Indian Economy Quick Review PDF

CSB IAS ACADEMY UPSC - CSE APPSC& TSPSC INDIAN ECONOMY QUICK REVIEW VINAY KUMAR BAVANDLA NO. OF QUESTIONS ASKED FROM “INDIAN ECONOMY” SECTION OVER THE YEARS 2013 18 CSP-2021 Break-up 2014 10 Current+ Contemporary 04 2015 21 Theory...

CSB IAS ACADEMY UPSC - CSE APPSC& TSPSC INDIAN ECONOMY QUICK REVIEW VINAY KUMAR BAVANDLA NO. OF QUESTIONS ASKED FROM “INDIAN ECONOMY” SECTION OVER THE YEARS 2013 18 CSP-2021 Break-up 2014 10 Current+ Contemporary 04 2015 21 Theory 10 2016 29 Misc., -- 2017 29 CSP-2022 Break-up 2018 25 Current+ Contemporary 08 2019 28 Theory 08 2020 23 Misc., 02 2021 14 CSP-2023 Break-up 2022 18 Current+ Contemporary 0 Theory 0 2023 15 Misc., 0  Money, Banking Financial Intermediation HRD Budget Education, Health, Taxation Poverty, hunger, Fiscal Policy Presented By: VINAY KUMAR Presented By: VINAY KUMAR Women, SDG Resources Production Distribution Consumption INFRASTRUCTURE EXTERNAL SECTOR Energy, transport, Communications BoP, Trade, WTO Sectors of Economy Agri, Mfg, Services GDP, Inflation, IIP  TOPIC-WISE 2023 2022 2021 2020 2019 2018 2017 BREAK-UP Banking& Finance 02 08 06 09 07 07 06 Fiscal Policy 05 03 01 01 01 04 03 External Trade/ 01 03 02 07 07 04 04 BoP Sectors of 03 02 05 03 08 03 08 Economy Infrastructure 02 -- -- 01 03 01 04 HR Development 02 02 -- -- 02 06 04 Note: This topic-wise break up is not intended to discern any particular pattern/ trend. As an aspirant one should give equal importance to all topics. Presented By: VINAY KUMAR  TRINITARIAN APPROACH Basic Current Previous Concepts Affairs Questions Presented By: VINAY KUMAR What will we discuss in this Crash Course? 1. Concepts 2. Trends 3. Reports, Indices  CS (P) -2023 Consider the following statements: Consider the following statements: Consider the following statements: Statement-1: Interest income from Statement-1: In the post- Statement-1: India accounts for the deposits in Infrastructure pandemic recent past, many 3·2% of global export of goods. Investment Trusts (InviTs) distributed Central Banks worldwide had Statement-2: Many local to their investors is exempted from carried out interest rate hikes. companies and some foreign tax, but the dividend is taxable. Statement-2: Central Banks companies operating in India have Statement-2: InviTs are recognized generally assume that· they have taken advantage of India's as borrowers under the the ability to counteract the rising 'Production-linked Incentive' “Securitization and Reconstruction consumer prices via monetary of Financial Assets and· scheme. policy means. Enforcement of Security Interest Act, Which one of the following is Which one of the following is 2002”. correct in respect of the above correct in respect of the above Which one of the following is correct statements? statements? in respect of the above statements? (a) Both Statement-1 and (a) Both Statement-1 and (a) Both Statement-1 and Statement-2 are correct and Statement-2 are correct and Statement-2 are correct and Statement-2 is the correct Statement-2 is the correct Statement-2 is the correct explanation for Statement-1 explanation for Statement-1 explanation for Statement-1 (b) Both Statement-1 and (b) Both Statement-1 and (b) Both Statement-1 and Statement-2 are correct and Statement-2 are correct and Statement-2 are correct and Statement-2 is not the correct Statement-2 is not the correct Statement-2 is not the correct explanation for Statement-1 explanation for Statement-1 explanation for Statement-1 (c) Statement-1 is correct but (c) Statement-1 is correct but (c) Statement-1 is correct but Statement-2 is incorrect Statement-2 is incorrect Statement-2 is incorrect (d) Statement-1 is incorrect but (d) Statement-1 is incorrect but (d) Statement-1 is incorrect but Statement-2 is correct Statement-2 is correct Statement-2 is correct Consider the following statements: Consider the following markets: Statement-1: Carbon markets are likely to be one of 1. Government Bond Market the most widespread tools in the fight against 2. Call Money Market climate change. 3. Treasury Bill Market Statement-2: Carbon markets transfer resources 4. Stock Market from the private sector to the State. How many of the above are included in capital Which one of the following is correct in respect of markets? the above statements? (a) Only one (b) Only two (c) Only three (d) All four Which one of the following is correct in respect of the above statements? Consider the following statements: (a) Both Statement-1 and Statement-2 are correct 1. The Government of India provides Minimum and Statement-2 is the correct explanation for Support Price for niger seeds. Statement-1 2. Niger is cultivated as a Kharif crop. (b) Both Statement-1 and Statement-2 are correct 3. Some tribal people in India use niger seed oil and Statement-2 is not the correct explanation for cooking. for Statement-1 How many of the above statements are correct? (c) Statement-1 is correct but Statement-2 is (a) Only one incorrect (b) Only two (d) Statement-1 is incorrect but Statement-2 is (c) All three correct (d) None Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'? (a) Conducting 'Open Market Operations' (b) Oversight of settlement and payment systems (c) Debt and cash management for the Central and State Governments (d) Regulating the functions of Nonbanking Financial Institutions Which one of the following best describes the Consider the following: concept of ‘Small Farmer Large Field’? 1. Demographic performance (a) Resettlement of a large number of people, 2. Forest and ecology uprooted from their countries due to war, by 3. Governance reforms giving them a large cultivable land which they 4. Stable government cultivate collectively and share the produce 5. Tax and fiscal efforts For the horizontal tax devolution, the Fifteenth (b) Many marginal farmers in an area organize Finance Commission used how many of the above themselves into groups and synchronize and as criteria other than population area and income harmonize selected agricultural operations distance? (c) Many marginal farmers in an area together (a) Only two (b) Only three (c) Only four (d) All five make a contract with a corporate body and surrender their land to the corporate body for Consider the following infrastructure sectors: a fixed term for which the corporate body 1. Affordable housing makes a payment of agreed amount to the 2. Mass rapid transport farmers 3. Health care (d) A company extends loans, technical 4. Renewable energy knowledge and material inputs to a number On how many of the above does UNOPS of small farmers in an area so that they Sustainable Investments in Infrastructure and produce the agricultural commodity required Innovation (S3i) initiative focus for its by the company for its manufacturing process investments? and commercial production. (a) Only one (b) Only two (c) Only three (d) All four Consider the investments in the following assets: 1. Brand recognition 2. Inventory 3. Intellectual property 4. Mailing list of clients How many of the above are considered intangible investments? (a) Only one (b) Only two (c) Only three (d) All four Consider the following statements with reference to In the context of finance, the term 'beta' India : refers to: 1. According to the ‘Micro, Small and Medium (a) the process of simultaneous buying and Enterprises Development (MSMED) Act, 2006’, selling of an asset from different the 'medium enterprises' are those with platforms. investments in plant and machinery between ₹15 (b) an investment strategy of a portfolio crore and ₹25 crore. manager to balance risk versus reward 2. All bank loans to the Micro, Small and Medium (c) a type of systemic risk that arises where Enterprises qualify under the priority sector. perfect hedging is not possible Which of the statements given above is/are correct? (d) a numeric value that measures the (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 fluctuations. of a stock to changes in the With reference to Central Bank digital currencies, overall stock market. consider the following statements: Consider the following statements: 1. It is possible to make payments in a digital 1. The Self-Help Group (SHG) programme currency without using US dollar or SWIFT was originally initiated by the State Bank system. of India by providing microcredit to the 2. A digital currency can be distributed with a financially deprived. condition programmed into it such as a 2. In an SHG, all members of a group take timeframe for spending it. responsibility for a loan that an individual Which of the statements given above is/are member takes. correct? 3. The Regional Rural Banks and Scheduled (a) 1 only Commercial Banks support SHGs. (b) 2 only How many of the above statements are (c) Both 1 and 2 correct? (d) Neither 1 nor 2 (a) Only one (b) Only two (c) All three (d) None  MONEY-EVOLUTION, TYPES/FORMS, MONEY SUPPLY FUNCTIONS OF MONEY Currency The form in which money is circulated in the economy by the monetary authority. PRIMARY FUNCTIONS: It is only one component of Money. Medium of Exchange Liquidity The ability of an asset to be converted into money Measure of Value Presented By: VINAY KUMAR (or direct medium of exchange). SECONDARY FUNCTIONS: Standard of Deferred Payments Near Money Highly liquid assets which are not accepted as Store of Value money, but can be converted to money within a short period. Transfer of Value CONTINGENT FUNCTIONS: Legal Tender It is a coin or a banknote that is legally tenderable Basis of Credit for discharge of debt or obligation. Distribution of Social Income Fiat money is a currency that lacks intrinsic value and is General Form of Capital established as a legal tender by government Maximum Benefit regulation. Mobile Aided Note Identifier (MANI) is a mobile application launched by the Reserve Bank for aiding visually impaired persons to identify the denomination of Indian Banknotes.  WHERE ARE BANK NOTES AND COINS PRODUCED/MINTED? BANK NOTES COINS At four currency presses: At the following four mints owned by SPMCIL. Nasik (Western India) Dewas (Central India). 1. Mumbai Owned by the Government of India through its 2. Hyderabad Corporation, Security Printing and Minting 3. Kolkata and Corporation of India Ltd. (SPMCIL). 4. NOIDA. Mysuru (Southern India) In respect of coins, the role of RBI is limited to Salboni (Eastern India) distribution of coins that are supplied by Owned by the Reserve Bank, through its wholly Government of India. owned subsidiary, Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL). In terms of Section 22 of the RBI Act, 1934, RBI has The Government of India is responsible for the the sole right to issue banknotes in India. designing and minting of coins in various denominations as per the Coinage Act, 2011. All banknotes issued by RBI are backed by assets such as gold, Government Securities and Foreign Currency Assets, as defined in Section 33 of RBI Act, 1934. Which one of the following statements correctly describes the meaning of legal tender money? (CSP-2018) (a) The money which is tendered in courts of law to defray the fee of legal cases (b) The money which a creditor is under compulsion to accept in settlement of his claims (c) The bank money in the form of cheques, drafts, bills of exchange etc. (d) The metallic money in circulation in a country Presented By: VINAY KUMAR  MONEY SUPPLY-MONETARY AGGREGATES Total value of money available in an economy at a point of time RBI measures and publishes it on a weekly or fortnight basis. Monetary aggregates- Very often, the money supply in the economy is represented using a monetary aggregate called ‘broad money’, also denoted as M3. Reserve/ High-Powered Money/Monetary Base M0 Currency in circulation + Bankers’ deposits with RBI + Others deposits with RBI Narrow Money M1 Currency with public + Demand deposits (CASA) in all banks + Other deposits with RBI M2 M1 + Post office savings* Broad Money/ Money Aggregate M3 M1 + Time deposits with commercial banks (Fixed deposits, Recurring deposits). (M3 captures the complete balance sheet of the banking sector) Broad Money M4 M4= M3 + Total Post office deposits. Order of Liquidity: M1 >> M2 >>M3 >>M4 If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be CSP (a) To reduce it by Rs. 1,00,000 (b) To increase it by Rs. 1,00,000 2020 (c) To increase it by more than Rs. 1,00,000 (d) To leave it unchanged Presented By: VINAY KUMAR  MONEY CREATION BY BANKS& MONEY MULTIPLIER The money multiplier in an economy increases with which one of the following? A. Increase in the cash reserve ratio B. Increase in the banking habit of the population C. Increase in the statutory liquidity ratio D. Increase in the population of the country How many times the total deposits would be of the initial deposit is determined by the LRR. The multiple called the money or deposit multiplier, is: Money multiplier = 1/LRR In our above illustration the LRR is 0.2 therefore, Money multiplier = 1/0.2 = 5 The total money creation is thus: Money creation = initial deposit x 1/LRR = 100x1/0.2 = 500 Note: Lower the LRR, higher the money multiplier and more the money creation. If the LRR = 0.1, the money multiplier is 10(=1/0.1). If the LRR is 0.4, the money multiplier is 2.5(=1/0.4) Presented By: VINAY KUMAR Definition Satoshi Nakamoto- a new electronic cash system that’s fully peer-to-peer with no trusted third party. Cryptocurrencies have an extra layer of security, in the form of encryption algorithms. Examples Bitcoin, Ethereum, Ripple, Monero, Litecoin, Dash, Dogecoin, Ven Characteristics  No central regulator (like RBI) for virtual currencies  Have no intrinsic value; Not backed by any underlying asset like Gold etc.,  Placed in a globally visible distributed ledger& accessible to all the users Blockchain Using Distributed Ledger Network (DLN) technology digital databases are created which Technology actually makes the virtual currency transferable and incorruptible. Mining The process through which cryptocurrencies are created Legal Status of Despite inter-ministerial committee recommendations to ban private cryptocurrencies, and DC in India warnings by institutions such as the RBI about the problematic nature of their payment and exchange methods, the use of virtual currencies over the Internet continues to remain legal in India. Concerns (or) Lack of any underlying fiat; Excessive volatility in their value; Anonymous; Limitations Conducive for illegal activities such as money laundering, illegal arms trade etc.; Risks and concerns about data security and consumer protection; Potential impact on the effectiveness of monetary policy; No control and potentially no taxation on virtual currency Cryptojacking Process by which digital coin miners illegally gain access to computers and stealthily drop malware, which turns devices into cryptocurrency-mining botnets. e-RMB (or) People’s Bank of China, China's central bank has stepped up its development of the e-RMB, Digital Yuan which is set to be the first digital currency operated by a major economy. China began pilot scale payments in its new digital currency in 4 major cities. Countries like Senegal, Marshal Islands, Tunisia, Venezuela have already adopted CBDC. Presented By: VINAY KUMAR  Introduction of Digital Rupee By the RBI in 2022-23 Specific tax regime for virtual digital assets introduced. Any income from transfer of any virtual digital asset to be taxed at the rate of 30% No deduction in respect of any expenditure or allowance to be allowed while computing such income except cost of acquisition. Loss from transfer of virtual digital asset cannot be set off against any other income. To capture the transaction details, TDS to be provided on payment made in relation to transfer of virtual digital asset at the rate of 1% of such consideration above a monetary threshold. Gift of virtual digital asset also to be taxed in the hands of the recipient. Presented By: VINAY KUMAR  CENTRAL BANK DIGITAL CURRENCY (CBDC) Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. Reserve Bank India defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. CBDCs would appear as liability on a central bank’s balance sheet. CBDC, being a sovereign currency, holds unique advantages of central bank money viz. trust, safety, liquidity, settlement finality and integrity. Types of CBDC Why CBDC? CBDC can be classified into two broad types: The key motivations for exploring the issuance of 1. General purpose or retail (CBDC-R) CBDC in India among others include 2. Wholesale (CBDC-W) Reduction in operational costs involved in physical cash management Retail CBDC would be potentially available Fostering financial inclusion for use by all viz. private sector, non- Bringing resilience, efficiency, and innovation in financial consumers and businesses while payments system wholesale CBDC is designed for restricted Adding efficiency to the settlement system access to select financial institutions. Boosting innovation in cross-border payments While Wholesale CBDC is intended for the Providing public with uses that any private settlement of interbank transfers and virtual currencies can provide, without the related wholesale transactions, Retail CBDC associated risks. is an electronic version of cash primarily To push the informal economy into the formal meant for retail transactions. zone To ensure better tax and regulatory compliance. Presented By: VINAY KUMAR  Issues related to CBDC What is Digital Rupee – Retail (e₹-R)? Anonymity and Privacy: The RBI launched the first pilot of Digital Rupee- Retail The first issue to tackle is the heightened risk to the segment (e₹-R) on December 01, 2022. privacy of users—given that the central bank could The pilot is covering select locations (currently in five potentially end up handling an enormous amount cities of Mumbai, New Delhi, Bengaluru, of data regarding user transactions. Bhubaneswar and Chandigarh) in closed user group This has serious implications given that digital (CUG) of participating customers and merchants. currencies will not offer users the level of privacy The RBI issues only one digital currency on behalf of and anonymity offered by transacting in cash. Government of India, CBDC, which is a liability of the Cyber Security: Central Bank. CBDC ecosystems may be at a similar risk of cyber- The CBDC pilot has components based on blockchain attacks that the current payment systems are technology. exposed to. The e₹-R is in the form of a digital token that Compromise of credentials is another major issue. represents legal tender. Digital divide and financial illiteracy: It is being issued in the same denominations that NFHS-5: Only 48.7% of rural males and 24.6% of the paper currency and coins are currently issued. rural females have ever used the internet. So, CBDC It is being distributed through financial may wide gender-based hurdle in financial inclusion intermediaries, i.e., banks. along with digital divide. The e₹-R offers features of physical cash like trust, Disintermediation of Banks: safety and settlement finality. If sufficiently large and broad-based, the shift to As in the case of cash, it will not earn any interest CBDC can impinge upon the bank’s ability to plough and can be converted to other forms of money, like back funds into credit intermediation. deposits with banks. Faster obsolescence of technology could pose a A separate e₹ wallet has been conceived in the pilot threat to the CBDC ecosystem calling for higher considering that e₹ forms part of the currency costs of Upgradation. system while other digital wallets form part of the Presented By: VINAY KUMAR payments system. With reference to ‘Bitcoins’, sometimes seen in the news, Consider the following liquid assets: which of the following statements is/are correct? (1) Demand deposits with the banks 1) Bitcoins are tracked by the Central Banks of the (2) Time deposits with the banks countries. 2) Anyone with a Bitcoin address can send and receive (3) Savings deposits with the banks Bitcoins from anyone else with a Bitcoin address. (4) Currency 3) Online payments can be sent without either side The correct sequence of these knowing the identity of the other. decreasing order of Liquidity is Select the correct answer using the code given below. (a) 1-4-3-2; (a) 1 and 2 only; (b) 4-3-2-1; (b) 2 and 3 only; (c) 3 only (c) 2-3-1-4; (d) 1, 2 and 3 (d) 4-1-3-2 In the context of Indian economy; which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’? 1) To enable the Central Bank to control the amount of advances the banks can create 2) To make the people’s deposits with banks safe and liquid 3) To prevent the commercial banks from making excessive profits 4) To force the banks to have sufficient vault cash to meet their day-to-day requirements Select the correct answer using the code given below. (a) 1 only; (b) 1 and 2 only; (c) 2 and 3 only (d) 1, 2, 3 and 4 Presented By: VINAY KUMAR  MONEY SUPPLY- INFLATION Inflation A sustained/ persistent rise in the general level of prices in an economy Presented By: VINAY KUMAR It is indicative of the decrease in the purchasing power of a unit of country’s currency. Deflation A decrease in general price levels throughout an economy. Disinflation A temporary slowdown in price inflation. while disinflation is considered good for the economy (as it brings comfort to the consumers), deflation is not considered good (as it invites the risks of slowdown and even recession in the economy) Presented By: VINAY KUMAR Inflation and unemployment have an inverse relationship. The Phillips Curve Higher inflation is associated with lower unemployment and vice versa. Stagflation Inflation and unemployment both are at higher levels in an Economy  Inflation- Terminology Who gains from Inflation? Who loses from inflation? Creeping Inflation (< 3% p.a.) Debtors/ Borrowers Creditors/ Depositors Walking/Trotting Inflation (3-10% p.a.) Producers Who depend on fixed Running Inflation (> 10% p.a.) Owners of real assets income/ wage earners Galloping Inflation (< 1000% p.a.) People who anticipate Owners of financial Hyper Inflation (> 1000% p.a.) inflation assets Headline Inflation Taxpayers Government Core Inflation Consider the following statements: (a) 1 only; Imported Inflation (1) Inflation benefits the debtors. (b) 2 only; Inflation Premium (2) Inflation benefits the bond-holders. (c) Both 1 and 2; Which of the statements given above is/are correct? (d) Neither 1 nor 2 Demand-Pull Inflation Cost-Push Inflation A mismatch between demand and supply pulls An increase in factor input costs (i.e., wages up prices. and raw materials), therefore increased ‘too much money chasing too little output’ production cost pushes up prices. Creation of extra money Increased spending power of people To tackle demand, spending has to be cut controls on prices and incomes by increasing taxes Cutting Taxes (short-run) By reducing government expenditure. ‘moral suasions’- Promoting austerity Import of the goods in short supply measures to reduce the monopoly power of Increasing the interest on loans trade unions - Wage revisions Wage revisions Reducing excise and custom duties on raw Promoting austerity materials Presented By: VINAY KUMAR  WHOLESALE PRICE INDEX (WPI) CONSUMER PRICE INFLATION (CPI) It measures the changes in the prices of It measures price changes from the goods sold and traded in bulk by wholesale perspective of a retail buyer. businesses to other businesses. Published by the National Statistical Office Presented By: VINAY KUMAR Published by the Office of Economic (NSO), MoSPI. (Base Year for CPI is 2012) Adviser, Ministry of Commerce and Industry. Four types of CPI are as follows: CPI (IW), CPI It is the most widely used inflation indicator (AL), CPI (RL), CPI (Combined); Of these, the in India. first three are compiled by the Labour Bureau Major criticism for this index is that in the Ministry of Labour and Employment. the general public does not buy products at Fourth is compiled by the NSO. wholesale price. Recently, Labour Bureau released new series Base year for WPI: 2011-12 of CPI (IW) with base year 2016. WPI does not capture changes in the prices of No Item Weightage services, which CPI does. BASE YEAR= 2012 R U C No Item Weightage 1 Food& Beverages 54.18 36.29 45.86 BASE YEAR= 2011-12 2 Pan, Tobacco etc., 3.26 1.36 2.38 1 Primary Articles 22.62 3 Clothing, Footwear 7.36 5.57 6.53 2 Fuel& Power 13.15 4 Housing -- 21.67 10.07 3 Manufactured Products 64.23 5 Fuel& Light 7.94 5.58 6.84 TOTAL 100.00 6 Miscellaneous 27.26 29.53 28.32 Food Index 24.38 TOTAL 100.0 100.0 100.0  A rise in general level of prices may be caused by (1) an increase in the money supply (2) a decrease in the aggregate level of output (3) an increase in the effective demand Select the correct answer using the codes given below. (a) 1 only; (b) 1 and 2 only; (c) 2 and 3 only; (d) 1, 2 and 3 Which one of the following is likely to be the most inflationary in its effect? (a) Repayment of public debt (b) Borrowing from the public to finance a budget deficit (c) Borrowing from banks to finance a budget deficit (d) Creating new money to finance a budget deficit Which of the following brings out the ‘Consumer Supply of money remaining the same when there is Price Index Number for Industrial Workers’? an increase in demand for money, there will be (a) a fall in the level of prices (a) The RBI; (b) an increase in the rate of interest (b) The Department of Economic Affairs; (c) a decrease in the rate of interest (c) The Labour Bureau; (d) an increase in the level of income and (d) The DoPT employment Presented By: VINAY KUMAR With reference to the Indian economy, demand-pull Which among the following steps is most likely to inflation can be caused/increased by which of the be taken at the time of an economic recession? following? a) Cut in tax rates accompanied by increase in 1. Expansionary policies interest rate 2. Fiscal stimulus b) Increase in expenditure on public projects 3. Inflation-indexing wages c) Increase in tax rates accompanied by 4. Higher purchasing power reduction of interest rate 5. Rising interest rates d) Reduction of expenditure on public projects Select the correct answer using the code given below. Consider the following statements : a) 1, 2 and 4 only (1) The weightage of food in Consumer Price b) 3, 4 and 5 only Index (CPI) is higher than that in Wholesale Price c) 1, 2, 3 and 5 only Index (WPI). d) 1, 2, 3, 4 and 5 (2) The WPI does not capture changes in the prices of services, which CPI does. Which one of the following is likely to be one of the (3) The Reserve Bank of India has now adopted most inflationary in its effects? WPI as its key measure of inflation and to decide a) Repayment of public debt on changing the key policy rates. b) Borrowing from the public to finance a budget deficit Which of the statements given above is/are c) Borrowing from the banks to finance a budget deficit correct? d) Creation of new money to finance a budget deficit (a)1 and 2 only; (b)2 only; (c) 3 only; (d) 1, 2 and 3 With reference to inflation in India, which of the following statements is correct? (a) Controlling the inflation in India is the responsibility of the Government of India only (b) The Reserve Bank of India has no role in controlling the inflation (c) Decreased money circulation helps in controlling the inflation (d) Increased money circulation helps in controlling the inflation Presented By: VINAY KUMAR  The primary objective of monetary policy is to MONETARY POLICY COMMITTEE (MPC) maintain price stability while keeping in mind the objective of growth. MPC constituted by the Central Government Price stability is a necessary precondition to under Section 45ZB determines the policy interest sustainable growth. rate required to achieve the inflation target. 2016: Flexible Inflation Targeting framework. Inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent. Monetary Policy Framework based on CPI level of 4% with tolerable limit of +/- 2% has now been extended for five more years. Factors that constitute failure to achieve the inflation target if the average inflation is more than or less than tolerance level (4+/-2) for any three consecutive quarters. Presented By: VINAY KUMAR Monetary Policy Section 45ZB of the amended RBI Act, 1934 provides for an empowered six-member Committee monetary policy committee (MPC) to be constituted by the Central Government. (MPC) Such MPC comprises:  Three members from the RBI 1. Governor of the Reserve Bank of India – Chairperson, ex officio; 2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy – Member, ex officio; 3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio  Three members nominated by the Central Government and they hold office for a period of 4 years or until further orders, whichever is earlier. No reappointment Functioning of  MPC determines the policy interest rate required to achieve the inflation target. MPC  The MPC is required to meet at least four times in a year. (However, MPC has been conducting meeting for every TWO months and releasing bi-monthly policy statements)  The quorum for the meeting of the MPC is four members.  Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.  The resolution adopted by the MPC is published after conclusion of every meeting of the MPC in accordance with the provisions of Chapter III F of the Reserve Bank of India Act, 1934.  On the 14th day, the minutes of the proceedings of the MPC are published which include: o the resolution adopted by the MPC; o the vote of each member on the resolution, ascribed to such member; and o the statement of each member on the resolution adopted.  Once in every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain: o the sources of inflation; and o the forecast of inflation for 6-18 months ahead. Presented By: VINAY KUMAR  MONETARY POLICY INSTRUMENTS Cash Reserve Ratio The average daily balance that a bank is required to maintain with the RBI as a share of such (CRR) (% of NDTL) per cent of its NDTL that the RBI may notify from time to time. Statutory Liquidity The share of NDTL that a bank is required to maintain in safe and liquid assets, such as, Statutory Reserve Ratio (SLR) unencumbered government securities, cash and gold. Ratios (% of NDTL) Changes in SLR often influence the availability of resources in the banking system for lending to the private sector. Scheduled Commercial Banks (including RRBs), Local Area Banks, Small Finance Banks, Payments Banks, Primary (urban) co-operative banks and State and central co-operative banks. Bank Rate It is the rate at which the RBI is ready to buy or rediscount bills of exchange or other commercial papers. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes. Liquidity Adjustment The LAF consists of overnight as well as term repo auctions. Presented By: VINAY KUMAR Facility (LAF) LAF consists of Repo auctions (for injection of liquidity) and reverse repo auctions (for Key Rates absorption of liquidity) conducted by the Reserve Bank. (or) Repo rate The (fixed) interest rate at which the RBI provides overnight liquidity to banks against the Policy Rates collateral of government and other approved securities under the LAF. Reverse Repo Rate The (fixed) interest rate at which the RBI absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF. Standing Deposit a collateral-free liquidity absorption mechanism implemented by the RBI with the intention of Facility (SDF) transferring liquidity out of the commercial banking sector and into the RBI. It will replace the fixed rate reverse repo (FRRR) as the floor of the liquidity adjustment facility corridor. Margin Standing A facility under which SCBs can borrow additional amount of overnight money from the RBI by Facility (MSF) dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system. Open Market These include both, outright purchase and sale of government securities, for injection and Market Operations Operations (OMO) absorption of durable liquidity, respectively. Market Stabilization This instrument was introduced in 2004. Surplus liquidity of a more enduring nature arising Scheme (MSS) from large capital inflows is absorbed through sale of short-dated G-Secs and T-Bills. The cash so mobilized is held in a separate government account with the Reserve Bank.  Headline inflation is measured by year-on-year changes in the all-India consumer price index (CPI) produced by the National Statistical Office (NSO). Core CPI, i.e., CPI excluding food and fuel is worked out by eliminating the groups ‘food and beverages’ and ‘fuel and light’ from the headline CPI. Presented By: VINAY KUMAR  Open Market Operations (OMO) Monetization of Deficit Both monetization and OMOs involve printing of currency by RBI and therefore result in expansion of money supply. RBI purchases treasury bills/government bonds from RBI prints currency and credits to the government’s the secondary market and pumps money into the account against new government bonds issued by it. economy. (through primary market) This is basically a monetary policy tool aimed at It is a way of financing the fiscal deficit with the adjusting liquidity in the system. quantum and timing of money supply determined by the government’s borrowing rather than the RBI’s monetary policy. OMO is said to be a lesser evil than direct Expansion in the central bank’s balance sheet is monetization because the former is a ‘temporary’ relatively ‘permanent’. expansion in the central bank’s balance sheet. MONETARY POLICY TRANSMISSION Q. Consider following statements about Monetary Policy Committee: (CSP-2017) As per Economic Survey 2019-20, the 1. It decides RBI’s benchmark interest rates. difference between Repo Rate and the Weighted Average Lending Rate is the highest 2. It is a 12-member body including the during the decade. Governor of RBI and is reconstituted every It indicates lack of proper monetary year. transmission (in other words, Lending Rate 3. It functions under the chairmanship of the Reduction is not commensurate with Repo Union Finance Minister. Rate) Find Correct Statements: During the past two years, repo rate has been (a) 1 only; (b) 1 and 2 only; (c) 3 only; reduced by around 250 basis points. (d) 2 and 3 only Presented By: VINAY KUMAR  EXTERNAL BENCHMARKING OF LENDING RATES Marginal Cost External Benchmark Administered of Funds based Benchmarking Prime Lending Base Rate Rates Lending Rate of Interest Rate [BPLR] [MCLR] Rates RBI’s Internal Study Group had recommended a switchover to an external benchmark in a time-bound manner. Based on the consultations with stakeholders, RBI decided to link all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks with effect from October 01, 2019 to external benchmarks. (a) All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks from October 01, 2019 shall be benchmarked to one of the following: Reserve Bank of India policy repo rate Government of India 3-Months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL) Government of India 6-Months Treasury Bill yield published by the FBIL Any other benchmark market interest rate published by the FBIL. (b) Banks are free to offer such external benchmark linked loans to other types of borrowers as well. (c) In order to ensure transparency, standardization, and ease of understanding of loan products by borrowers, a bank must adopt a uniform external benchmark within a loan category; in other words, the adoption of multiple benchmarks by the same bank is not allowed within a loan category. (d) Banks are free to decide the spread over the external benchmark. (e) The interest rate under external benchmark shall be reset at least once in three months. Presented By: VINAY KUMAR  Monetary Tightening is the Trend across all major economies! The year 2022 marked the return of high inflation, especially in advanced economies, after nearly four decades. These developments led to an unprecedented, synchronous, and sharp cycle of monetary tightening across countries. Major central banks have implemented sharp increases in policy rates, with the Federal Reserve’s rate hikes being the steepest since the 1970s. While the Federal Reserve has raised policy US Fed Interest rate hike and potential Impact rates by 425 basis points (bps), the European Central Bank (ECB) and the Bank India becomes less attractive market for of England (BoE) have implemented 300 bps Investments and Currency Trade and 250 bps rate increases, respectively. Out flow of FIIs The RBI initiated its monetary tightening Depreciation of INR (₹) cycle in April 2022 and has since Inflation implemented a policy repo rate hike of 225 Increased cost of borrowing from abroad, for bps. Indian companies from (ECBs) Consequently, domestic financial conditions Forces the RBIs to increase interest rate to began to tighten, which was reflected in the arrest the flight of Investments lower growth of monetary aggregates. Presented By: VINAY KUMAR If the RBI decides to adopt an expansionist What is/are the purpose/purposes of the monetary policy, which of the following would it ‘Marginal Cost of Funds based Lending Rate not do? (MCLR)’ announced by RBI? (1) Cut and optimize the Statutory Liquidity Ratio (1)These guidelines help improve the transparency (2) Increase the Marginal Standing Facility Rate in the methodology followed by banks for Presented By: VINAY KUMAR (3) Cut the Bank Rate and Repo Rate determining the interest rates on advances. (2)These guidelines help ensure availability of Select the correct answer using the code given bank credit at interest rates which are fair to the below: borrowers as well as the banks. (a) 1 and 2 only; Select the correct answer using the code given (b) 2 only; below. (c) 1 and 3 only (a) 1 only; (b) 2 only; (c) Both 1 and 2; (d) 1, 2 and 3 (d) Neither 1 nor 2 The terms ‘Marginal Standing Facility Rate’ and ‘Net With reference to the Indian economy, consider Demand and Time Liabilities’, sometimes appearing in the following news, are used in relation to (1) Bank rate; (2) Open market operations (a) banking operations (3) Public debt; (4) Public revenue (b) communication networking Which of the above is/ are component/s of (e) military strategies Monetary Policy? (d) supply and demand of agricultural products (a) 1 only; (b) 2, 3 and 4; (c) 1 and 2; (d) 1, 3 and 4 When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen? (a) India’s GDP growth rate increases drastically (b) Foreign Institutional Investors may bring more capital into our country (c) Scheduled Commercial Banks may cut their lending rates (d) It may drastically reduce the liquidity to the banking system  FINANCIAL INTERMEDIATION BANKS& FINANCIAL MARKETS Financial intermediaries transmute funds between savers who lend and investors who borrow. They mobilise savings and channel them into the hands of investors who need more funds than they have on hand. In other words, they are conduits through which savers can lend their excess funds to investors. The process by which allocation of funds is done is called financial intermediation. FUNCTIONS OF FINANCIAL MARKET Banks and financial markets are 1. Mobilisation of Savings and Channeling them into competing intermediaries in the financial the most Productive Uses. system, and give households a choice of 2. Facilitating Price Discovery where they want to place their savings. 3. Providing Liquidity to Financial Assets Presented By: VINAY KUMAR 4. Reducing the Cost of Transactions  FINANCIAL INTERMEDIATION ECOSYSTEM IN INDIA Insurance Pension Forex Banks Non-Banking Financial Market Financial Mutual Funds Institutions Money Capital Derivatives Market Market Market Call Money Options NBFCs AIFIs T-bills Primary Secondary NABARD Market Market Futures Primary Certificate of Dealers Deposit (CD) NHB Debt Commercial Papers (CP) EXIM Equity G-Secs/ Dated SIDBI Securities State NaBFID Development Loans (SDLs) Presented By: VINAY KUMAR  RESERVE BANK OF INDIA Non-Scheduled Banks Scheduled Banks Development Banks (DFIs) NABARD Commercial Banks Cooperative Banks SIDBI Public Sector Banks Urban Co-op Banks MUDRA Private Banks State Co-op Banks EXIM Foreign Banks District Co-op Banks Regional Rural Banks NHB Local Area Banks PACs IFCI/IDBI Presented By: VINAY KUMAR  Domestic Systemically Important Banks (D-SIBs) The banks considered as too big to fail by RBI due to their size, cross- jurisdictional activities, complexity and lack of substitute and interconnection. Banks whose assets exceed 2% of GDP are considered D-SIBs SBI, ICICI Bank, HDFC Bank continues to remain D-SIB. As per the framework, from 2015, the central bank has to disclose names of banks designated as D- SIB. Presented By: VINAY KUMAR  Which Banks are insured by the DICGC? What does the DICGC insure? All commercial banks including branches of The DICGC insures all deposits such as savings, foreign banks functioning in India fixed, current, recurring, etc. deposits except Local Area Banks the following types of deposits Regional Rural Banks Deposits of foreign Governments; All co-operative banks (State, Central and Deposits of Central/State Governments; Primary cooperative banks, also called urban Inter-bank deposits; cooperative banks) Deposits of the State Land Development Banks Note: Primary cooperative societies are not with the State co-operative bank; insured by the DICGC. Any amount due on account of and deposit received outside India What is the maximum deposit amount Any amount, which has been specifically insured by the DICGC? exempted by the corporation with the previous approval of Reserve Bank of India Each depositor in a bank is insured up to a maximum of Rs. 5,00,000 (Rupees Five Lakhs) The deposits kept in different branches of a for both principal and interest amount held by bank are aggregated for the purpose of him. insurance cover and a maximum amount of up Presented By: VINAY KUMAR to ₹5,00 000 is paid.  PRIORITY SECTOR LENDING (PSL) PSL applicable Sectors PSL norms applicable to: The idea behind this is to Agriculture Every Commercial Bank ensure that adequate MSMEs [including Regional Rural institutional credit reaches Export Credit Bank (RRB), Small Finance some of the vulnerable Bank (SFB), Local Area Bank] sectors of the economy, Education Primary (Urban) Co- which otherwise may not Housing operative Bank (UCB) other Social Infrastructure be attractive for banks from than Salary Earners’ Bank Renewable Energy, and the profitability point of licensed to operate in India Others., by the RBI. view. Categories Domestic scheduled commercial banks and Foreign banks Foreign banks with less than with 20 branches and above 20 branches Total PSL Target 40% of Adjusted Net Bank Credit or Credit Equivalent 40% of ANBC to be achieved in Amount of Off-Balance Sheet Exposure, whichever is a phased manner by 2020. higher. Agriculture 18% of ANBC or Credit Equivalent Amount of Off-Balance Not applicable Sheet Exposure, whichever is higher.  Within the 18% target for agriculture, a target of 8% is prescribed for Small and Marginal Farmers. Micro Enterprises 7.5% of ANBC or Credit Equivalent Amount of Off-Balance Not applicable Sheet Exposure, whichever is higher. Advances to 10% of ANBC or Credit Equivalent Amount of Off-Balance Not applicable Weaker Sections Sheet Exposure, whichever is higher Presented By: VINAY KUMAR  NON-PERFORMING ASSETS (NPAs) PCA – Three Parameters Presented By: VINAY KUMAR 1. Capital 2. Asset Quality 3. Leverage PCA is applicable to all banks operating in India including foreign banks, excluding SFBs and Payment Banks. Now, PCA framework will be applicable to all deposit-taking NBFCs, all non-deposit taking NBFCs. PROMPT CORRECTIVE ACTION (PCA) PCA is a framework under which financial institutions (Banks and NBFCs) with weak financial metrics are put under watch by the RBI. It was first introduced in 2002 as a structured early-intervention mechanism for banks. It was last reviewed in 2017 based on the recommendations of the FSDC and FSLRC.  The Capital-to-Risk Weighted Assets Ratio (CRAR) remains healthy at 16.0 and well above the regulatory requirement of 11.5. The GNPA ratio decreased from 8.2% in March 2020 to a seven-year low of 5.0% in September 2022, while Net Non- Performing Assets (NNPA) have dropped to a ten-year low of 1.3% of total assets. The health of NBFCs has continued to improve as well.  IBC- 4 PILLARS Insolvency Professionals (IPs) Information Utilities (IU) Regulator- IBBI Adjudicating Authorities Individuals- DRT Companies- NCLT Presented By: VINAY KUMAR  Basel-III Standards Basel-III standards mainly seek to raise the quality and level of capital to ensure that financial entities are better able to absorb losses on both a going concern and a gone concern basis. In 2021, RBI extended Basel-III Capital Framework to AIFIs. Presented By: VINAY KUMAR For Payment Banks, Enhancement of limit of maximum balance per customer at end of the day from ₹1 lakh to ₹2 lakh. Payments Banks can apply for conversion to Small Finance Banks after five years of operation. Existing NBFCs, MFIs, local area banks and payments banks can be converted to Small Finance Banks, and the capital requirement is ₹200 Crore. RBI allowed Primary (Urban) Cooperative Banks to convert into SFBs, provided, they comply with the on-tap licensing guidelines. For cooperative banks, the minimum net worth should be ₹100 Cr and should be increased to ₹200 Cr, within five years from the commencement of business. RESERVE BANK OF INDIA (RBI) The Reserve Bank of India was Presented By: VINAY KUMAR established on April 1, 1935 in accordance with the provisions of the RBI Act, 1934. In 1949, the RBI was nationalised. RBI as Banker to banks As Banker to banks, the Reserve Bank provides short-term loans and advances to select banks, when necessary, to facilitate lending to specific sectors and for specific purposes. RBI as ‘lender of the last resort’ RBI can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank. RBI extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy.  Monetary authority: Formulate, operationalize and monitor the implementation of monetary policy in order to maintain price stability while keeping in mind the objective of growth. Regulator and supervisor of the financial system: Maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. Regulator and supervisor of the Payment and Settlement Systems: Regulate and oversee all the payment and settlement systems in the country. Fostering of financial stability: Effecting macro-prudential policy; acting as the LoLR; developing and strengthening the deposit insurance framework within the country. Manager of foreign exchange: Administers the Foreign Exchange Management Act, 1999 (FEMA), which aims at facilitating external trade and payment and promote orderly development and maintenance of foreign exchange market in India. Reserve management: Acts as the custodian of foreign exchange reserves and manages them to calm volatility in the forex markets and provide adequate liquidity for ‘sudden stop’ or reversals in capital flows. Issuer of currency: The RBI Act confers RBI with the sole right to issue bank notes in India. The RBI’s objective is the supply and distribution of adequate quantity of currency and ensuring the quality of banknotes in circulation by continuous supply of clean notes and timely withdrawal of soiled notes. Developmental functions: Consumer protection, financial inclusion& development of institutions. Banker to the government: Banker to the Central Government vide statutory stipulations under the RBI Act, and to the state governments through various agreements. Debt manager to central and state governments: As the debt manager of central and state governments, RBI works to minimize the long-term borrowing costs, ensure sustainability of debt, and to deepen and widen the market for Government securities. Banker to banks: Maintains banking accounts of all scheduled banks and provides an efficient means of transferring funds for banks and settling inter-bank transactions. Presented By: VINAY KUMAR  FINANCIAL INCLUSION Ensuring access to an array of basic formal financial services and products and scaling up financial awareness initiatives. Pradhan Mantri Jeevan Jyothi Bima Yojana Pradhan Mantri Suraksha Bima Yojana Atal Pension Yojana The Lead Bank Scheme State Level Bankers' Committees Introduced towards the end of 1969 SLBCs are formed in all the States for inter- It envisages assignment of lead roles to institutional coordination and joint individual banks (both in public sector and implementation of programs and policies by private sector) for the districts allotted to all the financial institutions operating in the them. State. The lead bank acts as a leader for coordinating Responsibility for convening SLBC meetings is the efforts of all credit institutions in the assigned to various commercial banks. allotted districts to increase the flow of credit SLBC meetings, held quarterly, provide for to agriculture, small-scale industries and other interaction among the various banks in the economic activities included in the priority State, and between the banks and the State sector in the rural and semi-urban areas. Government authorities.  National Payment Corporation of India (NPCI) ABOUT NPCI (2008): 6 PSBs, 4 private sector banks, RBI and Indian Banks Association setup NPCI as a consortium of these banks. Which one of the following links all the ATMs in India? It is the umbrella entity for digital payments. a) Indian banks’ Association It is not-for-profit entity. It is not under the RTI Act. b) National Securities Depository Limited It devised several digital payment initiatives. c) National Payments Corporation of India d) Reserve Bank of India Other services offered by NPCI National Financial Switch (NFS) – provides e-commerce transactions with interbank payment gateway and shared ATMs. Immediate Payments Service (IMPS) – provides electronic fund transfer payment mechanics through the usage of mobile phones, internet banking and ATM *99# – provides banking services to common man which works on USSD channel. National Automated Clearing House (NACH)- facilitates high volume interbank transactions which occur repetitively. Cheque Truncation System (CTS)- clearing cheques using online image basis Aadhaar Enabled Payment System (AEPS)- provides a point of sales transactions with an Aadhar enabled number. Bharat Bill Payment System (BBPS) – a unified platform for bill payment system in the country. Presented By: VINAY KUMAR The National Payments Corporation of India (NPCI), which oversees the digital payments ecosystem in India, has launched e-RUPI, a voucher-based payments system to promote cashless transactions. It has been developed in collaboration with the Department of Financial Services (DFS), Ministry of Health & Family Welfare (MoHFW) and National Health Authority (NHA). e-RUPI is a person and purpose-specific cashless digital payment solution. a contactless instrument for digital payment. It is basically a prepaid voucher that can be issued directly to citizens after verifying mobile number and identity. It is based on a QR code or SMS string-based e-voucher, which is delivered to the mobile of the beneficiaries. The beneficiary can redeem the voucher without a card, digital payments app, or internet banking access, at the service provider. e-RUPI is expected to play a major role in strengthening Direct-Benefit Transfer (DBT) and making it more transparent. Presented By: VINAY KUMAR  RBI takes supervisory action on Card Networks – American Express Banking Corp. and Diners Club International Ltd Presented By: VINAY KUMAR RBI circular on Storage of Payment System Data These two entities have been found non- Dt.06/04/2018 All Payment System Providers were directed to compliant with the directions on Storage of ensure that within a period of six months the Payment System Data. This order will not entire data (full end-to-end transaction details / impact existing customers. information collected / carried / processed as part American Express Banking Corp. and Diners of the message / payment instruction) relating to Club International Ltd. are Payment System payment systems operated by them is stored in a Operators authorised to operate Card system only in India. Networks in the country under the Payment They were also required to report compliance to and Settlement Systems Act, 2007. RBI and submit a Board-approved System Audit The supervisory action has been taken in Report (SAR) conducted by a CERT-In empanelled exercise of powers vested in RBI under auditor within the timelines specified therein. Section 17 of the PSS Act. The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat command the payment system providers that : (CSP-2019) 1. They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India. 2. They shall ensure that the systems are owned and operated by public sector enterprises. 3. They shall submit the consolidated system audit report to the comptroller and Auditor General of India by the end of the calendar year. Which of the statements given above is/are correct: (a) 1 only (b)1 and 2 only (c) 3 only (d) 1,2 and 3 only  Principal development financial institution Functions of NaBFID (DFIs) for infrastructure financing. DFIs are set up for providing long-term finance (i) Loans and advances for infrastructure for such segments of the economy where the projects, risks involved are beyond the acceptable limits (ii) taking over or refinancing existing loans, of commercial banks and other ordinary FIs. (iii) attracting investment from private sector investors and institutional investors for DFIs do not accept deposits from people. infrastructure projects, NBFID will be set up as a corporate body with (iv) organising and facilitating foreign authorised share capital of ₹1 lakh crore. participation in infrastructure projects, Shares of NBFID may be held by: (v) facilitating negotiations with various (i) central government, government authorities for dispute (ii) multilateral institutions resolution in the field of infrastructure (iii) sovereign wealth funds, financing, and (iv) pension funds, (vi) providing consultancy services in (v) insurers, infrastructure financing. (vi) financial institutions, (vii) banks, and NaBFID may borrow money from: (i) central (viii) any other institution prescribed by the government, (ii) RBI, (iii) SCBs (iv) mutual funds, central government. and (iv) multilateral institutions such as World Initially, the central government will own 100% Bank and Asian Development Bank. shares of the institution which may The Bill also provides for any person to set up subsequently be reduced up to 26%. a DFI by applying to RBI. Presented By: VINAY KUMAR RBI may grant a license for DFI.  Financial Services Institutions Bureau (FSIB) It is set up under the Department of Financial Composition of FSIB: Services (DFS), Ministry of Finance, to: Chairperson of FSIB, to be nominated by GoI who shall Recommend persons for appointment as be a retired official from the banking sector (or) a whole-time directors and non-executive businessperson of repute with sufficient knowledge of chairpersons on the Boards of financial the financial sector, (or) a person with at least 25 years services institutions (including public sector of experience in public administration with experience banks (PSBs), public sector insurers (PSIs) and financial institutions (FIs)). in banking and the financial sector. Advise on certain other matters relating to Ex officio members: Secretary in charge of DFS, personnel management in these institutions. Department of Public Enterprises, Chairperson of the Promote excellence in Corporate Governance IRDAI, Deputy Governor of RBI. in Public Sector FIs. 3 persons with subject matter knowledge relating to Other major functions of FSIB include: PSBs and FIs and 3 persons with subject matter To advise the Government on matters relating to knowledge relating to PSIs (to be nominated by the appointments, transfer or extension of term of GoI) as part time members. office and termination of services of the directors. To advise the Government on the desired management structure at the Board level for PSBs, FIs and PSIs. To build a databank containing data related to the performance of PSBs, FIs and PSIs. To advise the Government on formulation and enforcement of a CoE/ CoC for whole-time directors in PSBs, FIs and PSIs. To help PSBs, Fls and PSIs in terms of developing business strategies and capital raising plan etc. Prepared by: Vinay Kumar Bavandla With reference to the governance of public sector banking in India, consider the following statements: 1. Capital infusion into PSBs by the Government of India has steadily increased in the last decade. 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 What was the purpose of Inter-Creditor agreement signed by Indian banks and financial institutions recently? (a) To lessen the Government of India’s perennial burden of fiscal deficit and current account deficit. (b) To support the infrastructure projects of Central and State Governments (c) To act as independent regulator in case of application for loans of Rs. 50 core or more (d) To aim at faster resolution of stressed assets of Rs. 50 crore/ more which are under consortium lending The Service Area Approach was implemented under the purview of (a) Integrated Rural Development Programme (b) Lead Bank Scheme (c) Mahatma Gandhi National Rural Employment Guarantee Scheme (d) National Skill Development Mission The Chairman of public sector banks are selected Which of the following is not included in the assets by the of a commercial bank in India? (a) Banks Board Bureau (a) Advances (b) Reserve Bank of India (b) Deposits (c) Union Ministry of Finance (c) Investments (d) Management of concerned bank (d) Money at call and short notice Presented By: VINAY KUMAR With reference to Urban Cooperative Banks in What is the importance of the term “Interest India, consider the following statements: Coverage Ratio” of a firm in India? 1. They are supervised and regulated by local 1. It helps in understanding the present risk of a boards set up by the State Governments. firm that a bank is going to give a loan to. 2. They can issue equity shares and preference 2. It helps in evaluating the emerging risk of a shares. firm that a bank is going to give a loan to. 3. They were brought under the purview of the 3. The higher a borrowing firm’s level of Interest Banking Regulation Act, 1949 through an Coverage Ratio, the worse is its ability to Amendment in 1996. service its debt. Which of the statements given above is/are Select the correct answer using the code given correct/ below: a) 1 only; b) 2 and 3 only; c) 1 and 3 only; d) 1,2,3 (a) 1 and 2 only; (b) 2 only; (c) 1 and 3 only (d) 1, 2, 3 In India, the Central Bank’s function as the Consider the following statements: “lender of last resort” usually refers to which of 1. The Governor of the Reserve Bank of India (RBI) is the following? appointed by the Central Government. 1. Lending to trade and industry bodies when 2. Certain provisions in the Constitution of India give they fail to borrow from other sources. the Central Government the right to issue directions 2. Providing liquidity to the banks having a to the RBI in the public interest. temporary crisis 3. The Governor of the RBI draws his power from the 3. Lending to governments to finance budgetary RBI Act. deficits Which of the above statements are correct? Select the correct answer using the code given a) 1 and 2 only below b) 2 and 3 only a) 1 and 2; b) 2 only c) 1 and 3 only c) 2 and 3; d) 3 only d) 1, 2 and 3 Presented By: VINAY KUMAR With reference to digital payments, consider the following What is the purpose of setting up Small Finance statements: Banks (SFBs) in India? (1) BHIM app allows the user to transfer money to anyone (1) To supply credit to small business units with a UPI-enabled bank account. (2) While a chip-pin debit card has four factors of (2) To supply credit to small and marginal farmers authentication, BHIM app has only two factors of (3) To encourage young entrepreneurs to set up authentication. business particularly in rural areas. Which of the statements given above is/are correct? Select the correct answer using the code given (a) 1 only below: (b) 2 only (a) 1 and 2 only (c) Both 1 and 2 (b) 2 and 3 only (d) Neither 1 nor 2 (c) 1 and 3 only Which of the following is the most likely consequence of (d) 1, 2 and 3 implementing the ‘Unified Payments Interface (UPI)’? (a) Mobile wallets will not be necessary for online The term ‘Core Banking Solutions’ is sometimes seen in payments. the news. Which of the following statements best (b) Digital currency will totally replace the physical describes/describe this term? currency in about two decades. (1) It is a networking of a bank’s branches that enables (c) FDI inflows will drastically increase. customers to operate their accounts from any branch of (d) Direct transfer of subsidies to poor people will become the bank on its network regardless of where they open very effective. their accounts. What is/are the purpose/purposes of the Government’s (2) It is an effort to increase RBI’s control over ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization commercial banks through computerization. Scheme’? (3) It is a detailed procedure by which a bank with huge (1) To bring the idle gold lying with Indian households non-performing assets is taken over by another bank. into the economy Select the correct answer using the code given below. (2) To promote FDI in the gold and jewellery sector (a) 1 only (3) To reduce India’s dependence on gold imports (b) 2 and 3 only Select the correct answer using the code given below. (c) 1 and 3 only (a) 1 only;(b) 2 and 3 only; (c) 1 and 3 only; (d) 1, 2 and 3 (d) 1, 2 and 3  NON-BANKING FINANCIAL COMPANIES (NBFCs) How NBFCs are NBFC cannot accept demand deposits; NBFCs do not form part of the payment and settlement system different from NBFCs cannot issue cheques drawn on itself; Banks? Deposit insurance facility of DICGC is not available to depositors of NBFCs Category of NBFC Regulation, Surveillance, Supervision& Enforcement NBFCs registered under Section 45-IA of the RBI Act, 1934 subject to certain conditions Presented By: VINAY KUMAR  Asset Finance Companies  Investment Companies Reserve Bank of India  Loan Companies  Infrastructure Finance Companies  Core-Investment Companies (CIC-ND-SI)  Infrastructure Debt Fund  Mortgage Guarantee Companies  NBFC-Factors Housing Finance Companies (HFCs) National Housing Bank (NHB) Now, They would come under RBI’s regulation Merchant Banker/Venture Capital Fund Company/ Securities and Exchange Board of India (SEBI) stock-exchanges/ stock brokers Insurance companies Insurance Regulatory and Development Authority of India Chit Fund Companies are regulated by the and respective State Governments Nidhi Companies, Mutual Benefit Companies Ministry of Corporate Affairs Non- Banking Non-Financial Companies Regulation: Ministry of Corporate Affairs Enforcement: respective State Governments  The Factoring Regulation (Amendment) Act, 2021 The act was amended in line with the recommendations of UK Sinha Committee on MSMEs. The key changes brought about are: Factoring is an important source of liquidity Removal of principal business criteria has for MSMEs. significantly increased the number of eligible NBFCs Factoring is a transaction where an entity that can undertake factoring business. sells its receivables (dues from a customer) The time period for registration of invoice and to a third party (a ‘factor’ like a bank or satisfaction of charge upon it may be specified by NBFC) for immediate funds. the Government by rules to streamline the process All or part of invoice can be sold to a factor and prevent frauds through dual financing. for getting money immediately at The amended Act and new Rules and Regulations competitive interest rate. allow the concerned TReDS platform to register The factor then collects payments from the charge directly with Central Registry of buyer of goods and earns a commission in Securitization Asset Reconstruction and Security the form of some interest. Interest(CERSAI) on behalf of the factors using the This is different from bill discounting. In platform, so as to promote the use of TReDS and bill discounting, a bank or NBFC gives a reduce procedural burden on factors. certain percentage of the total outstanding Definitions of “assignment”, “factoring business” value of invoices to seller and in most cases and “receivables” have been amended. the seller has to take on the responsibility Regulation making power was given to RBI for the for payment of invoices by the buyer to the manner of granting certificate of registration and factor. the manner of filing of particulars of transactions However, in case of factoring, the factor with the CERSAI by TReDS entities on behalf of takes on the responsibility for the factors. collection of invoices.  FINANCIAL INTERMEDIATION ECOSYSTEM IN INDIA Insurance Pension Forex Banks Non-Banking Financial Market Financial Mutual Funds Institutions Money Capital Derivatives Market Market Market Call Money Options NBFCs AIFIs T-bills Primary Secondary NABARD Market Market Futures Primary Certificate of Dealers Deposit (CD) NHB Debt Commercial Papers (CP) EXIM Equity G-Secs/ Dated SIDBI Securities State NaBFID Development Loans (SDLs) Presented By: VINAY KUMAR Presented By: VINAY KUMAR Presented By: VINAY KUMAR  PRIMARY MARKET Equity Debt Hybrids REITS IPO Public Issue Convertibles InvITs FPO Private Placement QIP