Unit 7 Banking and Financial Institutions PYQ’s 7th Jan 2025

The correct answer is – Performs a wide range of promotional functions to support national objectives

 Key Points

• Performs a wide range of promotional functions to support national objectives
  • The Reserve Bank of India (RBI) undertakes various developmental and promotional functions to support national objectives and the broader economic environment.
  • It plays a critical role in the development of financial markets, including money, government securities, and forex markets.
  • The RBI promotes financial inclusion by facilitating the establishment of banking infrastructure in underbanked areas and promoting digital transactions.
  • It supports small and medium-sized enterprises (SMEs) by providing guidelines and schemes that assist in their growth and development.
  • The RBI also conducts research and provides critical data and policy inputs to the government for effective economic planning and policy formulation.

Additional Information

• Formulates, implements and monitors the monetary policy
  • The RBI is responsible for formulating and implementing monetary policy to maintain price stability and ensure adequate flow of credit to productive sectors.
  • This involves setting benchmark interest rates, managing liquidity in the economy, and controlling inflation.
• Prescribes broad parameters of banking operations
  • The RBI lays down broad guidelines for banking operations to ensure financial stability and consumer protection.
  • It regulates and supervises the banking sector, ensuring that banks adhere to prudent practices and maintain adequate capital.
• Issues, exchanges, and destroys currency notes
  • The RBI is the sole issuer of currency notes in India, except for one-rupee notes and coins issued by the Ministry of Finance.
  • It ensures the availability of clean and authentic currency to the public and manages the currency in circulation.
  • The RBI also withdraws and destroys currency notes that are no longer fit for circulation.

 The correct answer is A, B, C, D, E.

Key PointsLet’s analyze each factor:

• Regulations
  • Regulations are a key tool that SEBI uses to control and govern the securities market. They provide the framework within which securities must be issued, traded, and settled.
  • Reason for inclusion: Regulations are fundamental to the functioning of SEBI and are explicitly mentioned as part of its mandate.
• Rules
  • Rules are detailed directives and guidelines that stem from the regulations. They provide specific instructions and standards for compliance.
  • Reason for inclusion: Rules are an essential component of the regulatory framework that SEBI enforces.
• Guidelines
  • Guidelines are advisories issued by SEBI to ensure that market participants adhere to best practices. They often cover areas not explicitly detailed in regulations or rules.
  • Reason for inclusion: Guidelines help in the smooth functioning and compliance of the securities market.
• Scheme
  • Schemes are structured plans or programs initiated by SEBI to achieve specific regulatory or developmental objectives within the securities market.
  • Reason for inclusion: Schemes are part of SEBI’s broader strategy to enhance market efficiency and protect investors.
• Orders
  • Orders are legally binding decisions and instructions issued by SEBI to enforce compliance and take corrective actions against violations.
  • Reason for inclusion: Orders are critical enforcement tools that ensure adherence to SEBI’s regulations and rules.

Therefore, SEBI regulates and supervises the securities market through a combination of A: Regulations, B: Rules, C: Guidelines, D: Schemes, and E: Orders. This makes option 3: “A, B, C, D, E” the correct choice.

 The correct answer is – Workshops and Seminars

Key Points

• Workshops and Seminars
  • EXIM Bank organizes workshops and seminars as part of its value-added services to educate and support exporters.
  • These events provide information on international trade, export financing, and global market trends.
  • They serve as platforms for networking and knowledge sharing among exporters, industry experts, and policymakers.
  • Through these initiatives, EXIM Bank aims to enhance the competitiveness of Indian exporters in the global market.

Additional Information

• Export Facilitation
  • EXIM Bank offers various services to facilitate exports, such as providing export credit, insurance, and advisory services.
  • However, this is a core service rather than a value-added service.
• Export Product Development
  • This involves developing new products for export markets, often supported by R&D activities.
  • While EXIM Bank may support product development through financing, it is not classified as a value-added service.
• Export Marketing
  • Export marketing involves strategies to promote products in foreign markets.
  • EXIM Bank assists in this area through financial products and services, but it is not specifically a value-added service.

 The correct answer is A, C, D Only.

Key Points

Let’s analyze each feature:

• Negotiable Securities
  • Treasury Bills are indeed negotiable instruments, meaning they can be bought and sold in the secondary market before their maturity.
  • Reason for inclusion: This characteristic allows for liquidity and flexibility in trading, making it a key feature of Treasury Bills.
• Issued at par and are repaid at premium on maturity
  • Treasury Bills are not issued at par; instead, they are issued at a discount to their face value and redeemed at par on maturity.
  • Reason for exclusion: This statement is incorrect as it does not accurately describe the nature of Treasury Bills.
• High liquidity on account of short tenure
  • Due to their short maturity periods (typically 91 days, 182 days, or 364 days), Treasury Bills are highly liquid instruments.
  • Reason for inclusion: The short tenure ensures that investors can quickly convert them to cash without significant price risk.
• Assured Yield
  • Treasury Bills provide a guaranteed return since they are backed by the government, making the yield predictable.
  • Reason for inclusion: The risk-free nature of these securities ensures that investors receive the promised return upon maturity.
• High transaction cost
  • Treasury Bills generally have lower transaction costs compared to other financial instruments.
  • Reason for exclusion: This feature is not characteristic of Treasury Bills as they are known for their cost-effectiveness.

Therefore, the features that correctly describe Treasury Bills are A: Negotiable Securities, C: High liquidity on account of short tenure, and D: Assured Yield. This makes option 2: “A, C, D Only” the correct choice.

 The correct answer is – 0.12

Key Points

• Capital Adequacy Ratio (CAR)
  • The Capital Adequacy Ratio (CAR) is a measure of a bank’s capital, ensuring that the bank can absorb a reasonable amount of loss and complies with statutory capital requirements.
  • The Reserve Bank of India (RBI) has set the CAR for Indian Public Sector banks at 0.12 (12%). This requirement is aligned with international standards set by the Basel III guidelines.
  • CAR is calculated as the ratio of a bank’s capital to its risk-weighted assets.
  • It serves as a key indicator of a bank’s health and its ability to meet its obligations, protect depositors, and promote stability and efficiency of the financial system.

Additional Information

• Other Options:
  • 0.09 (9%)
    • This is below the minimum requirement set by the RBI and the Basel III norms.
  • 0.1 (10%)
    • This was a previous requirement but has been updated in line with international standards.
  • 0.11 (11%)
    • This figure also falls short of the current requirement by the RBI for public sector banks.
• Basel III Norms
  • Basel III is an international regulatory framework designed to improve the regulation, supervision, and risk management within the banking sector.The norms aim to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.
  • The implementation of Basel III requires banks to hold a minimum CAR of 12%, ensuring better risk management and stability.

The correct answer is ‘D, B, A, C, E’

Key Points

• Buy-Back of Securities by Listed Companies Regulations (D):
  • These regulations were introduced by SEBI in 1998 to provide a legal framework for companies to buy back their shares from the market, ensuring transparency and protecting investors’ interests.
  • The Buy-Back regulations help companies manage their capital structure effectively and return excess cash to shareholders.
• Intermediaries Regulations (B):
  • Enacted in 2008, these regulations govern the registration and functioning of various intermediaries in the securities market, such as brokers, merchant bankers, and registrars.
  • The objective is to ensure fair dealings and protect the interests of investors by maintaining high standards of integrity and professionalism among market intermediaries.
• ICDR Regulations (A):
  • The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, set the guidelines for companies to raise capital through public issues, rights issues, and preferential issues.
  • These regulations aim to ensure that companies provide accurate and adequate information to investors, facilitating informed investment decisions.
• Real Estate Investment Trusts (REITs) Regulations (C):
  • Introduced in 2014, these regulations provide a framework for the establishment and operation of REITs, which allow investors to pool their money to invest in income-generating real estate assets.
  • REITs regulations help in the development of the real estate sector and provide investors with an additional investment avenue.
• Listing Obligations and Disclosure Requirements (LODR) Regulations (E):
  • Enacted in 2015, the LODR Regulations consolidate and streamline the listing obligations and disclosure requirements for listed entities.
  • The aim is to enhance transparency, ensure timely and accurate disclosure of information, and protect investors’ interests by providing a comprehensive regulatory framework.

Additional Information

• SEBI: The Securities and Exchange Board of India (SEBI) is the regulatory body for securities and commodity markets in India under the jurisdiction of the Ministry of Finance, Government of India. It was established in 1988 and given statutory powers through the SEBI Act, 1992.
• Importance of SEBI Regulations: SEBI regulations are critical in ensuring the smooth functioning of the securities market, protecting investors’ interests, and promoting the development of the market. These regulations help maintain market integrity and foster investor confidence.