Reserve Bank of India and Credit Regulation
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Questions and Answers

What is the maximum percentage the Statutory Liquidity Ratio (SLR) can be set by the Reserve Bank of India?

  • 30%
  • 20%
  • 50%
  • 40% (correct)

    • Which of the following is NOT a power held by the Reserve Bank of India in regulating banks?

  • Transferring ownership of banks (correct)
  • Liquid Reserve requirements
  • Monitoring bank arrangements
  • Branch Expansion

    • Which entity must grant licenses to every bank set up in India?

  • Reserve Bank of India (correct)
  • Ministry of Finance
  • Insurance Regulatory Authority
  • Securities Exchange Board of India

    • To achieve 'Growth with Stability', which measure is NOT employed by the Reserve Bank of India?

    <p>Direct Intervention in market</p> Signup and view all the answers

    What is the current Cash Reserve Ratio (CRR) set by the Reserve Bank of India?

    <p>4.50%</p> Signup and view all the answers

    Which factor influences the Reserve Bank of India's decision on the Statutory Liquidity Ratio (SLR)?

    <p>Maximum liquidity requirements</p> Signup and view all the answers

    Which of the following roles is NOT performed by the Reserve Bank of India?

    <p>Investor in government securities</p> Signup and view all the answers

    The Reserve Bank of India helps regulate credit through several measures. Which one is NOT mentioned?

    <p>Interest Rate Adjustment</p> Signup and view all the answers

    What action can the Reserve Bank take if irregularities in a bank are not rectified?

    <p>Arrange for liquidation or merger</p> Signup and view all the answers

    Under which section of the Banking Act can the Reserve Bank apply for liquidation of banks?

    <p>Section 38</p> Signup and view all the answers

    What function does the Reserve Bank perform concerning foreign exchange reserves?

    <p>Buys and sells foreign currencies</p> Signup and view all the answers

    What is an important part of the Reserve Bank's publication responsibilities?

    <p>Publishing information about currency and economics</p> Signup and view all the answers

    How does the Reserve Bank assist with agricultural requirements?

    <p>Approves loans for agriculture transferred to NABARD</p> Signup and view all the answers

    What can happen if a bank does not follow the Reserve Bank's policy?

    <p>The Reserve Bank can take direct action against it</p> Signup and view all the answers

    What is the maximum percentage of net demand and time liability that a bank has to keep in the form of cash, gold, and unencumbered security?

    <p>40%</p> Signup and view all the answers

    What does Section 2 of the RBI Act define?

    <p>Scheduled banks</p> Signup and view all the answers

    What is the new percentage of voting rights allowed for private sector banks after the increase?

    <p>26%</p> Signup and view all the answers

    Which of the following is NOT a function of the Reserve Bank of India?

    <p>Regulating agricultural processes directly</p> Signup and view all the answers

    What is required from banks before they can open a new branch?

    <p>Permission from RBI</p> Signup and view all the answers

    What is the timeline within which banks must submit their balance sheet and audit report?

    <p>Within 3 months</p> Signup and view all the answers

    What does Section 35 AA empower the RBI to do?

    <p>Direct a bank towards bankruptcy resolution</p> Signup and view all the answers

    What is the penalty amount for giving false information to the RBI?

    <p>Rs 3 crore</p> Signup and view all the answers

    What happens to unclaimed deposits that are 10 years or older?

    <p>They must be sent to RBI within 30 days</p> Signup and view all the answers

    In which circumstance can the RBI extend the balance sheet submission deadline by another 3 months?

    <p>In cases of exceptional circumstances</p> Signup and view all the answers

    Under what circumstance will the bank close an account immediately?

    <p>If there is no Customer Due Diligence (CDD)</p> Signup and view all the answers

    What is the maximum amount that can be deposited in a Small Account during a financial year?

    <p>One lakh rupees</p> Signup and view all the answers

    Which of the following situations requires the bank to identify a customer?

    <p>When a non-account holder conducts transactions of Rs. 50,000 or more</p> Signup and view all the answers

    What is the purpose of Video-Based Customer Identification Process (V-CIP)?

    <p>To identify customers for onboarding when opening accounts</p> Signup and view all the answers

    What must the bank obtain for the Customer Due Diligence (CDD) of a Proprietorship firm?

    <p>An e-document equivalent to proof of activity</p> Signup and view all the answers

    In which situation must the bank not seek introduction while opening an account?

    <p>When the bank registers a Small Account</p> Signup and view all the answers

    Which of the following is a reason for the bank to doubt customer identification authenticity?

    <p>If public records do not match provided ID</p> Signup and view all the answers

    What limits apply to transactions for a walk-in customer involving amounts of Rs. 50,000 or more?

    <p>Can be conducted in a single or multiple transactions</p> Signup and view all the answers

    What document is required for opening an account for a Partnership Firm?

    <p>Partnership deed</p> Signup and view all the answers

    Which of the following is necessary for identifying the beneficial owners of a Partnership Firm?

    <p>Documents as specified in Section 2</p> Signup and view all the answers

    For what type of entity is a resolution of the managing body required?

    <p>Unincorporated association</p> Signup and view all the answers

    Which document is not needed when opening an account for a Trust?

    <p>Partnership deed</p> Signup and view all the answers

    What information must be included when opening an account for an unincorporated association?

    <p>Information to establish legal existence</p> Signup and view all the answers

    Which document is common to both Partnership Firms and Trusts when opening an account?

    <p>Registration certificate</p> Signup and view all the answers

    Who must provide documents related to beneficial ownership when opening a Trust account?

    <p>Beneficial owners, managers, and others as specified</p> Signup and view all the answers

    What type of account opening requirements apply to an unincorporated association?

    <p>Resolution of managing body is required</p> Signup and view all the answers

    Study Notes

    Reserve Bank of India

    • The Reserve Bank of India (RBI) manages the country's banking system.
    • The RBI is overseen by a Central Board of Directors consisting of four local boards in Mumbai, Delhi, Calcutta, and Chennai.
    • It consists of one Governor, four Deputy Governors, and fifteen other Directors.
    • The first Governor was O. Smith and the first Indian Governor was Dr. C. Deshmukh.
    • The current Governor is Shaktikanta Das.
    • The RBI acts as the banker of the commercial, cooperative, and regional banks in India.
    • The RBI also acts as the lender of last resort, providing financial assistance to banks in need.

    Regulation and Control of Credit

    • The RBI regulates credit through various measures like:
      • Bank Rate Policy
      • Open Market Operations
      • Variable Reserve Ratio or Cash Reserve Ratio (CRR)
      • Selective Credit Control
      • Moral Pressure

    Regulation and Control of Banking System

    • The RBI has the following powers to regulate the banking system:
      • License: Issues licenses to all banks operating in India.
      • Arrangement: Constantly monitors the arrangements of other banks.
      • Liquid Reserve: Enforces a Statutory Liquidity Ratio (SLR) requiring banks to keep a minimum percentage of their deposits in liquid assets. The current SLR is 18%, with a maximum limit of 40%.
      • Branch Expansion: Regulates the opening of new bank branches.
      • Inspection: Performs inspections of banks to ensure compliance with regulations, investigate financial discrepancies, and manage potential liquidation or mergers.
      • Liquidation and Merger: Can initiate the liquidation of financially unstable banks or merge them with stronger institutions.

    Other Functions

    • The RBI manages the country's foreign exchange reserves.
    • It undertakes direct action against banks that fail to adhere to its policies.
    • The RBI publishes information about the country's currency, debt market, finance, economic conditions, and banking and cooperative movement.
    • It advises central and state governments on agricultural credit needs.
    • It approves and implements agricultural loans (transferred to NABARD).
    • It trades government securities and trade bills.
    • It acts as the government's representative at the International Monetary Fund (IMF).

    Important Provisions of The RBI Act

    • Section 2: Defines a "scheduled bank" as a bank included in the second schedule of the RBI Act.
    • Section 17: Outlines various business activities conducted by the RBI.
    • Section 18: Authorizes the RBI to provide emergency loans to banks at a concessional rate.
    • Section 20: Establishes the RBI as the banker to the Government.
    • Section 21: Authorizes the RBI to conduct government business in India.
    • Section 21-A: Prohibits courts from questioning the rate of interest charged by a bank after February 15, 1984.
    • Section 22: Specifies the requirement for a license from the RBI to operate a banking business in India and imposes a penalty of up to Rs 3 crore for providing false information to the RBI.
    • Section 23: Requires permission from the RBI for opening new branches and transferring existing branches.
    • Section 24: Mandates banks to maintain a certain percentage of their net demand and time liability as a liquid reserve, comprising cash, gold, and unencumbered security, with a maximum limit of 40%.
    • Section 26: Requires banks to send unclaimed deposits (over 10 years old) to the RBI within 30 days after the end of each calendar year.
    • Section 31: Requires banks to submit their balance sheet and audit report within three months of the end of the reporting period, with the option for the RBI to extend the deadline for another three months.
    • Section 35: Grants the RBI the right to inspect banks and provide necessary instructions.
    • Section 35A: Authorizes the RBI to issue instructions to banks in the public interest.
    • Section 35 AA: Empowers the RBI to direct a banking company to participate in the bankruptcy resolution process under the Insolvency and Bankruptcy Code-2016, upon orders from the Government of India.

    Customer Due Diligence (CDD)

    • Banks are required to identify customers in various situations, including:
      • When opening an account-based relationship.
      • When providing banking services to a non-account holder.
      • When there are doubts about the authenticity or adequacy of customer identification data.
      • When selling third-party products.
      • When selling or reloading prepaid or travel cards.
      • When conducting single or multiple transactions exceeding Rs.50,000 by a non-account holder.
      • When there is suspicion of a customer intentionally breaking a transaction into smaller amounts.
      • When opening accounts for individuals, proprietorships, legal entities, partnerships, trusts, unincorporated associations, or bodies of individuals.

    Video Based Identification (V-CIP)

    • Banks can utilize V-CIP for the following purposes:
      • New customer onboarding for individuals.
      • Identifying proprietors, authorized signatories, and beneficial owners in proprietorships.
      • CDD for proprietorships.

    Small Account

    • This account is available to individuals who lack specified documents but wish to open a bank account.
    • The account has a maximum deposit limit of Rs.1 lakh per financial year.

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    Description

    Explore the essential functions and regulatory powers of the Reserve Bank of India (RBI) in this quiz. Learn about its management structure, credit control measures, and its role as the banker of commercial and cooperative banks in India.

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