Question

In the context of the Banking Sector in India, which of the following statements is INCORRECT? 
1. The Indian law legalises the use of Rupee as a medium of exchange.
2. Livestock may also be a form of collateral.
3. Credit always pushes the borrower into a situation from which recovery is very painful.
4. The RBI issues currency on behalf of the Central Government.

Answer 1

Correct Answer - Option 3 : Credit always pushes the borrower into a situation from which recovery is very painful.

The correct answer is Credit always pushes the borrower into a situation from which recovery is very painful.

• A debt trap is a situation when credit pushes the borrower into a situation from which recovery is very painful.
• Technically, a debt trap is a situation where you're forced to take fresh loans to repay your existing debt obligations.
• Dept trap is not considered in terms of Banking terms.

• Repo rate -  It is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
• Reverse Repo rate - It is the rate at which the Reserve Bank of India borrows funds from the commercial banks in the country.