Read the following statements about the financial sector and its reforms:
(A) The financial sector includes commercial banks, investment banks, stock exchange operations and the foreign exchange market.
(B) The RBI regulates banks through its norms, for example by deciding the amount of money that banks can keep with themselves.
(C) The reform policies led to the setting up of Indian private sector banks, while foreign private banks were kept out.
(D) Commercial banks in India are regulated by the Ministry of Finance, while the RBI regulates other financial institutions.
(E) Banks that fulfil certain conditions now need the approval of the RBI to set up new branches.
How many of the above statements are correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Two
The RBI regulates the whole financial sector. The reforms gave banks more freedom, but the RBI still keeps some control.
(A) The financial sector includes commercial banks, investment banks, stock exchange operations and the foreign exchange market. — Correct. These are the financial institutions that make up the financial sector.
(B) The RBI regulates banks through its norms, for example by deciding the amount of money that banks can keep with themselves. — Correct. This is one way the RBI regulates banks. It also fixes interest rates and the nature of lending to various sectors.
(C) The reform policies led to the setting up of Indian private sector banks, while foreign private banks were kept out. — Incorrect. The reforms led to private sector banks, Indian as well as foreign.
(D) Commercial banks in India are regulated by the Ministry of Finance, while the RBI regulates other financial institutions. — Incorrect. All banks and other financial institutions in India are regulated through the norms of the RBI.
(E) Banks that fulfil certain conditions now need the approval of the RBI to set up new branches. — Incorrect. Such banks have been given freedom to set up new branches without the approval of the RBI.
NCERT (2026-27): “Financial Sector Reforms: Financial sector includes financial institutions, such as commercial banks, investment banks, stock exchange operations and foreign exchange market. The financial sector in India is regulated by the Reserve Bank of India (RBI). You may be aware that all banks and other financial institutions in India are regulated through various norms and regulations of the RBI. The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors, etc. …” “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. …” |