Why is the supervision of the Reserve Bank of India necessary for formal sources of loans? Statements: 1. To ensure banks lend exclusively to large industries. 2. To ensure banks maintain the required cash balance. 3. To set the interest rates for informal moneylenders. Which of the statements given above is/are correct?

The correct option is 2 only Explanation The Reserve Bank of India (RBI) acts as the central regulatory authority for the formal banking sector in India. Its supervision is mandated to ensure financial stability, the safety of depositors' funds, and the alignment of banking activities with national economic goals, such as financial inclusion. Statement-wise Analysis: - Statement 1 is Incorrect: One of the primary functions of the RBI is to monitor the liquidity position of banks. Banks are required to maintain a minimum cash balance out of the deposits they receive (Cash Reserve Ratio). The RBI supervises banks to ensure they actually maintain this required cash balance to meet potential withdrawal demands from depositors. - Statement 2 is Correct: The RBI ensures that banks do not lend exclusively to profit-making businesses, large industries, or traders. Through regulations like Priority Sector Lending (PSL), the RBI mandates that a portion of bank credit is directed towards small cultivators, small-scale industries, and small borrowers to promote equitable economic growth. - Statement 3 is Incorrect: The RBI regulates the formal sector of loans (commercial banks, cooperative banks, etc.). It does not have direct regulatory control over the interest rates charged by the informal sector, which includes moneylenders, traders, employers, relatives, and friends. Key Takeaway: The RBI supervises formal credit sources to ensure banks maintain necessary liquidity (cash balance) and provide credit to diverse sections of society, not just large industries. It does not regulate interest rates in the informal credit sector.

Why is the supervision of the Reserve… - NCERT Class 10 Economics MCQ

NCERT Class 10 Economics — Chapter 3: Money and Credit

mcqmedium

Why is the supervision of the Reserve Bank of India necessary for formal sources of loans? Statements:

To ensure banks lend exclusively to large industries.
To ensure banks maintain the required cash balance.
To set the interest rates for informal moneylenders.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Understanding Economic Development · Page 48

Options

A1, 2 and 3
B1 and 3 only
C1 only
D2 only

Did you get this right?

Solution

The correct option is

2 only

Explanation

The Reserve Bank of India (RBI) acts as the central regulatory authority for the formal banking sector in India. Its supervision is mandated to ensure financial stability, the safety of depositors' funds, and the alignment of banking activities with national economic goals, such as financial inclusion.

Statement-wise Analysis:

Statement 1 is Incorrect: One of the primary functions of the RBI is to monitor the liquidity position of banks. Banks are required to maintain a minimum cash balance out of the deposits they receive (Cash Reserve Ratio). The RBI supervises banks to ensure they actually maintain this required cash balance to meet potential withdrawal demands from depositors.
Statement 2 is Correct: The RBI ensures that banks do not lend exclusively to profit-making businesses, large industries, or traders. Through regulations like Priority Sector Lending (PSL), the RBI mandates that a portion of bank credit is directed towards small cultivators, small-scale industries, and small borrowers to promote equitable economic growth.
Statement 3 is Incorrect: The RBI regulates the formal sector of loans (commercial banks, cooperative banks, etc.). It does not have direct regulatory control over the interest rates charged by the informal sector, which includes moneylenders, traders, employers, relatives, and friends.

Key Takeaway:

The RBI supervises formal credit sources to ensure banks maintain necessary liquidity (cash balance) and provide credit to diverse sections of society, not just large industries. It does not regulate interest rates in the informal credit sector.

Your note

More from Chapter 3: Money and Credit

With reference to 'Demand Deposits', consider the following statements: 1. They are fixed deposits that cannot be withdrawn before maturity. 2. They share the essential features of money. 3. The facility of cheques against these deposits makes it possible to settle payments without the use of cash. Which of the statements given above is/are correct?

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Consider the following statements regarding the necessity of expanding formal sector credit: 1. Informal lenders charge interest rates similar to formal lenders. 2. Higher cost of borrowing means a larger part of earnings is used to repay the loan. 3. High-cost credit is crucial for the country's development. Which of the statements given above is/are correct?

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