Question 1

What is the primary purpose of listing requirements imposed by Stock Exchanges on companies?

Accepted Answer

Listing requirements are designed to ensure transparency, accountability, and investor protection. Companies must meet stringent financial, governance, and disclosure standards before their securities can be traded on a Stock Exchange. These requirements include minimum capital, profitability criteria, corporate governance norms, and continuous disclosure obligations. The purpose is to protect retail investors from fraud and ensure market integrity. Therefore, the answer is B.

Question 2

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

Accepted Answer

A Stock Exchange is a regulated marketplace where securities (shares, debentures, bonds) are bought and sold. The primary function is to provide a transparent, organized platform for trading in listed securities and to facilitate price discovery through market mechanisms. The Stock Exchange also ensures compliance with SEBI (Securities and Exchange Board of India) regulations and maintains market integrity. Therefore, the answer is B.

Question 3

Under which regulatory body's oversight do Stock Exchanges in India operate?

Accepted Answer

Stock Exchanges in India are regulated and supervised by SEBI (Securities and Exchange Board of India), which was established under the SEBI Act, 1992. SEBI is the primary regulator for the capital market, including stock exchanges, mutual funds, and securities trading. The RBI regulates banking institutions and monetary policy, not stock exchanges. Therefore, the answer is C.

Question 4

Which of the following instruments is NOT typically traded on a Stock Exchange?

Accepted Answer

A Stock Exchange facilitates trading in equities (shares), bonds, debentures, derivatives (futures, options), and exchange-traded funds (ETFs). However, bank deposits, savings accounts, and loans are banking products managed directly between banks and customers — they are not traded on stock exchanges. Commercial paper and treasury bills are money market instruments traded in the money market, not the stock exchange. Therefore, the answer is D.

Question 5

What is the significance of market capitalization in the context of Stock Exchanges?

Accepted Answer

Market capitalization (market cap) is the total market value of a company's outstanding shares, calculated as: Share Price × Total Number of Outstanding Shares. It is used to classify companies into categories (large-cap, mid-cap, small-cap), determine index composition, and assess the relative size and liquidity of companies. Market cap is a key metric for investors to evaluate company size and investment risk. Therefore, the answer is A.

Question 6

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 and sell mortgaged assets without court intervention when the amount of default exceeds ₹1 lakh. This threshold was set to expedite recovery of non-performing assets. The Act applies to secured loans where the security interest is registered. Therefore, the answer is B.

Question 7

A loan is classified as 'Sub-standard' NPA if the period of default is up to how many months?

Accepted Answer

Under RBI's NPA classification norms, a loan is classified as 'Sub-standard' when it remains non-performing for a period not exceeding 12 months from the date it was classified as NPA. After 12 months, if the loan remains unpaid, it moves to the 'Doubtful' category (12–36 months), and beyond 36 months it becomes a 'Loss' asset. Banks must make a provision of 15% for Sub-standard assets. Therefore, the answer is A.

Question 8

Under Basel III norms applicable in India, what is the minimum Capital-to-Risk-Weighted Assets Ratio (CRAR) that banks must maintain?

Accepted Answer

Basel III, implemented in India from April 2013, mandates a minimum CRAR (Capital Adequacy Ratio) 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 and ensures banks maintain sufficient capital buffers to absorb losses. The RBI has prescribed this ratio under the Basel III framework to strengthen banking sector resilience. Therefore, the answer is C.

Question 9

Under the Insolvency and Bankruptcy Code (IBC) 2016, what is the maximum timeline for completion of the Corporate Insolvency Resolution Process (CIRP)?

Accepted Answer

The Insolvency and Bankruptcy Code 2016 prescribes a maximum timeline of 180 days for completion of the Corporate Insolvency Resolution Process (CIRP), with a provision for a single extension of up to 90 days (making the total maximum 270 days). This timeline is counted from the date of admission of the insolvency petition by the National Company Law Tribunal (NCLT). The objective is to ensure swift resolution of insolvencies and protect creditor interests. Therefore, the answer is B.

Question 10

A bank's Capital Adequacy Ratio (CRAR) falls below the RBI-mandated minimum. Under Basel III framework, what is the minimum CRAR requirement for Indian banks?

Accepted Answer

Under the Basel III framework, which India adopted in phases starting 2013, the RBI mandates a minimum Capital Adequacy Ratio (CRAR) of 10.5% for Indian Scheduled Commercial Banks. This comprises: (1) Tier 1 Capital: minimum 6% (of Risk-Weighted Assets); (2) Tier 2 Capital: minimum 4.5%. The CRAR is calculated as (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets × 100. This 10.5% requirement is higher than the Basel III global minimum of 8%, reflecting India's regulatory conservatism. Additionally, banks must maintain a Capital Conservation Buffer (CCB) of 2.5% above the minimum CRAR, bringing the effective requirement to 13% for most banks. Banks failing to meet the minimum CRAR face regulatory action, including restrictions on dividend distribution, capital raising requirements, and supervisory intervention. The CRAR is a cornerstone of Basel III implementation in India and is monitored quarterly by RBI.

Question 11

An Asset Reconstruction Company (ARC) purchases a non-performing loan from a bank at a discount. In exchange, the bank receives cash and Security Receipts (SRs). What is the primary regulatory purpose of Security Receipts in the ARC framework?

Accepted Answer

Security Receipts (SRs) issued by ARCs represent the bank's residual claim on the recoveries made from the purchased NPA assets. When an ARC acquires bad loans from a bank, it pays a portion in cash (typically 15–30% of the loan value) and issues SRs for the remainder. These SRs entitle the bank to a share of future recoveries from the NPA assets. The regulatory purpose of SRs is to: (1) enable banks to recognize immediate cash recovery while retaining upside from future collections; (2) provide transparency in the ARC transaction structure; (3) allow RBI to track the true economic transfer of credit risk. SRs are regulated under the RBI's guidelines on ARCs (issued under Section 45-IA of the RBI Act 1934) and must be valued and reported in the bank's financial statements. The redemption of SRs occurs as the ARC recovers funds from the underlying assets.

Question 12

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

Accepted Answer

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) 2002 is a landmark legislation that empowers banks and financial institutions to recover dues without court intervention. Section 13 of the SARFAESI Act permits a secured creditor (bank) to take possession of the secured asset and sell it to recover outstanding dues, provided the dues exceed ₹1 lakh (100,000 rupees). This threshold was set at ₹1 lakh when the Act was enacted in 2002 and remains the statutory limit. Below this threshold, banks must resort to the Debt Recovery Tribunal (DRT) for recovery of dues exceeding ₹20 lakh, or civil courts for smaller amounts. The SARFAESI mechanism has significantly accelerated asset recovery for banks and is one of the most powerful tools in the banking sector's credit recovery arsenal.

Question 13

Under the Insolvency and Bankruptcy Code (IBC) 2016, what is the maximum timeline for resolution of a corporate insolvency process, including the extension period granted by the 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 a maximum of 90 days by the NCLT, bringing the total maximum timeline to 270 days. If resolution is not achieved within this extended period, the corporate debtor must be liquidated. This timeline is a cornerstone of India's insolvency framework and is strictly enforced by the NCLT (National Company Law Tribunal), which is the adjudicating authority for corporate insolvency matters under IBC 2016.

Question 14

A bank has classified a loan account as 'Doubtful' under the NPA classification norms. What is the minimum provisioning requirement that the bank must maintain against this asset as per RBI guidelines?

Accepted Answer

Under RBI's NPA classification framework, a 'Doubtful' asset is one where the loan has remained in the 'Sub-standard' category for 12 months or more, or where there are definite signs of weakness in repayment capacity. For Doubtful assets, RBI mandates a provisioning requirement of 25% to 40% of the outstanding amount, depending on the period the asset has remained doubtful and the realisable value of security. This is significantly higher than the 15% provisioning for Sub-standard assets but lower than the 100% provisioning required for Loss assets. These provisioning norms are prescribed under the Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Scheduled Commercial Banks, issued by RBI.

RBI Assistant Capital Market & Stock Exchange

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