Unit 1: Indian banking system - Practice Quiz

1 In India, which type of bank is at the apex of the banking structure?

2 Scheduled banks in India are those listed in which schedule of the RBI Act, 1934?

3 Which of the following is an example of a cooperative bank in India?

4 Regional Rural Banks (RRBs) were mainly established to serve which section of society?

5 The Reserve Bank of India was established in which year?

6 Which institution has the sole authority to issue currency notes in India?

7 The RBI acting as the 'lender of last resort' means it provides funds to which entities during a crisis?

8 Which rate is the interest rate at which the RBI lends short-term funds to commercial banks?

9 The portion of a bank's deposits that must be kept with the RBI as cash is called the:

10 What does the abbreviation 'KYC' stand for in banking?

11 Which of the following is a valid document for proof of identity under KYC norms?

12 The main objective of KYC norms is to:

13 KYC norms in India are mandated primarily by which regulator?

14 Cash management in banking primarily deals with managing a bank's:

15 The main goal of effective cash management is to:

16 Holding too much idle cash in a bank mainly leads to:

17 Development banks mainly provide which type of finance?

18 IDBI was originally established mainly to promote which sector?

19 NABARD is a specialized agency associated with the development of which sector?

20 EXIM Bank in India mainly promotes which activity?

21 A newly licensed bank wants to primarily serve small businesses and unbanked rural populations by offering small-value loans and deposits, but it is not permitted to issue credit cards or undertake lending to large corporates. Under the Indian banking structure, which category does this bank most likely belong to?

22 A financial entity can accept demand deposits up to a limit of lakh per customer, issue debit cards, and facilitate payments, but it cannot lend or issue credit cards. Which type of bank fits this description?

23 In the Indian banking structure, 'Scheduled Banks' are distinguished from 'Non-Scheduled Banks' primarily on the basis of:

24 To control rising inflation, the RBI decides to reduce the amount of lendable money available with commercial banks. Which combination of actions would be consistent with this objective?

25 A commercial bank is temporarily short of funds overnight and borrows from the RBI by pledging government securities. The rate charged by the RBI for this borrowing is known as the:

26 Which of the following functions is performed by the RBI in its role as the 'banker to the government'?

27 If the RBI wants to inject liquidity into the banking system, which open market operation (OMO) action should it take?

28 A customer opens a bank account and submits an Aadhaar card and PAN card for verification. Under KYC norms, these documents primarily serve to establish:

29 KYC norms were introduced by the RBI primarily as a measure to:

30 A bank identifies a high-net-worth customer whose transactions are complex and involve multiple jurisdictions, posing higher risk. Under a risk-based KYC approach, the bank should apply:

31 Under RBI's KYC framework, periodic updation of KYC is required even for existing low-risk customers. The main purpose of this periodic updation is to:

32 A corporate treasurer wants to speed up the collection of receivables and slow down the disbursement of payables to maximize available cash. This cash management technique is broadly known as managing the:

33 A company holds excess idle cash in its current account that earns no interest. From a cash management perspective, the most appropriate action to improve returns while retaining liquidity is to:

34 A business uses the Baumol model for cash management. According to this model, the optimal cash balance is determined by balancing:

35 A firm's annual cash requirement is , the fixed cost per transaction is , and the opportunity cost (interest rate) is . Using the Baumol model, the optimal cash balance is approximately:

36 An entrepreneur seeks long-term finance and technical guidance to set up a large manufacturing plant, which a typical commercial bank is reluctant to fully fund due to the long gestation period. Such specialized long-term industrial finance is traditionally the role of a:

37 Which of the following best distinguishes a development bank from a typical commercial bank?

38 A small-scale industry (MSME) requires refinance support and promotional assistance for growth. Which specialized agency in India is primarily dedicated to the promotion, financing, and development of the MSME sector?

39 A farmer's cooperative seeks refinance for agricultural and rural development projects. Which apex specialized agency is responsible for providing such refinance and regulating rural credit institutions?

40 An Indian exporter requires financing and credit guarantees to support overseas sales. Which specialized institution is primarily tasked with promoting and financing India's international trade?

41 A newly licensed entity can accept demand deposits, issue debit cards, and offer payments and remittance services, but is prohibited from lending and issuing credit cards, and must invest at least 75% of its deposits in SLR-eligible government securities. Which category does this entity belong to?

42 Under the amended RBI Act, the Monetary Policy Committee (MPC) targets CPI inflation at with a tolerance band of . If average inflation breaches this band for three consecutive quarters, what is the RBI mandated to do?

43 A customer opens an account using the 'Small Account' provision because they lack officially valid documents. Which of the following restrictions applies to such a Small Account?

44 A bank branch estimates daily cash demand with mean lakh and standard deviation lakh. To maintain a service level corresponding to a -value of (approximately ), what minimum cash balance should it hold?

45 IDBI, originally the apex development finance institution, underwent a structural change in 2004 and later a change in regulatory classification in 2019. Which pair correctly describes these two transitions?

46 NABARD operates a refinance structure for the rural credit system. Which statement most accurately captures NABARD's role relative to the ultimate borrower (a farmer)?

47 If the RBI conducts an Open Market Operation (OMO) by selling government securities worth crore to banks, what is the immediate direct effect on the banking system?

48 Under the risk-based approach to KYC, a 'High Risk' customer requires enhanced due diligence. Which periodicity of KYC updation (re-KYC) is prescribed for High, Medium, and Low risk customers respectively?

49 A corporate uses the Baumol model for cash management. Annual cash disbursement , cost per transaction , and the opportunity (interest) rate . What is the optimal cash conversion size ?

50 A cooperative bank operates in two states and provides banking services. Prior to the 2020 amendment, who was the dominant regulator of its managerial and administrative functions, and what did the 2020 Banking Regulation (Amendment) Act change?

51 Consider a scenario where the RBI simultaneously raises the repo rate and reduces the CRR. What is the most accurate interpretation of this policy mix?

52 SIDBI and EXIM Bank are both specialized financial institutions. Which statement correctly distinguishes their primary mandates?

53 Under PMLA and RBI KYC guidelines, a 'beneficial owner' of a company (other than a listed company) is identified as the natural person who, whether acting alone or together, has a controlling ownership interest. For a company, the threshold for controlling ownership interest is holding of more than:

54 A bank's net cash flows are uncertain. Using the Miller-Orr model, if the variance of daily cash flows increases (volatility rises), while transaction cost and interest rate stay constant, how does the spread between the upper and lower control limits behave?

55 Development banks are often said to perform 'gap-filling' and 'maturity transformation' functions differently from commercial banks. Which feature best explains why development banks could historically take on long-gestation projects that commercial banks avoided?

56 The money multiplier is given by , where is the currency-deposit ratio and is the reserve-deposit ratio. If and , what is the value of the multiplier (rounded to two decimals)?

57 To be included in the Second Schedule of the RBI Act, 1934 (i.e., to become a 'Scheduled Bank'), a bank must satisfy a minimum paid-up capital and reserves condition. What is this threshold?

58 A depositor holds the following in a single bank that fails: ₹4,00,000 in a savings account and ₹3,00,000 in a fixed deposit, both in his individual capacity. Under DICGC rules, what is the maximum insured amount he can claim?

59 A customer refuses to provide requested KYC documentation during a periodic updation exercise, and the deadline (including any extension) has passed. Under RBI norms, what is the bank's prescribed course of action?

60 The National Bank for Financing Infrastructure and Development (NaBFID) was established as a Development Finance Institution (DFI) in 2021. Which statement correctly describes its structure and regulatory treatment?