Reserve Bank of India Exercise Solutions | KalviGavani

Reserve Bank of India: Exercise Solutions

How to Use This Page

Read the Samacheer Kalvi textbook chapter first. Then use this page to revise: attempt the textbook questions on your own, then compare with the model answers below. Pay special attention to the Common Mistakes section and the Exam Checklist before your test.

Key Concepts (Quick Recap)

I. Choose the Correct Answer (MCQ)

Q1. Which bank has the power to issue bank notes? (a) Central bank (b) Commercial bank ✓ (c) Co-operative banks (d) Foreign banks

Q2. The Central bank of India is (a) PNB (b) SBI (c) ICICI (d) RBI ✓

Q3. The Reserve Bank of India commenced its operations from April 1, ……… (a) 1936 (b) 1935 ✓ (c) 1934 (d) 1933

Q4. Bankers are not only dealers of money but also leaders in ……… (a) Economic development ✓ (b) Trade development (c) Industry development (d) Service development

Q5. Which of the following is not a function of a central bank? (a) Guiding and regulating the banking system (b) Deal with the general public ✓ (c) Acts essentially as Government banker (d) Maintains deposit accounts of all other banks

Q1 (Additional). The head office of the RBI is situated in ……… (a) Calcutta (b) Mumbai ✓ (c) Delhi (d) Chennai

Q2 (Additional). ……… was the first bank in India established in 1770. (a) Audh Bank (b) Bank of Calcutta (c) Bank of Bombay (d) Bank of Hindustan ✓

Q3 (Additional). When did India become a member of IBRD and IMF? (a) 1946 (b) 1947 (c) 1945 ✓ (d) 1946

Q4 (Additional). ……… banks were nationalised in India in the year 1969. (a) 15 (b) 14 ✓ (c) 20 (d) 41

Q5 (Additional). Currency notes are printed at ……… (a) Nasik ✓ (b) Mumbai (c) Delhi (d) Kolkatta

Q6 (Additional). RBI is governed by ……… central board of directors. (a) 15 (b) 12 (c) 21 ✓ (d) 20

Q7 (Additional). Among global currencies, the Indian rupee is given the code ……… (a) INR ✓ (b) Rs. (c) NRI (d) IRN

Q8 (Additional). RBI is also called as ……… Bank. (a) World (b) Central (c) National (d) Banker's ✓

Q9 (Additional). The rupee symbol was changed from Rs. by the government of India on ……… (a) July 15, 2010 ✓ (b) May 21, 1998 (c) January 1, 1969 (d) December 15, 2010

II. Fill in the Blanks

1. The Reserve Bank of India commenced its operations from April 1, 1935. 2. RBI was nationalised on January 1, 1949. 3. The head office of RBI is situated in Mumbai. 4. RBI is governed by a 21-member central board of directors. 5. Currency notes are printed at Nasik. 6. CRR stands for Cash Reserve Ratio. 7. SLR stands for Statutory Liquidity Ratio. 8. NABARD stands for National Bank for Agriculture and Rural Development. 9. The Indian rupee currency code is INR. 10. 14 banks were nationalised in India in the year 1969.

III. True or False (with corrections)

1. RBI commenced its operations on April 1, 1936. False. RBI commenced its operations on April 1, 1935.

2. RBI deals directly with the general public. False. RBI does NOT deal with the general public. It deals with banks and the government.

3. CRR is the ratio of cash reserves kept within the bank. False. CRR is the ratio kept WITH RBI, not within the bank. SLR is kept within the bank.

4. Repo rate is the rate at which RBI borrows from commercial banks. False. Repo rate is the rate at which RBI LENDS to commercial banks. Reverse repo rate is the rate at which RBI borrows from banks.

5. The first bank in India was Bank of Calcutta established in 1770. False. The first bank in India was Bank of Hindustan established in 1770. Bank of Calcutta was the first joint-stock bank established in 1806.

6. RBI was nationalised on January 1, 1949. True.

IV. Match the Following

V. Answer Briefly

Q1. Services included in Service businesses: Educational, Medical, Hospitality, and banking are included in service businesses. "Bank service is the nerve center of industry and commerce in a country."

Q2. Meaning of 'Bank': A bank is a financial institution that accepts deposits from the public and creates credit.

Q3. Briefly explain about Central Bank: Every nation has one central bank owned by its Government. It controls the entire banking system and serves as the apex bank. In India, the RBI serves this role.

Q4 (Additional). What is Statutory Liquidity Ratio (SLR)? The ratio of money and money equivalents kept within the bank in proportion to the total Time and Demand Liabilities with them.

Q5 (Additional). First bank in India: Bank of Hindustan, established in 1770, was India's first bank. It closed in 1932.

Q6 (Additional). Expand NABARD: National Bank for Agriculture and Rural Development.

Q7 (Additional). What are 'Presidential Banks'? Bank of Bombay, Bank of Madras, and Bank of Bengal are called Presidential Banks.

Q8 (Additional). What is CRR? Cash Reserve Ratio — the ratio of cash reserves kept with RBI by Scheduled banks relative to their total Time and Demand Liabilities.

Q9 (Additional). What is Repo rate? The repurchase rate at which RBI repurchases Government securities from Scheduled banks and provides loans.

Q10 (Additional). What is Reverse repo rate? The rate at which RBI borrows money from Commercial banks by returning Government securities.

VI. Answer in Detail

Q1. Classify the various functions of Reserve Bank of India:

(i) Leadership and Supervisory Functions:

• India's Representative in World Financial Institutions
• Regulator and Supervisor of Indian Banking System
• Monetary Authority
• Closely Monitoring Economic Parameters
• Promptly Responding to New Challenges

(ii) Traditional Functions:

• Banker and Financial Advisor to the Government
• Monopoly of Note Issue
• Banker's Bank
• Controller of Credit and Liquidity
• Quantitative Methods of Credit Control
• Qualitative Credit Control Measures
• Lender of the Last Resort
• Clearing House Services
• Custodian of Foreign Exchange Reserves
• Maintenance of Foreign Exchange Rate
• Collection and Publication of Authentic Data

(iii) Promotional Functions:

• Nurturing Banking Habits among the Public
• Grievance Settlement Measures
• Agricultural Development
• Promotion of Small Scale Industries
• Facilitates Foreign Trade
• Supports Cooperative Sector

Q2. Organizational structure of RBI: Head office in Mumbai with 33 departments (as of 2017). Four zonal offices in Mumbai, Delhi, Calcutta, and Chennai under local boards headed by Deputy Governors. 19 regional offices and 11 sub-offices. A 21-member Central Board of Directors (appointed by the Government) includes: one Governor, four Deputy Governors (four-year term), ten Directors from various fields, two Government officials, and four Directors from local boards.

Q3. Historical development of banking in India:

• Bank of Hindustan — first bank (1770), closed 1932
• General Bank of India — established 1786, liquidated 1791
• Bank of Calcutta — first joint-stock bank (1806), renamed Bank of Bengal (1809)
• Bank of Bombay (1840) and Bank of Madras (1843) — Presidential Banks
• Audh Bank started 1881, renamed Punjab National Bank in 1894
• Presidential banks amalgamated into Imperial Bank of India on January 27, 1921
• After Independence, Government took over Imperial Bank, and SBI came into being on July 1, 1955

Q4. Credit-control methods:

(a) Quantitative Methods of Credit Control — influence total volume of credit: 1. Bank Rate Policy: The rate at which RBI re-discounts bills from Scheduled banks. 2. CRR (Cash Reserve Ratio): Ratio of cash reserves with RBI kept by Scheduled banks relative to total Time and Demand Liabilities. 3. SLR (Statutory Liquidity Ratio): Ratio of money/money equivalents held within the bank relative to total Time and Demand Liabilities. 4. Open Market Operations: RBI directly buys/sells securities and bills in the money market to adjust total money volume.

(b) Qualitative Credit Control Measures — influence money volume in specific sectors: 1. Rationing of credit: Maximum lending limits are fixed for certain sectors to include more people and extend banking to unbanked areas. 2. Moral Suasion: RBI pressures banks toward liberal or restricted lending during specific periods.

Common Mistakes to Avoid

1. RBI commenced operations on April 1, 1935 — Not 1936 or 1934. It was nationalized on January 1, 1949. 2. 14 banks were nationalized in 1969 — Not 15. (Actually the correct answer per the textbook is 14, but some sources say 14+1 = 14 major banks.) 3. RBI does NOT deal with the general public — This is a key distinction. Central banks deal with banks and the government, not individuals. 4. Currency notes are printed at Nasik — Not Mumbai or Delhi. 5. RBI = 21-member central board — Not 15, 12, or 20. 6. CRR vs SLR — CRR is kept WITH RBI; SLR is kept WITHIN the bank itself. Don't confuse them. 7. Repo rate = RBI lends to banks; Reverse repo = RBI borrows from banks — The names are counter-intuitive; memorize carefully.

Exam Checklist

• [ ] Can classify RBI functions (leadership, traditional, promotional)
• [ ] Know the organizational structure (21-member board, Governor, 4 Deputy Governors)
• [ ] Can explain historical development of banking in India
• [ ] Know quantitative credit control methods (bank rate, CRR, SLR, open market operations)
• [ ] Know qualitative credit control methods (rationing, moral suasion)
• [ ] Can define Bank and Central Bank
• [ ] Know key dates: RBI Act 1934, operations 1935, nationalization 1949
• [ ] Know CRR, SLR, Repo rate, Reverse repo rate definitions
• [ ] Can explain demonetisation (November 8, 2016) and its objectives
• [ ] Can define Bank and Central Bank (Banking Regulation Act 1949, BIS definition)
• [ ] Know Presidential Banks (Bank of Bombay, Bank of Madras, Bank of Bengal)
• [ ] Can explain the process of nationalisation of RBI (RBI Act 1948, from January 1, 1949)
• [ ] Know the 4 zonal offices of RBI (Mumbai, Delhi, Calcutta, Chennai)