The functioning of the formal sourcesof credit are supervised by :[2011 (T-2)]a)Government of Indiab)Reserve Bank of Indiac)Ministry of financed)State Bank of IndiaCorrect answer is option 'B'. Can you explain this answer?

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The functioning of the formal sourcesof credit are supervised by :

[2011 (T-2)]

a)
Government of India
b)
Reserve Bank of India
c)
Ministry of finance
d)
State Bank of India

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

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Money And Credit - Olympiad Level MCQ, Class 10 SST

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The functioning of the formal sourcesof credit are supervised by :[201...

Supervision of Formal Sources of Credit

The functioning of the formal sources of credit is supervised by the Reserve Bank of India (RBI).

Explanation:

The formal sources of credit refer to the financial institutions and organizations that provide credit to individuals and businesses. These sources include commercial banks, cooperative banks, regional rural banks, and non-banking financial companies (NBFCs).

The RBI, as the central bank of India, plays a crucial role in supervising and regulating the functioning of these formal sources of credit. Here's how the RBI ensures the proper functioning of these institutions:

Licensing and Regulation: The RBI grants licenses to banks and NBFCs, ensuring that they meet the necessary criteria and comply with the regulatory guidelines. It regulates their operations, capital adequacy, risk management, and other aspects to maintain stability in the financial system.

Prudential Norms: The RBI sets prudential norms for formal sources of credit, including guidelines for loan classification, provisioning, and asset quality. This ensures that these institutions maintain a healthy loan portfolio and manage risks effectively.

Monitoring and Inspection: The RBI conducts regular inspections and monitoring of the formal sources of credit to assess their financial health, compliance with regulations, and adherence to best practices. It also takes corrective measures if any irregularities or deficiencies are found.

Policy Formulation: The RBI formulates and implements monetary policies that impact the lending practices of formal sources of credit. It sets interest rates, reserve requirements, and other policy measures to influence credit flow and promote economic growth.

Consumer Protection: The RBI ensures that formal sources of credit follow fair practices and protect the interests of borrowers. It establishes regulations related to transparency, disclosure of terms and conditions, grievance redressal mechanisms, and fair treatment of customers.

Overall, the RBI's supervision of formal sources of credit is aimed at maintaining the stability and integrity of the financial system, promoting responsible lending practices, and safeguarding the interests of borrowers.

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