Test: Reserve Bank Of India - 1 - UPSC MCQ

The correct answer is 'A' - Bank Rate. The important quantitative methods of credit control is (a) bank rate. The methods used by the central bank to regulate the flows of credit into particular directions of the economy are called qualitative or selective methods of credit control. Unlike the quantitative methods, which affect the total volume of credit, the qualitative methods affect the types of credit, extended by the commercial banks; they affect the composition rather than the size of credit in the economy.

B: Reserve Bank of India

In India, monetary policy is announced by the Reserve Bank of India (RBI). The RBI is the central bank of India and is responsible for implementing and managing monetary policy in the country.

Monetary policy refers to the actions taken by the central bank to influence the supply and demand of money in the economy, with the aim of achieving certain macroeconomic objectives such as price stability, full employment, and economic growth. The RBI uses various tools, such as changing the interest rates, altering the reserve requirements for banks, and engaging in open market operations, to implement monetary policy in India.

The Ministry of Finance is responsible for managing the government's finances, including preparing the annual budget, mobilizing financial resources, and formulating fiscal policy. The Planning Commission is a government body that is responsible for formulating the country's five-year plans and for coordinating the development activities of various sectors of the economy. The government refers to the executive branch of government, which is responsible for implementing the policies and laws of the country.

C: Central Bank coming to the rescue of banks in times of financial crisis

The term "lender of last resort" refers to the central bank's role in providing financial assistance to banks in times of financial crisis. When banks are facing a liquidity crisis, they may not be able to meet the demand for cash from their depositors or meet their other financial obligations. In such cases, the central bank can act as a lender of last resort by providing the necessary funds to the banks to help them meet their obligations and avoid a financial collapse.

This function is typically exercised by the central bank through the use of discount window facilities, which allow banks to borrow funds from the central bank at a specific interest rate. The central bank serves as a lender of last resort to help stabilize the financial system and prevent a financial crisis from spreading and causing wider economic damage.

The government can also provide financial assistance to sick industries, but this is not related to the role of the central bank as a lender of last resort. Similarly, commercial banks may provide financial assistance to cooperative banks, but this is not the same as the central bank serving as a lender of last resort.

A: Reduces

When the bank rate increases, the demand for loans tends to reduce. The bank rate is the interest rate at which the central bank of a country lends money to commercial banks. When the bank rate is increased, it becomes more expensive for banks to borrow from the central bank, which in turn increases the cost of borrowing for customers. As a result, the demand for loans tends to decrease as customers are less willing to borrow at higher interest rates.

This is because higher interest rates increase the cost of borrowing for businesses and households, which can reduce their ability and willingness to take out loans. Higher interest rates may also reduce the demand for loans by reducing the demand for investment and consumption, as higher borrowing costs can make such activities less attractive.

However, the impact of a change in the bank rate on the demand for loans may not be the same in all cases and may depend on a variety of factors such as the overall economic conditions, the availability of alternative sources of financing, and the creditworthiness of the borrowers.

The Monetary Policy regulates the supply of money and the cost and availability of credit in the economy. It deals with both the lending and borrowing rates of interest for commercial banks. The Monetary Policy aims to maintain price stability, full employment and economic growth.

Qualitative or selective measures are those which are directed towards the particular use of credit and not its total volume in other words qualitative of selective measures are generally meant to regulate credit for specific purposes here except changes in cash reserve ratio all other are are qualitative measures as they are subject to regulate money supply for particular purpose while CRR is one of the quantitative measures which is meant for controlling the credit it the entire banking system hence option B is the correct answer

The correct answer is 'C' - Changes in Margin Requirements. Changes in Margin Requirements is a qualitative or selective method of credit control, and cannot be used as an instrument of quantitative control of credit by the central Bank. The methods used by the central bank to influence the total volume of credit in the banking system, without any regard for the use to which it is put, are called quantitative or general methods of credit control. These methods regulate the lending ability of the financial sector of the whole economy and do not discriminate among the various sectors of the economy. The important quantitative methods of credit control are- (a) bank rate, (b) open market operations, and (c) cash-reserve ratio.

D: Minimum Reserve System

The Reserve Bank of India (RBI) follows the minimum reserve system for issuing currency notes. Under this system, the RBI is required to maintain a certain minimum amount of gold and foreign exchange reserves as a backing for the notes it issues. The RBI can issue currency notes up to a certain limit, known as the statutory liquidity ratio (SLR), based on the value of these reserves.

In the minimum reserve system, the RBI can issue notes up to a certain limit based on the value of its reserves, but it is not required to hold reserves in proportion to the amount of notes it issues. This allows the RBI to have some flexibility in issuing currency notes to meet the demand for cash in the economy.

The fixed fiduciary system, proportional reserve system, and percentage reserve system are other systems that have been used by central banks to issue currency notes. However, they are no longer in use in modern times. The fixed fiduciary system required the central bank to maintain a fixed amount of reserves for every unit of currency issued, while the proportional reserve system required the central bank to hold reserves in proportion to the amount of notes issued. The percentage reserve system required the central bank to hold a certain percentage of its deposits as reserves.

D: 1 Rupee note

The Reserve Bank of India (RBI) is responsible for issuing and distributing currency notes in India. The RBI issues notes in denominations of 1, 2, 5, 10, 20, 50, 100, 500, and 2000 rupees. The RBI does not issue the 1 rupee note, which is issued by the Government of India through the Ministry of Finance.

The 1 rupee note is the only currency note in India that is not issued by the RBI. All other currency notes in India are issued by the RBI, which is the central bank of the country. The RBI is responsible for managing the country's monetary policy, including the issuance and circulation of currency notes.

The Reserve Bank of India (RBI) can decrease bank credit by increasing the Cash Reserve Ratio (CRR). The CRR is the percentage of a commercial bank's total deposits that must be held as reserves with the central bank. By increasing the CRR, the RBI reduces the amount of funds that banks have available to lend, effectively decreasing the supply of credit in the economy. This tool is used by the RBI to control liquidity and manage inflationary pressures. Increasing the bank rate, which is the rate at which the RBI lends to commercial banks, would also make borrowing more expensive and could reduce bank credit, but the question specifically highlights CRR as a more direct measure.

A: RBI

The 10 rupee note has been issued by the Reserve Bank of India (RBI), which is the central bank of India. The RBI is responsible for issuing and distributing currency notes in India, including the 10 rupee note.

The RBI is an autonomous institution that is responsible for managing the country's monetary policy, including the issuance and circulation of currency notes. It is also responsible for regulating and supervising the country's banking system and for maintaining the stability of the financial system.

The government of India and commercial banks do not issue currency notes in India. The government, through the Ministry of Finance, is responsible for issuing the 1 rupee note, which is the only currency note in India that is not issued by the RBI. Commercial banks are not authorized to issue currency notes and can only lend money to their customers.

B: RBI

The Reserve Bank of India (RBI) is the custodian of the national reserves of international currency in India. The RBI is responsible for managing the country's foreign exchange reserves, which consist of a variety of foreign currencies and assets such as gold, special drawing rights (SDRs), and foreign currency assets.

The RBI uses the foreign exchange reserves to maintain the external value of the rupee and to intervene in the foreign exchange market as needed to stabilize the exchange rate. The RBI also uses the foreign exchange reserves to support the balance of payments of the country and to provide assistance to the government and banks in times of need.

The State Bank of India (SBI) is a commercial bank that is not responsible for managing the national reserves of international currency. ICICI is a private sector bank and is also not responsible for managing the national reserves of international currency. The World Bank is an international financial institution that provides financial assistance to developing countries, but it is not responsible for managing the national reserves of international currency.

C: RBI

The Reserve Bank of India (RBI) is the banker's bank in India. This means that the RBI acts as a central bank for all the commercial banks in the country and performs a variety of functions on their behalf.

Some of the key functions of the RBI as the banker's bank in India include:

• Providing liquidity support to commercial banks: The RBI acts as a lender of last resort for commercial banks, providing them with financial assistance in times of need.

• Regulating and supervising the banking system: The RBI is responsible for regulating and supervising the activities of commercial banks to ensure the stability of the financial system.

• Acting as a clearinghouse for interbank transactions: The RBI acts as a clearinghouse for interbank transactions, facilitating the settlement of transactions between banks and helping to maintain the smooth functioning of the payment and settlement system.

• Providing a variety of services to commercial banks: The RBI provides a range of services to commercial banks, such as currency management, government securities operations, and foreign exchange operations.

The State Bank of India (SBI), Punjab National Bank (PNB), and Oriental Bank of Commerce (OBC) are all commercial banks in India and are not responsible for performing the functions of a central bank.

C: RBI

The Reserve Bank of India (RBI) is the custodian of the national reserves of international currency in India. The RBI is responsible for managing the country's foreign exchange reserves, which consist of a variety of foreign currencies and assets such as gold, special drawing rights (SDRs), and foreign currency assets.

The RBI uses the foreign exchange reserves to maintain the external value of the rupee and to intervene in the foreign exchange market as needed to stabilize the exchange rate. The RBI also uses the foreign exchange reserves to support the balance of payments of the country and to provide assistance to the government and banks in times of need.

The State Bank of India (SBI), Industrial Development Bank of India (IDBI), and Industrial Credit and Investment Corporation of India (ICICI) are all financial institutions in India, but they are not responsible for managing the national reserves of international currency. Only the RBI has this responsibility as the central bank of the country.

B: RBI

The 10 rupee note is issued by the Reserve Bank of India (RBI), which is the central bank of India. The RBI is responsible for issuing and distributing currency notes in India, including the 10 rupee note.

The RBI is an autonomous institution that is responsible for managing the country's monetary policy, including the issuance and circulation of currency notes. It is also responsible for regulating and supervising the country's banking system and for maintaining the stability of the financial system.

The State Bank of India (SBI) is a commercial bank that is not responsible for issuing currency notes. The government of India and the Ministry of Finance are not responsible for issuing currency notes either. The government, through the Ministry of Finance, is responsible for issuing the 1 rupee note, which is the only currency note in India that is not issued by the RBI.

C: Consumer Credit Regulation

The options you listed are all quantitative measures of credit control, except for consumer credit regulation.

• The Bank Rate Policy: The central bank can influence the supply and demand of credit in the economy by changing the bank rate, which is the interest rate at which the central bank lends money to commercial banks. When the bank rate is increased, it becomes more expensive for banks to borrow from the central bank, which in turn increases the cost of borrowing for customers. This can reduce the demand for loans and help to curb inflationary pressures.

• Open Market Operations: The central bank can also influence the supply of credit in the economy through open market operations, which involve buying and selling government securities in the open market. When the central bank buys securities, it increases the supply of money in the economy, which can stimulate economic activity. When it sells securities, it reduces the supply of money, which can help to curb inflationary pressures.

• The Repo Rate: The repo rate is the interest rate at which the central bank lends money to commercial banks through repurchase agreements (repos). By increasing the repo rate, the central bank can make it more expensive for banks to borrow from the central bank, which can reduce the supply of credit in the economy.

Consumer credit regulation refers to the regulation of the lending of money to consumers, such as through credit cards, personal loans, and mortgages. This is not a quantitative measure of credit control, as it does not directly affect the supply or demand of credit in the economy.

Reserve Bank of India(RBI) which is an apex bank that controls and regulates the entire banking system of India was nationalized in 1949. It is the sole agency of issuing currency notes and controls the supply of money in the economy through its monetary policy. 

The reserve requirement (or cash reserve ratio) is a central bank regulation employed by most, but not all, of the world's central banks, that sets the minimum amount of reserves that must be held by a commercial bank.

B: 1949

The Reserve Bank of India (RBI) was nationalized in the year 1949. Prior to nationalization, the RBI was a privately-owned institution that was established in 1935.

The nationalization of the RBI was carried out through the Reserve Bank of India (Transfer to Public Ownership) Act, 1948, which came into effect on 1 January 1949. Under the act, the RBI became a state-owned institution and the government of India acquired a controlling stake in the bank.

After nationalization, the RBI continued to perform its functions as the central bank of the country, including issuing and distributing currency notes, regulating and supervising the banking system, and managing the country's monetary policy.

The RBI was not nationalized in 1935, 1969, or 1991. These are all incorrect dates.

C: Reserve Bank of India

The cash reserve ratio (CRR) is determined by the Reserve Bank of India (RBI), which is the central bank of India. The CRR is the percentage of deposits that commercial banks are required to hold with the RBI as a reserve.

The RBI uses the CRR as a tool to regulate the supply of credit in the economy. By increasing the CRR, the RBI can reduce the amount of money that commercial banks have available to lend, which can reduce the supply of credit in the economy. By decreasing the CRR, the RBI can increase the amount of money that commercial banks have available to lend, which can increase the supply of credit in the economy.

The Ministry of Finance, State Bank of India (SBI), and Parliament are not responsible for determining the CRR in India. Only the RBI has this authority as the central bank of the country.

C: The rate at which the Central Bank of a country discounts the bills of commercial banks

Bank rate, also known as the discount rate, is the rate at which the central bank of a country discounts the bills of commercial banks. It is the interest rate at which the central bank lends money to commercial banks.

The bank rate is a key tool of monetary policy that is used by the central bank to influence the supply and demand of credit in the economy. When the bank rate is increased, it becomes more expensive for banks to borrow from the central bank, which in turn increases the cost of borrowing for customers. This can reduce the demand for loans and help to curb inflationary pressures. When the bank rate is decreased, it becomes less expensive for banks to borrow from the central bank, which can stimulate economic activity by increasing the supply of credit in the economy.

The bank rate is different from the interest rates that commercial banks charge on loans to their customers, which are known as the lending rates. The bank rate is also different from the interest rates that banks pay on deposits, which are known as the deposit rates. The bank rate is set by the central bank and is not related to the rates that commercial banks charge or pay on loans or deposits.

A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.

C: SLR

The options you listed are all qualitative credit control measures of the Reserve Bank of India (RBI), except for the statutory liquidity ratio (SLR).

• Capital Rationing: Capital rationing is the process of limiting the amount of capital that a bank can lend to a particular borrower or sector. This is a qualitative measure that is used to ensure that banks do not lend excessively to risky or high-risk borrowers or sectors.

• Moral Suasion: Moral suasion is a non-coercive method of persuasion that is used by the central bank to influence the behavior of commercial banks. The central bank can use moral suasion to persuade banks to follow certain policies or practices, such as lending to priority sectors or maintaining a certain level of liquidity.

• Margin Requirement: The margin requirement is the percentage of the total value of a collateralized loan that must be paid in cash or other approved securities. By increasing the margin requirement, the central bank can make it more expensive for banks to lend, which can reduce the supply of credit in the economy.

The statutory liquidity ratio (SLR) is a quantitative measure of credit control that is used by the RBI to regulate the liquidity of commercial banks. It is the percentage of deposits that commercial banks are required to hold in the form of liquid assets such as cash, gold, and approved securities. By increasing the SLR, the RBI can reduce the amount of money that commercial banks have available to lend, which can reduce the supply of credit in the economy.

B: SLR

The statutory liquidity ratio (SLR) is the portion of total deposits that a commercial bank is required to keep with itself in the form of liquid assets such as cash, gold, and approved securities. The SLR is expressed as a percentage of total deposits and is determined by the central bank of the country.

In India, the SLR is determined by the Reserve Bank of India (RBI). By increasing the SLR, the RBI can reduce the amount of money that commercial banks have available to lend, which can reduce the supply of credit in the economy. By decreasing the SLR, the RBI can increase the amount of money that commercial banks have available to lend, which can increase the supply of credit in the economy.

The cash reserve ratio (CRR) is a different measure of credit control that is used to regulate the liquidity of commercial banks. It is the percentage of deposits that commercial banks are required to hold with the central bank as a reserve. The repo rate and reverse repo rate are both interest rates that are used by the central bank to influence the supply of credit in the economy. The repo rate is the interest rate at which the central bank lends money to commercial banks through repurchase agreements (repos), while the reverse repo rate is the interest rate at which the central bank absorbs excess liquidity from the banking system.

• Quantitative control refers to the use of specific numerical limits or targets to regulate economic activities.


• It involves setting limits on various economic variables such as prices, wages, interest rates, and money supply.


• These controls affect all sectors of the economy uniformly without discrimination.


• Unlike selective controls which target specific sectors or industries, quantitative controls have a broad impact across the economy.

The different instruments of credit control used by the Reserve Bank of India are Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), the Bank Rate Policy, Selective Credit Control (SCC), Open Market Operations (OMOs).

Central banks do not deal directly with customers. A single central bank in a country controls the entire banking industry. The country's central bank holds deposits for the government. The government deposits funds to provide health insurance, social welfare, unemployment benefits, etc.

The correct answer is 'D' - All of the above. The selective instruments used by RBI for Controlling Credit are Margin Requirement, Issue of directives, and Regulation of consumer credit. Margin Requirement is a method of controlling the amount of credit a borrower can obtain from a lender. Issue of directives means issuing directives to commercial banks to limit their lending activities. Regulation of consumer credit sets the limit on consumer credit and sets the interest rates for consumer loan.

Bank rate, also referred to as the discount rate in American English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank. Whenever a bank has a shortage of funds, they can typically borrow from the central bank based on the monetary policy of the country.

The Reserve Bank of India (RBI) uses the monetary policy to regulate liquidity in a manner that balances inflation and help in GDP growth and development.