RBI's Role in Credit Control Operations: Quiz and Flashcards

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Questions and Answers

What is the primary responsibility of the Monetary Policy Committee (MPC) in India?

Implementing fiscal policies

Setting the benchmark policy rate (correct)

Providing loans to commercial banks

Regulating the stock market

How many members make up the Monetary Policy Committee (MPC) according to the amended RBI Act?

Eight members

Six members (correct)

Seven members

Five members

What is the required quorum for a meeting of the Monetary Policy Committee (MPC)?

All six members must be present

Four members with at least one being the Governor or Deputy Governor responsible for monetary policy (correct)

Five members without any specific role requirements

Two members with no specific role requirements

Who holds the second or casting vote in the Monetary Policy Committee (MPC) in case of a tie?

RBI Governor Signup and view all the answers

How long do external members serve on the Monetary Policy Committee (MPC)?

Four-year term Signup and view all the answers

Which entity are decisions of the Monetary Policy Committee (MPC) binding upon?

Reserve Bank of India Signup and view all the answers

What is the primary role of the Reserve Bank of India (RBI) in credit control operations?

To regulate the availability and cost of credit in the economy Signup and view all the answers

What is the bank rate in the context of credit control operations?

The rate at which the RBI lends money to commercial banks Signup and view all the answers

What is the purpose of the Cash Reserve Ratio (CRR) as a credit control instrument?

To regulate the amount of credit commercial banks can extend Signup and view all the answers

Which of the following is an example of a qualitative instrument used by the RBI for credit control?

Credit Rationing Signup and view all the answers

What is the Statutory Liquidity Ratio (SLR) in the context of credit control operations?

The percentage of a bank's total deposits that it must invest in specified liquid assets Signup and view all the answers

Which of the following is NOT a primary objective of credit control operations by the RBI?

Maximizing bank profits Signup and view all the answers

What is the central role of the Reserve Bank of India (RBI) in credit control operations?

The RBI plays a central role in regulating the availability and cost of credit in the economy. Signup and view all the answers

Which of the following is an example of a quantitative instrument used by the RBI to control credit?

Adjusting the Cash Reserve Ratio (CRR) or the Statutory Liquidity Ratio (SLR). Signup and view all the answers

Which of the following is not a role of the RBI in credit control operations?

Directly issuing credit to specific sectors or activities. Signup and view all the answers

Which of the following is a qualitative instrument used by the RBI to control credit?

Issuing directives to banks to restrict or curtail credit to specific sectors or activities. Signup and view all the answers

Which of the following is NOT a key objective of the RBI's credit control operations?

Promoting economic growth. Signup and view all the answers

Study Notes

Credit Control Operations

The Reserve Bank of India (RBI) plays a central role in credit control operations in India.
Credit control measures are aimed at achieving macroeconomic objectives, including price stability, economic growth, and financial stability.
The RBI regulates the availability and cost of credit in the economy using various quantitative and qualitative instruments.

Instruments of Credit Control

Quantitative Instruments

Bank Rate: The rate at which the RBI lends money to commercial banks.
Cash Reserve Ratio (CRR): The percentage of a bank's total deposits that it must hold as reserves with the RBI.
Statutory Liquidity Ratio (SLR): The percentage of a bank's total deposits that it must invest in specified liquid assets like government securities.

Qualitative Instruments

Credit Rationing: Imposing limits on the amount of credit that banks can extend to certain sectors or borrowers.
Direct Action: Issuing directives to banks to restrict or curtail credit to specific sectors or activities.

Inflation

Inflation refers to the persistent increase in the general price level of goods and services in an economy over a period of time.
It is characterized by a decline in the purchasing power of money, meaning that the same amount of money buys fewer goods and services.

Causes of Inflation

Demand-Pull Inflation: Occurs when aggregate demand exceeds aggregate supply in the economy, leading to an increase in prices.
Cost-Push Inflation: Arises when production costs, such as wages or raw material prices, rise, causing firms to pass on the increased costs to consumers in the form of higher prices.

Monetary Policy Committee (MPC)

The MPC plays a crucial role in formulating and implementing monetary policy measures that impact the level of inflation in an economy.
The MPC determines the benchmark policy rate (repo rate) to manage inflation within a specified target level.
Composition-wise, the MPC comprises six members: the RBI Governor, the RBI Deputy Governor, an official nominated by the RBI Board, and three members representing the Government of India.

Global Economic Prospects Report by the World Bank

The report is a flagship publication of the World Bank.
It provides a comprehensive analysis of global economic prospects and trends.

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Description

Explore the intricacies of credit control operations and understand the pivotal role played by the Reserve Bank of India (RBI) in regulating the availability and cost of credit in the economy. Learn about the macroeconomic objectives targeted through these measures.

Credit Control Operations and Role of RBI