Banking & Financial Awareness Quiz: Important Committees on Banking and Finance

The correct answer is A, the Hilton Young Commission. The Royal Commission on Indian Currency and Finance, known after its chairman as the Hilton Young Commission, reported in 1926 and recommended a central bank for India; the recommendation was carried out by the Reserve Bank of India Act of 1934, and the Reserve Bank began its operations on 1 April 1935. Option B, the Narasimham Committee, reported in 1991 and 1998 on the reform of the banking system that already existed, and crediting it with the creation of the Reserve Bank is the commonest error in this chapter. Option C, the Chakravarty Committee of 1985, reviewed the working of the monetary system. Option D, the Malhotra Committee of 1993, dealt with the insurance sector and led to the setting up of the insurance regulator.

The correct answer is A, reform of the banking and financial system. The Committee on the Financial System of 1991, chaired by M. Narasimham, came at the start of liberalisation and recommended lower statutory liquidity and cash reserve ratios, prudential norms for income recognition and provisioning, the classification of assets as standard, sub-standard, doubtful and loss, a capital adequacy requirement and a four-tier banking structure; the second Narasimham report of 1998 added mergers of strong banks, narrow banking for weak ones and asset reconstruction companies. Option B, reform of the insurance sector, belongs to the Malhotra Committee of 1993. Option C, capital account convertibility, belongs to the Tarapore Committee of 1997 and 2006. Option D, digital payments, belongs to the Nandan Nilekani Committee of 2019, which is a far more recent report.

The correct answer is A, the Tarapore Committee. The committee chaired by S. S. Tarapore reported in 1997 and again in 2006 on capital account convertibility, that is the freedom to convert the rupee for capital transactions, and it set out preconditions such as fiscal consolidation, a low rate of inflation, a strengthened banking system and a low level of non-performing assets. Option B, the Verma Committee of 1999, examined the restructuring of weak public sector banks. Option C, the Ghosh Committee of 1992, reported on frauds and malpractices in banks. Option D, the Goiporia Committee of 1991, reported on customer service in banks, a subject revisited by the Damodaran Committee of 2011. The rupee is already convertible on the current account, so the whole debate this committee addressed is about the capital account.

The correct answer is B, the Nachiket Mor Committee. The committee on comprehensive financial services for small businesses and low-income households, chaired by Nachiket Mor, reported in 2014 and proposed differentiated banking licences; from its work the Reserve Bank issued guidelines for payments banks, which may accept deposits but not lend, and for small finance banks, which lend mainly to small borrowers. Option A, the P. J. Nayak Committee of 2014, reported on the governance of bank boards and proposed a bank investment company for the government's shareholding. Option C, the Khan Working Group of 1998, dealt with harmonising the roles of development financial institutions and banks, the idea of universal banking. Option D, the Vaghul Committee of 1987, reported on the money market. Two committees of the same year are the trap here, so attach Mor to licences and Nayak to boards.

The correct answer is A, the Urjit Patel Committee. The expert committee of 2014 chaired by Urjit Patel was asked to revise and strengthen the monetary policy framework; it recommended that consumer price inflation be made the nominal anchor, that a numerical inflation target be adopted, and that policy decisions be taken by a committee rather than by one person, which led to flexible inflation targeting and the Monetary Policy Committee. Option B, the Bimal Jalan Committee of 2019, reported on the economic capital framework of the Reserve Bank, that is how much capital the central bank should hold. Option C, the Deepak Mohanty Committee of 2015, set out a medium-term path for financial inclusion. Option D, the Tandon Committee of 1974, fixed the norms for working capital finance and belongs to an entirely different era of banking.

The correct answer is B, CRAFICARD, chaired by B. Sivaraman. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, known by the short name CRAFICARD, recommended a single apex institution for rural and agricultural credit, and NABARD was established in July 1982. Option A, the Narasimham Working Group of 1975, recommended the regional rural banks, the first of which opened on 2 October 1975, and this is the pairing most often confused with NABARD. Option C, the Khusro Committee, reviewed the agricultural credit system later, in 1989, but did not create NABARD. Option D, the Gadgil Study Group, is associated with the Lead Bank Scheme introduced in 1969, under which one bank takes charge of the credit needs of a district. Keep Sivaraman with NABARD and Narasimham with the regional rural banks.

The correct answer is A, insurance. The committee chaired by R. N. Malhotra, a former Governor of the Reserve Bank, reported in 1993 on the reform of the insurance sector; it recommended opening the sector to private companies and the creation of an independent regulator, from which the Insurance Regulatory and Development Authority was set up at the end of the decade. Option B, mutual funds, come under the Securities and Exchange Board of India, which was given statutory powers by an Act of 1992. Option C, commodity markets, were regulated by the Forward Markets Commission, later merged into SEBI. Option D, cooperative banks, have been the subject of several separate working groups of the Reserve Bank. Learn Malhotra with insurance in the same way as Narasimham with banking and Tarapore with convertibility.

The correct answer is A, working capital finance to industry. The study group chaired by P. L. Tandon reported in 1974 on the norms for bank lending for working capital, fixing acceptable levels of inventory and receivables for each industry and setting out methods of lending that limited how much of a borrower's working capital gap a bank would finance; the Chore Committee of 1979 then reviewed the cash credit system that grew out of it. Option B, priority sector lending, is governed by targets set by the Reserve Bank after bank nationalisation, not by this committee. Option C, capital adequacy, came with the Narasimham reports and the Basel norms. Option D, customer service, belongs to the Goiporia Committee of 1991 and the Damodaran Committee of 2011. Remember Tandon and Chore as a pair on working capital.

The correct answer is A, governance of the boards of banks. The committee to review governance of boards of banks in India, chaired by P. J. Nayak, reported in 2014 that public sector banks were handicapped by the manner of appointment of their directors and by the government's dual role as owner and policy maker, and it proposed transferring the government's shareholding to a bank investment company. Option B, microfinance institutions, was the subject of the Y. H. Malegam Committee of 2011, after which the Reserve Bank created the NBFC-MFI category. Option C, the resolution of stressed loans, was the subject of the K. V. Kamath Committee of 2020, which set the financial parameters for resolution after the pandemic. Option D, the financing of infrastructure, was examined by the Deepak Parekh Committee of 2007.

The correct answer is A, frauds and malpractices in banks. The committee chaired by A. Ghosh reported in 1992 on frauds and malpractices in banks and recommended systems of internal control, a separate vigilance machinery and rules for the prevention and early detection of fraud. The same year the Janakiraman Committee examined the securities transactions of banks after the stock market scam, so the two reports of 1992 must be kept apart. Option B, money market reform, belongs to the Vaghul Committee of 1987. Option C, weak public sector banks, was the subject of the Verma Committee of 1999, which classified banks by their financial strength. Option D, agricultural credit, was reviewed by the Khusro Committee of 1989 and, earlier, by CRAFICARD, which recommended NABARD.