Question 1

Under the Banking Regulation Act, 1949, a Scheduled Commercial Bank must maintain a Statutory Liquidity Ratio (SLR) of liquid assets against its Net Demand and Time Liabilities (NDTL). Which of the following best describes the composition and purpose of SLR?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of NDTL that banks must maintain in the form of liquid assets — primarily government securities, treasury bills, gold, and cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949, and serves as a tool for monetary policy and to ensure bank liquidity. As of 2024, the SLR requirement is 18% of NDTL. The key distinction is that SLR assets are maintained by the bank itself (not deposited with RBI like CRR), and they must be in approved liquid instruments. Therefore, the answer is B.

Question 2

Under the Banking Regulation Act, 1949, what is the primary purpose of maintaining Statutory Liquidity Ratio (SLR) by commercial banks?

Accepted Answer

SLR (Statutory Liquidity Ratio) is a regulatory requirement mandated by RBI under Section 24 of the Banking Regulation Act, 1949. The primary purpose is to ensure that banks maintain a minimum percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets—primarily government securities, gold, or cash—to ensure financial stability and liquidity cushion. This differs fundamentally from CRR, which is cash deposited directly with RBI. Therefore, answer is B.

Question 3

Which of the following best describes the concept of 'Net Demand and Time Liabilities' (NDTL) in the context of Indian banking regulations?

Accepted Answer

NDTL is a fundamental concept in Indian banking regulation used to calculate reserve requirements (CRR and SLR). It comprises all deposits (demand and time) minus inter-bank deposits and certain other exclusions. NDTL is the base against which CRR and SLR percentages are applied. It is defined in RBI's Master Circular on Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949. Therefore, answer is C.

Question 4

Which of the following best describes the difference between a Demand Loan and a Term Loan in the context of retail banking?

Accepted Answer

A Demand Loan is a loan facility where the entire amount is disbursed upfront and the borrower must repay the full principal on demand by the bank, typically with interest accruing on the outstanding balance. There is no fixed repayment schedule. A Term Loan, by contrast, has a fixed loan amount disbursed upfront, a predetermined repayment period (tenure), and fixed or floating interest rate with an agreed amortization schedule (EMI/installments). Term loans are more common in retail banking (home loans, auto loans, personal loans), while demand loans are typically used for working capital in commercial banking. Therefore, answer is B.

Question 5

Under RBI guidelines, what is the primary regulatory purpose of the Cash Reserve Ratio (CRR) requirement for scheduled commercial banks?

Accepted Answer

The Cash Reserve Ratio (CRR) is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained as cash deposits with the RBI. As per RBI guidelines, the primary purpose of CRR is twofold: (1) to ensure banks maintain sufficient liquidity to meet immediate withdrawal demands, and (2) to serve as a monetary policy tool through which RBI can control money supply in the economy. By increasing CRR, RBI reduces the money available for lending (contractionary policy); by decreasing CRR, RBI increases lending capacity (expansionary policy). CRR is currently maintained at 4.5% of NDTL (as of 2024). Therefore, answer is D.

Question 6

A customer maintains a savings account with a bank and also holds a joint account with a family member in the same bank. If the bank fails, what is the maximum DICGC insurance coverage available to this customer across both accounts?

Accepted Answer

Under the DICGC scheme (effective May 2021), insurance coverage is provided on a per-depositor-per-bank-per-category basis. Each depositor category receives separate coverage of ₹5,00,000. The key categories are: (1) Individual deposits, (2) Joint deposits, (3) HUF deposits, (4) Trust deposits, etc. In this case, the customer has two separate categories: (1) Individual savings account — ₹5,00,000 coverage, (2) Joint account — ₹5,00,000 coverage (the customer's share is ₹5,00,000 as a joint depositor). Therefore, the total maximum coverage is ₹10,00,000 (₹5,00,000 + ₹5,00,000). Therefore, answer is C.

Question 7

A customer applies for a Home Loan from an SBI branch. The bank conducts a credit appraisal and determines the customer's eligibility based on income, debt-to-income ratio, and collateral value. Under RBI guidelines on lending norms, which of the following statements correctly describes the regulatory framework governing such retail loans?

Accepted Answer

RBI's lending guidelines for retail loans (including home loans) are primarily governed by the Master Direction on 'Lending to Retail Sector' and the RBI Act, 1934. Key principles include: (1) banks must follow prudent lending norms and assess borrower repayment capacity; (2) Loan-to-Value (LTV) ratios are prescribed for secured loans (e.g., home loans typically have an LTV cap of 80-90% depending on loan amount); (3) banks must maintain adequate capital and provisioning; (4) priority sector lending norms apply to certain categories. The regulatory framework does NOT mandate a fixed interest rate (rates are market-determined) and does NOT require RBI pre-approval for individual loans. Therefore, the answer is B.

Question 8

A bank offers a Fixed Deposit (FD) with a tenure of 5 years and an interest rate of 6.5% per annum. Under which of the following regulatory frameworks is the bank required to ensure deposit insurance coverage for this FD?

Accepted Answer

Deposit insurance in India is governed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. DICGC provides insurance coverage up to ₹5 lakh per depositor per bank (including principal and accrued interest). All scheduled commercial banks are mandatorily members of DICGC. The FD in the question, regardless of tenure or rate, is covered under DICGC insurance up to ₹5 lakh. Therefore, answer is A.

Question 9

A customer deposits ₹8 lakh in a bank's savings account. In the event of the bank's failure, what is the maximum amount of deposit insurance coverage the customer will receive from DICGC?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance coverage of ₹5 lakh per depositor per insured bank. This limit includes both principal and accrued interest as on the date of closure of the bank. In this case, the customer's deposit of ₹8 lakh exceeds the coverage limit, so only ₹5 lakh will be insured. The remaining ₹3 lakh is uninsured and the customer becomes an unsecured creditor. Therefore, answer is C.

Question 10

Under the Banking Regulation Act, 1949, what is the primary purpose of the Statutory Liquidity Ratio (SLR) requirement imposed by RBI on scheduled commercial banks?

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 purpose is to ensure banks maintain adequate liquid assets to meet depositor withdrawals and support the government's borrowing programme. As of 2024, the SLR is maintained at 18% of NDTL. Therefore, answer is B.

Question 11

A customer opens a Fixed Deposit (FD) with a scheduled commercial bank for 2 years at 6.5% per annum. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, what is the maximum insurance coverage for this deposit?

Accepted Answer

The DICGC scheme, established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, provides insurance coverage to depositors in case of bank failure. As per the current DICGC coverage norms (effective from May 2021), each depositor is insured up to a maximum of ₹5,00,000 (Five Lakh Rupees) per bank per depositor category. This coverage applies to all types of deposits — savings, current, recurring, and fixed deposits — held in the same bank in the same capacity. Therefore, answer is C.

Question 12

Under RBI guidelines, which of the following loan products is classified as a 'Priority Sector Loan' that banks must lend to as per statutory requirements?

Accepted Answer

Priority Sector Lending (PSL) is a regulatory mandate under RBI guidelines requiring banks to lend a certain percentage of their Adjusted Net Bank Credit (ANBC) to priority sectors. Priority sectors include agriculture, micro and small enterprises (MSEs), education, housing (up to ₹35 lakh for individuals), export credit, and renewable energy. Loans to large industrial houses or commercial real estate (above specified limits) are not classified as priority sector. Therefore, answer is B.

Question 13

Under the Banking Regulation Act, 1949, a Scheduled Commercial Bank is required to maintain a Statutory Liquidity Ratio (SLR) of net demand and time liabilities (NDTL). Which of the following statements correctly describes the composition and regulatory framework of SLR?

Accepted Answer

SLR (Statutory Liquidity Ratio) is the minimum percentage of NDTL that banks must maintain in liquid assets as prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. Eligible SLR assets include government securities (G-secs), treasury bills, gold, and cash held by the bank itself (not with RBI). The current SLR requirement is 18% of NDTL. This differs fundamentally from CRR (Cash Reserve Ratio), which is cash deposited with RBI and is currently 4.5% of NDTL. The trap here is that candidates often confuse SLR with CRR because both are RBI-mandated ratios, but SLR is maintained by the bank in its own vaults in approved securities, while CRR is held as deposits with RBI. Therefore, the answer is B.

Question 14

Under the Banking Regulation Act, 1949, a Scheduled Commercial Bank must maintain a Statutory Liquidity Ratio (SLR) by holding liquid assets. Which of the following correctly defines the composition and regulatory framework of 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, state development loans (SDLs), gold, and cash. It is prescribed by RBI under Section 24 of the Banking Regulation Act, 1949. The current SLR requirement is 18% of NDTL (as of 2024). SLR serves as a tool for RBI to control liquidity in the banking system and ensure banks maintain sufficient liquid resources. The key distinction is that SLR assets are held by the bank itself, whereas CRR (Cash Reserve Ratio) is cash deposited with RBI. Therefore, the answer is B.

Question 15

A bank customer deposits ₹50 lakhs in a Fixed Deposit account for 5 years. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, what is the maximum insured amount the customer will receive in case of bank failure?

Accepted Answer

The DICGC scheme, established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, provides deposit insurance coverage to depositors of member banks. The current coverage limit is ₹5 lakhs per depositor per bank (as of 2024). This means that if a bank fails, a depositor will receive a maximum of ₹5 lakhs, regardless of the actual deposit amount. In this case, the customer's ₹50 lakh deposit will be covered only up to ₹5 lakhs. The insurance covers both principal and accrued interest up to the date of bank closure. Therefore, the answer is C.

Question 16

A bank grants a term loan to a manufacturing company with a floating rate of interest linked to the MCLR (Marginal Cost of Funds Based Lending Rate). The loan agreement includes a spread of 2.5% over MCLR. If the current MCLR is 8.5%, what is the effective lending rate, and under which RBI framework is MCLR mandated?

Accepted Answer

MCLR (Marginal Cost of Funds Based Lending Rate) is the minimum lending rate framework mandated by RBI under the RBI Circular DBR.BP.BC No. 94/21.04.048/2015-16, effective April 1, 2016. MCLR replaced the earlier Base Rate system and is designed to ensure better transmission of monetary policy changes to borrowers. The effective lending rate is calculated as: MCLR + Spread = 8.5% + 2.5% = 11%. MCLR is reset at different tenors (overnight, 1-month, 3-month, 6-month, 1-year) based on the bank's marginal cost of funds and operating expenses. Banks cannot lend below their MCLR for floating rate loans (except in specific cases like housing loans up to ₹75 lakhs where sub-MCLR lending is permitted under certain conditions). Therefore, the answer is B.

Question 17

A bank customer avails a home loan of ₹40 lakhs at a floating rate of interest. The loan agreement includes a clause allowing the bank to increase the interest rate without the customer's consent, subject to RBI guidelines. Under which regulatory framework is this practice governed, and what is the maximum permissible spread over the benchmark rate for home loans up to ₹75 lakhs?

Accepted Answer

Floating rate home loans are governed by RBI's guidelines on MCLR (Marginal Cost of Funds Based Lending Rate) and the RBI's Fair Lending Code. For home loans up to ₹75 lakhs, banks are permitted to charge a spread over MCLR, and the pricing is transparent and disclosed upfront. However, RBI does not prescribe a maximum spread cap — spreads are determined by individual banks based on credit risk, tenor, and market conditions. The key regulatory requirement is transparency: banks must disclose the spread clearly in the loan agreement and ensure that any rate changes are communicated to borrowers. The practice of increasing rates without consent is permissible under floating rate agreements, as the borrower has agreed to rate fluctuations linked to the benchmark. RBI's Fair Lending Code (2018) emphasizes transparency and fair treatment but does not prohibit floating rate increases. Therefore, the answer is D.

Question 18

A bank customer holds a savings account with a balance of ₹8 lakhs. The bank imposes a monthly maintenance charge of ₹500 for non-maintenance of minimum balance. Under RBI guidelines on customer protection and fair banking practices, which of the following statements is correct regarding the bank's right to impose such charges?

Accepted Answer

RBI's guidelines on customer protection and fair banking practices (issued under the RBI Fair Lending Code and various circulars on customer service) emphasize that banks must disclose all charges transparently and provide customers with the option to choose account types that suit their needs. However, RBI does not prohibit banks from imposing maintenance charges for non-maintenance of minimum balance, provided the charges are: (1) disclosed upfront in the account opening document, (2) reasonable and not excessive, and (3) applied uniformly to all customers in the same category. For savings accounts, RBI has mandated that banks must offer at least one 'Basic Savings Bank Deposit Account' (BSBDA) with no minimum balance requirement and no charges for non-maintenance of balance. Therefore, while banks can impose charges on regular savings accounts, they must offer a zero-balance alternative. The customer's right to choose is the key protection. Therefore, the answer is C.

Question 19

A bank customer deposits ₹50 lakhs in a Fixed Deposit (FD) account for 3 years at 6.5% per annum. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, what is the maximum insured amount the customer will receive in case of bank failure?

Accepted Answer

The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI established in 1978, insures deposits up to a maximum of ₹5 lakhs per depositor per bank. This limit applies to the aggregate of all deposits (savings, current, fixed, recurring) held by a single depositor in one bank. In this case, the customer's ₹50 lakh FD is covered only up to ₹5 lakhs. The insurance covers principal and accrued interest up to the date of bank failure, but the total payout cannot exceed ₹5 lakhs. Therefore, the answer is C.

Question 20

A bank grants a personal loan of ₹10 lakhs to a customer at 9% per annum on a reducing balance basis for 5 years. The bank also charges a processing fee of 1% of the loan amount, collected upfront. Under RBI guidelines on transparency in lending, which of the following statements is INCORRECT regarding the disclosure of the Effective Interest Rate (EIR)?

Accepted Answer

Under RBI's guidelines on transparency in lending (Master Direction on Lending – issued under Section 45L of the RBI Act, 1934), banks must disclose the Effective Interest Rate (EIR) or Annual Percentage Rate (APR) to borrowers before loan sanction. The EIR includes all costs associated with the loan — the stated interest rate, processing fees, insurance, and other charges — expressed as an annual percentage. In this case, the 1% processing fee must be factored into the EIR calculation, making the effective cost higher than the stated 9%. The EIR is calculated on a reducing balance basis and must be disclosed in the loan agreement. The incorrect statement would be one that claims the EIR equals the stated rate (9%) without including processing fees, or that EIR disclosure is optional. Therefore, the answer is D.

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60-Second Revision — Deposits & Loans