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Q17 (IAS/2013) Economy › Money, Banking & Inflation › Banking structure Answer Verified

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.

Result
Your answer: —  Â·  Correct: D
Explanation

The Reserve Bank of India (RBI) exercises comprehensive regulatory and supervisory authority over commercial banks under the Banking Regulation Act, 1949, and the RBI Act, 1934. Firstly, it regulates the liquidity of assets by mandating statutory reserve requirements such as the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) [5]. Secondly, banks must obtain a license from the RBI for opening new branches, closing existing ones, or changing locations, thereby regulating branch expansion [1]. Thirdly, the RBI has the power to regulate and approve the merger and amalgamation of banking companies to ensure financial stability [3]. Finally, the RBI is empowered to apply for the winding-up or liquidation of a banking company if it is unable to meet its commitments or if its continuation is prejudicial to depositors' interests [5]. Thus, all four functions are within the RBI's regulatory ambit.

Sources

  1. [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Management of Foreign Exchange Reserves > p. 69
  2. [5] https://www.rbi.org.in/upload/publications/pdfs/10115.pdf
  3. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Commercial Banks > p. 66
  4. [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > COMMERCIAL BANKS > p. 174
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