RBI Functions — Set 8

Correct Answer: A. S. Venkitaramanan

• **S. Venkitaramanan** = S. Venkitaramanan was the 18th Governor of the RBI (December 1990 – December 1992) and was in office when India faced a severe Balance of Payments crisis in 1991 that had nearly exhausted the country's foreign exchange reserves. • **Gold pledge, 1991** — Under his governorship, India pledged 67 tonnes of gold to the Bank of England and Union Bank of Switzerland as collateral to secure emergency foreign currency loans and avert a sovereign default — a defining moment of the economic reforms era. • Manmohan Singh was Finance Minister (not RBI Governor) during 1991; C. Rangarajan succeeded Venkitaramanan as the 19th Governor in December 1992 and continued the liberalisation agenda. • 💡 Option B (Bimal Jalan) is wrong because Jalan was the 20th Governor from 1997 to 2003, nearly a decade after the 1991 crisis. Option C (Manmohan Singh) is wrong because Singh was Finance Minister in 1991 and the architect of liberalisation; he had served as RBI Governor much earlier from 1982 to 1985 — two separate roles at very different times. Option D (C. Rangarajan) is wrong because Rangarajan became Governor only in December 1992, after the most critical phase of the 1991 reforms was already underway under Venkitaramanan.

Correct Answer: C. DPSS

• **DPSS** = The Department of Payment and Settlement Systems (DPSS) is the RBI department that regulates, supervises, and develops all payment and settlement infrastructure in India, including NEFT, RTGS, IMPS, UPI, and card networks. • **Legal authority** — DPSS derives its powers from the Payment and Settlement Systems (PSS) Act, 2007, which designated the RBI as the sole regulator of payment systems in India and granted it authority to issue licences, set interoperability standards, and inspect payment system operators. • DPSS also regulates the National Payments Corporation of India (NPCI), which operates UPI, RuPay, NACH, and other retail payment systems under the RBI's supervisory umbrella. • 💡 Option A (FEMA Department) is wrong because the FEMA department deals with cross-border foreign exchange transactions and exchange control, not domestic payment system infrastructure. Option B (Monetary Policy Department) is wrong because that department formulates interest rate decisions and manages inflation targeting — it has no role in payment and settlement oversight. Option D (HR Department) is wrong because the HR Department manages recruitment and personnel matters within the RBI and has no regulatory function over payment systems.

Correct Answer: A. Educating the public about banking and financial rights

• **Educating the public about banking and financial rights** = Financial Literacy Week is an annual initiative launched by the RBI to promote awareness among the general public about safe and responsible use of banking services, financial products, and consumer protection rights. • **Annual theme** — Each year the RBI selects a specific theme; the 2024 theme was 'Make a Right Start — Be Financially Smart' focusing on youth financial habits, while past themes have covered digital banking safety, credit discipline, and grievance redressal mechanisms. • The initiative is implemented through RBI-regulated entities — banks and NBFCs — who are required to run targeted awareness campaigns across branches, ATMs, mobile apps, and social media during the designated week. • 💡 Option B (Selling bank shares) is wrong because Financial Literacy Week is a public education drive with no commercial purpose; it does not involve any securities transactions. Option C (Hiring new teachers) is wrong because the RBI does not recruit teachers through this initiative; it uses its existing regulated network of banks to spread financial awareness. Option D (Closing loss-making banks) is wrong because bank resolution and closure fall under the RBI's supervisory and resolution powers, which are completely separate from the Financial Literacy Week programme.

Correct Answer: A. Rate at which RBI borrows from banks

• **Rate at which RBI borrows from banks** = The Reverse Repo Rate is the interest rate at which the RBI absorbs surplus liquidity from the banking system by borrowing money from commercial banks overnight, offering government securities as collateral to those banks. • **Monetary policy tool** — When banks have excess cash they cannot profitably deploy, they park it with the RBI at the Reverse Repo Rate; by raising this rate, the RBI makes parking funds more attractive, pulling liquidity out of the system to control inflationary pressures. • The Reverse Repo Rate is always lower than the Repo Rate (typically 25–35 basis points below), creating a policy corridor: the Repo Rate forms the upper ceiling of overnight rates and the Reverse Repo Rate forms the lower floor. • 💡 Option B (Rate at which government borrows from RBI) is wrong because the government uses Ways and Means Advances (WMA) to borrow short-term funds from the RBI — the Reverse Repo is exclusively an inter-bank liquidity tool, not a government financing instrument. Option C (Rate at which banks lend to public) is wrong because the rate banks charge customers is called the Base Rate, MCLR, or EBLR — not the Reverse Repo Rate. Option D (Rate at which RBI lends to foreign banks) is wrong because the Reverse Repo mechanism operates only between the RBI and domestic scheduled commercial banks; the RBI does not use this instrument to lend to foreign banks.

Correct Answer: A. Writing on currency notes

• **Writing on currency notes** = Under the RBI's Clean Note Policy, defacing currency notes by writing, stamping, or printing anything on them is explicitly prohibited, as it damages the physical integrity of notes and shortens their usable life in circulation. • **Legal basis** — Section 35A of the RBI Act empowers the RBI to issue this policy; banks are directed to supply fresh, clean notes to the public and withdraw soiled, mutilated, or defaced notes from circulation for destruction at currency chests. • The policy also discourages stapling bundles of notes, which physically punctures them, and encourages the public to use bank note-sorting machines to exchange worn or torn notes for fresh ones. • 💡 Option B (Saving money in banks) is wrong because saving money is actively encouraged by the RBI and is entirely unrelated to the Clean Note Policy, which is exclusively about the physical condition of currency. Option C (Using new notes) is wrong because using new notes is perfectly legal and desirable; the Clean Note Policy promotes keeping notes clean for longer use, not restricting their circulation. Option D (Trading in foreign currency) is wrong because foreign currency trading is governed by FEMA, 1999, and the RBI's forex regulations — a completely separate legal framework from the Clean Note Policy.

Correct Answer: B. DICGC

• **DICGC** = The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the RBI that provides deposit insurance to protect small depositors if a bank fails, covering deposits up to Rs. 5 lakh per depositor per bank across all branches. • **Rs. 5 lakh cover since 2020** — The insurance limit was raised from Rs. 1 lakh to Rs. 5 lakh on 4 February 2020 in the Union Budget; this protects approximately 98% of all deposit accounts in India by number, though only about 50% of total deposit value. • DICGC was established in 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961; it charges member banks an annual premium of 12 paise per Rs. 100 of assessable deposits. • 💡 Option A (NHB) is wrong because the National Housing Bank regulates housing finance companies and promotes home loan credit — it has no role in deposit insurance for bank depositors. Option C (BRBNMPL) is wrong because the Bharatiya Reserve Bank Note Mudran Private Limited is the RBI's currency printing subsidiary that operates banknote presses in Mysuru and Salboni — entirely unrelated to deposit insurance. Option D (SIDBI) is wrong because the Small Industries Development Bank of India provides refinance and credit facilities to the MSME sector and is not a deposit insurance body.

Correct Answer: B. Six

• **Six** = The Monetary Policy Committee (MPC) has six members: three ex-officio members from the RBI (the Governor as Chairperson, one Deputy Governor in charge of monetary policy, and one RBI officer), and three external members nominated by the Central Government. • **Established September 2016** — The MPC was constituted under Section 45ZB of the RBI Act as amended by the Finance Act 2016, replacing the earlier system where the RBI Governor alone decided interest rates; it meets at least four times a year (bi-monthly). • Decisions are taken by majority vote; in case of a tie, the RBI Governor has a casting vote. The MPC's primary mandate is to achieve the 4% CPI inflation target within a tolerance band of plus or minus 2%. • 💡 Option A (Four) is wrong because four is not the prescribed membership; the law specifically mandates six to ensure a balance between RBI insiders and independent external experts. Option C (Five) is wrong because five would create an odd-number committee, but the law chose six — split 3:3 between RBI and government nominees — to prevent either side from dominating with a built-in majority. Option D (Ten) is wrong because no statute or amendment has ever set MPC membership at ten; ten would be unwieldy for an effective rate-setting committee that must reach timely consensus.

Correct Answer: A. It is located on a street named Mint Road in Mumbai

• **It is located on a street named Mint Road in Mumbai** = The RBI's Central Office building stands on Mint Road (officially Shahid Bhagat Singh Marg) in the Fort area of South Mumbai; journalists and analysts use 'Mint Road' as a synecdoche to refer to the RBI itself, much like 'Wall Street' represents US financial markets. • **Historical origin** — The road was named Mint Road because the Bombay Mint (India's oldest mint, established 1672) originally operated in that vicinity; the RBI's Art Deco headquarters building was constructed on that same historically significant street in 1939. • India's actual coin minting facilities are at four government mints — Mumbai, Kolkata, Hyderabad, and Noida — all under the Security Printing and Minting Corporation of India (SPMCIL), controlled by the Ministry of Finance, not the RBI. • 💡 Option B (Green colored building) is wrong because the RBI's Central Office is a heritage Art Deco structure; its architectural colour has nothing to do with the 'Mint Road' nickname, which is purely geographic. Option C (It is where all the coins are made) is wrong because coins are minted at government mints under the Ministry of Finance, not at or by the RBI; the RBI issues notes and regulates currency but does not manufacture coins. Option D (It only produces mint candies) is a humorous distractor — the RBI is India's central bank and has absolutely no connection to the confectionery industry.

Correct Answer: D. Rate at which banks borrow from RBI in emergencies using SLR securities

• **Rate at which banks borrow from RBI in emergencies using SLR securities** = The Marginal Standing Facility (MSF) is an emergency overnight borrowing window where scheduled commercial banks can borrow from the RBI by pledging SLR-eligible government securities — crucially, even securities already counted toward their mandatory SLR requirement (up to 2% of NDTL). • **Rate premium** — The MSF rate is set at 25 basis points (0.25%) above the Repo Rate, making it more expensive and signalling that it should be used only as a last resort when the regular Repo window is insufficient. • Introduced in May 2011 as part of the revised Liquidity Adjustment Facility (LAF) framework, MSF forms the upper ceiling of the policy rate corridor, with the Reverse Repo Rate forming the lower floor. • 💡 Option A (Rate at which banks borrow using excess SLR) is wrong because under MSF banks can dip into their mandatory SLR holdings, not just excess SLR — this ability to use mandatory SLR securities is the defining feature that makes MSF unique. Option B (Rate at which RBI lends to the government) is wrong because the government borrows from the RBI through Ways and Means Advances (WMA), not through the MSF window, which is exclusively for scheduled commercial banks. Option C (Rate at which banks deposit overnight funds with RBI) is wrong because that describes the Reverse Repo Rate mechanism — MSF is for emergency borrowing by banks, not for depositing surplus funds with the RBI.

Correct Answer: A. Buying and selling government securities in the open market

• **Buying and selling government securities in the open market** = Open Market Operations (OMO) are the outright purchase and sale of government securities by the RBI in the secondary market to directly adjust the level of liquidity (money supply) in the banking system on a durable basis. • **Mechanism** — When the RBI buys government securities from banks, it credits their accounts with cash, injecting liquidity; when it sells securities to banks, it debits their accounts, withdrawing liquidity. This makes OMO more permanent than Repo, which is a short-term repurchase transaction reversed the next day. • OMO serves a dual purpose: it manages systemic liquidity AND influences government bond prices and yields, helping shape the yield curve — prominently used during COVID-19 through the Government Securities Acquisition Programme (G-SAP). • 💡 Option B (Lending to commercial banks at repo rate) is wrong because that describes the Repo facility under the LAF, not OMO; OMO involves outright purchase or sale with no repurchase obligation, whereas Repo is always reversed the following day. Option C (Printing new currency notes) is wrong because currency printing is carried out by BRBNMPL at authorised printing presses and is driven by public demand for cash — it is a completely separate process from OMO liquidity management. Option D (Setting interest rates for home loans) is wrong because home loan rates are set by individual banks based on MCLR or EBLR; the RBI influences these indirectly through Repo Rate changes, not through OMO.