NCERT). It adds no foreign-currency receipts, so it is not a factor that reduces currency-crisis risk.

Remember · Stable foreign-exchange inflows, such as IT and services exports and remittances, protect the currency; expansionary government spending brings no such inflow.

📘 Read it in NCERT: Class 10 Contemporary India – II, Ch 7 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) To aim at faster resolution of stressed assets of ₹ 50 crore or more which are under consortium lending

An Inter-Creditor Agreement is a pact among the lenders to one borrower so that they can settle on a resolution plan for a stressed loan together, by majority, instead of each bank holding out separately. That is why UPSC's answer is faster resolution of stressed assets under consortium lending.

• ✓ (d) RBI's framework says lenders to a borrower with facilities from more than one lender must enter into an ICA to set ground rules for finalising and implementing the resolution plan. It binds all lenders once lenders holding 75 per cent by value and 60 per cent by number agree.
• ✗ (a) The ICA is an agreement between lenders about individual stressed accounts. It has nothing to do with the Government's fiscal deficit or current account deficit.
• ✗ (b) It does not fund infrastructure projects; it only sets how lenders decide on a resolution plan for an already stressed loan.
• ✗ (c) An ICA is a contract between lenders, not a regulator. Banks are regulated by the Reserve Bank of India.
• • Since then RBI's Prudential Framework for Resolution of Stressed Assets, dated 7 June 2019, made signing an ICA mandatory for lenders when a resolution plan is to be implemented (RBI; PIB).

Remember · Inter-Creditor Agreement: lenders in a consortium agree to decide a stressed loan's resolution by majority (75 per cent by value and 60 per cent by number), for faster resolution.

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink · Report an error

Answer: (a) Banks Board Bureau

In 2019 the Banks Board Bureau (BBB) was the body that recommended the selection of heads of public sector banks. The Government set it up as an autonomous body, functioning from 1 April 2016, to improve governance of public sector banks.

• ✓ (a) The Government's announcement of the Bureau said it would recommend for selection of the heads of public sector banks and financial institutions, and help banks with strategy and capital-raising plans.
• ✗ (b) The Reserve Bank of India regulates and supervises banks; it is not the selecting body for public sector bank heads. Its Deputy Governor was only one ex-officio member of the Bureau.
• ✗ (c) The Ministry of Finance owns the banks, but the Bureau was created as an autonomous body so that selection would not rest with the Ministry alone.
• ✗ (d) A bank's own management does not choose its chairman.
• • Since then On 1 July 2022 the Government revamped the Banks Board Bureau into the Financial Services Institutions Bureau (FSIB), which recommends whole-time directors and non-executive chairpersons for financial services institutions (Department of Financial Services).

Remember · Banks Board Bureau (from 1 April 2016) recommended heads of public sector banks; since July 2022 the Financial Services Institutions Bureau has taken over this role.

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) Following an expansionary monetary policy

An expansionary monetary policy lowers interest rates, which makes holding rupee assets less attractive and tends to push the rupee down further. The other three steps reduce the demand for dollars or bring foreign money in, so they support the rupee.

• ✓ (d) NCERT explains that a rise in interest rates at home often leads to an appreciation of the domestic currency, so a policy of lower rates does the opposite and would not stop the slide.
• ✗ (a) Fewer imports and more exports narrow the trade gap. In September 2018 the Government raised customs duty on 19 non-essential items to narrow the current account deficit.
• ✗ (b) Masala bonds are rupee bonds sold abroad, so they bring foreign money in. In September 2018 the Government exempted from tax the interest paid on masala bonds issued between 17 September 2018 and 31 March 2019, to raise foreign exchange inflows.
• ✗ (c) Easier external commercial borrowing lets Indian firms raise foreign money more freely. The RBI liberalised the ECB and rupee-bond framework in January 2019.

Remember · To stop the rupee sliding, the authorities reduce dollar demand and attract foreign inflows (curb imports, ease ECB, masala bonds); cutting interest rates makes it worse.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2019, 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. The RBI's directive of 6 April 2018 requires payment system providers to keep all payment data in a system located only in India. It says nothing about public-sector ownership, and the audit report goes to the RBI, not to the CAG.

• ✓ 1. The directive says all system providers must ensure that the entire data relating to payment systems operated by them is stored in a system only in India. Only the foreign leg of a transaction may also be stored abroad.
• ✗ 2. The directive is about where data is stored. It does not require the systems to be owned or run by public sector enterprises.
• ✗ 3. Providers had to submit a System Audit Report, prepared by CERT-In empanelled auditors and approved by their Board, to the Reserve Bank by 31 December 2018. It was not to be sent to the CAG.

Remember · RBI's data-localisation directive (6 April 2018): all payment data stored only in India; system audit report by a CERT-In empanelled auditor goes to the RBI.

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) Increase in the banking habit of the population

The money multiplier rises when people keep more of their money as bank deposits rather than as cash, because banks then have more deposits to lend and re-lend. A better banking habit lowers the share of money held as currency, so the multiplier goes up.

• ✓ (b) The multiplier depends on the currency/deposit ratio. When more people use banks, less money stays outside the banking system as cash, so the ratio falls and the multiplier rises.
• ✗ (a) A higher cash reserve ratio leaves banks with less to lend. In NCERT's example a 20 per cent CRR limits credit creation, giving a multiplier of 5; a higher CRR would lower it.
• ✗ (c) SLR is a further requirement to hold reserves in liquid form. It is not part of the cash-reserve multiplier NCERT derives, and raising it would not increase money creation.
• ✗ (d) The multiplier depends on ratios such as the CRR and the currency/deposit ratio, not on how many people live in the country.

Remember · Money multiplier rises when the currency/deposit ratio falls (more banking habit) and falls when the cash reserve ratio rises.

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

Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error