Q230. To counter inflation, should RBI raise the CRR, raise the repo rate, or both?
[RRB Group D, 5 Sep Shift 3 2022]
A. Both measures
B. Raise CRR only
C. Raise repo rate only
D. Neither measure
Answer: (A) Both measures
Explanation: Raising CRR reduces funds banks can deploy, while raising the policy repo rate tends to make borrowing costlier. Both are generally contractionary approaches capable of moderating credit demand and inflationary pressure.
Q229. What does Cash Reserve Ratio require commercial banks to maintain?
[RRB Group D, 15 Sep Shift 2 2022]
A. A fixed fraction invested in shares
B. The minimum balance in each customer’s account
C. Prescribed cash balances with RBI
D. Only reserves against loans already disbursed
Answer: (C) Prescribed cash balances with RBI
Explanation: CRR is the RBI-prescribed proportion of net demand and time liabilities that banks maintain as cash balances with the central bank. The requirement influences system liquidity and the lending capacity of banks.
Q228. Under the principal-business test applied to NBFCs in April 2022, financial assets had to exceed which share of adjusted total assets?
[RRB Group D, 29 Sep Shift 2 2022]
A. 70%
B. 60%
C. 80%
D. 50%
Answer: (D) 50%
Explanation: RBI’s principal-business test historically used a threshold of more than 50 percent for financial assets, together with a corresponding criterion for income from financial assets. The question concerns the rules at the specified historical date.
Q227. Which formula correctly expresses India’s broad-money aggregate M3?
[RRB Group D, 20 Sep Shift 2 2022]
A. M1 plus all post-office deposits
B. M1 plus only post-office savings deposits
C. Currency held by public plus demand deposits plus net time deposits of commercial banks
D. M2 plus postal savings accounts
Answer: (C) Currency held by public plus demand deposits plus net time deposits of commercial banks
Explanation: M3 is commonly expressed as M1 plus net time deposits with the banking system. M1 includes currency held by the public and net demand deposits, with other deposits with RBI included in complete official definitions.
Q226. What theme did RBI choose for Financial Literacy Week in 2022?
[RRB Group D, 25 Aug Shift 2 2022]
A. Credit Discipline and Formal Credit
B. Farmers
C. Micro, Small and Medium Enterprises
D. Go Digital, Go Secure
Answer: (D) Go Digital, Go Secure
Explanation: RBI organised its 2022 Financial Literacy Week around the theme Go Digital, Go Secure, focusing on awareness of safe digital transactions and banking access. Earlier annual themes addressed farmers, MSMEs and formal borrowing.
Q225. Which statements regarding the RBI Governor are correct?
(1) The Union Government appoints the Governor.
(2) The Constitution gives the Union direct power to direct RBI.
(3) The Governor derives powers from the RBI Act.
[UPSC CSE Prelims 2021]
A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. All three
Answer: (C) 1 and 3 only
Explanation: The RBI Act, 1934 provides for appointment and powers of the Governor. Section 7 of that Act also addresses directions in public interest. The Constitution does not itself contain the claimed RBI-direction provision, making the second statement incorrect.
Q224. Regarding Urban Cooperative Banks, which statements are correct?
(1) State-appointed local boards alone regulate them.
(2) They may issue equity and preference shares.
(3) The 1966 amendment extended banking law to them.
[UPSC CSE Prelims 2021]
A. 1 only
B. 2 and 3 only
C. 1 and 3 only
D. All three
Answer: (B) 2 and 3 only
Explanation: Urban cooperative banks face banking supervision by RBI alongside cooperative-law administration by relevant registrars. They are not solely controlled by state-appointed local boards. The 1966 legislation extended banking regulation; later reforms also enabled capital instruments subject to conditions.
Q223. Which method of financing a fiscal deficit is usually most inflationary?
[UPSC CSE Prelims 2021]
A. Repayment of public debt
B. Borrowing from the public
C. Borrowing from banks
D. Creating new money
Answer: (D) Creating new money
Explanation: Creating new money to finance government expenditure increases purchasing power without necessarily increasing current output. This raises inflationary pressure more directly than borrowing existing money from savers. The size of the effect still depends on demand, productive capacity and policy responses.
Q222. Which factor generally raises the money multiplier?
[UPSC CSE Prelims 2021]
A. Higher bank CRR
B. Higher bank SLR
C. Greater use of bank accounts instead of cash
D. A larger population regardless of banking practices
Answer: (C) Greater use of bank accounts instead of cash
Explanation: When people deposit more funds in banks and hold less currency, the same monetary base can support a larger volume of deposits and credit. Raising mandatory cash or liquid-asset ratios restricts this process rather than strengthening it.
Q221. When does the RBI act as the lender of last resort?
[UPSC CSE Prelims 2021]
A. When lending directly to industrial associations
B. When providing emergency liquidity to banks
C. When financing all government deficits
D. When purchasing ordinary shares in private firms
Answer: (B) When providing emergency liquidity to banks
Explanation: A central bank protects financial stability by supplying liquidity to eligible banks facing exceptional funding shortages. This emergency banking role differs from long-term industry lending or routine fiscal-deficit financing and helps prevent bank runs from spreading.
