Question 1

The Reserve Bank of India was established in 1935 and nationalized in 1949. Which of the following statements correctly identifies the primary function of the RBI as the 'banker's bank'?

Accepted Answer

As the 'banker's bank,' the RBI provides banking services to commercial banks, including maintaining their reserve accounts, providing liquidity support through repo and MSF facilities, and acting as the lender of last resort. The RBI was established on April 1, 1935, and was nationalized on January 1, 1949. Therefore, the answer is B.

Question 2

Under the RBI's monetary policy framework, the Reverse Repo Rate is best described as:

Accepted Answer

The Reverse Repo Rate is the rate at which the RBI borrows funds from commercial banks by accepting government securities as collateral. It is always lower than the Repo Rate and serves as the floor for short-term interest rates in the banking system. When banks park excess liquidity with the RBI at the reverse repo rate, they earn interest on those funds. Therefore, the answer is A.

Question 3

Which of the following best describes the Statutory Liquidity Ratio (SLR) and under which Act is it prescribed?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained in the form of liquid assets such as government securities, gold, or cash. It is prescribed by the RBI under Section 24 of the Banking Regulation Act, 1949. Unlike CRR, which is cash deposited with the RBI, SLR assets are maintained by the bank itself. Therefore, the answer is B.

Question 4

Which of the following monetary policy tools is used by the RBI to inject liquidity into the banking system?

Accepted Answer

The Reverse Repo Rate is the rate at which the RBI borrows money from commercial banks by offering government securities as collateral. When the RBI conducts reverse repo operations, it injects liquidity into the banking system because banks lend money to the RBI and receive funds in return. This is in contrast to the Repo Rate, where the RBI lends to banks. Open Market Operations (OMO) and reduction in the Cash Reserve Ratio (CRR) are also tools to inject liquidity. Therefore, the answer is B.

Question 5

The Reserve Bank of India was established in which year, and under which Act was it nationalised?

Accepted Answer

The Reserve Bank of India was established on April 1, 1935, as a private institution under the RBI Act, 1934. It was nationalised on January 1, 1949, following India's independence, when the RBI Act was amended to bring it under full government ownership and control. The RBI has been headquartered in Mumbai since its establishment. Therefore, the answer is A.

Question 6

Which of the following is NOT a tool of monetary policy used by the RBI to manage money supply and inflation?

Accepted Answer

The Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo Rate, Reverse Repo Rate, Marginal Standing Facility (MSF), Bank Rate, and Open Market Operations (OMO) are all recognized tools of monetary policy used by the RBI. However, the Statutory Deposit Insurance Scheme (SDIS) is a regulatory mechanism for depositor protection managed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), not a monetary policy tool. It does not directly influence money supply or inflation. Therefore, the answer is D.

Question 7

Which of the following statements correctly describes the Statutory Liquidity Ratio (SLR) and its regulatory framework?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained in the form of liquid assets — primarily government securities, gold, or cash. It is prescribed by the RBI under Section 24 of the Banking Regulation Act, 1949. The key distinction is that SLR assets are held by the bank itself, whereas CRR (Cash Reserve Ratio) assets are deposited with the RBI. Therefore, the answer is B.

Question 8

The Monetary Policy Committee (MPC) of the RBI is responsible for determining key policy rates. Which statement about the MPC's composition and decision-making is accurate?

Accepted Answer

The Monetary Policy Committee (MPC) comprises 6 members: 3 from the RBI (including the Governor as Chair) and 3 external members appointed by the Government of India. The MPC meets at least bimonthly (typically every 6 weeks) to review and decide on the repo rate and other monetary policy instruments. The repo rate is the primary policy rate used to transmit monetary policy to the economy. Therefore, the answer is B.

Question 9

The Monetary Policy Committee (MPC) of the RBI comprises how many members, and what is the frequency of its meetings?

Accepted Answer

The Monetary Policy Committee (MPC) of the RBI is composed of 6 members: 3 members from the RBI (including the Governor as Chair) and 3 external members appointed by the Government of India. The MPC meets at least 4 times a year (bimonthly), with each meeting typically lasting 3 days. This structure was established following the RBI Act Amendment in 2016 to bring transparency and institutional credibility to monetary policy decisions. Therefore, the answer is C.

Question 10

The Monetary Policy Committee (MPC) of the RBI is responsible for determining the policy repo rate. How many members does the MPC comprise, and how frequently does it meet?

Accepted Answer

The Monetary Policy Committee (MPC) of the RBI comprises 6 members: 3 members from the RBI (including the Governor as chairperson) and 3 external members appointed by the Government of India. The MPC meets at least bimonthly (once every two months) to review and decide on the policy repo rate and other monetary policy measures. Therefore, the answer is C.

Question 11

Which of the following monetary policy tools is used by the RBI to inject or absorb liquidity from the banking system by buying or selling government securities?

Accepted Answer

Open Market Operations (OMO) is the monetary policy tool used by the RBI to inject or absorb liquidity from the banking system. Through OMO, the RBI buys government securities from banks (to inject liquidity) or sells government securities to banks (to absorb liquidity). This is distinct from the Repo Rate, which is the rate at which banks borrow from the RBI, and CRR/SLR, which are statutory ratios. Therefore, the answer is D.

Question 12

Which of the following best describes the Statutory Liquidity Ratio (SLR) and under which Banking Act is it prescribed?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained in the form of liquid assets such as government securities, gold, or cash. It is prescribed by the RBI under Section 24 of the Banking Regulation Act, 1949. Unlike CRR, which is cash deposited with the RBI, SLR assets are maintained by the bank itself. Therefore, the answer is B.

Question 13

Under the Banking Regulation Act 1949, Section 24 prescribes the Statutory Liquidity Ratio (SLR) requirement for scheduled commercial banks. A bank's net demand and time liabilities (NDTL) are ₹10,000 crore. If the current SLR requirement is 18%, which of the following correctly identifies the minimum liquid assets the bank must maintain and the permissible composition?

Accepted Answer

Section 24 of the Banking Regulation Act 1949 mandates that every scheduled commercial bank must maintain liquid assets equal to a minimum percentage of its net demand and time liabilities (NDTL). The SLR requirement is set by the RBI and is currently 18% (as of 2024). Therefore, a bank with NDTL of ₹10,000 crore must maintain minimum liquid assets of ₹1,800 crore (18% of ₹10,000 crore). These liquid assets must be held in the form of approved securities, which include: (1) Government of India securities (G-secs), (2) State Development Loans (SDLs), (3) gold, and (4) cash in hand. The bank must hold these assets on its own balance sheet, not with the RBI (unlike CRR). This requirement ensures banks maintain sufficient liquidity to meet customer withdrawals and support credit growth without excessive dependence on RBI borrowing. Therefore, answer is B.

Question 14

Under the Banking Regulation Act 1949, which section empowers the RBI to prescribe the Statutory Liquidity Ratio (SLR) that banks must maintain?

Accepted Answer

Section 24 of the Banking Regulation Act 1949 grants the RBI the authority to prescribe and vary the SLR. This section specifically mandates that scheduled commercial banks maintain a minimum percentage of their net demand and time liabilities (NDTL) in the form of liquid assets — primarily government securities, gold, and cash. This is a foundational regulatory provision that distinguishes SLR from CRR (which is prescribed under Section 42 of the same Act). Therefore, the answer is B.

Question 15

The Monetary Policy Committee (MPC) of the RBI comprises how many members, and how frequently does it meet to review and decide on the policy repo rate?

Accepted Answer

The Monetary Policy Committee consists of 6 members: 3 from the RBI (including the Governor as Chair) and 3 external members appointed by the Government of India. The MPC meets at least 4 times a year (bimonthly) to review monetary policy and decide on the policy repo rate. This structure was established following the RBI Act amendment in 2016 to institutionalize the inflation-targeting framework. Therefore, the answer is C.

Question 16

Which of the following best describes the transmission mechanism by which an increase in the RBI's policy repo rate affects the broader economy?

Accepted Answer

The transmission mechanism works as follows: when the RBI increases the policy repo rate, the cost of borrowing for banks increases. Banks respond by raising their lending rates (MCLR, base rate) to maintain margins. Higher lending rates reduce credit demand from businesses and consumers, leading to lower credit growth and investment. Simultaneously, higher borrowing costs reduce aggregate demand, which helps moderate inflation. This is the standard monetary transmission pathway: repo rate → bank lending rates → credit growth → aggregate demand → inflation. Therefore, the answer is B.

Question 17

The RBI uses the Marginal Standing Facility (MSF) as a monetary policy tool. Which of the following correctly describes the MSF rate and its relationship to the policy repo rate?

Accepted Answer

The Marginal Standing Facility (MSF) is an overnight borrowing facility available to scheduled commercial banks against approved securities. The MSF rate is set at a fixed spread (typically 100 basis points or 1%) above the policy repo rate. It serves as the upper bound of the RBI's liquidity corridor — banks can borrow at the MSF rate when they face acute liquidity shortages and cannot access funds through other means. For example, if the repo rate is 6.5%, the MSF rate would be 7.5%. Therefore, the answer is D.

Question 18

The RBI nationalised the Imperial Bank of India in 1955 and renamed it as the State Bank of India (SBI). Which of the following statements about the RBI's establishment and nationalisation is accurate?

Accepted Answer

The RBI was established on April 1, 1935, as a private institution under the RBI Act 1934. It was nationalised on January 1, 1949, following India's independence. The Imperial Bank of India was nationalised separately on May 1, 1955, and renamed the State Bank of India (SBI). The RBI's nationalisation in 1949 made it the central bank fully owned by the Government of India, while the Imperial Bank's nationalisation in 1955 created the SBI as the principal commercial bank. Therefore, the answer is A.

Question 19

The Monetary Policy Committee (MPC) of the RBI comprises 6 members. Which of the following correctly identifies the composition of the MPC as per RBI Act 1934?

Accepted Answer

The MPC comprises 6 members: (1) RBI Governor (Chairperson), (2) Deputy Governor in charge of monetary policy, (3) One RBI official, (4) One government nominee, and (5–6) Two external experts appointed by the Government of India. This structure was established under the RBI Act 1934 (amended 2015) to ensure balanced decision-making on monetary policy. The MPC meets bimonthly to review and set the repo rate. Option B correctly identifies this composition. Option A incorrectly suggests the Finance Secretary is a permanent member (only government nominee, not specifically FS). Option C confuses MPC with the Financial Stability and Development Council (FSDC), which has a different mandate. Option D overstates external representation — only 2 external experts, not 3.

Question 20

Under the Banking Regulation Act 1949, Section 24 prescribes the Statutory Liquidity Ratio (SLR) requirement. Which of the following best describes what banks must maintain under SLR?

Accepted Answer

Section 24 of the Banking Regulation Act 1949 mandates that banks maintain a minimum percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets — primarily government securities (G-secs), treasury bills, gold, and cash. As of recent RBI guidelines, the SLR requirement is 18% of NDTL. Option B correctly identifies SLR as a requirement to hold government securities and liquid assets. Option A confuses SLR with CRR (Cash Reserve Ratio) — SLR is held by banks themselves, not deposited with RBI. Option C incorrectly suggests SLR is only cash, missing the securities component. Option D reverses the purpose — SLR is a liquidity safeguard, not a lending mandate.

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