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CHSE Odisha Vocational Banking (BANK) study materials
CHSE Odisha Vocational Banking (BANK) study resources

CHSE Odisha Vocational Banking (BANK) practice questions

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Question 1Banking: Evolution, Structure and Functions

Which institution is regarded as the oldest surviving bank in India, established in 1806 in Kolkata?

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

Explanation

The Bank of Bengal, set up in 1806 in Kolkata, is generally treated as the earliest of the three presidency banks and the oldest surviving banking institution in India. It later merged with the Bombay and Madras presidency banks to form the Imperial Bank of India in 1921.

Question 2Banking: Evolution, Structure and Functions

The Reserve Bank of India was nationalised in which year?

  1. 1955
  2. 1947
  3. 1949 Correct answer.
  4. 1969

Explanation

The Reserve Bank of India, which began operations on 1 April 1935, was nationalised on 1 January 1949. In the same period the Banking Regulation Act, 1949 gave the RBI broad powers to regulate and supervise commercial banks.

Question 3Banking: Evolution, Structure and Functions

Under the Banking Regulation Act, 1949, a banking company must maintain paid-up capital and reserves of an amount sufficient to meet its liabilities. Which section deals with the restriction on holding of shares in a banking company?

  1. Section 5
  2. Section 44
  3. Section 12 Correct answer.
  4. Section 22

Explanation

Section 12 of the Banking Regulation Act, 1949 restricts the holding of shares in a banking company and sets the requirement for paid-up capital and reserves. Section 5 contains definitions, Section 22 deals with licensing, and Section 44 covers amalgamation.

Question 4Banking: Evolution, Structure and Functions

In the Indian financial system, which institution acts as the lender of last resort?

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

Explanation

As the central bank, the Reserve Bank of India supplies emergency liquidity to banks facing temporary cash shortages, which is the lender-of-last-resort function. This role supports the stability of the banking system as a whole.

Question 5Banking: Evolution, Structure and Functions

A bank accepts a fixed deposit and then lends part of that money to a trader. Which two functions of a commercial bank are illustrated here?

  1. Foreign exchange and remittance
  2. Issuing notes and clearing cheques
  3. Accepting deposits and advancing loans Correct answer.
  4. Acting as trustee and safe custody

Explanation

Accepting a fixed deposit is the primary function of collecting deposits, and lending the funds to a trader is the primary function of advancing loans. The spread between the deposit rate and the lending rate is a main source of bank income.

Question 6Banking: Evolution, Structure and Functions

Which type of bank is primarily engaged in mobilising savings from the public and providing short-term credit to trade and industry?

  1. Development bank
  2. Central bank
  3. Commercial bank Correct answer.
  4. Cooperative bank

Explanation

Commercial banks collect demand and time deposits from the public and use them mainly to provide short-term working capital finance to trade and industry. They operate for profit and are regulated under the Banking Regulation Act, 1949.

Question 7Banking: Evolution, Structure and Functions

The State Bank of India was created in 1955 by nationalising which earlier institution?

  1. Bank of Madras
  2. Bank of Bombay
  3. Punjab National Bank
  4. Imperial Bank of India Correct answer.

Explanation

The Imperial Bank of India, itself formed in 1921 from the three presidency banks, was taken over by the government and renamed the State Bank of India on 1 July 1955. The move was recommended by the All India Rural Credit Survey Committee.

Question 8Banking: Evolution, Structure and Functions

Which of the following is a scheduled bank under the Reserve Bank of India Act, 1934?

  1. A bank registered only under the Companies Act, 2013
  2. A bank included in the Second Schedule of the RBI Act Correct answer.
  3. A cooperative society with fewer than ten members
  4. A non-banking financial company accepting no deposits

Explanation

A scheduled bank is one included in the Second Schedule of the Reserve Bank of India Act, 1934, which requires it to satisfy conditions such as a minimum paid-up capital and reserves and to conduct business in India. Only scheduled banks enjoy certain privileges such as access to RBI refinance facilities.

Question 9Banking: Evolution, Structure and Functions

The first phase of nationalisation of major commercial banks in India took place in 1969 and covered how many banks?

  1. 10
  2. 14 Correct answer.
  3. 6
  4. 20

Explanation

On 19 July 1969 the government nationalised fourteen major commercial banks with deposits above a specified threshold. A second round in 1980 nationalised six more banks.

Question 10Banking: Evolution, Structure and Functions

A customer deposits a cheque drawn on another bank into her savings account. The bank collects the amount and credits her account before the cheque is finally cleared, on the understanding that the account will be debited if the cheque bounces. This facility is known as:

  1. Discounting of bills
  2. Cheque collection with immediate credit Correct answer.
  3. Overdraft
  4. Letter of credit

Explanation

Immediate credit for cheque collection allows the bank to credit the customer's account before realisation, subject to reversal if the instrument is dishonoured. It is a collection service rather than a loan, and the bank charges for the risk it carries.

Question 11Banking: Evolution, Structure and Functions

Which committee recommended the establishment of Regional Rural Banks in India?

  1. Narasimham Committee
  2. Vaghul Committee
  3. Malhotra Committee
  4. M. Narasimham Working Group on Rural Banks Correct answer.

Explanation

The Working Group on Rural Banks, chaired by M. Narasimham, recommended setting up Regional Rural Banks to serve rural areas. The Regional Rural Banks Act, 1976 followed, and the first RRBs were established on 2 October 1975.

Question 12Banking: Evolution, Structure and Functions

In a Regional Rural Bank, the shareholding pattern is held by the central government, the sponsoring bank and the state government in which proportion?

  1. 50:35:15 Correct answer.
  2. 40:40:20
  3. 50:15:35
  4. 35:50:15

Explanation

The Regional Rural Banks Act, 1976 provides that the central government holds 50 per cent of the issued capital, the sponsoring bank 35 per cent and the state government 15 per cent. This tripartite structure combines public policy support with commercial banking expertise.

Question 13Banking: Evolution, Structure and Functions

Which of the following best describes the 'bank rate' as used by the Reserve Bank of India?

  1. The interest paid on savings bank deposits
  2. The rate at which banks lend to their best customers
  3. The rate charged on overnight interbank borrowings
  4. The rate at which the RBI lends long-term funds against eligible securities Correct answer.

Explanation

Bank rate is the rate at which the Reserve Bank of India is prepared to lend long-term funds to banks against eligible securities or rediscount eligible bills. It is a policy rate and a signal of the stance of monetary policy.

Question 14Banking: Evolution, Structure and Functions

A bank keeps a portion of its net demand and time liabilities with the Reserve Bank of India as cash. This requirement is called:

  1. Repo rate
  2. Statutory Liquidity Ratio
  3. Cash Reserve Ratio Correct answer.
  4. Liquidity Coverage Ratio

Explanation

The Cash Reserve Ratio is the share of net demand and time liabilities that a bank must hold as cash with the RBI. Statutory Liquidity Ratio, by contrast, requires holdings in approved liquid assets such as government securities.

Question 15Banking: Evolution, Structure and Functions

Which of the following is an agency service rendered by a commercial bank?

  1. Accepting savings deposits
  2. Discounting a bill of exchange
  3. Granting a cash credit facility
  4. Paying insurance premia on standing instructions of a customer Correct answer.

Explanation

Agency services are those in which the bank acts on behalf of the customer, such as collecting cheques, paying standing instructions and remitting funds. Paying insurance premia on a customer's instruction is a classic example.

Question 16Banking: Evolution, Structure and Functions

Which institution was set up in 1982 to provide credit and refinance for agriculture and rural development?

  1. EXIM Bank
  2. SIDBI
  3. IDBI
  4. NABARD Correct answer.

Explanation

The National Bank for Agriculture and Rural Development was established in 1982 on the recommendation of the Sivaraman Committee. It refinances rural lending institutions and supervises cooperative banks and RRBs in the rural credit structure.

Question 17Banking: Evolution, Structure and Functions

In a banker-customer relationship, when a customer keeps a current account with a credit balance, the bank is primarily in the position of:

  1. Trustee
  2. Agent
  3. Creditor
  4. Debtor Correct answer.

Explanation

Money deposited in a current account becomes the bank's property, and the bank owes the customer an equivalent sum, so the bank is the debtor and the customer the creditor. The relationship changes to creditor of the customer when an overdraft is granted.

Question 18Banking: Evolution, Structure and Functions

Which of the following is a function of the Reserve Bank of India as banker to the government?

  1. Managing public debt and acting as adviser to the government on financial matters Correct answer.
  2. Accepting fixed deposits from companies
  3. Lending to individual retail borrowers
  4. Issuing demand drafts to the public

Explanation

As banker to the government, the RBI manages public debt, handles government receipts and payments and advises on financial matters. It does not deal directly with retail customers or corporate deposits.

Question 19Banking: Evolution, Structure and Functions

A bank's net demand and time liabilities are Rs 500 crore. If the Cash Reserve Ratio is 4 per cent, what amount must the bank maintain as cash reserves with the RBI?

  1. Rs 20 crore Correct answer.
  2. Rs 125 crore
  3. Rs 4 crore
  4. Rs 50 crore

Explanation

Cash reserves equal the CRR percentage multiplied by net demand and time liabilities, so 4 per cent of Rs 500 crore is Rs 20 crore. The CRR is maintained as a cash balance with the RBI and earns no interest.

Question 20Banking: Evolution, Structure and Functions

Which of the following statements about cooperative banks in India is correct?

  1. They are owned by shareholders who are also their members and are regulated by the RBI Correct answer.
  2. They are prohibited from accepting deposits
  3. They are supervised only by SEBI
  4. They are owned entirely by the central government

Explanation

Cooperative banks follow a member-owned structure in which shareholders are also users of the bank, and they are regulated and supervised by the RBI under the Banking Regulation Act, 1949 as applicable to cooperative societies. They accept deposits and lend mainly to members.

Question 21Banking: Evolution, Structure and Functions

The main objective behind the nationalisation of major banks in India in 1969 was to:

  1. Eliminate the role of the Reserve Bank of India
  2. Reduce the number of bank branches
  3. Increase private ownership of banks
  4. Extend banking facilities to rural and neglected sectors Correct answer.

Explanation

Nationalisation was justified on the grounds of directing credit towards agriculture, small industry and other neglected sectors, and of expanding branch banking into rural areas. Social control of credit rather than private profit was the stated aim.

Question 22Banking: Evolution, Structure and Functions

Which of the following correctly distinguishes a central bank from a commercial bank?

  1. A central bank earns profit as its primary objective while a commercial bank serves public policy
  2. A central bank accepts deposits from the public while a commercial bank does not
  3. A central bank issues currency notes while a commercial bank cannot Correct answer.
  4. A central bank lends to individuals while a commercial bank lends to governments

Explanation

Currency note issue is a monopoly function of the central bank, exercised under the Reserve Bank of India Act, 1934, and commercial banks cannot issue notes. The other distinguishing features concern dealing with the public, motive and the nature of customers.

Question 23Banking: Evolution, Structure and Functions

A trader needs finance for the working capital cycle of buying goods, holding stock and selling on credit, and repayments will be made as sales are realised. Which credit facility is most suited?

  1. A fixed deposit receipt
  2. A cash credit limit against hypothecation of stock Correct answer.
  3. A term loan repayable over seven years
  4. A letter of credit

Explanation

A cash credit limit allows the borrower to draw funds as needed up to a sanctioned limit against the security of stock and receivables, and interest is charged on the amount actually used. This matches a self-liquidating working capital cycle better than a long-term loan.

Question 24Banking: Evolution, Structure and Functions

Which of the following was the first bank in India to be established by Indians, founded in 1911 in Kolkata?

  1. Punjab National Bank
  2. Allahabad Bank
  3. Central Bank of India Correct answer.
  4. Bank of Hindustan

Explanation

The Central Bank of India, founded in 1911, is generally described as the first commercial bank in India that was entirely owned and managed by Indians. It was nationalised in 1969.

Question 25Banking: Evolution, Structure and Functions

Under the Reserve Bank of India Act, 1934, the minimum reserve system requires the RBI to hold assets of which value as backing for note issue?

  1. Rs 50 crore in foreign securities only
  2. Rs 200 crore, of which gold must be at least Rs 115 crore Correct answer.
  3. The entire value of notes issued must be held in gold
  4. Rs 500 crore in gold only

Explanation

Since the amendment of 1957, India follows a minimum reserve system under which the RBI holds assets of at least Rs 200 crore, of which gold coin and bullion must be at least Rs 115 crore and the rest in foreign securities. This replaced the earlier proportional reserve system.

Question 26Banking: Evolution, Structure and Functions

Under the Banking Regulation Act, 1949, a banking company must transfer what minimum proportion of its net profit to the statutory reserve before declaring any dividend to shareholders?

  1. 30 per cent
  2. 10 per cent
  3. 25 per cent
  4. 20 per cent Correct answer.

Explanation

Section 17 of the Banking Regulation Act, 1949 requires every banking company to transfer at least 20 per cent of its net profit for the year to the statutory reserve fund before any dividend is paid. This builds a cushion against future losses and protects depositors. The reserve is created out of disclosed profits after providing for taxes and bad debts.

Question 27Banking: Evolution, Structure and Functions

A bank holds a government security that matures in 12 years. Under the RBI's prudential norms, this security is normally classified in which investment category?

  1. Available for Sale
  2. Held to Maturity Correct answer.
  3. Held for Investment
  4. Held for Trading

Explanation

Banks classify investments into Held to Maturity, Available for Sale and Held for Trading. Securities held till maturity, generally up to the permitted ceiling of the portfolio, are placed in the Held to Maturity category and are not marked to market. Long-dated securities a bank intends to hold until redemption therefore belong in Held to Maturity.

Question 28Banking: Evolution, Structure and Functions

A customer's cheque is dishonoured by the drawee bank with the remark 'insufficient funds', although the account actually had a sufficient balance. Which course of action is legally available to the customer against the drawee bank?

  1. Claim the cheque amount twice over as a penalty fixed by the Negotiable Instruments Act
  2. Claim damages for wrongful dishonour, since the bank breached its contractual obligation to honour a valid cheque Correct answer.
  3. Demand that the payee bank re-present the same cheque indefinitely
  4. File a criminal complaint for cheating against the bank's branch manager

Explanation

A bank is contractually bound to honour a customer's cheque when sufficient funds are available and the instrument is properly drawn. Wrongful dishonour without justification is a breach of that contract, entitling the customer to claim damages, which may be substantial if it injures credit or reputation. The customer cannot, however, recover a statutory penalty fixed by the Negotiable Instruments Act against the bank.

Question 29Banking: Evolution, Structure and Functions

A small enterprise wants to raise funds by issuing debt instruments to institutional investors without a public offer. Which market mechanism is designed for this purpose?

  1. Bonus issue of shares
  2. Initial public offer of equity shares
  3. Rights issue to existing shareholders
  4. Private placement of debt securities Correct answer.

Explanation

A private placement involves issuing securities to a select group of institutional or identified investors without a public offer, and is commonly used for raising debt. An initial public offer, a rights issue and a bonus issue all relate to equity shares and involve either the public or existing shareholders. Private placement therefore fits the need to raise debt from institutional investors without a public offer.

Question 30Banking: Evolution, Structure and Functions

A bank holds demand deposits of Rs 400 crore and time deposits of Rs 600 crore. Its assets in India include Rs 100 crore of balances with the RBI and Rs 150 crore of cash. If the Cash Reserve Ratio is 4 per cent, what is the bank's position on CRR compliance?

  1. It falls short of the requirement by Rs 40 crore
  2. It has excess cash reserves of Rs 60 crore over the requirement Correct answer.
  3. It exactly meets the requirement with no surplus
  4. It has excess cash reserves of Rs 10 crore over the requirement

Explanation

Net demand and time liabilities here total Rs 1,000 crore, so the CRR requirement at 4 per cent is Rs 40 crore. Eligible cash reserves of Rs 100 crore exceed this by Rs 60 crore, leaving a surplus. Only balances with the RBI count towards CRR, and those alone already exceed the requirement.

Question 31Reserve Bank of India and the Indian Banking System

Which legislation established the Reserve Bank of India and provides its basic statutory framework?

  1. The Reserve Bank of India Act, 1934 Correct answer.
  2. The Banking Regulation Act, 1949
  3. The State Bank of India Act, 1955
  4. The Negotiable Instruments Act, 1881

Explanation

The Reserve Bank of India Act, 1934 created the RBI and sets out its constitution, capital, management and core functions such as note issue and monetary operations. The Banking Regulation Act, 1949 is a separate law governing commercial banks, while the other two Acts deal with the State Bank and negotiable instruments respectively.

Question 32Reserve Bank of India and the Indian Banking System

The Reserve Bank of India was formally inaugurated and commenced operations in which year?

  1. 1951
  2. 1935 Correct answer.
  3. 1949
  4. 1934

Explanation

Although the RBI Act was passed in 1934, the Bank actually began operations on 1 April 1935, initially with its central office in Calcutta. This distinction between the enactment year and the commencement year is a frequently tested fact.

Question 33Reserve Bank of India and the Indian Banking System

Under the RBI Act, the minimum reserve assets the Bank must maintain include which of the following?

  1. Gold coin and bullion and foreign securities, with a specified gold component Correct answer.
  2. Only deposits held with commercial banks
  3. Only foreign currency securities
  4. Only Indian government rupee securities

Explanation

The RBI Act requires the Bank to hold reserve assets comprising gold coin and bullion and foreign securities, with a prescribed minimum value of gold. This asset backing supports the issue of currency and confidence in the central bank.

Question 34Reserve Bank of India and the Indian Banking System

Which function is performed by the RBI as the 'banker to the Government'?

  1. Insuring deposits of bank customers
  2. Settling disputes between bank customers and banks
  3. Lending to individual retail borrowers
  4. Managing government borrowings and acting as custodian of government funds Correct answer.

Explanation

As banker to the Government, the RBI keeps government balances, handles receipts and payments, manages public debt and advises on borrowing. It does not deal with retail borrowers directly, nor does it insure deposits or adjudicate customer complaints.

Question 35Reserve Bank of India and the Indian Banking System

The RBI acts as 'lender of last resort' primarily by which mechanism?

  1. Forcing banks to merge with stronger banks
  2. Providing emergency liquidity assistance to solvent banks facing temporary liquidity stress Correct answer.
  3. Cancelling the licences of banks with high bad loans
  4. Paying off all depositors of a failed bank

Explanation

As lender of last resort, the RBI supplies emergency liquidity to solvent institutions facing short-term cash shortages, typically against eligible collateral. This prevents temporary liquidity problems from turning into bank failures. It does not settle all deposits, mandate mergers or cancel licences as part of this role.

Question 36Reserve Bank of India and the Indian Banking System

Which body is responsible for setting monetary policy in India under the RBI Act as amended in 2016?

  1. The Monetary Policy Committee Correct answer.
  2. The Securities and Exchange Board of India
  3. The Indian Banks' Association
  4. The Central Board of the RBI

Explanation

The Monetary Policy Committee, constituted under the RBI Act after the 2016 amendment, decides the policy repo rate and other monetary measures. It has six members and follows an inflation target framework. The Central Board oversees the RBI's general affairs but does not set monetary policy.

Question 37Reserve Bank of India and the Indian Banking System

The flexible inflation targeting framework in India requires the RBI to keep consumer price inflation around which target?

  1. 4 per cent with a band of plus or minus 2 per cent Correct answer.
  2. 5 per cent with a band of plus or minus 3 per cent
  3. 6 per cent with a band of plus or minus 1 per cent
  4. 2 per cent with a band of plus or minus 1 per cent

Explanation

The inflation target notified for the RBI is 4 per cent consumer price inflation, with a tolerance band of plus or minus 2 per cent, that is 2 to 6 per cent. If inflation stays outside the band for three consecutive quarters, the RBI must explain the reasons to the Government.

Question 38Reserve Bank of India and the Indian Banking System

A bank borrows overnight funds from the RBI against government securities under the liquidity adjustment facility. This borrowing rate is called the:

  1. Bank rate
  2. Repo rate Correct answer.
  3. Reverse repo rate
  4. Marginal standing facility rate

Explanation

When a bank borrows from the RBI against eligible collateral under the liquidity adjustment facility, the rate charged is the repo rate. The reverse repo rate applies when the RBI absorbs liquidity from banks. The bank rate is a separate longer-term penal rate.

Question 39Reserve Bank of India and the Indian Banking System

The cash reserve ratio requires banks to keep a specified portion of their net demand and time liabilities in which form?

  1. Fixed deposits with other banks
  2. Loans to priority sectors
  3. Government securities
  4. Cash balances with the RBI Correct answer.

Explanation

The cash reserve ratio is the share of net demand and time liabilities that a bank must maintain as cash balances with the RBI. It earns no interest and is used as a monetary policy tool to influence credit creation. Holding government securities instead relates to the statutory liquidity ratio.

Question 40Reserve Bank of India and the Indian Banking System

The statutory liquidity ratio is maintained by banks in the form of:

  1. Approved liquid assets such as government securities and cash Correct answer.
  2. Equity shares of listed companies
  3. Foreign currency deposits abroad
  4. Cash in the bank's own vault

Explanation

The statutory liquidity ratio requires banks to hold a minimum share of net demand and time liabilities in approved liquid assets, mainly central and state government securities and cash. It ensures that banks have a cushion of readily realisable assets. Equity shares and foreign deposits are not approved SLR assets.

Question 41Reserve Bank of India and the Indian Banking System

Which instrument is used by the RBI to absorb liquidity from the banking system for short periods?

  1. Reduction of the bank rate
  2. Open market sale of securities only for long-term holdings
  3. Repo operations
  4. Reverse repo operations Correct answer.

Explanation

In a reverse repo operation the RBI borrows money from banks against securities, thereby absorbing liquidity from the system. Repo operations inject liquidity instead. Open market operations can also absorb liquidity, but the short-period absorption instrument is the reverse repo.

Question 42Reserve Bank of India and the Indian Banking System

Under the Banking Regulation Act, 1949, a banking company must obtain a licence to commence banking business from which authority?

  1. The Reserve Bank of India Correct answer.
  2. The Ministry of Finance
  3. The Registrar of Companies
  4. The Securities and Exchange Board of India

Explanation

Section 22 of the Banking Regulation Act, 1949 requires a banking company to obtain a licence from the RBI before commencing banking business. The RBI examines capital adequacy, management quality and public interest before granting a licence. The Registrar of Companies only handles incorporation.

Question 43Reserve Bank of India and the Indian Banking System

Which of the following is a scheduled commercial bank under the RBI Act?

  1. Any foreign bank branch not licensed by the RBI
  2. Any bank included in the Second Schedule of the RBI Act Correct answer.
  3. Any non-banking financial company accepting deposits
  4. Any cooperative credit society registered under state law

Explanation

A scheduled bank is one included in the Second Schedule of the Reserve Bank of India Act, 1934, which requires it to satisfy conditions such as a minimum paid-up capital and reserve and to be licensed. Only scheduled banks enjoy certain facilities such as access to RBI refinance and clearing membership.

Question 44Reserve Bank of India and the Indian Banking System

Which category of banks was nationalised in 1969 and 1980 in India?

  1. Foreign banks operating in India
  2. Cooperative banks
  3. Private sector commercial banks with deposits above a specified threshold Correct answer.
  4. Regional rural banks

Explanation

In 1969, fourteen major private commercial banks were nationalised, followed by six more in 1980, based on the size of their deposits. This created the public sector banking segment. Regional rural banks were created separately in 1975, and foreign banks were not nationalised.

Question 45Reserve Bank of India and the Indian Banking System

Regional rural banks in India are jointly owned by which combination of entities?

  1. The Central Government, the State Government and a sponsor bank Correct answer.
  2. The National Bank for Agriculture and Rural Development and foreign investors
  3. The Indian Banks' Association and private investors
  4. The RBI and the State Government only

Explanation

A regional rural bank is jointly owned by the Central Government, the concerned State Government and a sponsor bank, with shareholding in the ratio of 50:15:35 respectively. This structure combines public policy support with the operational expertise of a sponsor bank. The RBI does not hold equity in RRBs.

Question 46Reserve Bank of India and the Indian Banking System

A customer deposits a cheque drawn on another bank into her savings account. The bank collecting the cheque acts as which type of bank?

  1. Paying bank
  2. Collecting bank Correct answer.
  3. Issuing bank
  4. Advising bank

Explanation

The bank that receives the cheque for credit to the customer's account is the collecting bank, while the bank on which the cheque is drawn is the paying bank. The collecting bank presents the instrument through clearing and credits the proceeds after realisation.

Question 47Reserve Bank of India and the Indian Banking System

Under the Negotiable Instruments Act, 1881, a cheque is:

  1. A time draft accepted by a trader
  2. A bearer bond issued by a company
  3. A promissory note payable after ninety days
  4. A bill of exchange drawn on a specified banker and payable on demand Correct answer.

Explanation

Section 6 of the Negotiable Instruments Act defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. It is always payable on demand and is drawn only on a bank. A promissory note involves an unconditional promise to pay, not an order on a banker.

Question 48Reserve Bank of India and the Indian Banking System

A depositor wants to withdraw cash from an ATM of another bank using his debit card. This facility is best described as:

  1. A demand draft facility
  2. A safe custody service
  3. Interoperable ATM access through a shared network Correct answer.
  4. A letter of credit arrangement

Explanation

Cardholders can use ATMs of other banks because the banks are connected through shared ATM networks and the National Financial Switch, allowing interoperable cash withdrawal. The cardholder's bank settles the transaction with the ATM-owning bank through the network. Demand drafts, letters of credit and safe custody are unrelated services.

Question 49Reserve Bank of India and the Indian Banking System

Which of the following best describes the RBI's role in the payment system?

  1. It underwrites all bank deposits
  2. It sets interest rates on all customer deposits
  3. It operates and regulates systemically important payment systems such as RTGS Correct answer.
  4. It manufactures currency notes for other countries

Explanation

The RBI operates key payment and settlement systems such as RTGS and NEFT and regulates the payments ecosystem under the Payment and Settlement Systems Act, 2007. It does not print currency for foreign governments, insure deposits or fix individual deposit rates, which banks determine within regulatory guidelines.

Question 50Reserve Bank of India and the Indian Banking System

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

  1. One lakh rupees
  2. Two lakh rupees
  3. Five lakh rupees Correct answer.
  4. Ten lakh rupees

Explanation

The DICGC insures deposits up to five lakh rupees per depositor per bank, covering principal and interest, following the increase from one lakh rupees in 2020. This applies separately to deposits in different banks. Amounts above the limit are not insured.