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Questions and Answers
What was the primary role of the Reserve Bank of India in the banking system before the enactment of the Banking Regulation Act, 1949?
What was the primary role of the Reserve Bank of India in the banking system before the enactment of the Banking Regulation Act, 1949?
- Setting up and amalgamating banks
- Regulating the operations of banks to maintain liquidity
- Acting as a lender-of-last-resort to ensure short-term asset liquidity of banks (correct)
- Being the central bank of the country
Which legislation comprehensively deals with aspects of banks ranging from establishment to operational matters?
Which legislation comprehensively deals with aspects of banks ranging from establishment to operational matters?
- The Banking Regulation Act, 1949 (correct)
- The Reserve Bank of India Act, 1934
- The Companies Act, 1850
- The Indian Companies Act
In what year was Section 56 inserted into the Banking Regulation Act to regulate Cooperative banks?
In what year was Section 56 inserted into the Banking Regulation Act to regulate Cooperative banks?
- 1850
- 1949
- 1934
- 1965 (correct)
Which act granted the Reserve Bank the authority to regulate banks' operations according to economic needs through credit control instruments?
Which act granted the Reserve Bank the authority to regulate banks' operations according to economic needs through credit control instruments?
Which act passed on February 17, 1949, deals with various aspects of banks apart from their establishment and amalgamation?
Which act passed on February 17, 1949, deals with various aspects of banks apart from their establishment and amalgamation?
Which act introduced Company law in India and was based on the English Companies Act, 1844?
Which act introduced Company law in India and was based on the English Companies Act, 1844?
What has been the fundamental objective of banking regulation and supervision in India?
What has been the fundamental objective of banking regulation and supervision in India?
How has the focus of the Reserve Bank’s role as a regulator and supervisor evolved over time?
How has the focus of the Reserve Bank’s role as a regulator and supervisor evolved over time?
What additional objectives have banking regulation and supervision in India focused on apart from maintaining the stability of the financial system?
What additional objectives have banking regulation and supervision in India focused on apart from maintaining the stability of the financial system?
How has the Reserve Bank responded to changes in the financial environment over time?
How has the Reserve Bank responded to changes in the financial environment over time?
What has been an essential aspect of recent regulation and supervision in the Indian banking system?
What has been an essential aspect of recent regulation and supervision in the Indian banking system?
Why did the focus of banking regulation shift gradually from micro regulation to preventing systemic instability?
Why did the focus of banking regulation shift gradually from micro regulation to preventing systemic instability?
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Study Notes
Evolution of Banking Regulation in India
- The Reserve Bank of India's regulatory and supervisory approaches have evolved over time, adapting to changes in the Indian economy and banking system.
- The objectives of regulation and supervision have changed while maintaining the core purpose of ensuring the soundness and stability of the banking system.
- The focus has shifted from micro-regulation of banks' daily activities to preventing systemic instability, fostering competition, and improving market practices.
- Regulation and supervision now prioritize transparency, depositor protection, meeting social needs, efficiency, reducing information asymmetries, and preventing money-laundering activities.
Legal Framework for Banking Regulation
- Prior to the Banking Regulation Act, 1949, banking company laws were contained in the Indian Companies Act (1850).
- The Reserve Bank of India Act, 1934, introduced the Reserve Bank's role in holding cash reserves, granting accommodation, and regulating bank operations through credit control.
- The Banking Regulation Act, 1949, comprehensively covers the banking system, including setting up, amalgamation, and operational issues.
- Other statutes governing banks include the SBI Act (1955), Banking Companies (ATU) Act (1970 and 1980), and RRB Act (1976).
- Section 56 was added to the Banking Regulation Act in 1965 to regulate Co-operative banks.
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