Banking & Financial Awareness GK Questions with Answers

The correct answer is C, Promissory Note. Section 4 of the Negotiable Instruments Act, 1881 defines a promissory note as an instrument in writing, signed by the maker, containing an unconditional undertaking to pay a certain sum of money to or to the order of a certain person. The word that decides the question is undertaking, that is a promise: only two parties are involved, the maker who promises and the payee who receives. A currency note is left out of the definition even though the Reserve Bank promises to pay on it. Option B is wrong because a bill of exchange, under Section 5, carries an unconditional order to pay, not a promise, and has three parties: drawer, drawee and payee. Option A is wrong because a cheque, under Section 6, is only a bill of exchange drawn on a specified banker and payable on demand, so it too is an order. Option D is wrong because a hundi is a traditional instrument in a regional language, not defined by the Act. Exam tip: promise means promissory note, order means bill or cheque.

The correct answer is A, Bank Rate. Section 49 of the Reserve Bank Of India Act defines the bank rate as the standard rate at which the Bank is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase. It is long term lending by the RBI without any collateral being pledged, so it is higher than the repo rate; today it is aligned with the marginal standing facility rate and is used mainly for penal interest when a bank falls short of its reserve requirements. Option B is wrong because the cash reserve ratio is the share of net demand and time liabilities a bank must keep as cash with the RBI, not a rate of lending. Option C is wrong because the reverse repo rate is what the RBI pays banks when it absorbs their surplus funds. Option D is wrong because the repo rate is short term lending by the RBI against government securities. Exam tip: bank rate means no collateral and a long term, repo means securities pledged for a short term.

The correct answer is C, NABARD. The National Bank for Agriculture and Rural Development is a development financial institution set up in 1982. It refinances banks and cooperative institutions, plans rural credit and supervises cooperative banks and Regional Rural Banks, but it does not run branches to take deposits from the public, so it is not a commercial bank.

Option A, Canara Bank, founded in 1906 and nationalised in 1969, is a public sector commercial bank. Option B, HDFC Bank, licensed in the 1990s, is a private sector commercial bank. Option D, Prathama Bank, was the first Regional Rural Bank, opened at Moradabad on 2 October 1975, and Regional Rural Banks are counted among commercial banks even though they work in a limited area. The other development institutions that appear in such options are SIDBI, the EXIM Bank and the infrastructure financing institution created in 2021.

The correct answer is B, the Government of India. The Reserve Bank has the sole right to issue currency notes in India, but the one rupee note and every coin are issued by the Government through the Ministry of Finance. The Reserve Bank is the agent that distributes them, which is the distinction between issuing and circulating that examiners like to test.

Option A is what most candidates choose, because the Reserve Bank issues notes of every other denomination and puts the coins into circulation as well. Option C, the State Bank of India, is an ordinary commercial bank in this respect and issues no currency. Option D names the company that mints the coins and prints notes at the Government's order; a printer is not the issuing authority. Two more points from the same area: the Reserve Bank follows the minimum reserve system for note issue, and the coins are minted under the Coinage Act.

The correct answer is C, the Primary Agricultural Credit Society. Short-term rural cooperative credit is built in three tiers: the State Cooperative Bank at the apex of the state, the District Central Cooperative Bank at the district level and the Primary Agricultural Credit Society in the village, where the farmer actually borrows. Funds flow down the tiers and the society deals directly with its members.

Option A is the top tier and is the state's own cooperative apex bank, linked to the Reserve Bank and to NABARD. Option B is the middle tier and lends to the village societies rather than to farmers. Option D, a Regional Rural Bank, is not part of the cooperative structure at all; it is a commercial bank created under the Regional Rural Banks Act, 1976 with the Centre, a sponsor bank and the State as shareholders. Do not mix the two rural channels, cooperative and RRB.

The correct answer is A. Under the Regional Rural Banks Act, 1976 the issued capital of an RRB is shared in the proportion of 50 per cent by the Central Government, 35 per cent by the sponsor commercial bank and 15 per cent by the State Government concerned. The sponsor bank also provides managerial help and training, which is why its share is the second largest.

Option B swaps the Centre and the sponsor bank, making the sponsor the largest shareholder, which is not the case. Option C swaps the sponsor bank and the State Government and leaves the sponsor with the smallest share, which would defeat the purpose of sponsorship. Option D puts NABARD in place of the Central Government; NABARD supervises and refinances RRBs but does not hold their share capital in this pattern. The order to memorise is simply 50, 35, 15, in the sequence Centre, sponsor, State.

The correct answer is C, grant loans and issue credit cards. A payments bank is a differentiated bank licensed on the lines suggested by the Nachiket Mor Committee to carry payments and small savings to people the branch network had not reached. It is deliberately kept out of lending, so it takes no credit risk and must invest its deposits in safe government securities and bank deposits.

Option A is allowed, subject to a ceiling on the balance per customer that the Reserve Bank fixes. Option B is allowed, and a payments bank may issue debit or ATM cards although not credit cards. Option D is its core business, since remittances and payments are the purpose for which the class was created. India Post Payments Bank, which began on 1 September 2018, is the best known example. A small finance bank, by contrast, is allowed to lend and must direct most of its lending to small borrowers.

The correct answer is B, the Second Schedule of the Reserve Bank of India Act, 1934. A bank is placed in that Schedule once it has the prescribed paid-up capital and reserves and satisfies the Reserve Bank that its affairs are not conducted in a manner harmful to depositors. Inclusion brings the right to borrow from the RBI at the bank rate, membership of the clearing house and access to the money market.

Options A and C name the Banking Regulation Act, 1949, which is the law on licensing, inspection and winding up of banks but does not carry the list of scheduled banks, so both are wrong. Option D, the Seventh Schedule of the Constitution, contains the Union, State and Concurrent Lists and has nothing to do with banks, although banking itself is an entry in the Union List. Remember the pair: RBI Act 1934 for the Second Schedule, Banking Regulation Act 1949 for regulation.

The correct answer is C, both I and II. The Reserve Bank is banker to banks: every scheduled bank keeps an account with it, holds its cash reserve ratio there, settles payments with other banks through those accounts and can borrow from it when short of funds. It is also the currency issuing authority, with the sole right to issue currency notes in India under the Reserve Bank of India Act, 1934.

Option A is wrong because it leaves out note issue, which is the function the Bank is best known for. Option D is wrong because it leaves out the banker to banks role, from which the description lender of last resort follows. Option B is wrong on both counts. The one refinement worth remembering is that the one rupee note and all coins are issued by the Government of India, although the Reserve Bank puts them into circulation, and that the Bank is also banker to the Government.

The correct answer is A, 1974. Women of the Self-Employed Women's Association at Ahmedabad, who worked as vendors, headloaders and home-based workers, pooled their own share capital and registered a cooperative bank of their own in 1974 because ordinary banks would not deal with borrowers who had no collateral and no paperwork. It is a standard example of a cooperative bank owned by its members.

Option C, 1994, is close enough to look right to a candidate who remembers only the decade of microfinance growth, but the bank is twenty years older than that. Options B, 1894, and D, 1874, belong to the nineteenth century: 1894 is the year Punjab National Bank was registered, which is probably why it appears here. Note the wider point the question tests, that a cooperative bank is registered as a cooperative society and works on one member one vote.

The correct answer is C, Bank of Baroda. It was founded in 1908 by Maharaja Sayajirao Gaekwad III, nationalised in the first round of July 1969, and the Government of India still holds the majority of its shares, which is what makes a bank a public sector bank. In 2019 it absorbed Vijaya Bank and Dena Bank.

Option A, Axis Bank, began life in 1994 as UTI Bank, the first of the new private banks licensed after the RBI guidelines of 1993. Option B, ICICI Bank, grew out of a development finance institution and is a private sector bank. Option D, Yes Bank, is also private and started business in 2004. A quick test in the examination hall: if the bank was nationalised in 1969 or 1980, or is the State Bank of India, it is a public sector bank; if it was licensed in the 1990s or later, it is private.

The correct answer is C, granting loans and accepting deposits. A commercial bank exists to gather savings from those who have a surplus and lend them to those who need funds, and it earns from the gap between the interest it pays depositors and the interest it charges borrowers. Every other service it offers, such as remittances, lockers or card facilities, is secondary to these two.

Options A, B and D all describe work of the central bank. Issuing currency notes is the Reserve Bank's monopoly, with the one rupee note and coins issued by the Government. Conducting monetary policy is done by the RBI through its Monetary Policy Committee. Regulating the money supply is again the RBI's task, exercised through the repo rate, the cash reserve ratio and the statutory liquidity ratio. The line to fix is that a commercial bank deals with the public while the central bank deals with the banks.

The correct answer is A, 1 April 1935. The Reserve Bank of India Act was passed in 1934 and the Bank commenced operations on 1 April 1935, taking over note issue from the Controller of Currency and the management of government accounts and public debt from the Imperial Bank of India. Its central office was at Calcutta to begin with and moved to Bombay in 1937.

Option B, 1 January 1935, and option D, 1 July 1935, are made up dates placed to catch a half remembered year. Option C, 1 April 1934, mixes the year of the Act with the day of the month on which operations began, and is the commonest wrong choice. Keep three dates apart in this story: 1926 for the Hilton Young Commission, 1934 for the Act and 1 April 1935 for the start of operations, with 1 January 1949 for nationalisation.

The correct answer is C, 1982. NABARD was set up on 12 July 1982 on the recommendation of the Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development, chaired by B. Sivaraman. It took over the agricultural credit functions of the Reserve Bank and the refinance work of the Agricultural Refinance and Development Corporation, and it is the apex body for rural credit and for supervising cooperative banks and Regional Rural Banks.

Option A, 1975, is the year the first five Regional Rural Banks opened, on 2 October. Option B, 1976, is the year of the Regional Rural Banks Act. Option D, 1990, is the year the Small Industries Development Bank of India was set up. The EXIM Bank, like NABARD, dates from 1982, so the year carries two institutions and examiners test both.

The correct answer is C, Punjab National Bank. It was registered in 1894 and opened at Lahore as the first bank floated entirely with Indian capital and run by Indian management, with Lala Lajpat Rai among those associated with its founding. It survived the failures of the early twentieth century and was nationalised in 1969.

Option A, Bank of Hindustan of 1770, was a European agency house venture at Calcutta and the first bank in India, a different distinction. Option B, Oudh Commercial Bank of 1881, is described as the first bank in India with limited liability under Indian management, and papers sometimes use that wording, so read the stem closely. Option D, Central Bank of India of 1911, founded by Sorabji Pochkhanawala, is remembered as the first entirely Indian-owned commercial bank. Three similar claims, three different banks.

The correct answer is B, six. On 15 April 1980 the Government nationalised six more private banks, this time using a deposit cut-off of ₹200 crore. One of the six, New Bank of India, was later merged into Punjab National Bank in 1993, which is why the count of nationalised banks afterwards is often given as nineteen.

Option A, four, and option C, eight, match no round of nationalisation and are there to test whether the cut-off and the count have been learnt together. Option D, fourteen, is the number taken over in the first round on 19 July 1969, when the cut-off was deposits of ₹50 crore or more. The pattern to remember is simple: 1969, fourteen banks, ₹50 crore; 1980, six banks, ₹200 crore; and the State Bank of India was already in public hands from 1955, so it appears in neither list.

The correct answer is C, 1955. The All India Rural Credit Survey Committee under A. D. Gorwala reported that rural credit needed a bank with branches across the country and in state partnership. Parliament passed the State Bank of India Act, 1955, and on 1 July 1955 the Imperial Bank of India became the State Bank of India.

Option A, 1935, is the year the Reserve Bank began operations and took over from the Imperial Bank the management of government accounts and public debt, which is a related but different event. Option B, 1949, is the year the Reserve Bank passed into public ownership and the Banking Regulation Act was enacted. Option D, 1959, is the year of the State Bank of India (Subsidiary Banks) Act, under which the banks of the former princely states became subsidiaries of the State Bank; they were merged into the parent on 1 April 2017.

The correct answer is B, the Hilton Young Commission. Formally the Royal Commission on Indian Currency and Finance, it reported in 1926 that the control of currency and of credit should not be split between the Government and the Imperial Bank but placed in one central bank. Its recommendation led to the Reserve Bank of India Act of 1934 and the Bank commenced operations on 1 April 1935.

Option A, the Narasimham Committee, comes much later: the working group on rural banks that led to Regional Rural Banks, and then the reform committees of 1991 and 1998. Option C, the Chelliah Committee, reported on reform of the tax system in the early 1990s and has nothing to do with central banking. Option D, the Sivaraman Committee, recommended the National Bank for Agriculture and Rural Development, which was set up on 12 July 1982. Examiners pair each committee with its institution, so learn them as pairs.

The correct answer is A, 1975. The rupee was tied to the pound sterling from colonial times and stayed pegged to it after independence. In 1975 the link was cut and the rupee was tied instead to a basket of currencies of India's major trading partners, with the Reserve Bank fixing the daily rate. The step was taken because the pound itself had become unstable after the breakdown of the fixed exchange rate system in the early 1970s.

Option B, 1947, is independence, when the sterling link was retained. Option D, 1963, belongs to no exchange rate change; the two devaluations students confuse it with are 1949 and 1966. Option C, 1982, is the year NABARD and the EXIM Bank were set up, not an exchange rate landmark. The basket peg lasted until the reforms of 1991 to 1993, when India moved to a market determined exchange rate.

The correct answer is C, 1949. The Reserve Bank opened in 1935 as a shareholders' bank with privately held share capital. Parliament passed the Reserve Bank of India (Transfer to Public Ownership) Act in 1948, and the transfer took effect from 1 January 1949, since when the Bank has been wholly owned by the Government of India.

Option A, 1947, is the year of independence, when the Reserve Bank was still privately owned and was in fact acting as the common central bank for both India and Pakistan until mid-1948. Option B, 1948, is the year the enabling Act was passed and is the trap in this question: the Act is of 1948, the nationalisation of 1949. Option D, 1950, is the year the Constitution came into force and the Planning Commission was set up, neither of which touches the ownership of the Bank. The Banking Regulation Act also dates from 1949.