Daily Quiz: UPSC Prelims Marathon – November 7

A Non-Banking Financial Company (NBFC) is a company a) registered under the Companies Act. 1956, b) its principal business is lending, investments in various types of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance business, chit business, and c) its principal business is receiving deposits under any scheme or arrangement in one lump sum or in instalments. However, a Non-Banking Financial Company does not include any institution whose principal business is agricultural activity, industrial activity, trading activity or sale/purchase/construction of immovable property. (Section 45 I (c) of the RBI Act, 1934)

• Infrastructure Debt Fund (IDF), Asset Finance Co.s (AFC), Infrastructure Finance Company, Investment Co.s, Factor Company(Factoring business ex. HSBC) etc are regulated by Reserve Bank of India (RBI)
• Merchant Banking Companies, Venture Capital Fund, Stock Brokers, Mutual Funds are regulated by Securities and Exchange Board of India (SEBI).

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a very old subsidiary of RBI which provides insurance to all the banks registered under the guidelines of the RBI Act.

The aim of the DICGC Act, 1961 is to provide for the establishment of a corporation for the purpose of insurance of deposits and guaranteeing of credit facilities and various other matters which are incidental to any event occurring DICGC Act. No insured banks can withdraw themselves from the DICGC coverage. The deposit insurance scheme is mandatory for all the banks.

All commercial banks including branches of foreign banks functioning in India, nationalized/local banks and RRB’s are insured by the DICGC.

In the event of a bank failure, DICGC protects bank deposits that are payable in India. The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits.

(i) Deposits of foreign Governments;

(ii) Deposits of Central/State Governments;

(iii)Inter-bank deposits;

(iv) Deposits of the State Land Development Banks with the State co-operative bank;

(v) Any amount due on account of any deposit received outside India

(vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.

Participatory notes also called P-Notes are offshore derivative instruments with Indian shares as underlying assets. These instruments are used for making investments in the stock markets. However, they are not used within the country. They are used outside India for making investments in shares listed in the Indian stock market. That is why they are also called offshore derivative instruments. Participatory notes are issued by brokers and FIIs registered with SEBI. The investment is made on behalf of these foreign investors by the already registered brokers in India. For example, Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.

All the above statements are incorrect

• Regional Rural Banks came into existence on Gandhi Jayanti in 1975 with the formation of a PrathamaGrameen Bank. The rural banks had the legislative backing of the Regional Rural Banks Act 1976 .Narasimhan Committeewas formed in 1975 that suggested formation of Regional Rural Banks in India.
• Each RRB is owned by three entities with their respective shares as follows:
• Central Government → 50%
• State government → 15%
• Sponsor bank → 35%
• RRBs in India are regulated by NABARD
• Note: NABARD was established on the recommendation of B.Sivaraman Committee.

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. Interest rates offered by banks on NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

• Account should be denominated in Indian Rupees.
• Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.
• NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.
• The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs.

• The LafferCurve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer’s main premise that the more an activity such as production is taxed, the less of it is generated. Likewise, the less an activity is taxed, the more of it is generated.
• The Phillips curve is an economic concept developed by A. W. Phillips showing that inflation and unemployment have a stable and inverse relationship. The theory states that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.