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Economics

By: Tej Pratap Singh


Selected Assistant Audit Officer in CAG
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RESERVE BANK OF INDIA
• It is the Central Bank of the country.
• Established on Apr 1, 1935 with a capital of Rs.5 crore.
• Nationalized on Jan 1, 1949 as govt., acquired the private
share holdings.
The Reserve Bank's affairs are governed by a Central Board of
Directors.

The board is appointed by the Government of India in keeping


with the Reserve Bank of India Act, 1934.

The Board is appointed for a period of 4 years.


Constitution:
• Official Directors
• Full-time : Governor and not more than four Deputy Governors
• Non-Official Directors
• Nominated by Government: 10 Directors from various fields and two
government Official
• Others: four Directors - one each from four local boards.

Note: The headquarters of local boards of RBI are in Mumbai, Kolkata,


Chennai and New Delhi. The members of the local boards of RBI are
appointed by the Central Government for a term of four years.
Governors:
Current Governor- Shaktikanta Das
1st Governor-Sir Smith (1935-37)
1st Indian Governor : CD Deshmukh (1948-49)
Functions Of Reserve Bank Of India:

• Issue of Notes: Regulates issue of bank notes above 1


rupee. One rupee notes issued by Ministry of Finance are
also circulated through it.
• Banker to the Government: Acts as the banker, agent
and advisor to the Govt. of India.

• Banker's Bank: The Reserve Bank performs the same


function for other banks as the other banks ordinarily
perform for their customers.

• Controller of Credit: The Reserve Bank undertakes the


responsibility of controlling credits created by the
commercial banks.
• Custodian of Foreign Reserves: For the purpose of keeping
the foreign exchange rates stable, the Reserve Banks buys
and sells the foreign currencies and also protects the
country's foreign exchange funds.

• It formulates and administers the monetary policy.

• Acts as the agent of the Government of Indian in respect to


India's membership of the IMF and the World Bank.

• No personal accounts are maintained and operated in RBI.


Cash Reserve Ratio (CRR): Current CRR = 3%.
CRR is the amount of funds that banks have to deposit
with RBI. The objective of CRR is to make sure that bank
maintains minimum level of liquidity against their liabilities
so that they don’t run short of money in case of excess
demand of funds.
It is one of the key instruments used by the Central Bank
(RBI) to inject or suck out liquidity from the market. If RBI
increases CRR, banks have to deposit more money with
RBI. So, Bank will have less money to distribute as loan
which will drain out excessive money from the system. RBI
can cut CRR when it wants to boost lending system and
increase liquidity in the banking system.
Statutory Liquidity Ratio (SLR): Current SLR = 19%

SLR specifies the minimum amount that banks must invest


in government securities.
Repo Rate: Current Repo Rate = 4%

Repo Rate can be defined as an amount of interest that is


charged by the Reserve Bank of India while lending funds
to the Commercial Banks.
The Repo Rate in India is controlled by the Reserve Bank of
India.
A decline in the repo rate can lead to the banks bringing
down their lending rate which is beneficial for retail loan
borrowers which helps in improving the growth and
economic development of the country.
Reverse Repo Rate: Current Rate: 3.35%

The reverse repo rate is the rate of interest that is provided by


the Reserve bank of India while borrowing money from the
commercial banks.

In other words, we can say that the reverse repo is the rate
charged by the Commercial Banks in India to park their excess
money with RBI for a short-term period. Reverse Repo Rate is
an important instrument of the monetary policy which control the
money supply in the country.
Regional Rural Bank:
• Set up in 2 October 1975.

Main Objective: to develop the rural economy by


providing credit and encouraging other productive
activities in the rural areas.
Key Features of Regional Rural Bank:

The paid-up capital of each rural bank is Rs.25


lakh, 50% of which is contributed by the Central
Government, 15% by the State Governments and
35% by the Sponsoring Public Sector Commercial
Banks which are responsible for the actual setting
up of the RRBs.
The functions of the (Regional Rural Bank) RRB are as
follows:
(1) Granting of loans and advances to small and marginal
farmers and agricultural labourers, whether individually or
in groups, and to co-operative societies, agricultural
processing societies, co-operative farming societies,
primarily for agricultural purposes or for agricultural
operations and other related purposes;
(2) Granting of loans and advances to artisans, small
entrepreneurs and persons of small means engaged in
trade, commerce and industry or other productive
activities within its area of co-operation; and
(3) Accepting deposits.
Bank and Other Financial Institutions:

1. Industrial Credit and Investment Corporation of India


Bank (ICICI Bank):
Objective: to encourage and assist industrial units of the
nation. It has been converted into a bank later.

2. Small Industries Development Bank Of India (SIDBI):


Objective: Promotes small scale sector industries.
3. National Bank Of Agriculture And Rural Development
(NABARD):
Objective: Gives credit facilities to farmers.

4. Export-Import Bank Of India (EXIM):


Objective: Grants deferred credit to Indian exporters in
order to operate in the international market.
5. Industrial Finance Corporation of India LTD. (IFCI):
Objective: Arrange medium and long term credit for
various industrial enterprises of the country.

6. National Housing Bank (NHB):


Objective: Extending financial assistance to eligible
institutions in the housing sector by way of refinance and
direct finance.
7. Non-Banking Financial Companies (NBFCS): Non-
Banking Financial entities comprise NBFCs, mutual
benefit financial companies (Nidhi Companies), and
mutual benefit companies (potential nidhi companies).
Department of Company Affairs regulates the mutual
benefit financial companies and mutual benefit
companies but RBI regulates NBFCs.
Functions of Commercial Banks:
Primary functions:
• Collection of deposits
• Making loans and advances

Collection of deposits: The primary function of


commercial banks is to collect deposits from the public.
Such deposits are of three main types: current, saving and
fixed.
Loans and Advances: Commercial banks have to keep a
certain portion of their deposits as legal reserves. The
balance is used to make loans and advances to the
borrowers. Individuals and firms can borrow this money
and banks make profits by charging interest on these
loans.
Secondary functions
• Agency services
• General utility services
1. Agency Services: The customers may give standing
instruction to the banks to accept or make payments on
their behalf. The relationship between the banker and
customer is that of Principal and Agent. The following
agency services are provided by the bankers:
a. Payment of rent, insurance premium, telephone bills,
installments on hire purchase, etc. The payments are
made from the customer’s account. The banks may also
collect such receipts on behalf of the customer.
b. The bank collects cheques, drafts, and bills on behalf of
the customer.
c. The banks can exchange domestic currency for foreign
currencies as per the regulations.
d. The banks can act as trustees / executors to their
customers. For example, banks can execute the will
after the death of their clients, if so instructed by the
latter.
General Utility Services: The commercial banks also
provide various general utility services to their customers.
Some of these services are discussed below:
1. Safeguarding money and valuables: Locker
2. Transferring money
3. Merchant banking: Many commercial banks provide
merchant banking services to the investors and the
firms.
The merchant banking activity covers project advisory services
and loan syndication, corporate advisory services such as advice
on mergers and acquisitions, equity valuation, disinvestment,
identification of joint venture partners and so on.
4. Automatic Teller Machines (ATM):
5. Traveler’s cheque: A traveler’s cheque is a printed
cheque of a specific denomination. The cheque may be
purchased by a person from the bank after making the
necessary payments. The customer may carry the
traveler’s cheque while travelling. The traveler’s cheques
are accepted in banks, hotels and other establishments.
6. Credit Cards
Payment Bank:
We can define a Payment Bank in India as a type of bank
which is a non-full service niche bank. A bank licensed as a
Payments Bank can only receive deposits and provide
remittances. It cannot carry out lending activities. Thus,
Payment Banks can issue ATM/debit cards, but cannot
issue credit cards as they are not empowered to carry out
lending activities.
RBI in its guidelines says “the objectives of setting up of
payments banks is to ensure financial inclusion by
providing:
(i) small savings accounts and
(ii) payments/remittance services to migrant labour
workforce, low income households, small businesses,
other unorganised sector entities and other users.

Example: Paytm, Mobikwik, Airtel Payment Bank, etc.


Securities and Exchange Board of India (SEBI Act, 1992)

Current Chairman- Shri Ajay Tyagi. He is assisted by 4 whole-time


members and 3 part-time members.

•SEBI is a statutory body.


•Establishment Date: April 12, 1992
•Headquarters of SEBI – Mumbai
•. The regional offices of SEBI are located in Ahmedabad,
Kolkata, Chennai and Delhi.
•Before SEBI came into existence, Controller of Capital
Issues was the regulatory authority.

Structure:

•SEBI Board consists of a Chairman and several other


whole time and part time members.
•SEBI also appoints various committees, whenever
required to look into the pressing issues of that time
Goods & Service Tax (GST)
The Constitution (101st Amendment) Act, 2016
Main Features of GST:
•Applicable On supply side: GST is applicable on ‘supply’ of goods or services as against the old
concept on the manufacture of goods or on sale of goods or on provision of services.

•Destination based Taxation: GST is based on the principle of destination-based consumption


taxation as against the present principle of origin-based taxation.

•Dual GST: It is a dual GST with the Centre and the States simultaneously levying tax on a common
base. GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the
States is called State GST (SGST).
•Central GST to cover Excise duty, Service tax etc, State GST to
cover VAT, luxury tax etc.
•Integrated GST to cover inter-state trade. IGST per se is not a
tax but a system to coordinate state and union taxes.
•GST Council (Article 279A)

• GST Council to be formed by the President.


• It's Chairman is Union Finance Minister of India with ministers nominated by the
state governments as its members.
• The council is devised in such a way that the centre will have 1/3rd voting power
and the states have 2/3rd.
• The decisions are taken by 3/4th majority.
Reforms Brought About by GST
•Creation of common national market: By amalgamating a
large number of Central and State taxes into a single tax.
•Mitigation of cascading effect: GST mitigated ill effects of
cascading or double taxation in a major way and paved the way
for a common national market.
•Reduction in Tax burden: From the consumers’ point of view,
the biggest advantage would be in terms of reduction in the
overall tax burden on goods.
•Easier to administer: Because of the transparent and self-
policing character of GST, it would be easier to administer.
Question 41
The Central Government has amalgamated three Regional Rural
Banks - Punjab Gramin Bank, Malwa Gramin Bank and Sutlej
Gramin Bank into a single RRB with effect from.
1. 31st December 2018
2. 1st January 2019
3. 1st July 2019
4. 1st January 2018
Answer: 2
Question 60
An important financial reform has been the reduction in
Statutory Liquidity Ratio (SLR)which was as high as 39 per cent
of deposits with the banks has been reduced to ______per cent
as on August, 2019
1. 19.25
2. 15.5
3. 18.75
4. 25
Answer: C
Question 62
Which one of the following is a primary function of commercial
banks?
1. Issuing letters of credit
2. Supplying business information
3. Discounting of bills
4. Accepting deposits and providing loans
Answer: 4
Question 100
_____was the first payments bank to start its commercial
operation in November 2016 on a pilot basis.
1. Paytm Payments Bank
2. India Post Payments Bank
3. Fino Payments Bank
4. Airtel Payments Bank
Answer: 4
Que: The _________is vested with the responsibility of
conducting monetary policy of India.
1. Securities Exchange Board of India(SEBI)
2. Reserve Bank of India (RBI)
3. Industrial Development Bank of India (IDBI)
4. State Bank of India (SBI)
Answer: B
QID : 290 - Under which Amendment Act of Indian
Constitution GST is introduced?

Options:
1) 100
2) 101
3) 102
4) 105
Correct Answer: 101
QID : 291 - Who is the chairman of GST Council?

Options:
1. Arun Jaitely
2. Pranab Mukherjee
3. Narendra Modi
4. Ram Nath Kovind
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