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Study@Night: Comprehension Passage(October 12, 2017)

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Study@Night: Comprehension Passage

The RBI has cut the repo rate by another 25 basis points, bringing the cumulative reduction in the policy rate to 150 basis points. This was widely expected. But the central bank offered a pleasant surprise as well. There would be a step up in liquidity , which should help banks cut lending rates. After the central government’s decision to stick to fiscal discipline and bring small savings rates down,benchmarked against the yield on government bonds of like maturity , it would have been difficult for the central bank to not cut its policy rate, especially with inflation behaving, more or less.
Now, it is the turn of banks to lower their lending rates, armed as they are with more room to lower deposit rates and a new way to set their lending rate, based on the marginal cost of funds.The RBI’s focus is now shifting from rate reduction to liquidity measures. Lack of liquidity has hampered banks’ ability to translate reductions in the RBI’s policy rate into lower lending rates. The RBI now promises to enhance durable liquidity , to eliminate the liquidity deficit.
The pre-emption of bank lending by making banks hold a proportion, called the statutory liquidity ratio, of their assets in gov ernment bonds will steadily come down. Banks will be allowed greater leeway in missing the cash reserve they hold on a daily basis. Further, the halving of the difference between the rate at which the central bank lends banks emergency liquidity (the marginal standing facility rate, which is above the repo rate) and the rate it offers on deposits accepted from banks (the reverse repo rate, below the repo rate) to 100 basis points will mean that market-determined call money rates will align better with the repo rate.

The RBI’s move to issue consultation papers on peer-to-peer lending and on wholesale banks is most welcome.These are two ends of the credit spectrum that are underserved. As technology disrupts finance, regulation has to evolve to keep pace with the change. The only caveat is that a bank that focuses on large loans should not be seen as a substitute for a thriving bond market.

1. According to you what should be the heading of the passage ?

1. RBI’s New, Welcome Stress on Liquidity

2. Inflation at par with Policy rate cut.

3. Rising stress on economy

4. Liquidity crunch with Rate cut

5. None of these

2. How does policy rate cut is considered to be a cushion for the economy ?

1. Policy rate cut increases the borrowing of the people

2. reduction in policy will increase public expenditure

3. Lower repo rate means there will be a step up in liquidity in the market

4. It will decrease bank funding

5. None of these

3. What does the Proverb Peer-to-Peer lending in the context of the passage means ?

1.  On a case to case basis

2. Group Lending

3. Lending to relatives

4. Branch to branch lending

5. Lending to individual or business through online

4. what is the only caveat talked about in the passage considering banks ?

1. Banks funding to high value corporate should not be considered as a substitute for Bond Markets.

2. Lending based on Marginal cost of funds restricts banks to lower the lending rates despite of Policy Rate Cut.

3. The 7th pay commission of government is certainly going to increase the retail inflation.

4. Liquidity crunch will persists despite of rate cut.

5. None of these

5. What is Statuary Liquidity Ratio according to the passage defined as ?

1. A portion of money that banks has to maintain with them self as per the guidelines of RBI

2. The rate at which RBI borrow money from the schedule banks.

3. Rate at which Schedule Banks deposits money with RBI.

4. The potion of money that bank has to keep with RBI as a security.

5. None of these

6. What is the meaning of the word given below ?

A) Cumulative

1. Accumulative

2. Decremntal

3. degressive


7. B) Bench marked

1. Yard stick

2. Guess

3. Gauge

4. None of these

8. C) Pre-emption

1. Assumption

2. Factual

3. Concrete

4. None of these

9. D) Caveat

1. Limitation

2. Boundary

3. Unconditional

4. None of these


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  7. 1
  8. 1
  9. 1


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