UPSC Essentials | Daily subject-wise quiz : Economy (Week 32)

1. These borrowings allow the Central Government to finance its expenditures.

2. It is a part of the fiscal deficit calculation.

3. Off-budget borrowings are loans directly taken by the Central Government.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

QUESTION 2

With reference to the Energy Conservation Building Code (ECBC) 2017, consider the following statements:

1. It sets minimum energy standards for commercial buildings, with the objective of enabling energy savings of between 25 and 50 per cent in compliant buildings.

2. The code applies to commercial buildings which have a connected load of less than 50 kW.

3. ECBC does not apply to retrofitting existing buildings.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

QUESTION 3

Consider the following statements:

1. Repo rate is the rate at which RBI borrows money from banks to meet their short-term funding needs.

2. The reverse repo rate is the interest rate paid by the Commercial Banks to the Reserve Bank of India.

Which of the statement(s) given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

QUESTION 4

With reference to the Urban Cooperative Bank, consider the following statements:

1. The banking laws were made applicable to cooperative societies through an amendment to the Banking Regulation Act, 1949.

2. Baking-related functions are carried out by the Reserve Bank of India.

3. The minimum CRAR requirement for Tier 2 banks is retained at 9 per cent under current capital adequacy framework based on Basel-1 rules.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

QUESTION 5

The Prompt Corrective Action is imposed by RBI when a bank breaches:

1. Capital-to-risk weighted assets ratio (CRAR)

2. Non-Performing Assets (NPAs)

3. Return on assets (RoA)

Select the correct answer using the codes given below:

(a) Only one

(b) Only two

(c) All three

(d) None

ANSWERS TO THE MCQs

1. (a)

FYI:

— Off-budget borrowings are loans that are taken not by the Centre directly, but by another public institution which borrows on the directions of the central government. Hence, statement 3 is not correct.

— Off-budget borrowings are used to fulfil the government’s expenditure needs. Hence, statement 1 is correct.

— However, the loan is not included in the national fiscal deficit because the loan’s liability is not officially on the Centre. This keeps the nation’s budget deficit within manageable bounds. Hence, statement 2 is not correct.

How are off-budget borrowings raised?

— The government can ask an implementing agency to raise the required funds from the market through loans or by issuing bonds.

For example,

(i) The food subsidy constitutes one of the Center’s principal costs. According to the budget presentation for 2020–21, the government only paid the Food Corporation of India half of what was intended for the bill pertaining to food subsidies. The difference was paid by a loan from the National Small Savings Fund. As a result, the Center’s food subsidy budget for 2020–21 was cut in half, from Rs 1,51,000 crore to Rs 77,892 crore.

(ii) Public sector oil marketing companies were asked to pay for subsidised gas cylinders for Pradhan Mantri Ujjwala Yojana beneficiaries in the past.

Therefore, option (a) is the correct answer.

2. (a)

FYI:

— India was cited as a “notable exception” for being among the few emerging market and developing economies to have energy efficiency building codes.

— Paris-based International Energy Agency (IEA), in its World Energy Outlook 2023, report has highlighted that India’s Energy Conservation Building Code (ECBC), 2017 for commercial buildings sets it apart from other developing economies where “energy efficiency in buildings stands out as a laggard”.

— The ECBC was first released by the Ministry of Power’s Bureau of Energy Efficiency (BEE) in 2007, followed by an update in 2017.

— ECBC sets minimum energy standards for commercial buildings, with the objective of enabling energy savings of between 25 and 50 per cent in compliant buildings. Hence, statement 1 is correct.

— The code is applicable to commercial structures with a connected load of 100 kW or more, or a contract demand of 120 kVA or more, such as hospitals, hotels, schools, shopping centres, and multiplexes. Hence, statement 2 is not correct.

— It primarily looks at six components of building design including envelope (walls, roofs, windows), lighting systems, HVAC systems, and electrical power system, and the requirements under each of these components are split between mandatory and prescriptive.

— ECBC is for both new buildings and retrofitting existing buildings. Hence, statement 3 is not correct.

Therefore, option (a) is the correct answer.

3. (d)

FYI:

— The six-member Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has decided to maintain the key interest rates at their current levels for the fourth consecutive meeting, citing retail inflation as a “major risk to macroeconomic stability and sustainable growth.”

— The repo rate is the rate at which RBI lends money to banks to meet their short-term funding needs. Hence, statement 1 is not correct.

— The interest rate that the RBI pays commercial banks when they park their excess cash with the central bank is called the reverse repo rate. Hence, statement 2 is not correct.

— The RBI sets the tone for all other interest rates in the banking system, and thus in the broader economy, by using these two rates. For example, when the RBI wants to stimulate economic activity, it lowers repo rates.

— It enables commercial banks like the SBI to lower the interest rates they charge on loans as well as the interest rates they pay on deposits.

Therefore, option (d) is the correct answer.

4. (b)

FYI:

— Primary Cooperative Banks (PCBs), also referred to as Urban Cooperative Banks (UCBs), cater to the financial needs of customers in urban and semi-urban areas.

— UCBs are primarily registered as cooperative societies under the provisions of either the State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002.

— Though the Banking Regulation Act came in to force in 1949, the banking laws were made applicable to cooperative societies only in 1966 through an amendment to the Banking Regulation Act, 1949. Hence, statement 1 is correct.

— There is duality of control over these banks with banking related functions being regulated by the Reserve Bank and management related functions regulated by respective State Governments/Central Government. Hence, statement 2 is correct.

— The Reserve Bank of India (RBI) has decided to adopt a simple four-tiered regulatory framework with differentiated regulatory prescriptions aimed at strengthening the financial soundness of the existing urban cooperative banks (UCBs).

— The RBI decision is based on the report submitted by NS Viswanathan Committee on UCBs.

— According to the RBI, the minimum CRAR requirement for Tier 1 banks is retained at the present prescription of 9% under current capital adequacy framework based on Basel-1 rules.

— For Tier 2, Tier 3 and Tier 4 UCBs, while retaining the current capital adequacy framework, it has been decided to revise the minimum CRAR to 12% so as to strengthen their capital structure. Hence, statement 3 is not correct.

Therefore, option (b) is the correct answer.

(Other Source: http://www.rbi.org.in)

5. (c)

FYI:

— Reserve Bank of India had introduced a Prompt Corrective Action Framework (PCA) for Scheduled Commercial Banks in 2002 and the same has been reviewed from time to time based on the experience gained and developments in the banking system.

— The objective of the PCA Framework is to enable Supervisory intervention at appropriate time and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.

— The PCA norm is a supervisory tool and is imposed when a bank breaches certain regulatory thresholds on capital-to-risk weighted assets ratio (CRAR), net NPAs and return on assets (RoA).

Therefore, option (c) is the correct answer.

(Other Source: http://www.rbi.org.in)

Previous Daily Subject-Wise-Quiz

Daily subject-wise quiz — Polity and Governance (Week 32)

Daily Subject-wise quiz — History, Culture, and Social Issues (Week 32)

Daily subject-wise quiz — Environment, Geography, Science and Technology (Week 32)

Daily subject-wise quiz — Economy (Week 31)

Daily subject-wise quiz – International Relations (Week 31)

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