Banking & Finance — PPSC previous year questions

Government spending is an instrument of fiscal policy, not of monetary policy. The government decides it in the Budget. Monetary policy is framed by the Reserve Bank of India. Its quantitative tools are open market operations, the bank rate, the repo and reverse repo rates, and reserve requirements (CRR and SLR). Its qualitative tools include selective credit control and margin requirements.

India's foreign exchange reserves are made up of foreign currency assets, gold, Special Drawing Rights (SDRs) and the reserve position with the IMF. So all three listed items are part of the reserves; foreign currency assets are by far the largest part.

Basel III is a set of global banking rules. The Basel Committee on Banking Supervision issued them after the 2008 financial crisis. They raise the quality and quantity of bank capital. They add a capital conservation buffer, a leverage ratio and liquidity ratios (LCR and NSFR). All this improves the banking system's ability to absorb shocks. In India the RBI began the norms in April 2013. Full use was targeted for 2019.

All four are stated aims of public sector bank mergers: economies of scale, better access to capital, wider geographical coverage, and banks of global size. In the 2019-20 mega-merger, 10 PSBs were merged into 4. Examples: PNB + OBC + United Bank; Canara + Syndicate; Union + Andhra + Corporation; Indian + Allahabad. This cut the number of PSBs from 27 (in 2017) to 12.

NABARD (established 12 July 1982 on the recommendation of the Shivaraman Committee) is the apex development bank for agriculture and rural development. It coordinates the rural financing institutions (RRBs, cooperative banks) and provides refinance to them, but it is not a deposit-taking bank — it does not accept deposits from the general public. So only statements 1 and 2 are its functions.

RBI Retail Direct lets individual investors open a gilt account with the RBI and buy or sell government securities directly. The scheme started in 2021 and its mobile app was launched in 2024. RBI MANI is an app that identifies currency notes for the visually impaired, and RBIDATA is a data app.

Challenger banks are small, new, digital-first banks that use technology and apps to compete with big traditional banks and change how banking is done. Option (a) describes systemically important banks (too-big-to-fail), (c) describes large NBFCs, and (d) describes a bank clean-up, not a challenger bank.

Statements 2 and 3 are correct: microfinance gives small loans in repeated doses matched to what the borrower can absorb, and it grew from a charity-based to a thrift-based (savings) model and then to one built on trust and creditworthiness. It is not limited to credit (it also covers savings and micro-insurance), and India's self-help-group model was developed by NABARD, not copied from Bangladesh.

Cryptocurrency like Bitcoin can be bought on an exchange, received directly from another person in a private transaction, or earned by mining (using computers to verify transactions). All three are valid ways to get it.

EASE (Enhanced Access and Service Excellence) is the reforms agenda for public sector banks. The Department of Financial Services launched it in January 2018 with the Indian Banks' Association, after the bank recapitalisation package. It runs in annual editions, from EASE 1.0 onwards. It ranks PSBs on themes such as customer responsiveness, responsible banking, credit off-take, digital services and governance.