Samacheer Kalvi Class 11 Commerce Solutions Chapter 10 Reserve Bank of India

Exercise

I. Choose the Correct Answer

 

Question 1. Which bank has the power to issue bank notes?
(a) Central bank
(b) Commercial bank
(c) Co-operative banks
(d) foreign banks
Answer: (a) Central bank
In simple words: Only the central bank of a country has the right to print and issue currency notes. This helps to keep the money system stable.

🎯 Exam Tip: Remember that "Central bank" is a general term; in India, this role is filled by the Reserve Bank of India (RBI).

 

Question 2. The Central bank of India is
(a) PNB
(b) SBI
(c) ICICI
(d) RBI
Answer: (d) RBI
In simple words: The Reserve Bank of India (RBI) is the main bank of our country, responsible for managing all other banks and the nation's money.

🎯 Exam Tip: Always associate RBI with India's central banking functions, as it is crucial for monetary policy.

 

Question 3. The Reserve Bank of India commenced its operations from April 1,
(a) 1936
(b) 1935
(c) 1934
(d) 1933
Answer: (b) 1935
In simple words: The Reserve Bank of India (RBI) started working on April 1, 1935, to manage banking in India.

🎯 Exam Tip: Knowing key dates like the establishment of RBI is important for history and general knowledge questions.

 

Question 4. Bankers are not only dealers of money but also leaders in
(a) Economic development
(b) Trade development
(c) Industry development
(d) Service development
Answer: (a) Economic development
In simple words: Bankers do more than just handle money; they also play a big part in helping a country's economy grow and improve.

🎯 Exam Tip: Banking is a critical sector that drives economic growth by providing funds for businesses and individuals.

 

Question 5. Which of the following is not a function of a central bank?
(a) Guiding and regulating the banking system of a country
(b) Deal with the general public
(c) Acts essentially as Government banker
(d) Maintains deposit accounts of all other banks
Answer: (b) Deal with the general public
In simple words: Central banks usually do not offer services like savings accounts or loans directly to individual people, unlike commercial banks.

🎯 Exam Tip: Understand the clear distinction between a central bank's role (regulating, managing currency) and a commercial bank's role (serving individual customers).

 

II. Very Short Answer Questions

 

Question 1. What are the services included in Service businesses?
Answer: Service businesses include various helpful activities. These are fields like education, medical care, hospitality (like hotels and restaurants), and banking. Banking services are especially important, acting as a central point for industry and trade within a country.
In simple words: Service businesses offer things like education, healthcare, hotels, and banking. Banking is a very important service that helps other businesses and trade grow.

🎯 Exam Tip: When listing examples, ensure they cover a broad range to show a complete understanding of the category.

 

Question 2. Write the meaning of 'Bank'.
Answer: A bank is a special kind of financial company. Its main jobs are to take money from people as deposits and then lend out money to others, which helps create credit in the economy. This process helps money move around and grow.
In simple words: A bank is a financial place that takes money deposits from people and also lends money, helping to create credit.

🎯 Exam Tip: Highlight the two main functions of a bank: accepting deposits and creating credit (by lending) for a comprehensive definition.

 

Question 3. Briefly explain about Central Bank.
Answer: Every country has a central bank, which the government owns. This top bank manages and controls the entire banking system in that country. Different countries call their central banks by different names; for example, in India, it is known as the Reserve Bank of India (RBI). Its main role is to keep the country's money system stable.
In simple words: A Central Bank is the main bank of a country, owned by the government. It controls all other banks and manages the country's money system, like the RBI in India.

🎯 Exam Tip: Emphasize the ownership (government), control over the banking system, and the example of RBI for a clear explanation.

 

III. Short Answer Questions

 

Question 1. Mention the importance of banking services.
Answer: Banking services are very important because they act as the core of industry and trade in a country. Banks provide the necessary money for businesses and industries to operate smoothly and grow. This support is vital for overall economic development and helps the country's economy function well.
In simple words: Banking services are important because they are at the heart of business and trade. They give money to industries so they can work and grow, which helps the country's economy.

🎯 Exam Tip: Connect banking services directly to industry, commerce, and economic development to show their significance.

 

Question 2. Explain the origin of RBI.
Answer: The idea for a central bank in India came from the Hilton-Young Commission in 1926. This group, which included famous economist J.M. Keynes, suggested creating such a bank. Following this, the RBI Act was passed in 1934, and the Reserve Bank of India (RBI) began its operations on April 1, 1935. After India gained independence, the government took over the RBI through the RBI Act of 1948, compensating the private owners. From January 1, 1949, the RBI started working as India's government-owned central bank. This history shows its evolution into a key national institution.
In simple words: The RBI started in 1935 based on a suggestion in 1926. After India became free, the government took full control of the RBI in 1949, making it the country's main bank.

🎯 Exam Tip: Include the key dates (1926 recommendation, 1934 Act, 1935 start, 1949 nationalization) and the Hilton-Young Commission for a complete answer.

 

Question 3. Who are the persons involved in RBI administration?
Answer: The Reserve Bank of India (RBI) is managed by a central board of directors. This board has 21 members who are chosen by the Government of India. The board is made up of:
1. One Governor and four Deputy Governors, who serve for a period of four years.
2. Ten Directors, chosen from different professional fields.
3. Two Government officials.
4. Four Directors, with one from each of the local boards. These individuals ensure the RBI operates effectively to maintain financial stability.
In simple words: The RBI is run by a 21-member board chosen by the government. This board includes one Governor, four Deputy Governors, ten directors from various fields, two government officials, and four directors from local boards.

🎯 Exam Tip: Listing the specific roles and number of members within the board is essential to describe the RBI's administrative structure accurately.

 

IV. Long Answer Questions

 

Question 1. Classify the various functions of Reserve Bank of India.
Answer: The main jobs of the Reserve Bank of India (RBI) can be organized into three main categories:

• Leadership and Supervisory Functions
• Traditional Functions
• Promotional Functions

(i) Leadership and Supervisory Functions:

• India's Representative in World Financial Institutions: The RBI represents India in international financial groups.
• Regulator and Supervisor of Indian Banking System: It makes sure all banks in India follow the rules and operate safely.
• Monetary Authority: The RBI controls the country's money supply and interest rates to keep prices stable.
• Closely Monitoring Economic Parameters: It regularly checks important economic signs to understand the country's financial health.
• Promptly Responding to New Challenges: The RBI quickly addresses new problems and changes in the economy.

(ii) Traditional Functions:

• Banker and Financial Advisor to the Government: It manages the government's money and gives financial advice.
• The monopoly of Note Issue: Only the RBI has the power to print and issue currency notes.
• Banker's Bank: It acts as the bank for other commercial banks.
• Controller of Credit and Liquidity: It manages how much money banks can lend and how much cash is available in the economy.
• Quantitative Methods of Credit Control: It uses tools like repo rates and CRR to control credit.
• Qualitative Credit Control Measures: It uses selective methods to guide credit to certain parts of the economy.
• Lender of the Last Resort: If a bank needs money urgently and cannot get it from anywhere else, the RBI lends to them.
• Clearing House Services: It helps banks settle transactions between themselves.
• Custodian of Foreign Exchange Reserves: It holds and manages the country's foreign currency.
• Maintenance of Foreign Exchange Rate: It works to keep the value of the Indian rupee stable against other currencies.
• Collection and Publication of Authentic Data: It gathers and shares important financial information.

(iii) Promotional Functions:

• Nurturing Banking Habits among the Public: It encourages people to use banking services more.
• Grievance Settlement Measures: It helps resolve complaints from bank customers.
• Agricultural Development: It supports banking services for the growth of the farming sector.
• Promotion of Small Scale Industries: It encourages financial support for small businesses.
• Facilitates Foreign Trade: It helps in smooth money transfers for international buying and selling.
• Supports Cooperative Sector: It provides banking support to cooperative societies.

In simple words: The RBI has three main roles: leading and overseeing banks, doing traditional banking tasks like issuing money and being the government's banker, and helping the economy grow by promoting banking habits and supporting key sectors.

🎯 Exam Tip: Structure your answer by clearly listing the three main categories and then providing distinct bullet points under each for maximum clarity and detail.

 

Question 2. Explain the organizational structure of RBI.
Answer: The main office of the Reserve Bank of India (RBI) is located in Mumbai. In 2017, this central office had 33 different departments. The RBI also has four regional offices in major cities: Mumbai, Delhi, Kolkata (formerly Calcutta), and Chennai. Each of these zonal offices works under local boards, with Deputy Governors in charge. Besides these, the RBI has 19 regional offices and 11 smaller sub-offices across the country. A Central Board of Directors governs the RBI. This board, which consists of 21 members, is appointed by the Government of India. The board includes: one Governor and four Deputy Governors, each serving for four years; ten Directors chosen from various sectors; two Government officials; and four Directors, with one from each local board. This structure helps the RBI manage its wide-ranging functions across India.
In simple words: The RBI's main office is in Mumbai and has many departments. It also has four zonal offices and many regional offices across India. A 21-member board, appointed by the government, manages the RBI, including a Governor, Deputy Governors, and directors from different fields.

🎯 Exam Tip: When describing organizational structure, mention both the geographical setup (head office, zonal, regional) and the governing body (board, governor, directors) for a complete picture.

11th Commerce Guide Reserve Bank of India Additional Important Questions and Answers

I. Choose the Correct Answer

 

Question 1. The head office of the RBI is situated in ...............
(a) Calcutta
(b) Mumbai
(c) Delhi
(d) Chennai
Answer: (b) Mumbai
In simple words: The main office of the Reserve Bank of India, where all big decisions are made, is located in the city of Mumbai.

🎯 Exam Tip: Knowing the headquarters of key financial institutions like the RBI is a common general knowledge fact.

 

Question 2. '............' was the first bank in India established in 1770.
(a) Audh Bank
(b) Bank of Calcutta
(c) Bank of Bombay
(d) Bank of Hindustan
Answer: (d) Bank of Hindustan
In simple words: The very first bank ever started in India was the Bank of Hindustan, which began in 1770.

🎯 Exam Tip: Historical facts like the first bank in India are important for understanding the evolution of the banking sector.

 

Question 3. When did India become a member of IBRD and IMF?
(a) 1946
(b) 1947
(c) 1945
(d) 1946
Answer: (c) 1945
In simple words: India joined the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) in the year 1945. These are important global financial organizations.

🎯 Exam Tip: Membership dates for international organizations highlight a country's engagement in global finance.

 

Question 4. ............ banks were nationalised in India in the year 1969.
(a) 15
(b) 14
(c) 20
(d) 41
Answer: (b) 14
In simple words: In 1969, the Indian government took control of 14 major private banks, a process called nationalization.

🎯 Exam Tip: The nationalization of banks in 1969 was a significant event in India's economic history, aimed at greater public control over credit distribution.

 

Question 5. Currency notes are printed at ...............
(a) Nasik
(b) Mumbai
(c) Delhi
(d) Kolkatta
Answer: (a) Nasik
In simple words: A special place in Nasik is one of the locations where new Indian currency notes are printed.

🎯 Exam Tip: Knowing the locations of currency printing presses is a fun and useful general knowledge fact.

 

Question 6. RBI is governed by................ central board of directors.
(a) 15
(b) 12
(c) 21
(d) 20
Answer: (c) 21
In simple words: The Reserve Bank of India is managed by a central board that has 21 members.

🎯 Exam Tip: Remember the total number of members on the RBI's central board for questions about its governance structure.

 

Question 7. Among global currencies, the Indian rupee is given the code ...............
(a) INR
(b) Rs.
(c) NRI
(d) IRN
Answer: (a) INR
In simple words: When talking about money around the world, the Indian Rupee is known by its official code, which is INR.

🎯 Exam Tip: Currency codes (like USD for US Dollar, EUR for Euro) are standardized for international financial transactions.

 

Question 8. RBI is also called as ............... Bank.
(a) World
(b) Central
(c) National
(d) Banker's
Answer: (d) Banker's
In simple words: The RBI is often called the "Banker's Bank" because it acts as the main bank for all other commercial banks in the country.

🎯 Exam Tip: Understanding the various nicknames or alternative descriptions of RBI helps grasp its multi-faceted role in the banking system.

 

Question 9. The rupee symbol was changed from Rs. 10 by the government of India on
(a) July 15, 2010
(b) May 21, 1998
(c) January 1, 1969
(d) December 15, 2010
Answer: (a) July 15, 2010
In simple words: The new symbol for the Indian Rupee, designed by D. Udaya Kumar, was officially adopted by the Indian government on July 15, 2010.

🎯 Exam Tip: The adoption of the unique Rupee symbol in 2010 was a significant cultural and financial milestone for India.

 

Question 10. The number of clearinghouses maintained by SBI is...
(a) 480
(b) 840
(c) 860
(d) 680
Answer: (b) 840
In simple words: The State Bank of India (SBI) runs 840 clearinghouses, which help banks process and settle large numbers of checks and other financial transactions efficiently.

🎯 Exam Tip: Clearinghouses are vital for the smooth functioning of the banking system by enabling inter-bank settlement of payments.

 

II. Very Short Answer Questions

 

Question 1. What is the Statutory Liquidity Ratio (SLR)?
Answer: The Statutory Liquidity Ratio (SLR) is a rule that banks must follow. It is the part of a bank's total deposits and other debts (called Time and Demand Liabilities) that must be kept as liquid assets, such as cash, gold, or government securities, within the bank itself. This ensures that banks always have enough funds to meet customer demands.
In simple words: SLR is the amount of money, gold, or government bonds that banks must keep with themselves, calculated as a percentage of their total deposits, to stay financially strong.

🎯 Exam Tip: Clearly state that SLR is maintained by the bank *itself* (unlike CRR, which is kept with RBI) and list the forms of liquid assets.

 

Question 2. Write a note on the first bank in India.
Answer: The very first bank to be set up in India was the Bank of Hindustan, which began operations in 1770. However, this bank did not last very long and eventually closed down in 1932. Its establishment marked the start of organized banking in the country, even if it was short-lived.
In simple words: The Bank of Hindustan was India's first bank, started in 1770. It closed in 1932.

🎯 Exam Tip: Focus on the name and establishment year of the first bank, and its eventual closure, for a concise answer.

 

Question 3. Expand NABARD.
Answer: NABARD stands for National Bank for Agriculture and Rural Development. It is a specialized bank in India that focuses on providing credit and development support to the agricultural sector and rural areas to boost their growth.
In simple words: NABARD means National Bank for Agriculture and Rural Development. It's a bank that helps farming and rural areas grow.

🎯 Exam Tip: Always write the full form of the acronym correctly and mention its primary area of focus.

 

Question 4. What are all 'Presidential Banks'?
Answer: The 'Presidential Banks' were a group of three important banks that existed in British India. These were the Bank of Bombay, the Bank of Madras, and the Bank of Bengal. They were very powerful and played a major role in the country's banking system during that time. These three banks later merged to form the Imperial Bank of India.
In simple words: The 'Presidential Banks' were three old banks: Bank of Bombay, Bank of Madras, and Bank of Bengal. They were important banks during British rule.

🎯 Exam Tip: List the names of all three Presidential Banks for a complete answer, and briefly mention their historical context.

 

Question 5. What do you mean by CRR?
Answer: CRR stands for Cash Reserve Ratio. It means a portion of the cash that scheduled commercial banks must keep as reserves with the Reserve Bank of India (RBI). This amount is calculated based on a percentage of the bank's total deposits and other short-term and long-term liabilities (known as Time and Demand Liabilities). The RBI uses CRR to control how much money banks can lend and to manage the money supply in the economy.
In simple words: CRR (Cash Reserve Ratio) is a part of a bank's cash that must be kept with the RBI, based on its deposits. It helps the RBI control how much money is in the market.

🎯 Exam Tip: Specify that CRR is held with the *RBI* (distinguishing it from SLR) and its purpose of controlling money supply.

 

Question 6. Explain SLR.
Answer: SLR, or Statutory Liquidity Ratio, is a requirement for banks to keep a certain portion of their total deposits and other liabilities (Time and Demand Liabilities) in the form of liquid assets within their own vaults. These liquid assets can include cash, gold, or approved government securities. The purpose of SLR is to ensure that banks have enough safe assets and maintain liquidity, meaning they can easily convert these assets into cash if needed.
In simple words: SLR is the portion of deposits that banks must keep with themselves as cash, gold, or government bonds. This helps banks stay liquid and stable.

🎯 Exam Tip: Remember that SLR assets are maintained by the *bank itself* and contribute to its liquidity and financial strength.

 

Question 7. How did the remonetization carried out in India in the year 2016?
Answer: The remonetization process in India in 2016 involved introducing new currency notes to replace the old ones that were taken out of circulation. Specifically, the government issued brand new Rs. 2000 and Rs. 500 currency notes. This step was part of a larger effort to curb black money and counterfeit currency.
In simple words: In 2016, India brought back new money by printing new Rs. 2000 and Rs. 500 notes to replace the old ones.

🎯 Exam Tip: Mentioning the specific denominations of the new currency notes (Rs. 2000 and Rs. 500) is key to a precise answer.

 

Question 8. What do you mean by Repo rate?
Answer: The Repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks. When banks need funds, they can sell government securities to the RBI with an agreement to buy them back later at a fixed price. This repurchase rate is the Repo rate, and it is a key tool for the RBI to control the money supply and liquidity in the economy.
In simple words: Repo rate is the interest rate at which the RBI gives loans to other banks. Banks sell government bonds to RBI and agree to buy them back later.

🎯 Exam Tip: Remember that "Repo" stands for "repurchase option" and involves the sale and repurchase of government securities between RBI and commercial banks.

 

Question 9. What do you mean by reverse repo rate?
Answer: The Reverse Repo rate is the interest rate at which the Reserve Bank of India (RBI) borrows money from commercial banks. This happens when banks have extra funds and want to earn interest. They lend this money to the RBI by buying government securities from it, with an agreement to sell them back later. This is the opposite of the Repo rate and is used by the RBI to absorb excess money from the banking system.
In simple words: Reverse Repo rate is the interest rate at which the RBI borrows money from other banks. Banks lend their extra money to RBI and buy government bonds, agreeing to sell them back later.

🎯 Exam Tip: The Reverse Repo rate is essentially the rate at which banks *deposit* money with the RBI, helping to manage liquidity in the market.

 

III. Short Answer Questions:

 

Question 1. Define Bank.
Answer: According to the Banking Regulation Act of 1949, a "Bank" is an institution that takes money deposits from the public. These deposits can be lent out or invested. The money can be asked back by the public when needed, either on demand or through checks, drafts, or other payment orders. This legal definition highlights the core functions of a bank in managing public funds.
In simple words: A bank takes money deposits from people, which it can lend or invest. People can take their money out when they need it using checks or other ways.

🎯 Exam Tip: When defining terms, especially legal ones, citing the relevant act (like Banking Regulation Act, 1949) adds authority and completeness to your answer.

 

Question 2. Define Central Bank.
Answer: As per the Bank of International Settlement (BIS), a Central Bank is the main bank in any country entrusted with the job of managing the amount of currency (money) and credit (loans) available in that country. Its key responsibility is to ensure financial stability and control the nation's monetary policy.
In simple words: A Central Bank is a country's main bank, which controls how much money and credit is in the economy.

🎯 Exam Tip: Emphasize the Central Bank's role in regulating currency and credit volume, as this is its primary function.

 

Question 3. Write a note on Demonetisation.
Answer: Demonetisation is a process where the government removes the legal tender status of certain currency notes. In India, the government carried out demonetisation on November 8, 2016, based on the recommendation of the RBI. The main goals of this action were:

• To crack down on black money (undisclosed wealth).
• To remove fake currency notes from circulation.
• To make more businesses use digital payments instead of cash.
• To weaken the financial support for terrorism and Naxalism.

This move significantly impacted the Indian economy and led to a shift towards digital transactions.
In simple words: Demonetisation happened in India on November 8, 2016, when the government canceled certain currency notes to fight black money, fake notes, promote digital payments, and stop funding for illegal activities.

🎯 Exam Tip: Mentioning the date and the four key objectives of demonetisation is crucial for a complete answer.

 

IV. Long Answer Questions

 

Question 1. Explain the historical development of banking in India.
Answer: The history of banking in India began in the late 18th century and has evolved significantly over time:

• The first bank in India, the Bank of Hindustan, was established in 1770 but eventually closed in 1932.
• The General Bank of India was set up in 1786 but also went out of business in 1791.
• The Bank of Calcutta, India's first joint-stock bank, was established in 1806 and later renamed the Bank of Bengal in 1809.
• Two other important banks, the Bank of Bombay and the Bank of Madras, were established in 1840 and 1843, respectively. These three (Bank of Bengal, Bank of Bombay, Bank of Madras) were collectively known as the "Presidential Banks."
• In 1881, the 'Audh Bank' was started, and it later became the Punjab National Bank in 1894, which is still a major bank today.
• The three Presidential Banks merged on January 27, 1921, to form the Imperial Bank of India.
• Initially, the Imperial Bank mainly served cities, leaving rural areas without proper banking facilities.
• After India gained independence, an Act was passed in Parliament to take over the Imperial Bank of India. This led to the formation of the State Bank of India on July 1, 1995 (note: should be 1955). The State Bank of India became a government-owned bank and expanded its services to cover rural areas as well.

This journey reflects India's transition from early private banking to a more structured and public-oriented banking system.
In simple words: Banking in India started with the Bank of Hindustan in 1770. Later, three big "Presidential Banks" were formed, which merged to create the Imperial Bank of India. After independence, this became the State Bank of India, making banking reach more people across the country.

🎯 Exam Tip: Present the development chronologically, mentioning key banks and mergers, especially the formation of Presidential Banks and their transformation into SBI.

 

Question 2. Explain the credit-control methods
Answer: The Reserve Bank of India (RBI) uses various methods to control the amount of credit (loans) given out in the Indian economy. These methods are divided into two main types: Quantitative Methods and Qualitative Methods.

a) Quantitative Methods of Credit Control:
These methods influence the total volume of credit available in the economy. They are general tools that affect all banks equally. If the RBI increases these measures, it generally reduces the amount of money circulating in India, and vice versa. Some key quantitative methods are:

i. Bank Rate Policy:
The Bank rate is the interest rate at which the RBI lends money to commercial banks by re-discounting the bills of exchange they hold. By changing this rate, the RBI can make borrowing cheaper or more expensive for banks, which then affects the interest rates banks charge their customers. This influences the overall credit flow in the economy.

ii. Cash Reserve Ratio (CRR):
The Cash Reserve Ratio (CRR) is a percentage of a bank's total deposits that banks must keep as cash reserves with the RBI. When the RBI increases the CRR, banks have less money to lend, which reduces the total credit in the economy. A decrease in CRR has the opposite effect. This is a powerful tool for controlling liquidity.

 

Question 2. Explain the credit-control methods
Answer: The Reserve Bank of India (RBI) uses different methods to control the amount of money available for lending in the economy. These methods are generally divided into two main categories:

a) Quantitative Methods of Credit Control: These methods influence the overall volume of credit across the entire Indian economy. Increasing these measures usually reduces the money in circulation, and decreasing them increases it.
    i. Bank Rate Policy: This is the interest rate at which the RBI provides money to commercial banks by re-discounting their bills of exchange.
    ii. Cash Reserve Ratio (CRR): This is the part of a bank's total deposits that scheduled banks must keep as cash with the RBI.
    iii. Statutory Liquidity Ratio (SLR): This is the proportion of liquid assets, like cash, gold, or approved securities, that banks must hold themselves. This ensures banks always have enough reserves to meet sudden demands.
    iv. Open Market Operations: The RBI directly buys or sells government securities and bills in the money market. This is a powerful tool to either inject or withdraw money from the banking system.

b) Qualitative Credit Control Measures: These methods are designed to control the flow of money to specific sectors or areas of the economy.
    i. Rationing of Credit: The RBI sets limits on how much banks can lend to certain industries or for particular purposes. This also helps to extend banking services to more people and unbanked regions.
    ii. Moral Suasion: Here, the RBI uses its authority to persuade banks to follow its guidelines on lending. It can encourage banks to lend more freely or be more cautious during specific economic times.
In simple words: The RBI has different ways to manage how much money is available for people and businesses to borrow. Some methods change the total amount of money, like adjusting how much banks must keep or buying/selling government papers. Other methods focus on specific types of loans or industries, or just ask banks to be careful with their lending.

🎯 Exam Tip: Remember to clearly distinguish between quantitative (overall credit volume) and qualitative (specific sector targeting) methods when explaining credit control, as both are crucial for economic stability.