Hello IBPS PO Aspirants,
The Institute of Banking Personnel Selection (IBPS) will conduct Personal interviews for IBPS Probationary Officer’s selection for participating banks, often called as IBPS PO (CWE-VI PO/MT). Here are some essential questions and theirs answers to help IBPS PO aspirants to effortlessly sail through the IBPS PO Interview 2017.
1. RBI shifted from Quarterly to bi-monthly policy review. What do you mean by bi-monthly policy review?
Previously, the Reserve Bank of India (RBI) released the monetary policy review every quarter (once every three months). Now, the apex bank has shifted to a bi-monthly policy review, which means that it will announce the monetary policy review after every two months. The first bi-monthly policy review was announced on April 1, 2014. This was started after then Deputy Governor Urjit Patel suggested that RBI’s monetary policy committee should convene every two months to review rates.
2. What is monetary policy? Who controls India’s monetary policy?
The RBI determines India’s monetary policy. It is a method by which the central bank maintains sufficient money supply in the economy by controlling interest rates and other instruments to ensure price stability and high economic growth.
3. What are Open Market Operations?
Open Market Operations refer to the purchase or sale of government securities in the open market by the RBI.
When the RBI sells securities in the market, money gets transferred from commercial banks to the RBI. This decreases money supply in the system. Shortage of money in the economy helps to control spending by individuals/corporates and keep inflation in check.
When the RBI purchases securities from the market, money gets transferred from RBI to the commercial banks, thereby increasing the money supply. This is done if economic growth is sluggish.
4. What is Repo rate?
Repo rate is the rate at which the RBI lends money to commercial banks in case of any shortage of funds. It is the rate of interest charged on short-term (3-90 days) loans. It is used by monetary authorities to control inflation.
5. What happens when the RBI increases or reduces the Repo rate?
When the repo rate increases, borrowing from the RBI becomes more expensive. In other words, the RBI would charge a higher rate of interest for money provided to various commercial banks. The banks would thus be forced to charge their customers a higher rate of interest on home and auto loans in order to balance the impact of the rate hike. Thus, while on the one hand, inflation is under control as there is less money to spend, growth suffers as companies avoid taking loans at high rates. This leads to a drop in the production and the expansion.
When the repo rate is reduced, banks get money from the RBI at a cheaper rate of interest. Banks thus charge their customers a low rate of interest on home, auto and other types of loans.
6. What is Cash Reserve Ratio (CRR)?
It is the reserve of funds that banks must mandatorily keep with the RBI, and is a percentage of the deposits held by the bank. The RBI uses CRR to remove excessive money from the system. If the central bank decides to increase the CRR, the amount available with the banks reduces. Example: If a bank account holder deposits Rs. 1,000 in his account, the bank can use it to lend money to others, but has to deposit a percentage of that amount with the RBI. If the CRR is 4%, the bank will deposit Rs.40 with RBI and will have Rs.960 left at its disposal.
Must Know questions and answers, part 4