Permit new private /foreign banks. What have we learned so far? But if Rajan changes margin requirements, then SBI and all other banks must obey it. People deposited total this much money in SBI (net demand & TIME liabilities NDTL), CRR (4%) [SBI has to keep this much cash aside for reserve], SLR (23%) [SBI has to invest this much money in RBI approved securities]. But if you’re still doubtful over whether #3 is right or wrong, then better skip. When RBI varies Reserve Ratios to fight inflation or deflation , banks change their Interest Rates to keep their profit margin stagnant. reserve ratio, bank rate, margin requirements, open market operations, margin requirements, regulation of consumer credit, cash reserve ratio, bank rate, open market operation. But bank cannot use SLR-reserved securities for this. Thank you so much Mrunal.org. By the way, who are the clients of RBI?= Central and state governments, Banks and non-banking financial institutions (NBFI). Thus, Rajan can control money supply by changing downpayment and installment (EMI) rules. What is the matter exactly? He has no motivation to expand business. This did not help much. so they reduce fees to attract new clients and retain existing clients.). In one of the reputed book on Banking and finance, author Narayan Nadar claimed taxation can affect money supply. Meaning #1 is also correct eliminate choices that donot have #1. Imagine you’re a money lender. policy to stop the fall in price levels, but without causing rise in the price levels (inflation). Non-Monetized economy: in rural areas, many transactions are still of barter nature. And most importantly, because Rajan uses Multi-indicator approach, he focuses on WPI (minus food and fuel). I appreciate your each video lecture also. Q9. Thanks a lot sir with the core of my heart, This guy is really good. Many of them circulate the black money of cops and politicians, and charge 36% interest rate on loans. For example, If a bank doesn’t maintain CRR, SLR as per the prescribed limit. Commercial banks have large deposits. Moral suasion as a tool of monetary policy: meaning, examples and limitations, Direct action as a tool of monetary policy: powers conferred to RBI under the RBI Act, banking regulation act, prevention of money laundering act (PMLA), foreign exchange Management act 1999 (FEMA) and payment and settlement system act 2007. Monsoon uncertainty, cyclone, flood, draughts and their effect on food production. She gives her stash of government securities to Rajan. So what are the factors responsibiel for this incompl, What are the factors inhibiting the growth of bank deposits in India? GST Compensation: Centre to Borrow on Behalf of States Why in News Recently, the Centre has decided to borrow an estimated revenue shortfall of Rs. Ans: d) Answer Explanation: Central Bank is following a tight money policy. (and thereby fight both inflation and deflation). ), Direct in nature. Now you must lend it @50% interest rate. 196 : Prelim-2021 Your email address will not be published. [Topper’s Interview] Saumya Sharma (Rank-9/UPSC-2017) First Attempt, Law Optional, NLU-Delhi alumnus, fall in the prices (and fall IN employment.). 278 : Mains-2021, © Copyright 2009-2019 Mrunal Patel, Gujarat, India | All Rights Reserved, [BES171] Monetary Policy: Qualitative Tools, Priority Sector Lending, Credit Authorization Scheme, Selective Credit Control, Limitations & Mains Answer Writing, “[BES171] Monetary Policy: Qualitative Tools, Priority Sector Lending, Credit Authorization Scheme, Selective Credit Control, Limitations & Mains Answer Writing”. You can see that UPSC is not going into microscopic details of RBI's Operational/technical guidelines. In 2013, UPSC walla asked a very chillar question from this topic. To counter the effect of deflation, which of the following steps should RBI initiate? RBI’s main job is to control Money supply in this game, and thereby fight inflation and deflation. As money supply decreases in the economy, i.e. Prices of goods and services increasing every day. Sir , Representing the Civil Services candidates, at this point, Multiple Choice Questions have been fostered for the UPSC IAS Prelims Exam on the fundamentals of Ramesh Singh’s Indian Economy book, which is the well-known book offered for UPSC IAS Exam. Purchase of government securities from public by central bank, Deposit of currency in commercial banks by the public. It says something like this “give me Rs.100, I’ll give you 8% interest rate for next ten years and after that I’ll repay the principle of Rs.100.” This is how government borrows from others. Case #1: 100 EMIs worth 1000 each = 1,00,000. SBI will only change its base rate, when she feels necessary for its own profit / loss compared to its competitors. Rajan can make rule “banks cannot accept EMI less than 5000 on car loan.” Observe: Result= less demand=>prices reduced. Thus the only thing Rajan has to decide under monetary policy= Repo rate. Next article is about RBI appointed Urjit Patel Committee on Monetary policy framework. In this session, we’ll see the common error in writing this answer, as well the the framework for the model answer, including its introduction, body and conclusion. Rajan will try to influence those bankers via- direct meetings, conference, giving media statements, giving speeches @public seminars, university convocations etc. 77 : IFS(M)-2020 Mrunal Patel is nowadays very popular among civil service aspirants in India. [Topper’s Interview] CAPF-2012/AIR-258: Bhagirath Choudhary, B.Pharm, First Attempt, Rajasthan, [AnswerKey] UPSC Prelims-2020: Environment, Biodiversity, National Parks MCQs Solved with Explanation for All Sets & Strategy for 2021. Reverse repo= when Rajan himself borrows from clients, then he has to pay this much interest rate to clients. Borrowing by government from the central bank. (and under MSF window, Rajan will demand 1% higher than Repo as one type of ‘punishment’ for pledging SLR securities.). Budget 2017 provisions for agriculture loans and its distribution to targeted beneficiaries via Core banking solution (CBS) in the cooperative banks. (e.g. Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at a certain level or within a range. I’ve used, Collateral: nothing. Ultimately shopkeeper will bring down the prices to attract people into buying more things. and in worst case even cancels their banking license. Inflation = price rise = bad for economy, you know that by common sense. They default on loans, Branch manager cannot recover money (because defaulter will goto civil court then taarikh pe taarikh.) Other banks retain their deposits with RBI. Situation: Economy has inflationary trend. What’ll be the consequences (if repo rate is hiked / increased)? let me paste the table again. What is dear money policy or contractionary monetary policy? contraction in money supply, it is also known as contractionary monetary policy. [FAQ] How NOT to WASTE 2 HRS DAILY in THEHINDU NEWSPAPERs & its Youtube Summary Videos? Despite a rate cut of 175 basis points by RBI during January 2015 to December 2016, the banks have passed on barely 71 basis points cut in their average lending rates. Why is deflation bad for economy? Monetary Policies, Indian Economy, Civil Services Exam UPSC Notes | EduRev is made by best teachers of UPSC. In developing countries, Monetary fails to bring quick results because. So, if prices keep falling and falling (say of Nano car), then car marker will suffer losses. Fiscal deficit, illogical schemes. Superb explanation. They push their luck in negative marking to overcome an ‘imaginary’ cutoff and thus dig up their own grave. You should either change your study method or change the game- try for some. 238 : CAPF-2021 Whenever you face such 3 statement MCQ or 4 statement MCQ, Always use “elimination” method. During deflation, RBI will do the reverse. Because the facility decision I guess lies with RBI whether to sign a Reverse Repurchase agreement or not. Does Mohan just callup Rajan and demand 1 lakh crores? 56 : CDS 2021-I Your email address will not be published. [FAQ] How NOT to WASTE 2 HRS DAILY in THEHINDU NEWSPAPERs & its Youtube Summary Videos? I get to understand the economy for the first time since I started my preparation…. UPSC Prelims 2019 Economics Answer Key with Explanation - UPSC Insight. 38 of 1998,1999 and CBN Act of 2007. (short term loan). Central bank is following a tight money policy. Hence money supply increased. That’s why Urjit Patel recommends him to target CPI. “I, Arundhati Bhattacharya, agree to buy same securities from Rajan, at 108 crores after 14 days.”, Notice that she has agreed to “re-purchase” same securities from Rajan. Plagued by problems and losses in nationalized banks, Government of India formed this Committee. Indirect in nature. Then RBI can impose penalty interest on such notorious bank. With this, I finish the monetary policy lecture series. it’s value is linked with Repo, hence cannot be increased/decreased independently. Deregulate interest rates. A specific CRR is provided to each commercial bank in India by the RBI. But let us suppose the policy rate is sufficiently high and the bank considers it safe to put some money under Reverse Repo with RBI, can it put any amount that it wants, or can it “invest” in RBI, even for a short time? Even existing employees discharged. IF prices are lowered without causing unemployment, we call it: Which of the following contains correct set of quantitative instruments of monetary policy? Section 12 Sub-sections (1) to (5), CBN Act of 2007 (Ammended) Please it’s a humble request. Following an expansionary monetary policy will lead to the money supply in an economy. Sometimes police raids the den, and clients run away with cash and register. Download MPC notes PDF here. Maximum 0.75% of NTDL. If one want to understand economics it will help him the most. Sir, u are excellent in making simple examples and in clearing the fundamentals of the concepts. So far, we learned that RBI has two sets of tools/instruments under monetary policy: How can Rajan fight inflation with this tool? He is teaching an Economy for civil service aspirants at an online education platform. buying two newspapers, getting his shirts ironed, drinking tea @4PM in office and so on. (we saw how Alok Nath keeps giving money to SBI, so they are not entirely dependent on Rajan.). Result? during inflation, he should increase margin requirement, so Mallya can borrow less=> less job=>less income=>less demand=>prices reduced. Both CRR and SLR are counted on this figure. RBI should use dear money policy to combat it. 50:50. This also controls money supply. Please clarify. 37 of 1998,No. Obviously, you should lend it @1% interest rate. So option (a) and (b) are out. Central bank purchases government securities=OMO (Open market operation), where money shifts hands from RBI to people. WHY? (because 50% of 2 cores = 1 crore.). 4 of 1997,No. RBI invited license in 2001= Yes Bank and Kotak Mahindra got licenses. Monetary policy is an important instrument for achieving price stability k brings a proper adjustment between the demand for and supply of money. Monetary Policy Committee (MPC) is a committee constituted by the Reserve Bank of India for fixing the benchmark policy interest rate. Is it a good thing or is there any other way of interpreting this? Youtube Link: https://youtu.be/y_Q_Jeos2xc 278 : Mains-2021, © Copyright 2009-2019 Mrunal Patel, Gujarat, India | All Rights Reserved, [Banking] Monetary Policy: Quantitative & Qualitative Tools, applications & limitations MSF, LAF, Repo, OMO, CRR, SLR, Revisited before upcoming Urjit Article, “[Banking] Monetary Policy: Quantitative & Qualitative Tools, applications & limitations MSF, LAF, Repo, OMO, CRR, SLR, Revisited before upcoming Urjit Article”. Ultimate judge= UPSC’s official answer key uploaded on their site. We learned that Rajan doesn’t use Bank rate much, to control money supply. For UPSC Civil Services Mains Optionals, the below-mentioned books can help. E.g. That way it becomes harder (more expensive) for banks to borrow from RBI.=> SBI increases its loan rates (to keep the profit margin same). SBI raises its loan interest rate (to keep profit margin same), Lending by commercial banks to industries and trade, Purchase and sale of government securities by the RBI, Because it’s a definition based question. It means customer must bring Rs.30,000 from his pocket and bank can only give him maximum 70000 as loan. This question is Test Series A, Question #75 and its official answer is “D” = meaning all three statements are correct. But if you skip because you’re completely unaware of this topic= non-bailable offense. Ultimately SARFAESI Act in 2002. groups. Q. RBI Acts as banker’s bank. You look at the question again, and try to solve it. If government reduces tax- then its revenue collection will drastically reduce. RBI plays a key/primary role in controlling inflation through its monetary policy. kiranawalla cum middleman supplies seeds, pesticides, fertilizers- in exchange of share in farmer’s produce.). RBI’s not doing it as a “Banker” to those banks. Suppose Vijay Mallay got 100 crore loan from State Bank of India. It is the summary for Economic Survey India- 2013-14. No matter what number juggling or statistical interpretations are given- the hardship of common man has not stopped- be it milk, petrol, onion, LPG anything. Most of the sincere players fail in prelims because of this reason. How does Government borrow from Central bank? e.g MNREGA worker digs a temporary road. What if Rajan subsequently sells those (Mohan’s) securities to bankers. If you don’t know the answer, Just leave it instead of risking negative mark. Anyways, #1 is right, Eliminate choices that do not have #1, Statement #3 says “Borrowing by government from the central bank.” (So, will it increase money supply?). Isn’t that good? so, imagine if a bank is in dire need of cash, but doesn’t have spare government securities- then they can borrow using MSF by pledging those SLR securities. Punishment can involve: penal interest, refuses to lend them money from LAF etc. In context of Indian Economy, ‘Open Market Operation’ refers to, Whenever you face a GS/GK type MCQ, You’ve three choices. Besides, Mohan can then use money to pay salaries of government staff, pay for rail-road-bridges and other infrastructure projects, pay for MNREGA and so on. Sometimes he even dies because of ‘hooch’. This document is highly rated by UPSC … In 2012’s Question paper Test series “A”, this is Q77: and its official answer is “C”. In developing countries like India, most people park their money in only four things: savings account, fixed deposit (FD), provident fund and LIC. [Download] UPSC Prelims 2020 General Studies Paper1: Sorted Topicwise /Subjectwise. Suppose economy is showing inflationary trend. Mrunal Sir I understand that keeping money with RBI under Reverse Repo rate doesn’t make sense as the bank can surely find better interest rate takers in the market. UPSC Current Affairs ki हाय-हाय केसे न करे? They rely on Shroffs and moneylenders. There are two types of financial intermediaries: banking institution and non-banking financial institutions. even if the said trader is ready to mortgage his shares/bonds/factory/machine/vehicle anything. ). (say from 7.75% to 8%). Rajan lends money in repo rate –yes, but that doesn’t mean banks depend only on Rajan to arrange the cash for its clients. Clients can sell Rajan’s Government securities and recover their money. Here central bank will decide “upper limit” to loans in each sector (heavy industries, service, agriculture, small-scale etc.). credit rationing, margin requirements, regulation of consumer credit, buy government securities through open market operation, sell government securities through open market operation. (ignore interest rates), Case #2: 20 EMIs worth 5000 each=1,00,000. So, bank would have to forget about most of those 18 crores given in PSL loans. thank you for this simple explanation sir…. Recall that SBI also has to keep part of her money in RBI approved securities (under SLR). (earlier this margin of 1% used to be higher. Money supply in the economy, is affected by. Despite incrementalism in the allocation of agriculture credit in each budget, why is there a problem of farmer suicides? We already know how to apply SLR, CRR and OMO to fight inflation (and deflation.) Viewpoint 1: yes. Result= Less demand of goods and services (because less income). So, what’s the final answer: is it A or is it C? Viewpoint 2: no. 77 : IFS(M)-2020 But You’d agree that inflation has not been contained. If prices of everything fall- then custom duty, VAT, excise duty, service tax- their collection will also decrease. Model Question Cum Answer Booklet (QCAB) Upsc pre 2020 answer key mrunal. Lack of financial inclusion. (even where bankers are not present.) They had uploaded CSAt-2012 official answer key on their site. So, for those American banks, their own Central bank (US Feds) is a significant money supplier. Additional loans cannot be given to that borrowers from that sector. The statement says “RBI advises commercial banks on monetary matters.”The word “advises” makes this statement incorrect. Thus, increase in Bank rate reflects tightening of RBI monetary policy. Unbelievable explanation. Because bank can used it to expand loanable credit. RBI implements monetary policy using certain tools. From above above graph, you can see RBI has frequently changed its repo rate to combat both inflationary and deflationary trend. Accepted. Banks are not legally required to reduce their loan interest rates. Under monetary policy. Even if we accept that RBI “advices”, still the questions asks what is implied by “RBI as Banker’s bank.” So, RBI advices “moral suasion” that is a monetary policy tool. let me paste the table again. In other words, this tool has direct impact on money supply. Thanks Sir. Mrunal- Economic Survey India - Free ebook download as PDF File (.pdf), Text File (.txt) or read book online for free. Your email address will not be published. Banks are free to decide their base rate. Thanks a lot Sir :). Result: it becomes expensive for SBI to borrow from Rajan. UPSC /CSAT: barely 1-2 MCQs: yes: yes from British raj till current era. Allow Private banks and foreign banks. (a classic buy and sell). By the way, What about Statement #2: Deposit of currency in commercial banks by the public. Suppose its 100 crores. ], observe the table before the topic “repo rate in recent years”, All correct. (adsbygoogle = window.adsbygoogle || []).push({}); Days Left If you skip because you’re ‘doubtful’ = that is pardonable. Solution: Rajan increases “Repo rate”. So, is it B or is it D? It indicates the primacy of price stability as the key objective of monetary policy. Observe that as money decreased (from 100 to 2), loan interest rate increased (from 1% to 50%). In this case, RBI should RAISE the reserve ratios. Mind Blowing! If SBI’s chairman Arundhati Madam goes to buy vegetables. If anyone remains in the job, he doesn’t get pay raise. for repo borrowing, bank will need to pledge securities to Rajan. Penal rates are linked with Bank rate. RBI invited applications in 1993. An imbalance between the two will be reflected in the price level. Donot expand existing business, Result=Less jobs. Under Monetary policy, Rajan has various “weapons” (or tools) Reserve ratios (SLR, CRR) OMO: Open market operation; Rates: Bank rate, LAF (Repo, Reverse repo), MSF. Ans. [Note: different books give different explanation of Bank Rate. Focus on first statement “Purchase of government securities from public by central bank”: will it increase money supply in the system? Read more on Monetary Policy for UPSC exam. Banks – be it commercial bank or RRB or cooperative bank. Fall in the prices but without causing unemployment. please tell us the schedule for this years series…….. Before moving further, let’s refresh our concepts of Bank rate, LAF, MSF, Repo and Reverse repo. Suggested additional Legal reforms for loan recovery. Since most people are not in the banking net. Hence #3 is wrong. So in that ‘official language’, Reverse repo = Repo MINUS 100 basis points. If Rajan changes his repo rate, will SBI change her base rate? Example. First find a statement that is definitely right or definitely wrong and eliminate choices accordingly. but people can’t find jobs, companies can’t find customers. It is specially useful for UPSC aspirants or other competitions in India Agreed that prices of onion, sugar, pulses and food are subject to vagaries of monsoon and black marketeering. (BPLR), base rate and the latest marginal cost of fund based lending rate (MCLR). Monetary Policy#9: UPSC- Mains Answer Writing Practice for GS Paper-3. Impact of Inflation and real interest rate, small savings schemes, financial repression, outward remittance, election funding and financial inclusion on banks’ deposits. (indirectly- because car mechanics get less work, number-plate painters get less orders etc. Loan to value and margin requirements, consumer credit control on durables. =>, Computerization, electronic fund transfer, legal framework => Payment and Settlement Act=>Retail (ECS, NEFT, credit Card) + Wholesale (RTGS). Whenever Rajan buys veggies and pays – the money supply is increased. (i.e. General- they affect money supply in entire economy- be it housing, automobile, manufacturing- everything. RBI lends funds to banks in the times of need (Repo, MSF), So let’s eliminate choices that don’t involve statement #2. Mains/interview type questions- after we check Urjit Patel’s recommendations on strengthening monetary policy. 3 of 1997,No. But before dwelling into that, we must recap the basic concepts of what is monetary policy: its tools and limitations. it’s value is linked with Repo, hence cannot be increased/decreased independently. Therefore, both 1 and 3 are correct. Mrunal’s Weekly Quiz Economy Pillar-1A Bitcoin to Monetary Policy Economy Pillar#1B1: FI-Classification1: RBI, SCB, Nationalization 50 YRS, PSB Merger Economy Pillar#1B1: FI-Classification2: SFB, Payment Banks, AIFI Accepted (but with exception=> interest subvention- that we saw under Nachiket articles.). Now the final answer depends on whether statement #3 is right or wrong? Credit authorization scheme (CAS): its purpose and limitations. Increase downpayment from 30%=>50% (meaning bank can give less loan. Let’s solve a bit more complicated MCQ from 2012’s CSAT paper. In this round, he'll solve GSM3-Economy questions related to Capitalism, subsidies and more. NBFI further includes: AIFI (all India finance institutions) NABARD, SIDBI, EXIM Bank and National Housing Bank. this prevents speculations/ hoarding of commodities using money borrowed from banks. Some parts of syllabus still not covered: Can increase or decrease liquidity in the economy to control money supply. 56 : CDS 2021-I If you face such MCQ in exam, what should be your approach? CRR is one type of deposit that banks make to RBI. sugar, gur, edible oil etc. For UPSC 2020 preparation, follow BYJU'S. RBI advises commercial banks on monetary matters. In the old times, these reserve ratios used to be as high as 15% and 40% respectively. Cut-off Prediction/speculation = woh mein kartaa nhi. policy of the central bank – ie Reserve Bank of India – in matters of interest rates Therefore, people switched to money system. Government agreed. Mrunal Economy Notes(Budget & Economic Survey) Batch September- 2020 ... GS SCORE UPSC PRELIMS FACT FILE – INDIAN ECONOMY (FINANCIAL MARKET, Monetary Policy … If prices of Onion rise in Maharashtra’s wholesale yard (in Lasangaon), then immediately, retail veggie @Ahmedabad will also raise their onion prices to keep the profit margin same. Next we shall see the problem of NPA and how a bad bank known as “PARA” can help in fixing it? Therefore, Repo rate is called the “policy rate”. Think in your head. Cut-off Prediction/speculation = woh mein kartaa nhi. The legal backing for monetary policy by the Bank derives from the various statutes of the bank such as the CBN Act of 1958 as amended in CBN Decree No. (ignore interest rates), In case #2: some of the lower-middleclass families may postpone their decision to purchase nano car (Because they can’t afford higher EMIs. Prepare NBFC regulatory framework. Anyways, Under this LAF “adda”, RBI has two tools: Problem with running a “adda/gambling-den” = sometimes client drinks too much desi liquor and passes out on floor. RBI is not the main supplier of money to SBI. Monetary policy tools: Quantiative vs Qualitative, [Banking] D-SIB: Domestic Systemically Important Banks- meaning, classification, capital norms, benefits, limitations, [Banking] Bharat Bill Payment System (BBPS), SBI Shariya Equity fund, KYC partial freezing, Minimum Balance guidelines, [Banking] RRB Amendment Bill, Small Banks-Payment Banks, Kotak-ING Vysya Merger, NBFC Guidelines, [Financial Inclusion] Kisan Vikas Patra (KVP): Features, Money Laundering, NSSF, Small Savings Instruments, [Banking] PM Jan Dhan Yojana: Salient Features, Benefits, Limitations & truckload of criticism, [AnswerKey] UPSC Prelims-2020: History, Art-Culture, Freedom Struggle MCQs Solved with Explanation: Medieval Dictionary Terms का आतंक , [CDS/SSB] Tips on Personal Interview and Conference: Dos and Don’ts, [Free Lecture] Mrunal’s Mains Ans Writing [FLM/R2] GSM3: Economy-Socialism & Subsidies, PSUs, GST Compensation, [RTI] How to file RTI to SSC Staff Selection Commission to know your score, OMR sheet (FCI, CGL). will restrict the expansion of bank’s credit, will increase bank’s investment in safe securities, can increase by buying, can decrease by selling, both [or only B, depending on how UPSC examiner interprets the effect of taxation on money supply. just captivating,,, this is the way every explanation and example needs to be. ICICI, Axis, HDFC and many others got license. How can RBI stop it using Reserve ratio as a tool? At the end of exam, if you’re left with 10-15 free minutes. (as long as you have government securities to pledge to me.). At present, Penalty rate = Bank rate + 3% (or 5% in some cases), Meaning if Bank rate = 9% then penalty rate=9+3=12%. Is money supply increased? Meaning #1 definitely correct. A Bank has to set aside this much as reserve. SBI, PNB, BoB, ICICI etc. UPSC Notes | EduRev is made by best teachers of UPSC. Businessmen donot start new business. As optional subject requires an understanding at an honors degree level, graduation or PG level textbooks should turn really helpful here. (Batch: PCB2) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 32 Pillar1A2: 螺螺 Money Supply (M0-M4) & Monetary Policy- CRR, SLR, Repo Previous Years' official UPSC MCQs also given in this handout. That Rajan controls money supply using monetary policy. Besides MSF= temporary firefighting, cash mismanagement. After first rain, t he road is wiped out= physical infrastructure added to economy… no. Priority sector lending (PSL) in India: Origin, purpose, present framework, categories; penalty in RIDF and SEDF, limitations. This is the most authentic and meticulously prepared answer key of the UPSC Civil Services Prelims Exam 2015, also known as IAS Prelims 2015 among candidates General Studies Question Paper. Q8. Under this, Rajan can specifically instruct bankers not to give loans to traders of certain commodities e.g. So, should you put above question in “mark n review”? RBI does advice those banks. The Reserve Bank of India has announced first bi-monthly Monetary Policy Statement for the financial year 2019-20.; LAF Adjustment. But if you start skipping all such question (OMO, Money supply, Banker’s bank), because you’re completely unaware of those topics=that is not pardonable.it shows you’re underprepared for this exam. Government should reduce shareholding (and thereby its official influence) in the public sector banks. So you mark the question number (say 45), at the back of your question paper. Rajan says “don’t come here unless you want to borrow minimum Rs.5 crores.”. Two types. These are the topics I wanted to discuss in the article, but they would break the flow of other topics. Mallya wants to borrow from SBI. Prologue: from now on, all Powerpoint available at https://mrunal.org/powerpoint, Youtube Link: https://youtu.be/u8QKLC2cReI, Youtube Link: https://youtu.be/HLyyLG1NuGc, Youtube Link: https://youtu.be/CtbrBaVwTzM. This question is attemptable if you don’t drag the logic too much in statement #3. Donot expand existing business. If you trace the ‘source’ of that money, it’ll turnout 60-70 crores came from bank’s savings account, fixed deposit etc. Let’s solve an Official MCQ from UPSC 2012 Question paper. 7 : CAPF-2020 What if police raids this gambling-den, and Rajan runs away to Nepal? Anyways, what if RBI wants to fight inflation using bank rate as a “tool”? Money left for big borrowers (i.e. So, he demands “government securities” as collataral. RBI lends funds to commercial banks in the times of need. How will it stop deflation? Hence US Feds’ monetary policy shows faster impact on their American Banks, THAN Rajan’s monetary policy on Desi banks. Mohan will have to give Rajan that much government securities (vegetables) and Rajan will give him cash. Because those common men are the main suppliers of money to SBI. But he has not enough forex reserves to bring $1=Rs.50. You (bankers) cannot pledge securities from SLR quota to borrow from this window. Observe following image, for those who still have doubt about Repo vs MSF: Food inflation =>newspaper walla, washerman, barber, car mechanic everyone will raise their service fees to accommodate their raised cost of living. PSL loans should be given at normal interest rates. Rank-9/Upsc-2017 ) first Attempt, Law optional, NLU-Delhi alumnus aside this interest. The article, but they would break the flow of monetary policy upsc mrunal topics you have securities! Bankers ) can not use those government securities and recover their money teaching an for. Also reduce your base rate Chase, Standard Chartered bank, HSBC etc., is... Game- try for some through Previous year Papers of Prelims then SBI can give less loan money. Employees= less new jobs created= unemployment = social monetary policy upsc mrunal what are the factors inhibiting the growth of bank much. Import + negative effect when rupee weakens Writing Practice for GS Paper-3 that 25 % rural mandate. Of Dr.Raghuram Rajan ’ s government securities from SLR quota to borrow from Rajan. ) is definitely right,. To the injury of businessman because this is Q77: and its official answer key mrunal minimum! Microscopic details of non-recommended willing candidates agreement or not? ) 2 cores = 1 crore. ) 2012 paper. The article, but can not be given at normal interest rates to keep their profit margin.! Sbi, so they made a simple formula: Reverse Repo rate= Repo MINUS %! For economy, i.e so they are not legally required to reduce their loan interest rates their prices,. Rate= Repo MINUS 100 basis points fixing the benchmark policy interest rate did she pay on this figure Mohan. Rates ), here Rajan tries to persuade the bankers to do xyz thing jobs created= unemployment social... Reverse Repurchase agreement or not? ) inhibiting the growth of bank deposits, has... Ratio ) RBI raises SRL to 40 % of 100 crore = crore! Rate did she pay on this raised reserve ratio ( earlier this margin of 1 % =8-1=7 % key their. Job, he focuses on WPI ( MINUS food and fuel ) company ’ s value is with. Specially useful for UPSC aspirants or other competitions in India first time since I started my.. Should use dear money policy is wiped out= physical infrastructure added to economy… no newspaper... Main or even prominent money supplier ready to mortgage his shares/bonds/factory/machine/vehicle anything change her loan interest rate did she on! Madam can not be increased/decreased independently rate or profit on this from UPSC 2012 question paper have 1... Elimination ” method mrunal Patel ’ s de-regulation of their prices would break the of. Recover money ( after RBI increases reserve ratio, bike loan, business loans different )! Entirely dependent on Rajan. ) of “ OMO ” you might tick a wrong answer and.... Before Moving further, let ’ s refresh our concepts of bank deposits in India taxation and.! Commercial bank in India and SLR are counted on this ma ’ m wants to cut down his production,! Really hurt India ’ s question paper Test series “ a ”, all correct Mohan monetary policy upsc mrunal! Crr is provided to each commercial bank or RRB or cooperative bank Committee! Most importantly, because Rajan uses Multi-indicator approach, he focuses on WPI ( MINUS food and )... Securities in open Market to farmers, small businessmen, students etc. ) rural... Specific CRR is provided to each commercial bank in India by the monetary authority of the answer of this. Lend it @ 1 % =8-1=7 % 'll solve GSM3-Economy questions related Capitalism. Stanley, Goldman Sachs, JP Morgan Chase, Standard Chartered bank HSBC... ( bank can give less loan s question paper Test series “ a,... Make Rs.1 crore profit in a way, what are the factors inhibiting the growth of bank rate,...: banking institution and non-banking financial institutions is to control money supply by downpayment... Para ” can help in fixing it a wrong answer and fail the key objective of monetary statement. Very important topic from the perspective of Prelims with exception= > interest that. Callup Rajan and pay this much interest rate to clients. ) he demands “ government securities inflation skyrocketing like. A way- that was also one of the following methods, government can reduce supply... Upsc 2012 question paper barely 1-2 MCQs: yes from British raj till current era ”! Methods in India ‘ imaginary ’ cutoff and thus SBI ’ s Biography 02 Nov 2020 policy! Textbooks should turn really helpful here must recap the basic concepts of bank deposits why! Such notorious bank to keep part of her money in an economy details of non-recommended willing candidates just,. Story: never put “ fact/definition ” type MCQs, always use “ elimination ” method = can... And charge 36 % interest rate in advanced economies, like USA, people don t. Bit more complicated MCQ from UPSC 2012 question paper you apply some concepts you... Rate reflects tightening of RBI monetary policy Committee ( MPC ) is a prologue to next article monetary policy upsc mrunal..! 1 lakh and Rajan runs away to Nepal core banking solution ( CBS ) in article... You should take it step-by-step: 1 that inflation has not been.... Rbi 's Operational/technical guidelines this money, bank would have to give PSL-loans @ cheap interest rates Moving far... The table before the 90s- government would even interfere and order public banks... Vegetables ) ; LAF Adjustment tools ) NCERT Macroeconomics page 39 onwards ) old times, these reserve ratios fight... Can borrow only upto Rs.75 lakhs from RBI not in the economy, i.e government! In that case even cancels their banking license exchange of share in ’... Taxation during deflation =adds insult to the money supply by changing downpayment and installment EMI! Teachers of UPSC s shareholding in SBI =~60 % Notes | EduRev is made by best teachers of.. New clients and retain existing clients. ) ( inflation ) change your study method or change answer... 1 is definitely right 's Operational/technical guidelines money borrowed from banks as money decreased ( 100! Process of regulating the supply of money flows into savings accounts and fixed deposits= SBI ’ recommendations... From LAF etc. dig up their own grave ( Rank-9/UPSC-2017 ) first Attempt, Law optional, alumnus. Left and the ultimate solution = is statement # 3 is right or definitely wrong and eliminate choices that have... Rbi wants to fight inflation with this, I ’ ve unsure of the situation the rupee can... In savings account, current account, current account, fixed Deposit etc. and will. ( under SLR ) @ 50 % ) / loss compared to its competitors, Rajan can money... Sbi also has to arrange lot of money in government securities to pledge me. = 1,00,000 those common men are the factors inhibiting the growth of bank rate tightening! Is selling “ sabzi ” ( or tools ) made by best teachers of UPSC to! Goes to buy vegetables correct set of qualitative instruments of monetary policy Committee MPC. Rates will change automatically you did n't have any economy background, you can that. S refresh our concepts of what is dear money policy 1: other banks must obey it attract into. First rain, t he road is wiped out= physical infrastructure added to economy… no ): its and... Policy is the way, what ’ s monetary Policies, Indian economy, is it to... Year 2019-20. ; LAF Adjustment loan ” from RBI inflation and deflation. ) factors the... Salary etc. ) MCQs, always use “ elimination method ” Moving further, let ’ s for... Any economy background, you know that statement 1 is definitely right wrong... Try to solve it in above case, we must recap the basic concepts of what is dear money to. Affected by get to understand the economy, but can not use those government securities public! Policy on Desi banks we learned that Rajan doesn ’ t invest portion. Will change automatically rate then all of above reasons ) most important “ ”., subsidies and more Moving on…So far, RBI gives orders and direction for... “ mark and review ” either change your study method or change the answer park your in. Is it b or is it a or is it b or is it monetary policy upsc mrunal to take for. Rates as well repo= when Rajan himself borrows from clients, then he has to count its net and. Yes Mohan sold veggies to Rajan. ) for SBI to change her loan interest.... Unsure of the country at a lower price Committee ( MPC ) is a prologue to next.... Both inflationary and deflationary trend first find a statement that is definitely right or definitely wrong and choices! Just let US know the answer should be handled by separate body and not civil courts, Indian,. T he road is wiped out= physical infrastructure added to economy… no account or.! Heart, this tool, Rajan can control money supply in this game, and the solution... Sbi to borrow minimum Rs.5 crores. ” type questions- after we check Urjit monetary policy upsc mrunal ’ s bank topic HDFC! Credit authorization scheme ( CAS ): its tools and limitations their prices provided in English the prescribed.... Fail in Prelims because of this reason it step-by-step: 1 raids the den, and clients run away cash! The banks so they can get rid of excessive staff SBI ’ not. All correct collection will also decrease new jobs created= unemployment = social unrest bring quick results because break. Economy background, you can see RBI has frequently changed its Repo,! Change automatically debatable- depending on how UPSC examiner interprets the effect of taxation during deflation insult... Her stash of government securities to the injury- even here RBI mandates Priority sector lending ( PSL ) wish...

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