Announcement
Monetary policy/Financial inst/Banki
Assertion (A): Payments Banks in India are allowed to issue credit cards to their customers.
Reasoning (R): Payments Banks are restricted from undertaking lending activities to prevent high-risk exposure
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: Assertion is false. Payments Banks cannot issue credit cards because issuing a credit card is a form of lending, which they are prohibited from doing. They can only issue debit cards.
Assertion (A): The concept of "Narrow Banking" involves banks investing deposits only in risk-free government securities.
Reasoning (R): Narrow banking aims to minimize the risk of bank runs and ensure the safety of depositors' money.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Answer: (a) Explanation: By avoiding risky private loans and sticking to G-Secs, narrow banks remain extremely safe, fulfilling the objective of depositor protection.
Assertion (A): Inflation targeting in India is based on the Consumer Price Index (CPI-Combined).
Reasoning (R): CPI reflects the price changes at the consumer level and is considered more representative of the cost of living for the general public than WPI.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: Following the Urjit Patel Committee recommendations, the RBI shifted from WPI to CPI-C as its primary anchor for monetary policy.
Assertion (A): Priority Sector Lending (PSL) norms apply only to Public Sector Banks in India.
Reasoning (R): PSL ensures that adequate institutional credit flows into vulnerable and key sectors of the economy like agriculture and MSMEs.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: Assertion is false because PSL norms apply to all scheduled commercial banks, including private sector banks and foreign banks (with specific targets).
Assertion (A): The Capital Adequacy Ratio (CAR) is maintained to protect depositors and promote stability in the financial system.
Reasoning (R): CAR ensures that banks have a cushion to absorb a reasonable amount of losses before they become insolvent
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: CAR (or CRAR) acts as a buffer, ensuring banks have enough of their own capital to withstand asset value fluctuations without losing depositors' money.
Assertion (A): Regional Rural Banks (RRBs) are primarily owned by the Central Government, the concerned State Government, and a Sponsor Bank.
Reasoning (R): RRBs were created to meet the credit needs of the rural population, especially small farmers and agricultural labourers.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: Both statements are true. However, the ownership structure (50:15:35) is a legal/administrative arrangement and does not directly explain the objective of meeting rural credit needs.
Assertion (A): Financial Inclusion aims to provide affordable financial services to low-income segments of society.
Reasoning (R): The Pradhan Mantri Jan Dhan Yojana (PMJDY) is a major initiative under the financial inclusion framework in India.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: Both are true facts, but the existence of PMJDY (an example) is not the logical reason why inclusion aims for affordability (the definition).
Assertion (A): Derivative instruments are used by financial institutions primarily for hedging risks.
Reasoning (R): Derivatives derive their value from an underlying asset, such as stocks, bonds, or commodities.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: Both are true, but the definition of what a derivative is (deriving value) doesn't inherently explain why a bank chooses to use it for hedging specifically (as they could also be used for speculation).
Assertion (A): The "Liquidity Adjustment Facility" (LAF) allows banks to manage their day-to-day liquidity mismatches.
Reasoning (R): LAF consists of Repo and Reverse Repo operations conducted by the RBI.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: LAF is the primary mechanism through which the RBI manages the liquidity corridor, allowing banks to borrow or park funds daily.
Assertion (A): An accommodative stance of monetary policy indicates that the RBI is willing to cut interest rates to support economic growth.
Reasoning (R): This stance is typically adopted when inflation is within the target range and the economy requires a boost in investment.
- A Both A and R are true, and R is the correct explanation of A.
- B Both A and R are true, but R is NOT the correct explanation of A.
- C A is true, but R is false.
- D A is false, but R is true.
Explanation: An accommodative stance signifies an "easy money" policy where growth is prioritized over inflation control, provided inflation is stable.
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