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Indian Financial Market and Banking

A contributor of the highest chunk of questions from the Economics section in prelims paper. The range of questions has varied from downright silly to challenging. The major components here are the RBI and banking, monetary policies, various instruments of regulating money supply and schemes of the government.The gold monetization scheme and its relevance can be thought of as important from this year’s prelims standpoint. The financial markets haven’t been a part of the questions, so just a basic understanding would be essential.

Indian Money Market

  1. Organised
  2. Unorganised

Indian Capital Market

  1. Financial Institutions
  2. Banking
  3. Security Market
  4. Financial Regulators
  5. Mutual Funds
  6. Gold Bonds


  1. Bank And Non-Bank Institutions
  2. NBFC


  1. Monetary Policy
  2. CRR
  3. SLR
  6. Nationalisation Of Banks
  7. Banking Sector Reforms
  8. Basel III
  9. NPA
  10. Priority Sector Lending
  11. Project Indradhanush
  12. Nidhi And Chit Fund
  13. Ponzi Schemes

Security Market

  1. Primary And Secondary Market
  2. SEBI
  3. Stock Exchanges
  4. Important Terms
  5. Angel Investor
  6. Participatory Notes
  7. RGESS
  8. Corporate Bond In India
  9. Kisan Vikas Patra

Financial Inclusion

  1. Jan Dhan Yojana
  2. Important Committees
  • Sanjeev Verma: Chapter 13 and 15
  • NCERT  Class XII- Macro-economics: Chapter 3
  • Ramesh Singh: 5th edition, Chapters 11,12,14
  • Read Union Budget and Relevant Chapters of Economic Survey Volume 1 and 2
  • Read Business line /Business Standard for other current developments.
  • Online paper Livemint gives analytical articles

[2011 Prelims]

1)Micro Finance is the provision of financial services to people of low-income groups. This includes both the consumers and the self-employed. The service/services rendered under micro-finance is/are.

  1. Credit facilities
  2. Savings Facilities
  3. Insurance facilities
  4. Fund Transfer facilities

Select the correct answer using the code given below.

a. 1 only

b. 1,4

c. 2,3

d. 1,2,34.

2)Why is the offering of “teaser loans” by commercial banks a cause of economic concern?

  1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future.
  2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.

Which of the statements given above are correct?

a. 1 only

b. 2 only

c. Both

d. None.

3)The lowering of Bank rate by the RBI leads to

a. More liquidity in the market.

b. Less liquidity in the market.

c. No change in the liquidity in the market.

d. Mobilization of more deposits by commercial banks.

[2012 Prelims]

1)The RBI acts as a banker’s bank. This would imply which of the following?

  1. Other banks retain their deposits with the RBI.
  2. The RBI lends funds to the commercial banks in times of need.
  3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the code given below.

a. 2,3

b. 1,2

c. 1,3


2)Which of the following measures would result in the increase in the money supply in the economy?

  1. Purchase of govt securities from the public by the Central bank
  2. Deposit of currency in commercial banks by the public
  3. Borrowing by the government from the Central Bank
  4. Sale of government securities to the public by the central bank.

Select the correct answer using the code given below.

a. 1 only

b. 2,4

c. 1,3

d. 2,3,4

3) The basic aim of Lead Bank scheme is that

a. Big banks should try to open offices in each district

b. There should be stiff competition among the various nationalized banks.

c. Individual banks should adopt particular districts for intensive development.

d. All the banks should make intensive efforts to mobilise deposits.

[2013 Prelims]

1)The RBI regulates the commercial banks in matters of

  1. Liquidity of assets
  2. Branch expansion
  3. Merger of Banks
  4. Winding up of Banks

Select the correct answer using the code given below.

a. 1,4

b. 2,3,4

c. 1,2,3

d. 1,2,3,4

2)An increase in the Bank rate generally indicates that the

aMarket rate of interest is likely to fall

b. Central bank is no longer making loans to commercial banks

c. Central bank is following an easy money policy

d.Central Bank is following a tight money policy.

3)In India, deficit financing is used for raising resources for

a. Economic development

b. Redemption of public debt

c. Adjusting the balance of payments

d. Reducing foreign debt.

4)Consider the following liquid assets

  1. Demand Deposits with the banks
  2. Time deposits with the banks
  3. Savings deposits with the banks
  4. Currency

The correct sequence of these assets in the decreasing order of liquidity is

a. 1-4-3-2

b. 4-3-2-1

c. 2-3-1-4

d. 4-1-3-2

5)In the context of Indian economy, ‘Open Market Operations’ refers to

a. Borrowing by Scheduled Banks from RBI

b. Lending by commercial banks to industry and trade.

c. Purchase and sale of governmental securities by the RBI

d. None of the above.

6)Priority Sector Lending by Banks in India constitutes the lending to

a. Agriculture

b. Micro and small enterprises

c.Weaker sections

d. All of the above

7) Which of the following grant/ grants direct credit assistance to rural households?

  1. RRBs
  2. National Bank for Agriculture and Rural Development
  3. Land Development Banks

Select the correct answer using the code given below.

a. 1,2

b. 2 only

c. 1,3

d. 1,2,3

[2014 Prelims]

1)The terms ‘marginal standing Facility rate’ and ‘Net Demand and Time Liabilities’, sometimes appearing in news, are used in relation to

a. Banking operations

b. Communication networking

c. Military strategies

d. Supply and demand of agricultural products.

2)What are the facilities the beneficiaries can get from the services of Business Correspondent in branchless areas?

  1. It enables the beneficiaries to draw their subsidies and social security benefits in their villages.
  2. It enables the beneficiaries in the rural areas to make deposits and withdrawals.

Select the correct answer using the code given below.

a. 1 only

b. 2 only

c. Both

d. None

3) In the context of Indian economy, which of the following is/are the purpose/purposes of ‘statutory reserve requirements’?

  1. To enable the Central Bank to control the amount of advances the banks can create.
  2. To make the people’s deposits with banks safe and liquid
  3. To prevent the commercial banks from making excessive profits
  4. To force the banks sufficient vault cash to meet their day-to day requirements.

Select the correct answer using the code given below.

a. 1 only

b. 1,2

c. 2,3

d. 1,2,3,4

4) If the interest rate is decreased in an economy, it will

  1. Decrease the consumption expenditure in the economy.
  2. Increase the tax collection of the government.
  3. Increase the investment expenditure in the economy
  4. Increase the total savings in the economy.

[2015 Prelims]

1)‘Pradhan Matri Jan Dhan Yojana’ has been launched for?

  1. Providing housing loan to poor people at cheaper interest rates.
  2. Promoting women’s Self Help Groups in backward areas.
  3. Promoting financial inclusion in the country.
  4. Providing financial help to the marginalized communities.

2)When the RBI reduces Statutory liquidity ratio by 50 basis points, which of the following is likely to happen?

a. India’s GDP growth rate increases drastically

b. Foreign institutional investors may bring more capital into our country.

c. Scheduled Commercial banks may cut their lending rates

d. It may drastically reduce the liquidity to the banking system.

3)Basel III Accord or simply Basel III often seen in the news, seeks to

a. Develop national strategies for the conservation and sustainable use of biological diversity

b. Improve banking sector’s ability to deal with financial and economic stress and improve risk management.

c. Reduce the greenhouse gas emissions but places a heavier burden on developed countries.

d. Transfer technology from developed countries to poor countries to enable them to replace the use of CFCs in refrigeration with harmless chemicals.

4)With reference to India Economy, consider the following:

  1. Bank rate
  2. Open Market operations
  3. Public Debt
  4. Public Revenue

Which of the above is/are component of Monetary Policy?

a. 1 only

b. 2,3,4

c. 1,2

d. 1,3,4

[2017 Prelims]

1) Consider the following statements:

  1. National Payments Corporation of India (NPCI) helps in promoting  financial inclusion in the country.
  2. NPCI has launched RuPay, a card payment scheme.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: C

2) Which of the following is a most likely consequence of implementing the ‘Unified Payments Interface (UPI)’?

(a) Mobile wallets will not be necessary for online payments.

(b) Digital currency will totally replace the physical currency in about two decades.

(c) FDI inflows will drastically increase.

(d) Direct transfer of subsidies to poor people will become very effective.

Answer: A

3) Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?

(a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government.

(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

(d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.

Answer: B

4) Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?

  1. It decides the RBI’s benchmark interest rates.
  2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
  3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below :

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 2 and 3 only

Answer: A