RBI Mains 2014-Paper 3: Finance and Management

RBI Mains 2014-Paper 3: Finance and Management
Instructions
SECTION I: Finance
SECTION II: Management
Attempt any three questions from Section I and any two from Section II.
In case the candidate answered more than five questions, only the first five answers will be evaluated and the rest of the answers will be ignored.
All questions carry equal marks.
Each question should be answered on new page and the question number must be written on the top.
The answers of parts of the same question, if any, should be written together. In other words, the answer of another questions should not be written in-between the Parts of a question.
Marks will be deducted for illegible hand-writing.
Answers must be brief and to the point.
Answers must be written either in English or in Hindi. However, all the questions should be answered in one language only. Answer-books written partly in English and partly in Hindi will not be evaluated.
Candidate should use only Blue or Black ink pen/Ball point pen to write the answers.


SECTION I: Finance
1. State the different types of exchange risks inherent in foreign exchange business.
2. Briefly explain the Union Budget, 2014-2015 provisions relating to financial, banking and insurance sectors.
3. Trace the developments in financial sector reforms in India since 1991.
Q4.
a)      Explain in brief the provisions of R. B. I. Act,1934.
b)      Write a note on R. B. I.‘s attempt in giving differential licenses for small banks.
Q5: Write short notes on any two of following:
a)      SEBI
b)      Stock Exchanges
c)       Service Tax
d)      Syndicated Loans.

SECTION II: Management
6. “Corporate Governance and Corporate Social Responsibility are the twins to shine a corporate entity “— Discuss.
7. Distinguish between :—
a)      Verbal and Non-verbal Communication
b)      Directing and Controlling.
8. “A successful leader is always an effective leader ” — do you vouch this statement.
write notes on following:
9. Explain in brief the Concept and Goals of Human Resources Development ( HRD ).
Outline the role of incentives in building up employee morale.


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RBI Mains 2014-Paper 1: English comprehension, Precis, Report Writing Questions


Instructions
All questions are compulsory.
Each question should be answered on a new page and the question number must be written on the top.
Précis and its title should be written in précis sheet only.
The answers of parts of the same question, if any, should be written together. In other words, the answer of another questions should not be written in between the Parts of a question.
Marks will be deducted if an answer far exceeds or far falls short of the set limit, or if the handwriting is illegible.
Candidate should use only Blue or Black ink pen/ball point pen to write the answers.

Essay
Q1. Write an argumentative essay of about 500 words, on any one of the following: (40 marks)

Euthanasia, a debatable phenomenon in India.
Media is one of the strongest pillars of democracy.
Role of R.B.I. in controlling the inflation.
Stand of the NDA Government in dealing with corruption.
Uses and misuses of Anti-Dowry Act.
Commonwealth Games-2014 and India.



Q2. Précis writing (24 marks)

A: Make a précis of the following passage in your own words, reducing it to about 230 words and give it a suitable title. Use the précis sheet specially provided for this purpose :- (24 marks)

Against the background of a stable recovery of world economy, the 6th BRICS leaders meeting from July, 15th to 16th at Fortaleza, Brazil, with the theme of Sustainable Solutions for Inclusive Growth, is definitely among the most important international events in the second half of this year. It is also an important event for China-India relations since the President of China has had his first ever meeting with the new Indian Prime Minister on the sidelines of the summit. The BRICS has become an important force to cope with the international financial crisis, in driving global economic growth and in promoting democratization of international relations.

The BRICS countries (Brazil, Russia, India, China and South Africa) are not only building upon their own strength, but also make efforts to help others. Despite the financial need for their own economy, BRICS contributed a total sum of $180 billion to the International Monetary Fund in two rounds and the efforts were well commended by the international community.

BRICS is highlighted by pragmatic co-operation in major projects. The BRICS New Development Bank (NDB) and the Financial Contingency Reserve Arrangement (CRA), which were first initiated during the 2012 BRICS summit in India, has become reality in the Fortaleza summit. The NDB and CRA will not only benefit the BRICS countries, but also provide finance to infrastructure projects in emerging markets and other developing countries. It is also aimed to assist them to better withstand risks from international financial turbulence. Other key economic co-operative projects such as joint financing by respective development banks, co-operation among industrial and business enterprises and the economic and trade liaison group will also inject new momentum for development of the BRICS countries.

As the world’s two most populous and largest developing countries as well as the founding members of the BRICS, China and India are firm supporters and active participants of the co-operation among the BRICS countries, and always take co-operation with other BRICS countries as one of the priorities in their foreign policy. China and India are also good neighbours, good friends and good partners that have established a strategic and co-operative partnership for peace and prosperity. Both countries are now facing a historical mission of growing the economy and improving people’s livelihood. The China-India bilateral co-operation and their co-operation under the BRICS framework are complementary to each other.

Our major projects include the BCIM Economic Corridor, the Chinese-style industrial parks in India, railway co-operation, and initiatives of the Silk Road Economic Belt and co-operation along the 21st Century Maritime Silk Road. We are also working for a ” Trans-Himalayas Economic Growth Region” driven by double-engine of China and India. All the co-operation can be benefited from the BRICS co-operation mechanism. China and India should establish a closer partnership of development to promote more integration of market, greater financial linkage, better connectivity of infrastructure as well as closer people-to-people contacts, and thus to bring our people tangible benefits.

India recently announced its Railway and Union budgets, indicating that India is set to accelerate economic development. As India’s only neighbor in BRICS, China hopes and believes that, under the strong leadership of Indian Prime Minister, India’s economy will gear up to a healthy track and develop better. China will enhance its co-operation with India by proactive and practical action.

Chinese railway department has recently sent officials and technical experts to India for substantive consultation on co-operation of the speedup of existed railway lines and the up gradation of railway stations.

It is firmly believed that, with our joint efforts, a wide-ranging, multilevel and high-quality economic co-operation between China and India will be achieved with more convergence of our two emerging markets. The common development of China and India will ensure the Asian century’s arrival.

There are still challenges for the BRICS countries to move forward. As an old saying goes, ‘If you want to go fast, go alone ; if you want to go far, go together.’ It is positively believed that as long as China, India and other BRICS members insist on building their strong partnership, deepening economic co-operation, a better future is achievable for BRICS.

Comprehension (précis based) 16 marks
Q2B: Answer any two of the following questions based on the above passage (10 marks)

What are the major objectives of the BRICS Bank?
How can pragmatic co-operation in major projects be ensured through the BRICS ?
Illustrate how can the China- India bilateral co-operation be achieved under the framework of the BRICS?

Q2C: Use any three of the following phrases in sentences of your own, to bring out its meaning (6 marks)
to cope with
pragmatic co-operation
trade liaison
tangible benefits
gear up.


Report Writing 20 marks
Q3. Attempt any one of the following in about 250 words: 20 marks.

It has been reported to R.B.I. that few banks are violating the prescribed norms while granting loans to the Private Companies. As the General Manager of R.B.I., direct a committee to be instantly constituted to look into the matter and recommend the remedial measures to be initiated against such banks. Draft a committee report.
On behalf of RBI, issue a circular to all the subsidiary banks to open special cell to deal with educational loan applications for higher education in India and abroad and expedite the essential procedures to sanction the loans within a specific period of 10 days.

The Chairman of Customers’ Association has reported to R.B.I. that banks located in rural areas are not able to function well due to frequent cuts in power supply. It causes tremendous inconvenience to customers who come from far off places and go back without their work being done. On behalf of R.B.I., draft a letter to the Chairman of the Association, assuring him that the matter will be seriously taken into account and rural banks will be instructed to make provision for the installation of generators to address this problem permanently in case of power failure.

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preference shares in india


Share capital of a company is categorized into preference and equity shares. It forms part of net-worth. 


Important terms:
Convertible - owner has a right to convert preference shares into equity shares at a later date. Those which don't carry this option is non-convertible preference shares.

Retractable (also Term Preferred Share) – the owner of the preferred shares have a right, at some period of time, to force the company to buy back their preferred shares.

Cumulative preference shares are preference shares on which the unpaid dividend accumulates as arrears.

Non-cumulative preference shares - if a company does not pay annual dividends then the investor does not have the right to claim any forgone dividends in the future.

Redeemable / Callable – company have the right to force the preferred shares to be sold back to the company at a set price or for an equivalent amount of common shares.


   ->  all rights & limitation are applicable to Public company or a private company which is a subsidiary of a public company. A private company can issue any terms to preference share holders through its Articles of Association. But if the private company goes public then those Preference shares issued with higher rights have to be redeemed or restructured.


Preference shares of a public company carry a preferential right to: 

 i) dividend at a fixed rate or amount,

 ii) repayment of capital in case of winding-up of co. 


 Limitation/obligation 
iii) limited voting rights, only in such matters which affects them, (equity shareholder controls the co.). It may acquire voting rights in situations where dividend is not paid.

iv) they have to be redeemed within 20 yrs from their issue.



 Risks:

Insolvency Risk: It may be questionable whether any assets remain after all other creditors have been paid to go to the preferred shareholders.

Credit risk involves any change in the financial strength of the company as to its ability to pay dividends and repay principal on maturity.


Rate of dividend payable to a foreign company on preference shares issued by an Indian company cannot exceed 300 basis points over the prime lending rate of the State Bank of India prevailing as on the date of the board meeting on which issue of preference shares was recommended. (FEMA)


The Banking Regulation (Amendment) Bill, 2005, proposes to permit banks to issue preference shares subject to the condition that preference shareholders will not acquire voting rights if the bank defaults in the payment of dividend.

Banking awareness test 01

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Ok now take out your pen & paper & start this test. It has 53 ques.. you’ve 30 minutes. I am calling it Banking / 01/ 05.07.2014.. once finished find answers on http://bank-exam-notes.blogspot.in/2014/07/answer-keys-to-banking-01-05072014.html


You may comment your scores... 3. 2. 1.


1) RBI established on ____ ?
a) 1st June 1935
b) 1st April 1935
c) 1st June 1934
d) 1st April 1934

2) RBI was established on the recommendations of ____ commission?
a) Central bank of British India Commission
b) John Hilton Young Commission
c) Bank of England Commission
d) Norman Commission
e) Sir Osborne Smith commission

3) RBI was nationalised wef ___ ?
a) 01 Jan 1949
b) 01 June 1949
c) 01 Mar 1949
d) 15 Aug 1947
e) none of these

4) RBI's central office is situated in ___ ?
a) Delhi
b) Mumbai
c) Kolkata
d) Chennai

5) Which of the following(s) is/are function/powers of RBI?
i) Managment of public debt
ii) lender of last resort to banks
iii) grants license to carry on banking business
iv) RBI fixes interest rates on SB

a) ii only
b) i & ii only
c) iii only
d) i, ii & iii only
e) all of the above

6) Which of the following(s) is/are Negotiable Instrument?
i) Promissory note
ii) Bill of exchange
iii) Cheque payable to order or bearer
iv) Currency note

a) i only
b) i & ii only
c) ii & iii only
d) i, ii & iii only
e) all of the above.

7) Which of a following is not a Commercial Bank ?
(A) Reserve Bank of India
(B) State Bank of India
(C) Canara Bank
(D) Oriental Bank of Commerce

8) Which of the following(s) is/are true of Bearer cheque?
i) it is payable to the person who presents it to the bank for encashment or a/c transfer
ii) these cheques are risky, as it could be misused if lost
iii) it is payable to any person who presents it for payment at the bank counter
iv) such cheques are not permitted by RBI

a) iv only
b) i & ii only
c) i, ii & iii only
d) all of the above

9) Which of the following(s) is/are true of Order cheque?
i) it is payable to a particular person only
ii) these cheques can be encashed over the counter by any person - hence the name 'order'
iii) In India order cheques are rarely used
iv) Banks don't encourage such cheques as it restricts payments system of the country

a) iv only
b) iii & iv only
c) ii only
d) i only

10) Full form of CTS?
a) clearing Truncation system
b) cheque transaction system
c) cheque truncation system
d) checking truncation system

11)  What is Cheque Truncation?
a) instead of physical cheque, image is transmitted to the drawee bank branch
b) movement of physical cheques to nearest clearing houses in efficient way
c) discourage use of cheques & move to epayment system
d) sorting of cheques as per their banks according to the MICR codes by machines


12) Which of the following(s) is/are true of CTS 2010?
i) it will speed up the process of cheque clearance.
ii) eliminates the time, money and manpower wasted during physical movement of cheques.
iii) it enhances the scope for clearing-related frauds as earlier each bank had its own security features on the cheque.
iv) in 2010, RBI came up with the guidelines for CTS.

a) i only
b) i & ii only
c) iv only
d) i, ii & iv only

13) A Banker's cheque issued by SBI is valid only for ___ months?
a) 2 months
b) 4 months
c) 3 months
d) 6 months

14) A Mutilated Cheque is ___ ?
a) e-cheques
b) new form of cheques encouraged by banks
c) a cheque torn in two or more pieces
d) a stale cheque


15)India’s First Financial Archive has been set up at—
(1) Mumbai
(2) New Delhi
(3) Ahmadabad
(4) Kolkata
(5) None of these

16) Which of the following(s) is/are true?
i) an 'Uncrossed/open' cheque can be paid across counter or by account transfer
ii) two parallel lines on the left corner of the cheque makes it a crossed cheque
iii) a crossed cheque is payable by account transfer only
iv) a crossed cheque can be paid in cash

a) i & ii only
b) i, ii & iv only
c) i, ii & iii only
d) all of the above

17) Which of the following(s) is/are true of Electronic cheques?
i) its exact mirror image of paper cheque
ii) its generated in a secured system only
iii) its scanned form of a physical cheque
iv) digital signature is used to sign it

a) iii only
b) i & ii only
c) i & iv only
d) i, ii & iv only


18) Currency notes are not Promissory notes?
a) True
b) False
c) Currency notes of Rs 1 denomination are not P-notes as they are issued by Govt
d) depends on the denomination of the note

19) Cash can't be accepted by banks for issuing Demand Drafts above Rs 50,000/-. Why?
a) DD can be issued against cash payments of upto Rs 1 lac.
b) to avoid banks being used by unscruplous elements for money laundering
c) to encourage electronic transfer of money
d) to inculcate financial discipline among general public & use of SB a/cs.

20) For the purpose of KYC, a customer may be defined as ...?
a) only Savings account holders of a bank
b) Savings & loan account holders only
c) beneficial owners only
d) any person or entity connected with any financial transaction

21) Banks are required to maintain secrecy of customer's account?
a) no such restriction, banks can share info freely with others
b) banks can disclose affairs of customers if deemed reasonable
c) to maintain secrecy of a/cs is a legal duty
d) Info can be shared on case-by-case basis

22) Match following correctly:
i) Garnishee order - issued by court
ii) Attachment oder - issued by Income Tax authorities
iii) Garnishee order - issued by Income Tax authorities
iv) Attachment oder - issued by court

a) i & ii only
b) i & iv only
c) i only
d) iii & iv only


23) When a contract is 'void ab initio' what does it mean?
a) No contract exists from beginning
b) contract ceases if any stipulation voilated
c) contract ends from the day any of its terms are unacceptable to any party
d) none of these

24) Max no. of partners in a Partnership firm involved in banking business?
a) 5
b) 7
c) 10
d) 20

25) What does 'Ultra Vires' means?
a) Beyond the powers
b) latest ultra violet machine to detect fake notes
c) define ultra rich people
d) Wire transfer method

26) A deposit account can be closed by ___ ?
a) customer only
b) customer &/or bank
c) customer &/or bank after giving due notice
d) can't be closed, its perpetual

27) First Governer of RBI?
a) Sir James Braid Taylor
b) Sir C D Deshmukh
c) H V R Iengar
d) Sir Osborne Smith

28) First Indian Governer of RBI?
a) Sir Osborne Smith
b) H V R Iengar
c) C D Deshmukh
d) Sir Benegal Rama Rau

29) Talwar Committee in banking was related to ?
a) Expansion of banking in rural areas
b) FDI in banking
c) Customer service
d) NPA in banking

30) Banking Ombudsman scheme is related to ?
a) resolution of complaints related to banking services through conciliation & mediation
b) NPA resolution by compromise
c) providing cheap banking services to low-income group
d) none of these

31) Banking Ombudsman scheme covers which of the following?
a) all commercial banks
b) comercial & RRB banks
c) all comercial & scheduled primary co-operative banks
d) all of the above i.e. commercial, RRB & scheduled primary co-operative banks

32) Complaints older than ___ months after receipt of bank's reply are not taken up by Banking Ombudsman?
a) 6months
b) 10 months
c) 12 months
d) 24 months

33) Who can be an Ombudsman?
a) ex-banker from any scheduled bank
b) appointed by Lead bank
c) well-known economist or banker
d) CGM/GM from RBI

34) Complaints can be filed in Ombudsman by whom?
i) through any advocate on behalf of the aggrieved person only
ii) by the aggrieved person himself only
iii) authorised representative of the aggrieved person only
iv) by the aggrieved person or his advocate

a) i & ii only
b) ii only
c) iv  only
d) ii & iii only

35) Banking Ombudsman gives award or reject a complaint within __?
a) 15 days
b) 7 days
c) 30 days
d) 90 days

36) Max amount of compensation that can be awarded by Ombudsman?
a) 1lac
b) No such limit
c) 10 lacs
d) 20 lacs

37) 'Banking code for Customer Service' released by BCSBI (Banking codes & Standard Board of India) are ___ ?
a) Mandatory rules for all banks
b) Voluntary code for banks
c) some parts are mandatory for all banks
d) mandatory for scheduled banks only

38) Consumer Protection Act 2002 is applicable for ?
i) Banking sector
ii) Insurance sector
iii) all goods & service providers
iv) Private service providers

a) i only
b) i & ii only
c) iv only
d) all of these

39) Which of the following transactions are reported to FIU- IND (Finance Intelligence Unit - India)?
i) CTR
ii) DTR
iii) LTR
iv) STR

a) i only
b) i & ii only
c) i & iv only
d) all of these

40) Which is true about CTR?
i) Large cash transaction of above Rs 10 lac is reported
ii) Large cash transaction of above Rs 1 lac is reported
iii) CTR should be submitted by 15th of succeeding month
iv) individual transaction below Rs 50,000/- may not be included

a) i only
b) i & iii only
c) ii & iii only
d) i, iii & iv only


41) Which is true about STR?
i) suspicious transaction report is based on cash only
ii) report furnished to FIU within 7 days of confirmation of sucpicious transaction
iii) Banks should put restrictions on accounts where suspicious transaction is reported
iv) suspicious transaction report is based on cash or non-cash activity

a) i & ii only
b) i, ii & iii only
c) ii, ii & iv only
d) ii & iv only

42) In which of the following accounts do nomination facility exists?
i) Deposit a/cs
ii) Safe deposit of articles
iii) Lockers
iv) Loans

a) i only
b) i & ii only
c) i, ii & iii only
d) all of these

43) TDS is payable on which account(S)?
i) Savings account
ii) Fixed deposits
iii) Recurring deposits

a) ii only
b) i & ii only
c) ii & iii only
d) all of these

44) TDS is deducted if aggregated amount of Interest per financial year exceeds __?
a) 1000/-
b) 5000/-
c) 10000/-
d) 20000/-

45) Which is/are true about Service tax?
i) its an Indirect tax
ii) rate of ST is 12.36% (12% + 2% Edu cess + 1% secondary & higher edu cess)
iii) its a direct tax
iv) small service provider with turnover up to Rs 10lacs exempted

a) i & ii only
b) ii & iii only
c) ii only
d) i, ii & iv only

46) STT - Security Transaction Tax - is levied for purchasing shares on delivery basis. Rate is ..?
a) 0.1%
b) 0.0125%
c) 0.125%
d) 0.01%

47) A savings/current account is tagged "Inoperative or Dormant" if its not operational by customer for a period of
 ...?
a) 12 months
b) 6months
c) 24 months
d) 18 months

48) Amount of Total unclaimed deposits lying with all scheduled commercial banks at the end of December 2012?
a) 1156 crore
b) around 2000 crore
c) 3652 crore
d) 2562 crore

49) Which of the following is true of 'Depositor Education and Awareness Fund (DEAF)'
i) banks should remit unclaimed deposits only - to the fund
ii) banks should remit unclaimed deposits alongwith interest accrued to the fund
iii) DEAF was first announced in the annual monetary policy by RBI in May, 2013
iv) banks should transfer amounts becoming due in each calendar month on the last working day of the subsequent month

a) i only
b) i & iii only
c) ii & iv only
d) ii, iii & iv only

50) What are 'Unclaimed deposits'?
a) an account which is not operated for 10 years
b) an account not operated for 2 years
c) an account not operated for 12 years
d) an account not operated for 10 months

51) What are 'Notice Deposits'?
a) Term Deposit for a specific period but withdrawable on giving at least one complete banking day's notice
b) another name for Savings account
c) another name for current account
d) Normal Fixed Deposits in banks for short duration

52) Which of the following(s) is/are true about interests on Savings bank (SB) a/c?
i) RBI deregulated SB interest rate wef 25 Oct 2011
ii) Interest on SB can be paid on Quaterly basis or longer period
iii) Banks must offer uniform interest rates on deposits of upto Rs 1 lacs, thereafter differential rates can be given.
iv) Wef April 1, 2010 payment of interest on savings a/c would be calculated on a daily product basis

a) i only
b) i, ii only
c) i,ii & iii only
d) i, iii & iv only

53) Which is true about PPF a/c?
i) Tenure of PPF a/c is 15 year.
ii) current interest rate is 8.7% p.a
iii) you can invest min 500 & max 1lacs per FY
iv) Scheme is available to Residents, NRIs

a) i only
b) i & iii only
c) i, ii & iii only
d) all of these


Answer keys to Banking / 01/ 05.07.2014

Answer keys to Banking / 01/ 05.07.2014


1. B. 1st April 1935
2. B. John Hilton Young Commission also 'Royal commission on Indian currency & Finance'
3. A. 01 Jan 1949
4. B. Mumbai
5. d) i, ii & iii only. Banks are free to decide SB rates. Some offer 4%, few 6%.
6. d) i, ii & iii only. Negotiablity means valid transferability of the said instruments. Currency not Negotiable.
7. (A) Reserve Bank of India
8. c) i, ii & iii only
9. d) i only. When you write 'order' on the cheque or delete 'bearer' out of the 2 words mentioned then it becomes order cheque. safe method on issuing chq. Payee can give it to someone else by signing his/her name on backside (officially called endorsement).
10) c) cheque truncation system
11. a) instead of physical cheque, image is transmitted to the drawee bank branch
12. d) i, ii & iv only. RBI has brought unique security features like bar codes, encrypted codes, logos, watermarks, holograms on CTS cheques - they are secure & fraud proof.
13. c) 3 months. All cheques/DD/BC have validity of 3months. Expired cheque is also known as Stale cheque.
14. c) a cheque torn in two or more pieces. It can be paid - after getting confirmation from drawer.
15. (4) Kolkata
16. c) i, ii & iii only
17. d) i, ii & iv only
18. a) True
19. b) to avoid banks being used by unscruplous elements for money laundering
20. d) any person or entity connected with any financial transaction
21. c) to maintain secrecy of a/cs is a legal duty
22. a) i & ii only
23. a) No contract exists from beginning
24. c) 10
25. a) Beyond the powers (Bank can't go beyond the scope of their objects)
26. c) customer & bank after giving due notice
27) d) Sir Osborne Smith
28) c) C D Deshmukh
29) c) Customer service
30) a) resolution of complaints related to banking services through conciliation & mediation
31) d) all of the above i.e. commercial, RRB & scheduled primary co-operative banks
32) c) 12 months
33) d) CGM/GM from RBI
34) d) ii & iii only
35) c) 30 days
36) c) 10 lacs. Award may be actual loss suffered or 10 lacs whichever is lower.
37) b) Voluntary code
38) d) all of these. CPA is applicable to all goods & service providers, private or public.
39) c) i & iv only. CTR= Cash transaction report. STR = Suspicious transaction report.
40) d) i, iii & iv only.
41) d) ii & iv only. Banks should not put restriction on accounts where suspicious transactions are identified.
42) c) i, ii & iii only
43) a) ii only. TDS is not deducted on NRE (non resident external) a/cs also
44) c) 10000/-. Per financial year per branch.
45) d) i, ii & iv only
46) d) 0.01%
47) c) 24 months. No penalty if minimum balance not kept in dormant bank account.
48) c) 3652 crore
49) d) ii, iii & iv only
50) a) an account is not operated for 10 years. Banks are supposed to locate them & properly discharge the balance if party is found... otherwise remit it to the fund - along with interest.
51) a) Term Deposit for a specific period but withdrawable on giving at least one complete banking day's notice
52) d) i, iii & iv only. Banks are now free to give interest shorter duration also (both SB & FD). 'Daily product basis' means banks will have to pay interest on the daily minimum balance in SB a/c.
53) c) i, ii & iii only





MCQs on Finance

Best of luck !

1) Which is the Currency of Malaysia?
a) Malaysian Dollor b) Bhat c) Ringgit d) lira e) Rupiah

2) Which of the following is true about Convertibility of Rupee?
i) Rupee is fully convertible on the current account.
ii) Rupee is partially convertible on the capital account.
iii) Rupee is partially convertible on the current account.
iv) Rupee is non-convertible on the capital account.

a) i & ii only
b) i & iv only
c) ii & iii only
d) none of these

3) Full form of AUM?
a) All under management
b) All asset under-manageable
c) Assets under management
d) Always under management

4) What does full current account convertability of Rupee means?
i) Residents can make & recieve trade related payments in foreign currency & vice-versa.
ii) Can convert local financial assets into foreign assets.
iii) residents can purchase real estate abroad.
iv) for education & tourism purpose Rupee can be converted in restricted manner only.
v) Indian companies can buy foreign companies without restrictions out of Indian resources.

a) i & iii only
b) i, ii & v only
c) ii & iv only
d) i & iv only

5) In stock market parlance what does the term 'bearish' associated to?
a) index in upward trend
b) index in downward trend
c) index volatile & moving both ways
d) index showing not much activity.

6) Expand CAD?
a) Capital account deficit
b) Concurrent audit
c) Current Account deficit.
d) Convertible account deficit.

7) BSE's stock market index - Sensex is based on __ no. of large companies/scrips?
a) 25
b) 30
c) 50
d) 100

8) In stock market parlance what does the term 'short' associated to?
a) a trader sell a scrip/co. first & buys it later.
b) a trader short on money.
c) time period of 5 mins before the market closes.
d) a trader buys a scrip first & sells it later.

9) Which of the following is true about Derivatives?
i) They derive their value from an underlying asset.
ii) Its basically a financial contract refering future price.
iii) They are used to hedge risk in a transaction or for speculation purpose.
iv) They are available in OTC (Over-the-counter) market as well as Exchanges like NSE.

a) i only
b) i & ii only
c) i, ii & iii only
d) All the above.

10) Which of the following is true about Options?
i) they are basically derivative products only.
ii) there is no obligation to honor the contract.
iii) Premium is paid for not honoring the contract.
iv) 'Call option' gives holder right to sell underlying asset at prefixed rate.
v) 'Put option' gives holder right to buy underlying asset at prefixed rate.

a) i, ii only
b) i, ii & iii only.
c) i, iv & v only
d) all the above.

11) Which of the following is true about Futures?
i) these are derivatives products only.
ii) there is no obligation to honor the contract.
iii) they are listed on an exchange.
iv) they are used for hedging & speculation.

a) i & ii only
b) i, iii  & iv only
c) i & iii only
d) all the above.

12) Which of the following is true about Forward Contracts?
i) they are Over-the-counter derivative products
ii) traded on one-to-one basis among parties & mutually agreed terms.
iii) its used for hedging risk
iv) they are listed on an exchange.

a) i only
b) i & ii only
c) ii, iii & iv only
d) i, ii & iii only

13) Which of the following is true about recent Interest Rate Futures contract launched in India?
i) underlying security is either 10 year GoI bond (G-sec) or 91 day T-bill.
ii) contract to buy or sell a debt instrument.
iii) these are non-standard OTC contracts
iv) these are standaridized contracts available on MCX-FX, NSE & BSE.
v) they are basically derivative products only

a) i & v only
b) i, ii, iv & v only
c) i, ii, iii & v only
d) all the above.

14) Which of the following is true about Hedge funds?
i) they are meant for ultra rich individuals.
ii) they invest very aggressively in any class, from G-sec to any exotic derivatives.
iii) they can charge upto 20% of net profit, and do not share losses.
iv) they are virtually unregulated
v) they can market publicly.

a) i, ii only
b) i, ii & iv only
c) i, ii, iii & iv only
d) all the above

15) Which of the following is true about Swaps?
i) Swap is an exchange of cash-flows.
ii) in an Interest-rate swap, basis for calculation of Interest is changed e.g. from floating to fixed or vice-versa.
iii) in Currency Swap, cash flow of one currency is changed to another currency.
iv) Swaps are used to hedge currency & interest rate risks.

a) i only
b) i & ii only
c) i & iv only
d) all of above.

16) Which of the following is true about Volatility Index (Vix)?
i) It captures mood of the market, high volatility is associated with fall in market.
ii) If Vix more than 30%, stock market investors are in fear zone.
iii) A low Vix associated with price rise.
iv) India Vix is based only Nifty 50 Option prices.

a) i & iii only
b) iv only
c) ii & iii only
d) all the above.

17) Whats REIT?
a) REal IT
b) Realistic Infra Technology fund
c) Reference for IT index
d) Real Estate Investment Trust

18) Full form of EURIBOR?
a) EUropean reference for labor market
b) EU's bechmark index
c) Euro Inter-Bank offered rate.
d) EU libor rate

19) 50 basis points means?
a) 5.00 %
b) 0.50 %
c) 0.05%
d) 50.00 %

20) What is meant by Arbitrage?
a) its nothing but name of a movie.
b) practice of taking advantage of a price difference between two or more markets.
c) hedging practice
d) an pre-budget activity.


Ans:
1) C. Thailand- Bhat. Turkey- Lira. Indonesia- Rupiah.
2) A.
3) C.
4) D.
5) B. And the term "Bullish" refers when Index is in upward trend.
6) C.
7) 30. NSE's Nifty is based on 50 large companies.
8) A. The term 'Long' refers to "buy first, sell later".
9) D. Derivative products includes OTC (forward contracts), Futures (forward contracts on exchanges), Options, Swaps
10) B. Options as the name suggests has no obligation. Call option is right to buy (think you are calling for price), Put option is right to sell (think you are putting 'it' on OLX to sell).
11) B. Furutes have obligation to honor the contract, think of it as buying/selling shares on NSE - you can't go back on trade you've done.
12) D.
13. B. IRF was recently re-launched for 3rd time in India.
14) C. Hedge funds can't market publicly.
15) D.
16) D.
17) D.
18) C.
19) B.
20) B.

MCQs for rbi


1. Currency chest is the property of ____ ?
A. RBI. b) SBI. C) GoI d) Lead bank of the area. e) Bank itself.

2. Which dept of RBI oversees designing of banknotes in India?
a) Dept of banknotes b) Dept of rupee management c) Dept of banking affairs d) Dept of Currency management e) none of these.

3. Where is not a currency printing press located ?
a) Dewas (MP) b) Salboni (WB) c) Nasik d) Mysore e) Mumbai

4. Where is not a coin mint located from below ?
a) Noida b) Delhi c) Hyderabad d) Mumbai e) Calcutta

5. Banknotes & Rs.1 coins can be used to pay any sum upto _____?
a) no such limit b) Rs 1 lacs. c) 1 crore, d) 1.50 lacs

6) 50 Paisa coins can be used to pay/ settle any sum upto ____?
a) Rs Two. b) Rs Five. c) Rs Ten. d) Rs One hundred.

7) Which of the following is true of RBI's balance sheet?
a) RBI's balance sheet is a sum of 2 major Dept i.e. Issue Dept & Banking dept.
b) RBI's annual year closes on 30 june.
c) Currency circulation is backed by 3 major assets of Issue dept ie. Gold, foreign & Rupee security.
d) CRR balances, Open Market Operations, Loans to Govt etc comes under Banking dept's Balance sheet.
e) all of the above.

8) What is KYC?
a) to verify the identity of customers.
b) budget related activity of an organisation.
c) effort to convert black money into white money.
d) legal ways to harass poor customers.
d) none of these.

9) Payment system of the country include which of the following?
i) Cheques. ii) Credit cards. iii) Currency. iv) Electronic transfers

a) i only
b) i & iii only
c) i, ii & iii only
d) all of these

10) Which of the following is not true about WMA - Ways & Means Advance by RBI to State Govts.
a) Short-term finance to state govt to tide over temporary mismatches  in cash flow.
b) non interest-bearing limits
c) if WMA limits are exceeded, its called 'Overdraft' - allowed for few days only.
d) These limits are without any security.
e) B & D


ANS:
1) A. RBI. CC is extension of Issue Dept of RBI.
2) D. This dept essentially oversees work of issue & retrieval of currency. This is performed through 18 issue offices.
3) E. Dewas & Nasik presses' are Govt owned. Salboni & Mysore are owned by RBI, through its wholly owned subsidiary, the Bharatiya Reserve Bank Note Mudran Ltd. (BRBNML).
4) B.
5) A.
6) C.
7) E.
8) A. Know Your Customer.
9) D.
10. B. State govts have to pay interest on these limits.

MCQs on banking

MCQs from various sources important for exams. Answer key is available at the end.

1) What is GAGAN Project developed with the help of ISRO?
a) It's ambitious plan of Indian airforce to develop next generation fighter planes by 2020.
b) It's satellite based system by AAI, to navigate & guide aircrafts over India, Bay of Bengal, South-East Asia & Middle East expanding upto Africa.
c) It's domestic version of GPS.
d) Advance weather forecasting system to be developed with the help of NASA.

2) Match the following correctly.
i. TS Vijayan, ii. UK Sinha, iii. Ila Patnaik, iv. Raghuram Rajan, v. Ramesh Abhishek
A) RBI, B) FMC, C) IRDA, D) SEBI, E) Principal Economic Advisor

(a) i-C, ii-D, iii-E, iv-A, v-B.
(b) i-C, ii-D, iii-B, iv-A, v-E
(c) i-C, ii-E, iii-D, iv-A, v-B
(d) i-D, ii-E, iii-B, iv-A, v-C.

3. Who is not Dy. Governor of RBI from below?
a) Urjit Patel, b) R. Gandhi, c) H R Khan, d) Anand Sinha

4) A Dy. Governor of RBI is appointed for a period of ____?
a) 3 years, b) 4 years, c) 5 years, d) 6 yrs, e) no such limit.

5) Name the youngest governor of RBI.
a) Raghuram Rajan. b) Bimal Jalan. c) YV Reddy. d) SS Tarapore. e) CD Deshmukh

6) Which of the following book is written by Sh Raghuram Rajan?
a) Saving Capitalism, b) Irrational Exuberance, c) The Alchemy of Finance, d) Saving the world, e) none of these

7) Autobiography of actor Dilip Kumar?
a) My Journey through Bollywood. b) Black & White to Colored Cinema. c) 100 years 0f Indian Cinema. d) The Substance and the Shadow. e) The man of substance.


8) When is World environment day?
a) 2 june, b) 3 june, c) 5 july, d) 1 Aug, e) 5 june.

9) Official Mascot of FIFA 2014 is ___?
a) Blu Macaw. b) Zakumi. c) Goleo. d) Fuleco. e) Striker.

10) Who heads 14th Finance Commission?
a) Vijay Kelkar. b) YV Reddy. c) Raghuram Rajan. d) Bimal Jalan.

11) What is 'Cash Recyclers' machine?
a) ATMs that can accept & dispense cash too. b) Recycling machine for soiled notes. c) Note sorting machine. d) Note counting machine.

12) Which of the following is true?
a) Minors above 10 can open & operate Savings account independetely with cheque book & ATM facility.
b) For the purpose of KYC, a bank account can be opened with just one address proof, which can be either permanent or local.
c) All scheduled commercial banks to deploy only “talking ATMs” starting 1 July.
d) all of these.




Ans:
1. B. GPS-Aided Geo Augmented Navigation (GAGAN)
2. A.
3. D.
4. C.
5. E.
6. A. Other being ‘Fault Lines: How Hidden Fractures Still Threaten the World Economy’.
7. D.
8. E.
9. D.
10. B.
11. A.
12. D.

MCQ on Indian economy on eve of Independence

MCQs made on 'Indian economy on the eve of Independence' Chapter 2 of Datt & Sundharam Eco book
Take a paper & write ans first. Check your progress with answers given at the end. Good luck.

1) Throughout the colonial period there was a generation of a large export ________?
a) Deficit b) surplus c) no conclusive data available

2) Life expectancy during colonial period in India?
a) 30yrs b)50 yrs c) 60 yrs d) 63yrs

3) Muslin which had its origin in Bengal had enjoyed world wide market in Pre-Colonial period. Indian 'Daccai Muslin' had gained fame for its exquisite quality. What is muslin?
a) very fine quality jute ropes b) silk textile (c) a type of cotton textile (d) an exquisite gem stone e) none of these

4) Jute is 2nd most important vegetable fiber after cotton, in terms of usage & global production. Jute is also known as ______?
a) Brown Fiber b) Affordable fiber  c) Yellow fiber d) Golden Fiber e) none of these

5) What is meant by 'progressive ruralization' or 'deindustrialization of India' which characterized colonial rule?
a) There was no industries till colonial period to deindustrialize. b) rural areas were made more progressive to export more raw materials back to UK. c) the trend of growing proportion of the working force in agriculture. d) none of these.

6) The largest source of revenue for Britishers in India was from ______?
a) Textile & Jute industry b) Gems & stone industry. c) Temple tax d) Land revenue e) none of these.

7) In order to bring stability in Agriculture the Britishers introduced land settlement in 1773. Where was it first introduced?
a) fertile lands of Punjab province b) Bombay province c) all directly British ruled areas d) Bengal e) none of these.

8) To enhance land returns a type of 'permanent settlement' which raised the status of revenue collectors to that of Private landlords introduced in Bengal by Britishers is called _____ ?
a) Ryotwari settlement b) Zamindari system c) Bengal Land settlement system d) none of these.

9) Permanent settlement system was brain-child of ______?
a) Philip Francis, English MP in House of Commons. b) William Bentick. c) Warren Hastings. d) Lord Cornwallis. e) none of these

10) How is Ryotwari system introduced by Britishers in large parts of Bombay, Madras, north-eastern & north-western parts of India is different from Zamindari system?
a) Land revenues were excessive in former.
b) Just the name was different for easy understanding by locals otherwise both systems were same.
c) Under Ryotwari system revenues can be collected in both cash & kind.
d) Each peasant holding a plot of land was recognised as landlord & was directly responsible to state for annual land revenue payment.


11) With completion of Industrial revolution in UK during 1850-1947, raw matarials like cotton, jute, sugarcane etc. were in high demand by UK's industry. So much was the policy conditions & high market price that the farmers started production of crops for industrial sale rather than for family consumption, this was called _______?

a) Modernisation of Indian Agriculture b) Commercialisation of Indian Agriculture c) its nothing but 'normal sales of Marketable surplus'. d) Marketed surplus. e) none of these.


12) Which of the following(s) is/are cause(s) of slow growth of private enterprises in India's industrialization (1850-1957)?
a) Unimaginative private enterprise, short-sighted Indian industrialists.
b) complete absense of financial institutions to help transfer of savings to industrial investment.
c) Banking was not highly developed & was more concerned with commerce rather than industry.
d) Lack of support from British government e) all of these

13) The company agents who would sign bonds with local artisans to deliver cotton & silk fabrics much below market price are called
a) Gomastas b) Izaredars c) Thakurs d) Seths e) none of these.

14) What among the following(s) did not characterize "Imperial Preference" clause in the Policy of Discriminating protection adopted by Britishers in response to Indian National Movement?
a) Imports from UK has no/zero duties, while exports to UK are preferred.
b) to help Indian business to undertake investments in India.
c) to help British capital find safe & secure avenues of Investment in India.
d) to help maintain British trade monopoly in India & stop any other country to enter the Indian market. e) all of these.

15) RBI's first census of India's foreign Assets & Liability as on 30 June 1948 revealed total foreign business investments of Rs 302 cr, out of it what was the % of British investments in India?
a) 51% b) 60% c) 72% d) 91% e) 100%.

16) What is meant by Home charges, one of the ways of economic drain of India?
a) Charges for establishment of industries in India. b) Incentives for exporting raw material to UK. c) Remuneration paid to British officials for working in India. d) Payments on account of interest on foreign debts incurred by India, remittances of Salaries, Savings, Pension by Britishers etc. e) none of these.

17) First train on India soil was run on 1853 between?
a) Bombay to Thane. b) Thane to Bombay. c) Bombay to Surat. d) none of these.

18) Who among the following are some of the notable economists who estimated India’s per capita income during the colonial period.
a) Dadabhai Naoroji. b) William Digby. c) Findlay Shirras d) V.K.R.V. Rao.  e) R.C. Desai


ANSWERS

1. ANS: B
2. Ans: A
3. Ans: C.  Egyptian mummies dating back 2000 BC were wrapped in Indian Muslin. Greeks called it Gangetika.
4. Ans: D
5. C. The unemployed craftsmen & artisans shifted to agriculture also described as back-to-the-land movement. In mid nineteenth century 55%, in 1901 68%, in 1931 72% of population was dependent on Agri.
6. D.
7. D. First 'Izaredari system' was introduced by Warren Hastings. In it the right to collect revenue was given to the highest bidder (who may change). Izaredars then squeezed everybody to pay to the Company. This 'bidding' process was later changed to a more permanent system which was hereditary.
8. B. Under Zamindari system land revenue were fixed for perpetuity. Zamindars were reponsible for payment of land revenue to the state.
9. D.
10. D. Ryots=peasant cultivators/hired labor. Later Mahalwari system (Mahal= house, district) was introduced in UP, Punjab in which along with village communities, landlords were jointly responsible for revenue.
11. B.
12. E.
13. A
14. B.
15. C.
16. D.
17. A.
18. All of the these ;).



Indian economy on eve of independence notes


Britishers changed structure of Indian economy — India end up being net supplier of raw materials and consumer of finished industrial products from UK. India was feeder of UK's Industrial base.

Agriculture: Mainly Agrarian economy. 85% of population lived in villages & derived livelihood directly or indirectly from agri. Stagnant growth, bad land/ revenue settlement system - zamindari system.

Industrial sector: declining handicraft industries in India resulted in high unemployment, and demand was meet by cheap UK goods. From 1850s cotton & jute textile mills come up in Maharashtra, Gujrat. Jute mills in Bengal. 1900s- Iron/steel, TISCO(Tata Iron & Steel Co 1907) were set up.

However no Capital goods industry. {Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.}

Another drawback of colonial rule was Public sector was confining its activities only to the railways, power generation, communications, ports and some other departmental undertakings.

Foreign Trade: more than 50% of foreign trade was with UK. India was basically exporting raw goods (raw silk, cotton, wool, sugar, indigo, jute etc.) and importing finished consumers goods (cotton, silk and woollen clothes and capital goods like light machinery).

Most Importantly throughout the colonial period there was a generation of a large export surplus. This means that several essential commodities - food grains, clothes, kerosene etc were scarcely available here. The surplus was used to pay off British Government's war efforts.

Demographic condition: 1st modern census of 1881. Before 1921, India was in the first stage of demographic transition. The second stage of transition began after 1921.

{Demographic Transition : It is a concept developed by demographer Frank Notestein in 1945 to describe the typical pattern of falling death and birth rates in response to better living conditions associated with economic development. Notestein identified three phases of demographic transition, pre-industrial, developing and modern industrialised societies. Later another phase, post-industrial was also included.}


Social Development indicators was not good. Overall literacy level - 16%, for women: 7%. Life expectancy just 32yrs.

Occupational Structure:


Infrastructure: Real motive behind development of infra was to sub-serve colonial interest. Social benefits of railways outweighed huge economic losses.

Read MCQs to complete your understanding of this part.

Legal Tender | Banknotes | Coins | Currency of India



What is meant by Legal tender? (tender=offer): Any official medium of payment recognized by law. A creditor (~predator) is obligated to accept legal tender toward repayment of a debt.

The Indian rupee (INR) is legal tender in Nepal, Bhutan & Zimbabwe, but the Nepalese rupee and Bhutanese ngultrum are not legal tenders in India (Zimbabwean $ has been suspended by Govt due to hyperinflation).

Nepalese rupee's value was pegged to the INR in 1993 at a rate of 1.6 Nepalese Rs = 1 INR. Bhutanese ngultrum is pegged at par with Indian rupee.


What would you prefer as payment - legal tender or not-a-legal-tender?
Bitcoin is a virtual online currency that can be used for a growing number of transactions but its not considered legal tender anywhere. As INR is guaranteed by Indian Central Govt (s/26 RBI Act) it is more stable & accepted by all. (Do you've a right to recover from GOI/RBI value of a lost, stolen, imperfect note?)


Can you guess how much stamp duty does RBI pay to Govt on banknotes?
Well each note is a 'legal-note' & have a value attached to it but RBI pay nothing to govt for it to make legally binding on itself or Govt, as its exempted from paying stamp duty under s/29 RBI Act (Not under Indian Stamp Act).


Do shops or individuals have the right to refuse payment in coins or notes, even legal tender ones?

Contrary to popular belief, shops or individuals do have the right to refuse payment in coins or notes, even legal tender ones, before a transaction has taken place, and to demand payment in whatever form they choose.

However, when the debt has already been incurred (which, under the legal concept of 'invitation to treat' the vendor has already supplied a good or service prior to payment), then they are obliged to accept settlement of that debt in currency up to the amount authorized in law.

1 Rupee coin & notes are legal tender for unlimited amounts. 50 Paisa are legal tender for any sum not above Rs 10. Coins of smaller than 50 paisa value are legal tenders of a sum below Rs 1. (under Indian Coinage Act 1906).

So if you want to purchase 1 toffee of Rupee one with One Thousand rupee note, then shopkeeper can refuse accepting the 'legal tender'. Same way if you've had good meal at a restaurant & now want to pay them in 1 rupee coins then they can't refuse it - as you've already accepted their service - and 1 rupee coins are legal tender for unlimited amounts.


Legal Tender of India
The Indian rupee i.e INR is the only legal tender in India,

Its symbol was officially adopted in 2010. The first series of notes/coins with the rupee symbol was launched on 2011. Historically, the rupee (derived from the Sanskrit word raupya which means "wrought silver, a coin of silver"), was a silver coin.

RBI introduced "Mahatma Gandhi Series" banknotes on 1996 - it's called so because on the obverse there is a pic of Mahatma Gandhi (along with other features).
 A Mahatma Gandhi Series Note

A Pre Mahatma Gandhi series note - Ashoka emblem


Currency Management in India
Under s/22 of RBI Act; RBI has the sole right for issue of notes in India. Denomination of notes that are issued: 5,10,20,50, 100, 500, 1000. The design, form and material of the bank notes are recommended by Central Board of Directors of RBI and approved by GOI.

Like every country India's central bank - RBI looks after currency management. Interestingly Hong Kong, Scotland & Northern Ireland are exceptions where a commercial bank is the note issuing authority.

Can banknotes be issued only in some specific denominations?
Not necessarily. RBI can issue notes of 5000, 10000 or any other denomination that the Central Government may specify, but not greater than 10000.


COINS
Indian coins have a different story. GoI has the sole right to mint coins  (NOT RBI), [not higher than Rs 100/-]. The dimensions, designs, composition, weights of coins are also responsibility of GoI (Indian Coinage Act).

One Rupee note is issued by Min. of Finance & bears sign of Finance Secretary.

The coins are issued for circulation only through RBI in terms of the RBI Act. The RBI places an annual indent for this purpose and GoI draws up the production programme for the 'India Government Mints' on the basis of the indent. The 'India-Govt-Mints' are at Mumbai, Alipore(Kolkata), saifabad(Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP).


How does the currency reach to the people?
Notes are printed at 4 presses: Dewas(MP), Nasik (Maharashtra), Mysore (AP) & Salboni (WB) & coins at above centers. All the notes/coins travel by way of Rail/ Spl trucks accompanied by heavy Police force to RBI Offices & then to Currency chest branches (of your banks). Journey from these chest branches to individual non-chest neighborhood branch is carried out by the bank concerned.

Network of Notes Presses & Mints

Flow of new printed currency

All this involves heavy use of security, logistics, coordination & the cost of transferring to banks is borne by RBI.

What happened to torn, defaced, dirty currency?
Soiled notes (dirty, limp due to excessive use) & Mutilated notes (torn, disfigured, burnt, eaten by white ants, washed etc) are taken out of circulation. If you deposit such notes across counters in banks then they are kept separately from good notes & sent to RBI. RBI has statutory obligation to not to re-issue such torn, deface notes to public (s/27 of RBI Act).

Where do banks hoard currency?

Currency chests are stores where stocks of banknotes & coins are kept by banks on behalf of RBI. Its an extended arm of Issue Department. All PSU banks, 1 foreign bank (Stan Chart), 1 State Co-op bank (Rajasthan State Coop bank), 1 Regional Rural bank (Prathama Bank, Moradabad) have these chest branches. RBI has 1 Currency chest in Kochi.


How RBI oversees currency management function?
Issue Department
RBI has 2 major symbolic Depts a) Issue Dept & b) Banking dept.  Issue dept as name suggests oversees only currency issuance business of RBI and Banking dept deals with the banking system. The difference is just symbolic anyways as there are large linkages between the two.

This dept is given statutory role by RBI Act to manage currency.

"Department of Currency Management" in RBI attends to the core statutory function of note and coin issue and currency management. This dept do the forecasting the demand for fresh banknotes & coins, placing indent, receiving supplies & distributing them through network of currency chests.




Preamble and Management of RBI


RBI: established on 1 April 1935 under RBI act 1934 (on recommendations of John Hilton Young Commission 1926 - called Royal commission on Indian Currency & Finance). RBI used to be shareholder's bank, then nationalized w.e.f 1st Jan 1949.

Earlier SBI (Imperial bank of India) was conducting Central bank's functions.


Central office in Mumbai since 1937 (initially in Calcutta) formulates policies.


Preamble of RBI: "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."


Paid-up Capital of RBI: Rs. 5 crores



Management: RBI affairs are governed by Central Board of Directors, which is appointed by GOI under RBI act. It consists of:

1) Official Directors: 1 Governor (Dr. Raghuram Rajan), not more than 4 Dy. Governor appointed by GOI.

By convention out of 4 DGs 2 are promoted from within RBI ranks, 1 is economist & 1 is commercial banker. Right now the DGs are:

Sh. H.R. Khan, Dr. Urjit Patel, Sh. R. Gandhi.


2) Non-official Directors: 10 nominated by GOI from various fields & 2 Govt officials.


3) 4 Directors 1 each from Local boards.


Local Boards are situated at 4 metros their basic function is : "To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks..."

For present list of Governor, Dy. Governors, Directors click here.

buy Mutural funds with 50000 cash

SEBI has decided to increase the limit of cash transactions in mutual funds from the existing limit of Rs 20,000 per investor, per mutual fund, per financial year to Rs 50,000/-.

Reason: To expand the reach of mutual funds in hinterland.

Financial Inclusion in India

Why Financial Inclusion?

Financial inclusion (FI) means delivery of banking services at an affordable cost. Banking services = public good. So availability of banking and payment services to the entire population needs to be given without discrimination. It includes getting cheaper loans, Insurance (life, med, non-life, crop etc), Investment (Equity, MF, Pension plans etc).

Why?

Inculcate habit of saving in poor. Capital formation will get a boost.

Adequate, transparent & cheaper credits/ loans - will raise entrepreneurial spirit in poor people & result in prosperity.

Plug gaps & leaks in public subsidies & welfare progs. A study by McKinsey estimated that Rs. 1 lac crore could be saved each year in terms of manpower/time/ paperwork/ leaks if all govt subsidy/ benefit payments are done via e-payments.

Inequality falls more rapidly in areas that have more developed financial intermediaries = Empowerment.

Economic well being = social harmony. Bring Govt closer to poor people. It'll help inclusive growth efforts, and reduce poverty. No brainwashing by extremist/ Maoist/ Sucessionist elements.


What is being done by RBI/ Govt.

Access to banking network

1. Post office has vast network. They open Savings, RD, FD accounts. Also  Insurance, investments in Mutual funds, Payment & remittance services is being provided.

2. RRBs, cooperative banks, primary agricultural societies established for delivers.

3. Lead bank schemes (1969): RBI assigns a district to a bank which is responsible for promoting banking services and financial literacy there.

4. Business Correspondents (BC) system: Banks extend their services to villagers with help of agents, where opening brick-mortar branch is not profitable.

5. Bhartiya mahila bank setup for women empowerment.

6. White label ATMs: 2/3rd of these ATMs to be opened in semi urban and rural areas.

7. Banks to open at least 25% of their new branches in unbanked rural centres.

8. No Frills accounts for poor people. Later renamed to Basic Savings Bank Deposit Account (BSBDA): with relaxed KYC norms.

Giving Access to Credit (Loans)

Priority sector lending targets to banks.
Microfinance, various schemes for Self-help groups by NABARD
Interest Subvention scheme for farmers.
General Purpose Credit Card (GCC) and Kisan Credit Card (KCC) to help people get loans easily.

Giving More Access to Investment

National Savings certificates
Public Provident Funds
New Pension Scheme (NPS), Swavalamban (for people in unorganised sector).
Rajiv Gandhi equity savings scheme (Investing in equity Market: for First timers, upto 50K).
Inflation indexed bonds

Giving Access to Insurance
1. By Post office: tie-up with LIC & its own - offering various schemes.
2. Rashtriya Swasthya Bima Yojana (for BPL families, biometric smart-card based - cashless insurance for hospitalisation in public as well private hospitals, avail inpatient medical care of up to Rs 30K).

3. Rajiv Gandhi Shilpi Swasthya Bima Yojana: by Union Ministry of Textiles, in association with ICICI Lombard (for Craft persons, total medical cover of Rs.15K, death and permanent/partial disability by accident Rs.1.00 lakh).

4. Aam Aadmi Bima Yojana: for landless agricultural families, those involved in 46 other trades including beedi workers, carpenters, cobblers, fishermen etc. Life cover of Rs. 30K for natural death, Rs. 75K for death due to accidents. Scholarship of Rs 100/- per month for 2 children.


A recent committee by RBI named "Nachiket Mor committee" had outlined an ambitious plan of achieving total Financial inclusion by 1/1/2016. It recommended NBFCs to play major role in FI. But its report are being put on back burner as RBI & Finance ministry are not comfortable with the idea of NBFCs getting status of banks (via Payment banks- to open SB a/c & Wholesale banks - to give loans) without obligation of CRR, SLR.



Banking History | Private banks

Birth of RBI
By early 30s, there were >1200 banks in India! With Great depression of 1930s, Indian banks started to collapse - so British Indian Govt set-up RBI to supervise over banks in 1934.

Post Independence
Target of banks were merchants, upper middle class. They were not aiding Five-year plans of GOI (like cheaper loans to farmers). They were owned by industrialists & their policies were meant for their benefit. Hence GOI started nationalizaling banks.

Nationalisation: 1955 SBI, 1969- 14 banks, 1980 - 6 banks. Now govt majority share holder, GOI can pick board-of-directors, policy of its choice.

=>Now Banks were forced to give loans at very cheap rates, recovery became an issue (no quick legal recource available at that time), RBI kept CRR & SLR high (15, 40 % resp) all this means banks are left with little money to lend. No business expansion leads to decline in exports, in some ways it lead to BOP crises of 1991.

Narsimhan Committee I (by GOI in 1991)


Bank licences: 1st Round (1993):10 licences given, out of which 6 are running successfully viz. ICICI, HDFC, UTI (Axis bank in 2007), IDBI, Indus, DCB. Four banks failed at various stages.


Narsimhan Committee II (1998)
Introduce VRS. Legal reforms in loan Recovery => SARFAESI 2002.
Computerization, Electronic fund transfers (ECS, NEFT, RTGS). Allow more private & foreign players.

New Bank licences 2nd round (2001): Kotak Mahindra, Yes Bank.
New Bank licences 3rd Round (2013-14: Given to 2 out of 25: IDFC, Bandhan.

Pro & Against arguments for New Pvt Banks can be read here.

Few takeaways are:

-> As per census 2011:
Only 67% of Urban households & 54% of rural households are getting banking services.

-> Existing banks not sufficient for 100% financial inclusion.
only one in two Indians have bank account
Only one in seven Indians gets loan from banks (others have to rely on money lenders who charge 36% compound interest rate!)

-> "Inside RBI this is seen as an Experiment. RBI wants local/ niche banks". Bandhan is a micro-finance company based in WB. Giving license to it is RBI's push for Financial Inclusion, where "Lead banks/ mainstream banks" have failed.

Equipped with a licence Bandhan can now raise money from public @ 6-7 % & lend it at 10-15% as against ~20-24% it charges now. Read full ET article here. Now it needs to be seen how a NBFC makes transition to becoming a bank & how successful  it'll be for the rural poor.






GI tag

1) Geographical Indicator tagging: More to be added.


mnemonics for types of taxes

Mnemonics for Taxes

DIRECT TAXES :- "wepro.co.in" 
We : wealth tax
Pro : property tax
Co : corporate tax
In : income tax

INDIRECT TAXES :- "excuse me" 
Ex : excise tax
Cu : custom tax
Se : service tax
M : market tax/vat
E : entertainment tax

Organizational Structure and Designing it

Que.What is "organisational structure". What are steps involved in designing the organisational structure. (RBI Grade B 2009 exam)


Organisations perform their functions to achieve set goals and objectives. Functions of government department’s are defined through their various acts. The structure, management and functions of organisations will differ due to the nature and type of the organisation as well as their respective goals and objectives.

A structure ensures the application of process, management and further creates a framework of order and command through which, the activities of the organisation can be planned, organised, directed and controlled.
Organisation structure (OS) is defined as "The logical arrangement of task and the network of relationships and roles among the various positions established to carry out the activities necessary to achieve the predetermined objectives of business". 

It is the pattern of relationships among various components or parts of the organisation which prescribes the relations among various activities and positions.

Internal Organisation structure constitutes the arteries and veins through which the blood of work flows in the body of Organisation. They are required for smooth functioning of day-to-day activities of organisation and increase their profitability.

Structures are designed as per the organisation's objectives and strategy. An organisation chart illustrates the organisational structure, it shows the way the chain of command works.

OS is arrangement of jobs & groups of jobs within an organisation.

Benefits of Good Organisation Structure (Important topic another question can be framed around it)
The structure of an organisation does not only affect the productivity and efficiency but also the morale and job satisfaction of the staff. According to Drucker, the correct design of the structure determines the organisational performance. Drucker says:
“Good organisation structure does not by itself produce good performance. But a poor organisation structure makes good performance impossible, no matter how good the individual managers may be. To improve organisation structure will therefore always improve performance”.
According to Child, the allocation of responsibilities, the grouping of functions, decision-making, coordination, control and reward, are all fundamental requirements for the continued operation of an organisation and the structure will affect how well these requirements are met.

The objectives of structures are to provide for:
The economic and efficient performance of the organisation;
The monitoring of activities;
Ensure accountability for areas of work performed;
The effective coordination of the various parts of the organisation;
Flexibility to respond to future demands and developments and to adapt to the ever changing external environment


Organisation structures can be broadly classified into the following forms:

Line Organisation Structure: Hierarchy derived from a scalar process. Organisation is quite simple in understanding and implementation. this does not offer scope for specialization. Authority flows downwards and responsibility upwards.


Line and Staff Organisation Structure: Staff personnel generally specialists in their fields advice line managers to perform their duties. Staff personnel have right to recommend, but have no authority.


Functional Organisation: Grouping of activities on the basis of functions required for the achievement of ultimate objectives.

Divisional Organisation Structure: Several fairly self-contained autonomous units were created. Each unit was headed by a manager and is directly accountable to the organisation.


Designing Organizational Structure
There is no best way to organize, the structure must take into account the current & possible future situations. Organizing doesn't imply extreme specialization which leads to work being tedious, uninteresting. For tasks to be specific doesn't mean it should be mechanical and limited. Jobs can be defined to be allow little or no personal leeway or giving widest discretion.

Organizing as a process requires several fundamentals be considered:

1) the structure must reflect objectives and plans of organisation because activities are derived from them.
2) it must reflect authority available to enterprise's management.
3) it must reflect its environment just like premises of plans. A good organisational structure can never remain static, an effective structure depends on situation.
4) grouping of activities and authority relationship must take into account people's limitations and customs. This is not to say structure should be designed around people/staff instead of goals.


Steps in designing structure
1. Establish the objectives of the organization

2. Formulating supporting objectives, policies and plans.

3. Identifying, analyzing, and classifying the activities necessary to accomplish these objectives.

4. Grouping these activities in light of the human and material resources available and the best way, under the circumstances, of using them. Groups could be based on function, area/geography or product or a matrix. Departmentalize the activities under groups. If it were not by departmentalization the limitation on no. of subordinates that can be directly managed would have restricted the size of organisations. Grouping activities and people into departments makes it possible to expand organisations infinitely, at least in theory.

5. Frame the key persons handling the top management positions. Delegating to the head of each group the authority necessary to perform the activities.

6. Define the way of communication, line of authority and control and responsibilities of designations,

7. Frame the organizational hierarchy keeping in mind whether decision-making need to be slow and centralized (Tall) or fast and decentralized (Flat)or a mix.

8. Follow up the performance and evaluate them often,

9. Make correction if necessary and update the structure.

The process can be shown by diagram as below:



Credit Information in India

Why India need more CICs & what's their problems?

Credit gives life to economic growth of a country. Credit information cos (CICs) keeps database of financial history of people/firms so that banks/FIs can make informed decision to give loans or credit.

Around 90% of our population has never borrowed from the formal financial system and hence does not have any credit history. Under the circumstances, they are quite likely to be denied credit by the lending institutions. CICs collects data from banks/FIs/ micro FIs themselves.

They came under heavy criticism in 2008 financial crises after CICs and Rating agencies failed to warn of poor asset quality and systemic risks in US. Recently spotlight shifted on CICs after they failed to warn on bank's deteriorating asset quality in India.

4 CICs in India—-Credit Information Bureau (India) Ltd (CIBIL), Experian India, Highmark and Equifax Credit Information Services Private Ltd.

CIBIL established in 2000, started business in 2004.


Why we need CICs?

1) Credit flows to  a sizeable number of individuals/small business owners who do not have a prior credit history, and who have an important role to play in growth of the country.
2) Credit is provided to SME (small and medium enterprises sector which employs large workforce) quicker and at affordable prices.
3) Banks can make informed decision to not only give credit cards, Car loan, Home loan but for commercial loans too. And ensure that these loans are safe. Good lending practices helps in having healthy assets, and minimum NPA (non preforming loans).
4) Alert bankers, supervisiors of risks building up in the system.

At the level of a regulator: provide important inputs for the banking supervisors in monitoring systemic risks. A further use at a regulatory level may be to analyze appropriate capital and provisioning strategies for banks and, in particular, to assess whether current capital and provisioning regulations match up to actual risks.


Issues with RBI.

a) Quality of Data: Data furnished by banks to CICs (credit informatio cos) is incomplete/ inaccurate, even Microfinance institutes furnish better quality data about borrowers. Quality checks by CICs now resulting in improving 'hit rate' (event of finding some financial history/ score). US has a hit rate of 85%, India's 75% not bad.


b) Alternate source of data: Sizable no. of Individuals/ Small business owners don't have a financial history, World bank studies suggested inclusion of non-financial payment data like mobile bills, electricity bills for lending decisions. Meaning if someone is paying electricity bills regularly then lenders may take a call that he'll pay his EMIs too. 

c) Customer Grievance Redressal Mechanism: Its a big issue. There have been numerous complaints about the CICs handing out incorrect reports to the consumers who have to then run from pillar to post to get these corrected.

d) to increase competition in the credit information area. FDI limit has also been increased for companies. This is to make these reports cheaper, affordable for all players.

Recent Regulatory / Supervisory Measures
Central Repository of Information on Large Credits(CRILC): Repository of large credit exposure of individuals and Cos having exposure (both fund and non-fund based) of more than Rs. 5 crore. RBI has suggested CICs to collect information of exposure of even less than 5 crore.




 This is a student's attempt to understand speech of Dr. KC Chakrabarty, DG, RBI.