Question 1

A bank's Capital Adequacy Ratio (CRAR) under Basel III norms must be at least what percentage in India, as per RBI guidelines?

Accepted Answer

Under Basel III framework, as implemented in India by the RBI, the minimum Capital Adequacy Ratio (CRAR) is 10.5%. This comprises a Tier 1 capital minimum of 6% (including Common Equity Tier 1 of 5.5%) and Tier 2 capital of 4.5%. The CRAR is calculated as the ratio of a bank's total capital (Tier 1 + Tier 2) to its risk-weighted assets (RWA). This ratio ensures banks maintain sufficient capital buffers to absorb losses. Therefore, the answer is C.

Question 2

Under the SARFAESI Act 2002, a bank can initiate asset seizure proceedings without obtaining a court order when the outstanding dues exceed which amount?

Accepted Answer

The SARFAESI Act 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize secured assets without court intervention when the amount of default exceeds ₹1 lakh. This threshold is a critical regulatory boundary that distinguishes SARFAESI recovery from DRT (Debt Recovery Tribunal) proceedings, which apply to dues exceeding ₹20 lakh. The Act was enacted to accelerate asset recovery and reduce the burden on courts. Therefore, the answer is B.

Question 3

Under Basel III norms applicable in India, what is the minimum Capital Adequacy Ratio (CRAR) that banks must maintain?

Accepted Answer

Basel III, implemented in India by RBI, mandates a minimum Capital Adequacy Ratio (CRAR) of 10.5% for Indian banks. This comprises Tier 1 capital (minimum 6%) and Tier 2 capital. CRAR measures a bank's capital in relation to its risk-weighted assets (RWA) and is a critical regulatory metric for assessing solvency and financial stability. The 10.5% threshold in India is higher than the international Basel III minimum of 10.5%, reflecting RBI's conservative approach. Therefore, the answer is B.

Question 4

Which of the following is NOT a characteristic of the primary market in the context of capital markets?

Accepted Answer

The primary market is where new securities (shares, debentures, bonds) are issued directly by companies to raise capital. Key characteristics include: (1) Direct issuance by the company, (2) Funds flow directly to the issuer, (3) One-time transaction per security, and (4) Regulated by SEBI through ICDR (Issue of Capital and Disclosure Requirements) Regulations. The secondary market, by contrast, involves trading of already-issued securities between investors, where the issuer does not receive funds. Trading of existing securities between investors is a characteristic of the secondary market (e.g., NSE, BSE), not the primary market. Therefore, the answer is D.

Question 5

Which of the following best describes the primary function of a Stock Exchange in the Indian capital market?

Accepted Answer

A Stock Exchange is a regulated marketplace where securities (shares, debentures, bonds) are bought and sold. In India, the two primary stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Both are recognized under the Securities and Exchange Board of India (SEBI) Act 1992. The Stock Exchange facilitates price discovery, ensures transparency, provides liquidity to investors, and maintains regulatory compliance through listing requirements and trading rules. It does NOT directly issue securities (that is the role of the issuing company), nor does it act as a custodian of funds (that is the role of depositories and custodians). Therefore, the correct answer is Option B.

Question 6

Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, what is the minimum public shareholding that a listed company must maintain?

Accepted Answer

The SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 mandate that a listed company must maintain a minimum public shareholding of 25% of the total paid-up capital. This requirement ensures broad-based ownership, prevents monopolistic control, and protects minority shareholders. However, SEBI has provided certain exemptions and relaxations for specific categories of companies (e.g., government companies, companies with promoter holding above 75%). The 25% threshold is the baseline standard for most listed entities on BSE and NSE. Therefore, the correct answer is Option C.

Question 7

Which of the following best describes the primary objective of the Insolvency and Bankruptcy Code (IBC) 2016 in the Indian financial system?

Accepted Answer

The Insolvency and Bankruptcy Code 2016 was enacted to establish a unified legal framework for resolving insolvency and bankruptcy of individuals, partnerships, and corporate entities. Its primary objective is to maximize the value of assets of the insolvent entity and ensure timely resolution through a standardized 180-day (extendable by 90 days) process. The NCLT (National Company Law Tribunal) serves as the adjudicating authority. The IBC replaced multiple fragmented laws and significantly reduced the average resolution timeline from years to months. Therefore, the answer is B.

Question 8

A bank's Net NPA is calculated by deducting which of the following from Gross NPA?

Accepted Answer

Net NPA is derived by deducting provisions and recoveries made by the bank from Gross NPA. Gross NPA represents the total value of non-performing assets before any adjustments, while Net NPA reflects the actual burden on the bank after accounting for provisions (reserves set aside for potential losses) and recoveries (amounts collected from defaulters). This distinction is critical for assessing a bank's true asset quality and capital adequacy. RBI mandates different provisioning norms based on NPA classification: Sub-standard (15%), Doubtful (25–40%), and Loss (100%). Therefore, the answer is C.

Question 9

Which of the following best describes the relationship between Gross NPA and Net NPA in a bank's balance sheet?

Accepted Answer

Gross NPA represents the total value of non-performing assets before deducting provisions and recoveries made by the bank. Net NPA is calculated by subtracting provisions made against NPAs and recoveries received from Gross NPA. The formula is: Net NPA = Gross NPA − Provisions − Recoveries. This distinction is critical for assessing a bank's true asset quality. Therefore, the answer is C.

Question 10

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum timeline for resolution of a corporate insolvency proceeding, including any extension granted by the National Company Law Tribunal (NCLT)?

Accepted Answer

The IBC, 2016 prescribes a standard resolution timeline of 180 days from the date of admission of the insolvency petition by the NCLT. This period can be extended by the NCLT by an additional 90 days in certain circumstances, making the maximum total timeline 270 days (180 + 90 days). This framework applies to all corporate insolvency proceedings adjudicated by the NCLT. Therefore, the answer is D.

Question 11

Which of the following statements correctly describes the role of the National Stock Exchange (NSE) in India's capital market?

Accepted Answer

The National Stock Exchange (NSE), established in 1992, is India's leading stock exchange and operates as a self-regulatory organization (SRO) under the Securities and Exchange Board of India (SEBI). NSE provides a platform for trading in equities, derivatives, debt instruments, and currency derivatives. It is recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE operates the NIFTY index as its primary benchmark. Therefore, the answer is B.

Question 12

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for non-performing loans exceeding which amount?

Accepted Answer

The SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize secured assets without court intervention for dues exceeding ₹1 lakh. This provision applies to secured loans where the bank holds a mortgage or charge on the asset. For amounts ≤ ₹1 lakh, banks must follow conventional DRT (Debt Recovery Tribunal) procedures. Therefore, the answer is B.

Question 13

A bank has identified a loan account as Non-Performing Asset (NPA) classified as 'Doubtful' for 18 months. Under RBI's NPA classification and provisioning norms, what is the minimum provisioning percentage the bank must maintain against this asset?

Accepted Answer

Under RBI's NPA classification framework, a 'Doubtful' asset is one where the loan has remained in the 'Sub-standard' category for more than 12 months. Doubtful assets are further sub-classified into three categories: Doubtful-1 (12–36 months), Doubtful-2 (36–60 months), and Doubtful-3 (beyond 60 months). For Doubtful-1 category (which includes the 18-month case in the question), the minimum provisioning requirement is 25% of the outstanding amount. This is prescribed under RBI's Master Circular on Income Recognition, Asset Classification and Provisioning (IRAC) norms. The bank must also maintain capital adequacy ratios as per Basel III guidelines. Therefore, the answer is C.

Question 14

Under the SARFAESI Act 2002, a bank can initiate asset seizure without obtaining a court order for recovery of dues. What is the minimum threshold amount of outstanding dues that triggers this provision?

Accepted Answer

The SARFAESI Act 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize secured assets without court intervention when the outstanding dues exceed ₹1 lakh. This threshold was set to enable faster recovery of non-performing assets. The Act applies to secured loans only and does not apply to unsecured advances. Therefore, answer is B.

Question 15

A bank classifies a loan as 'Sub-standard' NPA. According to RBI's NPA classification norms, what is the maximum period for which a loan can remain in the Sub-standard category before it is classified as 'Doubtful'?

Accepted Answer

Under RBI's NPA classification framework, a loan is classified as Sub-standard when it remains non-performing for a period not exceeding 12 months. Once the NPA status persists beyond 12 months up to 36 months, it is reclassified as Doubtful. After 36 months, it moves to the Loss category. This classification directly impacts the provisioning requirements: Sub-standard requires 15% provisioning, Doubtful requires 25–40% (depending on duration), and Loss requires 100% provisioning. Therefore, answer is A.

Question 16

Under Basel III norms applicable to Indian banks, what is the minimum Capital Adequacy Ratio (CRAR) that banks must maintain?

Accepted Answer

Basel III framework, implemented in India by RBI, mandates a minimum Capital Adequacy Ratio (CRAR) of 10.5% for Indian banks. This comprises Tier 1 capital (minimum 6%) and Tier 2 capital. The CRAR is calculated as the ratio of a bank's capital (Tier 1 + Tier 2) to its risk-weighted assets (RWA). This requirement ensures banks maintain sufficient capital buffers to absorb losses and support their lending operations. The 10.5% figure is specific to India; the global Basel III minimum is 10.5% as well, but India has aligned with this standard. Therefore, answer is C.

Question 17

An Asset Reconstruction Company (ARC) purchases non-performing loans from a bank at a discount. What is the primary instrument issued by the ARC to the selling bank as consideration for this purchase?

Accepted Answer

When an ARC purchases non-performing assets (NPAs) from a bank, it issues Security Receipts (SRs) to the selling bank as consideration. Security Receipts are debt instruments that represent the bank's claim on the cash flows generated from the reconstructed assets. The ARC may issue SRs in two forms: cash component (typically 15% of the purchase price) and SR component (typically 85% of the purchase price). The SR component is redeemed as the ARC recovers funds from the reconstructed assets. This mechanism is regulated by RBI under the ARC Regulations 2003. Therefore, answer is B.

Question 18

Under the Insolvency and Bankruptcy Code (IBC) 2016, what is the total timeline prescribed for the Corporate Insolvency Resolution Process (CIRP) from the admission of an insolvency petition to the final resolution or liquidation order?

Accepted Answer

The Insolvency and Bankruptcy Code 2016 prescribes a total timeline of 180 days for the Corporate Insolvency Resolution Process (CIRP), with a provision for a one-time extension of up to 90 days, making the maximum total timeline 270 days. The 180-day period begins from the date of admission of the insolvency petition by the National Company Law Tribunal (NCLT). This timeline is designed to ensure swift resolution of insolvencies and prevent prolonged uncertainty. The NCLT is the adjudicating authority responsible for overseeing the CIRP and ensuring compliance with the prescribed timeline. Therefore, answer is A.

Question 19

Under the SARFAESI Act, 2002, a bank can initiate asset seizure without obtaining a court order for recovery of dues exceeding which amount?

Accepted Answer

The SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize secured assets without court intervention for dues exceeding ₹1 lakh. This threshold was established to enable faster recovery of non-performing assets. The bank must follow the prescribed procedure: issue a notice to the borrower, allow 60 days for response, and then proceed with asset seizure. This provision significantly reduced banks' dependence on the judicial system for asset recovery and accelerated the NPA resolution process.

Question 20

An NPA classified as 'Doubtful' under RBI's asset classification norms must have remained non-performing for a period of:

Accepted Answer

RBI's NPA classification framework categorizes non-performing assets into three categories based on the duration of default: (1) Sub-standard: default ≤ 12 months; (2) Doubtful: default between 12 to 36 months; (3) Loss: default > 36 months or where loss is identified but not yet written off. A loan transitions from Sub-standard to Doubtful after 12 months of continuous non-performance. This classification directly impacts provisioning requirements — Doubtful assets require 25–40% provisioning depending on the age of the asset within the Doubtful category, whereas Sub-standard assets require 15% provisioning. Understanding this timeline is critical for banks' financial reporting and capital adequacy calculations.

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