The correct answer is Statutory Liquidity Ratio.

Key Points

Statutory Liquidity Ratio 

• It is the amount of money that the banks are required to maintain with themselves as liquid assets, i.e. cash, gold, approved securities. etc. Hence, Option 2 is correct.
• Banks usually earn interest as a return on the funds kept as SLR.
• It is maintained by Banks themselves.

Additional Information

Reverse Repo Rate 

• It is the rate at which RBI borrows money from banks.
• It is lower than the repo rate.
• It is used to manage cash flow in the market.

Cash Reserve Ratio         

• It is the amount of money that the banks are required to deposit with the RBI, in the form of cash.
• The amount of money should not be less than the specified percentage of Net Demand & Time Liabilities.

• Governed by the Reserve Bank of India, Money supply refers to the total amount of money that should be available in the Indian economy at any given time.
• It is the monetary assets that should be in circulation at any given time and includes coins, cash, balances, savings account, and cheques.
• Introduced by the Reserve Bank of India in April 1977, there are 5 measures of the money supply-

1. Reserve money: Money in circulation + Banker's deposits with RBI + Deposits with the RBI
2. M1: Money with public + Demand deposits with Bank + Deposits with the RBI
3. M2: M1 + Savings deposits of Post office supply savings 
4. M3: M1 + Time deposits with the banks
5. M4: M3 + Deposits with the Post office savings bank

Key Points

• M1-  CU (currency (notes plus coins) held by the public) + DD (net demand deposits held by commercial banks.)
• M2- M1 + Savings deposits with Post Office savings banks
• M3- M1 + Net time deposits of commercial banks
• M4- M3 + Total deposits with Post Office savings organizations (excluding National Savings Certificates)

Thus, M3 is the monetary aggregate that captures the actual balance sheet of the banking sector because it shows the net time deposits of the commercial banks plus all the savings and currency notes.

Additional Information

• M1 and M2 are known as narrow money. M3 and M4 are known as broad money.
• M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all.
• M3 is the most commonly used measure of the money supply. It is also known as aggregate monetary resources.

Hence, the M3 is the aggregate that is reflected in the balance sheet of the banking sector.

Important Points

• In India, coins are minted by the Government of India. They have the sole right over this.
• Coins were distributed through the RBI distribution center.
• The responsibility for coinage vests with the government of India through the Coinage Act, 1906. 
• Coins are minted at the four mints: Alipore (South Kolkata), Saifabad (Hyderabad), Cherlapally (Hyderabad), and Noida (Uttar Pradesh).

Confusion Points

• The Reserve Bank of India (RBI) prints and manages only note currency in India.

Hence, the Government of India is the issuing authority of coins in India.

The correct answer is Buying/Selling of shares.

Key Points

• Repo Rate
  • Repo rate is the rate at which the central bank of a country (RBI in the case of India) lends money to commercial banks to meet their short-term needs.
  • The central bank advances loans against approved securities or eligible bills of exchange.
  • An increase in the repo rate increases the cost of borrowings from the central bank.
  • It forces commercial banks to increase their lending rates, which discourages borrowers from taking loans.
  • A decrease in the repo rate will have the opposite effect.
• Cash Reserve Ratio
  • It refers to the minimum percentage of net demand and time liabilities, to be kept by commercial banks with the central bank.
  • A change in CRR affects the ability of commercial banks to create credit.
  • The percentage of cash required to be kept in reserves as against the bank's total deposits.
  • Banks can't lend the CRR money to corporates or individual borrowers, banks can't use that money for investment purposes.​

Additional Information

• Government Bonds
  • A government bond is a debt security issued by a government to support government spending and obligations.
  • Government bonds can pay periodic interest payments called coupon payments.
  • Government bonds issued by national governments are often considered low-risk investments since the issuing government backs them.
• Reserve Bank of India
  • It is India's central bank and regulatory body under the jurisdiction of the Ministry of Finance Government of India.
  • It is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
  • Founded: 1 April 1935, Kolkata
  • HQ: Mumbai
  • Governor: Shaktikanta Das 

The correct answer is the Lending of money to the public.

Key Points

• The lending of money to the public is not the function of RBI.
• Reserve Bank of India
  • The Reserve Bank of India is India's central bank and regulatory body under the jurisdiction of the Ministry of Finance, Government of India.
  • It is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
• Key functions of RBI are, banker's bank, the custodian of the foreign reserve, controller of credit, and managing the printing and supply of currency notes in the country.

• Major functions of the RBI are as follows:

  • Issue of Bank Notes
  • Banker to Government
  • Custodian of Cash Reserves of Commercial Banks
  • Custodian of Country's Foreign Currency Reserves
  • Lender of Last Resort
  • Central Clearance and Accounts Settlement
  • Controller of Credit (Controlling Inflation) Banking Supervision

The correct answer is 1 April 1935.

Key Points

• RBI was established on 1 April 1935. It was conceptualized based on the guidelines presented by Dr. Ambedkar to the "Royal Commission on Indian Currency & Finance” in 1925. Commission members found Dr. B. R. Ambedkar’s book "The Problem of the Rupee- It's origin and It’s Solution” an invaluable reference tool and the Central Legislative Assembly eventually passed these guidelines as the RBI Act 1934.

The correct answer is 1949.

Key Points

• 1934-The British enacted the Reserve Bank of India Act.
• 1935-Reserve Bank of India was established on the 1st of April in Calcutta.
• 1937-Reserve Bank of India was permanently moved to Mumbai.
• 1949-Got nationalized after independence. 

Additional Information

• Reserve Bank of India
  • The concept of the Reserve Bank of India was based on the strategies formulated by Dr Ambedkar in his book named “The Problem of the Rupee - Its origin and its solution”.
  • This central banking institution was established based on the suggestions of the “Royal Commission on Indian Currency & Finance” in 1926.
  • This commission was also known as Hilton Young Commission.
  • In 1949, the Reserve Bank of India was nationalized and became a member bank of the Asian Clearing Union.
  • RBI regulates the credit and currency system in India.
  • The chief objectives of the RBI are to sustain the confidence of the public in the system, protect the interests of the depositors, and offer cost-effective banking services like cooperative banking and commercial banking to the people.

Explanation:

• Monetary Policy Committee (MPC) 2016 was established for Inflation targeting.
• It is a 6-member Committee with term of 4 years, having 5 members plus Reserve Bank governor as the chairman.
• The government will nominate 3 non-government people on the recommendation of a search committee.
• The decision will be by majority and each member will have to state the reasons for the vote.
• Each member would have one vote and the Reserve Bank Governor will have a casting vote in the event of a tie in any situation but no veto.

The correct answer is It will increase.

Key Points

• Cash Reserve Ratio (C. R. R.) refers to the number of money banks have to keep with the central bank.
• If RBI reduces the cash reserve ratio, credit creation will increase.
• Banks have more money at their disposal when the CRR requirement is reduced, which can subsequently be utilized to create credit in the economy.
• When determining the base rate, one of the reference rates is the Cash Reserve Ratio.
• The base rate is the lowest lending rate at which a bank is not permitted to lend money.
• The Reserve Bank of India determines the base rate.

Important Points

• When the RBI decides to increase the Cash Reserve Ratio, the amount of money that is available with the banks reduces.
• This is the RBI’s way of controlling the excess flow of money in the economy.