Question 1

Which of the following is a key distinguishing feature between Scheduled Commercial Banks and Non-Scheduled Banks in India?

Accepted Answer

Scheduled Commercial Banks are those included in the Second Schedule of the Reserve Bank of India Act, 1934, and must maintain a minimum paid-up capital and reserve fund as prescribed by RBI. They enjoy certain privileges such as access to RBI's liquidity facilities (repo, reverse repo, MSF) and are subject to stricter regulatory oversight. Non-Scheduled Banks do not have this statutory recognition and face different regulatory requirements. Therefore, answer is B.

Question 2

Which of the following best describes the primary regulatory function of Non-Banking Financial Companies (NBFCs) in the Indian financial system?

Accepted Answer

NBFCs are financial institutions that provide banking services (lending, investment, deposit-taking) but are not classified as banks under the Banking Regulation Act, 1949. They are regulated by RBI under the Non-Banking Financial Company Directions, 1998. NBFCs engage in activities such as asset financing, hire purchase, equipment leasing, and investment in securities, but cannot accept demand deposits (current/savings accounts). Therefore, answer is C.

Question 3

Under the Banking Regulation Act, 1949, which of the following institutions would be classified as a 'Bank'?

Accepted Answer

The Banking Regulation Act, 1949, defines a bank as an institution that accepts deposits from the public and lends money or invests in securities. The key criteria are: (1) acceptance of deposits from the public, and (2) engagement in lending or investment activities. This definition is the statutory foundation for classifying institutions as banks versus NBFCs or other financial entities. Therefore, answer is A.

Question 4

Which of the following is a correct statement about Cooperative Banks in India?

Accepted Answer

Cooperative Banks are two-tier institutions operating at state and district levels, regulated by both RBI and state governments. They are primarily engaged in lending to agriculture, small businesses, and retail customers. Unlike commercial banks, they operate on a cooperative principle with membership-based ownership. They are regulated under the Banking Regulation Act, 1949 (as amended), and must comply with RBI's prudential norms. Therefore, answer is B.

Question 5

Which of the following correctly distinguishes between Public Sector Banks (PSBs) and Private Sector Banks in India?

Accepted Answer

Public Sector Banks are those in which the Government of India holds a majority stake (more than 50% ownership). Private Sector Banks are those in which private shareholders hold the majority stake. Both categories are regulated identically by RBI under the Banking Regulation Act, 1949, and must comply with the same prudential norms, capital adequacy requirements, and reserve ratios. The distinction is based on ownership structure, not regulatory treatment. Therefore, answer is D.

Question 6

Which of the following statements correctly describes the relationship between a Cooperative Bank and the regulatory framework governing it in India?

Accepted Answer

Cooperative Banks are regulated under the Banking Regulation Act, 1949 (as amended) and are also subject to the Cooperative Societies Act of their respective states. They operate under a dual regulatory structure: RBI oversees banking functions while state authorities oversee cooperative aspects. Urban Cooperative Banks (UCBs) are specifically regulated by RBI under the Banking Regulation Act, 1949 (Part IV-B). Therefore, answer is C.

Question 7

Under the Banking Regulation Act, 1949, which of the following correctly defines the scope of 'banking' in India?

Accepted Answer

Section 5(b) of the Banking Regulation Act, 1949 defines 'banking' as the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise. This definition is the legal foundation for what constitutes a bank in India. Therefore, answer is B.

Question 8

Which of the following is NOT a characteristic of a Primary Dealer (PD) in the Indian securities market?

Accepted Answer

Primary Dealers are specialized financial institutions that participate in the government securities market and are authorized by RBI to underwrite government securities auctions. However, Primary Dealers are NOT authorized to accept deposits from the general public — this is a banking function reserved for banks and deposit-taking NBFCs. Primary Dealers can borrow from banks and other institutions, but cannot solicit public deposits. Therefore, answer is D.

Question 9

Which category of Non-Banking Financial Companies (NBFCs) is permitted to accept deposits from the public under RBI regulations?

Accepted Answer

Only NBFCs with a deposit-taking certificate (classified as 'Deposit-taking NBFCs') are permitted to accept deposits from the public. Non-deposit-taking NBFCs are restricted to borrowing from banks, financial institutions, and other specified sources. The RBI Master Direction on NBFCs (2022) clearly delineates these two categories. Therefore, answer is A.

Question 10

Under the Payment and Settlement Systems Act, 2007, which of the following correctly describes the regulatory authority and the classification of payment systems in India?

Accepted Answer

The Payment and Settlement Systems Act, 2007 (PSS Act) is the primary legislation governing payment and settlement systems in India. Under this Act, the Reserve Bank of India (RBI) is the designated authority responsible for regulating and supervising all payment and settlement systems in the country. The PSS Act classifies payment systems into three categories: (1) Large Value Payment Systems (LVPS) — used for high-value, time-critical transactions, such as RTGS (Real Time Gross Settlement); (2) Retail Payment Systems — used for lower-value, non-urgent transactions, such as NEFT (National Electronic Funds Transfer), IMPS (Immediate Payment Service), and card-based systems; and (3) Clearing Houses — used for clearing and settlement of cheques and other instruments. The Act also provides RBI with the authority to authorize, regulate, and supervise these systems. The National Payments Corporation of India (NPCI) is a private entity established by RBI and banks to operate retail payment systems like NEFT, RTGS, IMPS, and UPI, but ultimate regulatory authority remains with RBI. Therefore, answer is C.

Question 11

Which of the following statements correctly distinguishes between a Scheduled Commercial Bank and a Non-Scheduled Bank under the Banking Regulation Act, 1949?

Accepted Answer

A Scheduled Commercial Bank is one that is included in the Second Schedule of the Reserve Bank of India Act, 1934. Inclusion in this schedule requires the bank to have a paid-up capital and reserves of at least ₹5 lakh (historically; current threshold is higher) and must comply with stricter prudential norms, CRR, and SLR requirements. Non-Scheduled Banks are not listed in the Second Schedule and face less stringent regulatory oversight from RBI. The key distinction is regulatory classification and compliance burden, not merely the nature of customers served. Scheduled banks enjoy certain privileges (e.g., access to RBI's liquidity windows, participation in clearing houses) and bear corresponding obligations. Therefore, answer is B.

Question 12

Under the Pradhan Mantri Jan Dhan Yojana (PMJDY), which of the following correctly describes the regulatory framework governing participating banks and the nature of accounts opened?

Accepted Answer

PMJDY, launched in August 2014, mandates that all participating banks (both public and private sector Scheduled Commercial Banks) open zero-balance, no-frills savings accounts for eligible citizens. These accounts are governed by the Banking Regulation Act, 1949, and RBI guidelines on 'Know Your Customer' (KYC) norms, with simplified KYC requirements for accounts up to ₹50,000 annual turnover. The scheme is administered by the Department of Financial Services (DFS) under the Ministry of Finance. Participating banks must offer these accounts without minimum balance requirements and with basic services like debit cards and overdraft facilities (up to ₹10,000 after six months of satisfactory operation). The accounts are regular savings accounts under the Banking Regulation Act, not a separate category of 'PMJDY accounts.' Therefore, answer is C.

Question 13

Which of the following statements accurately describes the regulatory distinction between a Non-Banking Financial Company (NBFC) and a Scheduled Commercial Bank in terms of deposit-taking authority and RBI oversight?

Accepted Answer

NBFCs are regulated under the Reserve Bank of India Act, 1934 (specifically, the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2016, as amended). NBFCs are classified into two broad categories: deposit-taking NBFCs and non-deposit-taking NBFCs. Deposit-taking NBFCs can accept deposits from the public but are subject to stricter capital adequacy requirements (currently 15% for deposit-taking NBFCs vs. 10.5% CRAR for non-deposit-taking NBFCs). However, NBFCs cannot accept demand deposits (current account or savings account type deposits) — they can only accept term deposits. Scheduled Commercial Banks, by contrast, can accept both demand and term deposits and are subject to Basel III CRAR norms (currently 10.5% minimum, with additional buffers). The key distinction is that NBFCs have restricted deposit-taking authority and face different prudential norms than banks. Therefore, answer is B.

Question 14

Which of the following correctly identifies the regulatory framework and primary objective of Small Finance Banks (SFBs) as defined by RBI guidelines?

Accepted Answer

Small Finance Banks (SFBs) were introduced by RBI in 2015 as a new category of banks to promote financial inclusion. SFBs are regulated under the Banking Regulation Act, 1949, and are licensed by RBI under Section 22 of the Banking Regulation Act. The primary objective of SFBs is to provide financial services to unserved and underserved populations, particularly in rural and semi-urban areas, and to small businesses, small and marginal farmers, and micro and small enterprises (MSMEs). SFBs must maintain a minimum capital adequacy ratio of 15% (higher than the Basel III minimum of 10.5% for Scheduled Commercial Banks) and are required to lend at least 75% of their adjusted net bank credit to priority sector lending (PSL). SFBs are Scheduled Banks and must comply with CRR and SLR requirements. They cannot accept demand deposits (current accounts) but can accept savings and term deposits. Therefore, answer is D.

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Types of Banks & NBFCs — Practice Questions

60-Second Revision — Types of Banks & NBFCs