RBI regulation of commercial banks — UPSC Prelims PYQ 2013

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.

1. 1 and 4 only
2. 2, 3 and 4 only
3. 1, 2 and 3 only
4. 1, 2, 3 and 4

Explanation

All options are correct

• Liquidity of assets: The RBI sets the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), which are aimed at ensuring the liquidity and stability of commercial banks.
• Branch expansion: The RBI regulates the expansion of commercial bank branches by approving applications for new branches, especially in areas where banks are not adequately represented.
• Merger of banks: The RBI monitors and oversees the merger and acquisition of banks to ensure they are in line with financial stability goals and other regulations.
• Winding-up of banks: The RBI has the authority to take action on the closure or winding-up of a bank if it is deemed insolvent or fails to meet regulatory standards.

Answer: (d) 1, 2, 3 and 4; Difficulty Level: Easy