Question 1

The Banking Regulation Act, 1949 applies to scheduled commercial banks in India. Which of the following statements regarding the applicability of this Act is CORRECT?

Accepted Answer

The Banking Regulation Act, 1949 is the primary legislation governing the regulation and supervision of banking companies in India. It applies to all scheduled commercial banks and cooperative banks (with some exceptions). The Act was amended multiple times, most notably in 1994 to align with financial sector reforms. It does NOT apply to the RBI itself (RBI is governed by the RBI Act, 1934) or to non-banking financial companies (NBFCs are regulated under separate NBFC regulations). Therefore, answer is C.

Question 2

Under the Banking Regulation Act, 1949, which of the following best describes the primary objective of the Statutory Liquidity Ratio (SLR) requirement imposed on scheduled commercial banks?

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, gold, or cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. The primary objective is to ensure banks maintain adequate liquid assets to meet depositor withdrawals and support government borrowing. Therefore, answer is B.

Question 3

Which of the following statements regarding the Know Your Customer (KYC) norms in India is CORRECT?

Accepted Answer

KYC (Know Your Customer) norms in India are prescribed by RBI under the Prevention of Money Laundering Act (PMLA), 2002 and the Master Circular on KYC issued by RBI. KYC is mandatory for all banks and financial institutions. Key aspects of KYC include: (i) Customer Identification Procedure (CIP) — banks must obtain identity proof and address proof from customers, (ii) Beneficial Ownership Identification — banks must identify the ultimate beneficial owner in case of corporate customers, (iii) Risk Categorization — customers are categorized as low, medium, or high risk based on their profile, and (iv) Periodic Review — KYC information must be updated periodically. KYC is NOT optional and applies to all customers, including those with small accounts. Therefore, answer is C.

Question 4

The Reserve Bank of India Act, 1934 grants RBI the authority to regulate and supervise banks. Under which section of the RBI Act can RBI issue directions to banks regarding their operations and conduct of business?

Accepted Answer

The RBI Act, 1934 grants RBI broad supervisory and regulatory powers over banks. Section 35A of the RBI Act, 1934 empowers RBI to issue directions to any banking company regarding the conduct of its business. These directions are binding on banks and cover areas such as: (i) maintenance of reserves, (ii) management of assets and liabilities, (iii) lending practices, (iv) risk management, and (v) compliance with prudential norms. Section 35A is the primary statutory basis for RBI's supervisory authority over banks' day-to-day operations. Therefore, answer is B.

Question 5

Under the Banking Regulation Act, 1949, the term 'banking company' is defined as a company which transacts the business of banking. Which of the following activities is NOT considered part of the 'business of banking' as per the Act?

Accepted Answer

The Banking Regulation Act, 1949 defines 'banking company' as any company which transacts the business of banking. The 'business of banking' includes accepting deposits from the public and lending money. However, the Act specifically excludes certain activities from the definition of banking business. Activities such as: (i) accepting deposits and lending money, (ii) discounting bills, (iii) issuing letters of credit, and (iv) dealing in foreign exchange are considered banking business. However, activities like pure insurance underwriting, stock brokerage (without banking), or real estate business are NOT considered banking business. Therefore, answer is D.

Question 6

Which of the following is NOT covered under the definition of 'Scheduled Bank' as per the Reserve Bank of India Act, 1934?

Accepted Answer

A Scheduled Bank is defined in the RBI Act, 1934 as a bank whose name appears in the Second Schedule of the RBI Act. To be classified as a Scheduled Bank, a bank must satisfy specific criteria including: (i) minimum paid-up capital and reserves of ₹5 lakhs (historical criterion, now superseded by modern norms), (ii) it must be a bank as defined in the Banking Regulation Act, 1949, and (iii) it must satisfy RBI regarding its solvency and general creditworthiness. Non-Scheduled Banks are those not listed in the Second Schedule — typically very small cooperative banks or defunct institutions. Therefore, answer is C.

Question 7

Which of the following statements correctly describes the scope and application of the Reserve Bank of India Act, 1934, in relation to the regulation of Scheduled Commercial Banks?

Accepted Answer

The Reserve Bank of India Act, 1934 is the foundational legislation that established RBI and grants it the authority to regulate and supervise banking operations in India. While the Banking Regulation Act, 1949 specifically governs the operations of commercial banks (including SLR, CRR, and prudential norms), the RBI Act, 1934 provides RBI with overarching powers to issue directions to banks, conduct monetary policy, manage foreign exchange, and maintain financial stability. The RBI Act, 1934 does not directly prescribe SLR or CRR rates — those are prescribed under the Banking Regulation Act, 1949 and RBI's regulatory circulars. However, RBI's authority to regulate banks derives from the RBI Act, 1934. Therefore, the answer is C.

Question 8

The Payment and Settlement Systems Act, 2007 (PSS Act) empowers the RBI to regulate payment systems in India. Which of the following statements about the PSS Act is CORRECT?

Accepted Answer

The Payment and Settlement Systems Act, 2007 is the primary legislation governing payment and settlement systems in India. Under this Act, the RBI has the power to: (1) authorize payment systems, (2) regulate and supervise payment system operators, (3) set rules for clearing and settlement, and (4) ensure the safety and efficiency of payment systems. The Act applies to all payment systems, including NEFT, RTGS, IMPS, and card networks. A key provision is that the RBI can declare a payment system as 'systemically important' and impose stricter regulations. The Act does NOT grant the RBI power to directly operate retail payment systems (though RBI operates some systems like RTGS and NEFT). Therefore, answer is C.

Question 9

The Reserve Bank of India Act, 1934 grants the RBI the power to regulate and supervise banks in India. Which of the following is NOT a regulatory power explicitly granted to the RBI under this Act?

Accepted Answer

The RBI Act, 1934 grants the RBI extensive powers to regulate and supervise banks, including: (1) issuing banking licenses, (2) setting reserve requirements (CRR and SLR), (3) conducting monetary policy, (4) regulating interest rates on deposits and advances (though this was deregulated post-1991), (5) supervising payment systems, and (6) managing foreign exchange. However, the RBI does NOT have the power to directly set or regulate insurance premiums or insurance company operations — this is the domain of IRDAI (Insurance Regulatory and Development Authority). Therefore, answer is D.

Question 10

Under the Banking Regulation Act, 1949, which of the following best describes the Statutory Liquidity Ratio (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, gold, or cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. The key distinction is that SLR assets are held by the bank itself, whereas CRR (Cash Reserve Ratio) is cash deposited with RBI. Therefore, answer is B.

Question 11

Under the Negotiable Instruments Act, 1881, which of the following correctly defines the relationship between a bank and its customer when the customer deposits money into a savings account?

Accepted Answer

Under the Negotiable Instruments Act, 1881, and general banking law, when a customer deposits money into a savings account, the bank becomes the debtor and the customer becomes the creditor. The deposited amount is a liability for the bank (it must repay the customer on demand or as per the account terms). This is a contractual relationship of debtor-creditor, not a trustee-beneficiary or bailee-bailor relationship. The bank has the right to use the deposited funds for lending and other banking operations. Therefore, answer is B.

Question 12

The Pradhan Mantri Jan Dhan Yojana (PMJDY) framework mandates that all eligible citizens must be offered a basic savings account with zero balance. Under which of the following regulatory guidelines is this requirement enforced, and what is the primary objective of this provision?

Accepted Answer

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched in 2014 and is governed by RBI guidelines on Financial Inclusion and the Banking Regulation Act, 1949. The zero-balance account requirement is enforced through RBI's Financial Inclusion Circular and the PMJDY operational guidelines issued jointly by the Department of Financial Services (DFS) and RBI. The primary objective is financial inclusion—ensuring that all eligible citizens, particularly the unbanked and underbanked population, have access to formal banking services without the barrier of minimum balance requirements. Option C correctly identifies the zero-balance mandate and its financial inclusion objective. Option A incorrectly attributes this to the Negotiable Instruments Act, 1881, which governs cheques and instruments, not account opening norms. Option B confuses this with Basel III capital requirements, which are about bank capital adequacy, not customer account access. Option D incorrectly suggests that PMJDY accounts require a minimum balance, which directly contradicts the scheme's core principle. Therefore, the answer is C.

Question 13

The Payment and Settlement Systems Act, 2007, provides the legal framework for payment systems in India. Under this Act, the RBI is empowered to designate and regulate payment systems. Which of the following payment systems is NOT currently designated as a systemically important payment system (SIPS) by RBI under the PS Act, 2007?

Accepted Answer

The Payment and Settlement Systems Act, 2007, Section 7 empowers RBI to designate payment systems as systemically important payment systems (SIPS). RBI has designated the following as SIPS: (1) RTGS (Real Time Gross Settlement), (2) NEFT (National Electronic Funds Transfer), (3) CCIL (Clearing Corporation of India Limited) settlement systems, and (4) CBLO (Collateralized Borrowing and Lending Obligation) settlement. UPI (Unified Payments Interface), while a critical retail payment system, is NOT formally designated as a SIPS under the PS Act, 2007. UPI is regulated under the Payment Systems Regulation, 2020, but does not carry the formal SIPS designation. Option D is correct. Options A, B, and C are all formally designated SIPS.

Question 14

Under the Banking Regulation Act, 1949, Section 45-IA empowers the RBI to issue directions to banks regarding their operations. Which of the following statements correctly describes the scope of RBI's regulatory authority under this section?

Accepted Answer

Section 45-IA of the Banking Regulation Act, 1949 grants the RBI broad powers to issue directions to any banking company on matters concerning banking policy, conduct of business, or matters in the interest of depositors. This section is the legal foundation for RBI's supervisory directives on capital adequacy, asset classification, provisioning norms, and operational guidelines. The key distinction is that these directions are binding on banks and failure to comply can result in penalties or license cancellation. Option B correctly identifies that RBI can issue directions on banking policy and depositor interest matters. Option A incorrectly limits the scope to only monetary policy (which is RBI's domain but not the primary focus of Section 45-IA). Option C confuses this with Section 35A, which deals with RBI's power to supersede bank boards. Option D incorrectly suggests RBI can only advise, not direct—Section 45-IA explicitly grants binding directive power. Therefore, the answer is B.

Question 15

The Banking Regulation Act, 1949, Section 45 grants RBI the power to issue directions to banks on various matters. However, Section 45-IA of the same Act specifically empowers RBI to issue directions regarding the governance and management of banks. Which of the following is NOT a matter covered under RBI's directions on bank governance under Section 45-IA?

Accepted Answer

Section 45-IA of the Banking Regulation Act, 1949, empowers RBI to issue directions to banks regarding their governance and management, including: (1) Constitution and composition of the Board of Directors, (2) Qualifications and disqualifications of directors, (3) Fit and proper criteria for directors, (4) Tenure and removal of directors, (5) Board committees and their functions, and (6) Related party transactions. However, Section 45-IA does NOT cover operational matters such as specific lending rates, interest rate setting, or individual loan approval decisions — these fall under prudential norms (Section 35A of RBI Act) or commercial banking decisions. Option C is correct because interest rate determination for specific loan products is a commercial banking decision, not a governance matter under Section 45-IA. Options A, B, and D are all explicitly covered under Section 45-IA governance directions.

Question 16

The Negotiable Instruments Act, 1881, defines and regulates cheques, promissory notes, and bills of exchange. Under this Act, a cheque is defined as a bill of exchange drawn on a specified banker and payable on demand. Which of the following statements regarding cheque crossing and its legal implications is INCORRECT?

Accepted Answer

The Negotiable Instruments Act, 1881, Section 10 defines a cheque as a bill of exchange drawn on a specified banker and payable on demand. Section 123 onwards deals with cheque crossing. A crossed cheque (marked with two parallel lines) restricts payment to a bank account only, not over the counter. An 'Account Payee' crossing further restricts payment to the account of the payee named on the cheque. Option D is INCORRECT because it falsely claims that a crossed cheque can still be paid over the counter if the drawer requests it — this contradicts the legal effect of crossing, which is absolute and cannot be overridden by the drawer's subsequent request. The crossing creates a legal obligation on the banker to pay only through a bank account. Options A, B, and C are all correct statements about cheque crossing under the NI Act.

Question 17

The Reserve Bank of India Act, 1934, grants RBI the authority to regulate and supervise commercial banks. Under which section of the RBI Act can RBI issue directions to banks regarding their operations, including asset classification and provisioning norms?

Accepted Answer

The RBI Act, 1934, Section 35A (inserted via amendment) grants RBI the power to issue directions to banking companies on matters relating to their operations, including prudential norms, asset classification, and provisioning requirements. This section is the statutory backbone for RBI's regulatory authority over commercial banks' internal operations and risk management practices. Section 35A specifically empowers RBI to issue binding directions that banks must comply with. Option B is correct. Option A (Section 45-L) relates to RBI's authority over non-banking financial companies (NBFCs), not commercial banks. Option C (Section 24) is from the Banking Regulation Act and pertains to SLR, not operational directions. Option D (Section 22) relates to RBI's banking operations, not supervision of commercial banks.

Question 18

Under the Banking Regulation Act, 1949, Section 24 prescribes the Statutory Liquidity Ratio (SLR) requirement for scheduled commercial banks. Which of the following correctly defines the asset composition that can be counted towards SLR compliance?

Accepted Answer

SLR (Statutory Liquidity Ratio) under Section 24 of the Banking Regulation Act, 1949, requires scheduled commercial banks to maintain a minimum percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets. These liquid assets include: (1) Cash, (2) Gold, and (3) Unencumbered approved securities (primarily government securities and state development loans). The current SLR requirement is 18% of NDTL. The key distinction is that SLR assets are maintained by the bank itself in its balance sheet, unlike CRR which is deposited with RBI. Option B correctly identifies all three permissible asset classes. Options A, C, and D incorrectly include non-qualifying assets or exclude gold, which is explicitly permitted under RBI guidelines for SLR computation.

Question 19

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched to promote financial inclusion through universal access to banking services. Under PMJDY guidelines, which of the following correctly describes the key features and regulatory framework governing PMJDY accounts?

Accepted Answer

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched on August 28, 2014 to promote financial inclusion by providing universal access to banking services, particularly for the unbanked and underbanked population. Key features of PMJDY include: (1) Zero-balance savings accounts — no minimum balance required; (2) Free debit card with built-in accident insurance (₹1,00,000 coverage); (3) Overdraft facility up to ₹10,000 (for eligible account holders after 6 months of satisfactory operation); (4) Life insurance coverage of ₹30,000 (for accounts opened between August 28, 2014 and January 31, 2015); (5) Direct Benefit Transfer (DBT) facility for government subsidies and welfare payments; (6) Mobile banking and digital payment access. PMJDY accounts are governed by RBI guidelines on Know Your Customer (KYC) norms, which allow simplified KYC for accounts up to ₹1,00,000 per annum. All scheduled commercial banks (public and private) and cooperative banks are mandated to participate in PMJDY. The scheme is regulated under the Banking Regulation Act, 1949 and RBI's Master Directions on deposits. Therefore, the correct answer identifies the zero-balance feature, free debit card with insurance, and overdraft facility as key features of PMJDY.

Question 20

The Deposit Insurance and Credit Guarantee Corporation (DICGC) was established to protect depositors' interests. Under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, what is the current maximum deposit insurance coverage limit per depositor per bank, and which deposits are excluded from coverage?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC) was established on July 15, 1978 (merger of Deposit Insurance Corporation and Credit Guarantee Corporation, both established in 1961). DICGC operates under the DICGC Act, 1961 and provides deposit insurance coverage to depositors of member banks. As of 2024, the maximum deposit insurance coverage limit is ₹5,00,000 (Five Lakh Rupees) per depositor per bank. This limit was increased from ₹1,00,000 to ₹5,00,000 effective May 23, 2021. The coverage is per depositor per bank, meaning if a depositor has accounts in multiple banks, each bank's deposits are separately insured up to ₹5,00,000. Deposits excluded from coverage include: (1) deposits of foreign governments; (2) deposits of central/state governments (except as specified); (3) deposits of other banks; (4) deposits held in trust (except deposits in the name of a minor); (5) deposits against which a bank has a lien; (6) deposits in excess of the insurance limit. Therefore, the correct answer identifies the ₹5,00,000 limit and correctly lists excluded deposits.

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