Commercial banking Dec 2024

Description

Commercial Banking System & Role of RBI

December 2024 Examination

 

 

Q1. Monetary Policy is the macroeconomic tool used with the objective to control inflation, management of employment, consumption, growth and liquidity. Monetary policy can be expansionary or contractionary. In light of above statement enumerate the method/s to achieve the above objectives.    (10 Marks)

Ans 1.

Introduction

Monetary policy, formulated and implemented by the Reserve Bank of India (RBI), is a critical tool for managing the country’s macroeconomic stability. This policy primarily aims to control inflation, ensure adequate employment levels, manage consumption, foster economic growth, and maintain liquidity within the financial system. To achieve these goals, monetary policy can either be expansionary, where liquidity is injected into the economy to stimulate growth, or contractionary, where liquidity is withdrawn to control inflation. In India, the RBI employs various quantitative and qualitative methods, such as setting interest rates, regulating the money supply, and using open market operations to influence economic activities. By adjusting these variables, the RBI attempts to strike a balance between economic growth and price stability, ensuring that the nation’s economic objectives align with both domestic and

 

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Q2. Management of stressed assets/NPA requires soft skills and hard decision taking ability. Illustrate the factors responsible for NPA. What are the solutions to resolve NPA problems? (10 Marks)

Ans 2.

Introduction

Non-Performing Assets (NPAs) pose a serious challenge to the banking sector, affecting profitability, credit expansion, and overall economic growth. NPAs represent loans or advances for which the principal or interest payments remain overdue for a period of 90 days or more. Managing stressed assets requires a combination of technical skills and strong decision-making abilities to navigate complex financial, legal, and social implications. The rise of NPAs can be attributed to multiple factors, including economic downturns, poor credit assessments, and governance

 

 

 

 

Q3. Contrary to the general perception that growth of banking is faster during peaceful times. Covid 19 was one such incident which propelled the banks to grow in diverse directions, leading to “Butterfly Effect”. Innovation took over invention, out of box ideas were implemented by banks resulting in rapid growth.

1. a) What were the advantages of Digital Banking? (5 Marks)

Ans 3a.

Introduction

The COVID-19 pandemic marked a transformative period for the banking sector, accelerating the shift towards digital banking and innovative service models. As physical transactions became restricted, banks quickly adapted to meet customers’ needs by expanding digital offerings, providing secure, convenient, and accessible banking services. This shift is often compared to the “Butterfly Effect,” where a single significant event caused ripple effects, propelling banks into a new era of growth and technological advancement. Digital banking emerged as an indispensable tool, allowing banks to provide seamless financial services while catering to a more tech-savvy, remote-

 

1. b) Innovation creates business value. Value can be in terms of improvement in existing products, launching new products and services or cost reduction. Explain the issues in Commercial Banking. (5 Marks)

Ans 3b.

Introduction

Innovation in commercial banking has become essential as the sector adapts to evolving customer expectations, regulatory changes, and competitive pressures. By focusing on product improvement, new offerings, and cost reduction, banks aim to enhance business value and improve customer experiences. However, the industry faces multiple challenges that can hinder progress, including regulatory constraints, cybersecurity risks, technological adaptation, and operational inefficiencie