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CHSE Odisha Banking & Insurance study materials
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CHSE Odisha Banking & Insurance practice questions

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Question 1Introduction to Banking

Under the Reserve Bank of India Act, 1934, which function is performed by the Reserve Bank of India as the 'banker to the Government'?

  1. Managing the public debt and acting as adviser to the government on monetary matters Correct answer.
  2. Insuring the deposits of commercial bank customers up to a statutory limit
  3. Issuing currency notes on behalf of the State Governments
  4. Lending directly to farmers under priority sector schemes

Explanation

As banker and debt manager to the government, the RBI accepts receipts, makes payments, manages public debt and advises on banking and monetary matters. Deposit insurance is handled by the DICGC, and direct farm lending is done by banks, not the central bank.

Question 2Introduction to Banking

A customer opens a savings bank account and is told the interest credited is calculated on the daily balance. Which statement correctly describes the current RBI rule on savings deposit interest?

  1. Interest must be calculated on the daily balance at a rate fixed by the bank within RBI guidelines Correct answer.
  2. Interest is fixed uniformly at 3.5% per annum for all scheduled commercial banks
  3. No interest may be paid on savings deposits held by commercial banks
  4. Interest must be calculated on the minimum balance between the 10th and the last day of the month

Explanation

Since the RBI's 2010 circular, savings deposit interest is computed on the daily balance, and banks are free to set the rate within the overall regulatory framework. The earlier method based on the minimum balance between the 10th and month-end was discontinued.

Question 3Introduction to Banking

Which of the following is the correct order of the traditional 'four pillars' of Indian banking regulation as they apply to a commercial bank's operations?

  1. Licensing by the Ministry of Finance, deposit insurance by DICGC, supervision by NABARD, and grievance redressal through the Banking Ombudsman
  2. Licensing by RBI, deposit insurance by DICGC, supervision by RBI, and grievance redressal through the RBI's Integrated Ombudsman Scheme Correct answer.
  3. Licensing by RBI, deposit insurance by SIDBI, supervision by SEBI, and grievance redressal through the RBI's Ombudsman
  4. Licensing by SEBI, deposit insurance by RBI, supervision by IRDAI, and grievance redressal through consumer courts

Explanation

Commercial banks are licensed and supervised by the RBI, deposits are insured by the DICGC, and customer grievances are handled under the RBI's Integrated Ombudsman Scheme. Each institution has a defined statutory role, so the other combinations misassign functions.

Question 4Introduction to Banking

A bank classifies a loan account as a Non-Performing Asset. Which condition must be satisfied for this classification?

  1. The loan was sanctioned without collateral security
  2. The borrower has requested a one-time settlement of the dues
  3. The borrower has failed to submit audited financial statements for one year
  4. Interest or principal has remained overdue for more than 90 days Correct answer.

Explanation

An asset becomes non-performing when interest or principal has remained overdue for more than 90 days, as per RBI income recognition norms. Other events such as non-submission of statements or absence of collateral do not by themselves make an account an NPA.

Question 5Introduction to Banking

Under the RBI's Income Recognition, Asset Classification and Provisioning norms, a sub-standard asset that remains so for 12 months is upgraded to which category?

  1. Restructured standard asset
  2. Standard asset
  3. Doubtful asset Correct answer.
  4. Loss asset

Explanation

A sub-standard asset that has remained in that category for 12 months is reclassified as a doubtful asset. Doubtful assets carry higher provisioning, reflecting greater uncertainty of recovery.

Question 6Introduction to Banking

A depositor holds a fixed deposit of Rs 5 lakh in a scheduled commercial bank that fails. What protection does the DICGC provide?

  1. The entire Rs 5 lakh is reimbursed because fixed deposits are fully insured
  2. Deposits above Rs 1 lakh are insured only if the bank is nationalised
  3. Only the principal is insured, with no cover for accrued interest
  4. Insurance cover is limited to Rs 5 lakh per depositor per bank for both principal and interest Correct answer.

Explanation

DICGC insures deposits up to Rs 5 lakh per depositor per bank, covering both principal and interest, after the 2020 amendment raised the limit from Rs 1 lakh. Coverage applies to all insured banks, including scheduled commercial banks.

Question 7Introduction to Banking

Which account is most appropriate for a trader who needs to deposit daily cash receipts and withdraw funds frequently without any restriction on the number of transactions?

  1. Recurring deposit account
  2. Fixed deposit account
  3. Savings bank account
  4. Current account Correct answer.

Explanation

Current accounts are designed for businesses and allow unrestricted deposits and withdrawals, generally without interest. Savings accounts carry transaction limits and are meant for individuals, while deposit accounts restrict withdrawals.

Question 8Introduction to Banking

In the context of Indian banking, 'Know Your Customer' norms primarily require a bank to do which of the following?

  1. Report the customer's credit score to the stock exchange
  2. Insure the customer's deposits against bank failure
  3. Set the interest rate applicable to each customer's loan
  4. Verify the identity and address of customers and monitor transactions on a risk-based approach Correct answer.

Explanation

KYC norms require banks to establish customer identity and address through prescribed documents and to monitor transactions under a risk-based approach to prevent money laundering. Deposit insurance, pricing of loans and exchange reporting are governed by other rules.

Question 9Introduction to Banking

A bank customer wants to transfer Rs 2 lakh to another account using NEFT. Which statement about NEFT settlement is correct?

  1. NEFT settles transactions in real time, 24 hours a day, including holidays
  2. NEFT settles in batches at half-hourly intervals and now operates round the clock Correct answer.
  3. NEFT settles only on the last working day of each month
  4. NEFT transfers are processed only for amounts above Rs 5 lakh

Explanation

NEFT settles in batches at half-hourly intervals and has operated on a 24x7 basis since December 2019. It is not a real-time gross settlement system, which distinguishes it from RTGS.

Question 10Introduction to Banking

Which of these instruments is a negotiable instrument under the Negotiable Instruments Act, 1881?

  1. A fixed deposit receipt marked 'non-transferable'
  2. A share certificate of a listed company
  3. A promissory note payable to bearer on demand Correct answer.
  4. A life insurance policy document

Explanation

The Act recognises promissory notes, bills of exchange and cheques as negotiable instruments, and a promissory note payable to bearer on demand meets this definition. Share certificates, non-transferable receipts and insurance policies are not negotiable instruments.

Question 11Introduction to Banking

A cheque is presented for payment six months after its date. What is the correct treatment by the paying bank?

  1. The cheque must be honoured if the drawer confirms it orally
  2. The cheque must be honoured as it is within the validity period of one year
  3. The cheque is stale and should be returned unpaid, unless it is a demand draft Correct answer.
  4. The cheque must be honoured if the payee is a regular customer

Explanation

Under RBI rules, cheques and similar instruments are valid for three months from the date of issue, after which they become stale and are returned unpaid. Oral confirmation from the drawer does not extend validity.

Question 12Introduction to Banking

Which of the following best describes 'CRR' in Indian banking?

  1. The share of deposits that banks must invest in government securities
  2. The rate at which the RBI lends to banks against government securities
  3. The minimum capital that a bank must hold against risk-weighted assets
  4. The share of net demand and time liabilities that banks must keep as cash with the RBI Correct answer.

Explanation

The Cash Reserve Ratio is the proportion of net demand and time liabilities that a bank must maintain as a cash balance with the RBI. It earns no interest and is a monetary policy tool.

Question 13Introduction to Banking

The RBI reduces the repo rate. Which chain of effects is most consistent with the transmission of monetary policy?

  1. CRR automatically falls, forcing banks to lend more to priority sectors
  2. The exchange rate is fixed, so domestic interest rates cannot change
  3. Banks' cost of funds falls, lending rates decline, credit demand rises Correct answer.
  4. Banks' cost of funds rises, lending rates rise, credit demand falls

Explanation

A cut in the repo rate lowers the cost at which banks borrow from the RBI, which typically pulls down lending rates and stimulates credit demand. Transmission, however, depends on deposit rate adjustments and liquidity conditions.

Question 14Introduction to Banking

Which of the following is a 'time liability' of a bank for the purpose of computing CRR?

  1. Marginal standing facility borrowings from the RBI
  2. Balances in overdue savings accounts
  3. Fixed deposits with a maturity of more than one year Correct answer.
  4. Demand deposits held in current accounts

Explanation

Time liabilities are those payable after a fixed period, such as term deposits, while demand liabilities are payable on demand. Fixed deposits with a maturity beyond one year therefore count as time liabilities in the NDTL computation.

Question 15Introduction to Banking

A bank wishes to open a branch in an unbanked rural centre with a population below 5,000. Under the RBI's branch authorisation policy, what is required?

  1. At least 50% of new branches must be in metropolitan areas
  2. Branches in rural areas require a separate licence from NABARD
  3. No branch may be opened without a corresponding ATM
  4. At least 25% of new branches must be opened in unbanked rural centres Correct answer.

Explanation

The RBI's branch authorisation policy requires scheduled commercial banks to open at least 25% of their new branches in unbanked rural centres with population below 5,000. This is intended to widen financial inclusion.

Question 16Introduction to Banking

Which of the following correctly states the priority sector lending target for domestic scheduled commercial banks in India?

  1. 40% of adjusted net bank credit, with 18% for agriculture Correct answer.
  2. 75% of adjusted net bank credit, with 40% for agriculture
  3. 25% of adjusted net bank credit, with 10% for agriculture
  4. 50% of adjusted net bank credit, with 20% for agriculture

Explanation

Domestic scheduled commercial banks must lend 40% of adjusted net bank credit to the priority sector, including a sub-target of 18% for agriculture. These targets are set by the RBI to channel credit to weaker sections.

Question 17Introduction to Banking

A customer with a grievance about a failed UPI transaction approaches the RBI's Integrated Ombudsman Scheme. Which condition is generally required before the complaint is entertained?

  1. The customer must close the account with the bank
  2. The customer must first file a civil suit in a consumer court
  3. The customer must deposit a fee of Rs 1,000 with the RBI
  4. The customer must have complained to the bank and received no satisfactory reply within 30 days Correct answer.

Explanation

Under the Integrated Ombudsman Scheme, a complaint is maintainable only after the customer has approached the bank and either received no reply within 30 days or is dissatisfied with the reply. The scheme is free and does not require litigation.

Question 18Introduction to Banking

Which of the following best explains why banks are required to maintain SLR in the form of government securities?

  1. To ensure that a portion of deposits is held in safe, liquid assets and to provide a captive market for government borrowing Correct answer.
  2. To prevent banks from lending to priority sectors
  3. To insure depositors against bank failure
  4. To fix the interest rate paid on savings accounts

Explanation

The Statutory Liquidity Ratio obliges banks to hold a specified share of NDTL in cash, gold or approved securities, which keeps a cushion of safe assets and supports government borrowing. It is a prudential and monetary tool, not a deposit insurance mechanism.

Question 19Introduction to Banking

A bank lends Rs 10 lakh against gold ornaments. Which type of charge does the bank create over the security?

  1. Pledge Correct answer.
  2. Assignment
  3. Mortgage
  4. Hypothecation

Explanation

Where physical possession of the movable security is transferred to the lender, the charge is a pledge, as with gold loans. Hypothecation involves possession remaining with the borrower, while a mortgage applies to immovable property.

Question 20Introduction to Banking

Which of the following is the primary function of a bank's 'base rate' or 'marginal cost of funds-based lending rate'?

  1. To determine the interest paid on savings accounts
  2. To calculate the premium payable to DICGC
  3. To fix the exchange rate for foreign currency loans
  4. To set a floor below which a bank cannot lend to any borrower Correct answer.

Explanation

MCLR and its predecessor, the base rate, set the minimum lending rate for a bank, so loans cannot be priced below it except where permitted. The framework aims to improve transparency and transmission of policy rate changes.

Question 21Introduction to Banking

Which of these constitutes 'financial inclusion' as promoted through the Pradhan Mantri Jan Dhan Yojana?

  1. Abolishing all charges on fixed deposits
  2. Giving every citizen a free credit card with a Rs 1 lakh limit
  3. Nationalising all private sector banks
  4. Providing every household with a no-frills bank account, a RuPay card and access to overdraft Correct answer.

Explanation

PMJDY aims to bring every household into the formal banking system through basic savings accounts, RuPay cards and small overdraft facilities. It does not provide free credit cards or involve nationalisation of banks.

Question 22Introduction to Banking

A company wants to raise short-term funds by issuing an unsecured promissory note, which is a common money market instrument. This instrument is known as which of the following?

  1. Corporate bond
  2. Treasury bill
  3. Certificate of deposit
  4. Commercial paper Correct answer.

Explanation

Commercial paper is an unsecured promissory note issued by corporates to raise short-term funds, usually with maturities up to one year. It is issued at a discount and is regulated by the RBI.

Question 23Introduction to Banking

Which statement correctly distinguishes a 'demand deposit' from a 'time deposit'?

  1. A demand deposit is repayable on demand, while a time deposit is repayable only after a fixed period Correct answer.
  2. A demand deposit is available only to corporate customers
  3. A time deposit can be withdrawn at any time without notice
  4. A demand deposit always earns a higher interest rate than a time deposit

Explanation

Demand deposits, such as savings and current accounts, are payable whenever the depositor asks, whereas time deposits are repayable only after the agreed maturity. Time deposits usually carry higher interest because the bank has use of the funds for a fixed term.

Question 24Introduction to Banking

A bank's advances include a term loan for a factory building and a cash credit facility secured by stock. How does the bank's security differ between these two?

  1. The factory building is charged by hypothecation, while stock is charged by mortgage
  2. Both are charged by pledge because the bank holds possession
  3. The factory building is immovable property charged by mortgage, while the stock is a movable asset charged by hypothecation Correct answer.
  4. Both are charged by assignment of receivables

Explanation

Immovable property such as a factory building is charged by mortgage, whereas stock held by the borrower under a cash credit facility is charged by hypothecation since possession remains with the borrower. The nature of the asset determines the type of charge.

Question 25Banking System and Structure in India

Which institution is the apex monetary authority of India, responsible for currency issue and monetary policy?

  1. National Bank for Agriculture and Rural Development
  2. State Bank of India
  3. Reserve Bank of India Correct answer.
  4. Securities and Exchange Board of India

Explanation

The Reserve Bank of India is the country's central bank, established in 1935 and nationalised in 1949, and it holds the sole right to issue currency notes and conduct monetary policy. SBI is a commercial bank, SEBI regulates securities markets, and NABARD is a development finance institution for rural credit.

Question 26Banking System and Structure in India

Under the Banking Regulation Act, 1949, a banking company must use the word 'bank' in its name and is prohibited from engaging primarily in which activity?

  1. Discounting bills of exchange
  2. Lending against the security of gold
  3. Accepting deposits from the public
  4. Trading in goods other than in realisation of security Correct answer.

Explanation

Section 8 of the Banking Regulation Act, 1949 bars a banking company from directly or indirectly dealing in the buying or selling of goods, except to realise security held for a loan. Accepting deposits, lending against gold and discounting bills are core permissible banking business.

Question 27Banking System and Structure in India

A scheduled commercial bank in India is one that is included in which schedule of the Reserve Bank of India Act, 1934?

  1. First Schedule
  2. Second Schedule Correct answer.
  3. Third Schedule
  4. Fourth Schedule

Explanation

Section 42 of the RBI Act, 1934 governs scheduled banks, and a bank is included in the Second Schedule when it satisfies conditions such as a minimum paid-up capital and reserves and satisfies the RBI that its affairs are not conducted in a manner detrimental to depositors. Scheduled status carries obligations like maintaining CRR with the RBI.

Question 28Banking System and Structure in India

In the Indian banking structure, which type of institution is set up to provide banking services to the unorganised sector, small businesses and low-income households, and is registered under the Companies Act?

  1. Payments Bank
  2. Small Finance Bank Correct answer.
  3. Cooperative Bank
  4. Local Area Bank

Explanation

Small Finance Banks are licensed under Section 22 of the Banking Regulation Act, 1949 and are primarily meant to serve the unserved and underserved sections, including small business units, small and marginal farmers and micro industries. They are full-service banks but must meet priority sector lending targets of 75 per cent of adjusted net bank credit.

Question 29Banking System and Structure in India

Payments Banks in India are permitted to accept demand deposits but face a ceiling on the balance held per customer. What is that maximum end-of-day balance?

  1. ₹10 lakh
  2. ₹2 lakh Correct answer.
  3. ₹1 lakh
  4. ₹5 lakh

Explanation

The RBI's Payments Bank guidelines, issued in November 2014, cap the maximum balance per customer at ₹1,00,000, which was later raised to ₹2,00,000. Payments Banks can accept demand deposits, issue debit cards and offer internet banking but cannot undertake lending.

Question 30Banking System and Structure in India

Which of the following is a function performed by the Reserve Bank of India as banker to the Government?

  1. Regulating the mutual fund industry
  2. Underwriting new issues of company shares
  3. Insuring deposits of commercial bank customers
  4. Managing public debt and acting as adviser to the government Correct answer.

Explanation

As banker to the government, the RBI manages public debt, receives and makes payments on behalf of the government, and advises it on financial matters. It also acts as banker to banks and lender of last resort, but it does not underwrite corporate share issues, insure deposits or regulate mutual funds.

Question 31Banking System and Structure in India

The Deposit Insurance and Credit Guarantee Corporation insures bank deposits up to what maximum amount per depositor per bank?

  1. ₹2 lakh
  2. ₹10 lakh
  3. ₹5 lakh Correct answer.
  4. ₹1 lakh

Explanation

DICGC, a wholly owned subsidiary of the RBI, insures each depositor's deposits in each bank up to ₹5,00,000, covering principal and interest. The limit was raised from ₹1 lakh to ₹5 lakh in 2020, and the cover applies separately to deposits in different banks.

Question 32Banking System and Structure in India

Which body regulates cooperative banks in India at the apex level in coordination with the RBI, with the RBI licensing and regulating the banking functions of urban cooperative banks?

  1. National Bank for Agriculture and Rural Development Correct answer.
  2. Securities and Exchange Board of India
  3. Registrar of Cooperative Societies
  4. Insurance Regulatory and Development Authority of India

Explanation

NABARD is the apex development bank for agriculture and rural credit, and it supervises rural cooperative banks and regional rural banks in coordination with the RBI. The Registrar of Cooperative Societies handles incorporation under state laws, but NABARD is the apex credit institution for the cooperative structure.

Question 33Banking System and Structure in India

Regional Rural Banks were established under which Act?

  1. RBI Act, 1934
  2. Regional Rural Banks Act, 1976 Correct answer.
  3. State Bank of India Act, 1955
  4. Banking Regulation Act, 1949

Explanation

RRBs were set up under the Regional Rural Banks Act, 1976, following the recommendations of the Narasimham Working Group, to serve rural areas and small and marginal farmers. The shareholding is held by the central government, the state government and the sponsor bank in the ratio 50:15:35.

Question 34Banking System and Structure in India

What is the prescribed shareholding pattern of a Regional Rural Bank among the central government, state government and sponsor bank?

  1. 15:35:50
  2. 50:35:15
  3. 50:15:35 Correct answer.
  4. 35:50:15

Explanation

Under the Regional Rural Banks Act, 1976, the central government holds 50 per cent, the concerned state government 15 per cent and the sponsor bank 35 per cent of the paid-up capital of an RRB. This tripartite structure combines public policy support with commercial banking expertise.

Question 35Banking System and Structure in India

Which of the following institutions is a wholly owned subsidiary of the Reserve Bank of India that provides refinance to banks and financial institutions for housing and other sectors?

  1. Export-Import Bank of India
  2. Small Industries Development Bank of India
  3. National Housing Bank Correct answer.
  4. National Bank for Agriculture and Rural Development

Explanation

National Housing Bank was set up in 1988 as a wholly owned subsidiary of the RBI to promote housing finance institutions and provide refinance for housing. SIDBI and NABARD were also promoted by the RBI but NHB is the one dedicated to housing.

Question 36Banking System and Structure in India

A foreign bank wants to operate in India through a wholly owned subsidiary rather than a branch. Which regulatory route primarily governs the licensing of such a subsidiary?

  1. Registration under the Companies Act alone, without RBI approval
  2. Registration with SEBI as a foreign portfolio investor
  3. Licensing under Section 22 of the Banking Regulation Act, 1949, with RBI approval Correct answer.
  4. Approval from IRDAI as an insurance intermediary

Explanation

Any bank, including a foreign bank's wholly owned subsidiary, needs a banking licence under Section 22 of the Banking Regulation Act, 1949, granted by the RBI after assessing capital, fit-and-proper criteria and the scheme of operations. Company registration is necessary but not sufficient without the banking licence.

Question 37Banking System and Structure in India

Which type of bank in India is owned and operated by its members on cooperative principles, with a three-tier structure in many states comprising state, district and primary levels?

  1. Cooperative bank Correct answer.
  2. Foreign bank
  3. Payments bank
  4. Small finance bank

Explanation

Cooperative banks are owned by their members and follow cooperative principles, with a short-term credit structure of state cooperative banks at the apex, district central cooperative banks in the middle and primary agricultural credit societies at the base. They are registered under state cooperative societies laws and also need RBI licensing for banking business.

Question 38Banking System and Structure in India

The RBI categorises Indian banks into public sector banks, private sector banks, foreign banks, regional rural banks and small finance banks. Which of these categories is owned predominantly by the Government of India?

  1. Payments banks
  2. Private sector banks
  3. Public sector banks Correct answer.
  4. Foreign banks

Explanation

Public sector banks are those in which the Government of India holds a majority stake, including State Bank of India and other nationalised banks. Private sector banks are majority privately owned, foreign banks are owned abroad, and payments banks are licensed companies.

Question 39Banking System and Structure in India

Which of the following is the primary role of the Reserve Bank of India as 'lender of last resort'?

  1. Insuring the deposits of all commercial bank customers
  2. Providing emergency liquidity support to solvent banks facing temporary cash shortages Correct answer.
  3. Acting as a universal bank for retail customers
  4. Guaranteeing the profits of scheduled commercial banks

Explanation

As lender of last resort, the RBI provides emergency liquidity assistance to solvent banks facing temporary liquidity stress, helping prevent contagion in the banking system. It does not insure deposits, guarantee bank profits or serve retail customers directly.

Question 40Banking System and Structure in India

Which of the following is a key difference between a payments bank and a small finance bank?

  1. Payments banks can issue credit cards, while small finance banks cannot
  2. Payments banks are owned by the government, while small finance banks are not
  3. Payments banks cannot lend, while small finance banks can lend Correct answer.
  4. Small finance banks cannot accept deposits, while payments banks can

Explanation

Payments banks can accept demand deposits and provide payments and remittance services but are barred from lending and from issuing credit cards. Small finance banks are full-service banks that can lend, including to the priority sector, and can issue credit cards subject to RBI norms.

Question 41Banking System and Structure in India

The Reserve Bank of India was nationalised in which year?

  1. 1949 Correct answer.
  2. 1955
  3. 1969
  4. 1935

Explanation

The RBI was established on 1 April 1935 under the RBI Act, 1934, and was nationalised on 1 January 1949. The year 1955 marks the nationalisation of the Imperial Bank into the State Bank of India, and 1969 marks the first nationalisation of 14 major commercial banks.

Question 42Banking System and Structure in India

In 1969, how many major commercial banks were nationalised in India in the first round?

  1. 20
  2. 8
  3. 6
  4. 14 Correct answer.

Explanation

The first round of bank nationalisation in July 1969 brought 14 major commercial banks with deposits above ₹50 crore under public ownership. A second round in 1980 nationalised six more banks, taking the total to 20 before later mergers.

Question 43Banking System and Structure in India

The State Bank of India was created in 1955 by taking over which institution?

  1. Punjab National Bank
  2. Allahabad Bank
  3. Bank of Bengal
  4. Imperial Bank of India Correct answer.

Explanation

The State Bank of India Act, 1955, converted the Imperial Bank of India into the State Bank of India, with the RBI initially holding a majority stake. The Imperial Bank itself had been formed in 1921 by amalgamating the Bank of Bengal, Bank of Bombay and Bank of Madras.

Question 44Banking System and Structure in India

Which of the following best describes the role of a sponsor bank in relation to a Regional Rural Bank?

  1. It supervises the RRB's compliance with securities law
  2. It sets monetary policy for the RRB's area of operation
  3. It acts as the deposit insurer for the RRB
  4. It subscribes to the RRB's capital and provides managerial and technical support Correct answer.

Explanation

A sponsor bank is usually a public sector commercial bank that holds 35 per cent of an RRB's capital and provides management support, training and refinance. The RBI regulates and supervises RRBs, and DICGC, not the sponsor bank, provides deposit insurance.

Question 45Banking System and Structure in India

Which of the following institutions is classified as an apex-level development financial institution for industry in India, set up to support micro, small and medium enterprises?

  1. SEBI
  2. NHB
  3. SIDBI Correct answer.
  4. NABARD

Explanation

The Small Industries Development Bank of India was set up in 1990 as a principal financial institution for the promotion, financing and development of micro, small and medium enterprises. NABARD serves agriculture and rural development, NHB serves housing, and SEBI is a market regulator.

Question 46Banking System and Structure in India

A bank is listed in the Second Schedule of the RBI Act, 1934. Which obligation does this status primarily impose on the bank?

  1. Becoming a member of the Deposit Insurance and Credit Guarantee Corporation
  2. Complying with IRDAI solvency norms
  3. Maintaining cash reserves with the RBI under Section 42 Correct answer.
  4. Obtaining a licence from SEBI to deal in government securities

Explanation

Scheduled banks must maintain the cash reserve ratio with the RBI under Section 42 of the RBI Act, 1934, and file returns to the RBI. Deposit insurance arises from DICGC membership, while SEBI and IRDAI regulate other markets.

Question 47Banking System and Structure in India

Which of these is an example of a foreign bank operating in India through a branch?

  1. State Bank of India
  2. Bank of Baroda
  3. Standard Chartered Bank Correct answer.
  4. Punjab National Bank

Explanation

Standard Chartered Bank is a foreign bank headquartered in London that operates in India through branches licensed by the RBI. SBI, Bank of Baroda and Punjab National Bank are Indian public sector banks.

Question 48Banking System and Structure in India

Which of the following statements about local area banks is accurate?

  1. They are central banks for a single state
  2. They can operate nationwide without RBI approval
  3. They are licensed under the Banking Regulation Act, 1949 and operate in a restricted cluster of districts Correct answer.
  4. They are a type of cooperative credit society

Explanation

Local area banks are established as public limited companies under the Companies Act and licensed under the Banking Regulation Act, 1949, with their area of operation confined to a cluster of districts. They are not central banks, cannot operate nationwide without approval, and are not cooperative societies.

Question 49Banker–Customer Relationship and Accounts

Under the law relating to banking in India, a person opening a savings bank account with a bank for the first time is best described as which of the following?

  1. A guarantor of the bank
  2. A prospective customer Correct answer.
  3. A secured creditor of the bank
  4. An existing customer

Explanation

A customer relationship begins only when the bank accepts the person as an account holder; until the account is actually opened, the person is merely a prospective customer. A prospective customer has no contractual claim against the bank and cannot demand payment. The relationship of banker and customer arises from the contract created when the account is opened.

Question 50Banker–Customer Relationship and Accounts

A bank holds a fixed deposit receipt issued in the joint names of two depositors with a mandate that either may operate the account. On the death of one depositor, how is the surviving depositor treated in relation to the balance?

  1. As a joint holder entitled to the balance by survivorship Correct answer.
  2. As a nominee who must distribute the money to legal heirs
  3. As an ordinary creditor of the deceased's estate
  4. As a trustee holding the balance for the deceased's estate

Explanation

Where a deposit is held jointly with an either-or-survivor mandate, the surviving joint holder becomes entitled to the balance by the principle of survivorship. The bank is discharged by paying the survivor. This is distinct from a nomination, where the nominee receives the money as a trustee for the legal heirs.