Question

Explain the reason for necessity of supervision by the reserve bank of india of formal sources of loans of 0 economics

Answer 1

The reasons for necessity of supervision by the Reserve Bank of India of formal sources of loans are :

1.  It sees that the banks maintain the minimum cash balance and thus ensures safety to the bank deposits of customers (people).

2.  It sees that the banks provide loans to small scale industries and traders, prioritized sectors and industries.

3.  To check corruption while lending loans.

4.  If uncontrolled, the formal sources of loans may lead to economic crises and recession.

Answer 2

The Reserve Bank of India supervises the functioning of formal sources of loans because ;

• For instance banks maintain a minimum cash balance out of the deposits they receive . The RBI monitors the banks in actually maintaining cash balance
• Similarly the RBI sees that the banks five loans not just to profit making businesses and traders but also to small cultivators , small scale industries,, to small borrowers etc
• Periodically banks have to submit information to the RBI on how much they are lending , to whom, at what interest rate etc {CBSE GRADE 10}