Central Bank: Reserve Bank of India Objective Type Questions (1 Mark)
Reserve Bank of India is the:
(a) Commercial Bank of India
(b) Foreign Exchange Bank of India
(c) Central Bank of India
(d) Rural Bank of Indian
The main object of the Reserve Bank of India is to stabilise:
(a) Exchange Rates and Internal Prices
(b) Issuing Notes
(c) Credit Control
(d) None of these
The Reserve Bank Act was passed in:
NACSF set-up in
Reserve Bank started functioning from …….
(a) 1st April 1932
(b) 1st April 1935
(c) 1st January 1932
(d) 1st January 1935
Central Bank: Reserve Bank of India Definite Answer Type Questions (1 Mark)
Name the factors in which economic development of the country depends.
Effective control of money and credit.
Write the name of the banker of the banks. (UP 2013)
Reserve Bank of India.
In which year Reserve Bank of India started issuing notes with a monopoly?
1st April 1935.
In which year Reserve Bank of India was nationalised? (UP 2015)
Write the name of representative bank of Reserve Bank of India. (UP 2015)
State Bank of India.
Central Bank: Reserve Bank of India Very Short Answer Type Questions (2 Marks)
Point out two main functions of the Reserve Bank of India. (UP 2019)
- Issue of notes
- Sale and purchase of foreign exchange.
What is a Scheduled Bank?
A Scheduled Bank is one which satisfies the following conditions:
- Its paid-up capital and reserve should not be less than Rs. 5 lacs.
- Its policy should not be contrary to the interest of the depositors.
Give two characteristics of Reserve Bank of India.
The main characteristics of Central Bank are as follows:
- They are not primarily profit-seeking enterprise.
- They are subject to close control and participation by the national government.
What is Non-Scheduled Bank?
The non-scheduled banks are those banks which are not included in the second schedule of Reserve Bank of India Act. These banks are generally small local banks whose paid-up capital and reserves are less than Rs. 5 lacs. These banks have to keep a certain percentage of their deposits with the Reserve Bank of India in the form of cash reserve. The Reserve Bank of India provides all the facilities to these banks also, which it provides to Scheduled Banks.
Give two main central banking functions of Reserve Bank of India.
Two main central banking functions of the Reserve Bank of India are as follows:
- Issue of Notes.
- Sale and Purchase of Foreign Exchange.
Central Bank: Reserve Bank of India Short Answer Type Questions (4 Marks)
Distinguish between Central Bank and Commercial Banks.
Difference between Central Bank and Commercial Banks.
|Central Bank||Commercial Banks|
|1. This is Banker’s Bank. This controls all the banking functions of the country.||1. Commercial Bank is a part of the banking function and is controlled by Central Bank.|
|2. Its motive is not to earn profit but to provide banking facilities.||2. Its motive is to earn profits.|
|3. Its works as Government’s banker, so the government provides many special facilities to the bank.||3. They work as the bankers of the general public and the Government does not provide any special facilities to them.|
|4. It has the monopoly of Note-Issue.||4. They do not have the power of issuing the notes.|
|5. It grants loans to other banks of the country if they are in need of it.||5. They get loan from Central Bank when they are in need of it.|
|6. It manages the government’s reserve and provides security.||6. They do not have any relation with government reserves.|
Give four prohibited functions of Reserve Bank of India.
Prohibited functions of Reserve Bank of India are as follows:
- The Reserve Bank of India can neither buy its own shares nor can it buy shares of other banks or commercial firms.
- The Reserve Bank of India cannot buy immoral prosperity, barring its own premises, nor can it grant loans against the securities of any such immovable property.
- The Reserve Bank of India cannot grant a loan to any party without proper security.
- The Reserve Bank of India cannot give interest to its depositors on their deposits.
Central Bank: Reserve Bank of India Long Answer Type Questions (8 Marks)
What do you understand by the Central Bank? Discuss the main functions of the Reserve Bank of India. (UP 2009, 13)
Describe the functions of Reserve Bank of India as a Central Bank of India. (UP 2011, 18)
Write two main functions of the Reserve Bank of India. (UP 2012, 14)
Central Bank: The Central Bank is an institution which is charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of general public welfare. This is the apex bank in the banking system of any country normally assigned with the responsibility of issuing notes and also with the supervision of the banking system.
Functions of the Reserve Bank of India: In India, the Central Bank, the Reserve Bank of India performs the following functions:
- Central Banking Functions,
- General Banking Functions.
Central Banking Functions: The following are some of the central banking functions of Reserve Bank of India:
1. Issue of Notes: The Reserve Bank of India has been given the monopoly of the issue of banknotes from 1st April 1935. The bank has the power to issue notes of Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500 and Rs. 1,000. Notes of Re. 1 are issued by the Government of India. The Re. 1 notes are issued as a subsidiary to Re. 1 coins.
2. Banker’s Bank: Reserve Bank is called banker’s bank because it provides services and facilities to other banks in a similar manner as a commercial bank provides services and facilities to the general public. The banks which are affiliated to the Reserve Bank may get a loan from it at the time of need. It re- discounts their bills and provides help at the time of need.
3. Government’s Banker: The Reserve Bank also acts as a banker to the £*ntral and State Governments by keeping their money. It also carries out their exchange remittance and other banking operations, besides managing public debt. The bank also transfers the reserve from one place to another, makes payments according to the instructions provided by the Government and accepts deposits on their behalf. The bank also engages itself in floating loan treasury bills on behalf of the Central and State Governments.
4. Sale and Purchase of Foreign Exchange: Sale and purchase of foreign exchange is very important function of the Reserve Bank whereby it assists in the smooth flow of foreign trade.
5. Credit Control: Monetary system of the country is stabilised through credit control which is very essential for the prosperity of the trade and industry of the country. The Reserve Bank expands and contracts credit according to the need of the country.
6. Clearing House Facility: The Reserve Bank acts as Clearing House for commercial banks. Transactions of member banks are settled through this facility of the clearinghouse. All the banks maintain their accounts with the Reserve Bank. These banks do not pay off their liabilities in cash. All the claims and counterclaims are settled with the minimum use of cash. The representatives of various banks meet each other every day at Clearing House and exchange their credit documents to settle their accounts.
General Banking Functions: The Reserve Bank of India, in addition to its Central Banking functions, also performs following general banking functions:
- The Reserve Bank of India accepts deposits from the Government of India and the State Governments but it pays no interest on such deposits.
- The Reserve Bank of India re-discounts the commercial bills and promissory notes tendered by the Scheduled Banks.
- The bank gives loans to its member banks for a maximum period of 90 days.
- The Reserve Bank of India can borrow from any Scheduled Bank or Foreign Bank for a period not exceeding 30 days.
- The Reserve Bank of India can buy and sell securities of Central and State Governments.
- The Reserve Bank of India can keep in custody gold, silver, diamonds and other securities etc. for safety purposes.
- The bank can open its account with Central Bank of other countries or with International Bank.
- The Reserve Bank of India arranges for Industrial Finance.
- The Reserve Bank of India controls credit in the country.
- The Reserve Bank of India can borrow from the Central Government or State Governments for a period not exceeding 90 days.
Give the main characteristics of Reserve Bank of India. (UP 2009)
Characteristics of Reserve Bank of India: Reserve Bank of India has the following two characteristics:
1. Non-Profit Seeking Enterprise: The motive of Central Bank is not to earn profit as in the case of other Commercial Banks and business organizations. The Central Bank has to work for the benefit of the country whether it gains or loss. When the government is not the owner of Central Bank, then the dividend which is to be paid to shareholders is fixed by law so that the bank does not indulge in any activity which is unhealthy for the country for earning more profits.
2. Control and Participation of the Government: The main object of the government is to make the life of its citizens happy. The economic development of a country depends upon the principles of the government. For every scheme of welfare and development, proper economic management is required. For achieving the desired results of these objects there has to be cooperation and coordination between the government and the Central Bank.
Another important object of Central Bank is to control the monetary and credit system of the country. Now almost all the countries have nationalised Central Banks because it is possible that proper co-ordination and co-operation between the government and Central Bank may lack if a Central Bank is an independent organisation.
How the Reserve Bank of India was originated? Explain.
Origin of Reserve Bank of India: In the year 1921, Imperial Bank of India was established by the Government. Main functions of Imperial Bank involved banker to the government and the banker’s bank, besides functioning as a commercial bank. Still, there was a general feeling that it lacked in certain respects because of which it could not be called as Central Bank in the proper way.
Certain drawbacks of Imperial Bank were as follows:
- Monetary system prevailing in the country lacked elasticity as the power of issuing notes was not conferred on the Imperial Bank. The power of issuing the notes was the sole prerogative of the Government of India.
- Though the Bank functioned as banker’s bank and the banker to the Government, it also functioned as commercial bank used to compete with other commercial banks.
- Imperial Bank did not exercise any control over money and credit as all the banks used to keep their own reserves.
- No power was vested in the Imperial Bank to make arrangement for finances for foreign trade.
No commendable success could be achieved by the Imperial Bank in its functioning as Central Bank of the country. In the year 1925, Hilton Young Commission was asked by the Government of India to express its views on the subject. The Commission opined in favour of the establishment of a new Central Bank for the country. Without exercising any function in the nature of a commercial bank.
Pursuant to this, the government of India introduced a bill, but it could not be passed on account of differences amongst the Members of Legislature. In the year 1929, again a plea was raised by the Central Banking Enquiry Committee, supporting the establishment of Reserve Bank. Finally, the Reserve Bank of India Act, 1934 was passed, empowering the functioning of Reserve Bank from 1st of April, 1935.