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Money and Banking (part – II)

📆 September 24, 2024

Total Questions: 268

11. The term 'Core Banking Solutions' is sometimes seen in the news. Which of the following statements best describes/ describe this term ? [U.P.S.C (Pre) 2016]

1. It is a networking of a bank's branches which enables customers to operate their account from any branch of the bank on its network regardless of where they open their accounts.

2. It is an effort to increase RBI's control over commercial banks through computerization.

3. It is a detailed procedure by which a bank with huge non-performing assets is taken over by another bank.

Select the correct answer using the code given below.

Correct Answer: (a) 1 only
Solution:Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices. Banking software and network technology allows a bank to centralize its record-keeping and allow access from any location. Statement 2 and 3 are incorrect. Hence option (a) is the correct answer.

12. The Government of India has recently acquired the RBI's stake in : [U.P.P.C.S. (Mains) 2007]

Correct Answer: (b) State bank of India
Solution:In June 2007, the Government of India had acquired the RBI's 59.7& stake in State bank of India.

13. Which one of the following banks is under the control of the Reserve Bank of India? [U.P.P.C.S. (Pre) 1998]

Correct Answer: (c) NABARD
Solution:As per the question period, NABARD was under the control of the Reserve Bank of India (RBI). Divestment of RBI's shareholding in NABARD was done in two phases. The Bank held 72.5 percent of equity in NABARD amounting to Rs. 1450 crore out of which 71.5 percent amounting to Rs. 1430 crore was divested in October, 2010 based on the Government of India notification on September 16, 2010. The RBI divested its residual stake in NABARD and entire stake in NHB amounting to Rs. 20 crore and Rs. 1450 crore on February 26, 2019 and March 19, 2019 respectively. With this, the Government of India now holds 100% stake in both the financial institutions,

Divestment of RBI's stake in NABARD and NHB has its basis in the recommendation of Narasimham Committee II and the Discussion Paper prepared by RBI on Harmonizing the Role and Operations of Development Financials Institutions and Banks.

14. The National Housing Bank was set up in India as a wholly-owned subsidiary of which one of the following ? [U.P.S.C (Pre) 2007]

Correct Answer: (b) Reserve Bank of India
Solution:The National Housing Bank (NHB) was set up on July 9, 1988, as the apex institution for housing under the NHB Act, 1987. It was fully owned subsidiary bank of the Reserve Bank of India. On March 19, 2019 the RBI divested its entire stake amounting to 1450 crore. With this, the Government of India now holds 100% stake in NHB.

15. 'Basel III Accord' or simply 'Based III', often seen in the news, seeks to : [U.P.S.C (Pre) 2015]

Correct Answer: (b) Improve banking sector's ability to deal with financial and economic stress and improve risk management.
Solution:The Basel Committee initially named the Committee on The banking Regulations and Supervisors Practices -was established by the central bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets (notably the failure of Bankhaus Herstatt in West Germany). The Committee, headquartered at the Bank for International Settlements in Basel, was established to enhance financial stability by improving the quality of banking supervision worldwide, and to serve as a forum for regular cooperation between its member countries on banking supervisory matters. Since its inception, the Basel Committee has expanded its membership from the G10 to 45 members (Central banks and bank supervisors) from 28 jurisdictions. Starting with the Basel Concordat, first issued in 1975 and revised several times since, the Committee has established a series of international standards for bank regulation, most notably its landmark publications of the accords on capital adequacy which are commonly known as Basel I (1988), Basel II (2004) and most recently Basel III.

Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09. The measures aim to strengthen the regulation, supervision and risk management of banks.

Like all Basel Committee standards, Basel III standards are minimum requirements which apply to internationally active banks. Members are committed by implementing and applying standards in their jurisdictions within the time frame established by the Committee.

16. Basel II relates to which one of the following? [U.P.P.C.S. (Pre) 2005]

Correct Answer: (d) International standards for measuring the adequacy of a bank's capital
Solution:In June 1999, the Basel Committee on Banking Supervision issued a proposal for a new capital adequacy framework to replace the 1988 Accord (Basel I). This led to the release of a revised capital framework in June 2004. Generally known as 'Basel II', the revised framework comprised three pillars:

1. minimum capital requirements, which sought to develop and expand the standardized rules set out in the 1988 Accord;

2. supervisory review of an institution's capital adequacy and internal assessment process;

3. effective use of disclosure as a lever to strengthen market discipline and encourage sound banking practices.

17. Consider the following statements : [U.P.S.C (Pre) 2018]

  1. Capital Adequacy Ratio (CAR) is the amount that the banks have to maintain in the form of their own funds to offset any loss that banks incur if the account holder fail to repay any dues.
  2. CAR is decided by each individual bank.

Which of the statements given above is/are correct?

Correct Answer: (a) 1 only
Solution:Capital Adequacy Ratio (CAR) is the ratio of a bank's capital in relation to its risk weighted assets and current liabilities. It is also known as the Capital to Risk-weighted Assets Ratio (CRAR). The risk weighted assets take into account credit risk, market risk and operational risk. It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process. The Basel III norms stipulated a capital to risk-weighted assets of 8%. However, as per RBI norms, Indian scheduled commercial banks are required to maintain a CRAR of 9% (11.5% including capital conservation buffer) on an ongoing basis.

18. With reference to Deposit Insurance and Credit Guarantee Insurance Corporation, which of the following statements is/are correct? [U.P.R.O./A.R.O.N (Re-Exam) (Pre) 2016]

1. A subsidiary of Reserve Bank of India.

2. Deposit upto Rs. 5 lakh are insured by it.

Select the correct answer using the codes given below :
Codes :

Correct Answer: (c) Both 1 and 2
Solution:Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of Reserve Bank of India. 11 was established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities. At present (from 4 February, 2020) DICGC insures all bank deposits, such as saving, fixed, current, recurring deposit for up to the limit of Rs. 5 lakh of each depositor in a bask (earlier this limit was Rs. 1 lakh for each depositor).

19. In India, the interest rate on saving accounts in all the Nationalized Commercial Banks is fixed by : [U.P.S.C (Pre) 2010]

Correct Answer: (d) None of the above
Solution:Earlier the interest rate on saving accounts in all the Nationalized Commercial Banks was fixed by the Reserve Bank of India. But in October, 2011, the interest rate on saving accounts have been deregulated by the RBI and now it is fixed by commercial banks based on market interest rate.

20. What is/are the purpose / purposes of the 'Marginal Cost of Funds Based Lending Rate' (MCLR) announced by RBI? [U.P.S.C (Pre) 2016]

1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.

2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

Select the correct answer using the code given below :

Correct Answer: (c) Both 1 and 2
Solution:The 'Marginal Cost of Funds Based Lending Rate' (MCLR) is an internal reference rate for banks fixed by the RBI. It helps banks to define the minimum interest rate on different types of loans. Now banks cannot lend below the MCLR. It was implemented on April 1, 2016 by the RBI. MCLR came into effect to fulfill the following objectives:

1. Improve transparency in the system utilized by banks to fix interest rates on loans.

2. Ensure fairness in credit interest rates for both banks and borrowers.

3. It provides a competitive advantage to banks and boost their long-term value while contributing to the country's is economic growth.

4. Enhance transmission of RBI's policy rates into the country's banking system.

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