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Maharashtra HSC Bifocal Banking study materials
Maharashtra HSC Bifocal Banking study resources

Maharashtra HSC Bifocal Banking practice questions

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Question 1Introduction to Banking and the Indian Banking System

Under the Banking Regulation Act, 1949, a banking company must maintain a minimum paid-up capital and reserves of what amount to commence banking business in India?

  1. Five lakh rupees Correct answer.
  2. One lakh rupees
  3. Twenty-five lakh rupees
  4. Fifty lakh rupees

Explanation

Section 11 of the Banking Regulation Act, 1949 sets the minimum aggregate paid-up capital and reserves for a banking company at five lakh rupees, though the RBI now prescribes far higher entry norms for new banks. The statutory floor is therefore five lakh rupees.

Question 2Introduction to Banking and the Indian Banking System

Which of the following is the primary function of a commercial bank in the Indian banking system?

  1. Issuing currency notes on behalf of the Government
  2. Managing the foreign exchange reserves of the country
  3. Accepting deposits and lending money to the public Correct answer.
  4. Regulating the securities market

Explanation

The defining business of a commercial bank is the acceptance of deposits repayable on demand and the deployment of those funds as loans and advances. Currency issue and reserve management belong to the central bank, while securities regulation is the SEBI's role.

Question 3Introduction to Banking and the Indian Banking System

A savings bank account holder in India is subject to which of the following restrictions that does not apply to a current account?

  1. Cheques cannot be issued from the account
  2. No interest is payable on the balance
  3. The account must be operated only by a joint holder
  4. Withdrawals are subject to limits and the account earns interest Correct answer.

Explanation

Savings accounts are meant for individuals and carry restrictions on the number of withdrawals and amount, while earning interest as prescribed by the RBI. Current accounts are for business use, allow unrestricted operation, and normally earn no interest.

Question 4Introduction to Banking and the Indian Banking System

In Indian banking terminology, 'CRR' stands for which of the following?

  1. Capital Risk Requirement
  2. Cash Reserve Ratio Correct answer.
  3. Current Receipt Ratio
  4. Credit Refinance Ratio

Explanation

Cash Reserve Ratio is the proportion of net demand and time liabilities that a scheduled bank must keep as a cash balance with the Reserve Bank of India. It is a monetary policy instrument used to influence liquidity in the banking system.

Question 5Introduction to Banking and the Indian Banking System

Which institution regulates and supervises the banking system in India?

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

Explanation

The Reserve Bank of India is the central bank and the banking regulator, empowered by the Banking Regulation Act, 1949 and the RBI Act, 1934 to license and supervise banks. SEBI, IRDAI and NABARD have sector-specific roles that do not extend to general banking supervision.

Question 6Introduction to Banking and the Indian Banking System

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

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

Explanation

Section 13 of the Negotiable Instruments Act, 1881 recognises promissory notes, bills of exchange and cheques as negotiable instruments when payable either to order or to bearer. A promissory note payable to bearer therefore qualifies.

Question 7Introduction to Banking and the Indian Banking System

A customer deposits a cheque drawn on another bank into her savings account. In the clearing process, which bank is described as the 'drawee'?

  1. The bank where the cheque is deposited for collection
  2. The bank on which the cheque is drawn and which must pay it Correct answer.
  3. The RBI clearing house that settles the transaction
  4. The bank that endorses the cheque before presentation

Explanation

In a cheque, the drawer is the account holder who signs it and the drawee is the bank on which it is drawn, which is directed to pay. The collecting bank acts as the presenter, not the drawee.

Question 8Introduction to Banking and the Indian Banking System

A bank customer wants an account that offers overdraft flexibility with cheque facility and no interest on credit balances, primarily for business transactions. Which account should the bank recommend?

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

Explanation

Current accounts are designed for traders and businesses, permit unrestricted withdrawals and overdraft arrangements, and carry no interest on credit balances. Savings accounts restrict operation and recurring and fixed deposits are meant for savings rather than transaction use.

Question 9Introduction to Banking and the Indian Banking System

When the Reserve Bank of India raises the repo rate, what is the most direct intended effect on the banking system?

  1. Deposit insurance cover for customers is automatically increased
  2. Banks are forced to reduce their statutory liquidity ratio holdings
  3. Cost of short-term funds for banks rises, tending to make loans dearer Correct answer.
  4. Banks must immediately close their overseas branches

Explanation

The repo rate is the rate at which banks borrow short-term funds from the RBI against government securities. An increase raises banks' marginal cost of funds, which is typically passed on to borrowers and depositors.

Question 10Introduction to Banking and the Indian Banking System

Which of the following best describes the 'SLR' requirement for a scheduled commercial bank?

  1. The proportion of loans that must compulsorily be given to the priority sector
  2. The cash balance that must be kept in the bank's own vault
  3. The minimum proportion of net demand and time liabilities to be held in approved liquid assets such as government securities Correct answer.
  4. The capital that promoters must bring in at the time of licensing

Explanation

The Statutory Liquidity Ratio obliges a bank to hold a prescribed share of its net demand and time liabilities in cash, gold or approved securities, largely government securities. It is distinct from the CRR, which is held with the RBI, and from priority sector lending targets.

Question 11Introduction to Banking and the Indian Banking System

A person opens a joint savings account with a mandate that either holder may operate it, and one holder dies. What is the usual position of the bank regarding the surviving holder?

  1. The surviving holder can continue to operate the account, and the balance passes to the survivor under the survivorship clause Correct answer.
  2. The bank must freeze the account until a succession certificate is produced
  3. The account must be closed and the balance transferred to the RBI
  4. The bank must pay the entire balance only to the legal heirs of the deceased

Explanation

Where a joint account carries an 'either or survivor' mandate, the bank is protected in paying the survivor, and the survivor may continue operating the account. Settlement of the deceased's estate among heirs is a matter outside the bank's mandate.

Question 12Introduction to Banking and the Indian Banking System

Which of the following customers is legally competent to open a savings bank account in his own name?

  1. An unregistered partnership firm
  2. A person declared insolvent and not discharged
  3. A person of unsound mind certified by a court
  4. A minor aged twelve years, through a guardian, for a savings account Correct answer.

Explanation

A minor may hold a savings account operated by a guardian, and banks also permit minors above ten years to operate accounts independently under specified limits. Persons of unsound mind and undischarged insolvents lack contractual capacity, and unregistered firms are not recognised as customers for such accounts.

Question 13Introduction to Banking and the Indian Banking System

A bank issues a demand draft payable at another city. Which party is the 'drawer' of that instrument?

  1. The RBI clearing house
  2. The branch at the other city that pays the draft
  3. The purchaser of the draft who pays the amount
  4. The branch that issues the draft and signs it Correct answer.

Explanation

In a bank draft, the issuing branch is the drawer and the paying branch at the other centre is the drawee. The purchaser merely remits the amount and is not a party to the instrument as drawer.

Question 14Introduction to Banking and the Indian Banking System

Which of the following is a correct statement about the 'banker-customer' relationship in India?

  1. The relationship is purely that of a trustee at all times
  2. The relationship is that of a bailee for the entire deposit amount
  3. The relationship is governed only by the Companies Act, 2013
  4. The relationship is primarily contractual, with the bank as debtor for deposits and creditor for loans Correct answer.

Explanation

The ordinary relationship between a banker and a customer is contractual: for credit balances the bank is a debtor and the customer a creditor, and the position reverses for loans and advances. Special relationships such as trustee or bailee arise only in specific transactions like safe custody.

Question 15Introduction to Banking and the Indian Banking System

Why are scheduled banks in India required to maintain a minimum capital to risk-weighted assets ratio as prescribed by the RBI?

  1. To ensure that the bank holds adequate own funds against the credit risk it assumes Correct answer.
  2. To decide the salary structure of bank employees
  3. To fix the rate of interest that the bank may pay on deposits
  4. To determine the number of branches the bank may open

Explanation

Capital adequacy norms require a bank to maintain capital in proportion to risk-weighted assets so that losses can be absorbed without endangering depositors. The ratio addresses solvency and risk, not pricing, branch expansion or staffing.

Question 16Introduction to Banking and the Indian Banking System

A customer presents a cheque that is more than six months old. What should the bank do?

  1. Return it unpaid, as cheques are ordinarily valid for six months and this one is stale Correct answer.
  2. Pay it after obtaining the drawer's oral confirmation
  3. Return it unpaid, as cheques are valid for three months from the date they bear
  4. Pay it, since cheques remain valid indefinitely

Explanation

Under RBI instructions, a cheque is valid for presentation for three months from the date it bears, and banks generally treat instruments beyond six months as stale. A cheque older than six months is therefore a stale cheque and must be returned unpaid.

Question 17Introduction to Banking and the Indian Banking System

A bank wants to expand into the rural unbanked segment with a low-cost model and seeks permission to operate without a full-time on-site staff at every outlet. Which RBI-recognised model fits this description?

  1. Non-banking financial company lending
  2. Correspondent bank arrangement with a foreign bank
  3. Business correspondent model Correct answer.
  4. Lead bank scheme branch

Explanation

The business correspondent model allows banks to use individuals or entities as agents to deliver basic banking services in unbanked areas using technology, reducing cost per transaction. The lead bank scheme is a coordination mechanism and correspondent banking refers to interbank relationships with foreign banks.

Question 18Introduction to Banking and the Indian Banking System

A scheduled commercial bank fails to maintain the prescribed CRR on a reporting Friday. What is the RBI empowered to do under the RBI Act, 1934?

  1. Cancel the bank's licence immediately without any hearing
  2. Impose a penalty on the bank for the shortfall Correct answer.
  3. Transfer the bank's deposits to a public sector bank
  4. Waive the shortfall as a routine matter

Explanation

Section 42 of the RBI Act, 1934 requires scheduled banks to maintain the prescribed cash reserve and empowers the RBI to impose a penalty for any default. Licence cancellation is a separate extreme regulatory action subject to statutory process, not an automatic consequence of a CRR shortfall.

Question 19Introduction to Banking and the Indian Banking System

A bank holds government securities as part of its SLR portfolio. When market yields on these securities rise sharply, what happens to the bank's investment portfolio?

  1. The market value of the securities falls, creating a notional loss Correct answer.
  2. The market value of the securities rises, creating a profit
  3. The SLR requirement is automatically reduced
  4. The coupon received on the securities automatically increases

Explanation

Bond prices and yields move inversely: when yields rise, the market value of fixed-coupon securities falls. The bank then records a notional loss on its holdings, though the coupon itself remains fixed.

Question 20Introduction to Banking and the Indian Banking System

A customer's cheque is returned unpaid with the remark 'refer to drawer'. Which statement best explains this remark in Indian banking practice?

  1. The drawee bank is unsure of the drawer's identity and seeks clarification
  2. The drawer's account lacks sufficient funds or has been otherwise restricted, so the bank declines payment Correct answer.
  3. The collecting bank has failed to stamp the cheque
  4. The cheque has been endorsed in favour of the wrong person

Explanation

'Refer to drawer' is a standard return reason indicating that the paying bank is not honouring the cheque, commonly because of insufficient funds or an account restriction, and the holder should approach the drawer. It is not a query about identity or an endorsement defect.

Question 21Reserve Bank of India: Functions and Regulatory Role

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

  1. Regulating the securities market through SEBI
  2. Managing the borrowings of the Central and State Governments and acting as their debt manager Correct answer.
  3. Issuing currency notes on behalf of the Government of India
  4. Providing deposit insurance to bank customers

Explanation

As banker and debt manager to the government, the RBI receives and pays money on behalf of the government, manages public debt, and arranges market borrowings for both the Centre and the States. Currency issuance is a separate RBI function, deposit insurance is handled by DICGC, and securities market regulation belongs to SEBI.

Question 22Reserve Bank of India: Functions and Regulatory Role

Which rate does the RBI use as its key policy rate for signalling the stance of monetary policy under the current framework?

  1. The marginal standing facility rate
  2. The bank rate
  3. The reverse repo rate
  4. The repo rate under the liquidity adjustment facility Correct answer.

Explanation

Since the shift to the liquidity adjustment facility framework, the repo rate is the policy rate that the Monetary Policy Committee uses to signal its stance. The bank rate, MSF rate and reverse repo rate are corridor or standing facility rates that move in relation to the policy repo rate.

Question 23Reserve Bank of India: Functions and Regulatory Role

The RBI issues currency notes in denominations of two rupees and above under which provision?

  1. Section 22 of the Banking Regulation Act, 1949
  2. Section 17 of the Foreign Exchange Management Act, 1999
  3. Section 24 of the RBI Act, 1934 Correct answer.
  4. Section 45 of the Companies Act, 2013

Explanation

Section 24 of the RBI Act, 1934 empowers the RBI to issue notes of denominations of two rupees and above, while one-rupee notes are issued by the Government of India under the Coinage Act. The other Acts listed deal with banking regulation, companies and foreign exchange, not note issuance.

Question 24Reserve Bank of India: Functions and Regulatory Role

Which of the following is a quantitative instrument of credit control used by the RBI?

  1. Direct action
  2. Publicity
  3. Moral suasion
  4. Cash Reserve Ratio Correct answer.

Explanation

Quantitative instruments such as the cash reserve ratio, statutory liquidity ratio, repo operations and open market operations work by changing the volume or cost of credit in the banking system. Moral suasion, publicity and direct action are selective or qualitative measures that target particular sectors or behaviour.

Question 25Reserve Bank of India: Functions and Regulatory Role

What is the principal objective of the RBI's market stabilisation scheme?

  1. To regulate the pricing of agricultural commodities
  2. To provide long-term finance to infrastructure projects
  3. To insure small depositors against bank failure
  4. To sterilise the liquidity impact of large foreign exchange operations Correct answer.

Explanation

Under the market stabilisation scheme, the Government issues special securities and the RBI uses them to absorb or inject liquidity so that large foreign exchange purchases or sales do not destabilise domestic money supply. It is a sterilisation tool, distinct from development finance, deposit insurance and commodity regulation.

Question 26Reserve Bank of India: Functions and Regulatory Role

Which body formally sets the monetary policy repo rate in India today?

  1. The Board for Financial Supervision
  2. The Central Board of the RBI
  3. The Monetary Policy Committee constituted under the RBI Act Correct answer.
  4. The Securities and Exchange Board of India

Explanation

The Monetary Policy Committee, created through amendment of the RBI Act in 2016, meets to decide the policy repo rate and the stance of monetary policy. The Central Board oversees general administration, the Board for Financial Supervision handles supervision, and SEBI regulates securities markets.

Question 27Reserve Bank of India: Functions and Regulatory Role

A bank's net demand and time liabilities rise sharply, requiring it to hold more cash reserves. Which RBI requirement directly governs the cash it must keep with the RBI?

  1. The cash reserve ratio maintained as a percentage of net demand and time liabilities Correct answer.
  2. The provisioning norm for standard assets
  3. The capital to risk-weighted assets ratio
  4. The statutory liquidity ratio maintained in approved securities

Explanation

The cash reserve ratio requires banks to hold a specified percentage of their net demand and time liabilities as cash balances with the RBI. The SLR is held in approved securities rather than cash with the RBI, while CRAR and provisioning relate to capital adequacy and asset quality.

Question 28Reserve Bank of India: Functions and Regulatory Role

The RBI conducts an open market operation by selling government securities. What is the immediate effect on the banking system?

  1. Bank reserves with the RBI rise and liquidity expands
  2. Bank reserves with the RBI fall and liquidity tightens Correct answer.
  3. The cash reserve ratio is automatically reduced
  4. The statutory liquidity ratio is automatically raised

Explanation

When the RBI sells securities, buyers pay from their bank balances, so reserves held with the RBI decline and system liquidity tightens. Buying securities has the opposite effect. Open market operations change liquidity without altering the CRR or SLR ratios.

Question 29Reserve Bank of India: Functions and Regulatory Role

A cooperative bank wants to open a new branch in another district. Which regulator's approval is generally required for such a branch licence?

  1. The Competition Commission of India
  2. The Reserve Bank of India Correct answer.
  3. The Ministry of Corporate Affairs
  4. The Insurance Regulatory and Development Authority of India

Explanation

Branch licensing for banks, including cooperative banks, falls within the RBI's regulatory powers over banking business. The Ministry of Corporate Affairs deals with company law, IRDAI regulates insurance, and the CCI handles competition matters.

Question 30Reserve Bank of India: Functions and Regulatory Role

Which of the following best describes the RBI's role as 'lender of last resort'?

  1. It lends long-term development capital to industry
  2. It provides emergency liquidity support to solvent banks facing temporary cash shortages Correct answer.
  3. It guarantees the deposits of every bank customer up to a fixed limit
  4. It acts as the sole lender to the Government of India

Explanation

As lender of last resort, the RBI supplies emergency liquidity to solvent institutions facing temporary liquidity stress, helping prevent contagion. Deposit guarantees belong to the DICGC, development finance is not the central bank's core role, and lending to government is a separate banker-to-government function.

Question 31Reserve Bank of India: Functions and Regulatory Role

The RBI classifies a bank's advances to a borrower as a non-performing asset. Which regulatory consequence follows most directly?

  1. The bank must increase its cash reserve ratio
  2. The bank must immediately cancel the borrower's cheque book
  3. The bank must transfer the account to SEBI
  4. The bank must make provisions against the asset as per RBI norms Correct answer.

Explanation

Once an asset is classified as non-performing, RBI prudential norms require the bank to make provisions for expected losses, graded by the period and security of the account. Cancelling cheque books, transferring accounts to SEBI and altering the CRR are not regulatory consequences of NPA classification.

Question 32Reserve Bank of India: Functions and Regulatory Role

A customer wants to know which institution regulates the interest rates that banks may offer on savings deposits. Which statement is correct?

  1. Each bank sets savings deposit rates free of any RBI oversight
  2. SEBI fixes savings deposit rates for listed banks
  3. The RBI regulates interest rates on savings deposits through its directives Correct answer.
  4. The Ministry of Finance fixes savings deposit rates for all banks

Explanation

Interest rate regulation on deposits, including savings deposits, is part of the RBI's monetary and regulatory authority, exercised through its directives to banks. Neither SEBI nor the Ministry of Finance sets deposit rates, and banks do not operate entirely free of RBI oversight.

Question 33Reserve Bank of India: Functions and Regulatory Role

Which of the following is the RBI's primary objective when it intervenes in the foreign exchange market?

  1. To finance the fiscal deficit of the Government of India
  2. To set the exchange rate at a permanently fixed level
  3. To earn speculative profits from currency trading
  4. To curb excessive volatility in the exchange rate of the rupee Correct answer.

Explanation

The RBI intervenes in the foreign exchange market mainly to smooth excessive volatility and maintain orderly conditions, not to fix the rate permanently or to speculate. Financing the fiscal deficit is done through government borrowing and is not the aim of exchange market intervention.

Question 34Reserve Bank of India: Functions and Regulatory Role

Under the RBI's priority sector lending framework, a bank falling short of its target must do what?

  1. Surrender its banking licence
  2. Increase its cash reserve ratio to compensate
  3. Pay a penalty equal to twice the shortfall to the Government
  4. Contribute to the Rural Infrastructure Development Fund or similar funds Correct answer.

Explanation

Banks that fail to meet priority sector lending targets are required to contribute the shortfall to designated funds such as the Rural Infrastructure Development Fund. The framework uses these contributions rather than licence surrender, CRR changes or direct penalties to the government.

Question 35Reserve Bank of India: Functions and Regulatory Role

What distinguishes the RBI's regulatory role from its developmental role in the banking sector?

  1. Regulation applies only to cooperative banks, while development applies only to commercial banks
  2. Regulation sets prudential rules and supervision, while development promotes institution building and financial inclusion Correct answer.
  3. Regulation deals only with foreign banks, while development deals only with domestic banks
  4. Regulation is performed by SEBI, while development is performed by the RBI

Explanation

The RBI's regulatory role involves prudential norms, licensing and supervision, whereas its developmental role includes promoting institutions, expanding banking access and supporting financial inclusion. The distinction is not drawn by bank type, and SEBI does not perform the RBI's banking regulation.

Question 36Reserve Bank of India: Functions and Regulatory Role

The RBI imposes a penalty on a bank for a know-your-customer violation. Under what authority is such a penalty typically imposed?

  1. Provisions of the Partnership Act, 1932
  2. Provisions of the Indian Contract Act, 1872
  3. Provisions of the Sale of Goods Act, 1930
  4. Provisions of the Banking Regulation Act, 1949 Correct answer.

Explanation

The RBI's power to impose penalties on banks for regulatory non-compliance, including KYC lapses, flows from the Banking Regulation Act, 1949. The Contract Act, Sale of Goods Act and Partnership Act govern civil transactions and business forms, not banking supervision.

Question 37Reserve Bank of India: Functions and Regulatory Role

In the RBI's liquidity adjustment facility, a bank borrows overnight against government securities. Which facility is it using?

  1. The marginal standing facility
  2. The bank rate facility
  3. The reverse repo facility
  4. The repo facility Correct answer.

Explanation

Under the liquidity adjustment facility, a bank borrowing against government securities is conducting a repo, which injects liquidity. The reverse repo absorbs liquidity, the MSF is a separate standing facility for emergency borrowing against SLR securities, and the bank rate is a penal reference rate.

Question 38Reserve Bank of India: Functions and Regulatory Role

The RBI reduces the statutory liquidity ratio while keeping the repo rate unchanged. What is the most likely intended effect?

  1. To increase the deposit insurance cover
  2. To free up funds for lending and support credit growth Correct answer.
  3. To raise the cost of government borrowing
  4. To reduce the cash that banks hold with the RBI

Explanation

A cut in the SLR releases funds that banks were holding in approved securities, making more resources available for lending and supporting credit growth. It does not change cash balances with the RBI, which the CRR governs, and it is not aimed at raising government borrowing costs or altering deposit insurance.

Question 39Reserve Bank of India: Functions and Regulatory Role

Which statement correctly captures the relationship between the RBI and the DICGC?

  1. The DICGC is an autonomous body under the Ministry of Finance that sets the repo rate
  2. The DICGC is a wholly owned subsidiary of the RBI that insures bank deposits Correct answer.
  3. The DICGC is a department of SEBI that regulates bank capital
  4. The DICGC is a private insurer owned by commercial banks

Explanation

The Deposit Insurance and Credit Guarantee Corporation is a wholly owned subsidiary of the RBI and provides insurance cover to depositors of insured banks. It is not part of SEBI, does not set the repo rate, and is not a private insurer owned by banks.

Question 40Reserve Bank of India: Functions and Regulatory Role

A bank classified as a domestic systemically important bank faces a higher capital requirement. What is the regulatory rationale for this additional requirement?

  1. To reduce the expected impact of the bank's failure on the wider financial system Correct answer.
  2. To fund the deposit insurance corpus
  3. To compensate the RBI for the cost of supervision
  4. To discourage the bank from lending to priority sectors

Explanation

Systemically important banks receive an additional capital surcharge because their failure would impose larger spillovers on the financial system and the economy. The requirement is not a fee for supervision, a source of deposit insurance funding, or a restriction on priority sector lending.

Question 41Types of Banks and Financial Institutions

Under the Reserve Bank of India Act, 1934, which institution is the sole authority for issuing currency notes in India?

  1. The National Bank for Agriculture and Rural Development
  2. The State Bank of India
  3. The Reserve Bank of India Correct answer.
  4. The Ministry of Finance

Explanation

The RBI Act, 1934 empowers the Reserve Bank of India as the sole note-issuing authority, except for one-rupee coins and notes issued by the Government of India. Commercial banks such as SBI cannot issue currency.

Question 42Types of Banks and Financial Institutions

A bank registered under the Banking Regulation Act, 1949 that accepts demand deposits and lends mainly to individuals and small businesses is best described as:

  1. A cooperative society
  2. A development finance institution
  3. A regional rural bank
  4. A commercial bank Correct answer.

Explanation

A commercial bank accepts demand deposits repayable on demand and lends for commerce and trade. Cooperative societies are registered under separate state cooperative laws, while development finance institutions provide term finance rather than demand-deposit banking.

Question 43Types of Banks and Financial Institutions

Payments banks licensed by the RBI are permitted to do which of the following?

  1. Accept fixed deposits of unlimited value and offer overdrafts
  2. Accept demand deposits up to a prescribed ceiling and issue debit cards Correct answer.
  3. Underwrite equity issues for corporate clients
  4. Lend to priority sector borrowers and issue credit cards

Explanation

Payments banks accept demand deposits subject to a ceiling and provide payment services such as debit cards, but they cannot lend or issue credit cards. This restricted licence is meant to widen financial inclusion rather than full-service banking.

Question 44Types of Banks and Financial Institutions

Which institution serves as the regulator for cooperative banks in Maharashtra while the RBI handles licensing and banking regulation?

  1. The Maharashtra State Financial Corporation
  2. The Registrar of Cooperative Societies Correct answer.
  3. The Securities and Exchange Board of India
  4. The Insurance Regulatory and Development Authority of India

Explanation

Cooperative banks have dual regulation: the RBI regulates banking functions, while the Registrar of Cooperative Societies under state cooperative law supervises incorporation, management and audit. SEBI and IRDAI regulate securities markets and insurance respectively.

Question 45Types of Banks and Financial Institutions

A regional rural bank in Maharashtra is typically owned in which proportion?

  1. 50 per cent central government, 35 per cent sponsor bank, 15 per cent state government Correct answer.
  2. 51 per cent by the state government and 49 per cent by private shareholders
  3. 100 per cent by the sponsor bank
  4. 100 per cent by the National Bank for Agriculture and Rural Development

Explanation

Regional rural banks were set up under the RRB Act, 1976 with shareholding of 50 per cent central government, 35 per cent sponsor bank and 15 per cent state government. This tripartite ownership is intended to combine local knowledge with commercial banking expertise.

Question 46Types of Banks and Financial Institutions

Which of the following is the primary function of a development finance institution such as IFCI?

  1. Clearing cheques between commercial banks
  2. Providing medium and long-term finance for industrial projects Correct answer.
  3. Accepting demand deposits from the public
  4. Issuing currency notes on behalf of the RBI

Explanation

Development finance institutions supply medium and long-term capital for industry and infrastructure, often through project loans and equity. They are not banks of issue and do not normally accept demand deposits from the public.

Question 47Types of Banks and Financial Institutions

The National Bank for Agriculture and Rural Development performs which role for rural credit institutions?

  1. It regulates mutual funds and portfolio managers
  2. It fixes the repo rate for the entire banking system
  3. It provides refinance and supervises cooperative banks and regional rural banks Correct answer.
  4. It insures deposits of individual depositors

Explanation

NABARD is the apex institution for agricultural and rural credit, providing refinance and supervising cooperative banks and RRBs. Monetary policy and deposit insurance belong to the RBI and DICGC respectively.

Question 48Types of Banks and Financial Institutions

The Deposit Insurance and Credit Guarantee Corporation insures deposits of each depositor in a bank up to a maximum of:

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

Explanation

The DICGC insures deposits up to five lakh rupees per depositor per bank, covering principal and interest. This limit was raised from one lakh rupees to strengthen depositor confidence.

Question 49Types of Banks and Financial Institutions

A student wants to open a savings account with a small finance bank. Which statement about small finance banks is accurate?

  1. They are owned exclusively by the central government
  2. They must extend at least 75 per cent of their lending to priority sector borrowers Correct answer.
  3. They cannot accept deposits from individuals
  4. They are permitted to issue currency notes

Explanation

Small finance banks are required to hold at least 75 per cent of their adjusted net bank credit in priority sector lending, with a focus on small and marginal borrowers. They accept deposits and lend, but have no note-issuing power.

Question 50Types of Banks and Financial Institutions

Which of these institutions is classified as an all-India financial institution under RBI regulation rather than a commercial bank?

  1. HDFC Bank
  2. Bank of Baroda
  3. National Housing Bank Correct answer.
  4. State Bank of India

Explanation

The National Housing Bank is an all-India financial institution regulated by the RBI for its housing finance promotion role. SBI, Bank of Baroda and HDFC Bank are scheduled commercial banks.