NCERT Solutions for Class 10 Social Science History Chapter 3
Social Science Class 10 Economics
Money and Credit 3
Important NCERT Questions Based on new NCERT Books for Session 2022-2023
Questions No: 8
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
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Reserve Bank of India is the central bank of the country and works as a watchdog. It is the supervising authority over other banks across the country. The Reserve Bank of India supervises the functions of banks in a number of ways:
RBI checks that the bank actually maintains a minimum cash balance out of the deposit they receive. Currently this is 15%.
RBI observes that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers etc. It also ensures protection of small depositors.
It ensures high quality corporate governance in banks.
Undertakes annual onsite inspection to access financial health and regulate performance of banks.
The commercial banks have to provide information to the RBI on how much they are lending, to whom, at what interest rate etc.
This is necessary to ensure equality in the economy of the country and protect especially small depositors, farmers, small scale industries, small borrowers etc. Further, RBI monitoring ensures that banks lend loans within their prescribed capacity. Lending more loans leads to crises and Great Depression of 1930 is an example of such a crises situation.
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Ways RBI Supervises Banks and Why it’s Important:
1. Regular Checks: RBI regularly checks banks to see if they are working properly. This helps ensure that banks are following rules, managing risks, and running smoothly.
2. Watching from Afar: RBI also keeps an eye on banks by looking at their financial reports and data. This helps them spot any problems or risks even without visiting the banks.
3. Setting Rules: RBI makes rules and guidelines that banks must follow, like having enough money in case things go wrong. These rules make sure banks are financially strong and safe.
4. Giving Licenses: RBI decides which new banks can start operating. They check if new banks are trustworthy and meet all the requirements before allowing them to open.
5. Helping Troubled Banks: If a bank is not doing well, RBI steps in to help fix the problems. They might ask the bank to make changes so it becomes healthy again.
6. Testing for Problems: RBI checks if banks can handle tough situations. This helps prevent big problems in the banking system and keeps banks stable.
7. Protecting People: RBI makes sure banks treat customers fairly and solve their complaints. This protects people’s money and ensures good service from banks.
RBI supervises banks to make sure they work properly, follow rules, and keep people’s money safe. This helps maintain trust in banks and keeps the entire banking system strong and stable.