RESERVE BANK OF INDIA

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RESERVE BANK OF INDIA

VERY SHORT-ANSWER TYPES QUESTIONS FOR (1 MARKS)

Q.1. In which year the RBI act was passed?

Ans:- The RBI act was passed in 1934.

Q.2. In which year RBI came into existence or established?

Ans:- The RBI came into existence on 1^st April 1935.

Q.3. In which year the RBI nationalized?

Ans:- The RBI was nationalized under the Reserve Bank of india on January 1, 1949.

Q.4. How many members are there in the Central Board of the director of the RBI?

Ans:- There are 20 members in the Central Board of Directors of the RBI

Q.5. How many local Boards are there in the organizations structures of RBI?

Ans:- Four local boards located at Kolkata, Mumbai, New Delhi and Chennai.

Q.6. Who appointed the Governor and the deputy governor of RBI?

Ans:- The Central Government.

Q.7. Where is the head office of RBI?

Ans:- Mumbai.

Q.8. Who issue one rupees notes?      

Ans:- Ministry of finance, government of India.

Q.9. What is Full form of SLR and CRR.

Ans:- SLR: Statutory Liquidity Ratio, CRR: Cash Reserve Ratio.

Q.10. Which department of the RBI is responsible for issuing currency notes?

Ans:- The issue department of the RBI is responsible for issuing currency notes. 

Q.11. What is the minimum reserve kept by the RBI to issue currency notes?

Ans:- The RBI at present keep a minimum reserves of Rs. 200 crore to issue note, out of 200 crore Rs. 115 crore is kept in gold coins and bullion.

Q.12. In which year the RBI adopted the minimum reserves system of note issue?

Ans:- In 1956.

Q.13. What are the principles of issuing notes?

Ans:- The three principles of issuing notes are Uniformity, Elasticity and Security.

Q.14. Which principle is followed to constitute various departments in RBI?

Ans:- ‘Functional specialization’

Q.15. Who is the chairman of the Central Board?

Ans:- The Government is the chairman of the Central Board.

Q.16.What types of currency notes issued by the RBI?

Ans:- The RBI issue currency notes of Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500 Rs. 1000 denominations. The One Rupee notes are issued by the Minister of Finance, Government of India. 

Q.17. Mention any two department of RBI?

Ans:- (i) Issue department (ii) Banking department.

LONG-ANSWER TYPES QUESTION:-

Q.1. Explain the traditional function of reserve bank of India?

Ans:- The Traditional function of RBI are divided into three types:-

1.      Central banking function

2.      Supervisory function

3.      Prohibitory function

1.      The following are the main Central banking function of RBI:-

                    i.            Issue of bank notes:-  Under sec22 of the RBI Act the RBI has the sole right to issue bank notes of all denominations except one rupee notes . At present the Bank issues notes in the following denominations Rs. 2/-, 5/-, 10/-, 20/-, 50/-, 100/-, 500/- and 2000/-

                  ii.            Banker to government:-  Sec 20  of the RBI Act provides that the RBI shall act as a banker to the government. The RBI acts as a banker to central and state governments in the following capacities.

                           a. As a banker:- As a banker to the Government, the RBI performs the same function for the government as a commercial bank performs for its customer.

                                                                  i.    It maintains and operates deposit accounts of the central and state governments.

                                                                  ii.   It makes payment on behalf of the central and state governments.

                           b. As an agent:-  As an agent to the government the RBI perform the followings function.

                                                                         i.   Collects taxes and other payments on behalf of the government.

                                                                         ii.       Raises loan from the public and manages public debts.

                iii.            Banker’s bank:- The reserve bank of India serves as an banker banks in India. The RBI is a banker to all the other banks. It is the supreme bank of all the banks. The RBI performs this function in three capacities.

a.      Custodian of cash reserves of commercial bank.

b.      As the lender of last resort.

c.       Clearing agent.

                iv.            Controller of credit:- controlling credit is the most important function of the RBI. By controlling the credit effectively the RBI established stability not only in the internal price level but also in the foreign exchange rates.

                  v.            Lender of last resort:- Central bank also as lender of last resort for the other banks of the country. It means that if commercial bank fails to get financial help from anywhere, it approaches the central bank as a last resort.

                vi.            Agricultural credit:- The central bank India, also provide credit facilities for the development of agricultural credit.

2.      The followings are the supervisory function of RBI:-

                    i.            Licensing of banks:- The RBI grant licensing to bank for establishing their place of business in India. License is also required to open new branches.

                  ii.            Approval capital reserve and liquid assets of banks:- The RBI ensures that each and every bank has the minimum requirement of capital reserve and liquid assets.

                iii.            Control over management and method:- The RBI exercise control over the management of the banks in matters likes constitution of the board of public sector bank appointment reappointment termination remuneration etc of bank executives.

                 iv.            Audit:- The banks are required to get their balance sheet and profit and loss account duly audited by the auditors approved by the reserve bank.

3.      The followings are the prohibitory function of the RBI:-

                    i.            It cannot purchase its own shares.

                  ii.            It cannot purchase share of any corporation.

                iii.            It cannot gives loans on the security of its own shares and immovable property.

                 iv.            It cannot purchase immovable property except for its office.

                   v.            It cannot give interest on deposit help by it.

                 vi.            It cannot draw or accept bills not payable on demand.

Q.2. Discuss the various departments of RBI.

Ans:- The followings are the main department of RBI:-

Issue department: The issue department is concerned with the proper and efficient management of the note issue.

1.      Issue department:- The issue department is concerned with the proper and efficient management of the note issue.

2.      Banking department:- The banking department is responsible for providing the banking services to the Government and to the banks.

3.      Agricultural credit department:- This department looks into the problems of agricultural sector. It provides facilities of rural credit to state governments and state cooperative societies.

4.      Legal department:- It renders legal advice on various matters referred to it by the bank.

5.      Inspection department:- It carries out internal inspection of the offices and department of the banks.

6.      Exchange control department:- The exchange control department is concerned with the purchase and sale of foreign exchange and maintaining stability in foreign exchange rates.

7.      Department of accounts and expenditure:- It maintains various records relating to the receipts and expenditure of RBI.

Q.3. Explain briefly the system of issuing currency notes by the RBI?

Ans:- The RBI act 1934, originally provided for the proportional reserve system of note issue. According to this system, the RBI has to maintain not less than 40% reserve against note issue in gold, coins, bullion, and foreign securities. The remaining 60% of the reserves were to be covered by rupee coin, rupee securities of the government of India, approved bills of exchange and promissory notes payable in India.

                         After independence, with the introduction of economic planning was felt that the proportional reserve system was not adequately elastic to meet the development needs of the country. Consequently, The RBI act was amended in 1956 and the proportional reserve system of note issue was replaced by the minimum reserve system.

                            In November 1957, The RBI Act again amended and under the new amended, the value of overall minimum reserve system to e maintained by the RBI was brought down to rs.200 crore of which at least Rs. 115 crore should be kept in gold, coin, bullion.

                            At present the India currently system is based on minimum reserve system.

Q.4. What are the principle methods or instruments of Credit Control techniques used by the Central Bank or RBI?

Ans:- The Credit Control techniques used by the Central Bank are:-

1)      Quantitative credit control:- The Quantitative credit control methods are also known as traditional or general methods of credit control. Through These methods the RBI tries to influence the availability of credit in the economy by changing the cash reserves of commercial bank. These methods are discussed below:-           

                    i.            Variation in the bank rate:- Bank rate or discount rate is the rate at which the Central Bank of a country makes advances to the banks against approved securities or rediscounts the eligible bills. According to sec 49 of the RBI Act, the bank rate means “the eligible standard rate at which it is prepared to buy or rediscounts bills of exchange or other commercial paper eligible for purchase under this Act.”

                  ii.            Open Market operations:- Open market operations means deliberate and direct buying and selling of securities and bills in the market by the Central Bank. The open market operations of the RBI are mostly confined to government securities. The RBI conduct this operation mainly with a view to manage short term liquidity in the market.

                iii.            Cash reserve ratio:- Every scheduled bank in India is required to maintain a minimum percentage of their deposits with the RBI. The reserve in excess of the minimum requirement can be utilized by the banks to extend credit to its customer.

                iv.            Statutory liquidity ratio:- Statutory liquidity ratio is another reserve requirement used by the RBI to control money supply. In India, besides maintaining the cash reserve, every bank has to maintain a statutory reserve of liquid assets in terms of cash, gold or unencumbered securities. This is termed as statutory liquidity ratio.

                  v.            ‘Repo’ Transactions:- ‘Repo’ stands for repurchase. Repo or repurchase transactions are undertaken by the Central Bank in the money market to manipulate short term interest rates and to manage liquidity levels.

Qualitative or Selective Methods:- The qualitative methods are also known as selective credit control methods. Through these techniques the RBI tries to ensure an adequate credit flow to the desired sectors and preventing excessive credit for less essential economic activities. These methods are used for controlling the use and direction of credit. The important qualitative methods are discussed below:-

                    i.            Directions:- Sec. 21 of the Banking Regulation Act gives wide power to the RBI for controlling granting of advances by an individual bank or by banking as a whole. The RBI can give directors to any particular bank or all banks in general in regard to the purposes for which advances may or may not be made, the maximum amount of advance to any individual, firm or company etc.

                  ii.            Rational of credit:- Rational of credit is another important technique of qualitative credit control used by RBI in 1960 by introducing quota (limit) system. Under this programmed the Reserve bank fixed credit quota for member bank as well as their limits for the payment of bill.

                iii.            Margin requirement:- Margin means the difference between the market price of security and loan amount. Changing margin requirement is another credit control method followed by the RBI. This system was introduced in 1956. The Reserve bank of India directs the member bank to change their margin requirement form time to time.

                iv.            Publicity:- This is yet another method of selective credit control. Through it Central Bank (RBI) publishes various reports stating what is good and what is bad in the system. This published information can help commercial banks to direct credit supply in the desired sectors.

                  v.            Direct action:- Direct action helps the RBI when other measures prove ineffective. The RBI has been granted statutory power by the RBI act and the banking regulation act to take certain penal actions against the bank which do not follow the line of policy dictated by it. Under this method the RBI can impose an action against a bank.

Q.9. Write a brief note on Organization Structure and Management of RBI.

Ans: The Reserve Bank was set up as corporate body. The organizational structure of the Reserve Bank is provided by the Reserve Bank of India Act, 1934. It comprises of the: (a) Central Board and (b) Local Boards.

Central Board:- The Central Board of Directors is the supreme governing body of the Bank. It consists of 20 members. The members include the following:

1)      A Governor and not more than four Deputy Governors to be appointed by the Central Government.

2)      Four Directors to be nominated by the Central Government, one each from the four local boards.

3)      Ten Directors to be nominated by the Central Government. They are experts from the fields of business, industry, finance and co-operation.

4)      One Government Official (Secretary, Ministry of Finance) to be nominated by the Central Government.

The power of the Board vests with the Governor who is the Chief Executive Officer of the Bank. The Governor has the responsibility of directing the affairs and business of the Bank. The Governor and Deputy Governors hold office for a period of 5years and are eligible for the reappointment.

Local Boards:- Apart from Central Board of Directors, four Local Boards are constituted representing each area specified in the first schedule to the Act. There is a Local Board in Eastern, Western, Northern and Southern regions of the country with headquarters at Kolkata, Mumbai, New-Delhi and Chennai.

Local Board consists of five members, each appointed by the Central Government. Generally a local board deals with the management of regional commercial transaction.