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🔜TELIGRAM
Pdf jagmohan meena rajgarh alwar RAJASTHAn
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By
Gautam Majumdar

UPKAR PRAKASHAN, AGRA–2


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© Publishers

Publishers
UPKAR PRAKASHAN
(An ISO 9001 : 2000 Company)

2/11A, Swadeshi Bima Nagar, AGRA–282 002


Phone : 4053333, 2530966, 2531101
Fax : (0562) 4053330, 4031570
E-mail : care@upkar.in
Website : www.upkar.in
Branch Offices
4845, Ansari Road, 1-8-1/B, R.R. Complex (Near Sundaraiah Park, Pirmohani Chowk,
Daryaganj, Adjacent to Manasa Enclave Gate), Kadamkuan,
New Delhi—110 002 Bagh Lingampally, Hyderabad—500 044 (A.P.) Patna—800 003
Phone : 011–23251844/66 Phone : 040–66753330 Phone : 0612–2673340

● The publishers have taken all possible precautions in publishing this book, yet if
any mistake has crept in, the publishers shall not be responsible for the same.
● This book or any part thereof may not be reproduced in any form by
Photographic, Mechanical, or any other method, for any use, without written
permission from the Publishers.
● Only the courts at Agra shall have the jurisdiction for any legal dispute.

ISBN : 978-93-5013-294-4

Price : 75·00
(Rs. Seventy Five Only)
Code No. 1734

Printed at : UPKAR PRAKASHAN (Printing Unit) Bye-pass, AGRA


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Contents

● Basic Banking & Financial Issues : A Compilation……………………………… 3–16


(Simple Question and Answer Format)

● Salient Points About Reserve Bank of India …………………………………… 17–18

● Recent Developments in Banking and Finance ………………………………… 19–46

● True or False …………………………………………………………………… 47–47

● Multiple Choice Questions …………………………………………………… 48–79


I. Banking : Products, Services & Practices ……………………………………… 48
II. RBI, Banks & Financial Institutions …………………………………………… 56
III. Government Finances & Accounts……………………………………………… 62
IV. Current Economic Affairs—National ………………………………………….. 65
V. Insurance, Non-Banking Finance Companies ………………………………….. 67
VI. Current Economic Affairs—International ……………………………………… 70
VII. Capital Markets & Investments ………………………………………………… 71

● Miscellaneous Multiple Choice Questions …………………………………….. 80–104


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Basic Banking & Financial


Issues : A Compilation
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Basic Banking & Financial


Issues : A Compilation
This handbook on basic banking and financial Reading this handbook would give an extra
issues is meant to acquaint the reader with the fun- edge to the preparation for the recruitment examina-
damentals of the subject. The primary purpose is to tions. Competition is all about elimination and the
give a broad overview for tackling questions on the extra refined information would make all the differ-
subject with a sense of confidence and professional ence between success and failure. Whether it is the
approach. written test or the interview or the group discussion
The banking sector is opening up to huge va- his hand book would be immensely beneficial. It is
cancies in the next two to three years with extremely written in simple language with focus on explaining
satisfying job opportunities and the recruitment pro- the subjects at the basic level to give an overall un-
cess is transparent for aspirants from all sections to derstanding.
participate.

Simple Question and Answer For mat


Format
Q. Why are banks known as financial intermedi- Q. What is the difference between public sector
aries? banks and private sector banks?
Ans. Banks perform the dual task of receiving money Ans. Public sector banks mean those banks where
as deposits from customers and lend funds to the government has the majority controlling
those customers who wish to borrow. It thus stake as against private sector banks whose
acts as intermediaries between the depositor shares are in the hands of private corporate
and the borrower. groups and individuals.
Q. Why Reserve Bank of India is called the cen- Q. Do nationalized banks and public sector banks
tral bank ? have the same meaning?
Ans. It is the central bank since it controls money Ans. When private banks in India were taken over
supply in the economy and regulates price con- by the government in 1969 these banks were
trol. It is the banker to the government. Every classified as nationalized banks. Then in the
country has a central bank which is assigned 1990s when the government introduced finan-
this responsibility. cial sector reforms the government holding in
Q. What is the structure of the banking system these banks were gradually diluted by issuing
in India? of shares for the public. With this change these
Ans. The banking sector is made up of commercial banks also covered under the category of pub-
banks and cooperative credit institutions. The lic sector banks. IDBI Bank is the other public
commercial banks consist of scheduled com- sector bank.
mercial banks and the non scheduled commer- Some Nationalised Banks are—
cial banks.  State Bank Group  Bank of Baroda
Q. Which are the scheduled banks in India?
 Central Bank of India  United Bank of India
Ans. All commercial banks which are included in the
 Bank of India  Union Bank of India
Second Schedule to the Reserve Bank of India
Act are known as scheduled banks.  Punjab National Bank Dena Bank
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4 | Basic Banking & Financial Issues


 Canara Bank Q. What are the levels in cooperative banking in
 Allahabad Bank India?
 United Commercial Bank Ans. The cooperative banking sector comprises the
 Indian Bank urban cooperative banks and the rural coop-
erative credit institutions. The rural coopera-
Q. What is meant by old private sector banks?
tive structure has the state cooperative banks
Ans. Prior to nationalization in 1969 banks in India followed by the district cooperative banks and
were controlled by private promoters. Those the primary agricultural cooperative institutions
banks which were not nationalized continued
at the base level.
to be managed by private ownership. These
banks are mentioned as old private sector banks Q. What is the equity requirement for floating a
to differentiate from private banks which were bank in India?
given licenses later. Karnataka Bank, South
Indian Bank, Federal Bank are instances of old Ans. The present capital requirement for running a
private sector banks. bank is Rs. 500 crores.
Q. Which are the new private sector banks? Q. What is meant by retail banking?
Ans. Financial sector reforms were undertaken in In- Ans. Banking business which primarily caters to the
dia in the 1990s when economic liberalization average individual like offering deposit ac-
became a policy. As a part of this process of counts and loans like personal, car and hous-
integrating with international financial stan- ing come under retail banking.
dards new banks were allowed to be set up by
RBI. These banks like Axis Bank, Centurian Q. What do you understand by the term ‘offshore
Bank, Development Credit Bank, HDFC Bank, banking’ ?
ICICI Bank, IndusInd Bank, Kotak Mahindra Ans. Offshore banking denotes branch of an Indian
Bank, Yes Bank came to be known as new pri-
bank which is located in a special economic
vate sector banks.
zone. This is primarily meant to encourage ex-
Q. These new private sector banks were formed ports from the area with a specified set of rules
as a result of which government action. and regulations.
Ans. RBI issued fresh banking licences in 1994 as a Q. The word ‘ green investment banking’ is sup-
result of which the new private sector banks
posed to mean what?
were incorporated.
Ans. It is basically an investment with focus on en-
Q. What is a regional rural bank?
vironment friendly projects. This is a new con-
Ans. To address effectively the concept of social cept in view of emphasis on the protection of
banking in India with emphasis on regional the environment.
thrust the regional rural banks were introduced
in 1975. The stake holders in these banks are Q. What are the instruments of monetary policy
the central government, the state government transmission?
and the sponsor bank in the ratio of 50: 15: 35. Ans. Monetary policy transmission is a critical role
With a view of consolidated and strengthen- of the RBI whereby it attempts to control prices
ing RRBs, the Govt. of India initiated, in Sept. and output in the economy. The availability of
2005, the process of amalgamation of RRBs, in liquidity or the need to suck excess cash from
a phased manner. Accordingly as on 31st Janu- the market is done through altering the repo and
ary, 2013 the total number of RRBs stood at reverse repo rates as well as the cash reserve
67. ratio.
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Basic Banking & Financial Issues | 5


Q. When is the repo rate used ? Establishment Years of Major Financial
Ans. When RBI lends to banks for increasing liquid- Institutions in India
ity in the economy the repo rate is applied as a S.N. Financial Institutions Year
monetary policy tool to manage mismatches. 1. Imperial Bank of India 1921
2. RBI April 1, 1935
As on 19.03.2013 Repo rate is 7·50%. 3. IFCI 1948
Q. What is the difference between repo rate and 4. SBI July 1, 1955
reverse repo rate? 5. UTI Feb. 1, 1964
6. IDBI July 1964
Ans. RBI lends funds to banks to enable them to
7. NABARD July 12, 1982
meet their liquidity requirements. The interest 8. IRBI (Now it has been March 20, 1985
rate at which these funds are provided is known renamed as IBIL since
as the repo rate. Similarly, banks can keep their March 6, 1997)
surplus funds with RBI for which the interest is 9. SIDBI 1990
payable at the reverse repo rate. The repo rate 10. EXIM Bank January 1, 1982
is higher than the reverse repo rate. 11. National Housing Bank July 1988
12. LIC Sept. 1956
As on March19, 2013 13. GIC Nov. 1972
Repo Rate = 7·50% 14. Regional Rural Bank Oct. 2, 1975
15. HDFC 1977
Reverse Repo Rate = 6·50%
Q. Banks are supposed to observe prudential
Q. The bank rate denotes the rate at which RBI is norms. What are these norms?
prepared to buy or rediscount bills of exchange
Ans. Banks are an important of an economy and
or commercial papers. This rate is an indication
hence needs to be fully protected and safe. As
of the direction of the monetary policy of RBI
per international best practices banks are re-
in the medium term. As on March 19, 2013 the quired to observe certain norms relating to capi-
bank Rate is 8·50%. tal adequacy, asset classification and provision-
Q. Maintenance of the cash reserve ratio is ing for proper functioning.
through cash balances kept as reserves with Q. Explain Basel norms.
RBI by banks. It is an amount which is a per- Ans. Basel norms are followed by banks in India in
centage of the total deposits of a bank which is order to comply with international best prac-
a requirement of the prudential norms stipu- tices. This enables banks to be judged in com-
lated by RBI. It is known as CRR which is 4% parison to other banks as to their work prac-
effective from 9.2.2013. tices and strength. So far BASEL-I, II, III are in
Q. Compliance with statutory liquidity ratio is by. operation.
Q. Are banks working rated by RBI?
Ans. Investing in cash, gold and unencumbered ap-
proved government securities by banks as a pro- Ans. Yes banks are examined annually with regard
to different parameters like capital, asset qual-
portion of their net demand and term liabilities.
ity, management, earnings, liquidity and sys-
Q. What is a no frills account being opened by tems. The banks are ranked in order of their
banks? relative strengths.
Ans. To promote the spread of banking in unbanked Q. What is meant by priority sector lending?
areas and for less privileged people it is impor- Ans. Banks have to lend to different sectors of the
tant to have minimum conditions for opening economy for overall development. The funds
of bank accounts. These accounts have zero or that are available have to be suitably distrib-
minimum balance requirement for maintaining uted amongst the sectors identified. Priority
savings account. Also the procedure for open- sectors are agriculture, small industries, exports
ing accounts is simpler. etc. which require preferential treatment. Thus
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6 | Basic Banking & Financial Issues


RBI mandates that 40 per cent of total lending ing group on the Modalities of Implementation of
should be to the priority sector. Out of this 40% Priority Sector Leading and the Twenty Point
18 percentage point is earmarked for agricul- Economic programme, all the commercial banks are
ture and allied services. advised to achieve the target of priority sector lead-
ing at 40% of aggregate bank advances. The scheme
Priority Sector Lending is in operation since 1985. The sub-targets, under
On the basis of recommendations of the work- the scheme are following–

S.N. Sector Domestic Foreign


Commercial Commercial
Banks Banks
1. Agriculture & Allied Activities 18% No Target
2. Small Scale Industries 10%
3. Micro Enterprises within SSI sector 11% *
(i) Units having investment in plants 40% of total same as domestic
and machinery upto Rs. 5 lakh SSI advances banks
(ii) Units having investment in plants 20% of total
and machinery between Rs. 5 lakh and Rs. 25 SSI advances
4. Export Credit Export credit in not a part 12%
of priority sector lending
5. Advances to weaker sections 10% No target
6. Differential Rate of Interest scheme 1% ** No target

Overall priority sector 40% 32%

* No maximum limit is prescribed. However, advances to SSI sector will be reckoned in computing performance
under the over all priority sector target of 40% of Adjusted Net Bank Credit (ANBC) or credit equivalent amount
of off Balance sheet exposure, whichever is higher.
** It should be ensured that not less than 40% of the total advances granted under Differential Rate of Interest
Scheme go to SCs/STs. At least third of DRI advances should be granted through rural and semiurban branches.

Q. Define capital adequacy ratio. non performing when it stops earning income
Ans. CAR or capital adequacy ratio measures a for the bank. When loans become bad or diffi-
bank’s financial strength expressed as a ratio cult to recover they are classified as non per-
of the capital of the bank to its loans. The capi- forming as per criteria established.
tal of a bank is taken as its equity capital, re-
serves and subordinated debt. The loans are Q. How do loans become non performing ?
taken as a component of the risk attached to it Ans. Loans are treated as non performing when there
as each loan (asset) has a certain risk value. is no recovery of the loaned amount i.e. the
CAR is thus an assessment of a bank’s capac- borrower ceases to pay to the bank. As per clas-
ity to meet its liabilities and attendant risks. The sification norms when the interest charged and
higher the ratio the stronger is the bank. due during a quarter in an account is not recov-
Q. What is meant by non performing assets? ered with in 90 days from the end of the quarter,
Ans. The loan portfolio of banks is known as their the loan account is to be treated as non per-
assets basket. Any loan or the asset becomes forming.
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Basic Banking & Financial Issues | 7


Q. There is great stress on financial inclusion. Credit Rating Agencies
What does it mean? Long Term Bonds ICRA CARE
Ans. A vast majority in the country do not have ac- 1. Highest Safety LAAA AAA
cess to basic financial and banking services 2. High Safety LAA AA
depriving them of the benefits of growth and 3. High Risk LB CARE B
development of the economy. Through finan- Q. Credit information companies have been es-
cial inclusion these deprived sections are tablished. What is their scope ?
sought to be covered by empowering them with Ans. Credit decisions by banks are crucial as the
basic bank accounts for savings, credit and re- depositors’ money has to be effectively handled
mittances. Also in due course insurance ser- for return of the money to the depositor on de-
vices are to be made available. mand. For the decisions to be proper maximum
information about the borrower is necessary.
Q. Why should there be financial literacy? Credit information companies are meant to col-
lect the relevant information about the credit
Ans. Understanding of the financial products and
history of an individual/enterprise for sharing
services is crucial to any savings and invest-
with the member banks/financial institutions.
ment planning. Also elementary knowledge is a
Q. What is the difference between credit cards
must to protect the safety of money.
and debit cards ?
Q. Explain credit counseling. Ans. Credit cards provide temporary financial sup-
port to the card holders either for purchase of
Ans. While credit needs can be varied it is crucial to
goods and services or to meet short term cash
use that credit effectively and judiciously in
requirements. The credit used has to be repaid
order to repay the amount of loan taken. For a within the billing cycle which is normally every
variety of reasons loans at times remain unpaid month. Interest is paid on the amounts which
by the borrowers either willfully or inability. In remain unpaid at the end of the billing cycle. In
order that the credit needs and end use of the case of debit cards the amount spend by the
loan is appropriate, borrowers need to be prop- card holder is immediately debited to his ac-
erly advised. This is credit counseling which count with the bank. There is no credit facility
also includes guidance on effective manage- from the bank and no monthly bills are raised.
ment of debt. Q. What is prepaid card ?
Ans. Prepaid cards are payment instruments which
Q. What are credit rating agencies.
can be used for withdrawing cash or for making
Ans. Credit rating agencies are organizations which purchases. These are issued upto a specified
scrutinize the total working of a company to limit and the amount gets reduced with each
assess its financial health and overall stand- use. These cards minimize the carrying of cash.
ing. The working and position of the company Q. What are POS terminals for cards ?
is rated to indicate to investors, lenders, col- Ans. These are point of sales terminals maintained
laborators, trading partners and the public the by merchant establishments where cards are
risks involved in dealing with such a company. allowed for making payments instead of cash.
Q. Does the merchant establishment pay any
CRISIL Limited, Fitch Ratings India Private Ltd.,
charges for getting payment through cards ?
ICRA Ltd., Credit Analysis & Research Ltd.,
Ans. The merchant establishments enter into con-
Brick work Ratings India Private Ltd., SME Rat-
tract with banks which provide these POS ter-
ing Agency of India Ltd. are the Credit rating
minals to facilitate purchases by public. These
agencies of India. establishments have to pay a small percentage
Examples of credit rating agencies are ICRA, of the purchases to the bank providing this ser-
CARE etc. vice.
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8 | Basic Banking & Financial Issues


Q. What is card protection plan ? Q. What is an asset reconstruction company?
Ans. It is the mechanism to protect all cards from Ans. Asset reconstruction companies are meant to
fraudulent use arising out of card loss. buy stressed or weak assets in terms of recov-
Q. What is meant by credit score ? ery prospects from banks at a discount. They
Ans. It is the statistical summary of the individual make money by recovering the money from these
bits of information on the credit report of an assets.
entity. A credit score predicts how likely it is Q. Why customers are harassed by recovery
that a company or individual will repay debts. agents?
Banks use this information to decide whether Ans. Recovery agents are appointed by banks when
to sanction a loan or not and the applicable rate loans become non performing and difficult to
of interest if the loan is granted. recover. These agents are generally paid for their
Q. Give the different forms of electronic services only when they recover the amounts
banking? due. They resort to harsh and arm twisting mea-
sures of the borrowers to realize the money from
Ans. E banking or electronic form of banking means
using alternate banking channels like ATMs, them and thus resort to harassing tactics.
internet banking, phone banking, mobile bank- Q. What are the different ways of recovering
ing etc. It also includes payment systems us- money from difficult accounts?
ing electronic clearing service, electronic funds Ans. Money from difficult accounts is sought to be
transfer. recovered through persuasive methods includ-
ing recovery agents initially and if still not pos-
Q. What is the danger through phishing ?
sible then by adopting legal process including
Ans. Phishing is the risk to internet banking as the
filing of court case. Once this stage is reached
password and account details can be hacked.
there are options through Lok Adalats, one time
Q. How does PIN help in online banking ? settlement, Sarfaesi etc.
Ans. PIN or personal identification number is the Q. SARFAESI Act is an effective recovery tool for
password that each individual requires to carry banks. What is it?
out any transaction through online banking. It Ans. This act is meant to help banks to recover their
is the safeguard against fraudulent use of the dues by enforcing the securities of the borrow-
individual’s account. ers with them without intervention of the court.
Q. Banks main source of revenue is interest in- [As on 31 March, 2012 the gross NPA ratio in-
come. What is it? creased to 3·1% from 2·4% on 31st March, 2011]
Ans. Banks as financial intermediaries offer loans from Q. Lok Adalats are arranged for loan recovery.
the deposits mobilized. These loans are avail- How does it work?
able subject to payment of interest by the bor- Ans. Cases in courts take unduly long to come to
rowers. The interest earned on these loans is any settlement.
the income generated by banks for themselves. Q. Housing loans are sanctioned against equitable
Q. Banks additional means of earnings is fee mortgage of the property. How does it operate?
based income. What does it mean? Ans. Equitable mortgage of property is pledging the
Ans. While interest income is the primary source of security against grant of loan. Title deeds of
income generation, banks are continuously try- the property are required to be deposited with
ing to increase their income sources to gener- the lender for keeping it as security for the du-
ate surplus after meeting expenses towards ration of the loan.
payment of interest on deposits, establishment Q. Government recently announced agricultural
costs etc. Banks therefore undertake additional loan waivers. What is it?
roles on payment of fees, charges. Examples of Ans. Waivers mean setting free stipulation of condi-
earning fees, charges for such services are tions. Agricultural loan waivers mean non pay-
locker rent, issue of guarantees, letters of credit, ment of loans in view of certain unforeseen cir-
bills business, selling of insurance policies, for- cumstances faced by the farmers in earning
eign exchange services etc. enough to repay the bank loans.
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Basic Banking & Financial Issues | 9


Q. Why are KYC norms so important for opening Q. What is net interest income?
bank accounts? Ans. Banks earn interest on the loans that are given
Ans. KYC or Know Your Customer norms are meant to the borrowers and pay interest on the money
to establish the identity and residence proof of received from the depositors. The difference in
an account holder. These particulars are ex- the net loan interest earned and the net interest
tremely important to check ‘benami’ accounts paid on deposits is the net interest income.
being opened to prevent money laundering.
Q. How is interest calculated in savings bank ac-
Q. Explain money laundering activities.
counts?
Ans. Unaccounted money and funds got from ille-
Ans. The present practice is to calculate interest in
gal activities including smuggling and terrorist
savings bank accounts on the daily balance.
funding are sought to be deposited in bank ac-
RBI has discontinued the earlier procedure of
counts through unfair means. Observing KYC
norms is extremely important while opening calculating interest on the minimum balance in
bank accounts to stop efforts at laundering ill the account between the 10th and the last day
gotten money. of each month.
Q. What is third party ATM usage? Q. Why is interest not paid in current accounts?
Ans. When ATM is used of another bank of which Ans. Current accounts are meant for business pur-
the card user is not an account holder then it is poses with regular debits and credits. It is not
known as third party usage. For example an intended to be for saving purposes and hence
individual is an account holder of Bank ‘A’but there is no provision for interest payment. It is
uses the ATM of Bank’B’ then it is third party also known as a demand deposit account.
usage . Q. Why are bank deposits liabilities for banks?
Q. What are floating interest rates for housing Ans. Deposits are mobilized by banks for fulfilling
loans? their intermediary task of lending. However
Ans. Floating rate, as the name suggests, keeps banks are under obligation to repay the depos-
changing with the changes in the benchmark its as per the terms of contract with the deposi-
rate to which it is linked. The base rate which is tors. Hence it is a liability to repay for banks.
the benchmark rate for bank lending is periodi- Q. Why are fixed deposits known as term liabili-
cally adjusted with the money market condi- ties?
tions. The floating rate is priced as a certain
Ans. Fixed deposits are funds mobilized by banks
percentage above or below this base rate. This
for a specified period/term as per the contract
practice of cyclical pricing makes it a floating rate.
with the depositor. Hence it is a term liability as
Q. What is home insurance scheme and its rel-
it becomes payable on the expiry of the con-
evance?
tracted term.
Ans. Home loans are generally long term loans spread
Q. Banks are asked to increase CASA deposits.
over a period of 15- 20 years. During this ex-
What are these?
tended period it is prudent to protect both the
Ans. CASA means current and savings account.
interest of the borrower and lender against any
Deposits in these accounts are crucial for banks
unforeseen circumstances. Getting home insur-
as the cost of these funds are minimal when
ance done at the time of the loan is therefore the
compared to other term deposits. While some
right approach for safeguarding this interest.
interest in savings accounts is paid by banks
Q. Banks invest in gilt edged securities. What and no interest is paid in current accounts these
are these? are the cheapest form of deposits.
Ans. Gilt edged securities mean government securi- Q. What is CTS ?
ties which are one of the required investment Ans. RBI has introduced the new and innovative
areas for banks to maintain SLR. technology of fund transfer in the form of
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10 | Basic Banking & Financial Issues


Cheque Truncation System. It is termed as "CTS- increase with passage of time. The rates later
2010 standards. An unique types of cheques are become floating rates which are linked to the
being issued by the commercial banks to their base rate and thus fluctuates with every rise in
customers. Cheque frauds can be greatly redu- base rates. These are tempting for the borrow-
ced with introduction of minimum security features ers as the initial rates are low and the borrower
prescribed under "CTS–2010 standards." does not realize that in due course the interest
Q. What is National Payments Corporation of In- rates are bound to rise significantly.
dia? Rural Infrastructure Development
Ans. It is an umbrella organization for retail payments Fund (RIDF)
in the country with objective of coordinating
the working of clearing houses and electronic All domestic scheduled commercial banks are
payments. required to lend 40% of their net credit to priority
Q. Speed clearing expedites collection of outsta- sector with sub target of 18% for lending to agri-
tion cheques. Explain. culture. Banks having shortfall in lending to prior-
Ans. It is the collection of outstation cheques ity or agriculture sector are required to contribute
through local clearing. In this way the time taken to Rural Infrastructure Development Fund (RIDF)
for collecting an outstation cheque is reduced which was established on April 1995 to assist State
Government or State owned corporations in quick
and the beneficiary gets the amount of the
completion of ongoing projects relating to medium
cheque within 48 hours. This facility is avail-
and minor irrigation, soil conservation, watershed
able at identifie speed clearing centres.
management and other forms of rural infrastruc-
Q. We often hear of MICR cheques. What are
ture. The Government of India initiated the setting
these?
up of an RIDF to be raised from the commercial
Ans. MICR stands for magnetic ink character recog-
banks to the extent of their shortfall in agricultural
nition and this technology was introduced for
lending. The fund has been since been continued,
printing the cheque numbers for facilitating with its corpus being announced every year in the
quick sorting of cheques at the clearing house. budget. These are as follows–
Q. What are the different forms of electronic
funds transfer? Year Tranche Corpus
Ans. The different forms of funds transfer include (Rs. crore)
ECS facility, NEFT, RTGS. 1995-96 RIDF-I 2000
Q. What is electronic clearing service or ECS? 1996-97 RIDF-II 2500
Ans. It is a facility of electronic funds transfer which 1997-98 RIDF-III 2500
is suitable when a specified amount is required 1998-99 RIDF-IV 3000
to be paid monthly. This mode is particularly 1999-00 RIDF-V 3500
suitable for individuals when they need to pay 2000-01 RIDF-VI 4500
regular monthly instalments towards loan 2001-02 RIDF-VII 5000
amounts or for monthly utilities.
2002-03 RIDF-VIII 5000
Q. What is an equated monthly instalment?
2003-04 RIDF-IX 5500
Ans. EMI or equated monthly instalments is the
amount payable monthly towards repayment 2004-05 RIDF-X 8000
of a loan. The total interest that is payable on a 2005-06 RIDF-XI 8000
loan for a given period of time together with the 2006-07 RIDF-XII 10000
principal amount of loan is divided by the num- 2007-08 RIDF-XIII 12000
ber of months that the loan has been given for, 2008-09 RIDF-XIV 14000
to arrive at the EMI or the same amount of in- 2009-10 RIDF-XV 14000
stalment that has to be paid every month for 2010-11 RIDF-XVI 16000
adjustment of the loan. 2011-12 RIDF-XVII 18000
Q. What do banks mean by teaser rates? 2012-13 RIDF-XVIII 20,000
Ans. Banks at times offer home loans primarily with
interest at lower rates initially which gradually 2013-14 RIDF-XIX 20,000
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Basic Banking & Financial Issues | 11


Q. What is prime lending rate or PLR? to increase their earning capacity. Banks are
Ans. Prime lending rate is the benchmark lending rate favorably placed because of their large cus-
previously used by banks to price their differ- tomer base and the trust of their clients.
ent loans. This pricing mechanism has now been Q. Banks are required to have their assets clas-
replaced by the base rate of lending. PLR how- sified. What does it indicate?
ever continues to be quoted for loans granted Ans. Asset classification is an indicator of the per-
before adoption of the base rate. formance of the asset as regards its repaying
Q. PLR has been replaced by base rate of lending. status. Deterioration in the repaying capacity
What is base rate ? suggests that there is likelihood of default for
Ans. It is the minimum lending rate that banks can which the bank has to start taking appropriate
charge its customers. It is the floor rate for all action.
loans that banks provide barring a few excep- Q. Is consumer protection act applicable to bank-
tions like loans against deposits, staff loans to ing services?
bank employees and some agricultural loans. Ans. Banking services are covered under the Con-
The interest rates for each category of loans is sumer Protection Act.
calculated thereafter keeping the cost to the Q. How does banking ombudsman help?
bank. Ans. The banking ombudsman is an impartial author-
Q. Bank deposits are insured. What does it mean? ity appointed by RBI to settle complaints of
Ans. All deposits of upto Rs. 1 lac in a commercial or customers against their banks with regard to
cooperative bank in India are insured by the deficiency in services. He is to be approached
after the bank concerned has been unable to
Deposit Insurance and Credit Guarantee Cor-
satisfy the customer or has not responded to
poration. The insurance protection is made
the complaint.
available to the depositors free of cost. Depos-
RBI introduced a Banking Ombudsman Scheme
its in different banks are separately insured
in the country on June 14, 1995, for giving a
upto the maximum amount of Rs. 1 lac. solution for customer's complaints. 15 Ombuds-
Q. What is SME financing for banks? man have already been appointed for different
Ans. SME or the small and medium enterprises are regions. The Banking Ombudsman Scheme 2006
extremely crucial for an economy because of its was amended by RBI on Feb. 3, 2009.
entrepreneurial raising capacity and employ- Q. What is stress testing in banks?
ment generation opportunities. Banks are there- Ans. Regular appraisal of banks is crucial to assess
fore required to fund this sector in a preferen- their financial soundness. Stress testing is there-
tial manner to promote the growth of the SME fore a tool to determine the capacity of banks
sector. to safeguard their working from different risks.
Q. Nomination facility is available for bank de- Q. What is meant by business correspondents?
posits. What is the benefit? Ans. A list of individuals and companies eligible to
Ans. Every bank depositor is permitted to nominate be appointed as business correspondents have
an individual who would be the person identi- been declared by RBI for providing banking
fied for receiving the amount in the account in services in areas where there are no bank
the event of the death of the depositor account branches. These designated entities are ex-
holder. Nomination helps in the amount being pected to promote financial inclusion by spread-
paid by the bank without any legal formalities ing banking into presently uncovered areas.
required to be completed. Q. What is brick and mortar banking?
Q. Explain in brief bancassurance. Ans. After the introduction of technology in banking
Ans. Selling of insurance products across bank services the delivery systems of banks has
counters describes the term bancassurance. undergone changes. To differentiate traditional
Banks are now selling different financial prod- banking from the latest changes, branch type
ucts to enlarge their scope of activities and also banking is known as brick and mortar banking.
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12 | Basic Banking & Financial Issues


Q. What is faceless banking? Q. Is a guarantor liable on a loan ?
Ans. Most of the latest banking is done through tech- Ans. The liability of the guarantor is coextensive with
nology driven models like phone banking, that of the borrower meaning that in the event
internet banking, mobile banking etc. where the of the borrower not repaying the amount of loan
customer does not interact face to face with then the guarantor would be required to make
any bank official. Hence this form of banking is the payment.
known as faceless banking. Q. What is an out of date cheque?
Q. What are the different ways of remitting Ans. Cheques are normally considered valid for pay-
money? ment for three months from the date of the
Ans. Money remittance is an important and neces- cheque. Any cheque which is presented for pay-
sary service provided by banks. Earlier the most ment beyond this validity period is known as
common have been through demand drafts, mail out of date or stale cheque.
transfers, telegraphic transfers. Now there is Q. What are processing fees on loans?
the electronic mode of transfer through RTGS, Ans. Application for loans requires submission of
NEFT, mobile banking made possible through prescribed documents by the prospective bor-
core banking solutions. rower. These loan applications are examined and
Q. What is meant by security printing? assessed by banks in accordance with their
Ans. Security printing relates to printing of currency, guidelines. The charges for this exercise by
cheque books, stamp papers etc. Security Print- banks are known as processing fees.
ing Press established at Hyderabad in 1982 for
Q. Who is a high net worth individual or HNI?
meeting the demand for Postal material by
Ans. High net worth individuals are identified by their
Southern states. While in spite of India Secu-
stock of wealth and assets in comparison to
rity Press is working at Nasik Road.
their liabilities. Since their assets are much more
Q. Who prints currency notes for the country?
han their liabilities they are classified as having
Ans. RBI is the sole note issuing authority in India.
high net worth.
Q. What are intercorporate deposits?
Q. What are quantitative methods of credit con-
Ans. In simple terms it means the deposits that one
trol ?
company may keep with another company.
Ans. The main quantitative methods of credit control
These are short term deposits mainly of 90 days
by RBI are : (1) Bank Rate Policy (2) Open Market
duration to meet immediate funds needs of the
Operations & (3) Cash Reserve Ratio.
company accepting such deposits.
Q. As per RBI Report 2010-11, the overall growth
Q. Why is it necessary to recognize the security
features of a currency note? of the economy fixed at what per cent ?
Ans. The security features of a currency note should Ans. As per latest information, the overall growth of
be known to an average citizen to ensure that the economy in 2011-12 is estimated at 6·9 per
counterfeit currency is not accepted. This is- cent.
sue is serious in view of widespread circulation Q. What are the foreign exchange reserves as
of fake currency in the market. March 8, 2013.
Q. Where are coins manufactured? Ans. As on March 8, 2013, foreign exchange reserves
Ans. Coins are minted by the government of India at were as follows :
four mints located in different parts of the coun- (Billion Dollar)
try. Foreign Currency Assets 257·382
Q. Where are the mints in India? Gold 26·292
Ans. The mints are located at Mumbai, Noida, Reserve Tranche with IMF 2·323
Kolkata and Hyderabad. SDR 4·352
Q. Which are the securities presses in India? Total 290·350
Ans. The security printing of currency notes takes Q. Which was the first fully Indian Bank ?
place at Dewas (M.P.), Nasik (Maharashtra), Ans. The first fully Indian Bank was Punjab National
Mysore (Karnataka) and Salboni (W.B.). Bank.
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Basic Banking & Financial Issues | 13


Q. When 14 banks were nationalised ? Ans. The majority shareholder of public sector banks
Ans. 14 banks were nationalised on July 19, 1969. is the government and hence when dividends
Q. What are the number of Nationalised bank as are declared the government is the biggest ben-
on April 30, 2012 ? eficiary.
Ans. Present number of nationalised banks are 19. Q. The number of subsidiaries of State Bank of
Q. Where is located Bank Notes Press ? India is reducing. Why?
Ans. The number of subsidiaries of State Bank of
Ans. Bank Notes Press is located at Dewas (M.P.).
India has come down to five from seven after
Currency notes of Rs. 20, Rs. 50, Rs. 100 and
the merger of State Bank of Saurashtra earlier
Rs. 500 are printed here.
and recently in 2010 State Bank of Indore. This
Q. What is the size of Rs. 1000 note ? is as a consequence of making State Bank of
Ans. After a long span of 22 years, RBI released India as the biggest bank in India and enlarg-
Rs. 1000 currency note for circulation on Oct. 9, ing its size to complete with global banks.
2000. This note of size 177 × 33 mm contain the SBI Groups
figure of Gandhiji on its water mark. 1. State Bank of India
Q. What is the target of the Govt. for agriculture 2. State Bank of Bikaner and Jaipur
credit ? 3. State Bank of Hyderabad
Ans. The government has put a target of disbursing 4. State Bank of Mysore
Rs. 7,00,000 crore institutional credit to agricul- 5. State Bank of Patiala
ture sector during 2013-14. 6. State Bank of Travancore
Q. Which is the largest Public Sector Bank of Q. What is the percentage of government hold-
India ? ing in public sector banks?
Ans. State Bank of India is the largest Public Sector Ans. The government holding in public sector banks
Bank in the country. On June 30, 2011, 17976 cannot be reduced below 51 per cent as per
branches of SBI and Associates were working current law. The holding in individual banks may
in the country. differ depending upon the stake of the govern-
Q. Write the some bank rate of RBI. ment which at given time is more than 51 per cent.
Ans. As on 19 March, 2013 Q. Why do HDFC bank and ICICI bank not qualify
Bank Rate = 8·50% as Indian banks?
CRR effictive from 9.2.2013 = 4·00% Ans. Any company with more than 51 per cent for-
Repo Rate = 7·50% eign equity is considered as a foreign company.
SLR (11.8.2012) = 23% HDFC with 64 per cent and ICICI with 79 per
Reverse Repo Rate = 6·50% cent foreign equity fall in this category with
majority voting rights are with Indians.
Q. When does a loan become sticky?
Q. What is meant by liquidity of banks?
Ans. When a borrower fails to pay interest on his Ans. Liquidity of banks indicates the ability to con-
loan for 90 days it is termed as sticky. The bank vert its assets into cash on demand. The liquid
has then to start making provisions for such an assets of a bank is defined by its holdings in
account. cash balances with RBI, money at call and short
Q. Why do banks declare dividends? notice, inter bank deposits due within 30 days.
Ans. Commercial organizations declare dividends It is extremely important to have liquidity for
when they make profits or surplus from their banks and hence the need to maintain CRR and
business. Part of the profits is shared with the SLR which are cash and investments in gov-
shareholders of the company in the form of divi- ernment securities.
dends. Banks as commercial organizations also Q. What is asset liability management?
adopt the same procedure for their share- Ans. This aspect is most important for banks as they
holders. are required to match their funds availability
Q. Why do public sector banks present dividend with their commitment to honour deposit pay-
cheques to the central government? ments. Deposits are mostly short term and loans
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14 | Basic Banking & Financial Issues


have long periods of repayment. This duality Q. Explain the role played by asset reconstruc-
has to be matched so that banks do not default tion companies.
in paying their deposits on demand. Ans. Asset reconstruction companies help banks to
Q. Many companies are offered debt restructur- improve their balance sheet by buying their non
ing by banks to help them to recover. What is performing assets and releasing funds to these
it? seller banks. ARCs then recover the money from
Ans. Companies at times are not able to manage their these weak assets and make money when the
borrowal accounts strictly in terms of the bank recovered amount is more than the amount to
sanction for certain genuine reasons. Such
the banks.
accounts are allowed to reassess their repay-
Q. What is mobile banking?
ing abilities in view of short term difficulties
Ans. Mobile banking puts you in command of your
and fresh terms and conditions are specified.
bank account with just your mobile phone. With
This is known as debt restructuring to avoid
loan accounts becoming non performing. mobile banking you can conduct any financial
Q. What is call money? and non financial transactions effortlessly and
Ans. Money lent by banks to other banks , bill bro- securely. From making payments to checking
kers, financial institutions for a very short pe- your accounts information, m-banking allows
riod of time varying from 1 to 14 days. When you to bank from anywhere at any time.
these funds are repayable on demand without Q. Clarify the terms egold , esilver.
prior notice it is known as call money. Ans. These are special investment products which
Q. What is credit deposit ratio? enables investors to invest their funds in gold
Ans. Alternatively known as loan to deposit ratio it and silver in small amounts in demat form. This
is an indication of the share of deposits given facility is available from the National Spot Ex-
as loans by banks. Judicious banking practice change.
implies that banks lend only from the deposits Q. What is meant by microfinance?
they mobilize. Ans. Microfinance is the providing of basic finan-
Q. What is a debenture/bond? cial help to the less privileged sections of the
Ans. It is a form of borrowing by the company issu- society to enable them to make their livelihood.
ing the debenture/ bond for a specified period The assistance is in terms of moderate amounts
on payment of interest. essential for starting economic activity for sus-
tenance.
Q. What purpose do credit ratings agencies per-
form? Q. What is a self help group?
Ans. It is the formation of individuals from similar
Ans. Credit rating agencies assess the financial
groups who pool their savings and resources
health of an enterprise and their ability to meet
for mutual financial assistance. It is an impor-
their financial liabilities and commitments. It is
tant model in promoting micro finance.
a signal to investors, lenders to judge the fi-
Q. What is bank self help group linkage?
nancial status of the entity before entering into
Ans. Spread of microfinance has been possible
a transaction.
through bank linkages with self help groups.
Q. Explain the role of credit information compa- These groups provide closely formed associa-
nies and their significance. tions of people who get the bank funds on the
Ans. Lenders find it extremely difficult to take basis of their group guarantee concept.
suitable credit decisions in the absence of vital Q. Who are business correspondents?
information about the borrowers. Credit informa- Ans. To promote financial inclusion through wider
tion companies collect and analyze the data reach of banking services in the country, busi-
about individuals, corporates relating to their ness correspondents are being appointed by
credit history which is made available to lenders. banks to cover villages which do not have bank
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Basic Banking & Financial Issues | 15


branches. Retired bankers, teachers, post of- types of payment settlements including elec-
fices, kirana stores and many others are pro- tronics funds transfer.
viding basic banking facilities in remote areas Q. What is an overdraft facility?
with means of hand held devices using smart Ans. When a bank permits the account holder to
cards. draw funds in excess of his sanctioned limit or
Q. Why interest on credit card dues higher than entitlement it is known as overdraft facility. This
loans? is a temporary measure to enable the account
Ans. Credit card dues are extremely risky for banks holder to meet his urgent funds requirement.
as there is no documentation as in case of loans Q. What is meant by a cash credit account?
and there is no security available to the banks. Ans. Cash credit account denotes a type of credit
To cover this high risk factor the interest rates facility which is of a revolving nature against
on credit card outstandings are the highest.
the pledge of securities. It is meant for routine
Q. Why are personal loans known as unsecured
business needs known as working capital re-
loans?
quired for any business enterprise. Funds show-
Ans. Personal loans are given for a variety of rea-
ing income and expenses of the company have
sons without the need to specify the purpose.
These loans are primarily used for cash needs to be routed through this account against a
or for urgent liquidity requirements of borrow- sanctioned credit limit.
ers without any asset creation. Since there is Q. What is a pre-approved loan?
no security for the banks these loans remain Ans. A pre-approved loan is an offer generally from
unsecured or high risk for the banks. a bank with which the recipient has some rela-
Q. Which are the secured loans? tionship. The offer comes after preliminary
Ans. Secured loans are those where an asset is cre- checks and has a time limit. The processing time
ated like car, home, consumer goods from pur- is less and minimum documents are required.
chase through the loan amount or certain as- Q. What is meant by net worth of an individual?
sets like gold, stocks, mortgage of immovable Ans. Net worth is simply the difference between the
property is available to banks. In case the loan assets and liabilities of an individual. Assets
amount remains unpaid then the bank can dis- constitute the cash balances, house, land, ve-
pose off the securities to adjust the loan. The hicles, bank balances, shares etc. while the loans
bank is said to be secured. payable, credit card outstandings and other
Q. What are failed ATM transactions? dues are the liabilities.
Ans. When a transaction for withdrawal of money Q. What is money back plan in life insurance
fails at an ATM it is referred as a failed transac-
cover?
tion. In such cases the cash amount is not dis-
Ans. The basic feature of this plan is payment of tax
pensed by the machine but the account of the
card holder is debited. free fixed amounts of the sum assured at regu-
Q. What is meant by core banking solutions? lar intervals during the term of the insurance
Ans. Core banking solutions is technology driven policy. The balance amount of the sum assured
enabling customers to access their banking ac- with bonus or profit is paid on maturity. It is
counts through whichever channel they wish both an insurance cover and savings for the
to use. This module has allowed any time any future.
where banking by having ATMs, internet bank- Q. Insurance policies also have another variant
ing, phone banking, mobile banking etc. known as the endowment plan. Please explain.
Q. What is meant by a Clearing House? Ans. Endowment plans are long term policies hav-
Ans. It is an institution where mutual claims are ing the double benefit of life cover and returns.
settled between the accounts of member insti- Q. What is surrender value of a life policy?
tutions. Bankers’ clearing house have tradition- Ans. The insurance company calculates the amount
ally been organized for cheque clearing pur- payable in case of a premature exit before the
poses but more recently are clearing other expiry of the policy term. This calculation is
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16 | Basic Banking & Financial Issues


different for different policies with prescribed Q. Which are the credit information companies
terms and conditions. Surrender value also var- in the country?
ies as per the period of the term elapsed and is Ans. These companies formed under the Credit In-
the amount payable on surrendering the policy. formation Companies Act 2005 are CIBIL,
Q. Term insurance is often suggested as a pure Experian Information Co.of India Pvt. Ltd. and
life cover. What are its features? Equifax Credit Information Services Pvt. Ltd.
Q. What is meant by capital markets?
Ans. It is the cheapest and simplest form of life in- Ans. It includes the primary market( for IPOs), eq-
surance. Premiums have to be paid every year uity trading, derivatives trading, mutual funds,
and the sum assured is payable to the benefi- tax saving instruments and depository services.
ciaries only in the event of the death of the life Q. What is a dormant account?
assured. If the assured survives the policy term Ans. Bank accounts which have not been operated
nothing is paid. for more than 2 years are known as inoperative
Q. What is meant by non resident accounts in the or dormant accounts. It means that there have
context of bank accounts? been no deposits or withdrawals from the ac-
Ans. Indians staying abroad on account of work or count during the two years.
otherwise for an uncertain period are known as Q. Why dormant accounts are viewed seriously
non resident Indians. They are permitted to by RBI?
open bank accounts in India which are desig- Ans. The total credit balance in dormant accounts
nated as non resident accounts. These are of banks in the country is very substantial. RBI
treated differently from other normal local de- wants that banks make serious efforts to trace
posit accounts. the account holders for reducing the number of
Q. What is a FCNR or Foreign Currency Non dormant accounts as these accounts are often
Resident account? exposed to frauds.
Q. What is meant by merchant banking?
Ans. An FCNR account can be opened by a non
resident Indian only for term deposits. These Ans. Banks acting as intermediaries in various busi-
accounts are maintained in foreign currencies ness transactions of corporates like equity, debt,
like dollar, pound sterling, euro and yen for a external commercial borrowings etc. are known
period not less than six months and not exceed- as merchant bankers. It also includes aiding in
ing three years. The funds in this account and mergers and acquisitions and strategic invest-
the interest thereon are exempt from tax. The ments.
maturity amount with interest can be easily re- Q. What are payment systems?
patriated to the overseas depositor without any Ans. Payment systems have been defined as the in-
exchange loss. struments, rules and procedures that enable
users to meet payment obligations. Types of
Q. What is meant by consortium financing?
payment instruments are cash, paper (bill of ex-
Ans. Under this arrangement two or more banks join change, promissory note,cheques,drafts), plas-
together to meet the working capital funds re- tic cards, and electronic funds transfer meth-
quirement of borrowing enterprises. This is ods.
done in case of substantial funds need of the Q. Can an illiterate person open a bank account?
borrowers and when banks decide against tak- Ans. Yes, illiterate persons can have bank accounts
ing the responsibility singly. to be operated with the help of his/her thumb
Q. What is meant by working capital needs of a impression.
company? Q. Which types of individuals do not have the op-
Ans. It is the amount of funds required by a com- tion of having bank accounts?
pany to finance its day to day business opera- Ans. Persons of unsound mind and those declared
tions. Without these funds the very survival of insolvent are not permitted to have bank ac-
business is threatened. counts.
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Basic Banking & Financial Issues | 17

Salient Points About


Reserve Bank of India
Role of RBI in the Economy Payment and Settlement System….Sub committee of
 India’s monetary authority Central Board…. Local Boards at Chennai, Delhi,
Kolkata and Mumbai.
 Responsible for supervision of financial sys-
tem in India Functions of RBI
 Issuer of currency  Issue of Currency Notes
 Manager of foreign exchange reserves  Banker of Banks (Lender of last resort)
 Banker and debt manager to the government  Custodian of Foreign Exchange Reserues
 Supervisor of the payments system  Credit control
 Banker to banks  Banker of GOI and state governments
Major milestones for RBI  Bill discounting
 1926-concept of a central bank was recom- Direct Instruments of monetary control ex-
mended by the Hilton Young commission to ercised by RBI
separate the control of currency and credit from
the government.  Cash Reserve Ratio CRR
 RBI Act of 1934 established  Statutory Liquidity Ratio SLR
 1935- Operations of RBI began  Refinance Facilities
 1949- Nationalization of Reserve Bank, Bank- Indirect Instruments for monetary
ing Regulation Act enacted control
 1994-Board for Financial Supervision BFS set  Liquidity Adjustment Facility LAF
up  Open Market Operations
 The RBI (Amendment) Bill 2005 was approved  Market Stabilization Scheme MSS
by Lok Sabha on May 17, 2006. This bill amends
 Repo/Reverse repo rates
the Reserve Bank Act for providing flexibility
to the Central Bank in fixing the cash reserve  Bank rate
ratio and statutory liquidity ratio. RBI as the sole note issuing authority has the
 2007- RBI empowered to regulate payment sys- power to issue notes upto Rs. 10,000/- value.
tem There are 4 printing presses actively printing
 On July 1, 2010 RBI decided to circulate ‘Plas- notes. These are Dewas (M.P.), Nasik (Maharashtra),
tic Currency Notes’ in the market by the end of Mysore (Karnataka), Salboni (West Bengal) Coins
2010. In its revealed decision, RBI decided to are minted by the government of India and RBI is the
introduce and circulate Rs. 10 plastic note in agent for distribution, issue and handling of coins.
the market and later on currency notes of Rs. There are 4 mints at Mumbai, Noida, Kolkata
20, 50 and 100 would be made circulated in the and Hyderabad.
market. STRUCTURE OF INDIAN BANKING
Administrative structure of RBI The Indian banking sector is made up of the
Central Board… Committee of Central commercial banks and the cooperative credit institu-
Board…Bank for Financial Supervision… Board for tions.
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18 | Basic Banking & Financial Issues


The commercial banks space is as follows : Minimum Reserve System :
A. Scheduled commercial banks and B. non When it became difficult to maintain the reserve
scheduled commercial banks (local area banks). Un- proportionately, it was replaced by "Minimum Re-
der scheduled banks (A) are 1) public sector banks serve System". According to the RBI Amendment
and 2) private sector banks Public sector banks are i) Act of 1957, the RBI should now maintain a minimum
State Bank of India and its associates ii) nationalized reserve of Rs. 200 crore worth of gold coins, gold
banks and iii) regional rural banks Private sector bullion and foreign securities of which the value of
banks are a) Indian private banks and b) foreign gold coin and bullion should be not less than Rs.
banks. 115 crore and the remaining Rs. 75 crore can be main-
The cooperative banking sector comprises : tained in the form of foreign currency.
The Government of India mints and issues ru-
A. Urban cooperative banks and B. Rural coop-
pee coins in the denomination of Rs. 1, 2 and 5 to
erative credit institutions
public. These coins are required to be circulated to
Under urban cooperative banks are scheduled public only through Reserve Bank under Section 38
urban cooperative banks and non scheduled urban of the RBI Act. The RBI presently issues notes of
cooperative banks Under rural cooperative credit in- denominations Rs. 10 and above.
stitutions are covered state cooperative banks, dis- RBI manages circulation of money through
trict central cooperative banks and primary agricul- currency chests. Originally RBI issued currency notes
tural credit societies. of Rs. 2 and above. However, due to higher cost of
The main functions of the commercial banks printing small denomination notes these denomina-
are : tions are now coincides and issued by Government.
 Acceptance of deposits from the public Currency Chests Currency Chests are receptacles in
which stocks of issuable and new notes are stored
 Credit creation through lending/investments along with rupee coins. Currency Chests are reposi-
 Payment services tories run by RBI, SBI, subsidiaries of SBI, public
 Agency services like collection of cheques, sector banks, Government Treasuries and Sub trea-
suries.
safe deposit lockers etc.
 Facilitating international trade and commerce RBI's Key Guidelines for Corporate
India to enter Banking Sector
 Marketing of mutual funds and insurance prod-
ucts e.g., bancassurance  Entities with a successful track record of at least
10 years eligible.
 Wealth management
 Minimum Capital requirement Rs. 500 crore,
 Investment consultancy
against the existing Rs. 300 crore.
 Credit and debt counseling
 Aggregate foreign shareholding in new bank
 Currency provider and cash management ser- not to exceed 49% for first year.
vices
 At least 25% branches must be in unbanked
System of Currency Issue in India rural areas.
In terms of Section 22 of the Reserve Bank of  New bank must list on stock exchange within 2
India Act, the RBI has been given the statutory func- years of licensing.
tion of note issue on a monopoly basis. The note  New banks to be set up through wholly owned
issue in India was originally based upon "Propor- non-operative holding companies registered as
tional Reserve System". NBFCs.
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Basic Banking & Financial Issues | 19

Recent Developments In
Banking And Finance
Know Your Customer KYC norms through the loan portfolio and the amount paid on
These norms have been specified for banks to the total deposits is net interest income, a measure
be strictly observed while opening accounts of cus- of the gain to the bank from its primary activity apart
tomers. Banks are required to satisfy itself fully about from other income and expenses from other related
the true identity of its customers before it can start a activities. Net Interest Income should be positive if
bank customer relationship. The customer needs to the bank is to have profitability.
provide documentary proof of his identity with resi- Net Interest Margin NIM for banks
dence particulars to minimize chances of frauds tak- Once the net interest income for a bank is de-
ing place. This requirement is increasingly impor- termined, net interest margin can be calculated by
tant to stop money laundering and other anti na- dividing net interest income by average interest earn-
tional activities. ing assets or loans.
Savings Accounts in banks to be paid in- Electronic Funds Transfer EFT
terest on daily balances With the introduction of electronic banking the
In terms of RBI directives banks are now re- normal mode of remittances by demand draft, tele-
quired to pay interest in savings bank accounts on graphic transfer, mail transfer were replaced by trans-
the daily balance. It is a departure from the earlier fer of money electronically. These modes are much
practice of paying interest on the minimum balance faster and can be sent between different cities and
in the account between the tenth and the last day of different banks.
each month. Analysts had observed that the account National Electronic Funds Transfer NEFT
holders were being paid less effectively by the pre- This is a mode of funds transfer electronically
vious method. To correct the anomaly the improve- across the country. Under this system the payment
ment has been suggested though it would mean the settlement takes place at specified time slots during
banks would have higher cost of funds. the week. Except on Saturdays when this facility is
Deregulation of interest rates on bank sav- available thrice on other week days it happens six
ings accounts times. To complete the transaction the details of the
beneficiary like name , account number, bank name
Presently interest rate for bank savings ac-
and branch with IFSC code has to be provided to the
count is the only deposit rate that is being adminis-
remitter’s bank for making the transfer.
tered by RBI. To bring about greater operational free-
dom for banks, RBI has allowed banks to fix interest Real Time Gross Settlement RTGS
rate for savings account also. Now banks declare their It is a transfer mechanism for remitting money
respective rates based on their cost of funds and from one bank to another instantly. RTGS is differ-
their need for funds. However the fear is that many ent from money transfers through EFT and NEFT.
conditionalities may be imposed by banks on the The minimum amount transferred through RTGS is
savings bank account holders which may be prove Rs. 2 lakh without any upper limit.
unfavourable to small depositors. National Payments Corporation of India
Net Interest Income NII for banks NPCI
Banks charge interest on their loans to cus- NPCI has been set up as an umbrella organiza-
tomers and pay interest on deposits received from tion for retail payments with the objective of inte-
customers. The difference in the amounts received grating and consolidating different clearing houses
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20 | Basic Banking & Financial Issues


in the country for cheques and electronic payments. drafts are the different benefits that are available
The scope of NPCI is also to introduce new payment through this mode.
applications with emphasis on electronic payments. Speed Clearing
National Financial Switch NFS This service is available at designated centres
NFS is a national infrastructure with pan In- where outstation cheques are collected through lo-
dian presence providing a switching service for con- cal clearing. This reduces the time for collection and
nectivity across ATMs of banks. NFS enables cus- provides funds to the account holder within the mini-
tomers to perform their transactions using ATMs mum possible time.
under its network without reference to the card issu- Securitization
ing banks. This is the largest network with 80,000 It is a process by which a single asset or pool
and more ATMs. This national switching system is a of assets are transferred from the balance sheet of
service provided by NPCI. the originator bank to a special purpose vehicle SPV
Inter Bank Mobile Payment System IMPS (trust or company) in return for an immediate cash
IMPS is a facility operated by National Pay- payment.
ments Corporation of India which provides an in- E Stamping
stant 24x7 inter bank electronic fund transfer service It is a computer based application and a se-
through mobile phones. This system facilitates cus- cured electronic way of stamping documents. The
tomers registered with their banks for this service to present system of physical stamp paper / franking is
use mobile instrument as a channel for inter bank being replaced by e stamping system.
funds transfer in a secured manner with immediate Application Supported by Blocked
confirmation. Accounts ASBA
Mobile Banking ASBA is a investor friendly service introduced
It means undertaking banking transactions for subscribing to IPOs. Through this facility, the
using mobile phones by bank customers for credit/ investor’s funds remain in his account till allotment
debit of their accounts. It also includes checking of of shares. Then the amount equivalent to the shares
bank accounts for balance enquiry, stop payment allotted are deducted from the blocked amount for
instructions, transaction enquiry etc. Mobile bank- remitting to the company issuing the shares and the
ing is a means to enlarge the customer base of banks balance amount is available to the investor. In this
since a very large population possesses mobile way the payment and refunds process has been sim-
phones. Customers need to register with their banks plified. The investor is saved the botheration of mak-
for using this facility for getting their security con- ing payment well before the allotment process is fi-
trols. RBI wants banks to popularize this facility for nalized and also avoids delays in getting refunds if
penetration of banking services in the country. shares are not allotted.
Online Banking Cheque Truncation
The introduction of core banking solutions has RBI has introduced CTS–2010 standards
made possible banking through different channels. facility to speed up clearance of cheques to enhance
One of them is banking using the internet or online customer service. It also reduces the scope of frauds,
banking as it is known. It is possible by using spe- minimizes cost of collection of cheques and also
cially generated password by the bank after regis- lessens administrative problems. The process
tering with it. Most of the basic services are avail- involves sending an electronic image of the cheque
able n a 24x7 basis. to the drawee bank and not the cheque physically.
Phone Banking This is part of the scheme to facilitate and speed up
Phone banking as the name suggests is to get electronic clearing.
banking facilities through the use of phones after Depository Receipt
due identification process is completed. Cash deliv- It is a negotiable financial security, in the form
ery, pick up of cheques for collection and delivery of of physical certificate, which can be traded on a lo-
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Basic Banking & Financial Issues | 21


cal stock exchange. It is a type of equity holding in has to hold given the size of its risk weighted
the manner of shares issued by a foreign listed com- assets.
pany. It enables participation in equity of other coun- Basel Committee on Banking Supervision
tries. The common examples of depository receipt
are the ADR or American Depository Receipt and It is a committee of bank supervisors consist-
Global Depository Receipts or GDR. ADR is traded ing of members from each of the G10 countries. The
on American stock exchanges and GDR is commonly committee is a forum for discussion on the handling
listed on European stock markets. The recent addi- of specific supervisory problem. It coordinates the
tion to depository receipt is the Indian Depository sharing of supervisory responsibilities among na-
Receipt or IDR. tional authorities in respect of banks’ foreign estab-
Microfinance lishments with the aim of ensuring effective supervi-
Microfinance is making available basic bank- sion of banks’ activities worldwide.
ing services to the vast deprived sections of the Teaser rates
population to enable them to improve their liveli- Teaser rates for loan account are a recent phe-
hood. This is necessary to help them to avoid the nomenon introduced by banks primarily for home
money-lenders and come in the mainstream of eco- loan accounts. In this case the borrower is tempted
nomic activity. by favourable interest rates at the start of the loan
Business Correspondents for a couple of years which later increases and gets
Business correspondents are individuals, en- linked to the market rates. RBI has opposed this
tities who have been permitted by RBI to be appointed kind of marketing as the borrower is supposed to
by banks to provide banking services in unbanked have been misled by inadequate understanding of
areas. Use of smart cards with the help of hand held the entire process.
devices would enable customers to access their ac- Credit Information Companies
counts for basic banking needs. This initiative is a
part of the financial inclusion efforts of the banking Credit information companies gather data from
sector. banks and financial institutions about the credit his-
tory of individuals and corporates. This store house
Self help groups processes and converts this data into valuable in-
As the name implies small of 15 to 20 people formation for lenders to take their credit decisions
belonging to homogeneous groups form their asso- on the proposals received from these individuals and
ciation to pool their resources to consider credit corporates.
needs of their members. SHGs are a vital link in the
spread of microfinance as banks tend to lend to them Base Rate for lending
because of their assurance to repay the loans on a This is the new method adopted by banks to
group guarantee basis. price their different loan products. The previous
Under the SHG Bank linkage programme, as on method of Prime lending rates had to be changed
31 March, 2012 79·60 lakh SHGs held saving bank due to RBI’s directives. The base rate method does
accounts with total savings of Rs. 6551·41 crore as not allow any loan product except staff loans and
against 61·21 lakh SHGs with saving of Rs. 5546 crore DRI loans to be priced below the base rate. The base
as on 31 March, 2009. rate is calculated on the basis of cost of funds, the
risk perception and other administrative costs as
Forensic Accounting
applicable to each bank. It is regarded as being more
It is the branch of accounting which helps in
transparent, less discriminatory and an effective tool
detecting evidence of frauds in financial statements.
to express the intention behind monetary law
It goes beyond the numbers to analyze 100 per cent
pf the data as against the sampling procedure used changes.
generally by auditors. Mortgage registry
Basel I and Basel II Mortgage registry is a record of the mortgages
Basel I and II are global capital adequacy rules of different immovable property in each area. It
that prescribe a minimum amount of a capital a bank records the details of the immovable property which
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22 | Basic Banking & Financial Issues


are under mortgage to different lenders. Lenders can are beyond the scope of the main policy, resulting in
check from this record the status of property offered additional protection to the life assured. These cov-
for mortgage. ers are generally customized looking to the possible
Banking Ombudsman risks to the life assured from other sources.

RBI started the banking ombudsman scheme


Exchange Traded Funds ETFs
in 1995 with a view to provide a system of quick Exchange traded funds refers to basket of
redressal of customer grievances against banks. The stocks which relate to a certain index for example
ombudsman receives complaints concerning wide BSE sensex or banking stocks. The trading value of
range of issues relating to deficiencies in banking an ETF is linked to the net asset value of the under-
lying stocks that it represents. It can be traded simi-
services. It has been modified over the years to give
lar to a mutual fund on the stock exchange at prevail-
wide scope and coverage to tackle grievances con-
ing prices during a trading session.
cerning internet banking, harassment by recovery
agents also. Currently Banking Ombudsman are Gold Exchange Traded Funds
working at Ahmedabad, Bangluru, Bhopal, Gold ETFs are an option for investors who wish
Bhubaneshwar, Chandigarh, Chennai, Guwahati, to invest money in buying gold. An investor is nei-
Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, New ther entitled to receive gold nor does he sell ETFs to
Delhi, Patna, Thiruvananthapuram. get gold nor can he exchange ETFs for gold. The
investor merely has a paper investment in the equiva-
Hedging lent of gold. They are listed on the National Stock
Financial transactions have different risks at- Exchange and can be purchased and sold on the
tached to it. Prudent operators try to cover these NSE as though the investor is dealing in the gold
risks through attendant deals. This method of trans- bullion market, but without trading physically in gold.
ferring risk of losses due to fluctuations in prices  Reliance Gold ETF  SBI Gold ETF
etc. is hedging.  Kotak Gold ETF  Quantum Gold ETF
Risk Management  HDFC Gold ETF  ICICI Gold ETF
Banking on Wheels
Risk management is the critical activity for all
Rural areas not covered by banking services
financial institutions. There is inherent risk in most
are sought to be reached by mobile vans dispensing
financial transactions. These risks could be market banking facilities. Number of public sector banks
risk, liquidity risk, interest risk, credit risk, operational have designed mobile vans which provide deposit
risk etc. These risks need to be adequately under- and payment services at unbanked villages.
stood in financial dealings for their proper manage- Payment of Income tax through ATMs
ment and control. This important activity is known
This facility is of recent introduction where the
as risk management. bank customer can deposit income tax dues at an
Sweat Equity ATM. The user has to get registered with the bank
Sweat equity refers to share holdings of em- for availing this facility and with the aid of password
ployees or directors of a company acquired on the income tax payment can be deposited. The de-
positor would get a receipt for such payment.
favourable terms on account of their good work for
the company. This is in appreciation of their contri- Identity Theft
bution or role in betterment of the company. The Personal details of customers are increasingly
shares are given at a discount or for consideration exposed to leaks and pinching on account of hack-
other than cash. ing of internet password. With the use of internet
banking on the rise in view of its advantages, the
Riders in Insurance Policies threat of identity theft is a serious concern. Phishing
Riders are benefits over and above the basic or the hacking of personal details has exposed he
life cover given to the assured. They cover risks that customer to serious risks.
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Basic Banking & Financial Issues | 23


Phishing Rural Branches as on 30-6-2012
It is a form of security threat to online banking. Bank Group
Total
Branches
% of Rural
Through phishing fraudsters hack the internet ac- Branches Branches
count of users to steal vital personal data which en- 1. SBI and Associates 18992 6622 34·9
ables them to access bank accounts illegally. 2. Nationalised Bank 48982 15704 32·1
Electronic Clearing Services 3. Regional Rural Banks 16572 12387 74·7
Total Public Sector
Electronic clearing service is a customer friendly
mode of making regular payments without the need Banks (A+B+C) 84546 34713 41·1
to write cheques every time that particular payment 4. Other Scheduled
is to be made. Commercial Banks 13667 1614 11·8
5. Foreign Banks 323 7 2·2
Many recurring utility payments or loan repay-
ments towards monthly instalments can be made All Scheduled Banks 98536 36334 36·9
through this facility. It involves one time authoriza- 6. Non Scheduled 55 16 29·1
tion to the banker for a particular regular payment to Commercial Banks
be made through this process. Apart from saving All Commercial Banks 98591 36350 36·9
time it saves the user from missing out any payment. Asset Liability Management
ECS is of two types viz., ECS Debit and ECS In simple terms it means assessing and balanc-
Credit. ECS Debit is for the person making the pay- ing the risks arising from their deposits and loans
ment whose account gets debited and ECS Credit is portfolio. The risks involved in the loans segment
for the account holder whose account gets credited are the credit and market risks which have to handled
on account of multiple payments being received including the overall liquidity risk which is crucial
through this mode. for any bank. Banks are required to observe the RBI
Personal Credit score guidelines based on Basel norms for international
It is a numerical assessment of the credit report banking practices.
prepared on borrowers. Credit information compa- Non performing assets
nies collect the credit history of individuals from their Loans of the banks are their assets as they
members who are banks and financial companies. generate revenue income for them. Those assets
The credit score is the current too used by lenders which stop earning income for the banks are known
to determine whether to extend a loan to an appli- as non performing assets. Accounts are classified
cant or not. It also serves as an index to assess the as non performing when repayments in the accounts
interest rate to be applied if the loan is to be given. stop.
Reverse Mortgage Loan
Floating Interest rates
Reverse mortgage is a process where senior
It is the facility of providing variable interest citizens can get a regular payment against their home.
rates on a product by linking the interest to the base The home is mortgaged to the bank which agrees to
rate of lending. This base rate keeps changing as per either make a lumpsum payment or release monthly
the bank’s policy which is dependent on RBI mon- instalments of money to the owner. It is a means of
etary policy and the market conditions. earning money against one’s asset after retirement
E-Commerce when funds are needed and source of income less-
ens. The amount decided by the bank is generally
Business currently is fairly active through the about 50-60% of the market value of the property.
use of internet. Many companies are now selling
Annuity
their products through bookings on the internet
against credit/debit card payments or cash on deliv- An annuity is a financial offering where the
ery. This has given rise to the concept of e com- investor pays a certain quantum of funds to the in-
merce. surance company and in turn receives a regular pay-
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24 | Basic Banking & Financial Issues


ment from the said insurance company. The regular time during the period of deposit. In case of joint
payment is known as an annuity and is generally accounts all the account holders have to jointly nomi-
released when the investor reaches a certain age. nate an individual.
This is a means to ensure receipt of regular pay- Insurance of Bank Deposits
ments when other sources of income diminish.
To protect the interest of depositors there is
Subprime mortgage
provision of insurance of bank deposits upto Rs. 1
Subprime mortgage means a mortgage that is lakh in deposit accounts with banks. The Deposit
held by somebody with a poor credit history. It thus Insurance and Credit Guarantee Corporation of In-
carries a high risk to the lender in view of the likeli- dia insures the deposits with insured banks upto the
hood that it would not be paid back. extent of Rs. 1 lakh in each account.
NASDAQ is National Association of Securi- The deposits in different branches of the same
ties Dealers Automated Quotations an automated bank of an individual depositor are taken together
information network that provides brokers and deal- for computing the total value of Rs. 1 lakh. However
ers with price quotations on securities traded over where the depositor has deposits with more than
the counter. one bank the insurance cover is applied separately
Bank for International Settlements (BIS) for each deposit in different banks. The insurance
cover is available for all deposit accounts like sav-
International organization established in 1930
ings, current, recurring, fixed deposits etc.
and based in Basel, Switzerland that serves as a fo-
rum for central banks for collecting information, de- Banker’s Code of Commitment to
veloping analyses and cooperating on a wide range Customers
of policy related matters. It also provides certain fi-
It is a voluntary code signed by banks, which
nancial services to central banks.
lays down standards of fair banking practices to be
Nomination Facility followed by banks while dealing with individual cus-
While opening deposit accounts with banks tomers. It is a ready reckoner for customers to know
the facility of nomination is provided to minimize what they can expect from banks in their dealings
scope for harassment at a later date. Settlement of with them in the following areas—
deceased accounts had become a major problem for Current, savings and all deposit accounts,
banks as the legal heirs were complicating the issue.
Pension, PPF accounts,
Moreover the rightful owner of the funds in the de-
ceased deposit account was being needlessly ha- Collection and remittance facilities
rassed for want of clarity in the matter. Nomination Loans and overdrafts
in deposit accounts of individuals has therefore be-
come mandatory to mitigate the problems in settle- Foreign exchange services
ment of deceased accounts. Currency exchange facilities
The depositor may nominate a person to whom Card products
the bank may make the payment of the balance in the
deposit account in the event of his death. The nomi- Third party products offered through bank’s
nation confers the right upon the nominee to receive networks.
the amount in the account of the deceased from the The signatory banks have pledged to act fairly
bank. The right of any other person against the nomi- and reasonably in all dealings with the customer; to
nee is not affected by such payment. help customers understand the nature of financial
Separate nominations for each deposit account products and services being offered and to deal
can be made and nominations can be changed any quickly and with care all cases of wrongdoing.
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Basic Banking & Financial Issues | 25


It is a significant tool empowering the custom- process of banks. The borrower also has a responsi-
ers to get the best possible services from banks in a bility in strictly complying with the terms and condi-
transparent and satisfactory manner. The banks are tions in order that the bank’s funds are appropri-
committed to publicize this code by making available ately utilized for the purpose it is meant. The end use
copies thereof to their customers. All areas of pos- of funds is a critical component of bank lending and
sible conflicts and doubts are covered by this code is required to be strictly adhered.
for the customer to make an informed and consid- Report of Financial Sector Legislative Re-
ered decision while dealing with banks. forms Commission
The banks are committed to share with the cus- Finance Minister GOI announced in Union
tomers the details of their fees and charges for the Budget 2010-11 the setting up of a Financial Sector
different services that are available, the normal time Legislative Reforms Commission with view to rewrit-
taken for cash receipts and payments, the cheque ing and cleaning up the financial sector laws to bring
collection facility and the options available and the them in tune with the ongoing process of financial
sector reforms and requirements of the economy. Ac-
procedure to be followed in case of grievance
cordingly the Financial Sector Legislative Reforms
redressal of the customer.
Commission (FSLRC) was set up under the Chair-
The customer additionally has the right to ap- manship of Justice (Retd.) B.N. Srikrishna on March
proach the Banking Codes and Standards Board of 24, 2011. The other members of the Commission were
India, which is the monitoring agency approved by Justice (Retd.) Devi Prasad Pal, Dr. P. J. Nayak, Smt.
RBI and participating banks, in case they feel that K. J. Udeshi, Y. H. Malegam, Prof. Jayant Verma, Prof.
the bank is falling short of the commitments enumer- M. Govind Rao, C. Achuthan, Dhirendra Swaroop
ated in the subject code. and C.K.G. Nair (Member Secretary) The FSLRC sub-
mitted its report to the government on March 22,
Fair Practices Code for Lenders 2013 along with the following key recommendations
This code has been adopted by banks for set- and a Draft Code Law :
ting out the fair practices expected during lending (1) The commission envisioned nine core ar-
by banks. The code applies to the following areas— eas of financial sector, namely—consumer’s protec-
tion, Microprudential regulation, Resolution, Capi-
(i) application for loan and their processing it gives tal controls, Systemic risk, Development and redis-
the time schedule for acceptance and disposal tribution, Monetary policy, Public debt management
of the loan application. Reasons for rejection and Contracts, trading & market abuse.
are required to be intimated to the applicant. (2) At present, many public sector financial firms
The borrower is also informed about the fees/ (e.g., Life Insurance Corporation of India (LIC), State
charges that are levied according to the nature Bank of India (SBI) are rooted in a specific law. The
of loan. Commission recommends that they be converted into
(ii) loan appraisal and terms and conditions the companies under the Companies Act, 1956.
terms and conditions under which the loan is (3) State Governments should accept the au-
granted is suitably informed along with copies thority of Parliament (under Article 252 of the Con-
of documents executed by the borrower, on stitution) to legislate on matters relating to the regu-
request, is given. Any changes in interest rates lation and supervision of cooperative societies car-
rying on financial services.
during the loan period is also to be intimated
by the bank. (4) All regulators will have an empowered
board. The Commission has drafted a precise selec-
(iii) post disbursement handling.
tion-cum-search process for the appointment of all
(iv) list of recovery agents. members. Four kinds of members are envisioned :
The detailed information from the above per- the chairperson, executive members including an ad-
spective is available to the borrower customer so ministrative law member, non-executive members and
that there is complete understanding of the loaning Government nominees. The role of each of these kinds
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26 | Basic Banking & Financial Issues


of members has been defined. The appointment con- microprudential law, and regulation and supervision
ditions for board members have been defined. of payment systems in enforcing these two laws.
(5) At present, regulations are not subject to Unified Financial Agency—The unified
judicial review. The Commission envisages an im- financial regulatory agency would implement the
portant process of judicial review of regulations. It consumer protection law and micro-prudential law
would be possible to challenge regulations either on for all financial firms other than banking and
process issues (i.e., the full regulation-making pro- payments. This would yield benefits in terms of
cess was not followed) or substantive content (i.e., economies of scope and scale in the financial system;
the regulation does not pursue the objectives, or it would reduce the identification of the regulatory
exceeds the powers, or violates the principles, that agency with one sector; it would help address the
are in the Act). difficulties of finding the appropriate talent in
(6) The Commission envisages a single ‘Finan- Government agencies. This proposed unified
cial Data Management Centre’. All financial firms will financial regulatory agency would also take over the
submit regular information filings electronically to work on organized financial trading from RBI in the
this single facility. areas connected with the Bond-Currency-Derivatives
Nexus and from Forward Market Commission for
(7) The Ministry of Finance would put out a
commodity futures, thus giving a unification of all
Statement defining a quantitative monitorable ‘pre-
organised financial trading including equities,
dominant’ target. Additional, subsidiary targets government bonds, currencies, commodity futures
could also be specified, which would be pursued and corporate bonds.
when there are no difficulties in meeting the predomi-
The unification of regulation and supervision
nant target. The draft Code places an array of pow-
of financial firms such as mutual funds, Insurance
ers with rbi in the pursuit of this objective. Deci- Companies, and a diverse array of firms which are
sions on the use of these powers would be taken at not banks or payment providers, would yield con-
an executive Monetary Policy Committee (mpc). sistent treatment in consumer protection and micro-
(8) The Commission proposes a financial regu- prudential regulation across all of them.
latory architecture featuring seven agencies. This Financial Sector Appellate Tribunal (FSAT)—
proposal features seven agencies and is hence not a The present SAT will be subsumed in FSAT, which
‘unified financial regulator’ proposal. It features a will hear appeals against RBI for its regulatory func-
modest set of changes, which renders it imple- tions, the unified financial agency, decisions of the
mentable : Financial Redressal Agency and some elements of
1. The existing RBI will continue to exist, though the work of the resolution corporation.
with modified functions. Resolution Corporation—The present Deposit
2. The existing SEBI, FMC, IRDA and PFRDA Insurance an Credit Guarantee Corporation (DICGC)
will be merged into a new unified agency. will be subsumed into the Resolution Corporation
3. The existing Securities Appellate Tribunal which will work across the financial system.
(SAT) will be subsumed into the FSAT. Financial Redressal Agency (FRA)—The FRA
4. The existing Deposit Insurance and Credit is a new agency which will have to be created in imple-
Guarantee Corporation of India (DICGC) will be sub- menting this financial regulatory architecture. It will
sumed into the Resolution Corporation. set up a nationwide machinery to become a one stop
Proposed Functions of Regulatory Bodies shop where consumers can carry complaints against
Envisaged by FSLRC all financial firms.
The functions of each of these seven proposed Public Debt Management Agency—An inde-
agencies are as follows : pendent debt management office is envisioned.
Reserve Bank of India—It is proposed that RBI Financial Stability and Development Council
will perform three functions : monetary policy, regula- (FSDC)—Finally, the existing FSDC will become a
tion and supervision of banking in enforcing the pro- statutory agency, and have modified functions in
posed consumer protection law and the proposed the fields of systemic risk and development.
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Basic Banking & Financial Issues | 27

Explanatory Notes
What are Lok Adalats? banks/financial institutions by sale of the bad loans
RBI approves of compromise settlement of by banks for cleaning their balance sheet. These
dues through Lok Adalats. They are convened to companies after acquiring the bad loans arrange for
hear disputes where disposal of the cases are quick recovery or adopt suitable alternatives for revival of
and concessions for one time settlement is offered the sick company. ARCIL is the first company to
by banks. It is an effort to settle large number of commence business in India in this sector.
cases at a single forum in an expeditious manner Biometric ATM— these ATMs have been de-
where clients and banks are willing to settle the is- signed to reduce the possibilities of fraud which are
sue. on the rise because of loss of cards and PINs. By
using stolen cards and PINs cash can be easily with-
Home Loans are mostly against equitable
drawn from ATMs. However with biometric ATM it
mortgage. Please explain equitable mortgage
is not possible as the PIN for bio ATMs is the finger-
Where the mortgager i.e., the borrower deliv- prints of the card holder or his retina scan. This can-
ers to the mortgagee i.e., the bank, at notified places, not be duplicated and are thus safe from theft. Be-
the documents of title to immovable property with cause of the higher cost bio ATMs are less used
intention to create a security thereon for availing a though they are well suited to the requirements of
loan or credit facility it is known as equitable mort- the rural people.
gage of the immovable property. It is also known as
Bullion market— a market where metals like
mortgage by deposit of title deeds. In case of non
gold, silver, platinum and palladium in the form of
payment of the loan amount the bank can sue for
ingots or bars are traded.
sale of the property but cannot confiscate.
Capital market— the market in which corpo-
Often there is mention of limitation period. rate equity and longer term debt securities (those ma-
Please clarify. turing in more than one year) are issued and traded.
Limitation period is governed by the Limita-
tion Act which specifies the time limit within which Commercial paper— short term unsecured
the parties to a legal agreement can take action in a promissory note issued by an organization. These
court of law to enforce their legal right. On expiry of are not usually backed by any form of collaterals
limitation period the filing of legal suit is barred. In and is allowed to be issued only between corporates
most bank loan agreements the limitation period is 3 with high quality ratings. CPs were introduced in
years except in mortgage where it is 12 years. India in 1990 with a view to enable high rated corpo-
rate borrowers raise short term borrowings by this
We hear of Negotiable Instruments but are additional type of instruments. However, later All
not clear about it. Can you elaborate ? India India Financial Institutional and Primary Deal-
Cheques, bank drafts, bills of exchange and ers too were allowed to issue CPs. Individuals, Bank-
promissory notes are known as negotiable instru- ing Cos, other corporate bodies, NRIs, FIIs can innert
ments. Negotiation means transfer of an instrument in CPs. The maturity of commercial paper is typically
through endorsement and delivery with the trans- between 7 days (Min.) and 365 days (Max.); the most
feree getting better and absolute title provided it is common maturity range is 30 to 50 days or less. It is
taken in good faith and for value. All bank payments a common source of raising debt by an organization.
are based on this requirement to be fulfilled. Counterfeit currency— currency which is ob-
Asset Reconstruction Company ARC— a cen- tained by fraudulent means and is therefore not the
tralized agency for resolving bad loans created from permissible legal tender for any transactions. Print-
the banking system due to systematic crisis. It is an ing of illegal currency which is therefore counterfeit
answer to the issue of non performing assets of is a major threat to any economy.
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28 | Basic Banking & Financial Issues


Derivative— a financial instrument whose Mark to market— an accounting procedure
value depends upon the characteristics and value of to determine the valuation of an asset at current
an underlying commodity, currency or security to market price, which may be either higher or lower
which it is linked. than the purchase price or book value of the same
Employee stock option plan ESOP— a fairly asset.
common form of employee compensation adopted Nostro account— a banking term to describe
by progressive companies. Employees are given eq- an account one bank holds within another bank in a
uity shares of their employer company, purchase of foreign country. The account is maintained for inter
which is funded by the company through a loan.
bank transactions and is in the currency of the for-
Escrow account— an account controlled by
eign country.
an intermediary who protects the interests of both
buyer and seller in a particular transaction till fulfill- Online banking— a banking system permit-
ment of certain conditions or until the conclusion of ting account holders to transact banking business
the transaction. from their homes/offices via the internet. Many tra-
Exchange traded funds ETF— a fund that tracks ditional banks are offering online banking facility as
an index but can be traded like a stock. These funds it provides convenience to the customer and cost to
group together the securities belonging to a particu- the bank are less compared to banking services from
lar index and never track actively managed mutual the counter. All routine transactions are possible on
fund portfolio. Investors in ETFs can do practically the internet.
anything as they do with a normal stock including Participatory notes— a tool used by foreign
short selling. These funds are traded on stock ex- investors to invest in Indian securities. Investors
changes and hence can be bought and sold at will.
purchase the participatory notes from brokerages in
Fiat money— money that has little or no real India for making their investments in Indian markets.
value as a commodity. It does not incur cost to pro-
The identity of the participatory note holder is not
duce, it being some kind of tokens or piece of paper
known to the market regulators and hence the in-
and is not exchangeable for any product.
vestment through such instruments is a major issue.
Floating interest rates— an interest rate that
moves according to the changes in the prime or base Payment gateway— the intermediary service
rate to which it is linked. The interest rate moves up essential in any commercial transaction on the
or down in relation to the rate of the controlling in- internet. It facilitates the payment transaction be-
dex. Floating rates are being offered in home loans tween the internet customer and the merchant es-
as they are of longer time durations. tablishment. It is the infrastructure that permits ac-
Free look period— a period of fifteen days al- ceptance of credit card and other forms of electronic
lowed by insurance companies to the policy buyer payment. Online buying has been made possible
to confirm acceptance or rejection of his decision to through this third party service.
buy an insurance policy. If the customer decides to Quarterly rests— a method of calculating in-
change his decision to buy, the insurance policy can
terest amount on loans or deposits on compound-
be returned. This is a customer friendly initiative in-
ing basis every quarter. By this method the interest
troduced by the insurance regulator.
amount annually would be less than the amount cal-
Laundered money— money that has been
transferred through many different accounts in an culated on monthly compounding basis.
effort to conceal its illegal original source. Acts gen- Risk weighted assets— a bank’s assets
erating the money in the first instance is invariably weighted according to the credit risk. Some assets
linked to criminal activities and laundering is the pro- such as debentures are assigned a higher risk than
cess of converting this illegal money to a legitimate others, such as cash. This sort of asset classifica-
source. Strict checks and controls are being adopted tion is used for determining the capital requirement
to stop activity of laundering money. KYC norms for for a bank. The central bank RBI specifies the ratio
opening of accounts are therefore being enforced to to be maintained and is closely regulated as per in-
control this illegal activity. ternational norms.
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Basic Banking & Financial Issues | 29


Seed capital— the initial capital to start a busi- Underwriter— a firm usually an investment
ness. It often comes from the promoter’s own bank that guarantees the minimum estimated pro-
sources. The amount is relatively small as the busi- ceeds to the company from sale of securities thereby
ness is still in the idea or conceptual stage. Seed taking responsibility of ownership. In the initial public
capital is usually meant for covering initial operating offerings IPOs of companies selling shares there is
expenses till a business can start generating regular always an underwriter guaranteeing the issue.
revenue to attract investments. Unsecured loan: when loan is given without
Sovereign wealth funds— funds which man- taking any security (assets) from the borrower it is
age and invest the national savings of countries in considered as unsecured. The lender does not have
assets for benefiting the economy. These funds are any security to encash in case the borrower fails to
rapidly moving to the forefront of international fi- return the loan amount. Bank personal loans and
nance. Countries like Singapore and Norway are pio- credit card outstandings are perfect examples of un-
neers in managing such funds. secured loans.
Tax haven— a country where companies or in- Venture capital— an investment in a new busi-
dividuals may legally take advantage of lower taxa- ness that is considered to have excellent growth pros-
tion levels. Mauritius is a prime example of a tax ha- pects but does not have adequate means of finance.
ven. It is typically the kind of financing sought by start
Treasury bills— it is a short term debt secu- up companies with proper business plans wanting
rity issued by a government at a value that is lower to grow fast. Micro finance companies in India are
than its par value. The difference represents the in- presently the focus and interest of many venture
terest on the security. capitalists.
Complex Issues Simplified
Q. What is meant by Core Banking Solutions? are paid by him. However the remitter has to
Ans. It is the operative word in Indian banking cur- pay ` 5 for transfer upto ` 1 lakh and ` 25 for
rently to denote the contribution of technol- any amount above ` 1 lakh.
ogy to banking. It means that branches of the Q. What are the components of Food Index ?
bank are connected to a central host which en- Ans. The Food index consists of two sub-compo-
ables the customers of the connected branches nents, namely primary food articles and manu-
to transact their banking business at any branch factured food products.
with core banking facility. Customers need not Q. What was the rate of WPI food inflation
visit the specific branch where their account is in 2012-13?
maintained to deposit or withdraw cash. Ans. WPI based food inflation rose to 11·88% in
Q. Please tell us about National Electronic Fund January 2013. However, the overall inflation was
Transfer. 6·62% in the same month.
Ans. National Electronic Fund Transfer NEFT is a Q. State the position of Reserve Money (Mo) in
funds transfer mechanism nation wide enabling 2012-13.
remittance of funds from one bank branch to Ans. Reserve Money was Rs. 14821·9 billion as on
any other bank branch. To avail this facility the March 1, 2013 as compared to Rs. 14263·4 bil-
beneficiary of the funds transfer should have lion on March 31, 2012. It was 2·9% higher over
an account with a bank. The person remitting 2012.
the funds must know the account number and Q. What was the percentage increase in Broad
the name of the bank including the IFS code of Money (M3) in 2012-13 ?
the branch to which the funds are to be trans- Ans. Total money supply (m 3) in India was Rs.
ferred. Both the remitting and the receiving bank 81529·4 Million on Feb. 22, 2013. It was 10·8%
branch must be NEFT enabled. In this way the higher over 2011-12 during the same period.
beneficiary’s account is credited on the same Q. What is the Repo Rate in India on 19.3.2013?
day or latest on the next day and no charges Ans. The Repo Rate on March 19, 2013 was 7·50%.
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30 | Basic Banking & Financial Issues


Q. Is bank credit moderated in 2012-13 ? Q. What is deadlines of IFRS for Indian Banks ?
Ans. Even as India talks about moving its banking
Ans. Bank Credit
into auditing system, that converges with In-
Referance Outstanding amount ternational Financial Reporting Standards (IFRS)
Date (Rs. billion) from April 2013. A British Parliamentary Com-
Jan. 28, 2011 35452 mittee has criticized it saying the mode of ac-
March 25, 2011 37315 counting has serious flows, especially in bank
Jan. 27, 2012 41222 audits.
Q. What is a Demat account?
March 23, 2012 43714
Ans. Demat or de-materialized account is an elec-
Jan. 25, 2013 47368 tronic account in which the shares, debentures,
Bank credit grew by 8·4% during 2012–13 bonds etc. of an investor are held. This elec-
(March 23, 2012 to Jan. 25, 2013) as compared to 10·5% tronic account enables the holder to transact
during 2011-12 (March 25, 2011 to Jan. 27, 2012). business in these securities with minimum pa-
Q. What is present position of Lending Rates ? per work and delays. It also dispenses with the
Ans. The BPL of SCBs remained unchanged from need to hold the securities in physical form.
July 2009 till end June 2010. The base rate sys- Q. What do you mean by credit score ?
tem replaced the BPLR system with effect from Ans. It is the statistical summary of the separate
1 July, 2010. The base rate of Public sector banks pieces of information on the credit report of an
ranges between 10·00–10·50 per cent in April– entity. A credit score predicts how likely it is
May 2012 as compared to 7·75–8·25 per cent that a company or individual will repay their
on July 1, 2010. Among private sector banks debts. Banks use this tool to take a decision
the base rate ranges between 9·75–10·75 per- whether to sanction the loan or not and the
cent during Aug. 2011 to April 2012 as com- applicable rate of interest if sanctioned.
pared to 7·00–7·50 per cent on July 1, 2010. Q. We often talk of balloon payments. Please
Q. How many persons were the beneficiaries of elaborate.
Microfinance in 2011-12 ? Ans. As part of loan repayments when an additional
large payment is made, it is known as balloon
Ans. Under the SHG Bank Linkage Programme, as
payment. This payment differs from the normal
on 31 March, 2012, 79·60 lakh SHGs held saving
equated monthly payments.
bank accounts with total saving of Rs. 6551·41
Q. What is a Clearing House ?
crore as against 74·62 lakh SHGs with savings
of Rs. 7016·30 crore as on March 31, 2011. Ans. It is an institution where mutual claims are
settled between the accounts of member insti-
Q. What are the contribution of banks in agri-
tutions. Bankers’ Clearing House have tradi-
cultural credit ?
tionally been organized for cheque clearing
Ans. As against the target of Rs. 475000 crore for purposes but more recently are clearing other
agriculture in 2011-12, the banking system dis- types of payment settlements including elec-
bursed Rs. 479400 crore to the agricultural sec- tronic funds transfer.
tor, thereby exceeding the target by around 0·92
Q. How does endorsement on a cheque operate ?
per cent.
Ans. Signature on the reverse of a negotiable instru-
Q. Are you agree that Bank deposits grow faster ment i.e. cheque made primarily for the purpose
than advances in 2012-13 ? of transferring the rights of the holder to some
Ans. Aggregate deposits of banks during 2012–13 other person means endorsing a cheque. It is a
(March 23, 2012 to Dec. 28, 2012) grew by Rs. contract between the holder and all parties to
5681·6 crore and the bank credit increased by the cheque. Each endorser orders the prior par-
Rs. 4153·0 crore during the same period. It ties to fulfill the contract to his endorsee and
shows that the bank deposits grew faster than also agrees with the endorsee that if they do
the bank advances during 2012–13. not fulfill the contract, the endorser will honour.
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Basic Banking & Financial Issues | 31


Q. Probate of a will helps in claim settlement of The repo rate is applied when banks wish to
deceased accounts. What is it ? draw funds from RBI to meet their liquidity re-
Ans. Probate means the sanction of a legal process quirements.
which validates the authenticity of a document. Q. How much of the bank’s deposits are available
When a will of an individual is probated it means to be given as loans?
the contents of the will is duly registered with Ans. For every hundred rupees of deposits banks
the court of law. This document helps the bank have to keep a portion for maintaining cash re-
in determining the legal heirs of a deceased ac- serve ratio, another share for statutory liquid-
count holder for payment of the funds in the ity ratio before it can use the balance amount to
account. lend. When CRR and SLR are raised banks have
Q. Can loan be availed from banks against Na- lesser amount for giving credit to borrowers.
tional Savings Certificates ? Q. Special Purpose Vehicle.
Ans. Yes, loans are permissible against the security Ans. An entity which might be a trust, company or
of National Savings Certificates subject to as- other body constructed or established by a
signment in favour of the bank. The permission ‘deed’ or ‘agreement’ for a specific purpose.
of the concerned Post Office issuing the NSC Q. Loan to value ratio.
is necessary who makes a record of the assign- Ans. The loan amount given for cars, residential
ment of the NSCs in favour of the bank. On houses are linked to the value of the asset be-
receipt of the confirmation the bank permits loan ing financed. The amount approved as a per-
upto 75 per cent of the face value of the NSCs. centage of the value of the asset is the loan to
Q. What is meant by assignment in favour of the value ratio.
bank ? Q. Third Party administrators.
Ans. Assignment is the legal means to transfer the Ans. Third party administrators are entities who work
rights of the holder of a security to the bank for as intermediaries between insurance companies
availing a loan. The security i.e., the NSC is and health care providers. They assist in set-
transferred to the bank whereby the bank comes tling insurance claims of the insured and also
in possession of the NSC as the legal holder. provide services to get the best treatment at
This fact is noted by the Post Office who then the right price.
permits the transfer. In the event of non pay- Q. Take out Financing.
ment of the loan the NSC can be encashed by
Ans. This is the method by which long duration fund-
the bank from the post office for adjustment.
ing for projects of 15 years or more are taken
Q. While taking loans, banks make the borrower out from banks after the initial 5 years or so.
to sign a demand promissory note. What is it? Special financial institutions take over long term
Ans. For availing loans from banks it is necessary to funding projects from banks as they cannot
execute certain specified documents. Demand continue to finance over the extended period
promissory note is the primary document which because of funds constraint and asset liability
is invariably signed by the borrower in any type mis match. The MoU between IIFCL and LIC
of loan. It is an acknowledgement of debt by and IDFC will provide for take out up to 50 per
the borrower whereby he undertakes to repay cent of the total project cost in the ratio of 20 :
the amount of loan on demand at the predeter- 20 : 10 by these institutions respectively.
mined interest rate. Q. Ponzi schemes.
Q. What is the range band for Statutory Liquidity Ans. These schemes are means to get irregular gains
Ratio to move within? for the promoter by claiming to give very high
Ans. The prescribed range for maintenance of Statu- returns to investors who are tricked. The scheme
tory Liquidity Ratio is between 24 to 40 per cent. keeps paying old depositors from funds re-
If a bank wishes to borrow money from RBI ceived from new investors till the chain breaks
which rate of interest is applicable? when fresh deposits are no longer received.
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32 | Basic Banking & Financial Issues


There are many instances of Ponzi schemes serves and certain types of subordinated debt.
which suddenly close down by fooling the or- The loss absorption capacity is less than that
dinary investor. of Tier I capital.
Q. Virtual keypad for online banking. Bankers’ Book of Evidence— it is a special
Ans. Virtual keypad is an online application which legal provision granted to banks to produce certi-
substitutes the actual physical keyboard with fied copies of documents in courts instead of the
a mouse. This virtual keyboard is a safeguard original document. This is an enabling provision to
against risks in online banking. reduce the difficulties/ hazards in bringing volumi-
nous banking documents/records to courts.
Q. Personal Identification numbers.
CIBIL— an acronym for Credit Information Bu-
Ans. These numbers are allotted to each individual
reau India Ltd which is the first credit information
by banks for their credit/debit card use as well company in India providing detailed credit reports
as for internet banking, mobile banking. This on prospective borrowers to banks, financial insti-
number is meant to safeguard the person from tutions who are its members. This is an important
his account being fraudulently used. tool for banks in their credit decisions.
Q. Private Banking. Decreed account— Irregular accounts which
Ans. It is a specialized financial and banking service are under the legal process and finally decided by
made available to high net worth individuals. the courts are known as decreed accounts. The de-
The mode and manner of delivery of these ser- cision of the court is spelt out in the decree that the
vices is very different from the normal banking court passes for settlement of the case.
services. Debt servicing— loans and advances are re-
Q. Systematic Investment plan. quired to be repaid as per agreement on expiry of the
Ans. The best way to invest in a mutual fund over stipulated period. The regular payment of the debt
an extended period of time and withstand the during the period of loan agreement in terms of prin-
cipal and interest is known as servicing of the debt.
volatility of the stock market is through the sys-
Digital gold currency.
tematic investment plan. It allows the investor
Eurozone— the area comprising of a group of
to invest small amounts at regular intervals in-
countries who are using euro as their common cur-
stead of a bulk amount as one time investment.
rency. Many European countries came forward to
A date is fixed for regular payments every
adopt Euro as their common currency when it was
month for investment in the selected fund. This first introduced.
method of investment is recommended for eq-
Branches of Public Sector Banks
uity funds.
(As on June 30)
Q. Mark to Market.
Year SBI and Nationa- Regional Total of
Ans. It is an accounting method by which the assets
Associa- lised Banks Rural Public Sector
of a business entity is valued at current market
tes Banks Banks
prices. IT gives a fair value of the investment
portfolio of a business. 1969 2462 4553 – 7015
Q. Tier I capital. 2007 14152 36573 14573 65298
Ans. It is a term used to refer to one of the compo- 2008 15391 38093 14869 68353
nents of regulatory capital. It consists mainly 2009 16343 39853 15242 71438
of share capital and disclosed reserves. Tier 1 2010 17382 42202 15511 75095
items are deemed to be of the highest quality 2011 17976 44862 15777 78615
because they are fully available to cover losses. 2012 18992 48982 16572 84546
It is also known as core capital. (Rural
Q. Tier II capital. Branches 6622 15704 12387 34713
Ans. It also is one of the terms to identify compo- as on
nents of regulatory capital. Also known as 30-6-2012) (34·9%) (32·1%) (74·7%) (41·1%)
supplementary capital it consists of certain re-
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Basic Banking & Financial Issues | 33


Garnishee order— The order of a court to a Loan syndication
bank/financial institution attaching the balance in Loan syndication happens when banks and fi-
the deposit accounts of an individual and prohibit- nancial institutions collectively deal with the finan-
ing withdrawal of the funds from the accounts in cial requirements of big enterprises whose needs are
question. substantial. The risk also gets shared between these
Intaglio printing— A form of printing prima- institutions.
rily used for currency and high security documents. Lock in period— The period during which
It has a distinctive appearance and texture with abil- funds from investment accounts are not allowed to
ity to retain fine levels of detail. The raised surfaces be withdrawn by the investor. This is as per the terms
make it a security feature to check counterfeit cur- of investment which is indicated before the invest-
rency. For example– RBI has cautioned the people ment is made. This stipulation is followed in tax sav-
to check for specified intaglio printing on Indian cur- ings schemes where a minimum three period is speci-
rency to confirm its genuineness. fied generally for mutual funds and five years for
bank fixed deposit schemes.
Islamic banking
Leveraged funds
It refers to the branch of banking based on
Banks tend to use the funds received as de-
Sharia law which prohibits the earning of interest
posits in different ways by having multiple products
through the business of lending. This form of banking
from the same funds. This is known as leveraging of
is very new and still to really emerge as a major player.
funds but it is risky as default in any one product
Judgement debtor impacts the other product.
The borrower who has been declared as owing Mezzanine financing— A business enterprise
debt to the lender by a court of law is classified as a requires funds at various stages during its incorpo-
judgement debtor. ration and operations. The financing which is done
Jointly and severally at the final stages before the enterprise goes for ini-
tial public offering is known as mezzanine financing.
In joint accounts, partnership firms all the joint
Net Interest Margin NIM— It is an index of
account holders account holders and signatories are
the interest differential between interest earned on
individually and jointly responsible for all actions
assets and interest paid on liabilities and capital.
taken individually or jointly.
Banks are extremely conscious of their net interest
Key person insurance— It is a life insurance margin as it directly affects their profitability. The
cover for the owner/chief executive/promoter of a finalization of interest rates on deposits and loans
business enterprise. Since he is the most important are therefore an important exercise for banks to de-
person for the growth and success of the company termine their net interest margin.
his life needs to be fully insured.
Off balance sheet items
KYC— An acronym for Know Your Customer These are account heads which do not find
norms which are required to be strictly observed while mention in the main balance sheet. They have may
opening accounts of entities with banks / financial influence the financial health of the company. In-
institutions. Compliance is crucial to determine the stances are likely liabilities on account of letters of
identity of the account holder and to check the source credit, guarantees etc.
of funds to prevent misuse of accounts for illegal
Penny stocks
and anti social activities primarily terrorist financing.
Stocks which are of small insignificant compa-
Karta nies and trading well below their face value are penny
Hindu Undivided Family is considered as an stocks.
entity which is permitted to maintain its finances Payment gateway— The intermediary service
under this head. This entity can also open bank ac- essential in any commercial transaction on the
counts to be operated by the Head of the family who internet. It facilitates the payment transaction be-
is known as the Karta. tween the internet customer and the merchant. It is
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34 | Basic Banking & Financial Issues


the infrastructure that permits acceptance of credit Unsecured loan: when a loan is granted with-
card and other forms of electronic payment. Online out any primary or collateral security but purely on
buying has been made possible through this third the strength of the creditworthiness of the borrower.
party service. It is fairly risky as recovery becomes difficult in case
Rack rate— It is the normal or advertised rate of default and therefore carries higher interest rate.
Personal loans and credit card outstandings are prime
before negotiation/ bargaining. While it is generally
examples of unsecured loans.
used in hotel bookings it is now frequently used by
people marketing banking products mainly loans. In Branches and Other Commercial Banks
view of stiff competition amongst banks for selling (As on 30 June)
loan products there is scope for getting interest rates Year All Scheduled All Commercial
below rack rates. Banks Banks
1969 8045 8262
Rescheduled loan
2004 67497 67529
Loans are at times not paid as per their pay-
2005 68689 68724
ment schedule on account of genuine difficulties of 2006 70113 70153
the borrower. In such cases banks agree to revise 2007 72796 72842
the tenure of the loan account. Such a loan is a re- 2008 76952 76998
scheduled loan account. 2009 80723 80769
Stagflation— It denotes a difficult situation for 2010 85886 85933
an economy when there is continuing inflation and 2011 90775 90830
depressed business activity. It is a condition against 2012 98536 98591
which economists must guard when a depressed Rural Branches 33779 33795
economy is sought to be revived. as on 30-06-2012 36334 36350
Section 138 of NI Act Unencumbered securities
This section of the Negotiable Instruments Act When the assets pledged or mortgaged are free
is meant to deal with cases of bounced or cheques from any liability on them then these securities are
returned on account of nonpayment. All cases of classified as unencumbered.
returned cheques are dealt with as per this section Venture capital— Capital or funds invested in
as it is a criminal offence. new or existing promising enterprises with potential
SARFAESI Act for high returns/growth. Many budding entrepre-
The main object of this law is to enable a se- neurs without much equity are supported by ven-
cured creditor to enforce his right in the case of non ture capitalists in view of their exciting and high po-
performing assets without the intervention of the tential business enterprise. Micro finance compa-
courts. It has amended few times to accommodate nies in India are presently the focus and interest of
the interests of both the lender and borrower but the many venture capitalists.
focus is on an early settlement for the lender. Wall Street— It is a street in Manhattan, New
Tranche York where the New York Stock Exchange is located.
Many other important financial institutions are also
When the lending is substantial different con- located and hence the word is commonly used as a
ditions are attached to the disbursement of the total symbol of trade, commerce and American economy.
amount. This amount is generally released in instal- Important Banking and Financial Institutions
ments as per compliance with conditions. The differ-
Board for Financial Supervision (BFS)
ent instalments are tranches.
BFS was constituted in 1994 as a committee of
Top up loan the Central Board of Directors of the Reserve Bank
When a part of a loan has been repaid and the of India. Its primary objective is to undertake con-
creditworthiness of the borrower is established the solidated supervision of the financial sector com-
lender may again offer to lend a further amount to prising commercial banks, financial institutions and
the borrower. This is an example of top up loan. non banking financial companies.
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Basic Banking & Financial Issues | 35


Banking Codes and Standards Board of IIFCL
India (BCSBI) Indian Infrastructure Finance Company Ltd is
BCSBI has been set up as an independent and the financial institution meant for big ticket funding
autonomous body by the joint efforts of RBI and for infrastructure projects. It is also meant for take
banks. It is meant to act as a watchdog to monitor over of infrastructure projects which have been ini-
and to ensure that the banking practices adopted by tially funded by commercial banks but they are un-
member banks are adhered to while delivering the able to take it forward.
services as promised to customers. The code is vol-
untary and sets minimum standards of banking prac- National Bank for Agriculture and Rural
tices. It is supposed to not only to provide protec- Development NABARD
tion to the individual customer but also expected to It is the apex institution accredited with all mat-
generate awareness I the common man about the ters concerning policy, planning and operations in
rights as a consumer of banking services. the field of credit for agriculture and other economic
DICGC activities in rural India.
Deposit Insurance Corporation of India was National Housing Bank NHB
set up in 1962 to act as a safeguard for protection of National Housing Bank set up in 1987 is wholly
bank depositors’ interest. After nationalization it owned by RBI as the entire paid up capital was con-
came to be known as Deposit Insurance and Credit
tributed by it. The function of NHB is to operate as
Guarantee Corporation. It insures deposits of the
the principal agency to promote housing finance in-
public upto Rs. 1 lac in an insured bank which are all
stitutions at the local and regional levels. It is also
commercial banks in India, cooperative banks in 21
responsible for ensuring stability in the housing fi-
states and union territories and regional rural banks.
nance market. It also introduced the concept of re-
For availing of the insurance benefit, insured banks
verse mortgage scheme meant for senior citizens.
pay an insurance premium to the corporation.
ECGC As per the revised figure, the authorized paid
up capital of NHB stood at Rs. 450 crore, the re-
Export Credit Guarantee Corporation of India
serves and surpluses were Rs. 1972 crore as on June
was established by the government for the benefit
30, 2009.
of Indian exporters. Since exports carry substantial
risks suitable insurance covers are designed to pro- Small Industries Development Bank of In-
tect exporters against loss of goods/services. dia SIDBI
Export Import Bank of India (EXIM It is the apex institution for providing financial
BANK) and developmental support to the micro, small and
It is the apex institution for financial assistance medium enterprises sector which plays a crucial role
relating to international trade of the country. It pro- in the economy. It protects the interests of this sec-
vides loans singly and jointly with other commercial tor by coordinating its efforts with other financial
banks to promote foreign trade, institutions.
Financial Assistance by EXIM BANK Indian Banks’ Association IBA
(Rs. Crore)
IBA coordinates the various important activi-
Year Sanctioned Disbursed
ties of the banking industry in the country. It was set
2007-08 35006 29200 up in 1946 with 22 members to meet the diverse needs
2008-09 35247 29964 of the member banks. A change in its rules in 1990
2009-10 40194 33636 enabled the financial services industry and other
2010-11 51015 35577 related units to join as associate members. IBA is the
2011-12 47167·8 38406·2 body which decides the wage settlements for em-
Source : Economic Survey 2012-13 ployees of the public sector banks.
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36 | Basic Banking & Financial Issues


Financial Stability and Development Coun- annual rate of 18% and this pace is expected to be
cil FSDC sustained. This would take the number of bank debit
cards to well over 54 crore by 2015. Number of bank
It is a mechanism set up by the government
with the Finance Minister as its head to institution- credit cards was only 1·88 crore on Dec. 31, 2012.
alize a body for maintaining financial stability in the RBI has not issued licences for urban coopera-
country. This Council’s brief also includes spread- tive banks since 2004.
ing the concept of financial inclusion and financial RBI allows takeover of urban cooperative banks
literacy. in consultation with state governments as they are
Financial Sector Legislative Reforms Com- jointly regulated by RBI and the Registrar of Coop-
mission FSLRC eratives.
The financial sector laws needs revision as Out of 6 lac villages in the country only 50,000
they were enunciated very many years ago. FSLRC have access to banking services. This situation
has been given this task of rewriting banking and prompted he government to accelerate financial in-
other financial sector laws in light of the develop- clusion programmes.
ments and changes that have taken place.
India has highest number of 14.5 million rural
Useful and Informative Data households excluded from banking.
Out of 89·3 million farmer households in India Around 3.5 lac villages to be provided services
45·9 million do not access credit either from institu- by March 2013 under financial inclusion programmes
tional or non institutional sources. of banks.
Inspite of the vast network of bank branches In India life insurance coverage is only 10 per
and credit cooperatives only 27 per cent of the total cent and non life insurance accounts for only 0.6 per
farm households had borrowed from formal sources
cent.
of lending.
Around 36·9 per cent of total commercial bank
A NCAER survey showed that around 60 per
branches are in the rural areas of India.
cent of labourers surveyed indicated that they store
cash at home, while borrowing from money-lenders The average population covered per commer-
at high interest rates. cial bank branch in the country is about 13,900.
Value of bank notes and coins in circulation is Under the Swabhiman programme of the cen-
highest in India at 60 per cent when compared to tral government banks are to open 5 crore accounts
other emerging economies like South Africa at 18 per by 2012.
cent, Brazil 53 per cent, China 19 per cent. The Swabhiman campaign seeks to enable small
Paper based clearing accounts for 59 per cent and marginal farmers obtain credit at lower rates from
of the total volume of transactions while it repre- banks and financial institutions.
sents only 10 per cent in value term. Syndicate Bank is credited with sponsoring the
Cheque truncation services started first in the first regional rural bank in the country-Prathama
NCR region of Delhi in 2008. Now it is meant for Grameen Bank.
Chennai covering Tamil Nadu, Kerala and Karnataka. East India Company’s double mohur with the
Electronic payment systems account or 41 per sketch of lion and the palm tree was approved as the
cent of the total volume of transactions while it rep- emblem for RBI though the tiger replaced the lion.
resents 90 per cent of the total value of transactions. There are 154866 post offices in the India as on
According to an study by Assocham 31·44 March 31, 2011 of which 139040 (89.78%) were in
crore bank were issued debit card by the end of De- rural areas and 15826 (10·22 per cent) in urban
cember 2012. This number is growing at a compound areas.
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Basic Banking & Financial Issues | 37


Post Office Savings Bank Schemes : Current legislative provisions permit issuing
Profile (As on 31.03.2011) of coins upto the denomination of Rs. 1,000 and cur-
rency notes upto the denomination of Rs. 10,000.
Name of Number of Outstanding
Schemes Accounts Balance Bank notes in the denomination of Rs. 1,000
(` in million) and Rs. 10,000 were in circulation in pre indepen-
dence India.
1. Saving Accounts 96476627 300998·33
2. RD Accounts 84305060 612514·15 Rs. 1 currency note was issued by the govern-
ment; they are not printed anymore.
3. TD Accounts 9355825 284436·21
4. MIS Accounts 26936680 2186726·68
The government has the sole right to mint
coins, but the coins are issued for circulation only
5. NSS Accounts 400163 47111·52 through RBI.
(87 & 92)
Soiled notes can be exchanged for full value
6. PPF Accounts 2278182 315819·91 from banks.
7. Sr. Citizens Saving 1405048 309124·17
BankNotes in Circulation
Scheme (SCSS)
VIII. 3 At 12·5 per cent, the growth in value of
8. Cumulative Time 296244 148·19
banknotes outpaced the growth in volume terms (7·4
Deposit per cent) in 2011-12. Notes of denomination 500 and
9. Fixed Deposit 14010 208.00 1000 together accounted for 82 per cent of the total
10. MGNREGA* 38039181 - value of banknotes in circulation.
11. MSY Accounts 4949635 40·57 Coins in Circulation
12. Total (1 to 11) 264456655 4057127·73 VIII. 4 The Coinage Act, 2011 was passed by
13. NSC VIII 546424·40 the Parliament and became effective from March 28,
14. KVP 1585878·13 2012. It replaced the Coinage Act, 1906. The Act has
re-defined the legal tender character of coins as : (i)
15. Total (13+14) 2132302·53
1 and above– up to a sum of 1000, and (ii) 50 paise–
16. Grand Total (12+15) 6189430·26 up to a sum of 10. Besides consolidating the laws
* Outstanding balance of MGNREGA accounts is included relating to coinage and the Mints, the Act prohibits
in Saving Accounts.
Table VIII. 1 : Banknotes in Circulation (As at end-March)
Denomination Volume (Million pieces) Value (billion)
2010 2011 2012 2010 2011 2012
1 2 3 4 5 6 7
2 and 7,953 11,116 11,540 29 43 45
5 (14·1) (17·2) (16·2) (0·4) (0·5) (0·4)
10 18,536 21,288 23,002 185 213 230
(32·8) (33·0) (32·2) (2·4) (2·3) (1·9)
20 2,341 3,020 3,510 47 60 70
(4·1) (4·7) (4·9) (0·6) (0·7) (0·6)
50 4,211 3196 3,488 211 160 174
(7·4) (5·0) (4·9) (2·7) (1·7) (1·4)
100 13,836 14024 14,119 1,384 1,402 1,412
(24·5) (21·7) (19·8) (17·6) (15·0) (11·6)
500 7,290 8,906 10,256 3,645 4,453 5,128
(12·9) (13·8) (14·8) (46·2) (47·6) (48·7)
1000 2,383 3027 3,469 2,382 3,027 3,469
(4·2) (4·7) (5·0) (30·2) (32·4) (32·9)
Total 56,549 64,577 69,382 7,883 9,358 10,528
Note : Figure in parentheses represent per cent share in total.
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38 | Basic Banking & Financial Issues


and imposes a penalty on the melting or destruction the new sources of coin usage such as toll plazas,
of coins, unlawful making, and issue of possession malls, Delhi Metro Rail, etc. In the wake of increasing
of metal pieces to be used as money. numbers of complains from various trade bodies and
VIII. 5 There was a marked decline in the volume members of the public on unavailability of coins, the
and value of small coins in circulation in 2011-12 as government has constituted a Committee (Chairman:
coins of denomination of 25 paise and below ceased Dr. K.C. Chakrabarty, Deputy Governor, Reserve
to be legal tender from June 30, 2011. The supply of Bank) to examine the issues relating to the increase
coins responded to the increase in demand from the in demand for coins and supply/ distribution
public during 2011-12. The demand was greater from bottlenecks.

Table VIII. 2 : Coins in Circulation (As at end-March)


Denomination Volume (Million pieces) Value (billion)
2010 2011 2012 2010 2011 2012
1 2 3 4 5 6 7
Small 54,738 54,797 14,785 15 15 7
coin (52·0) (48·8) (18·9) (13·1) (11·5) (5·5)
1 29,461 32,675 34,414 30 33 34
(28·0) (29·1) (44·1) (26·8) (25·9) (25·6)
2 13,198 15,342 18,201 26 31 36
(12·5) (13·7) (23·3) (23·8) (24·3) (27·1)
5 7,760 9,070 9,981 39 45 50
(7·4) (8·1) (12·8) (35·0) (35·9) (37·1)
10 149 300 648 1 3 6
(0·0) (0·0) (0·8) (1·3) (2·4) (4·8)
Total 1,05,306 1,12,184 78,029 111 127 135
Note : Figures in parentheses represent per cent to total.

Infrastructure for Currency Management Table VIII. 3 : Currency Chests and Small Coin
VIII. 6 The Reserve Bank carries out the issue Depots as at end-December 2011
of notes and management of currency through its No. of No. of
Category
18 issue offices, one sub-office at Lucknow, a Currency Small
currency chest at Kochi and a wide network of 4,221 Chests Coin Depots
currency chests and 4,018 small coin depots. There 1 2 3
is an agency agreement with SCBs, under which
Treasuries 11 -
the currency chest facility is granted to them.
Currency chests with sub-treasury offices are being State Bank of India 2,192 2,118
gradually phased out and their number reduced to State Bank Associate 778 775
11 during 2011-12. During the year a revised Banks
agreement was entered into with the banks
maintaining currency chests that interalia Nationalised Banks 1,124 1,009
stipulates various services to be provided to the Private Sector Banks 107 107
public/linked bank branches and the Reserve Bank's
Co-operative Banks 1 1
right to take penal action in case poor conduct of
this function was observed/ reported. The State Regional Rural Banks 3 3
Bank and its associates have the largest share (70 Foreign Banks 5 5
per cent) of currency chests followed by
Total 4,221 4,018
nationalised banks (27 per cent) (Table VIII 3).
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Basic Banking & Financial Issues | 39


VIII. 7 The Monetary Policy Statement for 2012-13 and banking controls as well as freedom from taxes.
announced that the distribution of bank notes and A notable feature is the secrecy possible in offshore
coins would be channelised only through currency transactions.
chests/bank branches, thus bringing the related ser- A merchant banker renders advisory services
vices closer to customers. Banks are expected to and assistance to entrepreneurs in floating of new
strengthen their distribution systems and procedures companies, planning and execution of new projects,
so as to cater to the growing needs of the common expansion and diversification of industries and the
man. management of public issues.
Indians are the largest consumer of gold in the Scheduled banks are those banks which are
world, buying almost 800 tonnes per annum. included in the second schedule to the RBI Act.
Currently 57 per cent of India’s GDP is contrib- Certain conditions as specified are required to be
uted by the services sector. followed to remain in this category.
Restructuring of the centrally sponsored scheme Nomination facility is available to all bank de-
Swaranjayanti Gram Swarozgar Yojna SGSY as Na- positors, safe deposit locker holders in their indi-
tional Rural Livelihood Mission NRLM will address vidual capacity. In case of joint accounts, the joint
comprehensively the needs of 6·5 crore rural poor holders together can make the nomination. Nomina-
households of the country. tion can only be made in favour of one individual.
Index of Industrial Production IIP measures the A negotiable instrument means a promissory
note, bill of exchange or cheque payable either to
growth of factory output in the country.
order or to bearer.
The four national commodity exchanges are
Negotiable Instruments Act 1881
MCX and NCDEX at Mumbai and NMCE at
Ahmedabad and Indian commodity exchange at This act lays down the guidelines for applica-
Mumbai. The regulatory body is forward marketing tion of the law relating to negotiable instruments.
commission which was set up in 1953. This act clarifies that negotiable instrument means a
promissory note, bill of exchange or cheque payable
Disinvestment proceeds of public sector un- to bearer or order. It also outlines the responsibili-
dertakings are routed to the National Investors Fund. ties and rights of banks.
In the case of company dividends which remain Crossing of cheques
unclaimed for more than 7 years, the amount is trans-
Cheques are crossed with two parallel lines to
ferred to Investor Education and Protection Fund.
indicate that the cheque is to be paid through clearing
A bank cannot refuse to open an account if a only.
customer does not make a nomination.
Collecting bank
High net worth individuals HNI are those whose The bank with which the cheque is deposited
financial assets are over USD 1 million or Rs. 4·5 for clearing is the collecting bank.
crores approx.
Paying bank
The omnipresent trio in financial markets and The bank on whom the cheque is drawn is the
institutions are : GREED, FEAR, and FRAUD. drawee or paying bank.
The four dimensions of financial architecture – Payee, Drawer and Drawee
Stability, Development, Regulation and Coordination.
In a cheque the beneficiary is the payee, the
Offshore Banking person signing the cheque for payment is the drawer
Offshore Banking is an integral part of the in- and the bank which is to pay is the drawee.
ternational currency market. Offshore banking cen- Types of Remittances
tres are privileged centres of excellence of interna- Remittances can be through demand drafts, mail
tional banking specially set up by host countries to transfers, telegraphic transfers and currently through
ensure freedom from exchange controls, monetary electronic transfers.
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40 | Basic Banking & Financial Issues


Bank Guarantee Non-Banking Financial Companies
Bank issues letters of guarantee on behalf of (NBFCs)
their clients for commercial transactions. The ratio of deposits of reporting NBFCs to
Letter of Credit the aggregate deposits of SCBs dropped to 0·21
Letters of credit are issued by banks on behalf per cent in end March 2011 from a level of 0·36 per
of sellers/exporters in favour of buyers/importers cent in end March 2010, mainly due to the decline in
confirming that payment would be made if the deal is deposits of reporting NBFCs.
satisfactorily completed.
Term lending Definitions of the concepts used in the
Bank Operation's ratios are as follows :
Funding for projects or for capital intensive
items is done by means of term lending. It means (i) Cash in cash-deposit ratio includes cash in
that the repayment would be spread over a period of hand and balances with RBI.
time. (ii) Investments in investment-deposit ratio rep-
Cash credit account resent total investments including invest-
Borrowal accounts which fund the working ments in non-approved securities.
capital requirements of a company is through cash (iii) Net interest margin is defined as the total in-
credit accounts. There are regular deposits and with- terest earned less total interest paid.
drawals upto a sanctioned limit. (iv) Intermediation cost is defined as total operat-
Marginal Standing Facility (MSF) Rate ing expenses.
Reduced (v) Wage bills is defined as payments to and pro-
The Reserve Bank of India has announced to visions for employees (PPE).
increase Marginal Standing Facility (MSF) borrow- (vi) Operating profit is defined as total earnings
ing limit. Now the banks can borrow upto 2 per cent
less total expenses, excluding provisions and
of net demand and time liabilities from Marginal
contingencies, and
Standing Facility (MSF) as against 1 per cent earlier,
to provide greater liquidity support to lenders. (vii) Burden is defined as the total non-interest
expenses less total non-interest income.
Marginal Standing Facility (MSF) is an addi-
tional borrowing window under which banks can Note : Items like capital, reserves, deposits, borrow-
avail of funds from RBI at penal rate of 100 basis ings, advances, investments and assets / li-
points above the repo rate. With the reduction of 50 abilities used to compute various financial
basis points in the key policy rate announced in the earnings/ expenses ratios are averages for the
Annual Monetary and Credit Policy, the MSF rate two relevant years.
also stands adjusted to nine per cent from 9·5 per Definitions of the operating ratios of Banks
cent earlier. are as follows :
Key Data about Banking Sector (i) Cash-Deposit ratio = (Cash in hand + Bal-
RBI's Rates : At a Glance ances with RBI)/ Deposits
(Status as Announced on March 19, 2013) (ii) Ratio of secured advances to total advances
 Bank Rate : 8·50 per cent (w.e.f. 19 March, 2013) = (Advances secured by tangible assets +
 Cash Reserve
Advances covered by bank or Govt. guaran-
Ratio (CRR) : 4·00 % (w.e.f. Feb. 9, 2013)
 Repo Rate : 7·50% (w.e.f. 19 March, 2013)
tees)/ Advances
 Reverse Repo Rate : 6·50% (w.e.f. 19 March 2013) (iii) Ratio of interest income to total assets = In-
 SLR : 23% (w.e.f. Aug. 11, 2012) terest earned/ Total assets
 Interest Rate on Saving Account : are Deregulated (iv) Ratio of net interest margin to total assets =
(w.e.f. May 10, 2011)
(Interest earned - Interest paid)/Total assets
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Basic Banking & Financial Issues | 41


(v) Ratio of non-interest income to total assets = Abbreviations used in the above definitions
Other income/Total assets. are as follows :
(vi) Ratio of intermediation cost to total assets = PPE = Payment to and provisions for employees
Operating expenses/ Total assets. IPD = Interest paid on deposits
(vii) Ratio of wage bill to intermediation costs (Op- IPB = Interest paid on borrowings from RBI and
erating Expenses) = PPE /Operating Expenses. other agencies
(viii) Ratio of wage bill to total expenses = PPE/ IEA = Interest earned on advances and bills
Total expenses. IEI = Interest earned on investments
(ix) Ratio of wage bill to total income = PPE/Total
Number of NBFCs Registered
income.
with the RBI
(x) Ratio of burden to total assets = (Operating
No. of Registered
expenses-Other income)/Total assets. End June No. of NBFCs-D.
NBFCs
(xi) Ratio of burden to interest income =(Operat-
ing expenses- Other income)/Interest income. 2004 13764 604
(xii) Ratio of operating profits to total assets = 2005 13261 507
Operating profit / Total assets. 2006 13014 428
(xiii) Return on assets for a bank group is obtained 2007 12968 401
as weighted average of return on assets of 2008 12809 364
individual banks in the group, weights being 2009 12740 336
the proportion of total assets of the bank as 2010 12630 308
percentage to total assets of all banks in the
2011 12409 297
corresponding bank group.
2012 13325* N.A.
(xiv) Return on Equity = Net Profit/ (Capital + Re-
* As on 31 Dec., 2012 there are 34754 NBFC are oper-
serves and Surplus).
ating in India but RBI has permitted on 12375 NBFCs
(xv) Cost of Deposits = IPD/ Deposits. to functions.
(xvi) Cost of Borrowings = IPB/ Borrowings.
(xvii) Cost of Funds = (IPD + IPB)/(Deposits + Bor- Flow of Bank Credit
rowings). (As on Jan. 25, 2013)
(Rs. billion)
(xviii) Return on Advances = IEA/ Advances.
Items 2013
(xix) Return on Investments = IEI/Investments.
1. Bank Credit 473368
(xx) Return on Advances adjusted to Cost of (a) Food Credit 1070
Funds = Return on Advances–Cost of Funds. (b) Non Food Credit 46297
(xxi) Return on Investment adjusted to Cost of 2. Agriculture & Allied Activities 5580
Funds = Return on Investments– Cost of 3. Industry (SME + Large) 21309
Funds. (i) Micro & Small 2732
Note : Wherever appropriate, denominators in (ii) Medium 1960
the ratios use averages of "current year" and "previ- (iii) Large 16617
ous year". For instance, ratio of net interest margin 4. Services 10738
to total assets for the year 2011-12 uses denomina-
5. Personal Loans 8669
tor as average total assets for the years 2010-11 and
6. Priority Sector 14917
2011-12.
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42 | Basic Banking & Financial Issues


Main Share Price Index in Famous a high of 10·9 per cent in February 2013 on sustained
Share Market of the World price pressures from food items, especially cereals and
Mumbai DOLEX proteins. Consequently, the divergence between whole-
SENSEX S & PCNX sale and consumer price inflation continued to widen dur-
NIFTY FIFTY ing the year.
New York DOW JONES Demand supply gap to keep pressure on inflation.
Tokyo NIKKEI Competitive rate necessary but not enough to re-
Frank furt MID DAX vive investment.
Singapore SIMAX Govt. has to remain committed to increase growth,
fiscal consolidation.
Key highlights of RBI March 19, 2012
RBI to ensure adequate credit flow to productive areas.
monetary policy review : 2012-13
High retail inflation remains point of concern.
RBI cuts repo rate by 25 basis points to 7·5%
High food inflation worsening.
effective from 19th March, 2013.
Government has a critical role to play in pushing
RBI keeps CRR unchanged at 4%.
growth.
Limited headroom for further monetary easing
Risk on CAD, inflation remain significant RBI will continue to manage liquidity through OMOs.
Headline inflation expected to remain at current lev- Deceleration of service sector is a concern.
els in FY 14. Reverse repo rate came down to 6·5 per cent as a
The year-on-year headline WPI inflation edged up result of new repo rate at 7·5 per cent.
to 6·8 per cent in February 2013 from 6·6 per cent in Adjusted bank rate is now 8·5 per cent as on 19th
January, essentially reflecting the upward revisions ef- March, 2013.
fected to administered prices of petroleum products. Marginal Standing Facility (MSF) changed to 8·5
Worryingly, retail inflation continued on the upward per cent effective from 19th March, 2013.
path that set in from October 2012, with the new com- India's GDP growth in Q3 of 2012-13, at 4·5 per
bined (rural and urban) CPI (Base : 2010=100) inflation at cent, was the weakest in the last 15 quarters.
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Basic Banking & Financial Issues | 43

COMMERCIAL BANKS IN INDIA AT A GLANCE


Indicators March March March March March March
2007 2008 2009 2010 2011 2012
Number of Commercial Banks 182 173 170 167 167 173
(a) Scheduled Commercial Banks 178 169 166 163 163 169
of which : Regional Rural Banks 96 90 86 82 82 82
(b) Non-Scheduled Commercial Banks 4 4 4 4 4 4
Number of Bank Offices in India 74653 78787 82897 88203 94019 101261
(a) Rural 30409 30927 31598 32529 33868 36130
(b) Semi-Urban 16770 18027 19337 21022 23299 25931
(c) Urban 14202 15566 16726 18288 19046 20321
(d) Metropolitan 13272 14267 15236 16364 17806 18879
Population per Office (in thousands) 15 15 15 14 13 13
Aggregate deposits of Scheduled
Commercial Banks in India (Rs. Billion) 26119·34 31969·40 38341·10 44928·26 52079·69 59090·82
(a) Demand deposits 4297·31 5243·10 5230·85 6456·10 6417·05 6253·30
(b) Time deposits 21822·03 26726·30 33110·25 38472·16 45662·64 52837·52
Bank credit of Scheduled 19311·90 23619·13 27755·49 32447·88 39420·83 46118·52
Commercial Banks in India (Rs. Billion)
SLR investments of Scheduled 7915·16 9717·14 11664·10 13847·53 15016·19 17377·87
Commercial Banks in India (Rs. Billion)
Deposits of Scheduled Commercial 368 434 498 548 609 643
Banks per office (Rs. Million)
Credit of Scheduled Commercial 276 322 362 398 458 502
Banks per office (Rs. Million)
Per capita Deposit of Scheduled 23382 28610 33919 39107 45505 51106
Commercial Banks (Rs.)
Per capita Credit of Scheduled 17541 21218 24617 28431 34187 39909
Commercial Banks (Rs.)
Deposits of Scheduled Commercial 66·6 70·1 72·7 74·2 73·6 72·5
Banks as percentage to Gross National
Product at factor cost (at current prices)
Scheduled Commercial Banks' 6553·17 7814·76 9089·29 10915·10 13158·59 14713·3
Advances to Priority Sectors (Rs. Billion)
Share of Priority Sector Advances in 33·1 31·6 30·3 31·2 30·6 29
Total Advances of Scheduled
Commercial Banks (per cent)
Credit-Deposit Ratio (per cent) 73·5 74·6 73·8 73·7 76·5 78·6
Investment-Deposit Ratio (per cent) 35·3 35·5 35·7 36·4 34·3 34·6
Cash-Deposit Ratio (per cent) 7·2 9·7 7·3 7·7 8·2 5·8
Notes : 1. Number of bank offices includes administrative offices.
2. Classification of bank offices according to population, for years upto March 2004 it is based on 1991
census. For March 2005 to March 2012, classification of bank offices are based on 2001 census.
3. Population per office, per capita deposits and per capita credit are based on the estimated population
figures as on March 1, supplied by the Office of the Registrar General, India.
4. Aggregate deposits, bank credit and SLR investments of Scheduled Commercial Banks in India are as per
"Form-A" return under Section 42(2) of the Reserve Bank of India Act, 1934 and relate to the last Friday
of the reference period.
5. Scheduled Commercial Banks' advances to priority sectors and the related ratios are exclusive of Regional
Rural Banks.
6. For working out cash-deposit ratio, cash is taken as the total of 'cash in hand' and 'balances with the Reserve
Bank of India.
7. Investments of Scheduled Commercial Banks in india include only investments in government securities
and other approved securities.
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44 | Basic Banking & Financial Issues

STATE-WISE DISTRIBUTION OF DEPOSITS AND CREDIT OF SCHED-


ULED COMMERCIAL BANKS IN INDIA (AS ON MARCH 31, 2012)
No. of Amount Per cent Amount Per cent
Region/ State/Union Reporting (In ` Share in (in ` Share in
Territory Officers Billion) Total Billion) Total
Deposits Credit
Northern Region 16926 12874·61 20·9 11601·19 24·1
Chandigarh 296 399·96 0·6 454·47 0·9
Delhi 2665 6863·38 11·1 6542·65 13·6
Haryana 2882 1467·03 2·4 1497·90 3·1
Himachal Pradesh 1137 384·32 0·6 142·83 0·3
Jammu & Kashmir 1077 495·77 0·8 169·85 0·4
Punjab 4132 1744·33 2·8 1423·52 3·0
Rajasthan 4737 1519·83 2·5 1369·96 2·8
North Eastern Region 2443 1087·70 1·8 368·01 0·8
Arunachal Pradesh 91 61·19 0·1 13·76 0·0
Assam 1574 674·55 1·1 251·71 0·5
Manipur 87 42·35 0·1 12·74 0·0
Meghalaya 231 112·34 0·2 28·40 0·1
Mizoram 104 34·28 0·1 13·06 0·0
Nagaland 99 58·39 0·1 15·63 0·0
Tripura 257 104·61 0·2 32·70 0·1
Eastern Region 15746 7399·13 12·0 3696·98 7·7
Andaman & Nicobar Islands 45 20·39 0·0 7·74 0·0
Bihar 4503 1413·08 2·3 411·51 0·9
Jharkhand 2118 889·21 1·4 298·99 0·6
Orissa 3196 1254·20 2·0 588·46 1·2
Sikkim 88 41·47 0·1 13·28 0·0
West Bengal 5796 3780·78 6·1 2376·99 4·9
Central Region 19092 7293·36 11·8 3450·85 7·2
Chhattisgarh 1522 689·17 1·1 368·60 0·8
Madhya Pradesh 4600 1689·53 2·7 965·72 2·0
Uttar Pradesh 11567 4347·32 7·0 1914·48 4·0
Uttarakhand 1403 567·35 0·9 202·06 0·4
Western Region 14886 19401·50 31·4 16127·83 33·4
Dadra & Nagar Haveli 40 15·91 0·0 5·48 0·0
Daman & Diu 32 20·80 0·0 3·58 0·0
Goa 482 366·72 0·6 106·03 0·2
Gujarat 5279 3061·13 5·0 2134·47 4·4
Maharashtra 9053 15936·94 25·8 13878·27 28·8
Southern Region 26966 13685·18 22·2 12970·42 26·9
Andhra Pradesh 7947 3468·00 5·6 3826·99 7·9
Karnataka 6810 4117·24 6·7 2912·36 6·0
Kerala 4783 2005·73 3·2 1515·26 3·1
Lakshadweep 12 5·66 0·0 0·55 0·0
Puducherry 161 76·72 0·1 54·96 0·1
Tamil Nadu 7253 4011·82 6·5 4660·31 9·7
All India 96059 61741·47 100·0 48215·27 100·0
Note : Population per office, per capita deposits and per capita credit figures are worked out on the basis of population
figures as on March 1, 2011 & 2012 supplied by the Office of the Registrar General, Government of India.
Source : Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2011 & 2012, RBI.
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Basic Banking & Financial Issues | 45

STATE-WISE DISTRIBUTION OF DEPOSITS AND CREDIT OF SCHED-


ULED COMMERCIAL BANKS IN INDIA 2012 (AS ON MARCH 31, 2012)
Region/State/Union Population Per capita Deposits Per Per Capita Credit Per
Territory Per Office Deposit Office (in ` Credit Office
(in `) million) (in `) ( ` million)
Northern Region 9567 79503 761 71639 685
Chandigarh 5095 265225 1351 301373 1535
Delhi 7123 361554 2575 344658 2455
Haryana 8971 56743 509 57937 520
Himachal Pradesh 6030 56056 338 20833 126
Jammu & Kashmir 11017 41784 460 14315 158
Punjab 6772 62340 422 50875 345
Rajasthan 14543 22061 321 19886 289
North Eastern Region 18124 24565 445 8311 151
Arunachal Pradesh 13791 48757 672 10964 151
Assam 19660 21798 429 8134 160
Manipur 28483 17090 487 5141 146
Meghalaya 11476 42376 486 10713 123
Mizoram 9769 33740 330 12854 126
Nagaland 22980 25666 590 6870 158
Tripura 14233 28598 407 8939 127
Eastern Region 16733 28083 470 14032 235
Andaman & Nicobar 11267 40217 453 15266 172
Bihar 21990 14271 314 4156 91
Jharkhand 15063 27871 420 9372 141
Orissa 12861 30512 392 14316 184
Sikkim 7034 66995 471 21454 151
West Bengal 15583 41860 652 26317 410
Central Region 16356 23356 382 11051 181
Chhattisgarh 16153 28032 453 14993 242
Madhya Pradesh 15944 23036 367 13167 210
Uttar Pradesh 17658 21284 376 9373 166
Uttarakhand 7187 56262 404 20038 144
Western Region 11854 109953 1303 91401 1083
Goa 3770 201827 761 58354 220
Gujarat 11328 51189 580 35693 404
Maharashtra 12613 139572 1760 121543 1533
Dadra & Nagar Haveli 9250 43000 398 14811 137
Daman & Diu 8781 74021 650 12740 112
Southern Region 9260 54805 507 51942 481
Andhra Pradesh 10758 40566 436 44765 482
Karnataka 8814 68591 605 48518 428
Kerala 7276 57633 419 43539 317
Lakshadweep 6417 73506 472 7143 46
Puducherry 9012 52874 477 37877 341
Tamil Nadu 9356 59117 553 68673 643
All India 12577 51106 643 39909 502

Note : Population per office, per capita deposits and per capita credit figures are worked out on the basis of
population figures as on March 1, 2011 & 2012 supplied by the Office of the Registrar General, Government
of India.
Source : Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2011 & 2012, RBI.
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46 | Basic Banking & Financial Issues

Top Ten Public Sector Bank's of India 2011-12


Capital Deposits Advances Return on Net Net
Bank Adequacy (Rs. Crore) (Rs. Crore) Assets WPA Profit
Ratio % (%) (%) Rs. Crore
Basel Basel
I II

1. State Bank of India 12·05 13·85 1043647 867579 3·85 1·82 11707
2. Punjab National Bank 11·58 12·63 379588 293775 1·06 1·52 4884
3. Bank of Baroda 12·95 14·67 384871 287377 1·33 0·54 4242
4. IDBI Bank — 14·58 210493 181158 0·82 1·61 2032
5. Syndicate Bank — 12·24 147707 110954 0·81 0·94 1313
6. Bank of India 11·57 11·95 318216 248833 0·72 1·47 2677
7. Canara Bank — 13·76 327054 232490 0·95 1·46 3283
8. Union Bank of India — 11·85 222869 181031 0·68 0·68 4305
9. Corporation Bank 12·06 13·12 136142 100469 — 1·06 1518
10. Bank of Maharashtra — 12·43 76528 56059 0·58 2·26 430

Top Ten Indian Bank 2012 (Turn over)


Established ATMs Emplo- Turn over
Remarks
yees Rs. Crore
Basically estd. at
1. State Bank of India (B.O. 16000) 1806 8500 147843 Imperial Bank of India
2. ICICI Bank (B.O. 1419) 4644 61595
3. Punjab National Bank (B.O. 5000) 1894 6050 31207
4. Bank of Baroda (B.O. 3958) 1908 2012 42175 25800
5. Canara Bank 1 July, 1906 3184 42272 25792 Basically estd. at
Canara Hindu
Permanent Fund
6. HDFC Bank (B.O. 1500) 1994 3000 24628 Changed name in 1910
7. Bank of India (B.O. 4038) 7 Sept., 1906 1680 18746 24500
8. IDBI Bank (B.O. 900) 1964 1500 15435 20838 Original estd.
Development Bank
9. AXIS Bank (B.O. 729) 1994 3171 19826 Originally estd. at
UTI Bank
10. Union Bank of India 11 Nov., 1919 3025 30838 18501 Inaugurated by
Mahatma Gandhi in
Mumbai
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Basic Banking & Financial Issues | 47

T rue or False
 A savings account can be opened and oper-  Only immovable properties can be mortgaged.
ated in joint names. TRUE
TRUE  A bank cannot give loan against its own fixed
 If a huge balance is maintained in a current ac- deposits.
count, interest can be paid in that account. FALSE
FALSE  The banker can sue the guarantor even if he
 A partnership firm can open a savings account has not exhausted all his recourse against the
with post offices. borrower.
FALSE TRUE
 A fixed deposit receipt cannot be transferred.  All regional rural banks are scheduled banks.
TRUE
TRUE
 The management of all public sector banks is
 If a fixed deposit is not claimed by the deposi-
vested with RBI.
tor after the due date, the bank can forfeit the
FALSE
amount.
 Nationalization of banks first took place in 1969.
FALSE
TRUE
 When the banker finds the account of the cus-
 In India foreign exchange regulations are ad-
tomer undesirable or unremunerative he can
ministered by the RBI.
close the account immediately and remit the
balance in the account by a cheque. TRUE
TRUE  The licence issued to a commercial bank can be
subsequently cancelled by RBI.
 The banker enjoys special status in as much as
TRUE
he need not repay his depositors unless a de-
mand is made on him. TRUE  SIDBI's headquarter is located at Lucknow.
 The drawer of a cheque is always a banker. TRUE
FALSE  SIDBI is also known as ‘Single Window Ser-
vice’.
 A traveller’s cheque is a cheque issued by a
traveler. TRUE
FALSE  IFCI is converted in company on July 1, 1993.
TRUE
 Safe deposit lockers can be rented by banks
only to single persons. FALSE  ICICI Ltd. is merged into ICICI Bank on May 3,
2002.
 The banker can advance as much money as he
accepts as deposits. TRUE
FALSE  The repo rate is 7·50 on March 19, 2013.
TRUE
 An overdraft means the amount drawn in ex-
cess over the sanctioned amount.  The present Bank Rate is 8·50%. TRUE
TRUE (As on March 19, 2013)
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48 | Basic Banking & Financial Issues

Multiple Choice Questions


I. BANKING : PRODUCTS, (d) Banks to maintain a capital adequacy ratio
SERVICES & PRACTICES of 10% by 2013
1. Which of the following terms appropriately Ans : (c)
explains the role of banks in an economy? 6. Basel Committee on Banking Supervision is as-
(a) Financial conglomerate sociated with which of the following?
(b) Holding companies (a) Banking Regulation Committee
(c) Financial intermediaries (b) Bretton Woods Institution
(d) Indigenous banking (c) Bank for International Supervision
Ans : (c) (d) Federal Reserve
2. In the financial sector there are many compa- Ans : (c)
nies who are providing banking like activities 7. What is known as the Open Market Operations
though they are not recognized as banks. How of RBI?
is this particular type of activity known as? (a) Buying and selling of stocks
(a) Informal banking (b) Auctioning of foreign exchange
(b) Indigenous banking (c) Trading in securities
(c) Shadow banking (d) Transactions in gold
(d) Development banking Ans : (c)
Ans : (c) 8. Fiat money is best described by which of the
3. What would a lender examine to judge whether following?
a business can be given a funding facility? (a) Money which is accepted internationally
(a) The financial statements (b) Money accepted temporarily in lieu of gold
(b) The credit history (c) Decreed as money by the government
(c) The business risk (d) Money which is issued by keeping gold
(d) All of the above and silver as deposit
Ans : (d) Ans : (c)
4. You might have heard of ‘a bank run’. What 9. When did the rupee become a freely convert-
does it mean?
ible currency in the current account of India?
(a) Identifies those banks which are perform-
(a) 1994 (b) 1999
ing very well
(c) 2000 (d) 2001
(b) Banks which are promoting marathon
Ans : (a)
sports events
10. ISO 4217 is the international standard describ-
(c) When people rush to withdraw funds from
their bank accounts ing 3 letter code for what?
(d) When banks do door to door publicity cam- (a) Bank code (b) Currency codes
paigns (c) Forex code (d) None of these
Ans : (c) Ans : (b)
5. Which of the following is a stipulation under 11. Cash balances held in the currency chests are
the Basel III norms? the property of which of the following?
(a) The total minimum capital adequacy ratio (a) Respective banks where the currency chest
to be 9% is located
(b) Banks to maintain an overall minimum capi- (b) Reserve Bank of India
tal adequacy ratio of 11·5% (c) The government
(c) Banks to reach the minimum capital ad- (d) The individual bank branch
equacy ratio of 11·5% by 31st March, 2018 Ans : (b)
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Basic Banking & Financial Issues | 49


12. Which of the following statements is true about (c) Senior citizens can open bank accounts
RBI’s recent branch licensing policy for banks? without the need to follow KYC norms
(a) Banks are permitted to open branches freely (d) Senior citizens are not permitted to use
in Tier 2 to Tier 6 centres mobile banking
(b) Banks can open branches in metropolitan Ans : (a)
centres without approval from RBI 18. A bank customer could not get his grievance
(c) Loss making semi urban branches to be resolved by his bank even after referring his
closed complaint to the designated official. Whom
(d) Merging adjacent branches in urban centres should he approach next?
Ans : (a) (a) consumer protection court
13. What was achieved by passing the Banking (b) RBI
Companies Act, 1969? (c) Banking ombudsman
(a) Starting of regional rural banks (d) Finance ministry
(b) Nationalization of 14 commercial banks Ans : (c)
(c) Introduction of Lead Bank scheme 19. The Banking Ombudsman scheme is applicable
(d) Introduced the concept of social control of to the working of which of the following?
banks (a) All scheduled commercial banks
Ans : (b) (b) All scheduled commercial banks excluding
14. What is the maximum denomination of currency regional rural banks
notes that can be printed in India? (c) All scheduled commercial banks excluding
(a) ` 10,000 (b) ` 5,000 private sector banks
(c) ` 1,000 (d) No limit (d) All public sector banks
Ans : (a) Ans : (a)
15. Which of the following schemes/facilities 20. What is common between Equity Linked
available in the financial markets is not meant Savings Schemes, National Savings Certificates
for investment purposes? and Public Provident Funds?
(a) National savings certificates (a) Financial schemes handled by post offices
(b) Infrastructure bonds (b) Investments in these schemes are permit-
(c) Mutual funds ted upto a specified limit
(d) Letter of credit (c) All are mutual fund schemes
Ans : (d) (d) These are tax saving schemes
16. Small savings scheme like national savings Ans : (d)
certificates, public provident fund, monthly 21. A savings account is considered to be an inop-
income schemes are popular among the sala- erative account if there is no operation in the
ried people. Which financial institutions man- account for a continuous period. What is this
age these schemes? time period?
(a) Public sector banks (a) 2 years (b) 1 year
(b) Commercial banks (c) 5 years (d) 3 years
(c) Post offices Ans : (a)
(d) Cooperative banks 22. Which of the following is a punishable offence
Ans : (c) for a bank account holder?
17. Which of the following do you think is the (a) For bouncing of cheques issued by him
accepted practice? (b) For providing wrong introduction for open-
(a) Banks offer higher interest rates to senior ing an account
citizens on their fixed deposits as compared (c) For losing his pass book
to others (d) For asking for stop payment of cheques
(b) Banks charge lesser interest from senior regularly
citizens on their personal loans Ans : (a)
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50 | Basic Banking & Financial Issues


23. In case a public provident fund account does 29. Which of the following organizations maintain
not have a nomination, what is the maximum the individual borrower’s credit history in
amount that the legal heirs may get without a India?
succession certificate? (a) RBI (b) CRISIL
(a) ` 50,000 (b) ` 75,000 (c) CIBIL (d) CARE
(c) ` 1,00,000 (d) ` 2,00,000 Ans : (c)
Ans : (c) 30. Banks permit grant of credit facilities against
24. A very popular savings scheme of the post book debts to companies. What are these book
office has been withdrawn as per the current debts?
provisions. Which is that scheme? (a) All debts due to the banks by a business
(a) National savings certificates enterprise
(b) Kisan vikas patra (b) All debts due by a business to suppliers/
(c) Recurring deposit scheme traders other than banks
(d) Monthly income scheme (c) Debts owing to a business arising out of
Ans : (b) the sale of goods and services to their cus-
25. The rate of interest banks charge to its custom- tomers on credit
ers on credit facilities is linked to which bench- (d) Amounts due on the purchase of books
mark rate? Ans : (c)
(a) Risk premium rate 31. Which of the following is not a document of
(b) Base rate lending title to goods as per law and practice?
(c) Benchmark prime lending rate (a) Bill of lading (b) Airway bill
(d) Reverse repo rate (c) Warehouse receipt (d) Bill of exchange
Ans : (d)
Ans : (b)
32. Public and private sector banks which have a
26. When a vehicle is financed by a bank what kind
shortfall in lending to the priority sector are
of charge does the bank have over the primary
required to contribute allocated amounts to a
security?
designated fund to meet their obligations.
(a) Pledge (b) Hypothecation
Which is this special account?
(c) Assignment (d) Lien
(a) Account with SIDBI
Ans : (b)
(b) The Rural Infrastructure Development Fund
27. SIDBI has a scheme for providing seed capital
with NABARD
to business enterprise. What is meant by seed (c) Fund with RBI
capital? (d) NABARD
(a) Equity required by a commercial organiza- Ans : (b)
tion 33. In case of foreign banks which do not meet the
(b) Initial funds required by an enterprise with target of 32% lending to the priority sector, the
high potential for growth shortfall has to be deposited with which au-
(c) The funds invested to run an organization thority?
(d) The money provided to start an agricultural (a) SIDBI
unit (b) RBI
Ans : (b) (c) NABARD
28. Where substantial funds are required to be mo- (d) Exempted from depositing the shortfall
bilized, crowd funding as a strategy is often Ans : (a)
adopted. In which of the following do you think 34. Which is the contract/agreement under which
crowd funding would be appropriate? an issuing bank at the request of the importer
(a) For political parties undertakes to make payment to the exporter
(b) For charity issues against certain specified documents?
(c) For rehabilitating weak banks (a) Bill of exchange (b) Bill of lading
(d) For pumping money in the stock exchange (c) Bill of entry (d) Letter of credit
Ans : (b) Ans : (d)
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Basic Banking & Financial Issues | 51


35. Banks have the benefit of using substantial 41. Which of the following denote demand depos-
amount of money when cheques are sent in its of a bank?
clearing as there is usually 2-3 days gap between (a) Deposits in savings accounts
debit of the account holder’s account and credit (b) Deposits in savings and current accounts
to the account of the payee/beneficiary of the (c) Balances in recurring deposit accounts
cheque. What is this money known as? (d) Balances in current and recurring deposit
(a) Float money accounts
(b) Suspense money Ans : (b)
(c) Unaccounted funds 42. Banks often look to have a sizable portion of
(d) All of the above CASA deposits in their total deposit portfolio.
Ans : (a) In what does it help?
36. Which of the following is true? (a) The cost of funds to the bank is low
(a) Asset classification is for judging the qual- (b) It fulfils the mandated requirement
ity of loan accounts (c) There is no need to renew the deposits
(b) Non performing assets include standard as- (d) Less of manpower is required to maintain
sets these deposits
(c) Provisioning is uniform for all loan accounts Ans : (a)
(d) All legal cases of banks are for loss assets 43. Non performing assets of public sector banks
Ans : (a) during the last quarter of FY 2012-13 have
37. In case of personal loans from banks the inter- shown an increase. What does it indicate?
est rate applicable is which of the following? (a) The assets of the banks are not performing
(a) The base rate of lending as per their expectations
(b) Lower than the base rate (b) The loans and advances of banks are not
(c) Higher than the base rate performing as per standard norms
(d) None of the above (c) More loans and advance accounts of banks
Ans : (c) are becoming irregular in payment
38. Which of the following ways of charging inter- (d) None of these
est on loans is most beneficial to the borrower? Ans : (c)
(a) Daily reducing balance 44. Compliance with Employees’ State Insurance
(b) The balance being reduced monthly Corporation rules is necessary for companies
(c) Quarterly reducing balance and firms. Why?
(d) Yearly reducing balance (a) It is a social security measure mandatory
Ans : (a) for employees whose salary does not exceed
39. What is the target for priority sector lending ` 15,000
that foreign banks having more than 20 branches (b) The employees are insured by their respec-
in India are required to fulfil? tive employers
(a) 32% (b) 40% (c) It is an employees’ association which pro-
(c) 36% (d) 38% tects its members compulsorily
Ans : (b) (d) The corporation helps the companies in
40. Why do banks prefer customers to use ATMs arranging for insurance policies
to withdraw cash rather than coming to Ans : (a)
branches for this purpose? 45. In the case of a contract of guarantee :
(a) Staff problems are reduced (a) The liability of the guarantor is secondary
(b) Customers demand currency according to only when the principal debtor does not pay
their choice from branches (b) The liability of the guarantor does not arise
(c) Cost of ATM operations to the bank is much as the principal debtor is solely responsible
less (c) The guarantor’s liability is co extensive with
(d) All of the above that of the principal debtor and is liable to
Ans : (c) pay whether or not the principal debtor pays
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52 | Basic Banking & Financial Issues


(d) The guarantor is liable to pay only half the 51. Many Indian corporates are expecting to launch
amount as he shares the liability with the their new banking company. How is this pos-
principal debtor. sible?
Ans : (c) (a) By tying up with foreign banks as joint ven-
46. Payment of a crossed cheque can be made— tures
(a) Only in cash (b) RBI has announced new norms for issuing
(b) Through clearing account of a bank licences for opening banks
(c) Both in cash and through clearing account (c) Applications have been sent to the Finance
of a bank ministry for approval
(d) Through none of the above (d) Weak banks may be taken over
Ans : (b)
Ans : (b)
52. Which is the last private sector bank to have
47. A demand draft issued by one bank branch on
been allowed to open in the country?
another branch is legally— (a) YES Bank (b) AXIS Bank
(a) Cheque (b) Promissory note (c) ING VYSYA Bank (d) IDBI Bank
(c) Delivery order (d) Supply bill Ans : (a)
Ans : (b) 53. Which of the following is a public sector bank?
48. Currently banks claim that they have achieved (a) HDFC bank (b) IDBI bank
100% CBS. What are they referring to? (c) HSBC (d) SIDBI
(a) It means all their branches are technology Ans : (b)
driven with core banking solutions 54. Banks earn income from fee based activities.
(b) It suggests complete banking services Which of the following qualify as fee based
(c) It is an indication of customized banking business?
services (a) Issue of demand drafts
(d) None of the above (b) Doing foreign exchange business
Ans : (a) (c) Providing demat accounts
49. An asset reconstruction company looks for (d) Selling insurance products
business from banks. What do you understand Ans : (d)
from this statement? 55. Banks are not comfortable in lending to the in-
(a) These companies assist banks in getting frastructure sector. What are the reasons for
potential clients for big ticket loans this?
(b) Banks identify potential borrowers for in- (a) Banks find it difficult to fund infrastructure
frastructure lending by these companies projects of 15 years and more
(c) Banks sell their bad debts to these compa- (b) Infrastructure projects require large scale
nies funding
(c) Infrastructure financing becomes a asset
(d) Asset reconstruction companies buy bad
liability problem for banks
debts at a discount from banks
(d) All of the above
Ans : (d)
Ans : (d)
50. Banks fix separate cash limit and overall spend- 56. Which of the following is an example of cash
ing limit for each credit card. What is the disad- less purchase?
vantage in withdrawing cash on credit cards? (a) Debit card (b) Credit card
(a) Cash withdrawn means the credit balance (c) POS payment (d) All of these
is reduced Ans : (d)
(b) An amount is charged by the bank as cash 57. Which of the following identifies itself as a for-
withdrawal fees eign exchange transaction?
(c) Cash withdrawal fees together with service (a) Payment through debit cards
tax is charged to the card holder (b) Purchase of foreign currency
(d) Less time is given for payment as compared (c) Negotiating inland bills of exchange
to other debits for purchases (d) All of the above
Ans : (c) Ans : (b)
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Basic Banking & Financial Issues | 53


58. Third party usage of ATMs has been restricted (a) Pledge (b) Hypothecation
to certain number of withdrawals/balance en- (c) Assignment (d) Lien
quiries per month. What does it mean? Ans : (b)
(a) Only card holders can use ATMs and not 65. Which of the following cards require the
their representatives monthly outstandings in the card account to
(b) Use of ATMs of all banks restricted to be paid in full within the due date of payment
specified number every month?
(c) Customer of one bank can use ATMs of (a) Add on card (b) Co branded card
other banks upto a specified number with- (c) Debit card (d) Charge card
out any charge Ans : (d)
(d) ATMs of other banks can be used within a 66. The Securitization and Reconstruction of
limit on payment of fees Financial Assets and Enforcement of Security
Ans : (c) Interests SARFAESI Act is meant to—
59. From the banking perspective the use of ATM (a) Make recovery of bad loans simpler
can be called— (b) Enable banks recover the loan amount due
(a) Personal banking without intervention of court
(b) Mobile banking (c) Make disbursement of loans simpler
(c) Internet banking (d) For faster sanction of loans and advances
(d) Branchless banking Ans : (b)
Ans : (d) 67. The Securitization and Reconstruction of
60. RuPay payment system is considered to be a Financial Assets and Enforcement of Security
cheaper alternative to which of the following Interests Act at present is not applicable to—
systems? (a) Public sector banks
(a) Visa (b) Master Card (b) Private banks
(c) American Express (d) All of them (c) Non banking financial companies
Ans : (d) (d) Financial institutes of the government
61. Which of the following is at times mentioned Ans : (c)
as a direct debit facility? 68. Non performing assets are cause for serious
(a) RTGS (b) IMPS concerns for banks. Why are these loans known
(c) ECS (d) EFT as non performing?
Ans : (c) (a) Recovery of bank’s funds are difficult
62. Which of the following is necessary to transfer (b) Interest on these accounts are not charged
funds through the RTGS facility? (c) Banks have to make provision for these
(a) Beneficiary’s bank account number loans in their balance sheet
(b) The IFSC number of the beneficiary’s bank (d) All of the above
branch Ans : (d)
(c) There is a minimum amount specified for 69. Home loans are secured by equitable mortgage
transfer of the property. How is equitable mortgage
(d) All of the above created?
Ans : (d) (a) The mortgage deed is registered with the
63. How can a Indian Financial Services Code num- Registrar of Assurances
ber be identified? (b) The mortgage deed is registered under the
(a) It is a 11 digit alpha numeric code Transfer of Property Act
(b) It is available on the cheque leaves of an (c) The mortgage deed is executed by the bor-
individual’s cheque book rower with two witnesses and the deed is
(c) It is provided by the bank if asked deposited with the bank
(d) All of the above (d) The borrower deposits the title deeds of
Ans : (d) the property with the bank with an inten-
64. When a consumer durable item is financed by a tion to create an equitable mortgage of the
bank what kind of charge does the bank have property
over the primary security? Ans : (d)
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54 | Basic Banking & Financial Issues


70. Which of the following is not a document of 76. Which of the following instruments cannot be
title to goods as per law and practice? presented for payment in a clearing house?
(a) Bill of lading (a) Demand draft
(b) Airway bill (b) Dividends
(c) Warehouse receipt (c) Fixed deposit receipt
(d) Letter of credit (d) All of the above
Ans : (d) Ans : (c)
71. A confirmed letter of credit is— 77. Which of the following schemes available in
(a) Confirmed to be authentic the financial markets is not meant for invest-
(b) Confirmed by a bank ( other than the issu- ment purposes?
ing bank) in the exporter’s country (a) National savings certificates
(c) Confirmed by the importer to be in order (b) Infrastructure bonds
(d) Confirmed by the exporter agreeing to the (c) Mutual funds
terms in the letter of credit (d) Letter of credit
Ans : (b) Ans : (d)
72. Factoring services is meant for exporters mainly. 78. Interest payable in savings account is—
How is it described? (a) regulated by central government
(a) It guarantees realization of dues from buyer (b) regulated by RBI
debtors (c) not regulated by RBI
(b) It is a form of venture capital financing (d) regulated by state governments
(c) Eases the factory recruitment process Ans : (c)
(d) Provides finance for working capital needs 79. Which of the following can be a nominee in
Ans : (a) respect of a deposit account?
73. A bank assumes different roles of creditor, debtor, (a) Son only
agent while dealing with customers. When does (b) Son and daughter only
the bank perform the role of lessor? (c) Spouse only
(a) In cash dealings (d) Any individual
(b) When accepting articles for safe custody Ans : (d)
(c) When renting out locker 80. Which of the following cannot open a bank
(d) When executing a mortgage deed account?
Ans : (c) (a) Person of unsound mind
74. Cost of funds is an important element in deter- (b) A minor
mining the base rate of lending by banks. (c) An illiterate person
Which explains aptly the cost of funds? (d) A blind individual
(a) Total interest paid on deposits Ans : (a)
(b) Interest paid on deposits and borrowings 81. Which of the following investments is the most
from RBI liquid?
(c) Interest paid on deposits plus interest paid (a) Bank fixed deposits due for maturity after
on borrowings divided by total deposits three months
and borrowings (b) Money in ELSS mutual funds which are one
(d) Interest paid on deposits divided by total year old
deposits (c) Gold bars and coins
Ans : (c) (d) Post office deposits payable on demand
75. What is the maximum period for which a fixed Ans : (d)
deposit can be accepted by a commercial bank? 82. Which of the following structures have the
(a) 10 years (b) 15 years consumer forum courts in India adopted?
(c) No limit (d) 8 years (a) Panchayats, state and national level
Ans : (a) (b) State and national level
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Basic Banking & Financial Issues | 55


(c) Only at the national level 90. Which of the following may be identified as the
(d) District, state and national levels place where bankers meet to settle their mutual
Ans : (d) claims and accounts?
83. Which of the following may be identified as the (a) Treasury (b) Clearing house
drawee bank in respect of a cheque? (c) Collection centre (d) BPO
(a) The payee’s bank Ans : (b)
(b) The bank which collects the cheque 91. Banks in India which were nationalized in 1969
(c) The bank on which the cheque is drawn had deposits not less than ` ……cr?
(d) The endorsee’s bank (a) 50 (b) 100
Ans : (c) (c) 200 (d) 250
84. Which of the following explains the phrase’ the Ans : (a)
total business of a commercial bank’? 92. Banks are providing the facility of clearing out-
(a) The total loans and advances of the bank station cheques within the same time period as
(b) The total figure of deposits and loans of for local cheques. What is this facility known
the bank as?
(c) The total of income and expenses figure (a) Electronic fund transfer
(d) Both (b) and (c) together (b) Speed clearing
Ans : (b) (c) High value clearing
85. A demand draft issued by one bank branch on (d) Electronic clearing service
another branch is legally— Ans : (b)
(a) Cheque (b) Promissory note 93. The interest rate payable on bank recurring
(c) Delivery order (d) Supply bill deposit schemes is linked to which of the fol-
Ans : (b) lowing?
86. Which is the accepted document for establish- (a) Savings account rates
ing proof of identity of an individual for open- (b) Term deposit rates
ing of bank accounts? (c) Bank rate
(a) PAN card (b) Electricity bill (d) None of the above
(c) Telephone bill (d) LIC policy Ans : (b)
Ans : (a) 94. How would you classify an account which re-
87. Bank accounts are required for doing most trans- quires the account holder to deposit monthly a
actions. Which of the following does not re- fixed or variable amount for a period of 24
quire the customer to have an account for get- months?
ting the facility? (a) Pension account
(a) Banker’s draft (b) Loan (b) Term deposit account
(c) Cheque book (d) Credit card (c) Variable recurring deposit account
Ans : (d) (d) Flexi account
88. A cheque payable to bearer can be negotiated Ans : (c)
by— 95. What is the term used for the facility enjoyed
(a) Delivery only by business for withdrawing funds up to an
(b) Endorsement only agreed limit from a bank account?
(c) Endorsement and delivery (a) Financial lease
(d) None of the above (b) Capital lease
Ans : (a) (c) Over draft facility
89. Which of the following banks does not provide (d) Hire purchase facility
for opening of a bank account in an individual’s Ans : (c)
name? 96. Current accounts cannot be freely opened by?
(a) Commercial banks (a) Government departments
(b) Cooperative banks (b) Firms and companies
(c) Scheduled banks (c) HUFs
(d) NABARD (d) All non resident Indians
Ans : (d) Ans : (d)
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56 | Basic Banking & Financial Issues


97. How much of the bank’s deposits are available (c) NABARD
to be given as loans? (d) State Cooperative bank
(a) The entire amount of deposits mobilized Ans : (a)
(b) Only 75 per cent is permitted 8. Which of the following institution is respon-
(c) As much as each bank decides sible for finalizing the interest rates and credit
(d) The amount available after providing for policy of the Euro zone?
cash reserve ratio and statutory liquidity ratio (a) Bundesbank
(b) European Central Bank
Ans : (d)
(c) Federal Reserve
II. RBI, BANKS & FINANCIAL (d) Bank of England
Ans : (b)
INSTITUTIONS 9. Special drawing right is an international prac-
1. Which authority/organization is the major tice of drawing funds from the organization by
shareholder in NABARD? its member countries. Which of the following
(a) RBI (b) Central Government control this special funding?
(c) SBI (d) None of these (a) International Monetary Fund
Ans : (b) (b) Asian Development Bank
2. NABARD was established by an act of Parlia- (c) Federal Reserve
ment. Which of the following is its year of es- (d) European Common Market
tablishment? Ans : (a)
(a) 1982 (b) 1979 10. Which foreign bank operating in India recently
(c) 1990 (d) 1969 celebrated 200 years of its existence?
Ans : (a) (a) Standard Chartered bank
(b) Citi bank
3. Which of the following institutions was the first
(c) HSBC
development financial institution in India?
(d) Royal Bank of Scotland
(a) IDBI (b) IFCI Ltd Ans : (b)
(c) IIBI (d) NABARD 11. Which authority/institution fully acquired
Ans : (b) Reserve Bank of India’s stake in State Bank of
4. Which development financial institution is India in 2007?
known to have integrated with a bank? (a) LIC
(a) IFCI Ltd (b) ICICI Ltd (b) Government of India
(c) NHB (d) IIFCL (c) NABARD
Ans : (b) (d) ICICI Bank
5. Which financial institution is helping commer- Ans : (b)
cial banks in lending to the infrastructure sec- 12. Out of the four entities mentioned below which
tor? is not a credit rating agency?
(a) IFCI Ltd (b) IDBI (a) CRISIL (b) ICRA
(c) IIFCL (d) IIBI (c) Experian (d) FITCH
Ans : (c) Ans : (c)
13. Which of the following is not an international
6. Which of the following is a development bank?
rating agency?
(a) HDFC bank
(a) Standard & Poors
(b) NHB
(b) Moodys
(c) Axis Bank (c) Fitch
(d) Development Credit Bank (d) Morgan Stanley
Ans : (b) Ans : (d)
7. Which of the following is not an apex institu- 14. When RBI sells securities its effect on the
tion? market is that—
(a) SBI (a) The liquidity in the banking system in-
(b) SIDBI creases
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Basic Banking & Financial Issues | 57


(b) The liquidity in the system remains (c) PMO
inaffected (d) Team of PM, Finance Minister and RBI Gov-
(c) The liquidity in the banking system dimin- ernor
ishes Ans : (a)
(d) None of the above 22. Which of the following is the government’s
Ans : (c) customer grievances website?
15. Which one of the following is not a tool of (a) Jago grahak jago (b) Grahak sewa
fiscal policy? (c) Paisa bolta hai (d) Grahak kalyan
(a) Public expenditure Ans : (b)
(b) Taxation 23. The bullion market trades in which commodi-
(c) Interest rate ties?
(d) Public borrowing (a) Precious metals (b) Iron ore, steel etc
Ans : (c) (c) Gold, silver (d) Copper, bronze
16. For the top posts of Chairman and Managing Ans : (c)
Director and Executive Directors of public sec- 24. Deposits of customers in banks are insured upto
tor banks which of the following is the appoint- ` 1 lakh. Which organization is responsible for
ing authority? payment of claims, if any?
(a) RBI (a) RBI (b) Government
(b) The central government
(c) DICGC (d) ECGC
(c) Respective bank’s board of directors
Ans : (c)
(d) Indian Banks’ Association
25. Forward Markets Commission is the indepen-
Ans : (b)
dent regulator of which of the following mar-
17. PMI is a measure of the growth of different sec-
kets?
tors of an economy. What is it?
(a) Mutual funds
(a) Prime measurement index
(b) Stock exchanges
(b) Purchasing Manager’s Index
(c) Commodity exchanges
(c) Prime Mean index
(d) Foreign exchange
(d) Purchase Mean index
Ans : (b) Ans : (c)
18. In terms of the Banking Amendment Bill passed 26. Inter bank mobile payments service has been
in December 2012 the cap on voting rights for launched by National Payments Corporation of
investors in government banks has been raised India to facilitate transfer of money using cell
from the current 1%. What is the new cap? phones. What is National Payments Corpora-
(a) 5% (b) 7% tion of India?
(c) 10% (d) 12% (a) It is an independent body set up by Indian
Ans : (c) Banks’ Association to monitor mobile pay-
19. Which of the following is not a financial regu- ments
lator? (b) It is an autonomous body under the Finance
(a) IRDA (b) PFRDA ministry
(c) SEBI (d) AMFI (c) It is an institution set up by RBI to handle
Ans : (d) the retail payments system
20. Which international organization helps in (d) It is an organization under the Telecom
prevention of money laundering? Regulatory Authority for mobile transac-
(a) World Bank (b) IMF tions
(c) FATF (d) All of these Ans : (c)
Ans : (c) 27. Which of the following is a fully owned sub-
21. Who is the appointing authority for the Bank- sidiary of RBI?
ing Ombudsman? (a) NABARD (b) NHB
(a) RBI (c) SIDBI (d) IDBI
(b) Finance Ministry Ans : (b)
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58 | Basic Banking & Financial Issues


28. Euro money is the official currency of— (d) Foreign Exchange Draft Associated In-
(a) NATO structions
(b) UN Ans : (c)
(c) European Union 35. Which of the following banks are permitted to
(d) Germany and England undertake business of the central and state gov-
Ans : (c) ernments in India?
29. Which of the following institutions introduced (a) Public sector banks only
the concept of reverse mortgage loans? (b) All commercial banks
(a) RBI (b) NHB (c) Only public and private sector banks
(c) SBI (d) None of these (d) Public, private sector and foreign banks
Ans : (b) Ans : (c)
30. Bank rate as fixed by RBI means— 36. Why are anti money laundering laws important
(a) Rate of interest charged by banks from bor- for the economy?
rowers (a) To control flow of illegal money to stop anti
(b) Rate of interest on bank deposits national and criminal activities
(c) Rate of interest charged by RBI on its long (b) To prohibit trade in unaccounted money
term loans to banks (c) To stop benami activity
(d) Rate of interest on inter bank loans (d) To check money lending activity
Ans : (c) Ans : (a)
31. How many countries constitute the Euro zone, 37. Where does RBI mint currency coins?
which share the same currency? (a) At Mumbai and Alipore (Kolkata)
(a) 17 (b) 21 (b) At Mumbai and Noida
(c) 24 (d) 11 (c) At Kolkata and Noida
Ans : (a) (d) At Mumbai, Alipore(Kolkata), Hyderabad
32. Which of the following institution is respon- and Noida
sible for finalizing the interest rates and credit
Ans : (d)
policy of the Euro zone?
38. Which of the following accounts for the maxi-
(a) Bundesbank
mum share in India’s foreign exchange reserves?
(b) European Central Bank
(a) Gold reserves
(c) Federal Reserve
(b) NRI deposits
(d) Bank of England
(c) Special depository receipts
Ans : (b)
(d) Foreign currency assets
33. What is the criteria for charging of service tax
Ans : (d)
on companies?
(a) All services not covered under the nega- 39. The government of India is empowered to bor-
tive list is liable for payment of service tax row funds from RBI. Through which of the fol-
(b) The Customs and Central Excise department lowing instruments does it borrow?
notifies the services which are liable for (a) Commercial papers
payment (b) Certificates of deposits
(c) The Income Tax department announces the (c) Treasury bills
services which are liable (d) Ways and Means advances
(d) The list of services liable is mentioned in Ans : (c)
the Annual Budget 40. RBI enables banks to tide over their funds prob-
Ans : (a) lems with the help of LAF facility. What is the
34. The full form of the organization known as full form of LAF?
FEDAI is— (a) Liquid Adjustment Facility
(a) Foreign Exchange Dealers Agency of India (b) Liabilities Adjustment Finance
(b) Full Exchange Deal and Industries (c) Liquid Assets and Finance
(c) Foreign Exchange Dealers’ Association of (d) Liquidity and Finance
India Ans : (a)
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Basic Banking & Financial Issues | 59


41. Basel Committee on Banking Supervision is also 48. Regional Rural banks are working in all the
commonly known as— states of India except—
(a) Banking Regulation Committee (a) Sikkim (b) J&K
(b) Bretton Woods Institution (c) Goa (d) Sikkim and Goa
(c) Bank for International Supervision Ans : (d)
(d) Federal Reserve 49. What method does RBI follow while issuing
Ans : (c) currency notes?
42. SWIFT is a network for banks to exchange in- (a) Maximum reserve system
formation. What is the expanded form? (b) Fixed fiduciary system
(a) Safe Window for International transactions (c) Minimum reserve system
(b) Secured Worldwide International Transac- (d) Proportionate reserve system
tions Ans : (c)
(c) Society for Worldwide Interbank Financial 50. The cash balances held in the currency chests
Telecommunications are the property of……?
(d) None of the above (a) Respective banks where the currency chest
Ans : (c) is located
43. Which of the following units is known as ‘Pa- (b) Reserve Bank of India
per Gold’? (c) The government
(a) Euro dollars (d) The individual bank branch
(b) Special drawing rights Ans : (b)
(c) Global depository receipts 51. Which bank was established to promote invest-
(d) Petro dollars ments in the real estate market?
Ans : (b) (a) SIDBI (b) NHB
44. National income in India is estimated by which (c) NABARD (d) IFCI
authority? Ans : (b)
(a) NCAER 52. Which of the following interest rates signify
(b) Ministry of Statistics RBI’s long term stance of monetary policy?
(c) Planning Commission (a) Repo rate
(d) Central Statistical Office (b) Bank rate
Ans : (d) (c) Cash reserve ratio
45. The foreign exchange rate is dependent on (d) Statutory liquidity ratio
which of the following? Ans : (b)
(a) Government policies 53. Swabhiman scheme of the central government
(b) Monetary policy directives is meant to promote which of the following?
(c) Demand and supply forces (a) Rural food security
(d) Foreign exchange reserves (b) Pension scheme
Ans : (c) (c) Rural banking
46. The European Union is passing through a (d) All of the above
serious financial crisis. When did it come into Ans : (c)
existence? 54. Which of the following statements is true about
(a) 1993 (b) 1997 RBI’s recent branch licensing policy for banks?
(c) 2001 (d) 2002 (a) Banks are permitted to open branches freely
Ans : (a) in Tier 2 to Tier 6 centres
47. A bank which acts as a banker to other banks is (b) Banks can open branches in metropolitan
called? centres without approval from RBI
(a) Commercial bank (b) Development bank (c) Loss making semi urban branches to be closed
(c) Central bank (d) Investment bank (d) Merging adjacent branches in urban centres
Ans : (c) Ans : (a)
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60 | Basic Banking & Financial Issues


55. A new mechanism to check tax evasion by iden- 62. What is the name for the stock market regulator
tifying deals or arrangements which are made in the UK?
specifically to avoid the tax stipulations is likely (a) Financial Services Authority FSA
to be introduced by the government shortly. (b) Securities and Exchange Commission
Which regulations are being referred to? (c) Federal Reserve
(a) Direct Taxes Code (d) Bank of England
(b) GAAR Ans : (a)
(c) General anti avoidance restrictions 63. What is the maximum denomination for which
(d) FEMA coins can be produced in India?
Ans : (b) (a) ` 1,000 (b) ` 10
56. Where was Reserve Bank of India’s first central (c) ` 100 (d) ` 50
office located? Ans : (a)
(a) Calcutta now Kolkata 64. Which is the minimum denomination of coin
(b) Bombay now Mumbai that is accepted as legal tender in India?
(c) New Delhi (a) 50 paise coin (b) 25 paise
(d) Hyderabad (c) One rupee coin (d) All of these
Ans : (a) Ans : (a)
57. What was achieved by passing the Banking 65. Which body/authority is vested with the power
Companies Act 1969? to mint coins in India?
(a) Starting of regional rural banks (a) The government of India
(b) Nationalization of 14 commercial banks (b) RBI
(c) Introduction of Lead Bank scheme (c) SBI
(d) Introduced the concept of social control of (d) State governments
banks Ans : (a)
Ans : (b) 66. Who is responsible for the production of cur-
58. For collecting rural data for the newly launched rency notes in India?
Consumer Price Index who will be used by the (a Reserve Bank of India
Government of India? (b) The central government
(a) The local SBI branch (c) The President of India
(b) The patwari (d) The Chief Justice of India
(c) The local postman Ans : (a)
(d) All of the above 67. What is meant by the net worth of a company?
Ans : (c) (a) It is the financial statement of the net asset
59. What was World Bank previously known as? position of an enterprise
(a) International Bank for Reconstruction and (b) It is an indication of the strength to do busi-
Development IBRD ness
(b) International Development Agency IDA (c) It is the aggregation of the strength of the
(c) International Finance Corporation IFC directors of a company
(d) International Monetary Fund IMF (d) It reflects the total tax paid to the govern-
Ans : (a) ment during each financial year
60. Which is the first country to launch plastic cur- Ans : (a)
rency notes? 68. Four credit information companies have been
(a) Australia (b) USA permitted by RBI to start operating in the coun-
(c) Germany (d) France try. What is the scope of these companies?
Ans : (a) (a) They maintain a data base of individuals/
61. When was the World Bank established? companies with their credit history
(a) 1947 (b) 1943 (b) They decide in association with banks
(c) 1949 (d) 1944 whether to sanction loan to an individual
Ans : (d) or not
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Basic Banking & Financial Issues | 61


(c) Corporate loans are sanctioned only after (c) It is a document of title to goods
clearance from these companies (d) It is a negotiable instrument
(d) All of the above Ans : (c)
Ans : (a) 74. Which of the following is true about coopera-
69. When economists speak of angel investors, tive banks?
seed funds, venture capitals what do they in- (a) They are established under the coopera-
tend to convey? tive societies act
(a) Suggests people wishing to invest in finan- (b) They have profit as their main motive
cial companies (c) All are scheduled banks
(b) Means type of investors willing to promote (d) All of the above
a new business idea/venture Ans : (a)
(c) Indicates foreign investors with substan- 75. Negotiable Instruments Act 1881 is an impor-
tial financial strength tant law which relates to—
(d) Means high net worth individuals looking (a) Banking (b) Stock markets
for suitable investments (c) Mutual Funds (d) Insurance
Ans : (b) Ans : (a)
76. Which of the following is not a banking term?
70. What does ‘write off’ mean in the context of
(a) Letter of credit
banking business?
(b) MIBOR
(a) Loans sanctioned but not disbursed to the
(c) Factoring services
customer
(d) Entry load
(b) Syndicated lending with other banks for
Ans : (d)
large advances
77. Which is the largest associate bank of State
(c) Those loans which cannot become bad be-
Bank of India?
cause of government guarantee (a) State Bank of Patiala
(d) Bad and unpaid loans which have no pos- (b) State Bank of Hyderabad
sibility of recovery (c) State Bank of Bikaner & Jaipur
Ans : (d) (d) State Bank of Saurashtra
71. Which of the following organization maintains Ans : (b)
the individual borrower’s credit history in In- 78. Which was the first associate bank of State
dia? Bank of India to merge with it in 2008?
(a) RBI (b) CRISIL (a) State Bank of Saurashtra
(c) Experian (d) ICRA (b) State Bank of Indore
Ans : (c) (c) State Bank of Mysore
72. Banks in India do not give loans against the (d) State Bank of Travancore
security of the bank’s own shares because— Ans : (a)
(a) It is prohibited by RBI 79. Which of the following is an old private sector
(b) It is not permitted by the Banking Regula- bank in India?
tion Act (a) Kotak bank (b) Indus Ind bank
(c) It is against the provisions of the Compa- (c) Federal bank (d) UCO bank
nies Act Ans : (c)
(d) It is considered risky 80. Which Act is fully applicable to the commercial
Ans : (b) banks?
73. A warehouse receipt which is acceptable as se- (a) Companies Act 1956
curity for loans is best described by which of (b) Partnership Act
the following? (c) Banking Regulation Act
(a) It is a trustee security (d) Sale of Goods Act
(b) It is a contract of lease Ans : (c)
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62 | Basic Banking & Financial Issues


81. Which bank was the first to be set up in India 88. Which of the following institutions is respon-
after the economic reforms process of the sible for controlling credit creation by banks in
1990s? India?
(a) Times Bank (b) UTI bank (a) RBI (b) SEBI
(c) Global trust bank (d) ICICI bank (c) IFCI (d) SIDBI
Ans : (c) Ans : (a)
82. Which of the following banks in India is the
first to start banking services through the III. GOVERNMENT FINANCES &
social media ‘Facebook’? ACCOUNTS
(a) Citi bank (b) ICICI bank 1. Which of the following statements best explain
(c) SBI (d) HDFC bank Rajiv Gandhi Equity Savings Scheme?
Ans : (b) (a) It is for investors whose taxable income is
83. What was the criteria for the second round of
not more than ` 5 lacs annually
nationalization of six banks in India in 1980?
(b) 75% of the invested amount is eligible for
(a) Private banks with business over ` 100
tax exemption
crores were identified
(c) The tax benefit is for the year of investment
(b) Private banks who had deposits of ` 200
crores and above were nationalized (d) Individuals with an income of up to ` 12
(c) Private banks who were being run by des- lacs can invest in this scheme
ignated business houses Ans : (d)
(d) Those banks which were identified by RBI 2. What monetary relief has been given to tax pay-
as guilty of favouring certain industrial ers in the income bracket of ` 2 lakhs to ` 5
houses lakhs in the budget for 2013-14?
Ans : (b) (a) ` 2,000 (b) ` 5,000
84. Name the oldest public sector bank in India— (c) ` 3,000 (d) None
(a) Punjab National Bank Ans : (a)
(b) Central Bank of India 3. What is the initial capital proposed for the first
(c) Bank of Baroda women’s bank in the current year’s budget?
(d) Allahabad Bank (a) ` 300 cr (b) ` 500 cr
Ans : (d) (c) ` 1,000 cr (d) ` 1,550 cr
85. When was the Banking Regulation Act enacted Ans : (c)
in India? 4. It is felt that the budget has been harsh for
(a) 1934 (b) 1947 individuals considered wealthy. What is the
(c) 1949 (d) 1950 proposed action?
Ans : (c) (a) The income tax rate has been increased from
86. It is considered to be the second largest bank 30 to 40% for income incomes above ` 1 cr
in India with close to 3000 branches and over (b) Tax exemptions disallowed to individuals
10,000 ATMs. Which is this bank? with income above ` 1 cr
(a) SBI (c) Surcharge of 10% on persons with taxable
(b) ICICI bank
income exceeding ` 1 cr
(c) PNB
(d) Surcharge of 5% proposed on incomes
(d) Central Bank of India
above ` 50 lakhs
Ans : (b)
87. The least liquid asset in a balance sheet would Ans : (c)
be— 5. Investment allowance provisions in the budget
(a) Stocks and inventories for 2013-14 mean which of the following?
(b) Short term investments (a) It is an allowance to companies for making
(c) Trade debtors one time investments in real estate
(d) Cash and bank balances (b) It is tax exemption to companies for high
Ans : (a) value investment in plant and machinery
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Basic Banking & Financial Issues | 63


(c) This tax benefit is for holding companies of (b) NABARD
banks (c) SIDBI
(d) It is a tax break for small and medium enter- (d) RBI
prises Ans : (a)
Ans : (b) 12. RBI has set a maximum limit on rate of interest
6. Why has the government introduced inflation to be charged by micro finance institutions.
indexed bonds in the budget for 2013-14? What is this limit?
(a) These bonds might help increase financial (a) 26% (b) 30%
savings (c) 32% (d) No limit
(b) To provide investment opportunities to Ans : (a)
fight inflation 13. The Foreign Investment Promotion Board FIPB
(c) These bonds are likely to give better returns cleared the investment proposal of which Ma-
than debt instruments laysian airline to launch services in India as a
(d) All of the above joint venture?
Ans : (d) (a) Jetstar (b) Air Asia
7. Which of the following organs is the highest (c) Air Indigo (d) Indigo Asia
authority to approve the country’s Five Year plans? Ans : (b)
(a) Lok Sabha 14. Important trains in India would have Anubhuti
(b) Rajya Sabha coaches as per announcement in the Railway
(c) Finance Ministry Budget for 2013-14. What is the significance of
(d) National Development Council these coaches?
Ans : (d) (a) Special AC luxury coaches
8. What is the purpose of the ` 1,000 cr Nirbhaya (b) They will cater to Tatkal booking only
Fund in this year’s budget? (c) Will be unreserved compartments
(a) For education of the girl child (d) Reserved for the Armed forces only
(b) For women’s empowerment and safety
Ans : (a)
(c) For setting up fast track courts
15. How is the annual budget defined as in the In-
(d) For all of the above
dian constitution?
Ans : (b)
(a) Profit and loss statement
9. RBI Governor has proposed the PPI, an index
(b) Annual financial statement
which would measure the average change over
(c) Statement of revenue and expenditure
time in the sale price of domestic goods and
(d) None of the above
services. What is the full form of PPI?
Ans : (b)
(a) Purchasing Price Index
(b) Producer Price Index 16. Which finance minister presented the first
(c) Producer Payment Index Union budget for India in 1947?
(d) Purchaser Payment Index (a) CD Deshmukh
Ans : (b) (b) Jawaharlal Nehru
10. The government has proposed amendments to (c) PC Mahalanobis
the Regional Rural Banks Act, 1976 to enhance (d) RK Shanmukham Chetty
authorized and issued capital to strengthen their Ans : (d)
capital base. What is the current authorized capi- 17. What is the term used to explain the gap be-
tal of the regional rural banks? tween total expenditure and total receipts in-
(a) ` 1 cr (b) ` 2 cr cluding both the capital and revenue expendi-
(c) ` 3 cr (d) ` 5 cr ture and receipts?
Ans : (d) (a) Revenue deficit
11. Which of the following would fulfill the short (b) Fiscal deficit
term finance requirements of small scale indus- (c) Budget deficit
tries? (d) Primary deficit
(a) Loans by banks Ans : (c)
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64 | Basic Banking & Financial Issues


18. Which of the following is true about the In- (d) When monthly inflation exceeds 50% or
come Tax rules for filing of income tax returns three year cumulative inflation exceeds 100%
by income tax assesses? Ans : (d)
(a) Salaried people need not file income tax 23. Which of the following statements suitably de-
returns if their total income is less than ` 5 scribes the reverse repo rate?
lacs (a) Benchmark for long term rates
(b) Salaried individuals are required to file in- (b) It represents funding cost for banks
come tax returns irrespective of the amount (c) It is lower than the repo rate
of total income (d) It is a market determined rate
(c) Salaried individuals are exempt from filing Ans : (c)
income tax returns if their total income in- 24. How would you classify the services provided
cluding interest from savings account upto by a bank to issue IPOs or corporate bonds?
` 10,000 is less than ` 5 lacs (a) Retail banking
(d) None of the above (b) Corporate banking
Ans : (c) (c) Investment banking
19. Which of the following banks are permitted to (d) Net banking
undertake business of the central and state gov- Ans : (c)
ernments in India? 25. Income Tax department insists on payment of
(a) Public sector banks only advance tax from commercial organizations.
(b) All commercial banks Why is it necessary?
(c) Only public and private sector banks (a) Income tax is required to be paid propor-
(d) Public, private sector and foreign banks tionately during the year as per income gen-
Ans : (c) erated by organizations during the course
20. High fiscal deficit is cause for concern for any of the year
economy. What does it denote? (b) It becomes easier for organizations to pay
(a) It is a measure of the borrowings of an in instalments rather than the full amount
economy at the end of the year
(b) It is total expenditure less total receipts (c) The income tax department requires the tax
excluding borrowings money to run its department
(c) It reflects the decrease in tax collections for (d) The benefit of tax exemptions are available
the year Ans : (a)
(d) It means the lack of liquidity and earnings 26. The monetary policy prescribed by RBI is a
for the economy means to check money supply and credit avail-
Ans : (b) ability. Which of these is not a channel of mon-
21. Which of the following organizations plays a etary policy transmission ?
critical role in controlling inflation in the coun- (a) Cash reserve ratio
try? (b) Deposit interest rates
(a) Central bank of the country (c) Repo rate
(b) Stock markets of the country (d) Bank rate
(c) Planning Commission Ans : (b)
(d) Commercial banks 27. Why do micro finance institutions prefer lend-
Ans : (a) ing through self help groups?
22. When is a state of ‘hyperinflation’ said to ex- (a) These groups distribute the money among
ist? themselves making it easier for microfinance
(a) When inflation continues uncontrolled over institutions
a three year period (b) Self help groups are composed of individual
(b) When basic food items reach an inflation members who have similar background and
rate of 25% and more are therefore helpful in recovery of the loan
(c) When the government starts demonetizing amounts which help keep financial disci-
its currency pline for further loans to their members
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Basic Banking & Financial Issues | 65


(c) It reduces the cost of locating individual (b) Bimal Jalan
borrowers (c) Rakesh Mohan
(d) Bulk loaning is possible through self help (d) Kaushik Basu
groups Ans : (a)
Ans : (b) 5. Service tax is collected by which government
28. The profits from sale of a house property which department?
is earned by an owner is taxed by the govern- (a) Customs and central excise
ment. What is this form of tax known as? (b) Income tax
(a) Capital gains tax (c) Local corporation
(b) Income from property tax (d) RBI
(c) Wealth tax Ans : (a)
(d) Sales tax 6. Before presentation of the Annual budget by
Ans : (a) the union government an important document
29. The Income tax department has created a new is released on the subject. Which is this docu-
class of individuals termed as very senior ment?
citizens who have been extended certain addi- (a) Economic Survey
tional tax exemptions. Who are these very se- (b) Budget projections
nior citizens? (c) Industry analysis
(a) Those above 65 years of age (d) RBI annual report
(b) Describes persons above 75 years Ans : (a)
(c) Meant to indicate persons of 80 years and 7. A new chamber of commerce has been opened
above by an emerging influential business group in
(d) All of the above India. Can the group be identified?
Ans : (c) (a) Young women entrepreneurs
(b) Dalit business group
IV. CURRENT ECONOMIC (c) Gold merchants
(d) Retail investors in the stock markets
AFFAIRS-NATIONAL Ans : (b)
1. In terms of the new Companies Bill 2011 pre- 8. Who is the appointing authority for the Bank-
sented in Parliament in December 2012 what is ing Ombudsman?
the percentage that some companies have to (a) Reserve Bank of India
spend of their net profit on corporate social (b) Finance Minister
responsibility activities? (c) Prime Minister
(a) 1 % (b) 5% (d) Planning Commission
(c) 3 % (d) 2% Ans : (a)
Ans : (d) 9. What was the objective of starting cooperative
2. The cap on voting rights for investors in gov- banking in India?
ernment banks has been raised from the cur- (a) To act as competitors to commercial banks
rent ceiling. What is the new limit? (b) To be solely for the agriculture sector
(a) 5% (b) 7% (c) To start self help groups
(c) 10% (d) 12% (d) To replace moneylenders and indigenous
Ans : (c) bankers
3. In which city has been inaugurated India’s first Ans : (d)
All Women Employees post office? 10. Almost all banks in India are offering special
(a) Mumbai (b) New Delhi schemes for providing banking services to the
(c) Hyderabad (d) Rae Bareli rural poor. What is this concept known as?
Ans : (b) (a) Trade finance
4. The Chief Economic Adviser to the government (b) Investment banking
of India has recently changed. Who is the present (c) Priority sector loaning
incumbent? (d) Financial inclusion
(a) Raghuram Rajan Ans : (d)
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11. BCSBI is an important organ in the banking (b) RBI
sector in India. What is its full form? (c) SEBI
(a) Banking Concerns and State Bank of India (d) Registrar of Chit Funds
(b) Banking Commission for Savings Banks in Ans : (d)
India 18. What is the benefit under Section 80C of the
(c) Banking Codes and Standards Board of Income tax Act to the individual taxpayer?
India (a) The government permits savings under this
(d) Bank Council for Small Business Industries section
Ans : (c) (b) Investments upto ` 1 lakh is exempt from tax
12. IDRBT located at Hyderabad is an important (c) Investments in specified schemes are ex-
institution for the banking sector. What does it empt from tax upto ` 1 lakh
stand for? (d) Savings under these section have the ben-
(a) Institute for Development and Research in efit of compound interest
Banking Technology Ans : (c)
(b) Institute for Defence Research and Busi- 19. How can an Indian Financial Services Code
ness Techniques number be identified?
(c) Institute for Design of Rural Banking Tech- (a) It is a 11 digit alpha numeric code
nology (b) It is available on the cheque leaves of an
(d) Institute for Development of Rural Bank- individual’s cheque book
ing Technology (c) It is provided by the bank if asked
Ans : (a) (d) All of the above
13. With which of the following innovations can Ans : (d)
you associate IDRBT with? 20. RBI has asked banks to switch to CTS -10 facil-
(a) National Financial Switch ity from August 2013. What is CTS-10?
(b) POS terminals (a) Cheque truncation service
(c) Business correspondents (b) Cheque total service
(d) All of them (c) Cash tendering service
Ans : (a) (d) Cash technique system
14. The ratio of a bank’s cash holding to its total Ans : (a)
deposit liabilities is known as— 21. Presently which is the most commonly used
(a) Valuable reserve ratio network communication for ATMs in India?
(b) Cash reserve ratio (a) GPRS (b) CDMA
(c) Statutory liquidity ratio (c) VSAT (d) Dial in connection
(d) Minimum reserve ratio Ans : (c)
Ans : (b) 22. Biometric cards would help in providing bank-
15. Who has been appointed as the new deputy ing services to the rural people in India. What
governor of RBI in January 2013? is the speciality of these cards?
(a) Kaushik Basu (b) D Subba Rao (a) These are cards which can be used with
(c) Urjit Patel (d) Subir Gokarn finger prints and PIN
Ans : (c) (b) Instead of PIN number these are used by
16. The formation of the 14th Finance Commission verification of finger prints
in India has been finalized. Who has been ap- (c) These cards use biotechnology for their op-
pointed to head the commission? eration
(a) D Subba Rao (d) Biogas helps in using these cards by rural
(b) Y V Reddy people
(c) Montek Singh Ahluwalia Ans : (b)
(d) Raghuram Rajan 23. Which of the following is not a Chamber of
Ans : (b) commerce and industry?
17. Which body is known as the regulator of chit (a) FICCI (b) CII
funds in India? (c) CRISIL (d) PHDCCI
(a) Registrar of Companies Ans : (c)
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24. The government is being represented in differ- 4. Which of the following insurance company
ent legal cases by the attorney general or so- does not receive premium payments from the
licitor general. Who are these legal officials? public?
(a) They are officials of the ministry of law and (a) New India Assurance Company
justice (b) Deposit Insurance and Credit Guarantee
(b) They are the senior most legal officials of Corporation
the government (c) Bajaj Allianz
(c) They are authorized by the Supreme Court (d) HDFC Standard Life
to defend the government Ans : (b)
(d) They are the senior most advocates of the 5. SEBI through its latest directive has permitted
Bar Council insurance companies to participate in the stock
Ans : (b) markets. What has been proposed?
25. When investment and savings options are dis- (a) Insurance companies can now come out
cussed there is often reference to the real inter- with IPOs
est rate. What is meant by this real interest rate? (b) Retail investors can participate in IPOs of
(a) It is the actual rate that is received minus insurance companies without any cap
the charges and other costs which are at times (c) Insurance companies to let their employees
not clearly mentioned have larger share in the allotment process
(b) It is the compounded rate which is not indi- (d) Stocks of insurance companies to be listed
cated only on BSE
(c) It is the declared rate minus the inflation Ans : (a)
rate which is the real value of money 6. Which of the following sets are closely linked?
(d) The actual yield over a period of time cal- (a) Micro finance; self help groups
culated on simple interest basis
(b) Banks; NBFCs
Ans : (c)
(c) Mutual funds; insurance companies
V. INSURANCE, NON BANKING (d) Capital markets; assets under management
Ans : (a)
FINANCE COMPANIES
7. Contract of insurance is a contract of—
1. Till what amount are deposits of public in
(a) Indemnity (b) Guarantee
NBFCs insured?
(c) Agency (d) Bailment
(a) ` 1 lakh
Ans : (a)
(b) ` 50,000
8. Micro finance institutions in India have formed
(c) Not insured
an association to regulate and monitor their
(d) None of the above
Ans : (c) working. What is it known as?
2. In which of the following ways have organiza- (a) Micro finance institutions organization
tion of workers proved to be effective in pro- (b) Micro finance institutions network
viding micro finance by banks and financial (c) Association of micro finance institutions
institutions to the rural poor? (d) Confederation of micro finance institutions
(a) Shiksha sevaks Ans : (b)
(b) Self help groups 9. The measurement of poverty line in India is
(c) Link workers based on the criteria of—
(d) Chit fund members (a) Dwelling houses
Ans : (b) (b) Nature of employment
3. What is the current limit for Foreign Direct In- (c) Level of education
vestment in the insurance sector in India? (d) Calorie consumption
(a) 100% (b) 51% Ans : (d)
(c) 49% (d) 26% 10. As part of financial inclusion measures banks
Ans : (c) have been directed by RBI to open a certain
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68 | Basic Banking & Financial Issues


percentage of their new branches in unbanked 17. What does the term ‘bancassurance’ mean :
rural centres. What is this number? (a) Assurance from the bank to its account
(a) 30 per cent (b) 25 per cent holder regarding safety of his money
(c) 10 per cent (d) 15 per cent (b) A special product designed by the bank
Ans : (b) (c) Selling of insurance policies by banks
11. Which of the following is a non banking finan- (d) Understanding between banks and insur-
cial company? ance companies
(a) SBI Caps Ans : (c)
(b) ICICI Venture Fund 18. ‘Free look’ period allowed by life insurance com-
(c) Mannapuram Finance panies is a customer friendly initiative. What is
(d) ING Vysya the purpose of this facility?
Ans : (c) (a) The customer can reduce the amount of pre-
12. Which of the following is true? mium during this period
(a) NBFCs can accept deposits from the public (b) Grace period is given to pay the premium
(b) NBFCs cannot offer deposit schemes to the amount
public (c) The customer can decide whether to take
(c) Deposits of NBFCs are insured with DICGC the policy or reject it during this time
(d) NBFCs can accept deposits from public if (d) None of the above
they are registered and permitted by RBI Ans : (c)
Ans : (d) 19. Financial literacy is a serious issue for RBI.
13. Which of the following countries was the first Why?
to launch the concept of micro finance? (a) It would mean banks can do more business
(a) India (b) Nepal (b) So that RBI policies are understood by the
(c) Peru (d) Bangladesh maximum number of people
Ans : (d) (c) It would enable better understanding of
14. Just like banks have to maintain a stipulated banking business
capital adequacy ratio, similarly non banking (d) With better understanding more and more
finance companies NBFCs are also required to people would utilize the banking services
do so. What is the minimum stipulation for Ans : (d)
NBFCs? 20. Which body/official determines the risk cover-
(a) 15 per cent (b) 12 per cent age for calculation of premium for life insur-
(c) 10 per cent (d) 8 per cent ance policies?
Ans : (a) (a) Actuary of the life insurance company
15. The mortality tables used by life insurance com- (b) IRDA
panies are meant to serve which of the follow- (c) The chief executive of the life insurance
ing purposes? company
(a) The payment to agents are decided on these (d) The board of directors of the life insurance
tables company
(b) The premiums for each policy is fixed in Ans : (a)
accordance with these tables 21. NBFCs are important players in the financial
(c) The term for each policy is decided accord- sector. Which feature differentiates NBFCs from
ingly banks?
(d) All of the above (a) NBFCs are not part of payment and settle-
Ans : (b) ment systems
16. According to the norms prescribed by RBI for (b) NBFCs do not accept deposits
setting up of White Label ATMs, what is the (c) NBFCs do not have branches
minimum net worth the NBFCs should have? (d) None of the above
(a) ` 50 cr (b) ` 75 cr Ans : (a)
(c) ` 100 cr (d) ` 200 cr 22. Life insurance companies have been allowed
Ans : (c) to approach capital markets with their public
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Basic Banking & Financial Issues | 69


issues by IRDA. What is the eligibility norm for (c) It is a nodal agency for monitoring the SHGs
insurance companies to be permitted to adopt (d) It supervises the funds distributed under
this approach? NREGS
(a) Insurance companies require to be ten Ans : (c)
years old 28. Self help groups are an important borrower
(b) Insurance companies require to show prof- class of which of the following institutions?
its for the last three years (a) Banks
(c) Insurance companies doing business of (b) Micro finance institutions
more than ` 10,000 crores would be eligible (c) SIDBI
(d) All of the above (d) All of the above
Ans : (d)
Ans : (a)
29. An angel investor would be known as which of
23. Most life insurance policies need to be renewed
the following?
annually by payment of premium for the year.
(a) Pension fund investor
Term insurance policies however provide for (b) Bank depositor
one time payment. What is the difference with (c) Wealthy individual looking for investment
other plans? in fresh projects
(a) Term plans are generally long term plans (d) Investor in government projects
insuring the risk of death Ans : (c)
(b) Insured amount is paid only in the event of 30. Which of the following sources of finance
death of the insured would be the costliest for a new entrepreneur?
(c) No amount is paid on maturity if insured (a) Bank overdraft (b) Trade credit
survives (c) Government grant (d) Personal savings
(d) All of the above Ans : (a)
Ans : (d) 31. How is a payment gateway explained?
24. With which financial sector are these terms as- (a) It facilitates the payment transaction in e
sociated with : free look period; rider; third party commerce
administrator; surrender value— (b) It is an intermediary service which permits
(a) Insurance (b) Banking acceptance of electronic payments
(c) Capital markets (d) Mutual funds (c) It is the infrastructure for online trading
Ans : (a) (d) All of the above
25. A new project requires funds to purchase fixed Ans : (d)
assets for its business. What is this funding/ 32. What is the service called which transfers funds
expense known as? from one centre to another in time blocks on
(a) Working capital the same day?
(a) NEFT (b) EFT
(b) Revenue expenditure
(c) RTGS (d) ECS
(c) Start up loans
Ans : (a)
(d) Capital expenditure
33. Which of the following is necessary to transfer
Ans : (d) funds through the RTGS facility?
26. Which of the following is not a physical asset? (a) Beneficiary’s bank account number
(a) Gold jewellery (b) Real estate (b) The IFSC number of the beneficiary’s bank
(c) Commodities (d) Debentures branch
Ans : (d) (c) There is a minimum amount specified for
27. Society for Elimination of Rural Poverty SERP transfer
is an important body of the government in the (d) All of the above
field of microfinance. What does it do? Ans : (d)
(a) It distributes cash subsidies through co- 34. Which of the following is not a means of remit-
operative banks to the rural poor ting money?
(b) It identifies the rural poor for bank finance (a) Electronic clearing service
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70 | Basic Banking & Financial Issues


(b) Mail transfer (b) Banks in London themselves
(c) Telegraphic transfer (c) British Bankers’ Association
(d) RTGS (d) All of the above
Ans : (a) Ans : (c)
35. Which of the following financial product is 6. Which was the first bank in UK to collapse
available for investment online? during the 2007-08 financial crisis?
(a) Post office savings products
(a) Northern Rock
(b) Senior citizen savings scheme
(b) Morgan Stanley
(c) Life insurance policies
(d) Treasury bills (c) Chase Manhattan
Ans : (c) (d) Barings Bank
Ans : (a)
VI. CURRENT ECONOMIC AFFAIRS 7. Lehmann Brothers crisis is often discussed in
– INTERNATIONAL financial circles. What does it indicate?
1. Which country in the eurozone recently re- (a) An European financial company which went
ceived a financial bail out package of 10 billion bankrupt
euros from the IMF? (b) An US investment bank which collapsed
(a) Greece (b) Spain leading to international financial crisis
(c) Cyprus (d) Ireland (c) An US company which cheated its deposi-
Ans : (c) tors
2. Which is the latest country to become a mem- (d) None of the above
ber of the International Monetary Fund? Ans : (b)
(a) Zimbabwe (b) South Sudan 8. Factoring services is meant for exporters mainly.
(c) Latvia (d) Bolivia How is it described?
Ans : (b)
(a) It guarantees realization of dues from buyer
3. The global economy is seeing countries engag-
debtors
ing in currency wars. Which of the following
statements best describe what they are they (b) It is a form of venture capital financing
precisely doing? (c) Eases the factory recruitment process
(a) Countries are maneuvering exchange rates (d) Provides finance for working capital needs
to improve their trade Ans : (a)
(b) Balance of payments are disturbed by coun- 9. Shadow banking is increasingly becoming an
tries with strong currencies alternative in the financial sector. What is
(c) Contraband currency is being floated by shadow banking?
countries to weaken the other country (a) The role of unaccounted money in the
(d) Inferior goods are exported by countries economy
with strong currency to kill the domestic (b) Money laundering activities
markets of the weaker countries (c) The role of non banking financial compa-
Ans : (a) nies in banking like business
4. Which of the following institutions is respon-
(d) None of the above
sible for finalizing the interest rates and credit
Ans : (c)
policy of the Euro zone?
(a) Banque National de Paris 10. Tax havens like Cayman Islands, Mauritius,
(b) European Central Bank British Virgin Islands etc., are considered detri-
(c) IMF mental to security interests of other countries.
(d) Bank of England Why?
Ans : (b) (a) These places permit easy investment norms
5. LIBOR or London Inter Bank Offered Rate is with high growth potential
an interest rate for inter bank dealings. Which (b) These are generally zero tax jurisdictions
authority finalizes this rate daily? with flexible corporate and regulatory struc-
(a) Bank of England ture
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Basic Banking & Financial Issues | 71


(c) There is freedom for companies to manage 5. Insider trading is considered an offence in the
their business in any way stock market. What activity does it relate to?
(d) There is no control over flow of money into (a) Officials manipulate the market because of
these places their status in the company
Ans : (b) (b) Officials who have knowledge of confiden-
11. What is the official currency of China? tial information about the company which
(a) Peso (b) Dinar they use to their unfair benefit
(c) Baht (d) Renminbi (c) When companies manipulate the price of
Ans : (d) their stocks
12. India was recently given membership of FATF. (d) When bulk lot of shares are dumped in the
What is it? market
(a) It is an inter governmental body to tackle Ans : (b)
money laundering and terrorist financing 6. The main objective of providing depreciation
(b) It is an international organization to tackle on assets is to—
financial issues in the developing countries (a) Calculate the true net profit
(c) It is a forum for Southeast Asian countries (b) Compute the actual cash profit
to fight terror funding (c) Create funds for replacement of the assets
(d) The task force is meant to rescue and bail (d) Reduce tax burden
out weak economies from financial crisis Ans : (c)
Ans : (a) 7. Identify the new rating index developed by the
government—
VII. CAPITAL MARKETS & (a) Nifty (b) MCX
INVESTMENTS (c) CRIS (d) ETF
1. When shares are sold for more than the amount Ans : (c)
paid for it, what is the gain known as? 8. Investment in which of the following instru-
(a) Profit ments enables the holder to become a member
(b) Capital gains of the company and have voting rights?
(c) Beneficial sale (a) Debentures (b) Commercial papers
(d) Capital allowance (c) Equity (d) Treasury bills
Ans : (b) Ans : (c)
2. Which of the following sets is correctly 9. Progressive companies are working towards
matched? gaining carbon credits while their performances
(a) FTSE …New York are being evaluated. What are these carbon
(b) HangSeng….Korea credits?
(c) Nikkei…..Japan (a) Carbon credits are earned if a company can
(d) S&P…..London reduce green house gas emissions as part
Ans : (c) of its functions
3. For what kind of transactions are demat ac- (b) Credits are received if emission of carbon
counts necessary? dioxide is curbed at a production plant
(a) For having mobile banking facilities (c) Carbon credits are gained by contributing
(b) For taking retail loans from banks to ecological balance
(c) For trading in shares of companies (d) Credits are received if carbon effluents are
(d) For non resident accounts not discharged into the rivers/seas
Ans : (c) Ans : (a)
4. Which of the following is not the name of the 10. SX 40 is the new stock index of which of the
sensitive index of any stock exchange? following stock exchanges?
(a) Nikkei (b) Dow (a) NSE (b) NYSE
(c) Matrix (d) Kospi (c) MCX SX (d) BSE
Ans : (c) Ans : (c)
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72 | Basic Banking & Financial Issues


11. Which of the following is not necessarily 16. Gold exchange traded funds are considered
involved in an IPO process? to be investor friendly and is thus being ac-
(a) Underwriter tively promoted. In what way does the investor
(b) Registrar of Companies benefit?
(c) Investment bank (a) Traded daily on the stock markets
(d) Registrar of Issues (b) Is safe and convenient to maintain
Ans : (b) (c) There is no doubt about purity
12. If the company is reporting loss for a financial (d) All of the above
year at what rate should it declare dividends Ans : (d)
for that year? 17. Companies raising money through non con-
vertible debentures has reduced appreciably.
(a) 5% (b) 7%
What is this mode of mobilizing funds?
(c) 0% (d) 10%
(a) Through banks against companies’ assets
Ans : (c)
mortgaged
13. What is meant by an Initial Public Offering IPO? (b) Medium term debt for companies issuing
(a) When a company is first offered for sale in debentures
the market (c) Medium to long term debt instrument with-
(b) When a company invites the general pub- out facility of exchange with stocks
lic to buy its shares (d) Short term equity holding in the company
(c) When the shares of a company are first Ans : (c)
issued to the general public 18. Which of the following terms is not the termi-
(d) When any new product of a listed com- nology of the stock markets?
pany is first put up for sale (a) Stock lot (b) Front running
Ans : (c) (c) Arbitrage (d) Base rate
14. Filing of red herring prospectus is an important Ans : (d)
part while approaching the market for issue of 19. The government’s stake in public sector banks
stocks to the public. What does it signify? has been reduced from its earlier holding of 100
(a) The detailed terms and conditions are men- per cent. How was this possible?
tioned for approval before finalization of (a) Through World bank aid
issue (b) Through its public issue
(b) It is a document which gives details of the (c) Twenty per cent shares bought by SBI
lead manager and bankers to the issue (d) RBI has been given ten per cent of govern-
(c) The approval of the Registrar of Compa- ment shares
nies is required to be obtained before launch Ans : (b)
20. Identify the index which captures changes in
of the issue
the prices of residential buildings at the national
(d) The management profile and the previous
level?
three years’ balance sheet of the company
(a) Propdex (b) Residex
is presented in a customary red file
(c) SX 40 (d) Nifty
Ans : (a) Ans : (b)
15. Where substantial funds are required to be mo- 21. SEBI allows retail investors to apply for shares
bilized crowd funding as a strategy is often of Initial Public Offerings without actual trans-
adopted. In which of the following do you think fer of their funds from their accounts. What is
crowd funding would be appropriate? this facility known as?
(a) For political parties (a) Systematic transfer plans
(b) For charity issues (b) Systematic investment plans
(c) For rehabilitating weak banks (c) Hedge fund accounts
(d) For pumping money in the stock exchange (d) ASBA
Ans : (b) Ans : (d)
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Basic Banking & Financial Issues | 73


22. Employees are required to compulsorily deposit 28. National Savings Certificate NSC scheme of
funds in their provident fund account from their post offices has undergone a change recently.
monthly salary. There is another provident fund What is this change?
account which post offices/banks are autho- (a) There is bonus payment of 5 per cent on
rized to open for the general public. How is this maturity
account described? (b) Two maturity periods of 5 and 10 years in-
(a) Pension fund account troduced
(b) Tax savings account (c) The investment amount is taxable
(c) Public provident fund account (d) The interest on maturity is non taxable
(d) Monthly income scheme account Ans : (b)
Ans : (c) 29. Penny stocks at times give huge returns to the
23. Non banking finance companies are required investors who have holdings of such shares.
to maintain a stipulated capital adequacy ratio. How is it described?
What is this stipulated ratio? (a) Stocks of companies which are in seasonal
(a) 15 per cent (b) 20 per cent business
(c) 5 per cent (d) 8 per cent (b) Shares which are the subject of specula-
Ans : (a) tion
24. National Payments Corporation of India is an (c) Shares of companies which are specially
umbrella institution set up by RBI. What is its reviewed by the media
scope and purpose? (d) Stocks which are of small insignificant com-
(a) To settle payments between the states and panies trading well below their face value
the central government Ans : (d)
(b) To handle inter bank accounts held with 30. Which of the following is performing the role
RBI of an underwriter?
(c) To manage all the retail payment systems (a) A firm which guarantees the minimum esti-
in the country mated proceeds from sale of securities
(d) To settle the transactions connected with (b) An entity which manages the documenta-
ATMs of all banks tion for sale of shares
Ans : (c) (c) The firm which does all correspondence
25. The concept of ultra small bank branch has been with the Registrar of Companies for an IPO
introduced. How would it be described? (d) The firm which maintains the records of the
(a) Branch with two staff members shares allotted to each investor after an IPO
(b) A small place with one bank staff Ans : (a)
(c) An ATM with cash payment and cash de- 31. Which of the following statements would ap-
posit propriately define the term ‘short selling’?
(d) Branch controlled by gram panchayat (a) When the required number of shares are
Ans : (b) not given by the seller to the buyer
26. Non resident Indians can open fixed deposit (b) When the amount due for payment to the
accounts with banks in India. What are these seller remains partly paid by the buyer in a
fixed deposit accounts known as? stock deal
(a) FCNR (b) NRE (c) When the seller of the stocks can sell with-
(c) NRO (d) Flexi account out actually owning it; he borrows the
Ans : (a) stocks and gives it for delivery
27. What is the validity period of a cheque from its (d) None of the above
date of issue? Ans : (c)
(a) 3 months (b) 6 months 32. Growth fund schemes of mutual funds invest
(c) 1 month (d) 4 months in which of the following?
Ans : (a) (a) Treasury bills and commercial papers
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74 | Basic Banking & Financial Issues


(b) Equity schemes 38. As part of financial literacy it is suggested that
(c) Debt schemes investing in the stock market with a long term
(d) Bank deposits perspective is being wise. Why is it so?
Ans : (b) (a) Investing over a longer period is safer be-
33. SEBI has recently launched a portal to enable cause the market is volatile over the short
investors to post their complaints and for its term
(b) There is no tax deduction on the amount
follow up. What is the name of this portal?
gained from sale of stocks
(a) Aadhar (b) MORE
(c) Companies pay dividend every year and
(c) SCORES (d) Happy times thus there is regular income
Ans : (c) (d) All of the above
34. If shares of companies are re-issued at a price Ans : (a)
which is higher than the face value of the shares, 39. Which of the following is not the name of the
then the excess amount is credited to which sensitive index of any stock exchange?
account? (a) Nifty (b) Dow
(a) General reserve (c) CRIS (d) SX 40
(b) Share forfeiture account Ans : (c)
(c) Profit and loss account 40. SIMEX share price index relates to the stock
(d) Share premium account exchange of which of the following?
Ans : (d) (a) London (b) Tokyo
35. What is the name given to the amount actually (c) Singapore (d) Mumbai
demanded by the company on its shares? Ans : (c)
41. How many number of companies comprise the
(a) Nominal capital
Bombay Stock Exchange ‘sensex’?
(b) Called up capital
(a) 25 (b) 30
(c) Issued capital (c) 40 (d) 50
(d) Subscribed capital Ans : (b)
Ans : (b) 42. Which of the following is not a member of the
36. In the world of commodity exchanges what is Indian money market?
denoted by the concept of ‘A standard con- (a) Bill market
tract to buy or sell a specified commodity at a (b) Call money market
certain date in future and at a market driven (c) Banks
price’? (d) Indian Gold Council
(a) Futures contract Ans : (d)
(b) Market contract 43. The purchase of bonds and shares of Indian
(c) Securities contract companies by Foreign Institutional investors
(d) Standard contract is known as—
Ans : (a) (a) FDI
(b) NRI investment
37. A well known public sector unit decided to go
(c) Portfolio investment
for stock split method to regulate its shares.
(d) Foreign indirect investment
What is this stock split? Ans : (a)
(a) The stock is subdivided to attract more in- 44. Which of the following is an appropriate de-
vestors scription of Capital Markets?
(b) It is done whenthe stock price crosses ` (a) It comprises of stock markets and bond mar-
1,000 per share kets
(c) It is done when there is a follow on offer (b) Refers to markets for banks and RBI
(d) All of the above (c) Indicates markets of banks and insurance
Ans : (a) companies
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Basic Banking & Financial Issues | 75


(d) Means markets for stock markets and 51. Which institute is proposed to be set up to
NBFCs manage land records in India?
Ans : (a) (a) Central Electronic Registry
45. What is common between Wall Street in New (b) National Institute of Land Management
York and Dalal Street in Mumbai? (c) National Land Board
(a) Both are locations of the central bank of (d) Central Land Organization
the country Ans : (b)
(b) Stock exchanges of the respective coun- 52. The Banking Laws Bill, 2011 has provided for
establishment of which of the following for tak-
tries are located on these streets
ing over unclaimed amounts of inoperative fixed
(c) These are major banking centres
deposit accounts of over 10 years?
(d) Financial publications are located here
(a) Investor Education & Awareness Fund
Ans : (b) (b) Depositor Education & Awareness Fund
46. The base period of the Sensex index which cor- (c) Deposit Insurance & Credit Guarantee Cor-
responds to 100 value points is which of the poration
following? (d) Banking Ombudsman
(a) 1978-79 (b) 1975-76 Ans : (b)
(c) 1985-86 (d) 1988-89 53. Which former RBI Governor has been ap-
Ans : (a) pointed to head the 14th Finance Commission
47. If a company shows a higher share capital than in India?
debt what does it indicate? (a) Bimal Jalan
(a) The company has not been able to get bank (b) Y V Reddy
funding (c) C Rangarajan
(b) The company is shy of taking debt (d) KC Chakravarty
(c) The company is strong as it has enough Ans : (b)
internal resources 54. Which body is known as the regulator of chit
(d) All of the above funds in India?
Ans : (c) (a) Registrar of Companies
48. SEBI was set up by an act of Parliament in 1992. (b) RBI
It was however through orders of the central (c) SEBI
government that it started its operations. When (d) Registrar of Chit Funds
was it? Ans : (d)
55. Nidhis are also a popular model of savings and
(a) 1988 (b) 1990
finance followed in India. Which body regu-
(c) 1992 (d) 1993
lates nidhis?
Ans : (a)
(a) Registrar of Chit Funds
49. Companies wanting to raise money from the
(b) RBI
public have to disclose their full details as per (c) Ministry of Corporate Affairs
rules framed by which organization? (d) Registrar of Societies
(a) Financial Stability Development Council Ans : (c)
(b) SEBI 56. Which condition(s) is required to be fulfilled
(c) RBI by banks before declaring dividends?
(d) Registrar of Companies (a) Minimum capital adequacy of 9% to be
Ans : (b) maintained
50. Which of the following indicates the wealth of (b) Dividends to be paid only from current year
a person? profits
(a) Assets (b) Capital (c) Net non performing assets to be below 7%
(c) Bank balance (d) Net worth (d) All of the above
Ans : (d) Ans : (d)
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76 | Basic Banking & Financial Issues


57. Banks usually provide working capital loans 63. Which of the following is not the primary busi-
and term loans of different tenures. Which of ness of a bank?
the following is not allowed by banks? (a) Receiving cheques for clearance
(a) Loans for shares (b) Providing safe deposit lockers
(b) Casual overdraft facility (c) Issuing of demand drafts
(c) Debit card payments (d) Issuing of fixed deposit receipts
(d) Consumption loans Ans : (b)
Ans : (a) 64. Which of the following foreign banks has the
58. The Narasimhan committee report of the 1990s highest number of branches in India?
is associated with which of the following? (a) Standard Chartered bank
(b) CITI Bank
(a) Reforms in the banking sector
(c) HSBC
(b) Capital market changes
(d) American Express
(c) Banking product marketing
Ans : (a)
(d) Recovery in bad accounts of banks 65. Which is the first Indian bank to open a branch
Ans : (a) in Saudi Arabia?
59. UTI bank was one of the private sector banks (a) State Bank of India
established in the 1990s. What is its subsequent (b) ICICI Bank
name after its renaming? (c) HDFC Bank
(a) Yes bank (d) Central Bank of India
(b) Axis bank Ans : (a)
(c) Development Credit bank 66. Which is the least expensive transaction that is
(d) Oriental bank of Commerce offered by the branch of a commercial bank?
Ans : (b) (a) Branch banking
60. Bank of Rajasthan was found to be involved in (b) Mobile banking
financial irregularities and was therefore merged (c) ATM banking
with another bank. Which bank took over Bank (d) All cost the same
of Rajasthan? Ans : (b)
(a) PNB 67. Recruitment to clerical and officers’ cadre in
(b) ICICI bank public sector banks is now being undertaken
(c) Union bank of India by a single agency. Which is this organization?
(d) HDFC bank (a) RBI recruitment board
Ans : (b) (b) Banking Services Recruitment Board
61. Which of the following describes IBA? (c) Institute of Banking Personnel Selection
(d) Banking Codes and Standards Board of
(a) Association of banks in India
India
(b) A subsidiary of RBI
Ans : (c)
(c) Bank employees’ apex organization
68. Banks have the benefit of using substantial
(d) Bank officers’ body
amount of money when cheques are sent in
Ans : (a) clearing as there is usually 2-3 days gap be-
62. The Service Area approach is an important tween debit of the account holder’s account
model of the financial institutions in India. It is and credit to the account of the payee/benefi-
associated with which of the following? ciary of the cheque. What is this money known
(a) City branches of commercial banks as?
(b) Self help groups (a) Float money
(c) The lending process of NBFCs (b) Suspense money
(d) Rural and semi urban branches of commer- (c) Unaccounted funds
cial banks (d) All of the above
Ans : (d) Ans : (a)
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Basic Banking & Financial Issues | 77


69. Investment through Indian Depository receipts (c) Current account deposits
was initiated by which foreign bank? (d) Credit balances in accounts with RBI
(a) HSBC Ans : (c)
(b) Standard Chartered 76. ECB is a means of raising funds from overseas.
(c) Deutsche Bank What is its full form?
(d) Citi Bank (a) External commercial borrowing
Ans : (b) (b) Essential commodities borrowing
70. What is the benefit under Section 80C of the (c) External credit and business
Income tax Act to the individual taxpayer? (d) Essential commodity buyers
(a) The government permits savings under this Ans : (a)
section 77. Which of the following organization maintains
(b) Investments upto ` 1 lakh is exempt from the individual borrower’s credit history in In-
tax dia?
(c) Investments in specified schemes are ex- (a) RBI (b) CRISIL
empt from tax upto ` 1 lakh (c) CIBIL (d) CARE
(d) Savings under these section have the ben- Ans : (c)
efit of compound interest 78. In a commercial business, raw materials,
Ans : (c) consumables, work in progress, finished goods
71. Which expenditure results in creation of assets are jointly regarded as—
in the economy? (a) Inventory (b) Capital stock
(a) Depreciation (b) Capital (c) Net worth (d) Investment
(c) Revenue (d) Recurring Ans : (b)
Ans : (b) 79. Frauds are fairly common in the sphere of home
72. Government securities are debt instruments loans. What should be done to check the genu-
issued by RBI on behalf of the government. ineness of the title of the property given for
What are these instruments known as? equitable mortgage by the borrower?
(a) Money bills (a) To get lawyer’s certificate
(b) National savings certificates (b) To check with the Registrar of Companies
(c) Gilts (c) To verify records of the Central Registry
(d) All of the above (d) To make physical verification of the prop-
Ans : (c) erty to be mortgaged
73. Which of the following instrument is consid- Ans : (c)
ered to be a rewarding investment if compared 80. When there is transfer of immovable property
with the others? there is often reference to mutation. What does
(a) Equity (b) Fixed deposits mutation mean?
(c) Bonds (d) Treasury bills (a) Deposit of title deeds with the bank
Ans : (a) (b) Cancellation of any mortgage facility pre-
74. Which of the following factors affect the inter- viously availed
est rates? (c) Recording of transfer of property from one
(a) Inflation rate person to another in the revenue records
(b) Government borrowings (d) Payment of registration charges for the
(c) Supply of money property
(d) All of the above Ans : (c)
Ans : (d) 81. Shadow banking is increasingly becoming an
75. Which of the following is not an asset held by alternative in the financial sector. What is
commercial banks in India? shadow banking?
(a) Money lent at short notice (a) The role of unaccounted money in the
(b) Bills of exchange economy
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78 | Basic Banking & Financial Issues


(b) Money laundering activities norms. Which of the following qualifies as a
(c) The role of non banking financial compa- credit substitution process?
nies in the lending business (a) External commercial borrowings
(d) None of the above (b) Commercial paper
Ans : (c) (c) Certificates of deposit
82. Which of the following would be included in (d) All of the above
calculation of operating profit? Ans : (d)
(a) Interest costs 88. An enterprising young individual has a prom-
(b) Insurance costs ising business idea but no funds. He feels that
(c) Dividends the idea can be a successful business model.
(d) Corporate taxes Whom should he approach?
Ans : (b) (a) Public sector bank
83. The least liquid asset in a balance sheet would (b) CII
be— (c) FICCI
(a) Stocks and inventories (d) Venture capitalists
(b) Short term investments Ans : (d)
(c) Trade debtors 89. When we talk of companies belonging to the
(d) Cash and bank balances SME sector, it means—
Ans : (a) (a) Small and marginal enterprises
84. What is the terminology for the credit facility (b) Sick and manipulated entities
permitted to business by suppliers for purchase (c) Small multinational enterprises
of goods and services? (d) Small and medium enterprises
(a) Trade debt Ans : (d)
(b) Trade credit 90. Which of the following is performing the role
(c) Packing credit of an underwriter?
(d) Overdraft
(a) A firm which guarantees the minimum esti-
Ans : (b)
mated proceeds from sale of securities
85. Which of the following is not true regarding
(b) An entity which manages the documenta-
commercial papers?
tion for sale of shares
(a) It is mandatory to under write commercial
(c) The firm which does all correspondence
papers
with the Registrar of Companies for an IPO
(b) The issue of commercial paper attracts stamp
duty (d) The firm which maintains the records of the
(c) It has minimum maturity of 15 days and maxi- shares allotted to each investor after an IPO
mum maturity of 1 year Ans : (a)
(d) It is issued in multiples of ` 5 lacs 91. What is meant by a lock in period for mutual
Ans : (a) fund schemes?
86. Credit cards provide for rolling over of the out- (a) Investors can apply for issue of units in
standing balance on the card. What is the mini- such schemes during this period only
mum amount payable every month in case of (b) Investors can withdraw from the scheme
charge card? during the lock in period only
(a) 5% (c) Investors can exit from the scheme only af-
(b) 10% ter the expiry of the lock in period
(c) 50% (d) None of the above
(d) The entire outstanding amount is required Ans : (c)
to be paid every month 92. Which type of funds do not have a fixed date
Ans : (d) of redemption?
87. Credit substitution measures are being adopted (a) Diversified funds
by corporates in view of tight bank lending (b) Close ended funds
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Basic Banking & Financial Issues | 79


(c) Open ended funds 100. Fixed maturity plans as an investment scheme
(d) Both (b) and (c) is best compared with which of the following
Ans : (c) investment schemes?
93. It is generally accepted that high returns are (a) Public provident fund
linked to high risk investments. Which of the (b) National savings certificate
following is associated with this remark? (c) Recurring deposit scheme of banks
(a) Equity investments (d) Fixed deposit schemes of banks
(b) Government securities Ans : (d)
(c) Post office schemes 101. Initial public offerings and FPOs are dealt in
(d) Mutual fund units which financial market?
Ans : (a) (a) Bullion market
94. How is the price of a public issue determined (b) Money market
through the book building mechanism? (c) Commodity markets
(a) By fixing a price band (d) Stock market
(b) By charging premium on the offer price Ans : (d)
(c) By starting from the base price at a discount 102. Which authority is responsible for fixing the
(d) By keeping the price initially at ` 10 per price band of shares of a company?
share (a) Company officials
Ans : (a) (b) Registrar of Companies
95. Which of the following instruments is likely to (c) Merchant bankers
suffer from maximum volatility? (d) Brokers
(a) Government securities Ans : (c)
(b) Commercial property 103. What is the percentage of public share hold-
(c) Shares in a company ings mandated by SEBI for all listed companies
(d) Fixed deposits in mid sized companies to have by June 2013?
Ans : (c)
(a) 15% (b) 20%
96. In which of the following cases would a com-
(c) 25% (d) 30%
pany be considered as highly geared?
Ans : (c)
(a) Debt is much greater than equity
104. Which of the following is not necessarily in-
(b) Equity is greater than debt
volved in an IPO process?
(c) Debt is greater than equity
(a) Underwriter
(d) Equity is much greater than debt
(b) Registrar of Companies
Ans : (a)
(c) Investment bank
97. SX 40 is the new stock index of which of the
following stock exchanges? (d) Registrar of Issues
(a) NSE (b) NYSE Ans : (b)
(c) MCX SX (d) BSE 105. What is the term used for depository receipts
Ans : (c) which are based on the securities of foreign
98. Which of the following time durations best de- companies and listed on stock exchanges in
scribe call money? India?
(a) 1 to 14 days (b) 10 to 15 days (a) Global Depository Receipts
(c) 15 to 30 days (d) 25 to 30 days (b) American Depository Receipts
Ans : (a) (c) Indian Depository Receipts
99. Which financial institution is the appropriate (d) Derivatives
body to offer fixed maturity plans? Ans : (c)
(a) Mutual funds 106. When a company goes for initial public offer-
(b) Banks ings a draft prospectus is filed with whom?
(c) Companies (a) SEBI (b) ROC
(d) Pension funds (c) RBI (d) AMFI
Ans : (a) Ans : (a)
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80 | Basic Banking & Financial Issues

Miscellaneous Multiple Choice Questions


1. Negotiable Instruments Act 1881 is an impor- (A) 25% (B) 15%
tant law which relates to— (C) 40% (D) 65%
(A) Banking (B) Stock markets Ans : (C)
(C) Mutual Funds (D) Insurance 9. Basel norms which are important regulatory
Ans : (A) stipulations is meant for which sector?
2. Why does RBI periodically change the Cash (A) Insurance (B) Banking
Reserve Ratio ? (C) Micro finance (D) Pension funds
(A) To keep the banks alert in handling their cash Ans : (B)
(B) To control money supply in the economy 10. The monetary and credit policy of India is the
(C) As per RBI norms responsibility of which of the following?
(D) All of the above (A) Planning Commissions
Ans : (B) (B) Finance Ministry
3. Which of the following is not a banking term? (C) RBI (D) National Advisory Council
(A) Letter of credit (B) MIBOR Ans : (C)
(C) Factoring services (D) Entry load 11. Electronic clearing service is a payment facility
Ans : (D) for customers. Which of the following provide
4. An average citizen cannot open a savings ac- this facility?
count in which of the following? (A) RBI (B) SBI
(A) Commercial bank (C) Cooperative banks (D) Finance ministry
(B) Post office Ans : (B)
(C) Cooperative bank 12. Financial inclusion is meant for—
(D) RBI (A) Less privileged persons
Ans : (D) (B) Senior citizens
5. Which of the following cannot open a bank (C) Micro finance institutions
account? (D) All of the above
(A) Person of unsound mind Ans : (A)
(B) A minor 13. Savings account with zero balance can be
(C) An illiterate person opened for—
(D) A blind individual (A) Persons of high net worth
Ans : (A) (B) Employees of IT companies
6. Which of the following schemes is not meant (C) Weaker sections of society
for investment purposes? (D) Women customers
(A) National savings certificates Ans : (C)
(B) Infrastructure bonds 14. Systematic Investment Plans are a facility by
(C) Mutual funds which of the following?
(D) Letter of credit (A) Mutual funds
Ans : (D) (B) Life insurance companies
7. New banks are likely to be set up shortly. (C) Commercial banks
Which organization gives this permission? (D) Post office savings schemes
(A) RBI Ans : (A)
(B) Indian Banks Association 15. Which of the following lending is considered
(C) Finance Ministry as a priority sector loan?
(D) Cabinet Committee on Economic Affairs (A) Loan for purchase of gold for marriage of
Ans : (A) daughter
8. Financial inclusion is a programme of the gov- (B) Car loan (C) Housing loan
ernment to cover the maximum population with (D) Loan for purchase of tractor
bank accounts. What is the current coverage? Ans : (D)
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Basic Banking & Financial Issues | 81


16. Euro money is the official currency of— (A) Pound sterling (B) US dollar
(A) NATO (C) Euro (D) Deutsche mark
(B) UN Ans : (B)
(C) European Union 24. Banker customer relationship is often consid-
(D) Germany and England ered a fiduciary one. What is relation?
Ans : (C) (A) Contract (B) Faith
17. Which of the following is an example of cash (C) Commercial (D) Agent and principal
less purchase? Ans : (B)
(A) Debit card (B) Credit card 25. Bank loan against property requires the asset to
(C) ATM withdrawal (D) All of these be free from encumbrances. What does it mean?
Ans : (D) (A) The asset to be free from any liability
18. Whose signature appears on Indian ` 100 note? (B) The asset to be properly registered
(A) Finance Minister (C) The property to be fully constructed
(B) RBI Governor (D) The asset should not have multiple owners
(C) RBI Dy. Governor Ans : (A)
(D) Chairman, Planning Commission 26. RBI stipulates a healthy mix of CASA in the busi-
Ans : (B) ness figures of banks. What does it denote?
19. Who is responsible for formulating the mon- (A) Customer Analysis and Savings Pattern
etary policy of India? (B) Cost Appreciation and Selling Analysis
(A) Planning Commission (C) Current Account and Savings Account
(B) Financial Stability Development Council (D) Credit and Savings Aggregate
(C) Reserve Bank of India Ans : (C)
(D) Finance Commission 27. Banks are authorized to sell third party prod-
Ans : (C) ucts. Which are these products?
20. While discussing investments there is mention (A) Mutual funds (B) Term deposits
of short term government security. What is this (C) Credit cards (D) Gift cheques
investment? Ans : (A)
(A) Debenture (B) Mutual fund 28. Electronic clearing service in banks can be
(C) Treasury bill (D) Share availed only by—
Ans : (C) (A) Individuals (B) Corporates
21. Special drawing right is an international prac- (C) Senior citizens (D) All of these
tice of drawing funds. Which of the following Ans : (D)
control this special funding? 29. Retail Banking includes which of the following?
(A) World Bank (A) Corporate loans
(B) Asian Development Bank (B) Foreign exchange transactions
(C) Federal Reserve (C) Personal loans
(D) European Common Market (D) Micro finance
Ans : (A) Ans : (C)
22. NBFCs are an important part of the Indian fi- 30. Which of the following identifies as a foreign
nancial system. What is meant by this term? exchange transaction?
(A) New Banking Financial Companies (A) Payment through international debit cards
(B) Non Banking Financial Companies (B) Purchase of foreign currency
(C) Neo Banking Financial Confederation (C) Negotiating inland bills of exchange
(D) Non Banking Fiscal Companies (D) All of the above
Ans : (B) Ans : (D)
23. As per current trends maximum number of for- 31. Which of the following is a term not linked to
eign exchange transactions and international banking and financial transactions?
reserves are held in one currency. Which is this (A) Provision coverage ratio
currency? (B) Securitization
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82 | Basic Banking & Financial Issues


(C) Credit default swap (C) The fiscal policy of India is approved by
(D) Consolidation RBI
Ans : (D) (D) RBI has Dy. Chairman Planning Commis-
32. When RBI raises the Cash Reserve Ratio rate sion on its board
what action are the banks required to take? Ans : (B)
(A) They have to deposit additional money 38. Bank rate as fixed by RBI means—
with RBI as reserve money (A) Rate of interest charged by banks from bor-
(B) Banks are required to increase their lend- rowers
ing to the priority sector (B) Rate of interest on bank deposits
(C) Banks also increase their lending and de- (C) Rate of interest charged by RBI on its loans
posit rates to banks
(D) All of the above (D) Rate of interest on inter bank loans
Ans : (A) Ans : (C)
33. Currently the bank rate is fixed at 8·50 per cent. 39. Increase in remittances from non resident Indi-
What does it mean for banks? ans suggest—
(A) No bank is supposed to give loans at a (A) Increase in the balance of payments defi-
lesser rate than the bank rate cit in India
(B) This is meant to be a benchmark rate for (B) Reduces the balance of payments deficit
lending to the agri sector in India
(C) It is a direction to invest 8·50 per cent of (C) Has no effect on the balance of payments
bank’s deposit with RBI position
(D) It is the rate at which RBI lends funds to (D) None of these
banks Ans : (B)
Ans : (A) 40. Which one of the following does not qualify as
34. Almost all banks in India are providing special priority sector lending by commercial banks ?
schemes for providing banking services to the (A) Software exports
rural poor. What is this concept known as? (B) Small business loans
(A) Trade finance (C) Education loans
(B) Investment banking (D) Small industries loan
(C) Priority sector loaning Ans : (A)
(D) Financial inclusion 41. Which of the following is not a method of credit
Ans : (D) control?
35. RBI has sold its entire stake except 1 per cent in (A) Cash reserve ratio
which of the following organizations? (B) Open market operations
(A) DICGC (C) Credit deposit ratio
(B) NABARD (D) Bank rate policy
(C) SIDBI Ans : (C)
(D) National Housing Bank 42. A bank normally does not have to deal with an
Ans : (B) issue related to—
36. Organization of workers in which of the follow- (A) Payments and settlements system
ing ways has proved to be effective in provid- (B) Contractual rights of creditors
ing micro finance by banks and financial insti- (C) Intellectual property rights
tutions to the rural poor? (D) Cases of insolvency
(A) Shiksha sevaks (B) Self help groups Ans : (C)
(C) Link workers (D) Chit fund members 43. The Securitization and Reconstruction of Fi-
Ans : (B) nancial Assets and Enforcement of Security In-
37. Which of the following statements is correct? terests Act at present is not applicable to—
(A) RBI is just like any ordinary commercial bank (A) Public sector banks
(B) RBI is responsible for the overall monetary (B) Private banks
policy (C) Non banking financial companies
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Basic Banking & Financial Issues | 83


(D) Financial institutes of the government (C) SME financing
Ans : (C) (D) Priority sector lending
44. The rate of interest banks charge to its custom- Ans : (D)
ers is called— 51. Which of the following countries was the first
(A) Risk premium rate to launch the concept of micro finance?
(B) Base rate lending (A) India (B) Nepal
(C) Benchmark prime lending rate (C) Peru (D) Bangladesh
(D) Reverse repo rate Ans : (D)
Ans : (B) 52. Basel committee recommendations concerns—
45. Third party usage of ATMs has been restricted (A) Space research (B) Micro finance
to certain number of withdrawals/balance en- (C) Banking (D) Insurance
quiries per month. What does it mean? Ans : (C)
(A) Only card holders can use ATMs and not 53. In terms of RBI instructions all banks are required
their representatives to provide one of the following. Which is it?
(B) Use of ATMs of all banks restricted to (A) Special counter for senior citizens
specified number (B) Note sorting machine
(C) Customer of one bank can use ATMs of (C) Separate staff for women customers
other banks upto a specified number with- (D) Drinking water facility
out any charge Ans : (B)
(D) ATMs of other banks can be used within a 54. Which of the following is the short form of the
limit on payment of fees organization which provides credit guarantee
Ans : (C) to exporters?
46. Banks are required to provide loans to the pri- (A) FICCI (B) ECGC
ority sector upto a specified limit. What is the (C) SEBI (D) SIDBI
limit for public sector banks? Ans : (B)
(A) 40 per cent (B) 32 per cent 55. Which of the following is not an apex institu-
(C) 45 per cent (D) 35 per cent tion?
Ans : (A) (A) SBI (B) SIDBI
47. Which of the following rates is decided by the (C) NABARD (D) State Cooperative bank
market conditions and not by RBI? Ans : (A)
(A) Bank rate (B) SLR 56. Which of the following is the most important
(C) CRR (D) Inflation rate component of the liabilities of commercial
Ans : (D) banks?
48. Which of the following institutions is not di- (A) Time deposits
rectly associated with the financial sector in (B) Demand deposits
India? (C) Inter bank liabilities
(A) Bombay Stock Exchange (D) Other borrowings
(B) BIFR Ans : (A)
(C) SEBI 57. The interest rate at which the RBI lends to com-
(D) Planning Commission mercial banks in the short term to maintain li-
Ans : (D) quidity is known as—
49. From the banking perspective the use of ATM (A) Interest rate (B) Repo rate
can be called— (C) Reverse repo rate (D) Bank rate
(A) Personal banking (B) Mobile banking Ans : (B)
(C) Internet banking (D) Branchless banking 58. The primary role of NABARD is—
Ans : (D) (A) Lending to farmers
50. Loans and advances given to the poor and (B) Agricultural research
weaker sections by banks are known as— (C) Development of agriculture
(A) Agricultural lending (D) Refinance against agriculture finance
(B) Retail lending Ans : (C)
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59. In the case of a contract of guarantee— 65. What does EMI indicate in the context of a bank
(A) The liability of the guarantor is secondary loan ?
only when the principal debtor does not (A) Equal monetary incentive
pay (B) Equated monthly instalment
(B) The liability of the guarantor does not arise (C) Exact monthly indicator
as the principal debtor is solely respon- (D) Exact mean index
sible Ans : (B)
(C) The guarantor’s liability is co extensive 66. The management of a bank rests with—
with that of the principal debtor and is li- (A) RBI
able to pay whether or not the principal (B) Chairman and managing director of the bank
debtor pays (C) Board of directors of the bank
(D) The guarantor is liable to pay only half the (D) Finance ministry, Govt. of India
amount as he shares the liability with the Ans : (C)
principal debtor 67. Banking in India is no longer ‘brick and mortar’
Ans : (C) banking. What does it suggest?
60. A demand draft issued by one bank branch on (A) Banking has undergone financial reforms
another branch is legally— (B) Control of RBI has weakened
(A) Cheque (B) Promissory note (C) Private and foreign banks are competing
(C) Delivery order (D) Supply bill with public sector banks
Ans : (B) (D) Banking has changed from branch bank-
61. A current account in a bank means— ing to branchless banking
(A) In which balances are kept high Ans : (D)
(B) Interest is not paid on the balance in the 68. If interest is paid at quarterly rests instead of
account annually on a two years term deposit will the
(C) In which transactions should take place daily maturity amount be—
(D) Availing credit facilities (A) More (B) Less
Ans : (B) (C) Equal (D) Calculation not possible
62. What is meant by a stale cheque ? Ans : (A)
(A) A cheque which is lost or stolen 69. Forensic accounting is being increasingly
(B) A cheque which is more than six months adopted. It means—
old from the date of the cheque (A) Accounting in a forensic laboratory
(C) A cheque which is defaced/mutilated (B) Accounting to check each item of the bal-
(D) A cheque from an account which is closed ance sheet
Ans : (B) (C) Accounting being practiced by the police
63. Who is known as the drawer of a cheque ? department
(A) The person who is receiving the amount (D) None of the above
of the cheque Ans : (B)
(B) The bank which has issued the cheque 70. There is often reference to ‘plastic money’. It
(C) The person from whose account the means—
cheque is paid (A) Currency coated with plastic
(D) None of the above (B) Credit cards, debit cards, ATM cards used
Ans : (C) to draw money
64. What does the term ‘bancassurance’ mean ? (C) Currency of the denomination of ` 500 and
(A) Assurance from the bank to its account ` 1,000
holder regarding safety of his money (D) Cash received through bank counters
(B) A special product designed by the bank Ans : (B)
(C) Selling of insurance policies by banks 71. Banks are required to open ‘no frills’ accounts.
(D) Understanding between banks and insur- What are these accounts?
ance companies (A) Accounts with zero or very nominal balances
Ans : (C) (B) Accounts meant only for rural areas
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(C) Accounts in the name of more than one 78. There are many indigenous bankers operating
person in the country. Who are they?
(D) Accounts in which interest is not to be paid (A) Cooperative banks
Ans : (A) (B) Regional rural banks
72. Financial inclusion is being emphasized by RBI (C) Micro finance institutions
for— (D) Money lenders, shroffs etc.
(A) Providing basic banking services to the Ans : (D)
unbanked areas 79. Know Your Customer KYC norms are required
(B) Providing loans to the unbanked population to be strictly followed by banks. It means—
(C) Opening accounts for the poor (A) Providing improved customer services
(D) Bringing branches of all banks under one (B) Determining the identity and residence
authority proof of account holders through ap-
Ans : (A) proved documents
73. The Governor, Reserve Bank of India is assisted (C) Ensuring that staff members know the cus-
by Deputy Governors. How many posts are tomers
there? (D) Organizing regular customer service
(A) One (B) Two meetings
(C) Three (D) Four Ans : (B)
Ans : (D) 80. Bouncing of cheques or cheques returned un-
74. Who is a Banking Ombudsman? paid for insufficient funds is considered illegal.
(A) The chief vigilance officer of a bank It is treated as—
(B) The chairman of a bank (A) A criminal offence
(C) An official in the Finance Ministry, gov- (B) A civil offence
ernment of India (C) An offence under RBI rules
(D) An independent authority appointed by (D) An offence under The Banking Regulation
RBI to address customer complaints Act
Ans : (D) Ans : (A)
75. Upto what amount are deposits in bank ac- 81. Payment of a crossed cheque can be made—
counts of an account holder insured? (A) Only in cash
(A) The full amount in an account (B) Through clearing account of a bank
(B) ` 1 lakh (C) Both in cash and through clearing account
(C) Not insured of a bank
(D) ` 2 lakhs (D) None of the above
Ans : (B) Ans : (B)
76. Demat accounts are necessary for dealing in 82. Reverse mortgage is a new loan product for the
shares of companies. These are— Indian consumers. What is its unique feature?
(A) Accounts of share brokers (A) The interest rates are lower than other
(B) Accounts in electronic form for holding home loans
shares (B) It is a loan against property for senior citi-
(C) Electronic accounts of companies issuing zens
shares (C) It is a loan to buy property for senior citi-
(D) Electronic shares controlled by SEBI zens
Ans : (B) (D) It is a loan against rental income of prop-
77. Phishing is a form of cyber crime meaning— erty
(A) Hacking the internet for stealing password Ans : (B)
of bank account 83. There is serious debate on bank consolidation
(B) Tracking illegally email accounts for India. What is meant by it?
(C) Sending spam mails asking for money (A) Bigger banks are considered to be safer
(D) Crimes committed at cyber cafes (B) Instead of large number of banks there is
Ans : (A) thinking of having few bigger banks
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86 | Basic Banking & Financial Issues


(C) Proposal is for merger of existing banks to (C) Selection of borrowers was defective
have fewer banks which can withstand fi- (D) None of these
nancial crises Ans : (B)
(D) Some banks want to take over smaller 90. In what way does the increase in repo rate af-
banks for larger business fect the working of banks?
Ans : (C) (A) Cost of funds become costlier
84. Why are anti money laundering laws important (B) Borrowing from RBI becomes expensive
for the economy? (C) The cost of deposits is higher in such cases
(A) To control flow of illegal money to stop (D) The lending rates are increased by banks
anti national and criminal activities Ans : (B)
(B) To prohibit trade in unaccounted money 91. Out of the four entities mentioned below which
(C) To stop benami activity is not a credit rating agency?
(D) To check money lending activity (A) CRISIL (B) ICRA
Ans : (A) (C) CIBIL (D) FITCH
85. Which of the following denote demand depos- Ans : (C)
its of a bank? 92. For what kind of transactions are demat ac-
(A) Deposits in savings accounts
counts necessary?
(B) Deposits in savings and current accounts
(A) For having mobile banking facilities
(C) Balances in recurring deposit accounts
(B) For taking retail loans from banks
(D) Balances in current and recurring deposit
(C) For trading in shares of companies
accounts
(D) For non resident accounts
Ans : (B)
86. Reserve Bank of India is known as— Ans : (C)
(A) The central bank 93. Why are interest rates charged by micro finance
(B) The leading financial institution institutions higher than lending rates of banks?
(C) The bank of the central government (A) MFIs are not allowed to source deposits
(D) The top most public sector bank from public
Ans : (A) (B) Banks have the benefit of cheaper funds
87. Why are credit cards costlier if full payment is (C) MFIs borrow bulk of their funds from
not made on due dates than personal loans? banks
(A) Interest rate on credit cards is higher than (D) MFIs borrow funds from banks at high cost
personal loans and also their administrative expenses are
(B) Rate of interest on personal loans is less more
(C) The benefit of 30 days is not available if Ans : (D)
full payment is not made and interest rate 94. Which apex body regulates insurance compa-
is much higher nies in India ?
(D) There is a tendency to spend more on credit (A) RBI (B) IRDA
cards than personal loans (C) PFRDA (D) SEBI
Ans : (C) Ans : (B)
88. Which of the following is not plastic money? 95. Systematic Investment Planning SIP is a pre-
(A) Credit cards (B) Debit cards ferred mode of investing in mutual funds. Why?
(C) Gift cards (D) Recharge cards (A) It means regular investments at different
Ans : (D) prices and thus the investor gets benefit
89. Sub prime mortgages were one of the main rea- of average pricing
sons for the financial crisis in the world. What (B) The mutual fund companies give rebate on
does it mean? this type of investing
(A) Borrowers of lesser means were given mort- (C) This is the only way to get rich
gage loans (D) In this way only the better performing
(B) Borrowers who were less credit worthy de- funds allow investment
faulted in payment of their mortgage loans Ans : (A)
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Basic Banking & Financial Issues | 87


96. Banks often look to have a sizable portion of (D) Equity fund managers are more aggressive
CASA deposits in their total deposit portfolio. than debt fund managers
In what does it help? Ans : (C)
(A) The cost of funds to the bank is low 101. Biometric cards would help in providing bank-
(B) It fulfils the mandated requirement ing services to the rural people in India. What
(C) There is no need to renew the deposits is the speciality of these cards?
(D) Less of manpower is required to maintain (A) These are cards which can be used with
these deposits finger prints and PIN
Ans : (A) (B) Instead of PIN number these are used by
97. ‘Class action’ would be initiated by RBI against verification of finger prints
banks if their investigation into individual com- (C) These cards use biotechnology for their
plaints of consumers show deficient working. operation
What is their objective? (D) Biogas helps in using these cards by rural
(A) It is for the benefit of not only the indi- people
vidual complainant but all other custom- Ans : (B)
ers facing similar problems 102. Small savings scheme like national savings cer-
(B) It means taking action against all banks
tificates, kisan vikas patras, monthly income
(C) Action is taken only against a particular
schemes are popular among the salaried people.
class of banks
Which financial institutions manage these
(D) It means helping only a particular category
schemes?
of customers who have complained
(A) Public sector banks
Ans : (A)
98. Why is there misselling of insurance policies (B) Commercial banks
by insurance agents/advisors? (C) Post offices
(A) Agents look to sell those policies which (D) Cooperative banks
give them higher commission Ans : (C)
(B) Agents do not know the schemes prop- 103. Currently banks claim that they have achieved
erly and thus make wrong sales 100% CBS. What are they referring to?
(C) Agents do not protect the interest of cli- (A) It means all their branches are technology
ents and are interested in selling policies driven with core banking solutions
with higher commissions (B) It suggests complete banking services
(D) The clients are not told about the schemes (C) It is an indication of customized banking
properly services
Ans : (C) (D) None of the above
99. Which institution in India completed 75 years Ans : (A)
of its existence in 2010? 104. Which is not a function of RBI?
(A) Supreme Court (A) Fixing of repo rate
(B) State Bank of India (B) Managing currency
(C) Parliament (C) Announcing prime lending rates
(D) Reserve Bank of India (D) Fixing of CRR
Ans : (D) Ans : (C)
100. Why are investments in equity funds more risky 105. An asset reconstruction company looks for
than debt funds? business from banks. What do you understand
(A) Equity funds invest their resources in from this statement?
shares of companies (A) These companies assist banks in getting
(B) Debt funds give a more steady return potential clients for big ticket loans
(C) Equity funds look for higher returns by in- (B) Banks identify potential borrowers for in-
vesting in shares of companies which gen- frastructure lending by these companies
erally fluctuate rather than steady returns (C) Banks sell their bad debts to these
from debt schemes companies
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88 | Basic Banking & Financial Issues


(D) Asset reconstruction companies buy bad (A) The customer can reduce the amount of
debts at a discount from banks premium during this period
Ans : (D) (B) Grace period is given to pay the premium
106. What is meant by the net worth of a company? amount
(A) It is the financial statement of the net asset (C) The customer can decide whether to take
position of an enterprise the policy or reject it during this time
(B) It is an indication of the strength to do (D) None of the above
business Ans : (C)
(C) It is the aggregation of the strength of the 112. Financial literacy is a serious issue for RBI.
directors of a company Why?
(D) It reflects the total tax paid to the govern-
(A) It would mean banks can do more business
ment during each financial year
(B) So that RBI policies are understood by the
Ans : (A)
maximum number of people
107. SIDBI has a scheme for providing seed capital
to business enterprise. What is meant by seed (C) It would enable better understanding of
capital? banking business
(A) Equity required by a commercial organiza- (D) With better understanding more and more
tion people would utilize the banking services
(B) Initial funds required by an enterprise with Ans : (D)
high potential for growth 113. Credit Information Bureau India Ltd is an inde-
(C) The funds invested to run an organization pendent organization meant to assist banks.
(D) The money provided to start an agricul- What services does it render?
tural unit (A) It is a storehouse of information about
Ans : (B) credit facilities availed by bank clients
108. What is the Scope of Financial Stability Devel- (B) It provides credit reports on individual bor-
opment Council ? rowers
(A) An apex body to monitor the working of (C) It maintains credit history about all bank
the financial regulators borrowers for use by its member banks
(B) A super monitoring authority for supervis- (D) It decides whether loan should be granted
ing the working of RBI, SEBI etc. or not
(C) A government body to supervise the anti Ans : (C)
money laundering activities 114. Why are Equity Linked Savings Scheme or
(D) A high level body working to ensure fi- ELSS funds very popular with investors?
nancial stability (A) Gives better returns than bank deposits
Ans : (B) regularly
109. What is the capital required to start a banking (B) Returns are higher when compared to plain
company in India? equity schemes
(A) ` 300 cr. (B) ` 1,000 cr. (C) Besides returns on investments it allows
(C) ` 330 cr. (D) ` 500 cr. for tax exemption on the amount invested
Ans : (D) without limit
110. Which of the following does not qualify as pri- (D) It is primarily an income tax exemption
ority sector lending? scheme eligible for deduction under Sec.
(A) Agricultural lending 80 C
(B) Education loans Ans : (D)
(C) Auto loans 115. What is meant by a lock in period for mutual
(D) Loans to small scale sector fund schemes?
Ans : (C) (A) Investors can apply for issue of units in
111. ‘Free look’ period allowed by life insurance com- such schemes during this period only
panies is a customer friendly initiative. Why (B) Investors can withdraw from the scheme
has it been made mandatory? during the lock in period only
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Basic Banking & Financial Issues | 89


(C) Investors can exit from the scheme only (D) The board of directors of the life insurance
after the expiry of the lock in period company
(D) None of the above Ans : (A)
Ans : (C) 121. Which state in India is the first to introduce
116. Many banks are presently recruiting large num- financial literacy as a subject in the school cur-
bers of business correspondents in terms of riculum from the academic session 2010?
RBI instructions for financial inclusion. What (A) Tamil Nadu (B) Karnataka
would be their nature of work? (C) Maharashtra (D) Kerala
(A) These persons would approach custom- Ans : (B)
ers for larger business 122. Which is the accepted document for establish-
(B) Business correspondents would cover ru- ing proof of identity of an individual for open-
ral areas for generating business ing of bank accounts?
(C) Business correspondents would provide (A) PAN card
basic banking services to the rural (B) House Rent Ship
population (C) School leaving certificate
(D) Persons recruited would do market survey (D) LIC policy
in rural areas to explore business potential Ans : (A)
Ans : (C) 123. Which of the following is not a Chamber of
117. Many banks provide add on cards to their credit commerce and industry?
card holders. What do we understand from this? (A) FICCI (B) CII
(A) Co branded cards are given for special (C) CRISIL (D) PHDCCI
benefits Ans : (C)
(B) Duplicate card is issued when the original 124. If a bank wants to borrow money from RBI which
card is lost/misplaced rate of interest is applicable?
(C) Additional card is given for higher spending (A) Reverse repo rate
(D) Additional card is issued in the name of (B) Base rate
spouse / children as part of the main card (C) Repo rate
Ans : (D) (D) Differential rate of interest
118. Which is the first microfinance company in In- Ans : (C)
dia to approach the capital market? 125. The net interest margin for the commercial
(A) SKS Microfinance (B) Spandana banks is in the interest band of 2-3% usually.
(C) Grameen Koota (D) Bandhan What does it denote?
Ans : (A) (A) The difference between RBI lending rate
119. Why there is so much emphasis on branchless and the average lending rate of a bank
banking? Why is it needed?
(B) The difference in the interest rates between
(A) The spread of ATMs has been successful
the fixed deposit rate and savings rate of a
(B) To cover large rural areas where banks can-
bank
not be established
(C) The difference between the deposit rates
(C) To reach the rural population with basic
banking services to achieve financial in- and the lending rates of a bank
clusion (D) The difference in the deposit rates for the
(D) The cost of having banks in physical form banks and the borrowing rates of RBI
is proving expensive Ans : (C)
Ans : (C) 126. Sovereign wealth funds are entering the Indian
120. Which body/official determines the risk cover- markets in a big way. Who manages these funds?
age for calculation of premium for life insur- (A) These are government promoted sover-
ance policies? eign funds for investment
(A) Actuary of the life insurance company (B) These are funds of the royal family of En-
(B) IRDA gland
(C) The chief executive of the life insurance (C) These are funds of the sheikhs of the
company Middle East for investment
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90 | Basic Banking & Financial Issues


(D) These are funds used for increasing wealth (B) It is total expenditure less total receipts ex-
of the owners cluding borrowings
Ans : (A) (C) It reflects the decrease in tax collections
127. NABARD is an apex financial institution in In- for the year
dia. What are its major responsibilities? (D) It means the lack of liquidity and earnings
(A) It is an institution for regulating credit for for the economy
agriculture and other economic activities Ans : (B)
in rural areas 133. The profits from sale of a house property which
(B) It is an institution controlling cooperative is earned by an owner is taxed by the govern-
banks ment. What is this form of tax known as?
(C) It is a specialized bank solely for farmers (A) Capital gains tax
(D) It is an institution promoting research and (B) Income from property tax
training in agriculture and other allied ac- (C) Wealth tax
tivities (D) Sales tax
Ans : (A) Ans : (A)
128. The Unique Identity project or UID has been 134. Who decides on the value and volume of bank
given a brand name for ready identification. notes to be printed and on what basis ?
Which is the name approved? (A) Finance ministry
(A) Abhigyan (B) Asmita (B) Planning Commission
(C) Aasha (D) Aadhar (C) RBI
Ans : (D) (D) Stock exchange
129. Most banks are offering teaser rates on home Ans : (C)
loans. What does it mean? 135. ULIPS which are subject of a continuing con-
(A) The rates keep fluctuating during the pe- troversy is known as a financial product. What
riod of loan with high uncertainty are its special features?
(B) The initial rate is offered at a rate lower than (A) It is an market linked investment product
the prevailing market rate for a few months (B) It is an investment with growth product
and then gradually keeps increasing (C) It is a market linked investment product
(C) The initial rate is higher than the current with insurance
market rate with offer of lower rates at a (D) It is a product of Unit Trust of India
later date Ans : (C)
(D) Home loan borrowers of shorter duration 136. What is the role of banking correspondents in
are given preferential rates the current financial inclusion programme of
Ans : (B)
RBI?
130. Deposits of customers in banks are insured upto
(A) To act as special reporters of RBI to check
Rs. 1 lakh. Which organization is responsible
for payment of claims, if any? the quality of banking services
(A) RBI (B) Government (B) To act as agents of RBI to promote bank-
(C) DICGC (D) ECGC ing in the villages in India
Ans : (C) (C) To act as agents of banks to provide bank-
131. Inflation is measured in India on the basis of ing services in unbanked areas
which index? (D) To act as agents of RBI to provide banking
(A) Consumer price index facilities in rural areas
(B) Wholesale price index Ans : (C)
(C) Retail price index 137. Apart from ATMs credit card holders can get
(D) Market forces cash upto a specified limit from POS or point of
Ans : (B) sales terminals. What are these POS terminals?
132. High fiscal deficit is cause for concern for any (A) These are locations where credit cards are
economy. What does it denote? used
(A) It is a measure of the borrowings of an (B) These are merchant establishments where
economy credit cards can be used for payment
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Basic Banking & Financial Issues | 91


(C) These are locations where Master card can (B) Punjab National Bank
be used (C) HDFC Bank
(D) These are locations where only Visa cards (D) State Bank of India
can be used Ans : (D)
Ans : (B) 144. Non performing assets of public sector banks
138. There are many security features which are during the last quarter of FY 2010-11 have
regularly being explained and stressed to check shown an increase. What does it indicate?
against forged currency notes. One of them is (A) The assets of the banks are not perform-
Intaglio printing. What is it ? ing as per their expectations
(A) It is specialized printing of ` 1,000 and (B) The loans and advances of banks are not
` 500 denomination currency notes performing as per standard norms
(B) It is raised printing on the currency notes (C) More loans and advance accounts of banks
of RBI seal, Ashoka Pillar emblem etc. are becoming irregular in payment
(C) It is printing on special printing press of (D) None of these
RBI Ans : (C)
(D) It is printing through special inks of the 145. Punjab National Bank has granted loan of Rs. 5
security features on currency notes lacs to ‘A’ for business purposes. ‘A’ has ‘D’
Ans : (B) as guarantor for the loan. Despite PNB asking
139. Often we hear of banks offering bancassurance
for repayment of the loan, ‘A’ is not returning
services to its customers. What is it?
the loan amount. What can PNB do against ‘D’?
(A) It is a written assurance from banks about
(A) Request ‘D’ to make ‘A’ repay the loan
RBI approved customer service levels
amount
(B) It is selling of insurance products through
(B) Ask ‘D’ to jointly pay with ‘A’
banks
(C) It is the subsidiaries of banks selling in- (C) Ask ‘D’ to make the payment
surance products (D) Can take no action against ‘D’
(D) Customer relationship managers are pro- Ans : (C)
vided to answer customer queries 146. Kisan Vikas Patra is an effective scheme for sav-
Ans : (B) ings for the common man. With which organi-
140. Which of the following is not an international zation can savings be made in this scheme?
rating agency? (A) Cooperative banks
(A) Standard & Poors (B) Moodys (B) Regional rural banks
(C) Fitch (D) Morgan Stanley (C) Post offices
Ans : (D) (D) Commercial banks
141. Where does RBI mint currency coins? Ans : (C)
(A) At Mumbai and Alipore (Kolkata) 147. The monetary policy prescribed by RBI is a
(B) At Mumbai and Noida means to check money supply and credit avail-
(C) At Kolkata and Noida ability. Which of these is not a channel of mon-
(D) At Mumbai, Alipore (Kolkata), Hyderabad etary policy transmission ?
and Noida (A) Cash reserve ratio
Ans : (D) (B) Deposit interest rates
142. Which of the following is known as a secured (C) Repo rate
loan of a commercial bank? (D) Bank rate
(A) Personal loans Ans : (B)
(B) Credit card overdues 148. Why do micro finance institutions prefer lend-
(C) Temporary overdrafts ing through self help groups?
(D) Educational loans for ` 7 lacs (A) These groups distribute the money among
Ans : (D) themselves making it easier for microfinance
143. Which commercial bank is known for using the institutions
tag line ‘The Banker to every Indian’ ? (B) Self help groups are composed of indi-
(A) ICICI Bank vidual members who have similar back-
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92 | Basic Banking & Financial Issues


ground and are therefore helpful in recov- (D) Customers would be provided handsets by
ery of the loan amounts which help keep banks to operate their accounts
financial discipline for further loans to their Ans : (C)
members 154. Tax havens like Cayman Islands, Mauritius, Brit-
(C) It reduces the cost of locating individual ish Virgin Islands etc., are considered detrimen-
borrowers tal to security interests of other countries.
(D) Bulk loaning is possible through self help Why?
groups (A) These places permit easy investment norms
Ans : (B) with high growth potential
149. Reserve Bank of India’s emblem carries the (B) These are generally zero tax jurisdictions with
sketch of a tiger and a tree. What kind of tree is flexible corporate and regulatory structure
depicted in this emblem? (C) There is freedom for companies to manage
(A) Palm tree (B) Cactus their business in any way
(C) Banyan (D) Banana (D) There is no control over flow of money
Ans : (A) into these places
150. Rabindranath Tagore is often mentioned as a Ans : (B)
customer by a public sector bank in its adver- 155. Number of public sector banks is being given
tisements and corporate communications. additional funds by the government. What is
Which is this bank? the purpose for this funding?
(A) Bank of India (A) To distribute funds received from World
(B) Central Bank of India Bank
(C) Union Bank of India (B) To maintain capital adequacy ratio as per
(D) State Bank of India norms
Ans : (D) (C) To remain classified as scheduled commer-
151. Which out of the following is not a small sav- cial bank
ings product of the government? (D) In terms of instructions from RBI
(A) Savings account in banks Ans : (B)
(B) Postal savings accounts 156. The base rate system of lending by banks is
(C) Public provident fund accounts in post of- meant to correct which aspect of interest appli-
fices cation on loans?
(D) Post offices recurring deposit accounts (A) Borrowers will get better interest rates now
Ans : (A) (B) All customers will be treated at par
(C) The new system would be more transparent
152. The SME sector is an important contributor to
(D) There will be no lending below the base
India’s economy. What is the maximum permis-
rate except for certain exempted catego-
sible investment in plant and machinery to
ries
qualify as a medium scale industry?
Ans : (D)
(A) ` 5 crore (B) ` 50 crore
157. Which of the following is not a prepaid card/
(C) ` 20 crore (D) ` 10 crore
instrument?
Ans : (D)
(A) Gift card (B) Travel card
153. Mobile banking has been started as a pilot
(C) Debit card (D) Mobile charge card
project in Pune recently. What kind of service
Ans : (C)
will it provide? 158. The government and RBI are very keen to pro-
(A) Customers can operate their accounts mote financial inclusion without further delay.
while traveling and on the move Which are the steps being adopted to spread
(B) Banks will be sending their staff to villages this programme?
to help customers operate their accounts (A) All villages with population above 2,000
from their respective homes to have bank branch by 2012
(C) Mobile phones would be used to transfer (B) To appoint banking correspondents for all
money and pay utility bills districts
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(C) To encourage mobile banking 164. RBI has asked public sector banks to increase
(D) To open accounts without observing KYC their share of CASA funds in their deposits port-
norms folio. What is meant by CASA?
Ans : (A) (A) Deposits of big corporates
159. RBI has deregulated interest rate for savings (B) Deposits of small scale companies
accounts. What does it suggest? (C) Deposits in current and savings accounts
(A) Customers will get the benefit of higher (D) Deposits of non resident Indians
interest rates Ans : (C)
(B) Banks will have the right to fix their inter- 165.What is common between Equity Linked Sav-
est rates independently ings Schemes, National Savings Certificates and
(C) Each bank will have their respective inter- Public Provident Funds?
est rates without the need to adhere to (A) Financial schemes handled by post offices
fixed interest rate common to all banks
(B) Investments in these schemes are permit-
(D) Banks will decide interest rates for indi-
ted upto a specified limit
vidual customers according to their sav-
(C) All are mutual fund schemes
ings pattern
(D) These are tax saving schemes
Ans : (C)
160. Which of the following could be considered as Ans : (D)
an initiative towards promotion of financial in- 166. Assume Mr. A has 200 units of a mutual fund
clusion? equity scheme which he purchased for
(A) Opening of no frills accounts ` 2,540. He redeems these 200 units for
(B) Appointing banking correspondents for ` 5985 after a year. What is this amount of gain
servicing rural customers known as?
(C) Opening of bank branches in unbanked dis- (A) Profit
tricts (B) Redeemed funds
(D) All of the above (C) Income growth
Ans : (D) (D) Capital gains
161. The Indian rupee is now identified by a new Ans : (D)
symbol. On which script is this symbol based 167. E-commerce is increasingly becoming a popu-
on? lar mode of doing business. What is this way
(A) Devnagri (B) Roman of operating?
(C) Devnagri and Roman (D) None of these (A) Buying goods and services online from
Ans : (C) vendors
162. With the recent increase in repo rates and re- (B) Placing orders on the phones
verse repo rates announced by RBI there is (C) Getting 30 days credit period for payment
speculation that the lending rates of banks (D) Payment has to be made in advance before
would also increase. Why? goods/ services are delivered
(A) Cost of funds for banks would increase Ans : (A)
(B) Banks use this opportunity to raise lend-
168. India has increased the number of high net
ing rates
worth individuals in its population since 2009.
(C) RBI would instruct the banks to raise the
Who are these individuals?
lending rates
(D) None of these (A) Group of individuals who are linked to big
Ans : (A) business families
163. An enterprising young individual has a prom- (B) Individuals who pay more than ` 1 crore
ising business idea but no funds. He feels that annually as income tax
the idea can be a successful business model. (C) Individuals who have investments in multi-
Whom should he approach? national companies
(A) Public sector bank (B) CII (D) Individuals who have substantial investible
(C) FICCI (D) Venture capitalists liquid assets
Ans : (D) Ans : (D)
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94 | Basic Banking & Financial Issues


169. A retired person has sufficient investments in (D) Details of savings accounts of customers
long term bank fixed deposits, property and would be shared with the authorities
Public Provident funds. He however finds it Ans : (B)
hard to manage his daily expenses. How would 175. Three credit information companies have been
you describe his financial position? permitted by RBI to start operating in the coun-
(A) Man of means with poor liquidity try. What is the scope of these companies?
(B) Wealthy person who is miserly (A) They maintain a data base of individuals/
(C) Person with sound investment ideas companies with their credit history
(D) High net worth individual (B) They decide in association with banks
Ans : (A) whether to sanction loan to an individual
170. RBI has again increased the repo and reverse or not
repo rates by 25 basis points. If a bank wishes (C) Corporate loans are sanctioned only after
to keep funds with RBI will it get higher or lesser clearance from these companies
interest now as compared to the previous rates? (D) All of the above
(A) No change (B) Higher Ans : (A)
(C) Lower (D) Will not get any interest 176. The global economy is seeing countries engag-
Ans : (B)
ing in currency wars. What are they precisely
171. Gold is increasingly becoming a preferred means
doing?
of investing. Where can one buy gold from?
(A) Countries are maneuvering exchange rates
(A) Bank branches (B) Post offices
to improve their trade
(C) Bullion dealers (D) All of these
(B) Balance of payments are disturbed by
Ans : (D)
172. Teaser home loans rates are disturbing RBI as countries with strong currencies
they want banks to stop this practice. What do (C) Contraband currency is being floated by
these rates indicate? countries to weaken the other country
(A) Rates keep changing as per market condi- (D) Inferior goods are exported by countries
tions and the borrower remains helpless with strong currency to kill the domestic
(B) In the initial years the rates are kept low to markets of the weaker countries
attract customers Ans : (A)
(C) The customers are offered low rates in the 177. The success of the public sector companies in
beginning and later the rates are revised their maiden public offerings have prompted
as per market situation them to go for FPOs. What do they intend to
(D) All of the above do with FPOs?
Ans : (C) (A) These are follow on issues after IPOs for
173. Of the following means of delivering money further issue of shares
which do you think is not an illegal mode of (B) Follow on offers further dilute the holding
transfer of money? of the government
(A) Export underinvoicing (C) FPOs give additional shares to those suc-
(B) Cross border smuggling of currency cessful in the IPO
(C) Payment through travelers cheques (D) These shares are issued when additional
(D) Physically through couriers funds are required
Ans : (C) Ans : (A)
174. Banks are being appointed as registrars to 178. RBI prescribes the Cash Reserve ratio to be
UIDAI for promoting the Aadhar programme. maintained by banks as part of prudential norms.
In what way are the banks to assist? In what way is this cash reserve maintained by
(A) They would give a list of their customers the banks?
(B) They would provide biometric and demo- (A) It is kept as reserves of gold with RBI
graphic identification of their customers (B) It is maintained as cash with RBI
(C) They would help in distributing the Aadhar (C) Each bank keeps the reserve in their re-
identification cards to their customers spective head offices
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(D) It is maintained as investments in govern- (A) Through banks against companies’ assets
ment bonds mortgaged
Ans : (B) (B) Medium term debt for companies issuing
179. Third party administrators are an important com- debentures
ponent of health insurance policies. What ex- (C) Medium to long term debt instrument with-
actly is their role? out facility of exchange with stocks
(A) They source clients for general insurance (D) Short term equity holding in the company
companies Ans : (C)
(B) They are representatives of IRDA to check 184. Benard Madoff created a huge financial crisis
malpractices in distribution of health poli- in the US with his Ponzi schemes. What are
cies these Ponzi schemes?
(C) They are representatives of insurance com- (A) High returns were promised within a short
panies who help in disposal of medical period of investment which did not materi-
claims of the insured alize
(D) They work on behalf of medical service pro- (B) Popular mortgage loans were sanctioned
viders to check fraudulent bills but all the loans became irregular
Ans : (C) (C) Old deposits were paid off with new de-
180. Cold calling has come to be a common market- posits but the cycle burst when fresh de-
ing strategy being adopted specially in case of posits stopped
financial services sector. How does this strat- (D) Real estate investments were mobilized
egy operate? without any construction activity actually
(A) The callers are extremely courteous with taking place
the customer Ans : (C)
(B) These marketing calls are made at the 185. Systematic investment plans SIPs are consid-
homes of prospective customers ered a smart way of investing in mutual funds.
(C) Events are organized where the prospec- What is the special feature?
tive customers are shown presentations (A) Amounts are regularly invested at periodic
(D) Prospective customers are randomly cho- intervals over a length of time which gives
sen for sales calls without appointment the benefit of average pricing of units
Ans : (D) (B) Units are bought only at a pre determined
181. Where substantial funds are required to be mo- price
bilized crowd funding as a strategy is often (C) Units are bought in newly floated schemes
adopted. In which of the following do you think (D) Plans are meant only for investment in debt
crowd funding would be appropriate? schemes and are less risky
(A) For political parties Ans : (A)
(B) For charity issues 186. RBI has asked banks to closely monitor their
(C) For rehabilitating weak banks financial inclusion progress in terms of the plans
(D) For pumping money in the stock exchange finalized to be achieved by March 2012. Which
Ans : (B) services offered by banks would qualify to be
182. Gold exchange traded funds are considered to treated as a financial inclusion measure?
be investor friendly and is thus being actively (A) Savings accounts and credit cards
promoted. In what way does the investor benefit? (B) Savings account with overdraft facility and
(A) Traded daily on the stock markets remittance facility
(B) Is safe and convenient to maintain (C) Credit facility, savings product and remit-
(C) There is no doubt about purity tance facility
(D) All of the above (D) Kisan credit cards and savings accounts
Ans : (D) Ans : (C)
183. Companies raising money through non convert- 187. Kisan credit cards are an effective way of reach-
ible debentures has reduced appreciably. What ing out to the farmers by the banks. What as-
is this mode of mobilizing funds? sistance does the farmer receive in this way?
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96 | Basic Banking & Financial Issues


(A) Credit facility for crops etc. against an ap- 191. The first meeting of the Financial Stability De-
proved limit velopment Council was recently held under the
(B) Short term credit facility against value of chairmanship of the finance minister. What is
his crops the purpose of this committee?
(C) Long term credit is provided against his (A) To discuss inter regulatory coordination
land holdings issues and financial stability matters
(D) Loan is permissible against crops sold but (B) Meant to address the stock market volatil-
payment yet to be received by the farmer ity and stabilize the stock prices, if volatile
Ans : (A) (C) It is for supplementing the efforts of the
Planning Commission
188. RBI has reduced by one percentage point the
Statutory Liquidity Ratio required to be main- (D) All of the above
tained by banks to 23 per cent. In what form is Ans : (A)
this stipulation required to be fulfilled? 192. The concept of self help groups is one of the
(A) Banks are required to keep the amount in crucial working models for promoting micro fi-
approved government securities of the nance. What is the basis of this model?
appropriate value (A) It is linked to the concept of group guarantee
(B) The amount to be maintained in cash and (B) Each member is supposed to make his pay-
securities with RBI ment without help from others
(C) The required amount is to be maintained in (C) Such groups prepare their own plan for
gold with RBI savings and credit
(D) All of these (D) They work on the principle of helping each
other
Ans : (A)
Ans : (A)
189. Mutual fund companies declare dividends an-
nually depending upon their performances. 193. Which of the following is a formal way of get-
When the dividends are paid out the net asset ting finance?
value (NAV) of the units held by the investors (A) Floating of chit funds
are recalculated. What is the monetary value of (B) From local money-lenders
the revised NAV? (C) Through internet banking
(A) The revised NAV is less than the one prior (D) All of the above
to declaring dividends Ans : (C)
(B) The value of the revised NAV rises 194. Which of the following do you think is the ac-
(C) The scheme closes with declaration of divi- cepted practice ?
dends (A) Banks offer higher interest rates to senior
(D) The residual value of the units are paid out citizens on their fixed deposits as compared
Ans : (A) to others
190. Many companies invite deposits from the pub- (B) Banks charge lesser interest from senior
lic for durations of one year and more similar to citizens on their personal loans
bank fixed deposits. Why are these deposits (C) Senior citizens can open bank accounts
required to be rated? without the need to follow KYC norms
(A) It is as per SEBI guidelines (D) Senior citizens are not permitted to use mo-
(B) It indicates the standing of the company bile banking
(C) Ratings reflect the risks involved in invest- Ans : (A)
ing in the company’s deposits 195. Frauds are being committed in companies lead-
(D) Ratings compare it to similar deposits of ing to huge revenue loss. Which is the most
banks appropriate way to identify the loss?
Ans : (C) (A) Revenue audit (B) Cost audit
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Basic Banking & Financial Issues | 97


(C) Forensic audit (D) Concurrent audit (C) The loan period gets stretched
Ans : (C) (D) The loan is rescheduled by making
196. Employees Provident Fund Organisation has monthly instalments higher or the loan
huge funds which are required to be invested period is proportionately increased with
in appropriate schemes/ markets. The govern- the same monthly instalments
ment is persuading them to invest in the stock Ans : (D)
markets. Why? 200. Most banks have increased their deposit rates
(A) EPFO does not invest in stocks as it con- as a result of change in RBI’s repo and reverse
siders it risky repo rates. What benefit, if any, would senior
(B) It has been made mandatory to invest in citizens get?
the stock market (A) Monthly compounding of interest
(C) The government wants EPFO to declare (B) No additional benefit
higher returns (C) 0·25% higher interest rate
(D) The subscribers to EPFO want their funds (D) 0·5% additional interest
to be invested in the stock market
Ans : (D)
Ans : (A)
201. An individual has the following investments.
197. An investor holding paper securities of a well Which of them is the most liquid?
known company wishes to sell the shares in
the stock market. He is unable to do so. What (A) Bank fixed deposits due for maturity after
would you suggest to him? three months
(A) Convert the paper securities to dematerial- (B) Money in ELSS mutual funds which are
ized form one year old
(B) Sell it to a stock broker (C) Gold bars and coins
(C) Open a demat account and credit the shares (D) Post office deposits payable on demand
to this account after dematerialization Ans : (D)
(D) Any one of the above 202. Which rate is not by RBI ?
Ans : (C) (A) Repo Rate
198. RBI is concerned about the high credit deposit (B) Reverse Repo Rate
ratio of the commercial banks as per its credit (C) Interest Rate
policy. What do you understand from this state- (D) Bank Rate
ment? Ans : (C)
(A) Repayments in the loan accounts is low 203. Islamic banking is likely to be introduced as an
leading to high outstandings alternative banking model on the basis of de-
(B) Number of accounts running irregular is mand. What is the special feature?
high (A) Meant only for a particular section of
(C) Loans as a percentage of deposits is high people
(D) Deposit growth is not satisfactory (B) It is based on Shariat law
Ans : (C) (C) Bank branches are not required
199. Lending rates have been raised by most banks (D) Can be accessed only through mobiles
in view of the tight market conditions. What Ans : (B)
happens to the home loan repayments when 204. When investment and savings options are dis-
the interest rates are raised as a result of the cussed there is often reference to the real inter-
market situation? est rate. What is meant by this real interest rate?
(A) Most loan accounts become default accounts (A) It is the actual rate that is received minus
(B) The amount of the monthly instalments are the charges and other costs which are at
increased times not clearly mentioned
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98 | Basic Banking & Financial Issues


(B) It is the compounded rate which is not in- (A) Consumer protection court
dicated (B) RBI
(C) It is the declared rate minus the inflation (C) Banking ombudsman
rate which is the real value of money
(D) Finance ministry
(D) The actual yield over a period of time cal-
culated on simple interest basis Ans : (C)
Ans : (C) 209. A retail investor wishes to sell 500 units of his
mutual funds holding as he is in need of money.
205. Of the following class of people in India which
At what price will his mutual funds units be
are the financially excluded?
calculated?
(A) Artisans and craftsmen
(A) At the current NAV prices
(B) Agricultural landlords
(B) The prevailing stock prices of the units
(C) Landless farmers
(C) At 10 per cent of his buying price plus the
(D) Urban domestic workers
original cost
Ans : (C)
(D) The current NAV price less 2 per cent
206. Non performing assets are cause for serious
concerns for banks. Why are these loans known Ans : (A)
as non performing? 210. Banks have different interest rates for different
(A) Recovery of bank’s funds are difficult loan products. To which rate are these interest
rates linked?
(B) Interest on these accounts are not charged
(C) Banks have to make provision for these (A) Prime lending rates
loans in their balance sheet (B) Base rate
(D) All of the above (C) RBI administered rates
Ans : (D) (D) The bank rate
207. Inter bank mobile payments service has been Ans : (B)
launched by National Payments Corporation of 211. SEBI allows retail investors to apply for shares
India to facilitate transfer of money using cell of Initial Public Offerings without actual trans-
phones. What is National Payments Corpora- fer of their funds from their accounts. What is
tion of India? this facility known as?
(A) It is an independent body set up by Indian (A) Systematic transfer plans
Banks’ Association to monitor mobile pay-
ments (B) Systematic investment plans
(B) It is an autonomous body under the Fi- (C) Hedge fund accounts
nance ministry (D) ASBA
(C) It is an institution set up by RBI to handle Ans : (D)
the retail payments system 212. Employees are required to compulsorily deposit
(D) It is an organization under the Telecom funds in their provident fund account from their
Regulatory Authority for mobile transac- monthly salary. There is another provident fund
tions account which post offices/banks are autho-
Ans : (C) rized to open for the general public. How is this
208. A bank customer could not get his grievance account described?
resolved by his bank even after referring his (A) Pension fund account
complaint to the designated official. Since his (B) Tax savings account
complaint was regarding excess interest
(C) Public provident fund account
charged in his loan account he was desperate
to settle the matter. Whom should he approach (D) Monthly income scheme account
next? Ans : (C)
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213. Biometric cards are used when banking corre- 218. RBI has recently revised the rule to fix interest
spondents do business at unbanked centres. rate on savings accounts in banks. What is the
What are the security features of biometric revised rate?
cards? (A) 3·5 per cent
(A) They carry a unique identification number (B) It is regulated by individual bank concerned
(B) Their password is alpha numeric (C) 3·0 per cent
(C) They have scan of finger prints and the iris (D) 3·75 per cent
(D) They have location details of the card Ans : (B)
holder 219. When Reserve Bank of India nationalised ?
Ans : (C) (A) January 1, 1949 (B) January 1, 1950
214. While investing in mutual funds there is a choice (C) March 1, 1935 (D) March 1, 1940
between equity funds and debt funds besides Ans : (A)
others. What is the basic difference between 220. The Indian Banking Act was passed in—
equity and debt funds? (A) March 1949 (B) March 1948
(A) Debt funds are less riskier than equity (C) March 1947 (D) March 1946
(B) Equity funds may give higher returns Ans : (A)
(C) Debt funds are likely to give assured returns 221. For the development of the banking facilities in
(D) All of the above the rural areas the Imperial Bank of India was
partially nationalised on—
Ans : (D)
(A) June 1, 1940 (B) June 1, 1942
215. Even though mutual funds invest their resources
in the stock markets it is still considered safer (C) July 1, 1955 (D) July 1, 1949
than investing directly in stocks. Why is it so? Ans : (C)
(A) The risk is spread over a number of stocks 222. The Imperial Bank of India was named as the—
in case of mutual funds and managed pro- (A) Reserve Bank of India
fessionally (B) State Bank of India
(B) There are more number of people invest- (C) Union Bank of India
ing in mutual funds (D) Bank of India
(C) Investing is not done by the investor Ans : (B)
(D) The mutual fund company is careful not to 223. Which is/are not an associated bank of SBI ?
lose money (A) The State Bank of Hyderabad
Ans : (A) (B) The Union Bank of India
216. Life insurance penetration in India is not satis- (C) The State Bank of Bikaner and Jaipur
factory. What is the percentage of population (D) The State Bank of Mysore
who are covered by life insurance? Ans : (B)
(A) 20 per cent (B) 6 per cent 224. In order to have more control over the banks,
(C) 10 per cent (D) None of these 14 large commercial banks whose reserves were
more than ` 50 crore each were nationalised
Ans : (C) on—
217. Just like banks have to maintain a stipulated (A) 19th July, 1969 (B) 19th July, 1970
capital adequacy ratio similarly non banking fi- (C) 19th July, 1971 (D) 19th July, 1972
nance companies NBFCs are also required to do Ans : (A)
so. What is the minimum stipulation for NBFCs?
225. Which is not a nationalised bank ?
(A) 15 per cent (B) 12 per cent (A) Bank of India (B) Canara Bank
(C) 10 per cent (D) 8 per cent (C) AXIS Bank (D) Vijaya Bank
Ans : (A) Ans : (C)
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100 | Basic Banking & Financial Issues


226. When the Government of India merged the New (C) To provide basic banking services to bank-
Bank of India with Punjab National Bank ? less villages
(A) Sept. 4, 1993 (B) July 1, 1990 (D) None of the above
(C) July 1, 1993 (D) March 1, 1993 Ans : (C)
Ans : (A) 235. When RBI has decided to circulate ‘Plastic Cur-
227. Which is the Central Bank of India ? rency Notes’ in the market ?
(A) The Central Bank of India (A) July 1, 1999 (B) July 1, 2010
(B) The State Bank of India (C) July 1, 2011 (D) Sept. 1, 2011
(C) The Reserve Bank of India Ans : (B)
(D) The Union Bank of India 236. Which is the measures of credit control ?
Ans : (C) (A) Quantitative credit control
228. The RBI was established in— (B) Qualitative credit control
(A) 1935 (B) 1940 (C) Budgetary control
(C) 1947 (D) 1949 (D) Both (A) and (B)
Ans : (A) Ans : (D)
229. When RBI was set up, the Capital of the Bank 237. NPAs stands for—
was— (A) Net Present Value
(A) 500 crore (B) 50 crore (B) Non Preforming Assets
(C) 15 crore (D) 5 crore (C) Net Pure Assets
Ans : (D) (D) Net Permanent Assets
230. The general administration and direction of RBI Ans : (B)
is managed by a Central Board of Directors 238. When was introduced the Differential Rate of
consisting of– Interest (DRI) ?
(A) 20 members (B) 15 members (A) In 1972 (B) In 1990
(C) 5 members (D) 25 members (C) In 2009 (D) In 2011
Ans : (A) Ans : (A)
231. RBI released ` 1000 currency note for circula- 239. When was adopted, New strategy for Rural
tion on— Lending : Service Area Approach ?
(A) October 1, 1970 (B) July 1, 1980 (A) April 1, 1989 (B) March 1, 2007
(C) October 9, 2000 (D) October 3, 2011 (C) April 1, 2010 (D) April 1, 2011
Ans : (C) Ans : (A)
232. Which of the following instruments cannot be 240. As on June 30, 2010, which Indian Bank has the
presented for payment in a clearing house ? maximum number of offices in abroad ?
(A) Demand draft (B) Dividends (A) Bank of India
(C) Fixed deposit receipt (D) All of the above (B) SBI
Ans : (C) (C) Bank of Baroda
233. The Security Printing Press at Hyderabad was (D) None of these
established in— Ans : (B)
(A) 1982 (B) 1983 241. Under Microfinance, SHG stands for—
(C) 1980 (D) 1950 (A) Self High Group
Ans : (A) (B) Self Help Group
234. ‘‘Swabhiman’’ Scheme is related— (C) Saving High Group
(A) Rich Customers of the Bank (D) Self Help Goods
(B) RRBs Ans : (B)
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Basic Banking & Financial Issues | 101


242. What is the target of the Government of India 249. In, Third Review of Monetary and Credit Policy
for the year 2013-14 to the agriculture sector ? 2012-13, Cash Reserve ratio kept—
(A) ` 575000 crore (A) At 7% (B) At 8%
(B) ` 4050000 crore (C) At 4·00% (D) At 9%
(C) ` 700000 crore Ans : (C)
(D) ` 475000 crore 250. As on March 19, 2013 Repo Rate is—
Ans : (A) (A) 7·50% (B) 7·75%
243. The government has put a target of disbursing (C) 8·0% (D) 8·25%
` 700000 crore institutional credit to agriculture Ans : (A)
sector during— 251. SLR refers to—
(A) 2012-13 (B) 2013-14 (A) That portion of total deposit of a commer-
(C) 2014-15 (D) 2016-17 cial bank which it has to keep with itself in
Ans : (B) the form of case reserves
(B) Interest Rate
244. The Banking Regulation (Amendment) Bill 2004
was introduced for— (C) Bank Rate
(A) Privatisation of Bank (D) Repo Rate
Ans : (A)
(B) Credit Control
252. When RBI reduced SLR from 24% to 23% ?
(C) For removing 10% cup on voting rights
and also encouraging foreign banks to set (A) Aug. 11, 2012 (B) July 1, 2011
up subsidiaries and attract foreign invest- (C) July 16, 2011 (D) October 1, 2011
ment Ans : (A)
(D) Bank Rate 253. Which is more closed to Base Rate of the Banks?
Ans : (C) (A) Repo Rate (B) Reverse Repo Rate
245. India Millennium Deposit (IMD) scheme was (C) PLR (D) CRR
launched by the— Ans : (C)
(A) SBI (B) RBI 254. What is Bank Rate (As on March 19, 2013) ?
(C) UTI (D) UBI (A) 8·5% (B) 7%
Ans : (A) (C) 8% (D) 6%
Ans : (A)
246. RBI announced its Monetary & credit policy
2012-13 on— 255. On March 19, 2013 Reverse Repo Rate fixed at—
(A) 8·75% (B) 8·25%
(A) January 1, 2012 (B) March 17, 2012
(C) 6·5% (D) 8·50%
(C) April 17, 2012 (D) May 4, 2012
Ans : (C)
Ans : (C)
256. Which is not correct ?
247. What is the base year of newly introduced Con- (A) Bank Rate : 9·0 %
sumer Price Index (CPI) ?
(B) Reverse Repo Rate : 6·5 %
(A) 2004–05 (B) 2010 (C) Repo Rate : 7·5 %
(C) 2011 (D) 2012 (D) SLR : 23%
Ans : (B) Ans : (A)
248. Planning Commission has lowered the poverty 257. At present how many commercial banks in Pub-
line from ` 32 per day to— lic Sector are working in the country ?
(A) ` 28 (B) ` 29 (A) 26 (B) 30
(C) ` 30 (D) ` 31 (C) 35 (D) 18
Ans : (A) Ans : (A)
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102 | Basic Banking & Financial Issues


258. Which bank is the largest Public Sector bank in 265. The new President of ASSOCHAM for the year
the country ? 2012-13 is—
(A) Union Bank of India (A) Dilip Modi (B) R. V. Kanoria
(B) HDFC (C) Raj Kumar Dhoot(D) N. L. Kidwai
(C) RBI Ans : (C)
(D) SBI 266. The saving-investment gap during 2011-12 has
Ans : (D) been estimated at—
259. Which is the largest Private Sector Bank in the (A) 4·6% of GDP (B) 3·0% of GDP
country ? (C) 3·2% of GDP (D) 3·8% of GDP
(A) HDFC Bank Ans : (A)
(B) ICICI Bank 267. The pace of credit growth for Private Sector
(C) Kotak Mahindra Bank banks increased to 11·7 per cent during—
(D) AXIS Bank (A) 2010 -11 (B) 2009 -10
(C) 2012 -13 (D) 2008 -10
Ans : (B)
Ans : (B)
260. On June 30, 2012 how many branches of SBI
and Group were working in the country ? 268. According to RBI, bank loan registered a growth
of 21·38 per cent in—
(A) 18992 (B) 18200
(A) 2010-11 (B) 2009-10
(C) 67300 (D) 62650
(C) 2010-12 (D) 2011-12
Ans : (A)
Ans : (A)
261. When Government of India was approved SBI-
SBS Merger ? 269. As per RBI, bank deposits growth stood at.......
in 2011-12.
(A) In August 2007
(A) 12% (B) 13%
(B) In August 2009
(C) 19·31% (D) 14·13%
(C) In March 2011
Ans : (C)
(D) In July 2011
270. As per latest estimation of RBI the GDP growth
Ans : (A) for 2012-13 is—
262. When RBI made compulsory to the Basel II (A) 5·0% (B) 5·5%
norms for Banks ?
(C) 6·0% (D) 7·0%
(A) March 31, 2007 (B) March 31, 2008
Ans : (A)
(C) March 31, 2010 (D) March 31, 2011
271. The person appointed as Dy. governor of RBI
Ans : (B) in place of Subir Gokaran is—
263. Which bill passed for reducing the minimum (A) Urjit Patil
level of government's shareholding in equity (B) Raghuram Rajan
of SBI from 55 per cent to 51 per cent ?
(C) Rakesh Mohan
(A) SBI (Amendment) Bill 2009 (D) Usha Thorat
(B) SBI (Amendment) Bill 2010 Ans : (A)
(C) RBI (Amendment) Bill 2012 272. As a matter of policy the percentage point gap
(D) None of these between Repo rate and Marginal Standing Fa-
Ans : (B) cility is—
264. The Reverse Repo rate as announced by RBI (A) 2 Percentage points
on 19 March, 2013 stand at— (B) 1 Percentage points
(A) 6·5% (B) 9·0% (C) 1·5 percentage points
(C) 8·0% (D) 8·5% (D) Not fixed
Ans : (A) Ans : (B)
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Basic Banking & Financial Issues | 103


273. For a scheduled bank the paid up capital and 281. Which is the Indian Share Price Index ?
collected funds of bank should not be less (A) Dolex (B) Sensex
than— (C) Nifty Fifty (D) All of these
(A) ` 5 lakh (B) ` 6 lakh Ans : (B)
(C) ` 1 crore (D) ` 5 crore 282. NIKKEI is the Share Price Index of—
Ans : (A) (A) India (B) USA
274. Which Act is fully applicable to all commercial (C) Tokyo (D) Bangladesh
banks ?
Ans : (C)
(A) Companies Act, 1956
283. NSE-50 is renamed as—
(B) Partnership Act, 1932
(A) SIMEX (B) Top 100
(C) Banking Regulation Act, 1949
(C) S $ PCNX Nifty (D) MID–100
(D) Sale of Goods Act, 1930
Ans : (C)
Ans : (C)
284. Debt Recovery Tribunals is situated at—
275. As on 31st March, 2010 how many RRBs were
recapitalized with total funding support of ` (A) Delhi (B) Agra
1795·97 crore by Government of India ? (C) Kota (D) Chandigarh
(A) 96 (B) 98 Ans : (A)
(C) 27 (D) 15 285. What is CRAR for all Indian banks ?
Ans : (C) (A) 3% (B) 9%
276. The share of long-term debt in India’s total ex- (C) 6% (D) 8%
ternal debt at the end of September, 2012 stands Ans : (B)
at— 286. Who has replaced Harsh Mariwala as President
(A) 72% (B) 76·9% FICCI in January 2012 ?
(C) 80% (D) 82% (A) Sunil Kanoria
Ans : (B) (B) R.V. Kanoria
277. Which is/are mutual fund ? (C) Raj Kumar Dhoot
(A) HDFC Top 200 (D) Siddharth Birla
(B) HDFC Equity Fund Ans : (B)
(C) IDFC Small and Mid Cap 287. RBI introduced a Banking Ombudsman Scheme
(D) All of these in the country on—
Ans : (D) (A) June 1, 2010 (B) June 1, 2009
278. The external debt to GDP ratio at the end of (C) June 14, 1995 (D) June 1, 2011
March 2012 in India Stands at— Ans : (C)
(A) 16·6% (B) 19·7% 288. When Narasimhan Committee constituted by
(C) 17·0% (D) 18·4% the Government of India ?
Ans : (B) (A) August 14, 1991 (B) July 1, 2005
279. What is the corpus of RIDF-XIX ? (C) July 1, 2009 (D) July 1, 2010
(A) ` 20,000 crore (B) ` 18000 crore Ans : (A)
(C) ` 16000 crore (D) ` 14000 crore 289. Which committee is set up for financial reforms?
Ans : (A) (A) Narasimhan Committee
280. RIDF XVIII is related to..........year. (B) Khanna Committee
(A) 2010-11 (B) 2009-10 (C) K.R. Birala Committee
(C) 2012-13 (D) 2011-12 (D) None of these
Ans : (C) Ans : (A)
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104 | Basic Banking & Financial Issues


290. RBI constituted a committee under the Chair- 298. The paid up capital of NABARD stood at
manship of Sri M.N. Goiporia in— ......... on March 31, 2010.
(A) Sept. 1, 1992 (B) Sept. 1, 1990 (A) ` 12000 crore (B) ` 2000 crore
(C) Sept. 1, 2009 (D) Sept. 1, 2010 (C) ` 500 crore (D) ` 5000 crore
Ans : (B) Ans : (B)
291. In case of NPA norms interest on advance
299. Which of the following is a part of Liquidity
should be more than—
Adjustment Facility (LAF).
(A) 170 days (B) 365 days
(A) Repo Rate
(C) 180 days (D) 95 days
(B) Reverse Repo Rate
Ans : (C)
(C) Cash Reserve Ratio
292. MIBOR and MIBID was launched by NSE on—
(A) June 15, 1998 (D) All of the above
(B) June 1, 2007 Ans : (C)
(C) June 1, 2009 300. L1 is used for—
(D) July 1, 2010 (A) Liquidity aggregates
Ans : (A) (B) Lower Rate
293. Which is a reference rate of NSE ? (C) Liability Rate
(A) YES (B) SARFAESI (D) All of these
(C) MIBID (D) MID DAX Ans : (A)
Ans : (C) 301. As on Aug. 11, 2012, the SLR stood at—
294. SEBI was constituted on— (A) 15% (B) 23%
(A) April 1, 1956 (B) April 1, 1979 (C) 20% (D) 25%
(C) April 12, 1988 (D) April 1, 2007
Ans : (B)
Ans : (C)
302. The rate of interest payable on a bank deposit
295. Mutual Fund controlled and regulated by—
is determined by—
(A) SEBI (B) RBI
(A) Indian Banks’ Association
(C) IRDA (D) SBI
(B) The bank concerned
Ans : (A)
(C) RBI
296. The paid up capital of National Housing Bank
stood at (on June 30, 2009)— (D) Finance ministry
(A) ` 400 crore (B) ` 450 crore Ans : (B)
(C) ` 1300 crore (D) ` 1800 crore 303. What is NABARD ?
Ans : (B) (A) Bank
297. NABARD was established on— (B) Irrigation Scheme
(A) July 12, 1982 (B) July 1, 1990 (C) Share Index
(C) July 1, 2005 (D) July 1, 2009 (D) Mutual Fund
Ans : (A) Ans : (A)


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