RBI & Policy — Set 10

Correct Answer: D. There was no specific committee

• **No specific committee recommended RBI's nationalization** = nationalization in 1949 was a direct policy decision of the newly independent Indian government, enacted through the RBI (Transfer to Public Ownership) Act, 1948. • **Policy decision, not committee-driven** — the government nationalized the RBI to make the central bank an instrument of national development without any specific committee recommendation. • 💡 Wrong-option analysis: [Option A] Hilton Young: recommended the establishment of the RBI in 1926, not its nationalization; [Option B] Narasimham: focused on banking sector reforms in 1991 and 1998, not nationalization; [Option C] Gorwala Committee: examined the All India Rural Credit Survey, did not recommend RBI nationalization.

Correct Answer: A. C.D. Deshmukh

• **C.D. Deshmukh — First Indian RBI Governor** = Sir Chintaman Dwarkanath Deshmukh was appointed as the first Indian Governor of the RBI in August 1943, during British rule. • **Appointed in 1943; ICS officer** — Deshmukh played a key role during India's independence transition and the RBI's nationalization; he later served as India's Union Finance Minister. • 💡 Wrong-option analysis: [Option B] I.G. Patel: served as RBI Governor from 1977–82, three decades after Deshmukh; [Option C] Manmohan Singh: served as Governor from 1982–85; [Option D] H.V.R. Iyengar: served as Governor from 1957–62.

Correct Answer: B. Statutory Liquidity Ratio

• **SLR = Statutory Liquidity Ratio** = the SLR is the mandatory percentage of a bank's net demand and time liabilities that must be maintained in liquid assets such as gold or government securities. • **Controls credit growth** — a higher SLR forces banks to hold more liquid assets, reducing funds available for lending; the RBI sets both maximum and minimum SLR limits. • 💡 Wrong-option analysis: [Option A] Statutory Loan Rate: not a recognized banking term; the correct full form is Statutory Liquidity Ratio; [Option C] Systemic Liquidity Reserve: not an official RBI term; fabricated distractor; [Option D] Standard Liquid Ratio: also not a recognized term; the correct full form is Statutory Liquidity Ratio.

Correct Answer: B. Reserve Bank of India

• **RBI is the Lender of Last Resort** = the RBI provides emergency liquidity to banks that have no other funding source, preventing a localized liquidity problem from escalating into large-scale financial panic. • **Core central bank responsibility** — this function is universal to all central banks; it assures depositors and markets that the banking system has a reliable backstop, preventing bank runs. • 💡 Wrong-option analysis: [Option A] World Bank: provides long-term development financing to governments, not emergency liquidity to individual domestic banks; [Option C] IMF: provides balance-of-payments support to countries, not overnight liquidity to domestic banks; [Option D] Central Government: manages fiscal policy but does not directly provide banking sector emergency liquidity.

Correct Answer: C. NHB

• **NHB is NOT an RBI subsidiary** = the National Housing Bank's entire stake was transferred from the RBI to the Government of India in 2019, removing it from the list of RBI subsidiaries. • **RBI divested in 2019** — current wholly-owned subsidiaries include DICGC (deposit insurance), BRBNMPL (note printing), ReBIT (IT and cybersecurity), and IFTAS (payment infrastructure). • 💡 Wrong-option analysis: [Option A] ReBIT: still a wholly-owned RBI subsidiary for IT and cybersecurity; [Option B] DICGC: still a wholly-owned RBI subsidiary for deposit insurance; [Option D] BRBNMPL: still the RBI's currency note printing subsidiary.

Correct Answer: C. Tiger

• **Tiger in RBI logo** = the RBI's official emblem features a tiger standing in front of a palm tree; the tiger represents strength and the palm tree represents prosperity. • **Originally a lion, changed to tiger** — the lion in the original East India Company-derived seal was replaced by a tiger to give the RBI emblem a distinctly Indian national identity. • 💡 Wrong-option analysis: [Option A] Elephant: associated with NABARD's rural development imagery, not the RBI; [Option B] Horse: no major Indian financial institution uses a horse as its central logo symbol; [Option D] Lion: used in the original East India Company seal but replaced by the tiger in the RBI's emblem.

Correct Answer: B. 1935

• **RBI commenced operations on April 1, 1935** = the Reserve Bank of India began actual operations on April 1, 1935, taking over government account management and note issuance from the Imperial Bank of India. • **RBI Act: 1934; Operations: 1935** — the RBI Act was passed in 1934 but operations started in 1935; the first year was spent organizing the central bank's regional offices. • 💡 Wrong-option analysis: [Option A] 1934: the year the RBI Act was passed, not when the bank started operations; [Option C] 1949: the year of the RBI's nationalization; [Option D] 1951: the launch year of India's First Five-Year Plan, unrelated to RBI's start of operations.

Correct Answer: D. S. Venkitaramanan

• **S. Venkitaramanan — RBI Governor during 1991 crisis** = S. Venkitaramanan served as RBI Governor from 1990 to 1992, managing India's severe balance of payments crisis, including the gold pledging operation. • **1990–1992; succeeded by C. Rangarajan** — he oversaw the pledging of 67 tonnes of gold with the Bank of England and Union Bank of Switzerland to secure emergency foreign exchange; C. Rangarajan succeeded him. • 💡 Wrong-option analysis: [Option A] C. Rangarajan: succeeded Venkitaramanan and oversaw the post-reform period from 1992–97; [Option B] Manmohan Singh: was the Finance Minister (not RBI Governor) who led the 1991 reforms; [Option C] Bimal Jalan: served as RBI Governor from 1997–2003, well after the 1991 crisis.

Correct Answer: A. Cash with RBI

• **CRR maintained as cash with the RBI** = the Cash Reserve Ratio must be maintained strictly as cash deposits with the Reserve Bank of India; no other form of assets (gold, securities) is permitted. • **No interest earned** — banks earn zero return on CRR balances, making it a direct cost that the RBI uses to directly control how much liquidity is available for lending. • 💡 Wrong-option analysis: [Option B] Gold: held under SLR as a liquid asset, not under CRR; [Option C] Foreign Currency: part of a bank's treasury portfolio, not a permissible form for CRR maintenance; [Option D] Government Securities: held under SLR requirements, not CRR.

Correct Answer: A. Managing public debt

• **'Banker to Government' = Managing Public Debt** = as banker to the government, the RBI manages public debt of both central and state governments, handles their cash balances, and provides short-term credit through WMA. • **Also advises on economic matters** — the RBI conducts government securities auctions to raise funds on behalf of the government and serves as its economic advisor. • 💡 Wrong-option analysis: [Option B] Regulating stock exchanges: SEBI's mandate, not the RBI's banker-to-government role; [Option C] Printing coins: coins are minted by government mints; the RBI only distributes them; [Option D] Selling private insurance: insurance sales and regulation are IRDAI's domain.