Question 1

Under the Deposit Insurance and Credit Guarantee Scheme (DICGC), what is the maximum amount of deposit protection per depositor per bank?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, provides deposit insurance coverage up to a maximum of ₹5,00,000 (Five Lakh Rupees) per depositor per bank. This protection covers both principal and accrued interest. The coverage was increased from ₹1,00,000 to ₹5,00,000 in May 2021 by RBI to strengthen depositor confidence. This applies to all scheduled commercial banks and cooperative banks that are members of DICGC. Therefore, answer is B.

Question 2

Which of the following is NOT a characteristic of a Fixed Deposit (Time Deposit) offered by banks?

Accepted Answer

A Fixed Deposit is a time-bound deposit where the depositor commits funds for a fixed period (tenure) at a predetermined interest rate. Fixed Deposits have a defined maturity date, earn fixed interest, and cannot be withdrawn before maturity without penalty. However, Fixed Deposits do NOT offer withdrawal on demand without penalty — this is a characteristic of Demand Deposits (Savings/Current Accounts). Early withdrawal from a Fixed Deposit typically results in a penalty and loss of interest. Therefore, answer is D.

Question 3

What is the primary difference between a Secured Loan and an Unsecured Loan in banking?

Accepted Answer

A Secured Loan is backed by collateral (security) such as property, vehicles, gold, or other assets that the bank can seize if the borrower defaults. An Unsecured Loan has no collateral backing — the bank's recourse is limited to legal action against the borrower. Secured loans typically carry lower interest rates because the bank's risk is reduced by the collateral. Unsecured loans carry higher interest rates due to increased credit risk. Examples of secured loans include Home Loans, Auto Loans, and Gold Loans. Examples of unsecured loans include Personal Loans and Credit Cards. Therefore, answer is B.

Question 4

Which of the following best describes a Demand Deposit in banking?

Accepted Answer

A Demand Deposit is a bank deposit that can be withdrawn by the depositor on demand without any prior notice or penalty. Current Accounts and Savings Accounts are examples of demand deposits. This is distinct from Time Deposits (Fixed Deposits), which have a fixed maturity period and cannot be withdrawn before maturity without penalty. The RBI regulates demand deposits under the Banking Regulation Act, 1949, and banks must maintain CRR and SLR against demand deposits. Therefore, answer is B.

Question 5

What is the primary purpose of the Statutory Liquidity Ratio (SLR) requirement imposed by RBI on scheduled commercial banks?

Accepted Answer

The Statutory Liquidity Ratio (SLR) is a regulatory requirement 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 have sufficient liquid assets to meet withdrawal demands and maintain financial stability. SLR is prescribed under Section 24 of the Banking Regulation Act, 1949. The current SLR requirement is 18% of NDTL. Therefore, answer is C.

Question 6

A bank customer avails a 'Loan Against Securities' (LAS) facility where the bank lends against a pledge of government securities. The Loan-to-Value (LTV) ratio is set at 85%. If the customer pledges securities worth ₹10 lakh, what is the maximum loan amount, and which RBI guideline governs LAS operations?

Accepted Answer

Loan Against Securities (LAS) is governed by RBI's Master Circular on Lending Against Securities (updated periodically, with the current framework under DBR.BP.BC/11-2015-16 and subsequent amendments). The LTV ratio of 85% means the bank lends 85% of the security value. Maximum Loan = ₹10 lakh × 85% = ₹8.5 lakh. Therefore, answer is B.

Question 7

A bank customer deposits ₹50 lakh in a Fixed Deposit (FD) with a maturity of 2 years. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, what is the maximum insured amount, and which RBI Act provision governs DICGC operations?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, insures deposits up to a maximum of ₹5 lakh per depositor per bank (as per the current DICGC scheme effective from May 2021). This limit applies to the aggregate of all deposits (savings, current, FD, recurring) held by a single depositor in one bank. For a ₹50 lakh FD, only ₹5 lakh is insured. DICGC operations are governed by the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Therefore, answer is C.

Question 8

Under the Banking Regulation Act, 1949, a bank's Statutory Liquidity Ratio (SLR) requirement mandates that banks maintain a minimum percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets. Which of the following is NOT a permissible component for SLR compliance?

Accepted Answer

SLR (Statutory Liquidity Ratio) under Section 24 of the Banking Regulation Act, 1949, requires banks to maintain liquid assets comprising government securities, treasury bills, gold, and cash. However, corporate bonds, equity shares, and other non-government securities are explicitly excluded from SLR-eligible assets. The RBI prescribes the exact composition and eligible instruments through periodic circulars. Therefore, answer is C.

Question 9

A bank offers a 'Floating Rate Term Deposit' where the interest rate is reset quarterly based on the bank's Marginal Cost of Funds Based Lending Rate (MCLR). If the current MCLR is 7.15% and the bank adds a spread of 1.25%, what is the deposit rate, and under which RBI framework is MCLR mandated?

Accepted Answer

MCLR (Marginal Cost of Funds Based Lending Rate) was mandated by RBI vide Circular DBR.BP.BC/11-2015-16 effective April 1, 2016, replacing the Base Rate system. MCLR is the minimum rate below which banks cannot lend (except for certain categories). For deposits, banks may offer floating rates linked to MCLR plus a spread. Deposit Rate = MCLR (7.15%) + Spread (1.25%) = 8.40%. Therefore, answer is B.

Question 10

A bank grants a 'Priority Sector Lending' (PSL) loan to a small-scale industry (SSI) for ₹40 lakh at 9.5% per annum. Under RBI guidelines, what is the minimum percentage of a bank's Adjusted Net Bank Credit (ANBC) that must be allocated to Priority Sector, and which RBI circular prescribes this requirement?

Accepted Answer

Priority Sector Lending (PSL) is mandated by RBI under the Directions to Banks on Lending to Priority Sector (updated periodically). As per the current RBI guidelines, Scheduled Commercial Banks (SCBs) must allocate a minimum of 40% of their Adjusted Net Bank Credit (ANBC) to the Priority Sector. Within this, agriculture must receive 18% and MSMEs must receive 8% of ANBC. These requirements are prescribed in RBI's Master Directions on PSL, last updated in 2021. Therefore, answer is B.

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