Daily Static Quiz Prelims Practice 2027
Option (b) is correct — SLR-eligible assets include cash, gold, and approved securities (predominantly Government of India dated securities, T-bills, and State securities), held by the banks themselves rather than deposited with the RBI, allowing banks to earn returns on them, unlike CRR. Option (a) is wrong — SLR assets stay with the banks; assets deposited with the RBI constitute CRR instead. Option (c) is wrong — SLR isn't restricted to central government securities alone and includes gold, cash, and State securities. Option (d) is wrong — corporate bonds, even AAA-rated, are not SLR-eligible, since SLR is designed to ensure banks hold liquid, risk-free government instruments.
- When the RBI purchases government securities from banks through OMOs, it injects liquidity into the banking system by crediting the sellers' accounts.
- OMOs are primarily used to manage durable (structural) liquidity in the banking system, as distinct from the LAF which manages frictional (day-to-day) liquidity.
- The RBI can conduct OMOs only in central government securities and is not permitted to purchase State government securities.
- G-SAP (Government Securities Acquisition Programme), introduced in 2021, was a committed, calendar-based OMO programme designed to provide greater certainty on liquidity to the bond market.
Statements 1, 2 and 4 are correct. In an OMO purchase, the RBI buys G-Secs and credits banks' RBI current accounts, directly boosting reserves. OMOs manage structural/durable liquidity, distinct from the LAF's management of frictional, short-term fluctuations. G-SAP (April 2021) was a calendar-based, pre-committed OMO programme giving the bond market forward guidance during the COVID borrowing surge. Statement 3 is incorrect — the RBI has conducted OMOs in State Development Loans too, particularly during COVID-19, and is not restricted to only central government paper.
Option (a) is correct — this is the standard interest rate transmission channel: a higher repo rate raises banks' cost of funds, passed on through higher lending rates, dampening demand and moderating inflation, the primary mechanism through which MPC decisions affect the real economy. Option (b) is wrong — CRR and SLR are separate instruments; raising CRR doesn't raise the SLR requirement, and this transmission chain is fabricated. Option (c) is wrong — a lower reverse repo makes parking funds with the RBI less attractive, incentivising banks to lend more, the opposite of what's stated. Option (d) is wrong — SLR changes affect domestic liquidity and G-Sec demand, with no direct connection to forex reserves or the rupee's exchange rate.
Option (b) is correct — the RBI's revised (2021) PCA framework monitors CRAR (capital adequacy), Net NPA ratio (asset quality), and Return on Assets (profitability), with a breach on any parameter triggering escalating restrictions. Option (a) is wrong — Net Interest Margin is not a PCA trigger; RoA is the profitability measure used instead. Option (c) is wrong — Current Account Surplus ratio is a macroeconomic external-balance indicator with no role in bank-level PCA. Option (d) is wrong — LCR and NSFR are Basel III liquidity standards monitored separately, not the formal PCA parameters.
- The RBI acts as banker to the government — managing the Centre's accounts, undertaking debt management, and providing Ways and Means Advances (WMA) to bridge temporary revenue-expenditure mismatches.
- The RBI acts as banker's bank — holding the cash reserves of commercial banks (CRR), acting as lender of last resort, and providing clearing and settlement infrastructure.
- The RBI's role as debt manager for the Central Government and its role as monetary policy authority are fully complementary, as both objectives are always achieved simultaneously without conflict.
- The issue of currency notes is a monopoly of the RBI under the RBI Act, 1934, with the exception of one-rupee notes and coins, which are issued by the Ministry of Finance.
Statements 1, 2 and 4 are correct. As banker to government, the RBI maintains the Consolidated Fund and Public Account, manages the G-Sec auction calendar, and extends WMA. As banker's bank, it holds CRR, operates RTGS/NEFT, and serves as lender of last resort. Currency issuance is an RBI monopoly under the RBI Act, 1934, except one-rupee notes and coins, issued by the Government of India (Ministry of Finance), with the RBI only distributing them. Statement 3 is incorrect — the dual role of debt manager and monetary authority creates a structural conflict of interest, since debt management favours low rates to minimise borrowing costs while monetary policy may require raising rates to control inflation, a key reason some economists advocate a separate Public Debt Management Agency.
