Assertion (A): Banks are a part of formal institutions of credit.

Reason (R): Banks are supervised by the Reserve Bank of India.

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Both (A) and (R) are true and (R) is the correct explanation of (A).

Both (A) and (R) are true but (R) is not the correct explanation of (A).

(A) is correct but (R) is wrong

(A) is wrong but (R) is correct

answer is A.

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Detailed Solution

Both (A) and (R) are true and (R) is the correct explanation of (A).
Banks are a part of the formal institutions of credit. Banks provide loans at cheap and affordable rates of interest.
The Reserve Bank of India supervises banks. The Reserve Bank of India monitors the banks' cash reserves and their interest rate. The Reserve Bank of India also monitors the loans of banks. It is most profitable for banks to give loans only to profit-making businesses. But the Reserve Bank of India monitors that even small traders, small-scale industries, and other individuals get loans from banks. Banks also periodically submit information to the Reserve Bank of India, not the finance minister.

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