Money & Banking

91. A non-banking financial company cannot

A non-banking financial company cannot

[amp_mcq option1=”give loans” option2=”make investments” option3=”borrow from bank” option4=”seek demand deposits from public and cannot issue cheques” correct=”option4″]

This question was previously asked in
UPSC CAPF – 2022
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The correct option is D. A non-banking financial company cannot seek demand deposits from the public and cannot issue cheques.
– Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking services but do not hold a banking license.
– Unlike banks, NBFCs cannot accept demand deposits (deposits withdrawable by cheque, draft, order or otherwise). They can accept time deposits (like fixed deposits).
– NBFCs are not part of the payment and settlement system, and they cannot issue cheques drawn on themselves.
– NBFCs are permitted to give loans, make investments in securities, and borrow funds, including from banks.
– NBFCs play a crucial role in the financial system by providing services like credit, investment, and insurance.
– NBFCs are regulated by the Reserve Bank of India (RBI), but the regulatory framework differs from that for banks.
– The primary distinction between banks and NBFCs lies in their ability to accept demand deposits and participate in the payment and settlement system.

92. With reference to Indian economy, the term ‘bad bank’, frequently ment

With reference to Indian economy, the term ‘bad bank’, frequently mentioned in news, refers to

[amp_mcq option1=”an asset reconstruction company” option2=”an asset management company” option3=”a bank with huge ‘nonperforming assets'” option4=”a bank that has become insolvent” correct=”option1″]

This question was previously asked in
UPSC CAPF – 2022
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In the context of the Indian economy, the term ‘bad bank’ frequently mentioned in news refers to a proposed or established financial institution specifically designed to take over the bad loans (non-performing assets or NPAs) of other banks, especially public sector banks. This entity is essentially an Asset Reconstruction Company (ARC) that specializes in acquiring stressed assets from banks to resolve them.
Option A, “an asset reconstruction company,” correctly describes the nature of a ‘bad bank’.
The primary function of a bad bank is to clean up the balance sheets of commercial banks by purchasing their NPAs, allowing the commercial banks to focus on normal banking activities like lending.
In India, the National Asset Reconstruction Company Ltd (NARCL) has been set up as a form of ‘bad bank’ to take over large value stressed assets from commercial banks. An accompanying India Debt Resolution Company Ltd (IDRCL) is intended to manage and dispose of the acquired assets.

93. For anything to be recognized as money, it needs to have which of the

For anything to be recognized as money, it needs to have which of the following characteristics?

  • 1. Act as an intermediate in the exchange process
  • 2. Standard unit for quoting prices
  • 3. Must be easily divisible
  • 4. Have higher value in alternative uses

Select the correct answer using the code given below.

[amp_mcq option1=”1, 2 and 4″ option2=”2 and 3 only” option3=”1, 2 and 3″ option4=”1, 3 and 4″ correct=”option3″]

This question was previously asked in
UPSC CAPF – 2021
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For anything to be recognized as money, it needs to act as an intermediate in the exchange process, be a standard unit for quoting prices, and must be easily divisible.
– The key functions of money are typically identified as:
1. Medium of Exchange: Facilitates transactions by acting as an intermediate. This is crucial for avoiding the inefficiencies of barter. (Characteristic 1 is correct).
2. Unit of Account: Provides a common measure of value, allowing prices of goods and services to be quoted and compared. (Characteristic 2 is correct).
3. Store of Value: Allows wealth to be held over time. (Not explicitly listed, but related to other characteristics).
– Desirable characteristics of a good medium of exchange include:
– Durability: Withstands physical wear and tear.
– Portability: Easily carried and transported.
– Divisibility: Can be divided into smaller units for transactions of varying values. (Characteristic 3 is desirable and generally necessary for efficient transactions).
– Uniformity: All units are the same.
– Limited Supply: Controls inflation.
– Acceptability: Widely accepted by people.
– Characteristic 4: “Have higher value in alternative uses” means the intrinsic value of the material used as money is high (e.g., gold, silver). This is a characteristic of commodity money. However, modern money (fiat money) does not typically have high value in alternative uses; its value as money is derived from trust and government decree. Therefore, this is not a necessary characteristic for something to be recognized as money in general.
– Based on the standard functions and desirable characteristics, 1, 2, and 3 are generally considered essential or important attributes of money.
While historically commodity money satisfied all these criteria, the evolution to representative money (like gold certificates) and then fiat money (backed only by trust and government power) shows that high intrinsic value (characteristic 4) is not a prerequisite for something to function effectively as money in modern economies. The primary functions (medium of exchange, unit of account) and practicality characteristics (divisibility, portability, durability) are key.

94. Which of the following sectors contribute in recent years to the deter

Which of the following sectors contribute in recent years to the deterioration of asset quality of commercial banks by way of Non-Performing Assets?

  • 1. Agriculture and allied sector
  • 2. Industrial sector
  • 3. Infrastructure sector
  • 4. Information technology sector

Select the correct answer using the code given below:

[amp_mcq option1=”1 and 2 only” option2=”2 and 3 only” option3=”1 and 4 only” option4=”1, 2, 3 and 4″ correct=”option2″]

This question was previously asked in
UPSC CAPF – 2020
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The correct option is B. The Industrial sector and Infrastructure sector have been major contributors to the deterioration of asset quality of commercial banks in recent years by way of Non-Performing Assets (NPAs).
– Statement 1 (Agriculture and allied sector): The agriculture sector does contribute to NPAs, often due to factors like climate dependence and price volatility, but typically accounts for a smaller share of the overall systemic NPA problem compared to large corporate loans.
– Statement 2 (Industrial sector): The industrial sector, particularly manufacturing, has been a significant source of NPAs due to factors like economic slowdown, global competition, and project delays.
– Statement 3 (Infrastructure sector): Infrastructure projects involve huge investments, long gestation periods, and regulatory hurdles, making them highly susceptible to delays and cost overruns, which significantly contribute to NPAs in the banking sector.
– Statement 4 (Information technology sector): The IT sector in India is generally characterized by high growth, lower debt-to-equity ratios compared to traditional industries, and has not been a significant source of large-scale NPAs for commercial banks.
India’s banking sector faced a significant NPA crisis, particularly in the period leading up to and during the mid-2010s. This crisis was largely attributed to excessive lending during the previous boom period, especially to large corporate houses in the infrastructure and core industrial sectors, many of which subsequently faced financial difficulties. This phenomenon was often referred to as the “twin balance sheet problem” (stressed assets in banks and stressed balance sheets of corporates).

95. What is the real interest rate on a Credit Card loan bearing 24% inter

What is the real interest rate on a Credit Card loan bearing 24% interest per year, if the rate of inflation is 10% ?

[amp_mcq option1=”240%” option2=”34%” option3=”14%” option4=”4%” correct=”option3″]

This question was previously asked in
UPSC CAPF – 2019
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The real interest rate is the nominal interest rate adjusted for the effects of inflation. The approximate relationship is given by the Fisher equation:
Real Interest Rate ≈ Nominal Interest Rate – Inflation Rate
Given:
Nominal Interest Rate = 24%
Inflation Rate = 10%
Real Interest Rate ≈ 24% – 10% = 14%
– The nominal interest rate is the stated interest rate without accounting for inflation.
– Inflation erodes the purchasing power of money over time.
– The real interest rate reflects the actual increase in purchasing power received by the lender (or paid by the borrower) after accounting for inflation.
The exact formula for the real interest rate is (1 + nominal rate) = (1 + real rate) * (1 + inflation rate).
1 + Real Rate = (1 + Nominal Rate) / (1 + Inflation Rate)
1 + Real Rate = (1 + 0.24) / (1 + 0.10)
1 + Real Rate = 1.24 / 1.10
1 + Real Rate ≈ 1.12727
Real Rate ≈ 1.12727 – 1 = 0.12727 or 12.73%.
However, the approximate formula is commonly used, especially in multiple-choice questions where the options are spaced out, and it matches one of the options (14%) closely enough considering the approximation inherent in the question’s context.

96. The Reserve Bank of India defines narrow money as

The Reserve Bank of India defines narrow money as

[amp_mcq option1=”CU (currency notes + coins) + DD (net demand deposits held by commercial banks)” option2=”CU + DD + saving deposits with post office savings banks” option3=”CU + DD + net time deposits of commercial banks” option4=”CU + DD + net time deposits of commercial banks + total deposits of post offices” correct=”option1″]

This question was previously asked in
UPSC CAPF – 2018
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The correct answer is A) CU (currency notes + coins) + DD (net demand deposits held by commercial banks).
As per the Reserve Bank of India’s classification (both historical and current definition of M1, with slight variations in scope of ‘Other Deposits’), narrow money (M1) primarily consists of currency with the public and demand deposits with the banking system. Option A accurately reflects these main components: CU (Currency with Public) and DD (Demand Deposits with commercial banks). “Net” demand deposits exclude inter-bank deposits which is appropriate.
RBI uses four measures of money supply: M1, M2, M3, and M4.
M1 = Currency with the Public + Demand deposits with the Banking System + ‘Other’ Deposits with RBI.
M2 = M1 + Savings deposits of post office savings banks.
M3 = M1 + Net time deposits of commercial banks. (This is Broad Money)
M4 = M3 + All deposits with post office savings banks (excluding National Savings Certificates).
Option A aligns with the core components of M1.

97. Match List I with List II and select the correct answer using the code

Match List I with List II and select the correct answer using the code given below the Lists :

List IList II
(Committee)(Subject)
A. Rangarajan Committee1. Tax Reform
B. Narsimhan Committee2. Insurance Reform
C. Kelkar Committee3. Disinvestment of shares in PSEs
D. Malhotra Committee4. Banking Sector Reform

Code :

[amp_mcq option1=”

ABCD
(a)2143

” option2=”

ABCD
(b)2413

” option3=”

ABCD
(c)3412

” option4=”

ABCD
(d)314?

” correct=”option3″]

This question was previously asked in
UPSC CAPF – 2017
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Matching the committees with their subjects:
A. Rangarajan Committee – C. Rangarajan chaired the Committee on Disinvestment of shares in Public Sector Enterprises (1993). Matches 3.
B. Narasimham Committee – M. Narasimham chaired committees on Banking Sector Reforms (1991 and 1998). Matches 4.
C. Kelkar Committee – Vijay L. Kelkar chaired committees on Tax Reforms (Direct and Indirect Taxes – 2002-03). Matches 1.
D. Malhotra Committee – R. N. Malhotra chaired the Committee on Reforms in the Insurance Sector (1994). Matches 2.
The correct sequence is A-3, B-4, C-1, D-2. This matches option (c).
Knowledge of important committees and their recommendations in various sectors of the Indian economy is crucial for understanding economic reforms.
These committees played significant roles in shaping economic policies in India during the 1990s and early 2000s, particularly in the context of liberalization, privatization, and globalization reforms.

98. The Economic Advisory Council to the Prime Minister (PMEAC) in India h

The Economic Advisory Council to the Prime Minister (PMEAC) in India has recommended phased dilution of Government stake in Public Sector Banks from :

[amp_mcq option1=”74% to 56%” option2=”58% to 51%” option3=”58% to 49%” option4=”51% to 49%” correct=”option4″]

This question was previously asked in
UPSC CAPF – 2014
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Around 2014, the Economic Advisory Council to the Prime Minister (PMEAC) under C. Rangarajan had indeed recommended phased reduction of the government’s stake in Public Sector Banks (PSBs). A key aspect of these recommendations was to eventually bring down the government’s shareholding below the 51% mark to 49%, which would effectively dilute government’s majority control while still maintaining a significant stake. The recommendation was often cited as a move towards greater autonomy for PSBs and better access to capital markets. The specific target range mentioned in various reports of the PMEAC recommendations from that period aligns with bringing the stake down from majority holding (effectively anything above 50%, often cited as minimum 51% for control) to a minority holding of 49%.
PMEAC recommended reducing government stake in PSBs.
The recommendation aimed at diluting government control and increasing autonomy.
The target percentage for dilution was proposed to go below 51%.
A frequently cited figure for the target was 49%.
This recommendation was part of broader suggestions for financial sector reforms aimed at strengthening PSBs, improving their governance, and facilitating their access to capital. Diluting government stake below 51% would technically remove the government’s direct majority control, changing the nature of ownership and governance, although the government would still remain the single largest shareholder.

99. Consider the following statements: 1. Repo rate is the interest rate

Consider the following statements:

  • 1. Repo rate is the interest rate at which RBI lends to commercial banks for short period.
  • 2. Reverse repo rate is the interest rate which RBI pays to commercial banks on short-term deposits.
  • 3. Gap between repo rate and reverse repo rate has been declining in India in the recent past.

Which of the statements given above is/are not correct?

[amp_mcq option1=”1″ option2=”2 only” option3=”3 only” option4=”2 and 3″ correct=”option3″]

This question was previously asked in
UPSC CAPF – 2013
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The correct option is C because statement 3 is not correct.
– Statement 1 correctly defines the repo rate as the rate at which the RBI lends money to commercial banks for short periods.
– Statement 2 correctly defines the reverse repo rate as the rate at which the RBI borrows money from commercial banks for short periods, effectively paying interest on their short-term deposits with the RBI.
– Statement 3 claims that the gap between the repo rate and the reverse repo rate has been declining in India in the recent past. The Reserve Bank of India (RBI) manages a policy corridor defined by the Marginal Standing Facility (MSF) rate as the ceiling, the policy repo rate in the middle, and the Standing Deposit Facility (SDF) rate (or the operational reverse repo rate before SDF became the floor) as the floor. While the absolute rates change, the *gap* or width of this corridor (e.g., the difference between the repo rate and the floor rate) is determined by RBI policy and is often kept constant for extended periods (e.g., 25 bps difference between repo and SDF/RRR). Changes to this gap are specific policy decisions, not a continuous decline. Therefore, claiming a continuous decline in the gap “in the recent past” is generally incorrect or not a consistent trend.
The policy corridor width is a tool used by the RBI to manage liquidity and interest rate volatility. For example, the corridor was historically 100 basis points (bps) wide, then narrowed to 50 bps. The introduction of the Standing Deposit Facility (SDF) in 2022 replaced the fixed rate reverse repo as the floor of the corridor, typically set 25 bps below the policy repo rate, with MSF rate 25 bps above, maintaining a 50 bps corridor.

100. In July, 2011 Eurozone’s 17 member countries agreed to give Greece a m

In July, 2011 Eurozone’s 17 member countries agreed to give Greece a massive financial bailout worth more than 150 billion dollars to try to rescue Greece’s shaken economy. In this respect, which of the following statements is/are correct ?

  • 1. This is for the first time Greece has been given financial bailout by other European countries.
  • 2. Private lenders including banks are also pledging support which will give Greece easier repayment terms.

Select the correct answer using the code given below :

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option2″]

This question was previously asked in
UPSC CAPF – 2011
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Statement 1 is incorrect. Greece had received a financial bailout package from the Eurozone and IMF in May 2010, prior to the July 2011 agreement. Therefore, the July 2011 bailout was not the first time Greece was given financial assistance by other European countries.
Statement 2 is correct. The July 2011 bailout package involved significant private sector involvement. Private creditors, including banks, were indeed asked to contribute to the rescue by accepting a voluntary exchange of Greek bonds for new bonds with longer maturities and lower interest rates (often referred to as a “haircut” or debt restructuring), which effectively provided Greece with easier repayment terms.
The Greek sovereign debt crisis led to multiple bailout packages from Eurozone countries and the IMF. The 2011 bailout involved mandatory private sector participation in debt restructuring.
The Eurozone crisis was a multi-year period (roughly 2009-2012) involving difficulties for several Eurozone member countries (including Greece, Ireland, Portugal, Spain, and Cyprus) in financing their government debt or sustaining their banking sectors. The bailouts were aimed at preventing sovereign defaults and stabilizing the Eurozone.
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