money supply, banking & financial institutions section 11 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Answer: (a)

Answer: (b)

The objectives of setting up payment banks are to promote financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses, other unorganized sector entities and other users.

The following will be the scope of activities for payment banks:

1. Acceptance of demand deposits (savings and current) but no time deposits
2. No lending activity
3. Issuance of ATM/debit cards but not credit cards
4. Payments and remittance services through various channels
5. Acting as Banking Correspondent (BC) of another bank
6. Distribution of simple financial products like mutual funds/insurance products, etc.

Payment banks will be required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The total deposits of the public must be invested in government securities and/ or deposited in other commercial banks (i.e. no lending is allowed).

This makes the public deposit in payment banks safe. Payment banks will be set up as differentiated banks for serving niche interests. (Differentiated banks have restrictions either in geography or in operation or both. Opposite of differentiated banks are universal banks).

Answer: (d)

Answer: (b)

RBI carries out the general banking business of the governments through its own offices and commercial banks, both public and private, appointed as its agents (called Agency Banks).

Section 45 of the Reserve Bank of India Act, 1934, provides for the appointment of scheduled commercial banks as agents at all places or at any place in India.

A network comprising the Government Banking Division of RBI and branches of agency banks appointed under Section 45 of the RBI Act carry out the government transactions.

At present all the public sector banks and select private sector banks act as RBI's agents. Only designated branches of agency banks can conduct government banking business.

Answer: (d)

Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation.

So it is accepted by people and the government on a legal basis. Paper currency and coins are common forms of legal tender in many countries.