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      Question

      Which of the following is/are correct? Please select the

      appropriate option. i.    When RBI expects that prices of commodities are increasing, as a monetary measure RBI may cut the CRR or Repo rate ii.   When there is excess volatility in the foreign exchange market, RBI will keep its forex reserve intact iii.  RBI started Asset Quality Review (AQR) because high exposure to structured derivative including Credit Default Swap increased stressed assets of banks
      A Only i & ii Correct Answer Incorrect Answer
      B Only i & iv Correct Answer Incorrect Answer
      C Only i, ii & iv Correct Answer Incorrect Answer
      D Only iii Correct Answer Incorrect Answer
      E None of these Correct Answer Incorrect Answer

      Solution

      1.   In case of price rise (high inflation) RBI increases CRR or repo which will decrease money supply and tame inflation. 2.    In case of volatility in forex market, RBI intervene and depending on the sale/purchase that will increase of decrease forex reserves 3.    RBI initiated the Asset Quality Review of banks in the second half of 2015 because about 1/6th of the public sector banks’ gross advances are stressed (non-performing, restructured or written-off), and a significant majority of these are in fact non-performing assets (NPAs). This estimate of stressed assets has doubled from 2013 in terms of what had been recognized by banks. The stressed assets are mostly comprised of loans to businesses sectors such as infrastructure, power, telecom, metals (iron and steel, in particular), engineering-procurement-construction (EPC), and textiles.

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