RBI & Banking Regulators

What you'll learn

A clear, exam-ready guide to India's financial regulators — what the RBI is and does, how its monetary-policy tools (repo, reverse repo, CRR, SLR) work, and the distinct roles of SEBI, IRDAI and PFRDA.

This chapter has

RBI & Banking Regulators — solved practice questions

8 Banking Banking & Financial Awareness questions with step-by-step solutions. Attempt each, then reveal the answer.

1. Q1easy

   In which year was the Reserve Bank of India established?

   • A1935
   • B1934
   • C1947
   • D1949
   Show answer & solution

   Correct answer: (A) 1935

   The RBI was established on 1 April 1935 under the provisions of the Reserve Bank of India Act, 1934.

2. Q2medium

   The Reserve Bank of India was nationalised in which year?

   • A1935
   • B1947
   • C1969
   • D1949
   Show answer & solution

   Correct answer: (D) 1949

   Originally a shareholders' bank, the RBI was nationalised on 1 January 1949, becoming fully government-owned.

3. Q3medium

   Which of the following is NOT a function of the Reserve Bank of India?

   • AIssuing currency notes
   • BActing as banker to the government
   • CSetting the country's fiscal deficit target
   • DActing as lender of last resort
   Show answer & solution

   Correct answer: (C) Setting the country's fiscal deficit target

   The country's fiscal deficit target is decided by the Government (Ministry of Finance); the RBI handles monetary, not fiscal, policy.

4. Q4medium

   The RBI is described as the 'lender of last resort'. This refers to its role of:

   • ALending directly to the general public
   • BProviding emergency funds to banks facing liquidity shortages
   • CLending only to the central government
   • DGuaranteeing all bank deposits
   Show answer & solution

   Correct answer: (B) Providing emergency funds to banks facing liquidity shortages

   As lender of last resort, the RBI provides emergency liquidity to banks that cannot meet short-term obligations, safeguarding financial stability.

5. Q5medium

   Within the RBI, which body is responsible for fixing the benchmark policy (repo) rate?

   • ABoard for Financial Supervision
   • BCentral Board of Directors
   • CMonetary Policy Committee
   • DFinancial Stability and Development Council
   Show answer & solution

   Correct answer: (C) Monetary Policy Committee

   The six-member Monetary Policy Committee (MPC), chaired by the RBI Governor, sets the policy repo rate to control inflation.

6. Q6medium

   Cash Reserve Ratio (CRR) refers to the portion of deposits that a bank must:

   • AKeep as cash reserves with the RBI
   • BInvest in government securities
   • CLend to the priority sector
   • DHold in the form of gold
   Show answer & solution

   Correct answer: (A) Keep as cash reserves with the RBI

   CRR is the share of a bank's net demand and time liabilities held as cash with the RBI, on which no interest is earned.

7. Q7medium

   Statutory Liquidity Ratio (SLR) is maintained by a bank in the form of:

   • ALoans to core industries
   • BCash kept only with the RBI
   • CForeign currency deposits
   • DLiquid assets such as cash, gold and approved government securities
   Show answer & solution

   Correct answer: (D) Liquid assets such as cash, gold and approved government securities

   SLR is the minimum percentage of deposits a bank maintains in liquid assets such as cash, gold and approved government securities, held with itself.

8. Q8easy

   The repo rate is the rate at which:

   • ABanks lend surplus funds to the RBI
   • BThe RBI lends short-term funds to commercial banks against securities
   • CBanks lend to the general public
   • DThe RBI lends to the central government
   Show answer & solution

   Correct answer: (B) The RBI lends short-term funds to commercial banks against securities

   The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against government securities.

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