Ans: B

Exp:

A bank run is when a large number of a bank’s customers hurry to withdraw their deposits simultaneously because they believe the bank may fail. A bank run may happen if bank officials state the institution is having financial difficulties or if such information is reported by news outlets or on social media.

A modern-day bank run can potentially be more harmful to a bank than in past generations since the moving of money is quicker and easier in today’s digital age. In addition to visiting a bank branch to withdraw money, today’s customers can transfer their money to another bank in seconds on the bank’s website or through its mobile app.

 Ans: A

Exp:

Statement 1 is incorrect: A bank needs to have assets that exceed 2 percent of the national GDP, In order to be listed as a D-SIB(Domestic Systemically Important Banks ). Since 2015, the RBI has been releasing the list of all D-SIBs. They are classified into five buckets according to their importance to the national economy.

Statement 2 is incorrect: The Reserve Bank of India (RBI) announced that the 3 banks i.e. the State Bank of India (SBI), ICICI Bank and HDFC Bank will continue to be identified as Domestic Systemically Important Banks (D-SIBs). According to the central bank, D-SIBs are financial institutions that are large enough where they cannot be allowed to fall.

Statement 3 is correct: A failure of any of these banks can lead to systemic and significant disruption to essential economic services across the country and can cause an economic panic. As a result of their importance, the government is expected to bail out these banks in times of economic distress to prevent widespread harm. Additionally, D-SIBs follow a different set of regulations in relation to systemic risks and moral hazard issues.

Ans: A

Exp:

The National Strategy for Financial Inclusion 2019-2024 sets forth the vision and key objectives of the financial inclusion policies in India. The strategy aims to provide access to formal financial services in an affordable manner, broadening & deepening financial inclusion and promoting financial literacy & consumer protection.

Strategic Pillars of National Strategy for Financial Inclusion:

1. Universal Access to Financial Services: Every village to have access to a formal financial service provider within a reasonable distance of 5 KM radius.
2. Providing a Basic Bouquet of Financial Services: Every adult who is willing and eligible needs to be provided with a basic bouquet of financial services that include a Basic Savings Bank Deposit Account, credit, a micro life and non-life insurance product, a pension product and a suitable investment product.
3. Access to Livelihood and Skill Development 
4. Customer Protection and Grievance Redressal: Customers shall be made aware of the recourses available for resolution of their grievances. About storing and sharing of customer’s biometric and demographic data, adequate safeguards need to be ensured to protect the customer’s Right to Privacy.
5. Financial Literacy and Education
6. Effective Co-ordination: There needs to be focused and continuous coordination between the key stakeholders viz. Government, the Regulators, financial service providers, Telecom Service Regulators, Skills Training institutes etc. to make sure that the customers are able to use the services in a sustained manner.  

 Ans: C

Exp:

Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.

The categories of priority sector are as follows

1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others

The targets and sub-targets set under priority sector lending for all scheduled commercial banks operating in India are furnished below:

• • Domestic scheduled commercial banks and foreign banks with 20 branches and above: 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. 
  • Foreign banks with less than 20 branches: 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher; out of which up to 32% can be in the form of lending to Exports and not less than 8% can be to any other priority sector. 
  • Regional Rural Banks: 75 per cent of ANBC as computed or CEOBE whichever is higher; However, lending to Medium Enterprises, Social Infrastructure and Renewable Energy shall be reckoned for priority sector achievement only up to 15 per cent of ANBC.
• Small Finance Banks: 75 per cent of ANBC as computed or CEOBE whichever is higher.

Ans: B

Exp: There are several direct and indirect instruments that are used for implementing monetary policy by the Central bank or Reserve Bank of India.

Pair 1 is correct: Liquidity Adjustment Facility (LAF) refers to the Reserve Bank’s operations through which it injects/absorbs liquidity into/from the banking system. It consists of overnight as well as term repo/reverse repos (fixed as well as variable rates), SDF and MSF. Apart from LAF, instruments of liquidity management include outright open market operations (OMOs), forex swaps and market stabilisation schemes (MSS).

Pair 2 is correct: Bank Rate: The rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate acts as the penal rate charged on banks for shortfalls in meeting their reserve requirements (cash reserve ratio and statutory liquidity ratio). This rate has been aligned with the MSF rate and changes automatically as and when the MSF rate changes alongside policy repo rate changes.

Pair 3 is incorrect: Marginal Standing Facility (MSF) Rate: The penal rate at which banks can borrow, on an overnight basis, from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent). Thus it requires collateral. The MSF rate is placed at 25 basis points above the policy repo rate.