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Question

Which of the following matters of the Commercial Banks are regulated by the Reserve Bank of India?

1. Controlling credit creation by commercial banks.

2. Merger and winding up of commercial banks.

Select the correct answer using the codes given below:

A 1 only Correct Answer Incorrect Answer
B 2 only Correct Answer Incorrect Answer
C Both 1 and 2 Correct Answer Incorrect Answer
D Neither 1 nor 2 Correct Answer Incorrect Answer

Solution

● Statement 1 is correct: The RBI undertakes the responsibility of controlling credit created by commercial banks through quantitative and qualitative techniques to control and regulate the credit flow in the country. When RBI observes that the economy has sufficient money supply and it may cause an inflationary situation in the country then it squeezes the money supply through its tight monetary policy and vice versa. ● Statement 2 is correct: Section 45 of Banking Regulation Act 1949 empowers the Reserve Bank to make a scheme of amalgamation of a bank with another bank if it is in the depositors' interest or in the interest of the overall banking system. Many private sector banks have been merged with other private sector banks or the PSBs under this mechanism. The power of winding up of banks lies in the hand of the Reserve bank of India. The Banking (Regulation) Act, 1949 provision from Section 38 to 44 deals with the winding up procedure for banks.

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