Y. H. Malegam Committee is an expert committee constituted by the Reserve Bank of India (RBI) to examine which of the following issues related to banking and financial stability? I. Classification of bad loans II. Effectiveness of audits III. Rising incidents of frauds

Introduction / Context:
This question checks your understanding of important Reserve Bank of India (RBI) committees, which frequently appear in banking awareness and general knowledge examinations. The Y. H. Malegam Committee was set up to examine multiple interconnected issues in the Indian banking sector, particularly around non-performing assets (NPAs), classification of bad loans, the robustness of audits, and the rising frequency of banking frauds. Knowing the mandate of such committees helps candidates interpret financial policy measures and reforms more accurately.

Given Data / Assumptions:

• The committee is called the Y. H. Malegam Committee and was constituted by the RBI.
• Three issues are listed: I. Classification of bad loans, II. Effectiveness of audits, III. Rising incidents of frauds.
• The options combine these statements in different ways, including the possibility that all three were part of the mandate.
• We assume the question refers to the committee set up to examine NPAs, audit practices and fraud in recent years, not older microfinance-only committees.

Concept / Approach:
Questions of this type require precise recall of committee terms of reference. The safe approach is to remember that the Malegam panel was asked to give recommendations on strengthening the system for early recognition and proper classification of stressed assets, improving the effectiveness of statutory and internal audits, and addressing the rising trend of frauds in the banking system. Since all three issues are closely related, the correct option is the one that includes statements I, II and III together.

Step-by-Step Solution:
Step 1: Identify the subject area: RBI committees dealing with banking health, NPAs and frauds. Step 2: Recall that the Y. H. Malegam Committee was tasked with reviewing the framework for classification of bad loans and suggesting improvements. Step 3: Remember that the committee also looked at how effective audits are in detecting and preventing problem accounts, which directly relates to the effectiveness of audits. Step 4: Note that rising incidents of frauds in banks had become a major concern, and the committee was explicitly asked to examine this aspect as well. Step 5: Since all three statements describe issues that were included in the committee's mandate, choose the option that includes I, II and III together, which is 'All I, II and III'.

Verification / Alternative check:
To verify, you can refer to RBI press releases and official notifications regarding the constitution of the Y. H. Malegam Committee. These documents clearly list the committee’s terms of reference, which mention classification of stressed assets, the role and effectiveness of audits, and the reasons for and response to rising frauds in the system. Reputed exam-preparation sources and banking awareness notes also summarise these three points as the core mandate of the committee, confirming that the scope was not limited to just one or two of the listed issues.

Why Other Options Are Wrong:

• Only I and II: This incorrectly excludes rising incidents of frauds, even though fraud risk and its control were central concerns behind setting up the committee.
• Only II and III: This leaves out classification of bad loans, which is one of the key technical issues addressed by the committee when dealing with NPAs.
• Only I and III: This leaves out the effectiveness of audits, despite the fact that weaknesses in audit processes were a critical part of the committee’s review.

Common Pitfalls:
Candidates often misremember such questions because different committees sometimes work on overlapping themes. It is easy to assume that a given committee worked only on NPAs or only on frauds, while ignoring its broader mandate. Another common mistake is to think that audits are a purely internal matter and would not be included in a committee’s brief. Always remember that the RBI frequently uses committees to examine entire chains of issues: identification of problem accounts, monitoring through audits, and ultimate outcomes like frauds. When multiple related concerns are listed, there is a strong chance that 'All of the above' or 'All I, II and III' is correct, but this must always be backed by factual recall rather than blind guessing.

Final Answer:
The Y. H. Malegam Committee was set up by the Reserve Bank of India to examine all three issues – classification of bad loans, effectiveness of audits, and rising incidents of frauds, so the correct choice is 'All I, II and III'.