Question 1

Which of the following statements correctly describes the relationship between the repo rate and the reverse repo rate in RBI's monetary policy framework?

Accepted Answer

The repo rate is the rate at which the RBI lends money to scheduled commercial banks against government securities as collateral. The reverse repo rate is the rate at which the RBI borrows money from scheduled commercial banks. By definition, the reverse repo rate is always lower than the repo rate. This corridor (repo-reverse repo spread) is a key tool in RBI's liquidity management. Therefore, answer is A.

Question 2

Under the Pradhan Mantri Mudra Yojana (PMMY), what is the maximum loan amount that can be sanctioned under the 'Shishu' category without collateral or third-party guarantee?

Accepted Answer

The Pradhan Mantri Mudra Yojana (PMMY) is a government-backed micro-lending scheme launched in 2015 to support small and micro-enterprises. The scheme has three categories: Shishu (up to ₹50,000), Kishore (₹50,001 to ₹5 lakhs), and Tarun (₹5 lakhs to ₹10 lakhs). Under the Shishu category, loans up to ₹50,000 are provided without collateral or third-party guarantee, making it accessible to first-time entrepreneurs. Therefore, answer is B.

Question 3

Which of the following best describes the key difference between a Demand Deposit and a Term Deposit in the context of banking regulations?

Accepted Answer

Demand deposits are withdrawable on demand without any notice or penalty, while term deposits have a fixed maturity period and cannot be withdrawn before maturity without forfeiting interest or paying a penalty. Under RBI guidelines, banks classify deposits based on withdrawal terms. Demand deposits include savings accounts and current accounts; term deposits include fixed deposits with predetermined tenure. The candidate must distinguish between liquidity features and contractual terms of different deposit products.

Question 4

Under RBI guidelines, what is the maximum amount of deposit insurance coverage provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) per depositor per bank?

Accepted Answer

The DICGC provides deposit insurance coverage of ₹5 lakh per depositor per bank. This limit was increased from ₹1 lakh to ₹5 lakh effective May 2021 through an RBI notification. This coverage applies to all deposits — demand, savings, and term — held by a depositor in a single bank. If a depositor holds deposits in multiple banks, each bank's deposits are separately covered up to ₹5 lakh. Therefore, answer is B.

Question 5

Which of the following statements correctly describes the relationship between Loan-to-Value (LTV) ratio and loan approval in retail lending?

Accepted Answer

The Loan-to-Value (LTV) ratio is the percentage of the asset's value that a bank is willing to lend. A lower LTV ratio means the bank lends a smaller percentage of the asset's value, requiring a higher down payment from the borrower. This reduces the bank's credit risk. For example, an 80% LTV on a ₹50 lakh property means the bank lends ₹40 lakh, and the borrower must contribute ₹10 lakh. Banks typically set lower LTV ratios for riskier assets or borrowers with weaker credit profiles. Therefore, answer is C.

Question 6

Under RBI guidelines, which of the following is NOT a permissible use of funds borrowed through a Personal Loan from a bank?

Accepted Answer

Personal loans are unsecured loans provided by banks for general personal consumption purposes. Permissible uses include education, medical expenses, home renovation, travel, wedding expenses, and debt consolidation. However, RBI guidelines prohibit the use of personal loans for speculative purposes such as stock market investments, commodity trading, or purchase of securities for trading (not long-term investment). Additionally, personal loans cannot be used for purchase of immovable property or for business purposes — these require specific loan products like home loans or business loans. Therefore, answer is D.

Question 7

Under the Banking Regulation Act, 1949, which of the following best describes the key difference between a Demand Deposit and a Time Deposit in the context of bank liabilities?

Accepted Answer

Demand Deposits are withdrawable by the depositor on demand without any notice or penalty, whereas Time Deposits (also called Fixed Deposits) are accepted by banks for a fixed tenure and can only be withdrawn after the maturity period or with a penalty for premature withdrawal. This distinction is critical for banks in calculating their Net Demand and Time Liabilities (NDTL), which forms the base for computing CRR and SLR requirements under RBI guidelines. Therefore, the answer is B.

Question 8

A bank customer takes a personal loan of ₹5 lakhs at 10% per annum under the bank's standard retail lending product. Under RBI's Priority Sector Lending (PSL) guidelines, this loan would be classified as:

Accepted Answer

Personal loans (unsecured loans to individuals for personal consumption or non-productive purposes) are NOT classified as Priority Sector Lending under RBI guidelines. Priority Sector Lending includes agriculture, micro and small enterprises (MSEs), education, housing (up to ₹42 lakh for metro areas and ₹32 lakh for non-metro areas as per current norms), and renewable energy, among others. Personal loans fall under the General/Non-Priority Sector category. Therefore, the answer is D.

Question 9

Which of the following correctly describes the concept of 'Equated Monthly Installment' (EMI) in the context of loan repayment?

Accepted Answer

An Equated Monthly Installment (EMI) is a fixed amount paid by the borrower to the lender every month to repay a loan. The EMI includes both principal and interest components. In the initial months, the interest component is higher and the principal component is lower. As the loan progresses, the principal component increases and the interest component decreases, but the total EMI remains constant throughout the loan tenure. EMI is calculated using the formula: EMI = [P × r × (1 + r)^n] / [(1 + r)^n – 1], where P is principal, r is monthly interest rate, and n is number of months. Therefore, answer is B.

Question 10

Under RBI guidelines, what is the primary purpose of the Statutory Liquidity Ratio (SLR) requirement for scheduled commercial banks?

Accepted Answer

The Statutory Liquidity Ratio (SLR) is a regulatory requirement under Section 24 of the Banking Regulation Act 1949 that mandates scheduled commercial banks to maintain a minimum percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets—primarily government securities, gold, and cash. The primary purpose is to ensure banks maintain adequate liquidity to meet depositor withdrawals and to support government borrowing through G-sec purchases. Therefore, answer is C.

Question 11

A customer takes a home loan of ₹25 lakhs from a bank at 8% per annum. Under RBI's lending norms, what is the maximum Loan-to-Value (LTV) ratio typically permitted for residential property loans?

Accepted Answer

The Loan-to-Value (LTV) ratio for residential property loans is typically capped at 80% under RBI's prudential norms for housing finance. This means a bank can lend up to 80% of the property's market value; the borrower must contribute at least 20% as down payment. This norm is designed to protect the bank's interest in case of property value depreciation and to ensure borrower commitment. Therefore, answer is B.

Question 12

Which of the following best describes the key difference between a Demand Deposit and a Term Deposit in the context of banking regulation?

Accepted Answer

Demand deposits are withdrawable on demand without any notice or penalty, while term deposits (also called fixed deposits) are held for a fixed tenure and cannot be withdrawn before maturity without incurring a penalty. Under the Banking Regulation Act 1949, banks classify liabilities based on these withdrawal characteristics. Demand deposits include savings accounts and current accounts; term deposits include fixed deposits with predetermined maturity dates. Therefore, answer is B.

Question 13

A bank customer avails a term loan of ₹50 lakhs at 9% per annum with a 5-year tenure. The loan agreement includes a prepayment clause allowing the customer to repay the entire outstanding amount without penalty after 2 years. Under RBI guidelines on loan prepayment and the provisions of the Indian Contract Act, 1872, which of the following correctly describes the bank's obligation and the customer's right in this scenario?

Accepted Answer

Under RBI guidelines on fair lending practices and the Indian Contract Act, 1872, when a loan agreement includes a prepayment clause without penalty, the customer has the contractual right to repay the loan early without incurring additional charges. However, the bank may recover the actual cost of funds (if applicable) and administrative costs as per the agreed terms, but cannot impose a prepayment penalty. RBI's guidelines on 'Fair Practices Code' (issued under Section 45L of the RBI Act, 1934) mandate that banks must disclose prepayment terms transparently. In this case, after 2 years, the customer can prepay the outstanding principal without penalty, though interest accrued up to the prepayment date remains payable. The bank's obligation is to accept prepayment and calculate the outstanding amount accurately. Therefore, the correct answer is Option C.

Question 14

Under the Banking Regulation Act, 1949, a scheduled commercial bank must maintain a Statutory Liquidity Ratio (SLR) by holding liquid assets. Which of the following correctly defines the composition and regulatory framework of SLR?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained in the form of liquid assets — primarily government securities, state development loans (SDLs), gold, and cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. The current SLR requirement is 18% of NDTL. SLR differs fundamentally from CRR (Cash Reserve Ratio) because SLR assets are held by the bank itself in approved securities, whereas CRR is cash deposited with RBI. Therefore, the answer is B.

Question 15

A bank customer deposits ₹50 lakhs in a Fixed Deposit (FD) account for 3 years. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, what is the maximum amount of insurance coverage the depositor will receive if the bank fails?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, provides deposit insurance coverage to depositors in case of bank failure. The current insurance limit is ₹5 lakhs per depositor per bank (including principal and accrued interest). This limit applies to all types of deposits — savings, current, recurring, and fixed deposits — held in the same bank. In this case, the depositor's ₹50 lakh FD is covered only up to ₹5 lakhs. The insurance limit was increased from ₹1 lakh to ₹5 lakhs effective May 2020. Therefore, the answer is C.

Question 16

A bank grants a term loan of ₹2 crores to a manufacturing company. Under Basel III norms, the bank must maintain a minimum Capital Adequacy Ratio (CAR). Which of the following correctly describes the CAR requirement and its components?

Accepted Answer

Basel III, implemented globally and in India by RBI, mandates that banks maintain a minimum Capital Adequacy Ratio (CAR) of 10.5% of Risk-Weighted Assets (RWA). The CAR comprises two components: (1) Common Equity Tier 1 (CET1) capital — minimum 5.5% of RWA, and (2) Tier 1 capital (CET1 + Additional Tier 1) — minimum 7% of RWA. Tier 2 capital makes up the remaining portion to reach the 10.5% total CAR. The CAR is calculated as (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets × 100. RWA is computed by multiplying the book value of assets by their respective risk weights. Therefore, the answer is B.

Question 17

A customer avails a home loan of ₹30 lakhs from a bank at a floating rate of interest. The loan agreement includes a clause that the interest rate will be adjusted quarterly based on the Repo Rate set by RBI's Monetary Policy Committee. Which of the following best describes the regulatory framework and the bank's obligation in this scenario?

Accepted Answer

When a bank offers a floating-rate loan linked to the Repo Rate, it must comply with the RBI's guidelines on Marginal Cost of Funds-based Lending Rate (MCLR) or external benchmarks like the Repo Rate. Since April 2016, RBI mandated that banks link floating-rate loans to MCLR or an external benchmark (Repo Rate is a common external benchmark). The bank must ensure that the interest rate adjustment is transparent, the spread is clearly disclosed, and the rate is reset at the frequency mentioned in the loan agreement (quarterly in this case). The bank cannot unilaterally change the spread or reset frequency. RBI Circular on 'Marginal Cost of Funds-based Lending Rate' (April 2016) and subsequent guidelines on external benchmarks govern this. Therefore, the answer is D.

Question 18

A bank customer holds a Savings Account with a balance of ₹8 lakhs and a Fixed Deposit of ₹12 lakhs in the same bank. The bank subsequently fails and is placed under moratorium by RBI. Under DICGC coverage, how much total insurance amount will the depositor receive?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides deposit insurance coverage of ₹5 lakhs per depositor per bank, irrespective of the number of accounts or deposit types held with that bank. In this scenario, the customer has two accounts — a Savings Account (₹8 lakhs) and a Fixed Deposit (₹12 lakhs) — totaling ₹20 lakhs in the same bank. However, DICGC coverage is aggregated across all accounts held by a single depositor in a single bank. Therefore, the total insurable amount is capped at ₹5 lakhs. The depositor will receive ₹5 lakhs as insurance coverage, not ₹20 lakhs. This is a critical distinction: DICGC does not provide separate coverage for each account; it provides a single consolidated cover per depositor per bank. Therefore, the answer is A.

Question 19

Under the Banking Regulation Act, 1949, a scheduled commercial bank is required to maintain a Statutory Liquidity Ratio (SLR). Which of the following correctly defines the composition and regulatory framework of SLR?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained in the form of liquid assets — primarily government securities, treasury bills, gold, and cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. The current SLR requirement is 18% of NDTL. SLR differs fundamentally from CRR (Cash Reserve Ratio) because SLR assets are held by the bank itself in approved liquid instruments, whereas CRR is cash deposited with RBI. Therefore, answer is B.

Question 20

A bank customer deposits ₹50 lakhs in a Fixed Deposit (FD) account for 3 years. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, what is the maximum amount of insurance coverage the depositor will receive in case of bank failure?

Accepted Answer

Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, the maximum insurance coverage per depositor per insured bank is ₹5 lakhs (increased from ₹1 lakh in May 2021). This coverage applies to the principal amount plus accrued interest up to the date of bank failure or moratorium. In this case, the depositor's ₹50 lakh FD is covered only up to ₹5 lakhs. The coverage is per depositor per bank, meaning if the same person has deposits in multiple banks, each bank account is separately insured up to ₹5 lakhs. Therefore, answer is C.

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