"Reserve Bank of India plays a crucial role in regulating the Indian banks." Justify the statement.
Generated by claude-sonnet-4-6 · 2026-06-15 06:53 · grounding rag
Model Answer
The Reserve Bank of India (RBI) plays a crucial role in regulating Indian banks in the following ways:
- Monitors cash balance: RBI ensures that banks maintain a minimum cash balance out of the deposits they receive.
- Directs lending: RBI sees that banks give loans not just to profit-making businesses but also to small cultivators, small-scale industries, and small borrowers.
- Collects information: Periodically, banks must submit information to the RBI on how much they are lending, to whom, and at what interest rate.
This supervision ensures that formal credit is distributed fairly and the banking system functions smoothly.
Source: Money and Credit, Formal Sector Credit in India
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Explanation
- The examiner expects three distinct points for 3 marks — one point per mark.
- Use the exact RBI functions mentioned in the textbook: monitoring cash balance, directing credit to priority sectors, and collecting periodic information.
- Avoid vague statements like "RBI controls banks" without elaboration — each point must be specific.
- A brief concluding line adds neatness but is not compulsory.