JAIIB Paper 1 Module C Quiz 3

The 1991 committee recommended a move toward a more competitive and financially sound banking system. A key part of the reform programme was the adoption of prudential norms for income recognition, asset classification and provisioning, alongside capital adequacy requirements. These measures were intended to improve transparency and recognise credit risk more realistically.

The standard shareholding pattern for an RRB is 50% held by the Central Government, 15% by the concerned State Government and 35% by the sponsor bank. The sponsor bank also provides support in areas such as management, training and operational systems. This ownership structure reflects the RRB model’s joint institutional sponsorship.

State Cooperative Agriculture and Rural Development Banks (SCARDBs) have traditionally formed the state-level tier of the long-term cooperative credit structure, supporting investment-oriented rural credit. PACS are grassroots societies in the short-term cooperative credit structure, while DCCBs are district-level institutions mainly associated with short-term cooperative credit.

For scheduled commercial banks, Section 42(1) of the Reserve Bank of India Act, 1934 provides the statutory basis for CRR. Section 24 of the Banking Regulation Act, 1949 provides the statutory basis for SLR. CRR is maintained as cash reserves with the RBI, whereas SLR is maintained in prescribed liquid assets.

Section 35A empowers the RBI to issue directions to banking companies when it considers them necessary in the public interest, in the interest of banking policy, to prevent the affairs of a bank from being conducted detrimentally to depositors, or to secure proper management. Such directions are binding within the scope of the Act; they are not merely informal advice.

The lender-of-last-resort function refers to central-bank support to eligible financial institutions facing acute liquidity stress when normal market funding is unavailable or insufficient. It helps contain disruptions to the financial system. It does not mean that the RBI guarantees all investments or routinely rescues insolvent institutions without conditions.

DICGC cover is up to ₹5 lakh per depositor per insured bank, including principal and interest, when held in the same right and capacity. Accounts at different branches of the same bank are aggregated for this limit; the cover is not multiplied by opening additional branches or accounts. The protection applies to eligible deposits in insured banks, subject to statutory exclusions.

The FSDC is an inter-regulatory coordination body concerned with financial stability, financial-sector development, inter-regulatory coordination and related macro-prudential issues. It does not replace statutory regulators such as the RBI, SEBI, IRDAI or PFRDA, and it is not a deposit insurer or currency-issuing authority.

The RBI is the statutory authority responsible for regulation and supervision of payment systems under the Payment and Settlement Systems Act, 2007. NPCI is an umbrella organisation that operates and develops important retail payment systems, such as UPI and RuPay, under the applicable regulatory framework. An operator’s role is distinct from the regulator’s statutory role.

A regulated entity must have a board-approved policy that limits monthly repayment obligations across all outstanding loans of a household to no more than 50% of monthly household income. The calculation includes principal and interest on existing loans and the proposed loan, not only the microfinance loan being assessed. The framework is designed to reduce over-indebtedness.

An NBFC–Account Aggregator facilitates consent-based sharing of specified financial information between financial information providers and financial information users. Its role is to enable secure, standardised data transfer under the consent framework, rather than to lend from its own balance sheet or act as a deposit-taking bank. Customer consent is central to the framework.

DICGC deposit insurance covers eligible deposits in banks registered as insured banks under the applicable law. It does not automatically extend to deposits or debentures issued by NBFCs, nor does it insure mutual funds, shares or other investment products. Customers should distinguish bank deposits from financial products offered by non-bank entities.

Scale Based Regulation places NBFCs into layers with differing regulatory requirements, reflecting factors such as size, activity, complexity and systemic importance. The intent is proportionate supervision: entities that can create greater risk for the financial system are subject to more intensive requirements. It does not exempt large NBFCs from prudential regulation.

A TPA provides specified administrative services to insurers, commonly including health-claim processing, coordination with network hospitals and support for cashless treatment arrangements. The insurer remains responsible for decisions under the policy and applicable regulations. A TPA does not guarantee payment of every claim or replace the formal grievance and regulatory framework.

A surveyor and loss assessor evaluates the circumstances and extent of a loss and submits findings to support the insurer’s claim assessment. The report is an important input, but claim settlement remains subject to the policy wording, evidence and applicable law and regulations. The role is distinct from that of an insurance agent who solicits or arranges insurance business.

The Insurance Ombudsman mechanism provides a relatively accessible avenue for resolving eligible insurance complaints, subject to its jurisdiction, procedure and eligibility conditions. It supports policyholder grievance redressal but does not replace the insurance regulator or guarantee that every complaint will be decided in the complainant’s favour.

In the secondary market, investors buy and sell securities that have already been issued. In a typical exchange trade, the seller receives the sale proceeds, subject to transaction costs and settlement rules; the issuer does not receive fresh capital from each secondary-market trade. By contrast, a primary-market issue is a means by which an issuer raises funds.

DFIs were established to address financing gaps for long-gestation projects and priority development sectors where ordinary commercial finance or capital markets might not provide sufficient suitable funding. Their mandates varied by sector—for example, industry, agriculture, exports, housing and infrastructure. Their institutional forms and roles have evolved as India’s financial system has developed.

The RBI is the regulator for credit information companies under the Credit Information Companies (Regulation) Act, 2005. Credit information companies collect and maintain credit-related information and provide credit reports and scores in accordance with the applicable legal and regulatory framework. IRDAI regulates insurance, while PFRDA regulates the pension sector within its statutory remit.

Narasimham Committee-II (1998) recommended a three-tier banking structure for India: large international banks at Tier-1, national banks at Tier-2, and local/regional banks at Tier-3.