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IBPS RRB CA Officer Scale II study materials
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IBPS RRB CA Officer Scale II practice questions

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Question 1Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Under the RBI's Basel III capital framework for banks in India, which capital instrument must predominantly absorb losses on a going-concern basis?

  1. Perpetual cumulative preference shares
  2. Common Equity Tier 1 capital Correct answer.
  3. Revaluation reserves on fixed assets
  4. Tier 2 subordinated debt

Explanation

Common Equity Tier 1 is the highest-quality capital and is designed to absorb losses while the bank remains a going concern, which is why Basel III sets a minimum CET1 ratio of 5.5 percent for Indian banks. Tier 2 instruments absorb losses only on a gone-concern basis, so they cannot satisfy this role.

Question 2Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank sanctions a working capital facility of Rs 50 crore against stock and book debts with a drawing power computed on stock after a 25 percent margin. If the paid stock is Rs 40 crore, what is the drawing power from the stock component?

  1. Rs 10 crore
  2. Rs 40 crore
  3. Rs 50 crore
  4. Rs 30 crore Correct answer.

Explanation

Drawing power is computed on the paid stock after deducting the stipulated margin, so the eligible stock component is 40 crore minus 25 percent of 40 crore, which equals 30 crore. The sanctioned limit of 50 crore is a ceiling and does not by itself create drawing power.

Question 3Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

In the RBI's NPA classification, an account that remains overdue for more than 12 months falls into which category?

  1. Doubtful asset Correct answer.
  2. Sub-standard asset
  3. Special mention account
  4. Loss asset

Explanation

A sub-standard asset remains an NPA for a period up to 12 months, after which it is classified as doubtful. Doubtful assets are further aged into buckets of one to three years and beyond three years for provisioning purposes.

Question 4Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank customer wants to remit funds to a beneficiary under the Unified Payments Interface. Which identifier is used to route a UPI payment without entering the beneficiary's bank account number and IFSC?

  1. Virtual payment address Correct answer.
  2. SWIFT BIC
  3. MICR code
  4. NEFT batch reference

Explanation

A virtual payment address, also called a UPI ID, maps to a customer's account and allows payments to be addressed without account number or IFSC details. It is resolved by the UPI switch operated by NPCI.

Question 5Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A chartered accountant is asked to verify whether a bank's provisioning for standard assets meets RBI norms. Which statement correctly reflects the general provisioning requirement for standard assets under current RBI directions?

  1. General provisions are permitted only on standard assets in the agricultural sector
  2. No general provision is required on standard assets
  3. A general provision of 0.40 percent applies to all standard assets, with higher rates for specified sectors Correct answer.
  4. A general provision of 5 percent applies uniformly to all standard assets

Explanation

RBI directions require a general provision of 0.40 percent on all standard assets, with higher rates for certain categories such as commercial real estate and unsecured exposures. This is a general provision held against performing assets, distinct from specific provisions on NPAs.

Question 6Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following is the correct sequence of steps in the SWIFT message flow for a documentary credit, from the issuing bank to the beneficiary's bank?

  1. MT700 issued to the advising bank, which advises the credit to the beneficiary Correct answer.
  2. MT202 issued to the beneficiary, who then advises the advising bank
  3. MT700 issued directly by the beneficiary to the issuing bank
  4. MT103 issued to the advising bank, which advises the credit to the beneficiary

Explanation

An MT700 is the SWIFT message used to issue a documentary credit from the issuing bank to the advising or nominated bank, which then advises the credit to the beneficiary. Payment messages such as MT103 and MT202 are used for transfers, not for issuing credits.

Question 7Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

In the context of Indian banking regulation, a 'small finance bank' is best described by which feature?

  1. It must be sponsored by a foreign bank with a minimum 51 percent stake
  2. It must hold at least 75 percent of its ANBC in PSL and 50 percent of loans up to Rs 25 lakh Correct answer.
  3. It is barred from lending to micro and small enterprises
  4. It may accept only wholesale deposits above Rs 1 crore

Explanation

Small finance banks carry a higher priority sector lending obligation of 75 percent of adjusted net bank credit and must extend at least 50 percent of their loan portfolio to ticket sizes up to Rs 25 lakh. These conditions are intended to deepen financial inclusion.

Question 8Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A firm's current ratio is 1.2 and its quick ratio is 0.6. Which conclusion is most defensible about its working capital structure?

  1. The firm has excess cash and no inventory
  2. The firm is technically insolvent and should be liquidated
  3. A large share of current assets is inventory, which reduces liquidity Correct answer.
  4. The firm's short-term liabilities exceed its current assets

Explanation

The gap between the current ratio and the quick ratio arises because inventory is excluded from the quick ratio, so a large difference signals that inventory dominates current assets. This points to liquidity risk if inventory cannot be converted quickly.

Question 9Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following best describes the role of the Negotiated Dealing System-Order Matching platform in the Indian money market?

  1. It clears and settles all cheque-based interbank payments
  2. It provides an anonymous electronic order-matching system for trading government securities Correct answer.
  3. It is the platform for issuing currency notes by the RBI
  4. It sets the cash reserve ratio applicable to scheduled commercial banks

Explanation

NDS-OM is an anonymous, screen-based order matching system for secondary market trading in government securities, operated by the RBI. It is separate from the clearing and settlement functions performed by CCIL.

Question 10Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

An exporter discounts a foreign currency bill with a bank and the bank covers the transaction by borrowing in the overseas market against the bill. Which facility has the bank used?

  1. Post-shipment discounting in foreign currency Correct answer.
  2. Pre-shipment credit in foreign currency
  3. External commercial borrowing
  4. Export factoring

Explanation

Post-shipment credit in foreign currency is granted after shipment against export bills, and banks may fund it by borrowing abroad against the bills, keeping the transaction foreign currency denominated. Pre-shipment credit applies before shipment and funds production or procurement.

Question 11Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A chartered accountant is examining whether a bank's board has the required committees under RBI's governance directions. Which committee is specifically mandated for banks to oversee the audit and internal control functions?

  1. Nomination and Remuneration Committee
  2. Customer Service Committee
  3. Risk Management Committee
  4. Audit Committee of the Board Correct answer.

Explanation

The Audit Committee of the Board is mandated to oversee internal audit, internal controls, financial reporting and compliance, and it works closely with statutory and internal auditors. The other committees have distinct mandates for nomination, remuneration, risk and customer service.

Question 12Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following correctly describes the treatment of a 'willful defaulter' under RBI directions?

  1. The borrower is exempt from all recovery proceedings
  2. The borrower's account is automatically written off and removed from the books
  3. The borrower is barred from accessing fresh bank finance for a specified period and the name is reported to CRILC Correct answer.
  4. The borrower's directors are personally liable to be jailed immediately

Explanation

RBI directions require banks to identify willful defaulters, report them to the Central Repository of Information on Large Credits, and bar them from fresh bank finance for a specified period. Criminal or personal liability, if any, follows a separate legal process and is not automatic.

Question 13Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank reports a capital adequacy ratio of 13 percent with risk-weighted assets of Rs 1,000 crore. If the bank's Tier 1 capital is Rs 100 crore, what is its Tier 2 capital?

  1. Rs 130 crore
  2. Rs 30 crore Correct answer.
  3. Rs 100 crore
  4. Rs 13 crore

Explanation

Total capital must equal 13 percent of Rs 1,000 crore, which is Rs 130 crore. Deducting Tier 1 capital of Rs 100 crore leaves Tier 2 capital of Rs 30 crore.

Question 14Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following is the primary purpose of the Legal Entity Identifier in financial transactions?

  1. To replace the PAN for individual taxpayers
  2. To encode the credit rating of a borrower
  3. To uniquely identify parties to financial transactions globally for regulatory reporting Correct answer.
  4. To serve as a bank branch code in cheque clearing

Explanation

The Legal Entity Identifier is a 20-character global identifier that uniquely identifies legal entities participating in financial transactions, supporting regulatory reporting and risk aggregation. It does not encode credit ratings or replace tax identifiers.

Question 15Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

In a securitisation transaction, which arrangement best protects the investor from the originator's insolvency?

  1. A loan granted by the investor directly to the originator
  2. A true sale of the receivables to a bankruptcy-remote special purpose entity Correct answer.
  3. A guarantee provided by the originator to the investors
  4. A pledge of the originator's fixed assets in favour of the investors

Explanation

Securitisation relies on a true sale so that the receivables move off the originator's balance sheet into a bankruptcy-remote special purpose entity. This isolation means the investors' claim is on the pooled assets rather than on the originator.

Question 16Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's ALM committee finds that its liabilities are repricing faster than its assets in a falling interest rate environment. What is the most likely impact on net interest margin?

  1. Net interest margin improves as liability costs fall faster than asset yields Correct answer.
  2. Net interest margin turns negative in all cases
  3. Net interest margin falls sharply because assets reprice first
  4. Net interest margin is unaffected because repricing gaps do not matter

Explanation

In a falling rate environment, a liability-sensitive gap means deposits and borrowings reprice downward sooner than assets, lowering funding costs faster than yields and supporting net interest margin. The effect is a classic asset-liability gap outcome.

Question 17Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Under the RBI's guidelines on digital lending, which requirement applies to disbursal of a loan by a regulated entity through a lending service provider?

  1. Disbursal must be made in cash at the borrower's address
  2. Disbursal must be made directly into the borrower's bank account, with no pass-through pool account Correct answer.
  3. Disbursal may be routed through any third-party account chosen by the lending service provider
  4. Disbursal must be delayed until the first EMI is collected

Explanation

The digital lending guidelines mandate that funds be disbursed directly into the borrower's bank account and prohibit routing through pass-through accounts of lending service providers. This protects borrowers from unauthorised deductions and misappropriation.

Question 18Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following best explains why a bank would use a repo transaction rather than an outright sale of government securities?

  1. A repo eliminates all interest rate risk for the bank
  2. A repo provides short-term funds while retaining economic exposure to the securities Correct answer.
  3. A repo is used only for equity shares
  4. A repo permanently transfers ownership with no repurchase obligation

Explanation

In a repo the seller borrows funds against securities and agrees to repurchase them at a future date, so the securities return to the seller and economic exposure is largely retained. An outright sale transfers ownership permanently.

Question 19Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following is the correct treatment of a contingent liability in a bank's financial statements when the probability of outflow is remote?

  1. It is recognised as a provision in the balance sheet
  2. It is netted against capital and disclosed in the notes
  3. It is recognised as a contingent asset
  4. It is disclosed only if the possibility of outflow is not remote Correct answer.

Explanation

Under Ind AS 37, a contingent liability is disclosed unless the possibility of an outflow is remote, in which case no disclosure is required. A provision is recognised only when an outflow is probable and can be reliably estimated.

Question 20Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's treasury desk wants to hedge the interest rate risk on a fixed-rate government bond holding. Which derivative would most directly offset a rise in yields?

  1. Selling a credit default swap
  2. Buying a currency forward
  3. Paying fixed in an interest rate swap Correct answer.
  4. Receiving fixed in an interest rate swap

Explanation

Paying fixed in an interest rate swap creates a position that gains when rates rise, offsetting the loss on a fixed-rate bond as yields increase. Receiving fixed would add to the same exposure rather than hedge it.

Question 21Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following correctly describes the priority of claims in the winding up of a bank under Indian law?

  1. Preference shareholders rank above secured creditors
  2. Equity shareholders are paid before depositors
  3. Depositors' claims are preferred over ordinary unsecured creditors to the extent provided by law Correct answer.
  4. Subordinated debt holders rank above all depositors

Explanation

Deposit insurance and statutory provisions give depositors a preferred position over ordinary unsecured creditors, while equity shareholders rank last among claimants. Subordinated debt and preference capital sit below senior creditors.

Question 22Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A company with a high debt-equity ratio seeks a term loan, and the bank insists on a debt service coverage ratio of at least 1.5. If the projected annual cash available for debt service is Rs 9 crore and the annual debt service is Rs 6 crore, what is the DSCR and does it meet the requirement?

  1. 1.5, so it exceeds the requirement by a wide margin
  2. 1.5, so it exactly meets the requirement Correct answer.
  3. 0.67, so it fails the requirement
  4. 2.5, so it comfortably meets the requirement

Explanation

DSCR is cash available for debt service divided by debt service, so 9 crore divided by 6 crore equals 1.5. This exactly equals the stipulated minimum of 1.5, meaning the proposal meets but does not exceed the benchmark.

Question 23Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following best describes the purpose of the Central Fraud Registry maintained by the RBI?

  1. To register criminal cases filed by borrowers against banks
  2. To store the credit ratings assigned by external agencies
  3. To record the names of bank employees eligible for promotion
  4. To enable banks to access fraud-related information on borrowers for credit decisions Correct answer.

Explanation

The Central Fraud Registry is a searchable database of frauds reported by banks, allowing lenders to check a borrower's fraud history before sanctioning credit. It is used for due diligence and fraud monitoring, not for unrelated administrative records.

Question 24Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank wishes to raise Additional Tier 1 capital through perpetual bonds. Which feature is essential for the instrument to qualify as AT1 under Basel III?

  1. A guarantee from the Government of India
  2. A trigger that converts the instrument to equity or writes it down when CET1 falls below a specified threshold Correct answer.
  3. A coupon that must be paid even when distributable profits are insufficient
  4. A fixed maturity of five years with bullet repayment

Explanation

AT1 instruments must have a loss absorption trigger, typically conversion to common equity or write-down when CET1 falls below a defined threshold such as 5.5 percent. They must also be perpetual and allow coupon discretion, so a fixed maturity or mandatory coupon disqualifies them.

Question 25Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following correctly describes the role of a concurrent audit in a bank branch?

  1. It provides independent, ongoing verification of transactions at the time they occur Correct answer.
  2. It is performed only after the branch is closed permanently
  3. It replaces the statutory audit conducted at year end
  4. It is limited to verifying the branch's physical cash balance once a year

Explanation

Concurrent audit is a continuous, independent check performed alongside branch operations to detect irregularities early. It supplements but does not replace statutory audit, which remains an annual external examination.

Question 26Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Under the RBI's Basel III capital framework for Indian banks, which instrument qualifies as Common Equity Tier 1 capital?

  1. Perpetual cumulative preference shares
  2. Perpetual non-cumulative preference shares
  3. Equity share capital issued to ordinary shareholders Correct answer.
  4. Subordinated debt with a fixed maturity of seven years

Explanation

CET1 consists of the highest-quality loss-absorbing capital: paid-up equity share capital, stock surplus from equity issues, retained earnings and disclosed reserves. Instruments such as perpetual preference shares and subordinated debt do not meet the permanence and no-fixed-charge conditions for CET1.

Question 27Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank customer wants to remit funds to a beneficiary using the Unified Payments Interface. Which statement correctly describes how a UPI transaction is settled between banks?

  1. Funds move only through the SWIFT network
  2. Settlement is deferred until the customer's cheque is cleared
  3. Each bank settles directly with the beneficiary bank on a gross real-time basis
  4. The National Payments Corporation of India acts as the clearing house and net settlement occurs through the RBI Correct answer.

Explanation

UPI is operated by NPCI, which acts as the central clearing house; interbank obligations are netted and settled through the RBI's settlement accounts. Individual customer transfers are authorised instantly, but interbank settlement is not real-time gross.

Question 28Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A chartered accountant reviewing a bank's financial statements finds an asset classified as a Non-Performing Asset. Which condition, applied to a term loan, correctly triggers NPA classification?

  1. The loan has been restructured once in the past
  2. Interest has remained overdue for more than 30 days
  3. The borrower's credit rating has been downgraded by one notch
  4. The principal or interest has remained overdue for more than 90 days Correct answer.

Explanation

For a term loan, an asset becomes an NPA when interest or principal (or instalment) has remained overdue for more than 90 days. The 90-day overdue norm is the standard trigger under RBI's income recognition and asset classification rules.

Question 29Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

In a bank's books, which item is recorded as a 'contingent liability' rather than a liability on the balance sheet?

  1. A guarantee issued on behalf of a customer that may be invoked in future Correct answer.
  2. Provision for standard assets
  3. Borrowings from the RBI under the marginal standing facility
  4. Accrued interest payable on deposits

Explanation

Contingent liabilities are obligations that may arise depending on a future event, such as guarantees, letters of credit and acceptances. They are disclosed by way of notes rather than recognised as liabilities unless the outflow becomes probable.

Question 30Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following best describes the purpose of a 'no-lien' bank account maintained for a borrower?

  1. An account restricted to foreign currency transactions
  2. An account used only for government subsidy transfers
  3. An account that must always carry a fixed deposit as collateral
  4. A deposit account where the bank waives its right of set-off against the balance Correct answer.

Explanation

A no-lien account is one where the bank contractually gives up its general right of set-off, so the balance cannot be adjusted against the borrower's dues. This protects funds such as subsidy or escrow receipts meant for specific purposes.

Question 31Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

What is the primary function of the Negotiated Dealing System-Order Matching platform in the Indian government securities market?

  1. To clear cheques drawn on commercial banks
  2. To provide an anonymous electronic order-matching system for trading government securities Correct answer.
  3. To settle foreign exchange forward contracts
  4. To register charges created by companies

Explanation

NDS-OM is the RBI-operated electronic platform where participants submit buy and sell orders in government securities that are matched anonymously on a price-time priority basis. Settlement of the matched trades then occurs through the Clearing Corporation of India.

Question 32Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A chartered accountant is asked to explain the concept of 'base rate' in Indian banking. Which statement is correct?

  1. It is the rate at which the RBI lends to banks overnight
  2. It is the rate paid on savings bank deposits
  3. It is the penal rate charged on overdue loans
  4. It is the minimum rate below which a bank cannot lend to its borrowers, computed from cost of funds, and replaced by the repo-linked regime for new loans Correct answer.

Explanation

The base rate is the floor rate for lending, built from the bank's cost of funds and other components, and was introduced to improve transparency in pricing. Since October 2019 new floating-rate retail and MSME loans must instead be priced against an external benchmark such as the policy repo rate.

Question 33Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following is the correct meaning of 'Kisan Credit Card' in Indian banking?

  1. A credit card issued only to salaried urban customers
  2. A card used exclusively for gold loans
  3. A debit card issued to non-resident Indians
  4. A scheme providing short-term crop loans and working capital to farmers through a card-based facility Correct answer.

Explanation

The Kisan Credit Card scheme gives farmers a revolving credit facility for crop production needs and allied activities, with simplified documentation and flexible withdrawal. It is a short-term credit product, not a general consumer card.

Question 34Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's board is reviewing its liquidity position. Under the Basel III liquidity framework as adopted by the RBI, which statement correctly describes the Liquidity Coverage Ratio?

  1. It requires a bank to hold high-quality liquid assets sufficient to cover net cash outflows over a 30-day stress period Correct answer.
  2. It applies only to foreign currency liabilities
  3. It requires a bank to maintain a minimum of 100 percent capital to risk-weighted assets
  4. It measures the ratio of loans to deposits over a one-year horizon

Explanation

The LCR requires banks to hold unencumbered high-quality liquid assets at least equal to estimated net cash outflows under a 30-calendar-day stress scenario. It is a short-term liquidity standard, distinct from the Net Stable Funding Ratio, which addresses a one-year horizon.

Question 35Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A borrower's account has been classified as a sub-standard asset for the past 14 months. Into which asset classification category should the bank now place it?

  1. Standard
  2. Doubtful Correct answer.
  3. Sub-standard
  4. Loss

Explanation

A sub-standard asset remaining so for a period exceeding 12 months is reclassified as doubtful. The doubtful category is further divided into sub-categories based on the period since it became doubtful.

Question 36Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A company wants to raise funds through an issue of commercial paper. Which of the following conditions must be satisfied?

  1. The issuer must have a sanctioned working capital limit and a credit rating from an approved rating agency Correct answer.
  2. The issue must be fully secured by a charge on fixed assets
  3. The maturity must be at least five years
  4. The paper must be issued only to retail investors

Explanation

Commercial paper is an unsecured short-term promissory note issued by corporates with a sanctioned working capital limit and a credit rating, typically with maturities up to one year. It is unsecured and is placed with institutional investors, not retail.

Question 37Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank customer receives an email appearing to come from the bank and is asked to re-enter internet banking credentials through a link. Which type of cyber fraud is this?

  1. Phishing Correct answer.
  2. Vishing
  3. Skimming
  4. Shoulder surfing

Explanation

Phishing uses deceptive emails or messages with links to fake websites to steal credentials. Vishing uses voice calls, skimming involves copying card data at a terminal, and shoulder surfing is direct observation.

Question 38Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A chartered accountant is computing a bank's Net Interest Margin. Which formula is correct?

  1. Net profit divided by total equity
  2. (Interest income minus interest expense) divided by average earning assets Correct answer.
  3. (Interest income minus interest expense) divided by total deposits
  4. (Interest income plus fee income) divided by total assets

Explanation

NIM measures the spread earned on earning assets and is computed as net interest income divided by average earning assets. Fee income is excluded because it is not interest, and the denominator is earning assets rather than total assets or deposits.

Question 39Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank wishes to hedge the interest rate risk on a floating-rate loan portfolio. Which derivative is most appropriate?

  1. A commodity futures contract
  2. A currency forward contract
  3. An equity index futures contract
  4. A fixed-for-floating interest rate swap where the bank pays fixed and receives floating Correct answer.

Explanation

In a fixed-for-floating swap where the bank pays fixed and receives floating, the floating receipts offset the variable interest on the loan portfolio and convert the exposure to a fixed rate. Currency, equity and commodity derivatives hedge different risks.

Question 40Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's concurrent audit report notes that a large cash deposit was accepted without PAN details. Under the Income Tax Act's reporting requirements, what is the bank's obligation?

  1. Report the transaction to the Registrar of Companies
  2. No reporting is required for cash deposits
  3. Report the transaction to SEBI
  4. Report the transaction to the Financial Intelligence Unit only if it exceeds the prescribed threshold Correct answer.

Explanation

Banks must furnish reports of specified cash transactions above the prescribed threshold to the Financial Intelligence Unit-India under the Prevention of Money Laundering Act framework. The Income Tax Act also requires reporting of certain high-value cash deposits.

Question 41Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following correctly describes the treatment of a 'restructured' standard account under RBI's prudential norms?

  1. It must be written off immediately
  2. It is treated exactly like a standard asset with no additional provisioning
  3. It is immediately classified as a loss asset
  4. It attracts a higher provision and may be downgraded depending on the restructuring terms Correct answer.

Explanation

Restructuring of a standard account generally attracts a higher provisioning requirement and, depending on the terms, may result in downgrade. The framework aims to ensure that concessions granted to borrowers are reflected in asset classification and provisioning.

Question 42Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank uses the 'CASA ratio' as a key indicator. Which statement correctly explains its significance?

  1. A higher CASA ratio lowers the cost of funds because current and savings deposits carry low or no interest Correct answer.
  2. A higher CASA ratio increases the bank's risk-weighted assets
  3. CASA ratio measures the proportion of advances to total assets
  4. CASA ratio is the same as the capital adequacy ratio

Explanation

Current account and savings account deposits are low-cost or no-cost funds, so a higher CASA ratio reduces the bank's overall cost of funds. It is a deposit-mix metric and does not measure capital or advances.

Question 43Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A chartered accountant is assessing whether a bank has complied with the RBI's 'prompt corrective action' framework. Which trigger is part of this framework?

  1. Volume of UPI transactions
  2. Employee attrition rate
  3. Number of branches opened in a year
  4. Capital to risk-weighted assets ratio, net NPA ratio and return on assets Correct answer.

Explanation

The PCA framework uses capital adequacy, asset quality (net NPA ratio) and profitability (return on assets) as trigger indicators. Breach of specified thresholds invites progressively stricter corrective actions.

Question 44Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following best describes the role of a 'debenture trustee' in a debt issue?

  1. To fix the coupon rate after issue
  2. To act on behalf of debenture holders and enforce their security and covenants Correct answer.
  3. To underwrite the entire issue at a fixed price
  4. To audit the issuer's financial statements

Explanation

A debenture trustee is appointed to protect the interests of debenture holders, hold the security on their behalf and monitor compliance with covenants. The trustee does not underwrite the issue or audit the issuer.

Question 45Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's gross advances are Rs 2,000 crore and its gross NPAs are Rs 100 crore. What is the gross NPA ratio?

  1. 10 percent
  2. 20 percent
  3. 5 percent Correct answer.
  4. 2 percent

Explanation

The gross NPA ratio is gross NPAs divided by gross advances, expressed as a percentage. Here 100 divided by 2,000 equals 0.05, or 5 percent.

Question 46Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

Which of the following correctly describes the treatment of a bank's 'statutory liquidity ratio' holdings?

  1. They must be held in the form of cash, gold or approved government and other securities Correct answer.
  2. They are voluntary and have no minimum requirement
  3. They can be held entirely in the form of fixed assets
  4. They are maintained only in foreign currency

Explanation

SLR requires banks to maintain a specified percentage of their net demand and time liabilities in cash, gold or approved securities. It is a statutory minimum, not a voluntary holding.

Question 47Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's treasury holds a bond whose modified duration is 4. If yields rise by 50 basis points, what is the approximate percentage change in the bond's price?

  1. A rise of about 2 percent
  2. A fall of about 2 percent Correct answer.
  3. A rise of about 4 percent
  4. A fall of about 0.5 percent

Explanation

The approximate price change equals modified duration multiplied by the change in yield, with a negative sign for price when yields rise. Here 4 times 0.005 equals 0.02, so the price falls by about 2 percent.

Question 48Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank has Tier 1 capital of Rs 800 crore and risk-weighted assets of Rs 8,000 crore. If the minimum Common Equity Tier 1 requirement including the capital conservation buffer is 8 percent, which conclusion is correct?

  1. The bank meets the CET1 requirement only if its entire Tier 1 capital is CET1 Correct answer.
  2. The bank's CET1 ratio is 10 percent, comfortably above the requirement
  3. Capital adequacy cannot be assessed from the given data
  4. The bank's overall capital adequacy is below the minimum

Explanation

Tier 1 capital may include Additional Tier 1 instruments, so CET1 is at most Rs 800 crore, giving a CET1 ratio of at most 10 percent. Whether the 8 percent CET1 requirement is met depends on how much of the Tier 1 capital is actually CET1, which the data do not specify.

Question 49Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank enters a securitisation transaction where it retains the first-loss tranche. Which risk does this retention primarily create for the bank?

  1. It transfers credit risk entirely to investors
  2. It exposes the bank to the credit risk of the underlying pool through the retained subordinated tranche Correct answer.
  3. It converts the transaction into a covered bond
  4. It eliminates the need for capital against the retained interest

Explanation

Retaining a first-loss or subordinated tranche means the bank absorbs losses on the underlying pool before senior investors do, so credit risk remains with the originator. Regulatory capital must be held against the retained interest.

Question 50Professional Knowledge (Banking, Finance and Computer Awareness for Chartered Accountants)

A bank's asset-liability committee observes that in a falling interest rate environment its liabilities reprice faster than its assets. Which action best addresses the resulting margin pressure?

  1. Increase the proportion of long-term fixed-rate assets funded by short-term liabilities
  2. Extend the maturity of liabilities while shortening assets
  3. Reduce the duration gap by matching asset and liability repricing Correct answer.
  4. Increase reliance on overnight borrowings

Explanation

When liabilities reprice faster than assets in a falling rate environment, the cost of funds falls faster than asset yields, which is actually favourable; the concern arises when assets reprice slower than liabilities in a rising rate environment. Matching repricing profiles reduces the duration gap and stabilises the margin.