Money, banking and the financial system (RBI) MCQ - Practice Questions with Answers

Payments banks are listed as a separate part of India's banking structure. Their role is not the same as a full-service commercial bank. They can accept limited deposits and provide payment services, but they cannot lend like ordinary full-service banks. This distinction is important because a bank account or payment service does not automatically mean the institution can create credit through normal lending. The incorrect statement is therefore the one saying that payments banks can lend like full-service commercial banks.

Money works as a medium of exchange, a unit of account, a store of value and a standard of deferred payment. The clue here is the rupee price written on a notebook, a bus ticket or a mobile recharge. Such prices allow different goods and services to be measured and compared in one common unit. That is the unit of account function. Payment use would show medium of exchange, while saving value for later would show store of value.

There is a clear line between payment infrastructure and money creation. UPI, launched by NPCI in 2016, is described as a payment rail that transfers bank money between accounts. Moving money through a payment system does not by itself create new money. The Digital Rupee is different because it is central-bank digital currency and RBI's liability, like an electronic form of sovereign money. Therefore, the assertion about UPI is true and the reason correctly explains it by contrasting UPI with the Digital Rupee.

RBI tools differ by what they change. CRR is the share of a bank's deposits that must be kept as a cash balance with RBI, so the match CRR with cash balance with RBI is correct. SLR is the share held in approved liquid assets such as government securities, cash or gold. Repo rate affects the marginal cost of funds borrowed from RBI. The Standing Deposit Facility, introduced in April 2022, absorbs surplus liquidity without collateral. These distinctions make the other matches incorrect.

Bank soundness through credit quality. A non-performing asset is a loan on which principal or interest has remained overdue beyond the prescribed period, commonly explained in exams through the 90-day rule. This matters because high NPAs reduce bank profitability, weaken capital and make banks cautious about fresh lending. A low-interest deposit, a CRR cash balance with RBI and a delayed UPI payment are different banking or payment ideas; they do not describe an overdue loan becoming stressed.