Question 1

Which of the following statements correctly defines the role and regulatory status of a Payment Bank in India?

Accepted Answer

Payment Banks are a category of banks licensed by RBI under the Banking Regulation Act 1949 with a specific business model. They can accept deposits up to Rs. 1 lakh per customer, offer payment and remittance services, and issue debit cards, but are NOT permitted to lend or offer credit products. They operate under a differentiated regulatory framework designed for financial inclusion. Therefore, answer is B.

Question 2

Under RBI guidelines, which category of banks is required to maintain a minimum CRAR (Capital to Risk-Weighted Assets Ratio) of 9% as the baseline requirement?

Accepted Answer

RBI prescribes a minimum CRAR of 9% for all Scheduled Commercial Banks under the Basel III framework implemented in India. This is the baseline capital adequacy requirement. Banks must maintain this ratio to ensure they have sufficient capital to absorb losses and support their risk-weighted assets. Therefore, answer is A.

Question 3

Which of the following correctly describes the primary regulatory difference between a Commercial Bank and a Non-Banking Financial Company (NBFC)?

Accepted Answer

Commercial Banks are licensed under the Banking Regulation Act 1949 and can accept deposits from the public and create credit through lending. NBFCs are registered with RBI under the Reserve Bank of India Act 1934 but are explicitly prohibited from accepting deposits from the general public — they can only accept deposits from their directors, employees, and in some cases, from certificate holders. Therefore, answer is C.

Question 4

Which of the following statements correctly distinguishes between a Scheduled Commercial Bank and a Cooperative Bank in India?

Accepted Answer

Scheduled Commercial Banks are regulated under the Banking Regulation Act, 1949, and are included in the Second Schedule of the RBI Act, 1934. They are incorporated as companies under the Companies Act and are primarily profit-driven entities. Cooperative Banks, on the other hand, are registered under the Cooperative Societies Act and operate on cooperative principles with a focus on member welfare. Cooperative Banks are regulated by both RBI (for banking functions) and State Registrars (for cooperative aspects). Scheduled Commercial Banks have nationwide branch networks and are eligible for RBI's liquidity support, while Cooperative Banks typically operate within a state or region. Therefore, answer is C.

Question 5

Regional Rural Banks (RRBs) in India are jointly owned by which three entities?

Accepted Answer

Regional Rural Banks (RRBs) were established under the Regional Rural Banks Act, 1976, with the objective of promoting agricultural and rural development. RRBs are jointly owned by the Government of India (50% ownership), the concerned State Government (15% ownership), and the Sponsor Bank — typically a Scheduled Commercial Bank (35% ownership). The Sponsor Bank provides technical support, training, and management guidance. Therefore, answer is B.

Question 6

Which of the following correctly describes the regulatory relationship between a Non-Banking Financial Company (NBFC) and the Reserve Bank of India?

Accepted Answer

Non-Banking Financial Companies (NBFCs) are regulated by the Reserve Bank of India under the Reserve Bank of India Act, 1934, and the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007 (and subsequent amendments). NBFCs cannot accept demand deposits (current/savings accounts) but can accept term deposits. They are required to maintain Capital Adequacy Ratio (CAR) and other prudential norms. However, NBFCs are NOT banks and do not have access to the payment and settlement system in the same manner as banks. Therefore, answer is D.

Question 7

Under the Pradhan Mantri Jan Dhan Yojana (PMJDY), which type of financial institution is mandated to open Basic Savings Bank Deposit (BSBD) accounts for all eligible citizens?

Accepted Answer

The Pradhan Mantri Jan Dhan Yojana, launched in 2014, mandates all Scheduled Commercial Banks (both public and private sector) and Regional Rural Banks (RRBs) to open zero-balance Basic Savings Bank Deposit accounts for all eligible citizens. This is a financial inclusion initiative. Non-Banking Financial Companies (NBFCs) are not mandated to participate in PMJDY account opening, though they may offer other financial services. Therefore, answer is C.

Question 8

Which of the following statements correctly distinguishes between Scheduled Commercial Banks (SCBs) and Non-Banking Financial Companies (NBFCs) under RBI regulation?

Accepted Answer

Scheduled Commercial Banks are institutions that accept deposits from the public and are listed on the RBI's Second Schedule under the RBI Act, 1934. They are subject to the Banking Regulation Act, 1949, and must maintain CRR and SLR. NBFCs, regulated under the RBI Act, 1934 (Section 45-IA), do NOT accept demand deposits (current/savings accounts) from the public — they can only accept term deposits. This is the fundamental regulatory distinction. NBFCs engage in financial activities like lending, investment, and hire-purchase but lack the deposit-taking privilege of banks. Therefore, answer is B.

Question 9

A cooperative bank in India seeks to become a Scheduled Bank. Which of the following conditions is NOT a requirement under RBI guidelines?

Accepted Answer

For a cooperative bank to be scheduled (i.e., included in the Second Schedule of the RBI Act, 1934), it must meet specific criteria: (1) minimum paid-up capital and reserves, (2) solvency ratio requirements, (3) compliance with RBI prudential norms, and (4) willingness to comply with RBI directions. Critically, scheduled status does NOT require conversion to a joint-stock company or change of ownership structure — cooperative banks can remain cooperative entities while being scheduled. The trap here is that candidates often confuse 'scheduled' status with 'commercial bank' status or assume structural reorganization is mandatory. Therefore, answer is C.

Question 10

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 banks that are included in the Second Schedule of the Reserve Bank of India Act, 1934. This inclusion requires the bank to maintain a minimum paid-up capital and reserve fund as specified by RBI, and they are eligible to avail of RBI's refinancing facilities and participate in the payment and settlement system. Non-Scheduled Banks do not have this statutory recognition and cannot access RBI's liquidity support mechanisms. Therefore, answer is B.

Question 11

Which of the following is NOT a function that a Small Finance Bank (SFB) is permitted to perform under RBI's regulatory framework?

Accepted Answer

Small Finance Banks are licensed by RBI to provide basic banking services with a focus on financial inclusion. They can accept deposits, lend to small businesses, farmers, and individuals, issue debit cards, and offer remittance services. However, they are NOT permitted to issue credit cards or offer investment advisory services as primary business activities. Therefore, answer is D.

Question 12

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

Accepted Answer

Scheduled banks are those included in the Second Schedule of the RBI Act, 1934. Scheduled Commercial Banks (SCBs) are joint-stock banks with minimum paid-up capital and reserves, while Scheduled Cooperative Banks are cooperative societies registered under state cooperative laws. The critical distinction tested here is regulatory framework and membership structure: SCBs operate under the Banking Regulation Act, 1949 (with certain exemptions), while Cooperative Banks are primarily regulated under state cooperative laws and the Banking Regulation Act, 1949 (Part IV-A). SCBs must maintain CRR and SLR; Cooperative Banks have different reserve requirements. The trap is that candidates often conflate the two or assume identical regulatory treatment. Therefore, answer is B.

Question 13

A Small Finance Bank (SFB) is required to maintain a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of _____ under Basel III norms, and must allocate at least _____ of its lending to priority sector lending (PSL) as per RBI guidelines.

Accepted Answer

Small Finance Banks (SFBs), as defined by RBI under the Small Finance Banks Regulations, 2015, are required to maintain a minimum CRAR of 12% under Basel III norms. This is higher than the standard minimum CRAR of 8% for Scheduled Commercial Banks, reflecting the higher risk profile of SFBs' lending to underserved segments. Additionally, SFBs must allocate at least 75% of their adjusted net bank credit (ANBC) to priority sector lending (PSL), which includes lending to agriculture, micro and small enterprises, and other priority sectors. This 75% PSL requirement is significantly higher than the 40% requirement for Scheduled Commercial Banks, aligning with SFBs' developmental mandate. Therefore, the answer is B.

Question 14

Under the Banking Regulation Act, 1949, Non-Banking Financial Companies (NBFCs) are defined as companies that do NOT engage in which of the following activities as their primary business?

Accepted Answer

NBFCs are defined under Section 45-IA of the Reserve Bank of India Act, 1934 (not the Banking Regulation Act). An NBFC is a company engaged in the business of receiving deposits and lending. However, certain entities are explicitly excluded from the NBFC definition, including insurance companies, stock brokers, and entities whose primary business is agriculture or charitable activities. The trap here is that candidates often confuse the governing statute (Banking Regulation Act vs. RBI Act) and the scope of NBFC exclusions. The correct answer identifies that NBFCs MUST engage in deposit-taking or lending as core business; if an entity's primary business is something else (like insurance or stock broking), it is NOT classified as an NBFC regardless of incidental financial activities. Therefore, answer is C.

Question 15

Which of the following statements correctly describes the regulatory relationship between a Payment Bank and a Scheduled Commercial Bank in terms of reserve requirements and lending operations?

Accepted Answer

A Payment Bank, as defined by RBI under the Payment Banks Regulations, 2015, is a specialized bank that can accept deposits up to ₹2 lakhs per customer but is NOT permitted to engage in lending operations. Payment Banks must maintain CRR (Cash Reserve Ratio) like Scheduled Commercial Banks but are exempt from maintaining SLR (Statutory Liquidity Ratio) on their deposits. This is a key regulatory distinction: while both are Scheduled Banks (Payment Banks are included in the Second Schedule of RBI Act, 1934), Payment Banks' business model is restricted to payments and deposits, not credit creation. Therefore, the answer is D.

Question 16

A Non-Banking Financial Company (NBFC) classified as an 'Investment Finance Company' under RBI guidelines is primarily engaged in which of the following activities?

Accepted Answer

An Investment Finance Company (IFC), as defined by RBI under the Non-Banking Financial Company (NBFC) classification framework, is an NBFC that is engaged in financing of physical assets such as automobiles, tractors, and other equipment. However, the key regulatory distinction is that an IFC does NOT accept public deposits — it finances assets through its own resources or borrowings from banks and other financial institutions. This differentiates it from Deposit-taking NBFCs (NBFCs-D). The RBI's Master Direction on NBFCs (updated periodically) specifies that IFCs must maintain a minimum Net Owned Fund (NOF) and are subject to asset classification and provisioning norms. Therefore, the answer is C.

Question 17

Under the Pradhan Mantri Jan Dhan Yojana (PMJDY), which category of bank is mandated to open and maintain Basic Savings Bank Deposit (BSBD) accounts with zero balance and no minimum balance requirement?

Accepted Answer

The Pradhan Mantri Jan Dhan Yojana, launched in 2014, mandates that all Scheduled Commercial Banks (both public and private sector) must open Basic Savings Bank Deposit accounts. These accounts have zero balance requirement and no minimum balance maintenance clause. While Regional Rural Banks (RRBs) and Cooperative Banks also participate in PMJDY, the primary mandate and responsibility for BSBD account opening rests with Scheduled Commercial Banks as per RBI guidelines and the scheme's operational framework. The scheme specifically requires Scheduled Banks to ensure financial inclusion through these accounts. Therefore, the answer is B.

Question 18

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. The key distinguishing criterion is that a Scheduled Bank must have a paid-up capital and reserves of at least ₹5 lakhs (as per historical definition, now superseded by modern norms) and must comply with CRR and SLR requirements mandated by RBI. Non-Scheduled Banks are not listed in the Second Schedule and are exempt from certain RBI regulations, though they must still comply with Banking Regulation Act provisions. The critical regulatory advantage of Scheduled status is access to RBI's liquidity facilities (repo, reverse repo, MSF) and exemption from maintaining CRR on incremental CASA deposits in certain scenarios. Therefore, the answer is B.

Question 19

Which of the following statements correctly describes the regulatory distinction between a Payment Bank and a Small Finance Bank (SFB) under RBI's licensing framework?

Accepted Answer

Payment Banks and Small Finance Banks (SFBs) are two distinct categories of banks licensed by RBI under differentiated banking licenses introduced in 2014-2015. A Payment Bank is licensed under the RBI's Guidelines on Licensing of Payment Banks, 2014, and is restricted to accepting deposits up to ₹1 lakh per customer and cannot engage in lending activities. Payment Banks can offer payment and settlement services, issue debit cards, and provide other financial services but are NOT permitted to lend. A Small Finance Bank (SFB) is licensed under the RBI's Guidelines on Licensing of Small Finance Banks, 2015, and can accept deposits without the ₹1 lakh limit and MUST engage in lending to underserved sectors (priority sector lending of at least 75% of adjusted net bank credit). SFBs are full-fledged banks with lending mandates, while Payment Banks are restricted to payment and settlement services. Both are regulated under the Banking Regulation Act, 1949 (with modifications), and must maintain Basel III capital adequacy norms. Therefore, answer is C.

Question 20

Under the Pradhan Mantri Jan Dhan Yojana (PMJDY), which of the following correctly describes the regulatory framework and the types of banks eligible to open PMJDY accounts?

Accepted Answer

The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014, is a financial inclusion scheme under which all eligible citizens can open zero-balance savings accounts. The scheme is implemented by all types of banks: Scheduled Commercial Banks (both public and private), Regional Rural Banks (RRBs), and Cooperative Banks. The regulatory framework is governed by RBI guidelines and the scheme's operational guidelines issued by the Department of Financial Services (DFS), Ministry of Finance. A critical feature of PMJDY accounts is that they are zero-balance accounts (no minimum balance requirement), and account holders receive a RuPay debit card and accidental death insurance coverage of ₹1 lakh (later enhanced to ₹2 lakhs). The accounts must be opened at bank branches or through Business Correspondents (BCs). RBI has mandated that all Scheduled Banks, RRBs, and eligible Cooperative Banks participate in PMJDY. Therefore, answer is D.

SBI PO Types of Banks & NBFCs

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Types of Banks & NBFCs — Practice Questions

60-Second Revision — Types of Banks & NBFCs