Regulatory Framework and Compliance
This domain tests the statutes that create the regulators, the prudential ratios banks must maintain, and the anti-money-laundering duties of branch staff.
Statutes and regulators
The RBI Act, 1934 established the Reserve Bank as monetary authority, issuer of currency, banker to government, banker's bank and lender of last resort. The Banking Regulation Act, 1949 governs licensing, management and regulation of banks. SEBI (1992), IRDA (1999), PFRDA (2013) and FEMA (1999) complete the map. Banks park cash with RBI as CRR and hold approved securities as SLR; both ratios are notified by RBI from time to time. Priority sector lending targets 40% of adjusted net bank credit.
AML and KYC
Under the Prevention of Money Laundering Act, 2002, banks must conduct customer due diligence, monitor transactions, retain records for five years, and file reports with FIU-IND. Cash Transaction Reports are filed for cash transactions of ₹10 lakh or more (or aggregated per customer per month); Suspicious Transaction Reports have no monetary threshold and are judgement-based.
Worked example
A customer deposits ₹6 lakh cash in the morning and ₹5 lakh in the afternoon on the same day. Total cash for the day = ₹11 lakh, which crosses ₹10 lakh, so a single CTR is filed. Reasoning: the threshold is applied to the aggregate for the customer and month, not to each voucher separately, so splitting deposits does not avoid reporting.
Traps
Treating CTR and STR as the same; applying a threshold to STR; assuming CRR/SLR ratios are fixed in the Act; and forgetting record retention of five years.