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GRE English Comprehension Test 1

Banking sector reforms in India were introduced in order to improve efficiency in the process of financial inter-mediation. It was expected that banks would take advantage of the changing operational environment and improve their performance. Towards this end, the Reserve Bank of India initiated a host of measures for the creation of a competitive environment. Deregulation of interest rates on both deposit and lending sides imparted freedom to banks to appropriate price their products and services.

To compete effectively with non-banking entities, banks were permitted to undertake newer activities like investment banking, securities trading and insurance business. This was facilitated through amendments in the relevant acts which permitted PSBs to raise equity from the market up to threshold limit and also enabling the entry of new private and foreign banks. This changing face of banking led to an erosion of margins on traditional banking business, promoting banks to search for newer activities to augment their free incomes. At the same time, banks also needed to devote focused attention to operational efficiency in order to contain their transaction costs. Simultaneously with the deregulation measures prudential norms were instituted to strengthen the safety and soundness of the banking system.

Recent internal empirical research found that over the period 1992-2003, there has been a discernible improvement in the efficiency of Indian banks. The increasing trend in efficiency has been fairly uniform, irrespective of the ownership pattern. The rate of such improvement has, however, not been sufficiently high. The analysis also reveals that PSBs and private sector banks in India did not differe significantly in terms of their efficiency measures. Foreign banks, on the other hand, recorded higher efficiency as compared with their Indian counterparts.



1.

Prudential norms were initiated in the banking sector with a view to ....

Increase operational efficiency
Contain the non-performing assets
Strengthen the soundness of banking system
Improve the customer service
None of these


2.

Banking sector reforms in India were introduced for the purpose of ....

Giving more and more employment opportunities to the educated unemployed
Taking care of the downtrodden masses
Giving better return to the Central Government
Increasing efficiency in the banking activities
None of these


3.

Banks can control their transaction costs by ....

Restricting their lending activities
Undertaking more and more non-banking activities
Encouraging the customers to bank with other banks
Devoting more attention to operational efficiency
None of these


4.

The recent internal empirical research conducted by the RBI found that ....

There is cut-throat competition in banking industry
The rate of return is not commensurate with the operational cost
The rate of improvement has not been high
Nationalised banks and private sector banks did differ in the efficiency
None of these


5.

Which of the following statements recognising improvement in efficiency is true in the context of the passage?

There is no discremible difference in efficiency parameters
The foreign banks recorded higher efficiency
The efficiency of foreign banks is not comparable with Indian banks
The rate of such improvement in efficiency was very high
None of these