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RBSE Sec Voc Banking, Financial Services and Insurance study materials
RBSE Sec Voc Banking, Financial Services and Insurance study resources

RBSE Sec Voc Banking, Financial Services and Insurance practice questions

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Question 1Introduction to Banking and the Indian Financial System

The Reserve Bank of India was constituted as the country's central bank in which year and under which statute?

  1. 1955, when the Imperial Bank of India was converted into the State Bank of India
  2. 1949, under the Banking Regulation Act, 1949, which also gave the RBI extensive powers over commercial banks
  3. 1969, when fourteen major commercial banks were nationalised by the Government of India
  4. 1935, under the Reserve Bank of India Act, 1934 Correct answer.

Explanation

The RBI commenced operations on 1 April 1935 as a shareholders' institution created by the Reserve Bank of India Act, 1934, and it was nationalised only in 1949. The Banking Regulation Act, 1949 gave the RBI its supervisory powers over banks but did not create the central bank. The 1955 and 1969 events relate to the State Bank of India and to bank nationalisation respectively.

Question 2Introduction to Banking and the Indian Financial System

A bank in India is described as a 'scheduled commercial bank'. What does this status indicate?

  1. It is included in the Second Schedule of the RBI Act, 1934 Correct answer.
  2. It is a member of an approved clearing house of the National Payments Corporation of India
  3. It is owned by the Government of India and included in the Union Budget documents
  4. It has been granted a licence under the Companies Act, 2013 by the Ministry of Corporate Affairs

Explanation

Scheduled status follows from inclusion in the Second Schedule of the Reserve Bank of India Act, 1934, for which a bank must meet conditions such as minimum paid-up capital and reserves and sound financial standing. Scheduled banks obtain RBI refinance and clearing facilities and are subject to cash reserve requirements. A banking licence under the Banking Regulation Act, 1949 is a separate and prior requirement.

Question 3Introduction to Banking and the Indian Financial System

A commercial bank reports net demand and time liabilities (NDTL) of ₹500 crore. If the RBI prescribes a cash reserve ratio of 4 per cent, how much must the bank maintain as cash reserve with the RBI?

  1. ₹20 crore Correct answer.
  2. ₹4 crore
  3. ₹50 crore
  4. ₹10 crore

Explanation

The CRR is a specified percentage of net demand and time liabilities that a bank must hold as cash balances with the Reserve Bank, so 4 per cent of ₹500 crore comes to ₹20 crore. This balance earns no interest for the bank and cannot be deployed for lending. The CRR is a quantitative credit-control instrument because raising it withdraws lendable resources from the banking system.

Question 4Introduction to Banking and the Indian Financial System

A trading firm needs an account that places no restriction on the number or amount of withdrawals in a day and on which no interest is paid on the balance. Which type of account should it open?

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

Explanation

A current account is a demand deposit account designed for businesses; it permits unrestricted deposits and withdrawals, normally carries no interest, and may attract service charges. Savings accounts pay interest but impose withdrawal limits, while recurring and fixed deposits are time deposits that cannot be operated freely by cheque. The absence of both an interest payment and a withdrawal cap is what distinguishes the current account.

Question 5Introduction to Banking and the Indian Financial System

A mutual fund scheme must park ₹50 crore of surplus cash for exactly 91 days with neither credit risk nor interest-rate risk. Which instrument is most suitable?

  1. Commercial paper issued by a non-banking finance company
  2. A 91-day Treasury bill Correct answer.
  3. Equity shares of a listed commercial bank
  4. A 10-year Government of India dated security

Explanation

Treasury bills are zero-coupon money market instruments issued by the Government of India at a discount and redeemed at face value, so a 91-day bill matches a 91-day horizon and carries no default risk. Commercial paper carries the credit risk of the issuer, a long-dated government security carries interest-rate risk over a three-month holding period, and equity carries market risk. Matching the maturity of the instrument to the deployment period is the standard treasury practice here.

Question 6Introduction to Banking and the Indian Financial System

A company proposes to raise capital through an initial public offer and have its shares listed on a recognised stock exchange. Whose issue regulations principally govern this process?

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

Explanation

SEBI is the statutory regulator of the Indian securities market under the SEBI Act, 1992, and its ICDR Regulations set out the conditions for public issues, disclosure norms and listing. The RBI regulates banks and monetary policy, IRDAI supervises insurers, and NABARD is an apex development bank for rural credit. Capital raising and listing are therefore securities-market activities within SEBI's remit.

Question 7Introduction to Banking and the Indian Financial System

Which of the following is a qualitative instrument of credit control available to the Reserve Bank of India?

  1. Bank rate
  2. Cash reserve ratio
  3. Moral suasion Correct answer.
  4. Open market operations

Explanation

Qualitative or selective credit controls influence the direction and purpose of credit rather than its total volume, and moral suasion - persuading banks to follow RBI guidance - is a classic example. The cash reserve ratio, open market operations and the bank rate are quantitative tools that alter the overall cost or quantity of credit in the system. Margin requirements and consumer credit regulation are other selective instruments.

Question 8Introduction to Banking and the Indian Financial System

A firm must pay ₹3 crore to a supplier today and wants settlement in real time on a gross, transaction-by-transaction basis. Which facility should it use?

  1. NEFT
  2. UPI
  3. RTGS Correct answer.
  4. Cheque clearing through CTS

Explanation

RTGS settles high-value payments individually and in real time through the RBI's core system, with a minimum of ₹2 lakh and no upper ceiling, which suits a same-day ₹3 crore transfer. NEFT settles in batches rather than continuously, UPI is built for small retail payments subject to per-transaction limits, and cheque clearing settles with a lag. The requirement of real-time gross settlement points specifically to RTGS.

Question 9Introduction to Banking and the Indian Financial System

Under the Negotiable Instruments Act, 1881, which feature makes an instrument a cheque rather than an ordinary bill of exchange?

  1. It requires acceptance by the drawee before it can be paid
  2. It must be drawn by a company and registered with the Registrar of Companies
  3. It is drawn on a banker and payable on demand Correct answer.
  4. It must be stamped at the prescribed rate before it is issued

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. Every cheque is thus a bill of exchange, but only one drawn on a banker and payable on demand qualifies as a cheque. A cheque needs no acceptance and bears no stamp duty, which separates it from a usance bill.

Question 10Introduction to Banking and the Indian Financial System

Which of the following best describes what a payments bank licensed by the RBI is permitted to do?

  1. Lend to small and marginal farmers against gold
  2. Accept demand deposits up to a limit set by RBI and issue debit cards, but not lend Correct answer.
  3. Operate as full-fledged universal banks without any ceiling on the deposits they may accept from any single customer
  4. Issue credit cards and give overdrafts to retail customers

Explanation

A payments bank may accept savings and current deposits up to a ceiling fixed by the RBI, issue debit cards and provide payments and remittance services, but it is barred from lending and from issuing credit cards. It can distribute simple third-party products such as mutual funds and insurance, often acting as a business correspondent. The restricted licence exists to extend basic banking to unserved areas without creating a full-service lender.

Question 11Introduction to Banking and the Indian Financial System

The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures deposits held by a customer in a bank. What is the maximum insurance cover available to a depositor for deposits held in the same right and capacity in one bank?

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

Explanation

The DICGC insures each depositor up to ₹5 lakh per bank for deposits held in the same right and capacity, covering both principal and interest. The limit was raised from ₹1 lakh to ₹5 lakh in 2020 and applies to commercial banks, regional rural banks and eligible cooperative banks.

Question 12Introduction to Banking and the Indian Financial System

Which institution was established as the apex development bank to provide credit and refinance support for agriculture, cottage and village industries, rural artisans and small-scale industries?

  1. National Housing Bank (NHB)
  2. National Bank for Agriculture and Rural Development (NABARD) Correct answer.
  3. Export-Import Bank of India (EXIM Bank)
  4. Small Industries Development Bank of India (SIDBI)

Explanation

NABARD was set up in 1982 as the apex development bank for agriculture and rural credit, refinancing banks and cooperatives that lend in rural areas. SIDBI serves MSMEs, EXIM Bank handles foreign trade finance and NHB focuses on housing finance.

Question 13Introduction to Banking and the Indian Financial System

A customer wants to accumulate savings by depositing a fixed sum every month and receive the entire accumulated amount with interest at the end of an agreed term. Which bank deposit product matches this requirement?

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

Explanation

A recurring deposit requires the depositor to pay a fixed instalment every month for a pre-agreed term, and the accumulated amount with interest is paid on maturity. It suits savers who want a lump sum through disciplined monthly contributions rather than a single large deposit.

Question 14Introduction to Banking and the Indian Financial System

A Regional Rural Bank (RRB) is jointly owned by the Central Government, the concerned State Government and a sponsor bank. Which shareholding pattern is prescribed for an RRB?

  1. Central Government 40%, State Government 20%, sponsor bank 40%
  2. Central Government 50%, State Government 15%, sponsor bank 35% Correct answer.
  3. Central Government 50%, State Government 35%, sponsor bank 15%
  4. Central Government 35%, State Government 15%, sponsor bank 50%

Explanation

Under the Regional Rural Banks Act, 1976, the share capital of an RRB is subscribed 50% by the Central Government, 15% by the State Government and 35% by the sponsor bank. This tripartite ownership structure is mandatory for every RRB.

Question 15Introduction to Banking and the Indian Financial System

A highly rated manufacturing company needs unsecured short-term funds for about six months for working capital and wants to issue a negotiable instrument directly to investors. Which money market instrument is designed for this purpose?

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

Explanation

Commercial paper is an unsecured promissory note issued by highly rated corporates to raise short-term funds, with maturity between 7 days and one year. It is issued at a discount and redeemed at face value, so the investor earns the difference.

Question 16Introduction to Banking and the Indian Financial System

Which statement correctly describes the regulatory position of a non-banking financial company (NBFC) registered with the Reserve Bank of India?

  1. It can issue cheques drawn on itself in favour of its customers.
  2. It must maintain cash reserve ratio balances with the RBI on its liabilities.
  3. It cannot accept demand deposits and does not form part of the payment and settlement system. Correct answer.
  4. It can accept demand deposits but cannot lend against gold.

Explanation

An NBFC cannot accept demand deposits, cannot issue cheques drawn on itself and is outside the payment and settlement system; it also does not maintain CRR with the RBI. Certain categories may accept public time deposits only when specifically permitted by RBI directions.

Question 17Introduction to Banking and the Indian Financial System

For domestic scheduled commercial banks, the RBI's priority sector lending target is what percentage of adjusted net bank credit (ANBC) or credit equivalent of off-balance-sheet exposure, whichever is higher?

  1. 32%
  2. 25%
  3. 50%
  4. 40% Correct answer.

Explanation

Domestic scheduled commercial banks must lend at least 40% of ANBC or the credit equivalent of off-balance-sheet exposure, whichever is higher, to priority sectors. Within this overall target, 18% is earmarked for agriculture, 7.5% for micro enterprises and 12% for weaker sections.

Question 18Introduction to Banking and the Indian Financial System

The Reserve Bank - Integrated Ombudsman Scheme, 2021 consolidated the earlier ombudsman schemes. Which feature best captures the change introduced by this scheme?

  1. A scheme that allows a customer to appeal directly to the Supreme Court against an ombudsman award.
  2. A scheme that applies only to public sector banks and excludes private sector banks.
  3. A scheme that charges a fee for every complaint filed by an aggrieved customer.
  4. A single scheme covering banks, NBFCs and prepaid payment instrument issuers, with one centralised complaint processing centre. Correct answer.

Explanation

The 2021 scheme is popularly called 'One Nation One Ombudsman' because it covers banks, non-banking financial companies and prepaid payment instrument issuers under a single framework. Complaints are received at a centralised receipt and processing centre, and no fee is charged to the complainant.

Question 19Introduction to Banking and the Indian Financial System

Under the RBI's Basel III capital framework for scheduled commercial banks, what are the minimum Common Equity Tier 1 (CET1) ratio and the minimum total Capital to Risk-weighted Assets Ratio (CRAR), respectively?

  1. 5.5% and 9% Correct answer.
  2. 4.5% and 8%
  3. 4.5% and 9%
  4. 5.5% and 8%

Explanation

The RBI's Basel III framework requires scheduled commercial banks to hold minimum CET1 capital of 5.5% of risk-weighted assets and a total CRAR of at least 9%. Tier 1 capital must be at least 7%, and a capital conservation buffer of 2.5% applies over and above these minima.

Question 20Introduction to Banking and the Indian Financial System

Under the Lead Bank Scheme, what is the main responsibility assigned to the lead bank of a district?

  1. To coordinate with other banks and government agencies, assess credit potential and prepare the district credit plan. Correct answer.
  2. To act as the sole lender in the district and approve every loan above ₹1 crore.
  3. To regulate the cooperative banks operating within the district.
  4. To issue currency notes to meet the district's cash requirements.

Explanation

The lead bank is a designated scheduled commercial bank that acts as consortium leader in the district, surveys credit potential, prepares the District Credit Plan and coordinates with other banks and state agencies. It does not monopolise lending or regulate other institutions.

Question 21Introduction to Banking and the Indian Financial System

Which of the following is a money market instrument issued by the Government of India with a maturity of less than one year?

  1. A Treasury bill Correct answer.
  2. An equity share of a listed company
  3. A corporate debenture
  4. A 10-year Government of India dated security

Explanation

Treasury bills are short-term, zero-coupon instruments issued by the Government of India, generally with maturities of 91, 182 or 364 days. They belong to the money market because their original maturity is one year or less. Dated Government securities, equity shares and debentures are capital market instruments.

Question 22Introduction to Banking and the Indian Financial System

A bank owned and controlled by its members, usually operating on the principle of one member, one vote, is known as a:

  1. A cooperative bank Correct answer.
  2. A regional rural bank
  3. A foreign bank
  4. A payments bank

Explanation

Cooperative banks are member-owned democratic institutions in which control is exercised through membership rather than shareholding proportion. Payments banks are companies licensed by the RBI, regional rural banks are jointly owned by Governments and a sponsor bank, and foreign banks are owned outside India.

Question 23Introduction to Banking and the Indian Financial System

Which of the following is the main source of funds for a commercial bank?

  1. Deposits from customers Correct answer.
  2. Fees earned from advisory services
  3. Share capital contributed by promoters
  4. Borrowings from the Reserve Bank of India

Explanation

Deposits from customers, including current, savings and term deposits, form the largest and most regular source of funds for commercial banks. Share capital and RBI borrowings are supplementary sources, while fees are income rather than the main funding base.

Question 24Introduction to Banking and the Indian Financial System

A bank raises short-term funds by issuing a negotiable instrument at a discount to institutional investors, with maturity up to one year. This instrument is:

  1. A commercial paper issued by a large manufacturing company
  2. A certificate of deposit issued by the bank Correct answer.
  3. A bill of exchange accepted by a trading company
  4. A Treasury bill issued by the Government of India

Explanation

A certificate of deposit is a negotiable, unsecured money market instrument issued by a bank, usually at a discount, to raise short-term funds from institutional investors. Commercial paper is issued by corporates, Treasury bills by the Government and bills of exchange arise from trade transactions.

Question 25Introduction to Banking and the Indian Financial System

An exporter receives US dollars in India and wants to hold them in a foreign currency account with an Indian bank to avoid repeated conversion. Which account is most suitable?

  1. A Foreign Currency Non-Resident (Bank) deposit opened by an NRI
  2. An Exchange Earners' Foreign Currency (EEFC) account Correct answer.
  3. A Non-Resident External (NRE) rupee account opened by an NRI
  4. A Non-Resident Ordinary (NRO) rupee account opened by an NRI

Explanation

An Exchange Earners' Foreign Currency account allows a resident exporter to retain part of foreign exchange earnings in foreign currency with an authorised dealer bank. This reduces repeated conversion into rupees. NRE, FCNR(B) and NRO accounts are designed for non-resident customers.

Question 26Introduction to Banking and the Indian Financial System

A cheque bears two parallel lines across its face with the words 'Account Payee'. What is the effect of this crossing?

  1. It must be credited to the payee's bank account only Correct answer.
  2. It can be transferred by mere delivery to any person who holds it
  3. It can be paid in cash across the counter to any bearer presenting it
  4. It becomes a bearer cheque once the payee endorses it in blank

Explanation

An account payee crossing directs the collecting bank to credit the proceeds only to the bank account of the named payee. It restricts negotiation to third parties and prevents cash payment over the counter.

Question 27Introduction to Banking and the Indian Financial System

A company issues a financial instrument that gives the holder a residual claim on assets after all liabilities are paid and voting rights at general meetings. This instrument is:

  1. A commercial paper
  2. A certificate of deposit
  3. A debenture
  4. An equity share Correct answer.

Explanation

Equity shares represent ownership capital. Equity shareholders have a residual claim on assets after all liabilities are settled and normally carry voting rights at general meetings. Debentures, certificates of deposit and commercial paper are debt instruments.

Question 28Introduction to Banking and the Indian Financial System

The Reserve Bank of India is described as the lender of last resort. What does this mean?

  1. It guarantees all deposits held with every cooperative bank in the country
  2. It approves every commercial loan that a bank proposes to grant to a borrower
  3. It provides emergency liquidity support to banks facing a temporary shortage Correct answer.
  4. It lends only to the central government when its tax receipts are temporarily low

Explanation

As lender of last resort, the RBI can provide emergency liquidity to solvent banks when they cannot obtain funds from the interbank market. This role supports financial stability. It does not mean approving individual commercial loans or insuring all deposits.

Question 29Introduction to Banking and the Indian Financial System

Under the RBI's Prompt Corrective Action framework, which of the following is used as a trigger indicator for scheduled commercial banks?

  1. The number of automated teller machines operated by the bank
  2. The bank's net non-performing assets Correct answer.
  3. The productivity of the bank's employees
  4. The proportion of current and savings account deposits

Explanation

The Prompt Corrective Action framework monitors capital adequacy, asset quality, leverage and profitability. Net non-performing assets are an asset-quality indicator used to trigger corrective action. ATM count, CASA ratio and employee productivity are not PCA trigger indicators.

Question 30Introduction to Banking and the Indian Financial System

What is the primary role of the Clearing Corporation of India Limited (CCIL)?

  1. It regulates the issuance and listing of equity shares by public companies
  2. It insures deposits held by individual customers in all commercial banks
  3. It provides long-term refinance to agriculture, rural development and small industries
  4. It clears and settles money, government securities and foreign exchange trades Correct answer.

Explanation

CCIL is a market infrastructure institution that provides clearing and settlement services for transactions in the money market, government securities market and foreign exchange market. It acts as a central counterparty and helps reduce settlement risk. Deposit insurance, securities regulation and agricultural refinance are handled by other institutions.

Question 31Banking Products, Accounts and Core Banking Operations

A partnership firm that receives and pays money many times a day wants a deposit account with no limit on the number of withdrawals and no interest earnings. Which account should the firm open?

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

Explanation

A current account is opened by traders, firms and companies for frequent receipts and payments, and banks normally pay no interest on it. Savings accounts are meant for individuals, carry withdrawal limits and earn interest, while recurring and fixed deposits are term products designed to build savings over a fixed period.

Question 32Banking Products, Accounts and Core Banking Operations

Before opening a new savings bank account, the bank is required to obtain documents and information that primarily establish which of the following?

  1. The customer's monthly income and repayment capacity
  2. The customer's identity and address Correct answer.
  3. The customer's credit score with credit information companies
  4. The customer's employment history and references

Explanation

Know Your Customer norms require a bank to establish the identity and address of every customer before opening an account, using documents such as Aadhaar, passport or PAN together with address proof. This enables the bank to know who it is dealing with and helps in detecting money laundering and fraud.

Question 33Banking Products, Accounts and Core Banking Operations

Which obligation does a depositor accept when opening a recurring deposit account with a bank?

  1. Withdraw the entire balance without notice whenever required
  2. Deposit a lump sum once and leave it untouched for the term
  3. Deposit a fixed amount every month for an agreed period Correct answer.
  4. Maintain a minimum balance and withdraw any number of times a day

Explanation

A recurring deposit is a term product in which the depositor pays an equal instalment every month for a chosen period, and the instalments with interest are repaid at maturity. This discipline of monthly saving is what distinguishes it from a fixed deposit, which is funded by a single lump sum.

Question 34Banking Products, Accounts and Core Banking Operations

Which statement correctly brings out the difference between RTGS and NEFT transfers?

  1. RTGS is meant only for customers holding savings bank accounts
  2. RTGS transfers are always free of charge, whereas NEFT transfers carry a fee
  3. RTGS settles each transaction individually in real time, whereas NEFT settles transactions in batches Correct answer.
  4. RTGS can be used only when the remitter and the beneficiary bank are the same

Explanation

RTGS is a real time gross settlement system in which every transaction is settled individually and irrevocably as it is processed, which suits high-value payments. NEFT works on deferred net settlement, where payment instructions are queued and settled in batches, so the essential difference lies in the settlement method.

Question 35Banking Products, Accounts and Core Banking Operations

A cheque bears two parallel transverse lines on its face along with the words 'Account Payee'. What is the effect of this crossing?

  1. The cheque must be endorsed in favour of a third party before it is collected
  2. The cheque can be encashed across the counter by any bearer
  3. The proceeds must be credited only to the payee's bank account and the cheque cannot be negotiated further by endorsement Correct answer.
  4. The cheque becomes stale and cannot be paid after twenty-four hours

Explanation

An account payee crossing directs the collecting bank to credit the proceeds only to the account of the payee named on the cheque. A later endorsement in favour of some other person confers no valid title, which protects the drawer against the cheque falling into the wrong hands.

Question 36Banking Products, Accounts and Core Banking Operations

A customer of a bank's Jaipur branch deposits cash at its Udaipur branch and the amount is immediately available for withdrawal at Jaipur. Which feature of core banking makes this possible?

  1. Only when the customer submits a written request to the home branch
  2. Immediately in the customer's account, because all branches operate on a single central database Correct answer.
  3. Only after the home branch manually reconciles the entry at the close of the day
  4. Only in the branch where the account was opened, through a manual register

Explanation

A core banking solution links every branch to a central server and a common database, so a transaction posted at any branch updates the customer's account at once. This centralised processing is what makes anywhere banking possible, in place of branch-level registers and end-of-day reconciliation.

Question 37Banking Products, Accounts and Core Banking Operations

A sole depositor has registered a nomination in favour of his nephew. After the depositor's death, which statement correctly describes the bank's position?

  1. The nominee becomes the absolute owner of the deposit and the bank must settle the claim without any formalities
  2. The bank is discharged from its liability by paying the nominee, who holds the amount as a trustee for the legal heirs Correct answer.
  3. The deposit is transferred to the nominee's own account at the same rate of interest for the remaining term
  4. The deposit is forfeited to the bank because a nephew is not an eligible nominee

Explanation

Under section 45ZA of the Banking Regulation Act, 1949, a bank that has registered a nomination is discharged of its liability by making payment to the nominee. The nominee receives the money as a trustee for the legal heirs and does not thereby become the absolute owner of the deposit.

Question 38Banking Products, Accounts and Core Banking Operations

A customer who has issued a cheque gives the bank a written instruction to stop its payment before it is presented. What is the correct action for the bank?

  1. Ask the payee's bank to obtain the payee's consent before presenting the cheque
  2. Record the instruction against the account and return the cheque unpaid if it is presented Correct answer.
  3. Pay the cheque and recover the amount from the customer by a separate debit later
  4. Pay the cheque, since a cheque remains valid for three months from its date

Explanation

A stop payment instruction is registered against the account, and the bank must return the cheque unpaid when it is presented, because the drawer has countermanded payment. The bank is protected only if it has acted in good faith and paid before receiving the instruction.

Question 39Banking Products, Accounts and Core Banking Operations

Under Reserve Bank of India guidelines, the balance lying in a savings bank account that has not been operated for ten years, where the depositor has not responded to the bank's reminders, must be dealt with in which way?

  1. Paid to the nominee after obtaining an indemnity bond
  2. Transferred to the State Government's revenue account
  3. Transferred to the Depositor Education and Awareness Fund maintained with the RBI Correct answer.
  4. Credited to the bank's own profit and loss account

Explanation

The Reserve Bank of India requires unclaimed balances in accounts that remain inoperative for ten years to be transferred, together with accrued interest, to the Depositor Education and Awareness Fund. The fund is used for depositor education and awareness, and the bank cannot retain the money as its own income.

Question 40Banking Products, Accounts and Core Banking Operations

A customer deposits a cheque drawn on another bank and his bank credits the amount to his account. The cheque is later returned unpaid by the paying bank for insufficient funds. Which statement is correct?

  1. The collecting bank must bear the loss because it credited the account before realisation
  2. The credit becomes final once posted, so the customer may withdraw the money
  3. The credit was provisional, and the collecting bank may reverse it and recover the amount from the customer Correct answer.
  4. The paying bank must reimburse the collecting bank and the customer both

Explanation

A collecting bank credits the customer's account provisionally, before the cheque is actually realised from the paying bank. If the cheque is returned unpaid, the bank may reverse the credit and recover the amount, and the customer must make good any shortfall.

Question 41Banking Products, Accounts and Core Banking Operations

Under Reserve Bank of India instructions, which feature must a Basic Savings Bank Deposit Account (BSBDA) offer to a customer?

  1. No requirement to maintain a minimum balance Correct answer.
  2. A minimum monthly average balance fixed by the branch
  3. Unlimited free withdrawals at any channel every month
  4. A higher rate of interest than a term deposit

Explanation

A BSBDA is a basic savings bank deposit product that banks must offer without insisting on a minimum balance. Customers get a limited number of free withdrawals each month, and charges may apply beyond that limit. It does not carry a special interest rate above term deposits, nor is it restricted to low-income customers only.

Question 42Banking Products, Accounts and Core Banking Operations

A customer has a lump sum and wants to place it with a bank for three years at a rate agreed at the outset, receiving interest at regular intervals. Which product fits this requirement?

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

Explanation

A fixed deposit accepts a lump sum for a chosen term at a contracted rate and can pay interest periodically or at maturity. A recurring deposit requires monthly instalments, while savings and current accounts are demand deposits and do not lock in a rate for three years. Current accounts generally earn no interest.

Question 43Banking Products, Accounts and Core Banking Operations

What does the Indian Financial System Code (IFSC) printed on a cheque primarily identify?

  1. The serial number of the cheque book
  2. The clearing house that will settle the cheque
  3. The bank branch for electronic payments Correct answer.
  4. The customer's account number at the branch

Explanation

IFSC is an eleven-character code that identifies the bank and the specific branch in electronic payment systems such as NEFT, RTGS and IMPS. The account number separately identifies the customer, while the cheque book series and the clearing house are not identified by IFSC.

Question 44Banking Products, Accounts and Core Banking Operations

When a cheque is presented for clearing under the Cheque Truncation System (CTS), what does the presenting bank send to the drawee bank?

  1. Only a fax copy confirmed by the presenting branch
  2. The original cheque after endorsement by the clearing house
  3. The physical cheque along with a scanned copy
  4. An electronic image of the cheque with MICR data Correct answer.

Explanation

CTS truncates the cheque at the presenting bank: the physical instrument is retained and an electronic image together with MICR data is transmitted. The drawee bank takes its payment decision from that image and data, which is why the original cheque does not travel through the clearing house.

Question 45Banking Products, Accounts and Core Banking Operations

A savings account is opened by a father and his adult son with the instruction 'Former or Survivor', the father being the former. After the father's death, who may operate the account?

  1. Only the father's legal heir after producing a succession certificate
  2. Both the son and the father's nominee jointly
  3. Only the son, as the survivor Correct answer.
  4. No one until a fresh account is opened in the son's name

Explanation

Under a 'Former or Survivor' mandate, the former operates the account during his lifetime and the survivor steps in after his death. The bank does not need a succession certificate from the survivor to allow operation under this specific mandate. A nominee, if any, is a separate matter and does not displace the survivor's operating right.

Question 46Banking Products, Accounts and Core Banking Operations

A bank opens a savings account in the name of a six-year-old child, with the natural guardian recorded as guardian. Which statement about operating the account is correct?

  1. The account must be converted into a joint account.
  2. The child alone can operate it after producing a school certificate.
  3. The child can sign cheques once admitted to school.
  4. The guardian operates the account on the minor's behalf. Correct answer.

Explanation

A minor's savings account is opened and operated by the natural or legally appointed guardian on the minor's behalf. RBI permits banks to allow a minor above ten years to operate an account independently if the minor can understand the nature of transactions, but that does not apply to a six-year-old. The account does not have to be converted into a joint account for this purpose.

Question 47Banking Products, Accounts and Core Banking Operations

A depositor wants a fixed sum debited from his savings account on the fifth of every month and paid to a named insurance company. Which instruction should he give the bank?

  1. A letter of credit
  2. A demand draft
  3. A standing instruction Correct answer.
  4. A cheque collection mandate

Explanation

A standing instruction authorises the bank to debit a fixed amount at a stated frequency and pay the named beneficiary until it is cancelled or amended. A demand draft is a one-off prepaid instrument, a letter of credit supports trade transactions, and a collection mandate is used to collect cheques, not to make recurring payments.

Question 48Banking Products, Accounts and Core Banking Operations

A trader requires a working capital limit secured by hypothecation of stock and wants to pay interest only on the amount actually drawn. Which facility is designed for this?

  1. A term loan repayable in equated monthly instalments
  2. A bank guarantee
  3. A fixed deposit with a premature withdrawal option
  4. A cash credit facility Correct answer.

Explanation

A cash credit is a running working capital limit granted against hypothecation of stock or book debts, and interest is charged on the amount utilised. A term loan is disbursed as a lump sum with a fixed repayment schedule, while a fixed deposit and a bank guarantee are not working capital borrowing facilities.

Question 49Banking Products, Accounts and Core Banking Operations

Which short-term negotiable money market instrument is issued by a bank to institutional investors, normally at a discount to face value?

  1. Bill of exchange
  2. Treasury bill
  3. Commercial paper
  4. Certificate of deposit Correct answer.

Explanation

A certificate of deposit is a negotiable short-term instrument issued by banks and select financial institutions to institutional investors, usually at a discount and repaid at face value. Commercial paper is issued by corporates, treasury bills by the government, and a bill of exchange is a trade payment instrument.

Question 50Banking Products, Accounts and Core Banking Operations

A bank sanctions a loan against a fixed deposit held with it and marks a lien on that deposit. What does the lien allow the bank to do if the borrower defaults?

  1. Refuse to pay the depositor any interest even after the loan is repaid
  2. Adjust the deposit against the loan without fresh consent Correct answer.
  3. Sell the deposit to another customer at a premium
  4. Transfer the deposit to the bank's own capital account permanently

Explanation

A lien gives the bank a right to retain the deposit and set it off against the borrower's dues on default, without needing a fresh authorisation at that stage. The bank does not sell the deposit to another customer or appropriate it permanently as capital. Once the loan is repaid, the lien is released and the deposit with applicable interest is available to the depositor.