The Reserve Bank of India Questions and Answers

Answer: D

Correct answer: Dr. Manmohan Singh

Manmohan Singh was Governor of the Reserve Bank from 1982 to 1985 and Finance Minister from 1991 to 1996, in which capacity he presented the 1991 Budget that opened the economy.

He is not the only person to have held both offices - Sir C. D. Deshmukh, Governor from 1943 and Finance Minister from 1950, did so first - but Deshmukh is not among the options. Pranab Mukherjee was Finance Minister and later President but never Governor, and Sir Benegal Rama Rau and Amitav Ghosh were Governors only.

Answer: D

Forex Exchange Reserves (FER) comprises Foreign Currency Assets (FCA), Gold, Special Drawing Rights and Reserve Tranche Position.

Answer: D

Correct answer: Union Bank of India

Union Bank of India was founded in Mumbai in 1919, and its head office was inaugurated by Mahatma Gandhi.

The association reflects the swadeshi character of the enterprise: it was an Indian-owned bank founded during the national movement, at a time when the larger banks were British. Gandhi is recorded as expressing the hope that it would become a bank of the Indian people. It was nationalised in the first round of July 1969 and is today one of the largest public sector banks.

Answer: D

Correct answer: All of these

All three enter the estimate. Growth in GDP raises the volume of transactions and therefore the currency the public wants to hold; inflation raises the number of notes needed for the same real transactions; and reserve stock requirements cover the buffer held against seasonal peaks and the replacement of soiled notes.

The RBI estimates demand denomination by denomination and indents on the printing presses accordingly. Note that the quantity is demand-driven rather than a policy lever: currency in circulation responds to what the public withdraws, and monetary policy works through reserves and rates instead.

Answer: A

Correct answer: No interest rate is charged

No interest is paid on cash reserve ratio balances. The Reserve Bank paid it until 2007, when the RBI Act was amended to remove the provision.

The consequence is that CRR is a real cost to a bank, not merely a reallocation of its assets: deposits it has paid for sit idle at the central bank earning nothing. That is exactly what distinguishes it from the statutory liquidity ratio, which may be held in government securities that do earn a return - and why a change in CRR bites harder on margins than an equal change in SLR.

Answer: C

Correct answer: Issuing of one rupee notes and coins

One rupee notes and all coins are issued by the Government of India, through the Ministry of Finance, and minted at the government mints. The Reserve Bank's role with them is distribution rather than issue.

The RBI's own monopoly under the Act covers currency notes of two rupees and above, which is why those carry the Governor's signature while the one-rupee note carries the Finance Secretary's. The other three - banker to the Government, custodian of foreign exchange reserves, and regulator of credit - are core RBI functions.

Answer: D

Correct answer: Rs 100 crore

On Fridays, and at the close of the Government's financial year, the minimum balance rises from Rs 10 crore to Rs 100 crore.

Friday is the reporting date for the banking system, when balances are struck and returns made, so the higher floor ensures the position is comfortable at the moment it is measured. The year-end requirement serves the same purpose for the annual accounts. Between those dates the ordinary Rs 10 crore minimum applies, with Ways and Means Advances available to maintain it.

Answer: B

Correct answer: Punjab National Bank and New Bank of India

New Bank of India was amalgamated with Punjab National Bank in 1993, after sustained losses had left it unviable. For a long time it stood alone as a merger of two public sector banks.

That is no longer so. Vijaya Bank and Dena Bank were merged into Bank of Baroda in 2019, and ten banks were consolidated into four in 2020. The 1993 case remains distinctive in being driven by the failure of one party rather than by a consolidation policy, and it is the merger the older question banks refer to.

Answer: C

Correct answer: Rs. 10

India's first bimetallic coin was the ten-rupee coin issued in 2009, with an outer ring of one alloy and an inner core of another.

The two-metal construction is a security measure as much as an aesthetic one: it is markedly harder to counterfeit than a single-alloy coin, and it distinguishes the denomination by sight and feel from the coins below it. A ten-rupee coin was worth introducing at that point because inflation had made a coin more economical than a note for the denomination, coins lasting far longer in circulation.

Answer: D

Correct answer: Microfinance

The Y. H. Malegam committee was constituted by the Reserve Bank in 2010 to examine the microfinance sector, following the crisis in Andhra Pradesh where aggressive lending and coercive recovery had provoked state legislation and mass default.

Its 2011 report created the NBFC-MFI category and the framework it works under: caps on the interest margin and on the loan size, limits on borrower indebtedness and on the number of lenders per borrower, and rules on recovery practices. Malegam also chaired a later RBI committee on bank NPA classification, which is the source of the confusion the options play on.