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Interview Questions on RBI Role in Banking Industry

  1. When did RBI come in to existence?
    Ans: RBI was constituted under RBI Act 1934 and it started functioning from 1st April 1935.

  2. What are its main functions?
    Ans: These can be classified into two: Control functions and Agency functions.

  3. Can you give examples?
    Ans: Yes, banks supervision, monetary control, exchange control and development of financial system etc., are control functions. Issue of notes, being banker to Govt. are agency functions.

  4. Who is C.E.O. of RBI?
    Ans: Governer is the C.E.O. of RBI, appointed by GOI.

  5. How many Dy. Govenors will be there?
    Ans: There will be four Dy. Governors.

  6. How does RBI exercise control over banks?
    Ans: Issues licences to new banks, prescribes minimum capital, cash reserves etc., conducts periodical inspections, appoints C.E.O.s for private banks.

  7. What do you understand by monetory control?
    Ans: Controlling of money supply, flow of bank credit into market and influencing the cost of credit.

  8. What happens through these controls?
    Ans: By these steps overall money supply into or out of the economy can be managed.

  9. Please explain how inflation / deflation is controlled by RBI. What is the mechanism?
    Ans: The mechanism is by using one or more tools like CRR / SLR / REPO / Reverse REPO / bank rate etc.

  10. Please explain in detail about CRR?
    Ans: Cash Reserve Ratio (CRR) is a percentage Of deposits, mobilised by banks to be maintained with RBI. This is to be maintained statutorily. Periodically RBI would be varying the rate of CRR.

  11. What will be the effect if CRR is increased?
    Ans: When CRR is increased, say by 25 basis points (BPS) then more money is to be deposited by banks with RBI. This means money supply is reduced.

  12. What will be its effect on economy?
    Ans: Increased CRR may reduce inflation, because money supply is reduced. Then bank's credit (loanable funds) may become costly; meaning that, banks may charge increased rates of interest.

  13. Will increase of CRR automatically control inflation?
    Ans: May not always sir, it is only one of the many steps to be initiated and other contributing, factors also are there.

  14. What is the effect of reducing CRR?
    Ans: It is exactly the reverse. More money with the banks, credit may become cheaper.

  15. Then you said SLR. What is this?
    Ans: It is Statutory Liquidity Ratio. Again banks will maintain certain specified percentage of deposits mobilised by them, in approved securities.

  16. Should it be in the form of securities only?
    Ans: No, part of it can be in the form of cash on hand, (excluding CRR), current account balances with other PSBs and Gold also.

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