Question 1

Which of the following statements is correct regarding the Deposit Insurance and Credit Guarantee Corporation (DICGC)?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC) was established on July 15, 1978, through the merger of the Deposit Insurance Corporation (DIC, established 1961) and the Credit Guarantee Corporation of India (CGCI, established 1971). DICGC operates under Section 35A of the Banking Regulation Act, 1949. The current deposit insurance cover is Rs. 5 lakhs per depositor per bank (increased from Rs. 1 lakh in May 2021). DICGC provides insurance coverage for deposits and guarantees for credit extended by banks. Therefore, answer is B.

Question 2

Which of the following correctly describes the scope and applicability of the Reserve Bank of India Act, 1934, in relation to the regulation of commercial banks in India?

Accepted Answer

The Reserve Bank of India Act, 1934, established the RBI and granted it regulatory authority over the monetary and credit system. However, the primary statutory framework governing commercial bank operations is the Banking Regulation Act, 1949 (BR Act). The RBI Act empowers RBI to issue directions under Section 45L and Section 35A for banking regulation, but day-to-day operational regulation of banks (including licensing, branch opening, capital requirements, and prudential norms) falls under the BR Act and subsequent RBI circulars issued under it. The RBI Act is the foundational legislation for RBI's existence and monetary policy powers, while the BR Act is the operational banking regulation statute. Therefore, the answer is C.

Question 3

Which section of the Banking Regulation Act, 1949, empowers the RBI to regulate the advances and investments made by scheduled banks?

Accepted Answer

Section 21 of the Banking Regulation Act, 1949, empowers the RBI to regulate the advances and investments made by scheduled banks. This section grants RBI the authority to issue directions to banks regarding the nature, amount, and purpose of advances and investments. Additionally, Section 24 deals with SLR requirements, and Section 35A deals with the regulation of deposit insurance. Section 21 is the primary provision for RBI's supervisory control over bank lending and investment decisions. Therefore, answer is A.

Question 4

Under the Reserve Bank of India Act, 1934, which of the following is the correct definition of 'Scheduled Bank'?

Accepted Answer

A Scheduled Bank, as defined in the Reserve Bank of India Act, 1934, is any bank included in the Second Schedule of the RBI Act. The Second Schedule includes banks that meet specific criteria: (1) paid-up capital and reserves of at least Rs. 5 lakhs (as per the original act, now updated), (2) compliance with RBI regulations, and (3) willingness to accept RBI's supervision. This definition encompasses Scheduled Commercial Banks, Regional Rural Banks (RRBs), and Small Finance Banks (SFBs) that meet the criteria. Therefore, answer is B.

Question 5

Which of the following is NOT covered under the definition of 'Scheduled Commercial Bank' as per the Banking Regulation Act, 1949?

Accepted Answer

A Scheduled Commercial Bank, as defined in the Banking Regulation Act, 1949, must be included in the Second Schedule of the Reserve Bank of India Act, 1934. The key criteria include: (1) minimum paid-up capital and reserves, (2) inclusion in RBI's Second Schedule, (3) compliance with RBI regulations, and (4) operation as a commercial bank. Cooperative banks, Regional Rural Banks (RRBs), and Small Finance Banks (SFBs) are NOT classified as Scheduled Commercial Banks under the Banking Regulation Act, 1949, though some may be scheduled banks under the RBI Act. Therefore, answer is C.

Question 6

Under the Banking Regulation Act, 1949, which of the following statements correctly defines 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 maintained by the bank itself, not deposited with RBI. Therefore, answer is B.

Question 7

Under the Banking Regulation Act, 1949, which of the following is a correct statement regarding the powers of RBI to regulate bank lending?

Accepted Answer

The Banking Regulation Act, 1949, Section 21, grants RBI the power to regulate the lending operations of banks, including the authority to prescribe lending limits, set priority sector lending targets, and issue directives on credit allocation. RBI can also direct banks to maintain certain ratios and follow prudential norms in their lending operations. Additionally, Section 35A of the Banking Regulation Act, 1949, empowers RBI to issue directions to banks on matters related to their operations and management. Therefore, answer is D.

Question 8

Under the Banking Regulation Act, 1949, which of the following statements correctly defines the Statutory Liquidity Ratio (SLR) and its regulatory framework?

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, and cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. As of 2024, the SLR is maintained at 18% of NDTL. The key distinction is that SLR assets are held by the bank itself on its balance sheet, unlike CRR which is deposited with RBI. Therefore, the answer is B.

Question 9

Which of the following statements about the Payment and Settlement Systems Act, 2007, is correct?

Accepted Answer

The Payment and Settlement Systems Act, 2007, is the primary legislation governing payment systems in India. It grants RBI the authority to regulate, supervise, and oversee all payment and settlement systems in the country. Under this Act, RBI can authorize payment systems, set operating rules, and impose penalties for non-compliance. The Act applies to all entities involved in payment and settlement, including banks, non-banks, and technology service providers. Therefore, answer is B.

Question 10

Under the Negotiable Instruments Act, 1881, which of the following is NOT a characteristic of a promissory note?

Accepted Answer

A promissory note is an unconditional written promise by one party (maker) to pay a fixed sum of money to another party (payee) at a specified future date or on demand. Key characteristics include: (1) it must be in writing, (2) it contains an unconditional promise (not a conditional one), (3) it specifies a fixed sum, and (4) it is payable to a specified person or bearer. A promissory note is NOT negotiable by the payee to a third party without endorsement — it requires formal endorsement to transfer rights. However, option C states that a promissory note can be transferred without endorsement, which is incorrect. Therefore, answer is C.

Question 11

Which of the following statements regarding the Reserve Bank of India Act, 1934, is correct?

Accepted Answer

The Reserve Bank of India Act, 1934, established RBI as the central bank of India and granted it regulatory authority over the banking system. Section 45 of the RBI Act, 1934, empowers RBI to issue directives to banks regarding their operations, liquidity management, and prudential norms. The Act also vests RBI with the authority to regulate credit and manage the monetary policy of the country. Therefore, answer is C.

Question 12

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 deposited with RBI. Therefore, answer is B.

Question 13

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched to promote financial inclusion through universal access to banking services. Under PMJDY guidelines, what is the maximum limit of overdraft facility available to eligible account holders in rural areas?

Accepted Answer

Under the Pradhan Mantri Jan Dhan Yojana (PMJDY) guidelines issued by the Department of Financial Services and RBI, eligible account holders in rural areas are entitled to an overdraft (OD) facility of up to ₹5,000 (five thousand rupees). This facility is available after satisfactory operation of the account for six months. In urban areas, the OD limit is ₹10,000. The PMJDY was launched on August 28, 2014, with the objective of ensuring universal access to banking services and financial inclusion. Therefore, the answer is A.

Question 14

Under the Banking Regulation Act, 1949, Section 45-IA empowers the RBI to issue directions to banks regarding their exposure to a single borrower or group of borrowers. What is the primary regulatory objective of this provision?

Accepted Answer

Section 45-IA of the Banking Regulation Act, 1949 grants RBI the authority to issue directions to banks for regulating their advances and managing credit concentration risk. The primary objective is to prevent excessive exposure to any single borrower or group of connected borrowers, thereby safeguarding the bank's capital adequacy and reducing systemic risk. This provision is foundational to RBI's Large Exposure Framework (LEF) and credit risk management guidelines. Banks must comply with exposure limits: typically 40% of capital funds for a single borrower and 600% of capital funds for a group of borrowers (as per current RBI guidelines). The trap here is confusing this with Section 45-I (which deals with RBI's general supervisory powers) or with CRR/SLR provisions (which address liquidity, not credit concentration). Therefore, the answer is B.

Question 15

The Banking Regulation Act, 1949 prescribes the Statutory Liquidity Ratio (SLR) under Section 24. If a bank's Net Demand and Time Liabilities (NDTL) is ₹10,000 crore and the current SLR requirement is 18%, what is the minimum value of liquid assets (primarily government securities) the bank must maintain?

Accepted Answer

Section 24 of the Banking Regulation Act, 1949 mandates that banks maintain a Statutory Liquidity Ratio (SLR) — a minimum percentage of NDTL in the form of liquid assets, primarily government securities, gold, and cash. The formula is: Minimum Liquid Assets = NDTL × SLR%. Given NDTL = ₹10,000 crore and SLR = 18%, the calculation is: ₹10,000 crore × 18% = ₹1,800 crore. This is a prudential requirement ensuring banks maintain sufficient liquid assets to meet withdrawal demands and support monetary policy transmission. Therefore, answer is C.

Question 16

Under the Payment and Settlement Systems Act, 2007, RBI is empowered to regulate and supervise payment systems in India. Which of the following payment systems is NOT explicitly covered under the regulatory framework of the Payment and Settlement Systems Act, 2007?

Accepted Answer

The Payment and Settlement Systems Act, 2007 grants RBI authority to regulate and oversee payment systems including NEFT (National Electronic Funds Transfer), RTGS (Real Time Gross Settlement), IMPS (Immediate Payment Service), and card networks. However, the Act specifically applies to 'systemically important payment systems' and 'designated payment systems.' While UPI (Unified Payments Interface) is a modern payment system launched by NPCI in 2016, it operates under a different regulatory framework — the NPCI Act, 2021 (which superseded the Payment and Settlement Systems Act for NPCI-operated systems). UPI is regulated by NPCI under RBI's oversight, but not directly under the Payment and Settlement Systems Act, 2007. Therefore, answer is B.

Question 17

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) grants RBI and banks specific powers regarding non-performing assets. Which of the following is NOT a power granted to banks under SARFAESI Act?

Accepted Answer

The SARFAESI Act, 2002 is a critical legislation enabling banks to recover dues from defaulting borrowers without court intervention. The Act grants banks powers including: (1) taking possession of secured assets without court order (Section 13), (2) selling those assets to recover dues, and (3) appointing asset reconstruction companies (ARCs). However, the SARFAESI Act does NOT grant banks the power to directly impose criminal penalties or imprisonment on borrowers — such powers remain with courts under criminal law. Banks can only initiate recovery proceedings under civil law through SARFAESI provisions. Therefore, answer is D.

Question 18

The Reserve Bank of India Act, 1934 establishes RBI's monetary authority. Under which section of this Act is RBI empowered to prescribe the Cash Reserve Ratio (CRR) that banks must maintain?

Accepted Answer

The Reserve Bank of India Act, 1934 is the foundational legislation establishing RBI's powers and functions. Section 42 of the RBI Act, 1934 specifically empowers RBI to prescribe the Cash Reserve Ratio (CRR) — the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained as cash deposits with RBI. This is distinct from SLR (Statutory Liquidity Ratio) which is prescribed under Section 24 of the Banking Regulation Act, 1949. CRR is a monetary policy tool used by RBI to control money supply and inflation. Therefore, answer is C.

Question 19

Under the Banking Regulation Act, 1949, Section 45-IA empowers RBI to issue directions to banks regarding their exposure to a single borrower or group of borrowers. What is the primary objective of this regulatory provision?

Accepted Answer

Section 45-IA of the Banking Regulation Act, 1949 grants RBI the authority to issue directions to banks concerning their lending exposure limits to individual borrowers or borrower groups. The primary objective is to prevent concentration of credit risk and ensure prudential lending practices. This provision enables RBI to set exposure limits (typically expressed as a percentage of a bank's capital funds) to mitigate systemic risk arising from excessive exposure to a single entity. The regulation is foundational to Basel III compliance and CRAR (Capital to Risk-Weighted Assets Ratio) framework implementation in India. Therefore, answer is B.

Question 20

The Payment and Settlement Systems Act, 2007 (PSS Act) grants the RBI regulatory authority over payment systems in India. Under the PSS Act, which of the following payment systems is NOT explicitly regulated as a 'Systemically Important Payment System' (SIPS) by the RBI?

Accepted Answer

The Payment and Settlement Systems Act, 2007 grants RBI the authority to regulate and supervise payment systems. RBI has designated certain payment systems as 'Systemically Important Payment Systems' (SIPS) under Section 7 of the PSS Act. The SIPS currently designated by RBI include: (1) RTGS (Real Time Gross Settlement), (2) NEFT (National Electronic Funds Transfer), (3) CCIL (Clearing Corporation of India Limited) for government securities and forex settlement, and (4) NPCI's IMPS (Immediate Payment Service) for retail payments. However, SWIFT (Society for Worldwide Interbank Financial Telecommunication), while used by Indian banks for international transactions, is not explicitly designated as a SIPS under the PSS Act — SWIFT is a Belgian cooperative and is regulated by its own governance structure and international regulators, not directly by RBI as a SIPS. Therefore, the answer is C.

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