Question 1

Under the Insolvency and Bankruptcy Code (IBC) 2016, what is the maximum timeline prescribed for the completion of the insolvency resolution process?

Accepted Answer

The Insolvency and Bankruptcy Code 2016 prescribes a maximum timeline of 180 days for the completion of the Corporate Insolvency Resolution Process (CIRP), with a provision to extend this period by an additional 90 days in certain circumstances, making the absolute maximum 270 days. This timeline is designed to ensure swift resolution of insolvencies and protect the interests of creditors and stakeholders. The NCLT (National Company Law Tribunal) is the adjudicating authority responsible for overseeing the insolvency resolution process. Therefore, answer is A.

Question 2

Which of the following best describes the classification of an NPA as 'Sub-standard' under RBI guidelines?

Accepted Answer

Under RBI's NPA classification framework, a loan is classified as Sub-standard when it has remained non-performing for a period not exceeding 12 months. This is the first stage of NPA classification, indicating that the asset has begun to show signs of credit deterioration but has not yet reached the more severe 'Doubtful' or 'Loss' categories. Sub-standard assets require a provisioning norm of 15% of the outstanding amount. Therefore, answer is A.

Question 3

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 of at least 6% and Tier 2 capital of at least 4.5%. The CRAR requirement is higher than the international Basel III minimum of 10.5% to provide additional safety buffer. RBI has prescribed these ratios under the Basel III framework to ensure banks maintain sufficient capital to absorb losses and support their risk-weighted assets. Therefore, answer is C.

Question 4

Under the SARFAESI Act 2002, a bank can initiate asset seizure without obtaining a court order for loan defaults exceeding 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 mortgaged assets without court intervention for dues exceeding ₹1 lakh. This threshold was set to enable faster recovery of non-performing assets. The bank must follow due process including notice to the borrower and opportunity to cure, but court approval is not mandatory. Therefore, the answer is B.

Question 5

Which of the following is NOT a component of Tier 1 Capital under Basel III framework as applicable in India?

Accepted Answer

Under Basel III framework adopted by RBI, Tier 1 Capital comprises Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) capital. CET1 includes paid-up capital, retained earnings, and other comprehensive income. AT1 includes perpetual non-cumulative preference shares and perpetual debt instruments meeting specific criteria. Tier 2 Capital (not Tier 1) includes subordinated debt, hybrid instruments with maturity, and general loan loss provisions. Therefore, the answer is C.

Question 6

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

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 period 270 days. This timeline is measured from the date of admission of the insolvency petition by the National Company Law Tribunal (NCLT). The NCLT is the adjudicating authority for corporate insolvency cases. Therefore, the answer is D.

Question 7

Which of the following best describes the classification of a Non-Performing Asset (NPA) as 'Doubtful' under RBI's asset classification norms?

Accepted Answer

Under RBI's NPA classification framework, an asset is classified as 'Doubtful' when it has remained in the 'Sub-standard' category for a period exceeding 12 months. Doubtful assets are further divided into three categories based on duration: Doubtful-1 (12-18 months), Doubtful-2 (18-36 months), and Doubtful-3 (beyond 36 months). The provisioning requirement for Doubtful assets ranges from 25% to 100% depending on the sub-category and the realisable value of security. Therefore, the answer is B.

Question 8

The Debt Recovery Tribunal (DRT) has jurisdiction to entertain recovery suits for loan defaults exceeding which amount?

Accepted Answer

The Debt Recovery Tribunal (DRT), established under the Recovery of Debts Due to Banks and Financial Institutions Act 1993, has jurisdiction to entertain recovery suits where the amount of debt exceeds ₹20 lakh. This threshold was set to enable faster recovery of large-value loans from banks and financial institutions. DRTs operate as specialized forums outside the regular civil court system and follow expedited procedures. For amounts below ₹20 lakh, banks typically pursue recovery through regular civil courts or use SARFAESI provisions. Therefore, the answer is C.

Question 9

Under the Capital Market framework in India, which of the following statements correctly describes the role and regulatory authority of the National Stock Exchange (NSE)?

Accepted Answer

The National Stock Exchange (NSE) is India's largest stock exchange by market capitalisation and trading volume. It was established in 1992 and is regulated by the Securities and Exchange Board of India (SEBI) under the Securities Contracts (Regulation) Act, 1956. NSE operates as a demutualised and corporatised exchange, meaning it is a separate legal entity independent from its members. It provides a platform for trading in equities, derivatives, debt instruments, and currency derivatives. SEBI, as the primary regulator, oversees listing norms, trading rules, settlement procedures, and investor protection mechanisms. Therefore, the correct answer is the option that identifies NSE as SEBI-regulated and established in 1992.

Question 10

In the context of stock market operations, what is the primary function of a Clearing Corporation in India's capital market ecosystem, and which entity operates the clearing and settlement system for the National Stock Exchange (NSE)?

Accepted Answer

A Clearing Corporation acts as a central counterparty (CCP) in securities trading. Its primary functions include: (1) guaranteeing settlement of trades by interposing itself between buyers and sellers, (2) managing counterparty risk, (3) ensuring timely and accurate settlement of securities and funds, and (4) maintaining a guarantee fund to protect market participants. For NSE, the clearing and settlement operations are conducted by the National Securities Clearing Corporation Limited (NSCCL), which is a wholly-owned subsidiary of NSE. NSCCL operates under SEBI's regulatory oversight and follows the Depositories Act, 1996, and SEBI regulations. It manages both equity and derivatives settlement. Therefore, the correct answer identifies NSCCL as NSE's clearing corporation and explains the CCP role.

Question 11

Under the SARFAESI Act 2002, a bank can initiate asset seizure proceedings without obtaining a court order for loan defaults exceeding 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 secured assets without court intervention for dues exceeding ₹1 lakh. This threshold was set to expedite recovery of non-performing assets and reduce the burden on the judicial system. The bank must follow prescribed procedures including notice to the borrower and opportunity to cure default before asset seizure. Therefore, answer is B.

Question 12

Which of the following statements correctly describes the relationship between Gross NPA and Net NPA?

Accepted Answer

Gross NPA represents the total value of non-performing assets in a bank's portfolio without any deductions. Net NPA is calculated by deducting provisions and recoveries from Gross NPA. The formula is: Net NPA = Gross NPA − Provisions − Recoveries. Net NPA provides a more realistic picture of the actual credit losses a bank has suffered, as it accounts for the bank's loss mitigation efforts through provisioning. Therefore, answer is B.

Question 13

A securities firm acting as a market maker in equity derivatives on the National Stock Exchange (NSE) is required to maintain certain risk management parameters under SEBI's Securities and Exchange Board of India (Derivatives) Regulations, 2014. The firm's Value at Risk (VaR) for its derivatives portfolio is calculated at ₹5 crore at a 99% confidence level over a 1-day holding period. According to SEBI's framework, what is the minimum capital adequacy requirement the firm must maintain against this VaR exposure?

Accepted Answer

SEBI's Derivatives Regulations, 2014 and the accompanying Risk Management Framework mandate that securities firms and derivatives dealers maintain capital adequacy based on their Value at Risk (VaR) calculations. The standard framework requires firms to maintain a capital charge equal to 3 times the VaR (calculated at 99% confidence level over a 1-day holding period) plus an additional Stressed VaR (SVaR) component. However, the primary VaR-based capital requirement is 3 × VaR. In this case, the minimum capital requirement against VaR exposure would be 3 × ₹5 crore = ₹15 crore. This aligns with Basel III principles adapted for Indian securities markets and is consistent with international best practices for derivatives risk management. Therefore, the answer is C.

Question 14

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

Accepted Answer

The SARFAESI Act 2002 empowers banks and financial institutions to seize and sell secured assets without court intervention for recovery of dues exceeding ₹1 lakh. This threshold was established to enable faster recovery of secured loans while protecting borrowers below this limit through judicial oversight. The Act applies to secured debts only and does not apply to unsecured advances. Therefore, answer is C.

Question 15

A bank classifies a loan account as 'Doubtful' under NPA norms. According to RBI's provisioning guidelines, what is the mandatory provisioning requirement for the Doubtful category?

Accepted Answer

Under RBI's NPA classification norms, a Doubtful asset is one where the loan has remained in the Sub-standard category for 12 months or more. The provisioning requirement for Doubtful assets is 25–40%, depending on the age of the asset within the Doubtful category and the nature of security. For assets in the Doubtful category for up to 12 months, the provision is 25%; for assets in Doubtful for more than 12 months, it escalates to 40%. Therefore, answer is B.

Question 16

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 with effect from April 1, 2013, prescribes a minimum CRAR of 10.5% for Indian banks. This comprises Tier 1 capital (minimum 6%) and Tier 2 capital. The 10.5% requirement is higher than the Basel III global minimum of 10.5% and reflects RBI's additional buffer requirements for domestic systemically important banks and the Indian banking system's risk profile. Therefore, answer is D.

Question 17

An Asset Reconstruction Company (ARC) purchases a non-performing loan from a bank at a discount. In exchange, the ARC issues a security receipt to the bank. Which of the following best describes the nature of this security receipt?

Accepted Answer

A security receipt issued by an ARC is a financial instrument that represents the bank's claim on the cash flows generated from the recovery of the purchased NPA. The security receipt is backed by the underlying assets acquired by the ARC and entitles the bank to receive redemption proceeds as the ARC recovers the debt. Security receipts are regulated by RBI under the ARC Regulations and are tradeable instruments, allowing banks to liquidate their claims if needed. Therefore, answer is A.

Question 18

Under the Insolvency and Bankruptcy Code (IBC) 2016, what is the maximum timeline for completion of the insolvency resolution process from the date of admission of the insolvency petition by the National Company Law Tribunal (NCLT)?

Accepted Answer

The IBC 2016 prescribes a maximum timeline of 180 days for completion of the Corporate Insolvency Resolution Process (CIRP) from the date of admission of the petition by NCLT, with a provision for a single extension of up to 90 days (making the absolute maximum 270 days). This timeline is designed to ensure swift resolution of insolvencies and prevent prolonged uncertainty. The NCLT is the adjudicating authority responsible for admitting petitions and overseeing the process. Therefore, answer is B.

Question 19

Under the SARFAESI Act 2002, a bank can initiate asset seizure proceedings without obtaining a court order for non-performing advances. What is the minimum threshold amount of dues that triggers this provision?

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 secured assets without court intervention when the outstanding dues exceed ₹1 lakh. This threshold was set to enable faster recovery of bad debts while protecting borrowers below this limit through judicial oversight. The provision applies to secured advances only, and the bank must follow prescribed procedures including notice to the borrower before taking possession. Therefore, the answer is B.

Question 20

A bank classifies an advance as 'Doubtful' under RBI's NPA classification norms. According to Basel III provisioning guidelines applicable in India, what is the mandatory provisioning requirement for this category?

Accepted Answer

Under RBI's NPA classification framework aligned with Basel III, advances classified as 'Doubtful' (where the asset has remained non-performing for 12–36 months) require a provisioning norm of 25–40% depending on the period of default within the Doubtful category. Specifically: Doubtful for up to 12 months requires 25% provision, Doubtful for 12–36 months requires 40% provision, and Doubtful for more than 36 months requires 100% provision. This graduated provisioning structure incentivizes faster resolution and reflects increasing credit risk. Therefore, the answer is C.

SBI PO Capital Market & Stock Exchange

Capital Market & Stock Exchange— Rules & Concept

Key Points to Remember

Exam-Specific Tips

Capital Market & Stock Exchange — Practice Questions

60-Second Revision — Capital Market & Stock Exchange