Central Banking-TYBBI-Sem VI(75:25)

QP Code-280901
For any query contact:
Asst. Prof. Shraddha Shukla (Shailendra Degree College): 9967127291/9664819663
Note
a. Below solution is only guideline. If the student’s content is relevant other than the guidelines,
it should be considered and marks should be allotted accordingly.
b. Avoid giving marks in fractions.

Q.1.a.Meaning-Central bank is “an institution charged with the responsibility of managing the expansion
and contraction of the volume of money in the interest of the general public welfare”.
Need of central bank- 1.Direction and regulation, 2.Issue currency notes, 3.Foreign exchange reserve,
4.Banker to government, 5.Banker’s Bank, 6. Control of credit.

b. Role of RBI-1.price stability, 2. Promoting growth, 3. Adequate liquidity, 4. Maintaining currency value,
5. Strengthen prudential regulations(capital adequacy, income recognition, asset classification), 6.
Regulating forex market,7. Legislative initiatives, 8. Setting up financial institutions(ICICI Ltd. , IDBI,
SIDBI, EXIM Bank)
OR
Q.1.c.Conflict between fiscal and monetary policy
Inlation and equity, economic development, Liberalization etc.

d. Factors affecting autonomy of RBI

1.Objectives of Government, 2.Budgetary operations, 3.Top level appointments in RBI, 4.Ownership of
banks,5. Twin role of RBI, 6.Public debt and credit control.

Q.2.a.Various departments of RBI(Any 7 departments)

1.Issue department, 2.Banking department, 3.Exchange control department, 4.Department of banking
operations and development, 5. Industrial finance department, 6. Research and development
department, 7. Legal department,8. Department of finance companies, 9. Department of accounts,
10.Departments of administration, 11. Inspection department, 12. Secretarial department

b. Recommendations of Narasimhan committee

(Students can write recommendations of 1991 or 1998)
OR
Q.2.c. Definition-M & A is the area of corporate finances, management and strategy dealing with
purchasing and/ or joining with other companies.
Impact of M & A-
1. Restricts competition
2. Problems relating to Employees- employees loosing job, transfer.
3. M & A requires amendments in various legislation
4. Affects organisation culture
5. Quest for size
6. Poor credit flow to small business segments
7. Reluctant attitude of community based business for merging
d. Nabard- Introduction, Functions-apex body in rural sector, authority to supervise and coordinate the
functioning of cooperative sector, provides short term credit to State co-op banks and medium
term/long term credit to RRBs and State co-op banks, maintains research and development fund.
Q.3.a.Instruments of monetary policy- bank rate, C.R.R, S.L.R, Repo, Open market operations.

b. Channels of transmission mechanism of monetary policy-interest rate channel, exchange rate

channel, credit availability channel, asset price channel, balance sheet channel.
OR
Q.3.c.Meaning of Credit-Credit means power which one person has to induce another to put economic
goods at his disposal for a time on promise or future payment. Thus, credit attribute or power of the
borrower.
Merits-capital formation, increase consumption, medium of exchange, flexible monetary system,
increase output and employment, development of enterprise, easy payment.
Demerits-cash deposit, Ratio of reserve to deposits, Desire of people to hold cash, business conditions,
credit control

d.Credit creation process-deposits are lent out to businessman-borrowers do not withdraw whole
amount-banks keeps small portion of cash reserves against these deposit-bank uses this reserves money
to create credit.

Q.4.a.Role of SEBI and IRDA-introduction and functions

Functions of SEBI-Protective functions, Developmental Functions, regulatory functions, Protective
functions etc.

Functions of IRDA-Issues registration certificate to insurance companies, protects interest of policy

holders, provides license to intermediaries, regulates and supervises premium rates etc.

b.Capital market reforms-Market pricing of issues, Creation of the regulatory bodies, Open Electronic
Limit Order Book Market, Depository services, Derivatives Trading, Capital from Abroad.
OR
Q.4.c.Reasons of financial instability-weak fundamentals, panic in financial system, weak supervision and
regulation, lack of transparency, mismatches of Assets and Liabilities, Exchange rate volatility,
Inadequate payment system, debt and financial fragility.

d.BASEL Norms
(Students can write Basel I or Basel II)
Tier I and Tier II capital framework, Prudential Norms

Q.5.a.Exchange rate mechanism-Fixed rate system, Flexible rate system, semi-fixed rate system

b.Banking Ombudsman-senior official appointed by RBI to redress customer complaints. Types of

complaint.

c.FEMA- year 1999, Gives powers to central GOVT. to impose the restrictions on deals in foreign
exchange.

d.Finance commission- formed in 22nd nov, 1951, Acts as an instrument to divide proceeds of divisible
taxes between the states and the union govt, Commission is set up every five years by the president,
Functions of commission.

e.NPAs-Classification of NPAs, Measures to tackle the problem of NPAs.