Banking Terms — Set 4

Correct Answer: B. Indigenous Bankers

Indigenous bankers and money lenders form the unorganized segment of the Indian money market. They are not directly regulated by the RBI. While the organized sector is more efficient, the unorganized sector still provides credit in rural areas.

Correct Answer: D. To absorb excess liquidity from large capital inflows

MSS was introduced in 2004 to suck out excess liquidity arising from significant foreign capital inflows. The RBI issues government securities like T-Bills under this scheme. The money collected is kept in a separate account and not used by the government.

Correct Answer: A. One year

While most repos are overnight, the RBI also conducts 'Term Repos' which can last up to one year. Long-term Repo Operations (LTRO) were introduced to provide even longer-term liquidity. However, most standard market repos are for very short durations.

Correct Answer: D. High Liquidity

Money market instruments are characterized by high liquidity and low risk of default. They are easily convertible into cash at a low cost. This makes them ideal for short-term fund management by institutions.

Correct Answer: C. Collateralized Borrowing and Lending Obligation

CBLO was a money market instrument that allowed borrowing and lending against the collateral of government securities. It was operated by the CCIL. It has now been replaced by the Triparty Repo (TREPS) to align with international standards.

Correct Answer: D. A1

Issuers must have a minimum credit rating of A3 (under earlier symbols) or A1 as per the current standard from SEBI-approved agencies. Only high-quality, creditworthy companies are permitted to issue these unsecured notes. This protects the market from high default risks.

Correct Answer: A. Auctions

The RBI conducts auctions for Treasury Bills on every Wednesday. Bidders submit their bids through the E-Kuber platform. The competitive bidding determines the discount rate and the final yield.

Correct Answer: D. Overnight window for banks to borrow from RBI

MSF is a window for banks to borrow from the RBI in an emergency when inter-bank liquidity dries up. Banks can borrow by dipping into their Statutory Liquidity Ratio (SLR) securities. The MSF rate is usually higher than the Repo rate.

Correct Answer: B. Yield to Maturity

Yield to Maturity is the total return anticipated on a bond or money market instrument if held until it matures. It is expressed as an annual percentage. YTM accounts for the purchase price, face value, and time remaining to maturity.

Correct Answer: B. Reserve Bank of India

The RBI acts as the lender of last resort by providing liquidity to banks facing a sudden crisis. This function helps prevent a general collapse of the banking system. It is usually performed through windows like the MSF.