RBI & Policy — Set 5

Correct Answer: C. Urjit Patel Committee

• **Urjit Patel Committee recommended the MPC** = the committee chaired by Urjit Patel in 2014 recommended establishing the Monetary Policy Committee to bring transparency and accountability to interest rate decisions. • **First MPC meeting in October 2016** — before MPC, the RBI Governor alone decided policy rates; the six-member structure balances RBI expertise with external perspectives. • 💡 Wrong-option analysis: [Option A] Y.V. Reddy Committee: Y.V. Reddy was a former Governor but did not chair the committee recommending the MPC; [Option B] Chakravarty Committee: examined monetary system and money supply targets in 1985, predating the MPC concept; [Option D] Bimal Jalan Committee: examined RBI's economic capital framework, not the MPC structure.

Correct Answer: D. Contractionary

• **Dear (Tight/Contractionary) Monetary Policy** = a 'dear money' policy involves high interest rates to curb inflation by making credit expensive and reducing consumer demand for goods and services. • **Opposite of cheap money policy** — dear money discourages borrowing and spending, cooling an overheated economy; it is the reverse of an accommodative (cheap money) policy that stimulates growth. • 💡 Wrong-option analysis: [Option A] Stable: describes a neutral monetary stance, not the dear money policy; [Option B] Expansionary: the exact opposite — lower rates to stimulate growth; [Option C] Neutral: neither tightens nor eases, whereas dear money is specifically contractionary.

Correct Answer: A. NABARD

• **NABARD is NOT an RBI subsidiary** = the Government of India now owns 100% of NABARD; the RBI divested its shareholding, making NABARD a fully government-owned development institution. • **DICGC and BRBNMPL remain subsidiaries** — current RBI subsidiaries include DICGC (deposit insurance), BRBNMPL (note printing), IFTAS (payment infrastructure), and ReBIT (IT and cybersecurity). • 💡 Wrong-option analysis: [Option B] BRBNMPL: still a fully-owned RBI subsidiary that prints currency notes; [Option C] DICGC: a wholly-owned subsidiary providing deposit insurance; [Option D] IFTAS: an RBI subsidiary managing payment system infrastructure.

Correct Answer: C. Section 22

• **Section 22 of Banking Regulation Act** = Section 22 of the BR Act, 1949 mandates that every banking company must obtain a license from the RBI before commencing banking operations in India. • **RBI can cancel licenses** — this section gives the RBI full control over entry into the banking sector; it can revoke licenses if an entity fails to maintain required standards. • 💡 Wrong-option analysis: [Option A] Section 11: relates to minimum paid-up capital and reserves requirement; [Option B] Section 35: deals with the RBI's power to inspect banks; [Option D] Section 42: of the RBI Act covers CRR requirements for scheduled banks.

Correct Answer: B. Four

• **RBI has 4 Local Boards** = the Reserve Bank of India has four local boards representing the Western, Eastern, Northern, and Southern regions of India. • **Based in Mumbai, Kolkata, New Delhi, Chennai** — these boards advise the Central Board on regional matters and represent local financial interests within the RBI's governance structure. • 💡 Wrong-option analysis: [Option A] Five: the RBI Act provides for four regional boards, not five; [Option C] Two: two boards cannot adequately represent all of India's diverse regions; [Option D] Three: the RBI Act explicitly defines four local boards corresponding to the four regional directorates.

Correct Answer: C. Ensure availability of good quality notes to the public

• **Clean Note Policy ensures quality currency for public** = introduced in 1999, this RBI policy aims to provide citizens with clean, undamaged notes while withdrawing soiled ones from circulation. • **Introduced in 1999; prohibits stapling** — the policy also bans stapling of note packets to prevent physical damage; banks are required to provide exchange facilities for mutilated or soiled notes. • 💡 Wrong-option analysis: [Option A] Withdraw old notes: note withdrawal is demonetization, a different policy measure; [Option B] Promote digital banking: digital banking promotion is a separate financial inclusion initiative; [Option D] Stop counterfeit money: anti-counterfeiting is addressed through security features in note design, not through the Clean Note Policy.

Correct Answer: B. Variable Reserve Ratios

• **Variable Reserve Ratios — Quantitative Credit Control** = changes in CRR and SLR (variable reserve ratios) are quantitative tools that affect the total volume of credit available across the entire banking system uniformly. • **Non-discriminatory** — quantitative tools apply equally to all banks and sectors; they control overall money supply, unlike qualitative tools which target specific lending behaviors or sectors. • 💡 Wrong-option analysis: [Option A] Direct Action: a qualitative tool involving punitive measures against specific non-compliant banks; [Option C] Credit Rationing: a qualitative tool that limits loans to specific sectors or borrowers; [Option D] Margin Requirements: a qualitative tool targeting collateral-backed lending for specific sectors.

Correct Answer: B. B.R. Ambedkar

• **B.R. Ambedkar's book inspired the RBI** = Dr. Ambedkar's 1923 work 'The Problem of the Rupee — Its Origin and Its Solution' provided the conceptual framework for establishing the Reserve Bank of India. • **Testified before Hilton Young Commission** — Ambedkar also gave evidence to the Hilton Young Commission; his ideas on price stability, currency management, and independent central banking were highly influential. • 💡 Wrong-option analysis: [Option A] Dadabhai Naoroji: wrote 'Poverty and Un-British Rule in India' on economic drain, not on central banking; [Option C] Jawaharlal Nehru: contributions were in political philosophy and planned development, not in the design of the RBI; [Option D] Mahatma Gandhi: economic ideas centered on village self-sufficiency and cottage industries, not central banking.

Correct Answer: D. ₹10,000

• **₹10,000 — Maximum authorized denomination** = the RBI Act, 1934 authorizes the RBI to issue currency notes up to the denomination of ₹10,000. • **₹5,000 and ₹10,000 demonetized in 1978** — these high-denomination notes were in circulation before 1978; any increase beyond ₹10,000 would require a legislative amendment to the RBI Act. • 💡 Wrong-option analysis: [Option A] ₹1,000: a common denomination (demonetized in 2016) but the legal maximum authorized under the Act is ₹10,000; [Option B] ₹5,000: existed before 1978 but was demonetized; not the legal ceiling; [Option C] ₹2,000: a recently withdrawn denomination, well below the legal maximum of ₹10,000.

Correct Answer: C. Policy-making body

• **Central Board of Directors — Policy-making body** = the Central Board is the highest governing and decision-making body of the RBI, overseeing its general management and policy direction. • **21 total members** — the board comprises the Governor, Deputy Governors, and government-nominated directors from diverse fields; it meets regularly for policy and operational discussions. • 💡 Wrong-option analysis: [Option A] Recruitment cell: HR and recruitment are handled by administrative departments, not the Central Board; [Option B] Audit department: involves checking accounts and compliance, a separate internal/external process; [Option D] Training wing: managed by institutes like the RBI Staff College, not the Central Board.