Banking & Financial Awareness Quiz: Banking Regulation and Key Acts

The correct answer is B, the Reserve Bank of India Act, 1934. Section 22 of that Act gives the Reserve Bank the sole right to issue bank notes in India, and the Bank has done so since it began operations on 1 April 1935. Only the one rupee note and coins are issued by the Government of India. Option A is wrong because the Banking Regulation Act, 1949 controls banking companies, dealing with licences, capital, the Statutory Liquidity Ratio and inspection, and says nothing about the issue of currency. Option C is wrong because the Coinage Act deals with coins and their denominations, which belong to the Government and not to the Bank's note-issuing power. Option D is wrong because the Negotiable Instruments Act, 1881 governs promissory notes, bills of exchange and cheques between private parties.

The correct answer is C, 1 March 1966. The Act was passed in 1949 as the Banking Companies Act and came into force on 16 March 1949; when its scope was extended to cooperative banks, it was renamed the Banking Regulation Act, 1949 with effect from 1 March 1966, the year being retained in the title. Option A, 1 April 1935, is the date on which the Reserve Bank of India began its operations under the Act of 1934. Option B, 1 January 1949, is the date on which the Reserve Bank was nationalised, and it is the closest trap because it falls in the same year as the Banking Companies Act. Option D, 19 July 1969, is the date on which fourteen major commercial banks were nationalised, later given effect by the Act of 1970.

The correct answer is A, Section 5(b). It defines banking as accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. Two elements of that definition are what separate a bank from a finance company: deposits from the public, and repayment on demand. Option B is wrong because Section 11 lays down the minimum paid-up capital and reserves a banking company must have. Option C is wrong because Section 22 requires a licence from the Reserve Bank before banking business may be carried on, which follows from the definition but is not the definition. Option D is wrong because Section 35A is the Reserve Bank's power to issue directions to banking companies in the public interest.

The correct answer is B, Section 24 of the Banking Regulation Act, 1949. It requires every banking company to maintain in India, in cash, gold or unencumbered approved securities, assets of a value not less than the prescribed percentage of its demand and time liabilities, and that percentage is the Statutory Liquidity Ratio. Option A is the classic trap, because Section 42(1) of the RBI Act, 1934 is the provision for the Cash Reserve Ratio that scheduled banks keep with the Reserve Bank; candidates who remember only that the Reserve Bank fixes both ratios pick it. Option C is wrong because Section 17 of the Banking Regulation Act requires a transfer of not less than twenty per cent of profit to the reserve fund. Option D is wrong because Section 45-IA deals with the registration of non-banking financial companies.

The correct answer is C, Section 138. Inserted into the Negotiable Instruments Act by the amendment of 1988, it makes the drawer of a cheque that is returned unpaid for insufficiency of funds, or because it exceeds the arrangement, punishable with imprisonment or fine, provided the payee gives notice of demand within the prescribed time and the drawer fails to pay. Option A is wrong because Section 31 of the RBI Act, and not of the NI Act, restricts who may draw instruments payable to bearer on demand. Option B is wrong because Section 118 lays down presumptions as to negotiable instruments, such as the presumption of consideration. Option D is wrong because Section 148, a later insertion, deals with the power of the appellate court to order deposit of part of the compensation during an appeal.

The correct answer is B, the SARFAESI Act, 2002. Its full name is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, and Section 13 lets a secured creditor issue a demand notice under sub-section (2) giving the borrower sixty days to pay and, on default, take possession of the secured asset under sub-section (4) without approaching a court or tribunal. Option A is wrong because the Act of 1993 works through the Debt Recovery Tribunals, which are adjudicating bodies. Option C is wrong because the Code of 2016 is a court-driven insolvency process before the National Company Law Tribunal. Option D is wrong because the money laundering Act of 2002 deals with attachment of the proceeds of crime, not with recovery of a bank's dues.

The correct answer is C, 1993. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, passed after the Tiwari Committee recommended a special forum for bank dues, created the Debt Recovery Tribunals and the Debt Recovery Appellate Tribunals to decide applications by banks and financial institutions above a prescribed amount and to issue recovery certificates. Option A is wrong because 1949 is the year of the Banking Regulation Act. Option B is wrong because no tribunal for bank recovery was set up in 1985. Option D, 2002, is the year of the SARFAESI Act, and it is the strongest distractor because appeals against action taken under SARFAESI also go to the Debt Recovery Tribunal, but the tribunals themselves were created nine years earlier.

The correct answer is B, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Fourteen banks were nationalised on 19 July 1969 by an ordinance; after the Supreme Court struck down the ordinance and the Act that followed it, Parliament enacted the Act of 1970, and a similar Act of 1980 covered the six banks nationalised on 15 April 1980. Option A is wrong because the Act of 1955 converted the Imperial Bank of India into the State Bank of India on 1 July 1955, which was a separate and earlier step. Option C is wrong because the Banking Regulation Act regulates banks but does not transfer their ownership. Option D is wrong because the Act of 1976 provides for the regional rural banks, the first of which were set up on 2 October 1975.

The correct answer is B, the use of certified copies of entries in a bank's books as evidence. The Act allows a certified copy of an entry in a banker's book to be received in a legal proceeding as prima facie proof of that entry, so that a bank need not produce its original records and its officers are summoned only in limited circumstances. The Act of 1891 was replaced from 1 October 2026 by the Bankers' Books Evidence Act, 2026, which recognises records kept in electronic and digital form. Option A is wrong because control of advances and interest is exercised under Section 21 of the Banking Regulation Act and the Reserve Bank's directions. Option C is wrong because deposit insurance comes from the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Option D is wrong because audit and accounts are dealt with in Sections 29 to 31 of the Banking Regulation Act.

The correct answer is A, issue directions to banking companies. Section 35A lets the Reserve Bank give directions to banking companies, generally or to a particular bank, where it is satisfied that this is necessary in the public interest, in the interest of banking policy, to prevent the affairs of a bank being conducted in a manner detrimental to depositors, or to secure the proper management of a bank; such directions are binding. Option B is wrong because licensing is under Section 22. Option C is wrong because the minimum paid-up capital and reserves are laid down in Section 11. Option D is wrong because the Cash Reserve Ratio for scheduled banks comes from Section 42(1) of the RBI Act, 1934, and not from the Banking Regulation Act at all.

The correct answer is B, 1981. The National Bank for Agriculture and Rural Development Act was passed in 1981 on the recommendation of the committee to review arrangements for institutional credit for agriculture and rural development, and NABARD itself was established on 12 July 1982 as the apex body for rural credit, refinancing cooperative banks and regional rural banks. Option A is wrong because 1976 is the year of the Regional Rural Banks Act. Option C is wrong because 1991 is the year of the economic reforms and of the Narasimham Committee on the financial system, not of NABARD. Option D is wrong because 2002 is the year of the SARFAESI Act and of the Prevention of Money Laundering Act. Note the gap of a year between the Act and the institution, which examiners exploit.

The correct answer is C, the Reserve Bank of India. The Payment and Settlement Systems Act, 2007 makes the Reserve Bank the designated authority for the regulation and supervision of payment systems in India; no person may commence or operate a payment system without its authorisation, and it issues the directions under which card networks, prepaid instruments and the retail payments organisation work. Option A is wrong because the Securities and Exchange Board of India regulates the securities market and stock exchanges. Option B is wrong because the ministry frames policy for information technology but is not the payments regulator. Option D is wrong because the Insolvency and Bankruptcy Board of India regulates insolvency professionals and processes under the Code of 2016. Remember the pairing that examiners test: banks, cooperative banks, non-banking financial companies, foreign exchange and payment systems all sit with the Reserve Bank, while the securities market goes to the Securities and Exchange Board of India and insurance to the Insurance Regulatory and Development Authority of India.