Answer 1

INTRODUCTION

The Reserve Bank of India plays a crucial role in shaping the indian economy in monetary terms. The
monetary policies implemented by the RBI regulates the entire money supply in the country. These
measures increases the money supply to bring down the extreme situation of depression in the
economy and revive the economic condition to boost the economic growth. Similarly, in case of
inflation the RBI implements their monetary measures and sucks money from the economy,
decreasing the money supply in the economy as a result. In a developing country like India, it is
necessary for a supreme body to keep an eye on the economy of the country and adjust the money
supply in the country. The Reserve Bank of India in addition to regulating the money supply in the
country, keeps hold of the account of the Government of India and gives them loan in case of the
government’s budget being deficit or if they require funds for the development of the country.

CONTENT

The various monetary measures taken by the Reserve Bank of India in the economy to regulate the
money supply are as follows : -

1. Bank rate - It is the rate at which RBI lends money to commercial banks i.e. the rate of
interest charged by the RBI for its loans and advances provided to the commercial banks in
the country. This rate effectively controls the money supply in the economy. If the bank rate
is at a lower level then the commercial banks will be lured to take loan from the RBI itself.
This will henceforth increase the money supply in the economy with the help of commercial
banks due to funds being with the public greater than that of RBI. Commercial banks further
lends these funds to the general public at a reduced rate of interest.

2. Repo rate – Repo rate is the rate at which the RBI lends funds to commercial banks in
exchange of securities. This rate is fixed by the RBI and is fluctuated on the basis of the
economic condition in the country. If there is inflation in the country, then RBI increases the
repo rate which results in commercial banks taking less loans and thus the money supply in
the country decrease automatically, thus fixing the issue of inflation in the economy.

3. Reverse Repo Rate – Reverse repo rate is the rate at which the commercial banks lends
funds to the RBI i.e. the rate at which RBI take funds or keep deposits of the commercial
banks. The rate is regulated by the central bank and the increase in which tempts the
commercial banks to keep their excessive deposits with the RBI instead of lending them to
their customers which results in decrease in the money supply of the country.

4. Cash Reserve Ratio ( CRR ) – Cash reserve ratio is the minimum amount of reserves from the
customer deposits that the commercial banks are required to be kept as reserves in the form
of liquid cash or deposits with the RBI. It is the regulatory concern of the RBI to ensure that
the commercial banks doesn’t run out of cash in case of excessive withdrawal from
 customers, which could lead to the collapse of the bank as well as cause recession in the
economy as a whole.

5. Statutory Liquidity Ratio – Statutory liquidity ratio is the minimum funds that the
commercial banks have to keep with the RBI in the form of gold reserves, liquid assets like
bills receivables etc. This is similar to the concept of CRR, the only difference being the type
of reserves that are kept with the RBI by the commercial banks.

6. Open Market Operations – Open market operations refers to the activity of purchase and
sale of securities in the open market by the Reserve Bank of India in order to maintain the
economic stability in the country. This is done by RBI to regulate the money supply in the
country and impact the credit available in the economy affecting some crucial economic
factors like unemployment, cost of goods produced and the hike in prices of the services
being offered.

7. Quantitative easing – RBI takes the function of quantitative easing and manage the liquidity
of the funds in the economy. It regulates the money supply in the economy by taking
advantage of its authoritative power in the economy and function to ensure a stable
economic growth of the country as a whole.

CONCLUSION

The Indian economy's monetary policy is heavily influenced by the Reserve Bank of India. The RBI
implements monetary policies that control the nation's overall money supply. In order to alleviate
the severe economic downturn and restore the economy's health in order to support economic
growth, these actions raise the money supply. Similar to this, when there is inflation, the RBI
undertakes monetary policies and drains funds from the economy, reducing the amount of money
available to spend. It is vital for a supreme body to monitor the economy of the nation and regulate
the money supply in a developing nation like India.
In addition to controlling the nation's money supply, the Reserve Bank of India also maintains
custody of the Government of India's account and provides loans to it when it has a budgetary
shortfall or needs money for national development.
Answer 2

INTRODUCTION

The arrival of internet has revolutionized the world in ways that was unimaginable just a couple of
decades ago. It has dented a lot of industries and also provided the scope for new world leading
companies to florish and dominate the world market with the reach provided by the internet.
However, the major hit that the internet has caused is on the banking sector. The whole banking
process saw a major change in its operations and the efficiency in its workings has increased
exponentially. The digitalization of the banking sector has revolutionized the entire world’s economy
and has specifically given a boom to the Indian economy with the success of UPI technology. The
concept of digitalizing money has been in the trend from past 4-5 years and it has took the entire
banking sector to storm. In India specifically, the first one to enter into the space is paytm that
spends crores of money to spread awareness and educate the vast population of the country how
the payment process can be made simple and effortless through its collaboration with the new age
internet and technology.

CONTENT

With the evolution of the internet and the emergence of new age banking where big banks like
HDFC, SBI, Axis making a move ahead in the banking sector with their interaction with the internet
and making the banking process freaking easy to the customers making them relaxed and avoid the
huge chunks of crowd running to the banks to make payments and receive money, the first company
to disrupt the banking sector with the new concept to build a completely online bank and
demonstrate the process of going and dealing with the bank physically as old school was none other
than paytm. It was the first company to bring the concept of digital bank and the concept of digital
wallet to India.

Some of the crucial advantages and disadvantages of the concept of digital wallet and digital cash
are : -

Advantages

1. Built for multipurpose functionality – Digital wallet are built for multipurpose functionality
and can perform various tasks without a sweat. For example, with a digital wallet one can
pay electricity bills, water bills, book movie tickets, mobile recharge etc.
These all transactions that requires for you to particularly go physically and perform the
tasks can now be done with just a click.

2. Instant transactions – With the medium of transaction shifting to online, the time of
performing a transaction has reduced significantly and payments now can be done with just
a click of a button. The disruption factor that in the banking sector is essentially the time
taken during the process of the transaction, and the online medium strikes there.
 3. Customer incentives

Disadvantages

1. Cyber security issues – The major disadvantage of the mechanism of digital wallet is the
issue of cyber security that persists whenever we talk about the internet world. It can be
compared by the banking frauds and loots that used to happen before is now done digitally
in the digital bank.

2. Reach of the internet – Internet has seen enormous growth since its inception and is
constantly increasing its reach all over the world. However, still in the remote areas of 90%
of the countries still lacks the facility of internet and therefore the reach of digital banking is
still not enough.

Some of the crucial advantages and disadvantages of digital currency are : -

Advantages

1. Lower cost and lightning quick transaction – The biggest advantage of digital currency like
cryptocurrencies like bitcoin and dogecoin is that the transaction time is super quick and the
transaction costs with the digital currency is minimal in comparison to the costs incurred in
the traditional monetary transactions.

2. No physical existence – Digital currency has no physical existence in itself and thus gives a lot
of advantage in terms of saving the costs of warehouse and costs of printing the currency
and putting it into regulation.

Disadvantages

1. Security threat – The major disadvantage of digital currency is that of security threat. Where
there is money there is theft be it physical or digital. Going with the concept there is a lot
scams and theft that happens in the digital world. It goes high when the threat is to money
because we all go hard on our lives to earn that damn piece of paper (which is now a digital
coin).

2. Fluctuations in pricing – Recent history of Bitcoin cryptocurrency suggest massive

fluctuations in its value and thus proves the fact that if these coins are made the currency of
an entire nations then the whole economic cycle of that country will flutter.
CONCLUSION

In ways that were unthinkable just a few decades ago, the introduction of the internet has altered
the globe. Many sectors have been negatively impacted, yet it has also given room for new, world-
beating businesses to flourish and rule the global market thanks to the internet's global reach. The
banking industry, however, has taken the most damage from the internet. The efficiency of the
entire banking process has improved enormously, and the way it operates has undergone significant
change. With the triumph of UPI technology, the digitization of the financial industry has completely
transformed the global economy. This is especially true for India. Since the past 4–5 years, the idea
of digitising money has been popular. Paytm was the first to join the market in India particularly,
spending millions of dollars to inform and educate the huge population of the nation about how
payments can be done quickly and easily via the use of modern technology and the internet.
ANSWER 3 a)

Banking Non performing Assets (NPA’s) are the biggest threat to the banking sector and the banks
are scared of them. It is evident from the past incidents in India that led to massive banking frauds
like that of Vijay Mallya and Nirav modi. Banks try their best to ensure that lend to only those
individuals or institutions from which they are ensured of the return and keeps collateral with them
in return of the loan. Collateral is an alternate asset in the name of the individual taking the loan
which it keeps with the bank for the time being until the loan is repaid by the customer.

The main reason that can be inferred from the analysis of the past years data can be sick industry
growth from the past few years especially post the global economic crisis 2008. Other reasons
behind the growth in the banking NPA’s can be poor loan management policy, multiple business and
startup failures, sluggish legal system, inefficient recovery of the receivables.

Banks in the early 20’s lend huge amounts in loan to several companies mainly due to the economic
surge in the country during that time. This, negligence by banks in giving hefty loans to the
companies in the industry which is dynamic and can be risky in the near future which could have
been witnessed by the financial strength of these companies.

Some of the solutions that could be implemented to deal with the issue of NPA’s in Indian banking
sector effectively : -

1. Debt Recovery tribunal – This act was passed in the Indian Parliament in the year 1993 which
empowers the financial institutions of the country to collect the debts of millions of dollars.
The organisation of DRT are capable of handling more cases than the normal courts as it
significantly reduces the delay time in the beginning procedures.

2. Compromise settlement – Compromise settlement is a recovery scheme that helps in the

revival of the NPA’s up to a sum of 10 crore rupees with the help of a straightforward and a
nondiscretionary mechanism.

3. Comprehensive Investigation – The commercial banks in the country must do a thorough

research and investigation before lending the funds to any individual or organisation and
ensure with every possible way that there is a significant guarantee of the retrieval of the
funds. This involves the upkeep of mortgages in the form of documents of the assets that
the borrower possess which can be utilised in case of default of payment. Assets such as
papers of the houses or the properties that he may possess, document of the car he owns
etc.
Answer 3b)

The infamous Punjab National Bank (PNB) banking fraud of Rs 11400 crores has took the entire
banking system of the country by storm. The fraud has disclosed the dark side of these Public sector
banks and the loopholes that the big corporate organisations enjoyed for a prolonged period. These
banks be it SBI, Punjab National Bank or Bank of Baroda faced this circumstances because of their
carelessness in implementing the banking security laws correctly and effectively. As a result of many
more events like these, the banks are facing a huge crisis and shortage of funds that leads to the
economy being affected indirectly. The current banking system is as per the commercial banks
secure enough or spontaneous enough to detect and detonate a banking fraud if any especially of
the scale of Nirav modi and Mehul choksi.

Some of the banking blunders or the mistakes made by the PNB bank that led to 11400 crores scam
are :-

 When a company or organisation especially those involved in the trading business

approaches any bank for money the bank define a credit limit that the company isn’t
allowed to exceed and further commence the process of opening the Letter of undertaking
(LoU). This LoU is further sent to the branch of this bank in foreign country. The profile of the
transaction further decides the level of management responsible for the approval of these
loans. With the high profile case of Nirav modi, the higher management of the company
were responsible for the approval of the loan, which PNB failed to execute.

 The LoUs are sent to the branch in foreign countries through the worldwide payment
mechanism SWIFT. In case of high profile LoUs, three level of managerial banking staff was
required to upkeep the control of the transaction and keep the credentials with themselves.
In case of PNB, there was only a single managerial personnel and that too a low profile
executive handling the credentials of the case.

 CBS ( Core banking solution ) system keeps the record of all the SWIFT transactions that take
place across all the branches of the bank. In terms of the rules and regulations of the
banking system, when the amount is significantly high, it comes to the responsibility of
senior bank officials to check and approve, which in case of PNB fraud, bank officials
indulged in fraud LoUs, they also delinked CBS from the group of SWIFT transactions.

 Especially In India, there is a strict security system already in place to detect and prevent
such fraudulent activities. The banking IT team make sure that the CBS-SWIFT linking runs
smooth for the smooth operation of these banks. Although in the case of PNB, the IT team of
the bank failed to monitor and detect CBS-SWIFT delinking process for almost 7 years.