Banking & Financial Awareness Previous Year Questions (PYQ) with Answers

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.

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 A, Kolkata. Bandhan began in 2001 at Kolkata as a microfinance body serving poor women in eastern India, and its head office has stayed in that city. In April 2014 the Reserve Bank gave in-principle approval for a universal bank to just two applicants - Bandhan Financial Services and IDFC Limited - out of twenty-five who applied, and Bandhan Bank opened for business in August 2015. It was the first bank of its kind to be set up in eastern India after independence, and the first microfinance lender in the country to turn into a full-service bank. Option B is wrong because Mumbai houses the Reserve Bank and many private banks, but not Bandhan. Option C is wrong because Pune is the home of Bank of Maharashtra. Option D is wrong because Lucknow has no connection with Bandhan. Exam tip: 2014 universal bank licences - Bandhan of Kolkata and IDFC; both began operations in 2015.

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, Allahabad Bank. It was founded in 1865 and is remembered as the oldest joint stock bank in India, a joint stock bank being one owned by shareholders rather than by a partnership of agency houses. The presidency banks were older but were chartered institutions of the East India Company rather than ordinary joint stock companies.

Option B, Bank of Baroda, was founded in 1908 by Maharaja Sayajirao Gaekwad III of Baroda, more than forty years later. Option C, Yes Bank, belongs to the generation of private banks licensed after the reforms of the 1990s and began business in 2004, so it cannot be the oldest anything. Option D, Punjab National Bank, was registered in 1894 and opened at Lahore; it holds a different distinction, that of the first bank floated with wholly Indian capital and Indian management, and examiners often swap the two claims in the options.

The correct answer is A, 1969. On 19 July 1969 the Government of India issued an ordinance taking over the fourteen largest Indian scheduled commercial banks, those whose deposits stood at ₹50 crore or more. Indira Gandhi held the Finance portfolio along with the Prime Minister's office at the time, and the stated purpose was to direct credit to agriculture, small industry and the unbanked districts.

Option B, 1970, is the year the Banking Companies (Acquisition and Transfer of Undertakings) Act was passed to replace the ordinance after the Supreme Court struck it down, which is why the year is a favourite distractor. Option C, 1972, belongs to no step in the nationalisation story. Option D, 1950, is far too early; in that year the Reserve Bank had been in public ownership for barely a year and commercial banking was still entirely private. The second round of nationalisation, of six banks, came on 15 April 1980.

The correct answer is A, Maharashtra. The Industrial Development Bank of India has its head office in Mumbai, the capital of Maharashtra, at the IDBI Tower in Cuffe Parade. IDBI was set up in 1964 by an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India, to give long-term finance to industry. It was transferred to the Government of India in 1976, turned into a banking company in 2004, and reclassified by the RBI as a private sector bank in 2019 after the Life Insurance Corporation took a majority stake in it. Option B is wrong because West Bengal's Kolkata is the home of UCO Bank and Bandhan Bank, not IDBI. Option C is wrong because Karnataka holds Canara Bank at Bengaluru and Karnataka Bank at Mangaluru. Option D is wrong because Haryana has no such national financial institution's head office. Exam tip: Mumbai holds the RBI, SEBI, IDBI, the State Bank of India and both stock exchanges, which is why it is called the financial capital of India.

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, 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 B, Immediate Payment Service. IMPS is an interbank money transfer service run by the National Payments Corporation of India, launched in November 2010. Its great advantage is that it works round the clock, on holidays and at night, and the money reaches the beneficiary within seconds. A transfer can be made using the account number with the IFSC code, or using the mobile number with the MMID, and it can be started from mobile banking, internet banking, an ATM or a branch. NPCI, set up in 2008 as an umbrella body for retail payments, also runs UPI, RuPay, NACH, AePS and FASTag. Option A is wrong because the letter S stands for service, not sector. Option C is wrong for the same reason. Option D is wrong because the first word is immediate, not instant. Exam tip: NEFT and RTGS are run by the RBI, while IMPS and UPI are run by NPCI; RTGS is meant for amounts of two lakh rupees and above.

The correct answer is B, National Payments Corporation of India. NPCI is the umbrella organisation that runs India's retail payment and settlement systems. It was set up in 2008 by the Reserve Bank of India and the Indian Banks' Association under the Payment and Settlement Systems Act, 2007, and works as a not-for-profit company owned by banks, with its head office in Mumbai. UPI, RuPay, IMPS, AePS, BHIM, NACH, the National Electronic Toll Collection behind FASTag and the cheque truncation system are all NPCI platforms, which is why nearly every digital retail payment in the country passes through it. A is wrong because the word in the name is Corporation, not Consortium. C is wrong because a piracy council has nothing to do with payments; it is an invented expansion. D is wrong for the same reason, as no National Protection Council runs payment systems. Exam tip: NPCI - set up in 2008 by RBI and IBA, based in Mumbai, and the operator of UPI, RuPay, IMPS and NACH.

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.