Consider the following statements with reference to challenges in monetary policy transmission in Indian Economy: Increase in Non-Performing Assets (NPAs) has been one of the major reasons for the impaired monetary policy transmission in India. Fluctuation in deposits impedes the ability of banks to respond to monetary policy changes. Competition from other financial saving instruments also creates a challenge for monetary policy transmission. Which of the statements given above is/are correct?a)2 onlyb)3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?

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Consider the following statements with reference to challenges in monetary policy transmission in Indian Economy:

Increase in Non-Performing Assets (NPAs) has been one of the major reasons for the impaired monetary policy transmission in India.

Fluctuation in deposits impedes the ability of banks to respond to monetary policy changes.

Competition from other financial saving instruments also creates a challenge for monetary policy transmission.

Which of the statements given above is/are correct?

a)
2 only
b)
3 only
c)
1 and 3 only
d)
1, 2 and 3

Correct answer is option 'D'. Can you explain this answer?

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Consider the following statements with reference to challenges in mon...

Statement 1 is correct: Major reasons for the impaired monetary policy transmission in India.
1. High average cost of deposits,
2. Limited flexibility to reduce interest rates in the short-run,
3. High non-performing assets (NPAs),
4. Higher cost of acquiring and servicing customers,
5. Non-interest operating expenses
6. Procedural bottlenecks in recovery of dues by banks coupled with large borrowings by the government.
Statement 2 is correct: As per research, the major reasons behind weak transmissions are
(i) rigidity in saving deposit interest rates;
(ii) competition from other financial saving instruments; and
(iii) deterioration in the health of the banking sector.
Rigidity in savings deposit interest rate: Around 58% of the total deposits are term deposits and 77% of the term deposits are for 1 year and above. Most of the term deposits have fixed interest rate which means the transmission is effective only for fresh deposits. Besides, banks have no incentive to decrease the deposit rate with the decrease in repo rate due to high operating expenses of savings accounts and already stressed balance sheets.
Statement 3 is correct: Competition from other financial saving instruments: With an increased risk appetite, financial literacy, good performance of stock markets and well-structured products, households are diverting a part of their savings to risky assets like mutual funds. Risk-free instruments including public provident fund, national savings certificate, etc. also compete with bank deposits. Despite quarterly review of interest rates, movement in the small savings rate has remained highly inflexible. There is an increased reliance of public sector enterprises (PSEs) to source funds from the National Small Savings Fund to meet

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Consider the following statements with reference to challenges in monetary policy transmission in Indian Economy: Increase in Non-Performing Assets (NPAs) has been one of the major reasons for the impaired monetary policy transmission in India. Fluctuation in deposits impedes the ability of banks to respond to monetary policy changes. Competition from other financial saving instruments also creates a challenge for monetary policy transmission. Which of the statements given above is/are correct?a)2 onlyb)3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?

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Consider the following statements with reference to challenges in monetary policy transmission in Indian Economy: Increase in Non-Performing Assets (NPAs) has been one of the major reasons for the impaired monetary policy transmission in India. Fluctuation in deposits impedes the ability of banks to respond to monetary policy changes. Competition from other financial saving instruments also creates a challenge for monetary policy transmission. Which of the statements given above is/are correct?a)2 onlyb)3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements with reference to challenges in monetary policy transmission in Indian Economy: Increase in Non-Performing Assets (NPAs) has been one of the major reasons for the impaired monetary policy transmission in India. Fluctuation in deposits impedes the ability of banks to respond to monetary policy changes. Competition from other financial saving instruments also creates a challenge for monetary policy transmission. Which of the statements given above is/are correct?a)2 onlyb)3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements with reference to challenges in monetary policy transmission in Indian Economy: Increase in Non-Performing Assets (NPAs) has been one of the major reasons for the impaired monetary policy transmission in India. Fluctuation in deposits impedes the ability of banks to respond to monetary policy changes. Competition from other financial saving instruments also creates a challenge for monetary policy transmission. Which of the statements given above is/are correct?a)2 onlyb)3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?.

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