UPSC Prelims 2013 · GS Paper I
Question 42: Economy and Social Development
The Reserve Bank of India regulates the commercial banks in matters of
- 1.liquidity of assets
- 2.branch expansion
- 3.merger of banks
- 4.winding-up of banks
Select the correct answer using the codes given below.
AnswerUPSC’s answer is (d).
The RBI is the banking regulator under the Banking Regulation Act, 1949. It controls banks' liquidity through the cash reserve and statutory liquidity requirements. It licenses new branches, and its approval is needed for mergers and amalgamations of banks. It can also apply to the High Court for the winding up of a bank. So all four matters are within its regulation.
- 1. RBI sets cash reserve and liquidity requirements.
- 2. Banks need an RBI licence to open branches.
- 3. Mergers of banks need RBI sanction.
- 4. RBI can apply to the court for winding up of a bank.
How you could have got this
- If you were sure statement 1 is correct, (b) goes: it leaves 1 out.
What you needed to know: RBI sets cash reserve and liquidity requirements.
- Then, if you were sure statement 2 is correct, (a) goes: it leaves 2 out.
What you needed to know: Banks need an RBI licence to open branches.
- Then, if you were sure statement 4 is correct, (c) goes: it leaves 4 out.
What you needed to know: RBI can apply to the court for winding up of a bank.
Only (d) is left. You didn’t need statement 3.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Wrong. It also regulates branch expansion and mergers.
- (b) Wrong. It also regulates liquidity of assets.
- (c) Wrong. It also has a role in winding up of banks.
- (d) Correct. Liquidity, branch expansion, mergers and winding up are all regulated by the RBI.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2013, General Studies Paper I, Series A. The paper on upsc.gov.in.