RBI Functions — Set 3

Correct Answer: A. Managing the borrowing program of the government

• **Managing the borrowing program of the government** = as Manager of Public Debt, the RBI issues treasury bills (short-term) and dated government securities (long-term) on behalf of the Central and State Governments to raise funds from the market. • **Mechanism** — the RBI conducts auctions for these securities, determines the market-clearing cut-off yield, and ensures the government's borrowing calendar is executed smoothly without disrupting the bond market. • This function has been partially delegated to a proposed Public Debt Management Agency (PDMA); until that body is fully operational, the RBI continues to manage it under the RBI Act, 1934. 💡 Option B (collecting taxes from citizens) is wrong because tax collection is the mandate of the Income Tax Department and GST Council, not the RBI; Option C (printing currency for people) is wrong because currency issuance is a separate RBI function under Section 22, not debt management; Option D (setting prices for consumer goods) is wrong because price regulation is handled by government bodies like the Competition Commission of India (CCI).

Correct Answer: B. Rs. 200 Crore

• **Rs. 200 Crore** = under the Minimum Reserve System (adopted in 1956), the RBI must maintain a minimum reserve of Rs. 200 crore in assets to back its currency issue — of which at least Rs. 115 crore must be in gold coin or bullion. • **Historical context** — India previously followed the Proportional Reserve System (where notes in circulation had to be backed by a fixed proportion of gold), but switched to the more flexible Minimum Reserve System to allow the RBI to issue currency as per economic needs. • The remaining Rs. 85 crore (or more) of the Rs. 200 crore minimum can be held in foreign securities approved by the government, giving the RBI flexibility in managing the reserve. 💡 Option A (Rs. 100 Crore) is wrong because the statutory minimum is Rs. 200 crore, not Rs. 100 crore; Option C (Rs. 1000 Crore) is wrong because that is far above the statutory minimum; Option D (Rs. 500 Crore) is wrong because the RBI Act specifies Rs. 200 crore as the floor, not Rs. 500 crore.

Correct Answer: C. April to March

• **April to March** = the RBI's current accounting year runs from April 1 to March 31, aligned with the Indian government's financial year, following a change made in 2020-21. • **Previous year** — before this change, the RBI's accounting year ran from July 1 to June 30; the switch was made so that the RBI's surplus transfer to the government could be better coordinated with the Union Budget cycle. • The change was recommended by the Bimal Jalan Committee (2019) on Economic Capital Framework; the new accounting year also affects when the RBI reports its annual surplus. 💡 Option A (January to December) is wrong because that is a calendar year, not the RBI's financial year; Option B (October to September) is wrong because no Indian financial institution follows this cycle; Option D (July to June) is wrong because that was the RBI's previous accounting year before the 2021 change.

Correct Answer: D. Settlement of inter-bank transactions

• **Settlement of inter-bank transactions** = as the banker to banks, the RBI maintains accounts of all scheduled commercial banks and facilitates clearing and final settlement of their inter-bank obligations, ensuring smooth payment system operations. • **RTGS & NEFT** — the RBI operates the Real Time Gross Settlement (RTGS) system for large-value transactions and the National Electronic Funds Transfer (NEFT) system, both of which are key instruments for inter-bank settlement. • The RBI also operates the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures depositors up to Rs. 5 lakh per bank, further underpinning banking stability. 💡 Option A (direct recruitment of bank staff) is wrong because bank staff recruitment is handled by the respective banks or the IBPS (Institute of Banking Personnel Selection), not the RBI; Option B (free internet for bank branches) is wrong because connectivity is a commercial and infrastructure matter, not an RBI function; Option C (marketing of bank products) is wrong because product marketing is the responsibility of individual banks, not the regulator.

Correct Answer: A. Issue Department

• **Issue Department** = the Issue Department of the RBI is exclusively responsible for the management and issuance of currency notes in India; it keeps its assets separate from the Banking Department to ensure currency stability. • **Separation** — the Issue Department holds the assets (gold, foreign securities, rupee coins, government of India securities) that back the currency notes in circulation; this separation prevents currency from being used loosely for other purposes. • The Issue Department manages the entire currency lifecycle — designing, printing (via BRBNMPL and SPMCIL presses), distributing through Currency Chests, and destroying soiled notes. 💡 Option B (Banking Department) is wrong because the Banking Department handles the RBI's own banking operations, not currency issuance; Option C (Secretary's Department) is wrong because that department handles administrative and secretarial functions; Option D (Research Department) is wrong because the research department focuses on economic data analysis and policy research, not currency management.

Correct Answer: A. Governments to bridge temporary gaps in receipts and payments

• **Governments to bridge temporary gaps in receipts and payments** = Ways and Means Advances (WMA) is a short-term credit facility provided by the RBI to the Central and State Governments to help them manage temporary mismatches between their receipts and expenditures. • **Terms** — WMA must be repaid within 90 days; interest is charged at the current Repo Rate; if the outstanding WMA exceeds the limit, the excess is converted into an Overdraft (OD), which must be cleared within 35 consecutive working days. • The WMA limits for the Central Government are revised periodically based on the recommendation of an advisory committee; for states, limits are linked to their revenue and expenditure patterns. 💡 Option B (general public for housing) is wrong because housing loans to individuals are provided by commercial banks and housing finance companies, not the RBI; Option C (commercial banks for long term) is wrong because the RBI provides long-term refinance through NABARD and NHB, not directly as WMA; Option D (private companies for expansion) is wrong because the RBI does not lend to private corporates at all.

Correct Answer: A. Persuading banks to follow specific policies through informal means

• **Persuading banks to follow specific policies through informal means** = Moral Suasion is a qualitative credit-control tool where the RBI uses persuasion, appeals, and informal pressure — through meetings, letters, and speeches — to encourage banks to align their behaviour with policy goals. • **Nature** — it is a non-statutory, psychological instrument with no legal enforcement; banks may comply voluntarily, but the RBI cannot penalise non-compliance under this tool alone. • Moral Suasion is often used alongside quantitative tools; for example, the RBI may informally urge banks not to raise lending rates even when the Repo Rate is unchanged, to support growth. 💡 Option B (a legal penalty on banks) is wrong because Moral Suasion is specifically non-legal and non-coercive; Option C (raising the interest rate by 5%) is wrong because that would be a quantitative monetary policy action via the Repo Rate, not Moral Suasion; Option D (a physical inspection of vaults) is wrong because vault inspections are part of regulatory supervision, a completely different function.

Correct Answer: D. Sectors like Agriculture, MSMEs, and Education

• **Sectors like Agriculture, MSMEs, and Education** = Priority Sector Lending (PSL) norms require commercial banks to direct a mandated percentage of their Adjusted Net Bank Credit (ANBC) to sectors that are underserved by formal credit but critical for inclusive growth. • **Target** — domestic scheduled commercial banks must lend 40% of ANBC to priority sectors; of this, 18% must go to agriculture and 7.5% to micro enterprises; foreign banks with fewer than 20 branches must achieve 40% in a phased manner. • PSL categories include: Agriculture, MSMEs, Education, Housing, Export Credit, Renewable Energy, Social Infrastructure, and Weaker Sections — all defined in the RBI's Master Directions on PSL. 💡 Option A (large multinational corporations) is wrong because multinationals have access to capital markets and global credit, they are explicitly excluded from PSL; Option B (the stock market) is wrong because equity investment facilitation is SEBI's mandate, not part of PSL; Option C (foreign governments) is wrong because lending to foreign governments is a sovereign function, entirely outside the PSL framework.

Correct Answer: B. BRBNMPL

• **BRBNMPL** = Bharatiya Reserve Bank Note Mudran Private Limited is a wholly-owned subsidiary of the RBI, incorporated in 1995, responsible for printing currency notes at its two facilities in Mysuru (Karnataka) and Salboni (West Bengal). • **Other presses** — India has four currency note printing presses in total: two under BRBNMPL (RBI subsidiary) and two under Security Printing and Minting Corporation of India Ltd. (SPMCIL), a Government of India enterprise, located in Nashik and Dewas. • Coins are minted by SPMCIL at four mints (Mumbai, Hyderabad, Kolkata, and Noida) under the Ministry of Finance, not by BRBNMPL. 💡 Option A (DICGC) is wrong because DICGC (Deposit Insurance and Credit Guarantee Corporation) is an RBI subsidiary that insures bank deposits, not prints currency; Option C (NHB) is wrong because NHB (National Housing Bank) is an RBI subsidiary focused on housing finance regulation, not currency printing; Option D (NABARD) is wrong because NABARD (National Bank for Agriculture and Rural Development) is a development finance institution for agriculture and rural credit, not currency printing.

Correct Answer: C. Non-Banking Financial Company

• **Non-Banking Financial Company** = an NBFC is a company registered under the Companies Act that engages in lending, investing, leasing, hire-purchase, or accepting deposits (under certain conditions) but does not hold a full banking licence from the RBI. • **Regulation** — the RBI regulates and supervises NBFCs under Chapter III-B of the RBI Act, 1934; NBFCs above a certain asset size ('upper layer' and 'middle layer' under the scale-based regulation framework introduced in 2022) face bank-like prudential norms. • NBFCs play a vital role in financial inclusion by reaching customers in areas and segments not adequately served by traditional banks — examples include Bajaj Finance, Muthoot Finance, and microfinance institutions. 💡 Option A (National Business Finance Center) is wrong because no such institution or acronym exists in Indian finance; Option B (Net Banking and Fund Collection) is wrong because it incorrectly describes the acronym and is not a recognised financial body; Option D (New Banking and Finance Corporation) is wrong because that is a fabricated full form with no basis in Indian banking regulation.