Commercial Banking System & Role of RBI - NMIMS University Solved assignments latest

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NMIMS Global Access

Course: Commercial Banking System & Role of RBI

Internal Assignment Applicable for December 2023 Examination

 

Assignment Marks: 30

 

Question. 1) Independence of Central Bank is very crucial for impartial functioning and fair play in the economy. Any closeness of Central Bank to Ministry of Finance will not be fair and it will be viewed as baby of the government and will be looked with suspicion. Do you agree or disagree with the above statement and what is your stand? (10 marks)

Answer: The issue of central bank independence is a complex and debated topic in economics and finance. The statement expresses a viewpoint that emphasizes the importance of central bank independence for impartial functioning and fair play in the economy, and it suggests that any closeness between the central bank and the Ministry of Finance could undermine this impartiality.

The argument in favor of central bank independence:

1. Monetary Policy Objectivity: Central banks are responsible for implementing monetary policy, which involves controlling inflation and promoting economic stability. An independent central bank is often better positioned to make decisions based on economic fundamentals rather than political considerations.
2. Credibility: An independent central bank can build credibility by being insulated from political pressures. This credibility can
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Question. 2) RBI has different parameters for evaluating the performance of bank. These criteria emanates from different roles played by commercial banks. Explain the different parameters on which banks are rated on scale of 1 to 5. Here 5 is rated as unsatisfactory/poorly performing bank, while 1 rating is deemed as a well run bank. (10 marks)

Answer: The Reserve Bank of India (RBI) uses various parameters to evaluate the performance of commercial banks operating in India. These parameters are derived from the different roles and functions that commercial banks play in the financial system. Banks are typically rated on a scale of 1 to 5, with 5 being rated as unsatisfactory or poorly performing, and 1 indicating a well-run bank. These ratings help the RBI and other stakeholders assess the financial health and operational efficiency of banks. Here are some of the key parameters on which banks are typically rated:

1. Asset Quality (1-5):
• 5: High levels of non-performing assets (NPAs), indicating poor asset quality.
• 4: Moderately
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Question. 3) Today most of the banks are focusing on recovery of Non-Performing Assets (NPAs). A large chunk of bank’s money is locked in these assets. Major defaulters are intentional who plan to defraud the bank and run away. The other type of defaulters are those, who because of circumstances or due to some inability are unable to repay the bank loans. Banks have to make huge provisions for NPAs, which reduce the profitability of the banks. However, new legislations have been passed expediting recovery process but more needs to be done. In light of above statements:

Question. a) Write the major steps taken for recovery since last 10 years (5 marks)

Answer: Over the last decade, India has taken several steps to expedite the recovery of Non-Performing Assets (NPAs) in the banking sector. Some of the major initiatives and legislative changes include:

1. Insolvency and Bankruptcy Code (IBC) 2016:
• The IBC introduced a time-bound framework for resolving insolvency and bankruptcy cases, providing a more efficient and transparent mechanism for debt recovery.
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Question. b) How do you differentiate between intentional defaulters and ability defaulters, and the view of RBI on these two category of defaulters? (5 marks)

Answer: The Reserve Bank of India (RBI) distinguishes between intentional defaulters and those who default due to an inability to repay, and its approach toward these categories is quite distinct:

Intentional Defaulters:

• Definition: Intentional defaulters are borrowers who deliberately and willfully default on their loan repayment obligations, often

 

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