JAIIB Paper 1 Module C Quiz 1

The 1991 Narasimham Committee reforms supported greater competition, prudential norms, stronger capital adequacy, asset-quality recognition and reduced pre-emption of bank resources. They marked a move toward a more market-oriented and prudentially regulated banking system.

A bank included in the Second Schedule to the RBI Act is a scheduled bank. Scheduled status is a statutory classification and should not be confused with public-sector ownership: a scheduled bank may be public or private, and scheduled commercial banks are a major subset.

Payments banks can accept eligible demand deposits within the applicable regulatory limit, issue debit/ATM cards, facilitate remittances and provide payment services. They are not permitted to undertake lending activities, which distinguishes them from universal banks and small finance banks.

Small finance banks were designed to promote financial inclusion by providing savings facilities and credit to underserved groups such as small businesses, small and marginal farmers, micro and small industries and unorganised-sector entities. They can undertake lending, unlike payments banks.

RRBs were established under the Regional Rural Banks Act, 1976, to serve rural areas and are sponsored by a bank, with ownership shared among the Central Government, State Government and sponsor bank. LABs are localised banking entities established under a separate RBI licensing framework and generally operate in a limited geographical area.

Section 22 of the Banking Regulation Act, 1949, gives the Reserve Bank of India the power to grant licences to banking companies to carry on banking business in India, subject to statutory conditions. Licensing is a core prudential control.

The RBI Act, 1934 provides the statutory basis for the Reserve Bank. Among its core functions are monetary management and the issue of banknotes (subject to statutory provisions); the RBI also acts as banker to government and banks under the wider legal framework.

NABARD is the apex development financial institution focused on agriculture and rural development. It provides refinance and supports rural credit institutions, development initiatives and institutional strengthening in its statutory domain.

Export-Import Bank of India (EXIM Bank) is a specialised financial institution that supports India’s international trade through export finance, overseas investment finance, lines of credit and related trade-development services.

The SHG–Bank Linkage Programme connects self-help groups, often composed of members who save collectively, with formal banking services and credit. Banks assess group performance and may extend loans to the group, supporting financial inclusion and livelihood activity.

The RBI’s microfinance directions define a microfinance loan as a collateral-free loan to a household with annual income up to ₹3,00,000. Assessment of household income and indebtedness is important; not every household member must become a borrower.

The RBI’s June 6, 2025 amendment aligned the qualifying-asset definition with the definition of microfinance loans and reduced the minimum qualifying-asset requirement for NBFC-MFIs to 60% of total assets net of intangible assets. If the threshold is missed for four consecutive quarters, the NBFC-MFI must approach RBI with a remediation plan.

Scale Based Regulation uses a graded framework, broadly including Base, Middle, Upper and a potential Top Layer. Regulatory intensity increases with size, activity, complexity and systemic risk; the Upper Layer includes entities identified by RBI as warranting enhanced oversight.

NBFCs provide financial services and may lend or invest, but they do not hold a banking licence and generally cannot accept demand deposits as banks do. They are regulated principally by RBI under the applicable legal framework, subject to the specific type of NBFC.

The Insurance Regulatory and Development Authority of India (IRDAI) is the statutory regulator responsible for regulating, promoting and ensuring orderly growth of the insurance industry and protecting policyholders’ interests.

Reinsurance is insurance purchased by an insurer from another insurer/reinsurer to transfer part of the risk it has assumed. It helps insurers manage exposure and capacity; it does not replace the original insurer’s direct contractual relationship with the policyholder.

An insurance repository enables policyholders to hold and service insurance policies in electronic form through an e-Insurance Account. This can make policy records easier to access and update and can improve efficiency and transparency in policy servicing.

SEBI is the statutory regulator of the securities market. Its functions include protecting investors, promoting market development and regulating securities-market intermediaries and market conduct. RBI regulates banks and monetary policy; IRDAI regulates insurance.

The Pension Fund Regulatory and Development Authority (PFRDA) regulates and develops the pension sector and oversees the National Pension System under the applicable legal framework. It is distinct from RBI, SEBI and IRDAI.

NaBFID was established as a specialised development financial institution to support long-term financing for infrastructure projects and help address gaps in infrastructure finance. It is distinct from NABARD’s rural-development focus and SIDBI’s MSME-development focus.