{"id":2422,"date":"2025-05-01T20:01:06","date_gmt":"2025-05-01T14:31:06","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=2422"},"modified":"2025-05-01T20:01:09","modified_gmt":"2025-05-01T14:31:09","slug":"q-consider-the-following-statements-143","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-consider-the-following-statements-143","title":{"rendered":"Q. Consider the following statements :"},"content":{"rendered":"\n
    \n
  1. In India, Non-Banking Financial Companies can access the\u00a0Liquidity Adjustment Facility window<\/strong>\u00a0of the Reserve Bank of India.<\/li>\n\n\n\n
  2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).<\/li>\n\n\n\n
  3. In India, Stock Exchanges can offer separate trading platforms for debts.<\/li>\n<\/ol>\n\n\n\n

    Which of the statements given above is\/are correct?<\/p>\n\n\n\n

      \n
    • 1 and 2 only<\/li>\n\n\n\n
    • 3 only<\/li>\n\n\n\n
    • 1, 2 and 3<\/li>\n\n\n\n
    • 2 and 3 only<\/li>\n<\/ul>\n\n\n\n
      \n

      Answer: (d) 2 and 3 only<\/strong><\/p>\n<\/blockquote>\n\n\n\n

      Notes:<\/h5>\n\n\n\n
        \n
      • Non-Banking Financial Companies (NBFCs) in India\u00a0do<\/strong>\u00a0not have direct access to the Liquidity Adjustment Facility (LAF)<\/strong>\u00a0window of the Reserve Bank of India (RBI). The LAF is primarily used by banks to manage their day-to-day liquidity mismatches.<\/li>\n\n\n\n
      • Foreign Institutional Investors (FIIs) are permitted to invest in Government Securities (G-Secs)\u00a0<\/strong>within the limits prescribed by the RBI and SEBI. This is part of efforts to attract foreign investment into India\u2019s debt market.<\/strong><\/li>\n\n\n\n
      • Indian stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have established\u00a0separate trading platforms for debt instruments,<\/strong>\u00a0facilitating the trading of corporate bonds, government securities, and other debt instruments.<\/li>\n<\/ul>\n\n\n\n
        Liquidity Adjustment Facility:<\/h5>\n\n\n\n
          \n
        • Liquidity in the banking system refers to\u00a0readily available cash<\/strong>\u00a0that banks need to meet short-term business and financial needs.<\/li>\n\n\n\n
        • On a given day, if the banking system is a net borrower from the RBI under\u00a0Liquidity Adjustment Facility (LAF),<\/strong>\u00a0the system liquidity is said to be in deficit. If the banking system is a net lender to the RBI, the liquidity is said to be in surplus.<\/li>\n\n\n\n
        • A LAF is a\u00a0monetary policy\u00a0tool<\/strong>\u00a0used in India by the RBI through which it injects or absorbs liquidity into or from the banking system.<\/li>\n\n\n\n
        • It was introduced as a part of the outcome of the\u00a0Narasimham Committee<\/strong>\u00a0on Banking Sector Reforms of 1998.<\/strong><\/li>\n\n\n\n
        • LAF has two components \u2013\u00a0repo (repurchase agreement) and reverse repo.<\/strong>\u00a0When banks need liquidity to meet its daily requirement, they\u00a0borrow from RBI through repo.<\/strong>\u00a0The rate at which they borrow fund is called the\u00a0repo rate.<\/strong>\u00a0When banks are flush with fund, they park with RBI through the\u00a0reverse repo mechanism at reverse repo rate.<\/strong><\/li>\n\n\n\n
        • It can\u00a0manage\u00a0inflation<\/strong>\u00a0in the economy<\/strong>\u00a0by increasing and reducing the money supply.<\/li>\n\n\n\n
        • LAF is\u00a0used to aid banks in resolving any short-term cash shortages<\/strong>\u00a0during periods of economic instability or from any other form of stress caused by forces beyond their control.<\/li>\n\n\n\n
        • Various banks use eligible securities as collateral through\u00a0a repo agreement<\/strong>\u00a0and use the funds to alleviate their short-term requirements, thus remaining stable.<\/li>\n\n\n\n
        • The facilities are implemented on a day-to-day basis as banks and other financial institutions ensure they have enough capital in the overnight market.<\/li>\n\n\n\n
        • The transacting of liquidity adjustment facilities\u00a0takes place via an auction<\/strong>\u00a0at a set time of the day.<\/li>\n<\/ul>\n\n\n\n
          Tools under the Monetary Policy:<\/strong><\/h6>\n\n\n\n
            \n
          • Cash Reserve Ratio (CRR).<\/strong><\/li>\n\n\n\n
          • Statutory Liquidity Ratio (SLR).<\/strong><\/li>\n\n\n\n
          • Bank Rate.<\/strong><\/li>\n\n\n\n
          • Standing Deposit Facility (SDF).<\/strong><\/li>\n\n\n\n
          • Marginal Standing Facility (MSF).<\/strong><\/li>\n\n\n\n
          • Cash Reserve Ratio (CRR).<\/strong><\/li>\n<\/ul>\n\n\n\n
            Non-Banking Financial Company (NBFC):<\/h5>\n\n\n\n
              \n
            • A NBFC is a\u00a0company registered under<\/strong>\u00a0the\u00a0Companies Act, 1956,<\/strong>\u00a0engaged in the\u00a0business of loans and advances<\/strong>, the\u00a0acquisition of shares<\/strong>\/stocks<\/strong>\/bonds\/debentures\/securities issued by the Government or local authority or other marketable securities\u00a0<\/strong>of a like nature, leasing, hire-purchase, insurance business, chit business.<\/li>\n\n\n\n
            • It\u00a0does not include<\/strong>\u00a0any\u00a0institution whose principal business is<\/strong>\u00a0that of\u00a0agriculture activity, industrial activity<\/strong>, the\u00a0purchase or sale of any goods<\/strong>\u00a0(other than securities<\/strong>) or\u00a0providing any services<\/strong>\u00a0and\u00a0sale\/purchase\/construction of immovable property<\/strong>.\u00a0<\/li>\n\n\n\n
            • A non-banking institution<\/strong>\u00a0which is a company and has the\u00a0principal business of receiving deposits under any scheme or arrangement\u00a0<\/strong>in one lump sum or in installments by way of contributions, or in any other manner,\u00a0is also a NBFC<\/strong>\u00a0(Residuary non-banking company).<\/li>\n\n\n\n
            • Generally, these institutions are\u00a0not allowed to take traditional demand deposits<\/strong>\u00a0from the public. They can\u00a0only accept time deposits<\/strong>, and they do not provide savings or current account facilities.\n
                \n
              • They\u00a0cannot accept deposits<\/strong>\u00a0for a period\u00a0less than 12 months and more than 60 months.<\/strong><\/li>\n\n\n\n
              • NBFCs\u00a0cannot offer interest rates higher than<\/strong>\u00a0the\u00a0ceiling rate prescribed by\u00a0<\/strong>RBI\u00a0from time to time. The\u00a0present ceiling is 12.5\u00a0<\/strong>per cent per annum.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
              • NBFCs also\u00a0provide<\/strong>\u00a0a wide range of\u00a0monetary advice like chit-reserves and advances.<\/strong><\/li>\n\n\n\n
              • NBFCs lend and make investments, and hence their\u00a0activities are akin to that of banks;<\/strong>\u00a0however, there are a\u00a0few differences<\/strong>\u00a0as given below:\n
                  \n
                • NBFCs\u00a0do not have<\/strong>\u00a0a\u00a0banking license;<\/strong><\/li>\n\n\n\n
                • NBFCs\u00a0cannot accept demand deposits<\/strong>;<\/li>\n\n\n\n
                • NBFCs\u00a0do not form part of<\/strong>\u00a0the\u00a0payment and settlement system<\/strong>\u00a0and\u00a0cannot issue cheques drawn on itself<\/strong>;<\/li>\n\n\n\n
                • Deposit insurance facility<\/strong>\u00a0of Deposit Insurance and Credit Guarantee Corporation is\u00a0not availableto depositors of NBFCs<\/strong>, unlike in the case of banks.<\/li>\n\n\n\n
                • Unlike banks, NBFCs\u00a0are not subjected to stringent<\/strong>\u00a0and substantial\u00a0regulations<\/strong>.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                • Regulation:<\/strong>\n
                    \n
                  • The functions of the NBFCs are\u00a0managed by<\/strong>\u00a0both\u00a0the Ministry of Corporate Affairs and the RBI.<\/strong><\/li>\n\n\n\n
                  • The\u00a0RBI<\/strong>\u00a0has the authority to\u00a0issue licenses to NBFCs<\/strong>,\u00a0regulate their operations<\/strong>, and ensure that they adhere to the established norms and regulations.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                  • NBFCs are categorized<\/strong>\n
                      \n
                    • In terms of the types of liabilities into\u00a0Deposit and Non-Deposit accepting<\/strong>\u00a0NBFCs,<\/li>\n\n\n\n
                    • Non-deposit taking<\/strong>\u00a0NBFCs by their size\u00a0into systemically importantand other non-deposit holding companies<\/strong>\u00a0(NBFC-NDSI and NBFC-ND) and<\/li>\n\n\n\n
                    • By the kind of activity, they conduct.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                    • What are systemically important NBFCs?<\/strong>\n
                        \n
                      • NBFCs whose\u00a0asset size is \u20b9 500 crore or more<\/strong>\u00a0as per the last audited balance sheet are considered systemically important NBFCs.<\/li>\n\n\n\n
                      • The rationale for such classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                      • Examples<\/strong>\u00a0of NBFCs include\u00a0investment banks, mortgage lenders, money market funds, insurance companies<\/strong>,\u00a0equipment leasing companies<\/strong>, infrastructure finance companies,\u00a0hedge funds<\/strong>, private equity funds, and P2P lenders.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                        Which of the statements given above is\/are correct? Answer: (d) 2 and 3 only Notes: Liquidity Adjustment Facility: Tools under the Monetary Policy: Non-Banking Financial Company (NBFC):<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[49],"class_list":["post-2422","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-49"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":49,"label":"2024"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2422","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=2422"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2422\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=2422"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=2422"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=2422"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=2422"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}