After the financial sector reforms, a private bank that fulfils certain conditions opens new branches, and a foreign pension fund buys shares of Indian companies. Which statement about this is correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Both are allowed, but certain managerial aspects of banks are still retained with the RBI.
The reforms gave banks and foreign investors more freedom, but the RBI kept certain managerial aspects of banks.
Option (1) The pension fund may invest, but the bank still needs the approval of the RBI to open the new branches. — Incorrect. A bank that fulfils the conditions no longer needs RBI approval for new branches.
Option (2) Both are allowed, and the RBI no longer has any role in the managerial aspects of banks. — Incorrect. The RBI keeps certain managerial aspects of banks with itself.
Option (3) The bank may open the branches without RBI approval, but foreign pension funds still cannot invest in Indian financial markets. — Incorrect. Pension funds are Foreign Institutional Investors, and FIIs are now allowed to invest in Indian financial markets.
Option (4) Both are allowed, but certain managerial aspects of banks are still retained with the RBI. — Correct. Both steps are allowed, and the RBI still safeguards the banks’ account-holders.
NCERT (2026-27): “Financial Sector Reforms: … The reform policies led to the establishment of private sector banks, Indian as well as foreign. Foreign investment limit in banks was raised to around 74 per cent. Those banks which fulfil certain conditions have been given freedom to set up new branches without the approval of the RBI and rationalise their existing branch networks. Though banks have been given permission to generate resources from India and abroad, certain managerial aspects have been retained with the RBI to safeguard the interests of the account-holders and the nation. Foreign Institutional Investors (FII), such as merchant bankers, mutual funds and pension funds, are now allowed to invest in Indian financial markets.” |