Banking & Financial Awareness Mixed Quiz: Set 14

The correct answer is A, radio frequency identification. A FASTag is a sticker on the windscreen that a reader at the toll plaza identifies by radio, so the toll is deducted from a linked account and the vehicle need not stop; the system is called National Electronic Toll Collection and is run by the National Payments Corporation of India. Option B is wrong because the global positioning system gives location and is used for navigation and for tracking vehicles, not for the tag itself. Option C is wrong because near field communication is the technology of contactless cards and phone payments, which work only at a few centimetres. Option D is wrong because optical character recognition reads printed text, and number plate reading is a separate arrangement.

The correct answer is B, 2014. The Reserve Bank released the final guidelines for licensing both payments banks and small finance banks on the twenty seventh of November 2014, acting on the report of the Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low Income Households. Option A, 2012, is before the committee was even constituted, which was in September 2013. Option C, 2016, is the year the first small finance bank began operations, when Capital Small Finance Bank opened in April of that year, so it marks the start of business and not the making of the rules. Option D, 2019, is the year the Reserve Bank issued the on tap licensing guidelines for small finance banks, on the fifth of December, which raised the minimum net worth requirement to two hundred crore rupees; it is the strongest distractor because it is also a guidelines date, so read whether the question asks for the original guidelines or the on tap ones.

The correct answer is C, seventy five per cent. A Regional Rural Bank must lend seventy five per cent of its total outstanding advances to the priority sector, a far higher share than other banks carry, because these banks exist to serve small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. Option A is wrong, and it is the intended trap, because forty per cent of adjusted net bank credit is the priority sector target for domestic scheduled commercial banks generally. Option B is wrong since sixty per cent is not a target set for any class of bank in this context. Option D is wrong because ninety per cent would leave a bank almost no room for other lending and no rule requires it. Learn the two figures as a pair, forty per cent for commercial banks and seventy five per cent for Regional Rural Banks and small finance banks.

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, seventy five per cent. Since a payments bank cannot lend, the guidelines direct where its deposits must go: at least seventy five per cent of demand deposit balances must be invested in government securities and treasury bills eligible for the statutory liquidity ratio, with a maturity of up to one year, and not more than twenty five per cent may be held in current accounts and fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. Option A, forty per cent, is the priority sector lending target for a universal commercial bank and belongs to a different rule. Option B, fifty per cent, is the share of a small finance bank's loan portfolio that must be in loans of up to twenty five lakh rupees. Option D, one hundred per cent, is wrong because the remaining quarter is deliberately allowed in bank deposits, so that the payments bank can meet daily settlement needs.

The correct answer is D, Large amounts of loan. Microfinance means small loans to poor households that banks treat as too risky, so a large loan is the opposite of the idea. The Reserve Bank defines a microfinance loan as a collateral-free loan given to a household below a set annual income, and the whole model rests on small, frequent repayments rather than big sums. Option A is a real principle, because the borrower has no land or gold to pledge and the group's promise takes the place of security. Option B is a real principle: members of a joint liability group watch each other's repayment, and this peer pressure is why recovery rates stay high. Option C is a real principle, since self-help groups are built mainly around women, who save and repay more regularly and spend more on the family. NABARD's SHG-Bank Linkage Programme of 1992 carried this model across India. Exam tip: microfinance — small, collateral-free, group-guaranteed loans, mostly to women.

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 D, Financial service to disadvantaged people. A microfinance institution exists to lend small sums to poor and low-income people who cannot offer the security an ordinary bank asks for. It gives tiny loans, takes small savings and sells simple insurance, usually working through self-help groups or joint liability groups in which the members stand guarantee for one another, so no collateral is needed. The loans are small, are repaid weekly or monthly, and are often used for a small shop, a sewing machine, cattle or seed. In India these bodies are registered with the Reserve Bank of India as NBFC-MFIs, and NABARD's SHG-Bank Linkage programme works on the same idea. A and B are wrong because government employees and Union ministers draw regular salaries and can borrow from ordinary banks. C is wrong because corporate borrowers are served by commercial banks and the capital market. Exam tip: microfinance means small collateral-free loans to the poor, through SHGs and NBFC-MFIs under the RBI.

The correct answer is C, seventy five per cent. A small finance bank exists to serve small borrowers, and the guidelines enforce that purpose by requiring seventy five per cent of its adjusted net bank credit to go to the sectors eligible as priority sector lending, which include agriculture, micro and small enterprises, education, housing and weaker sections. Option A, forty per cent, is the priority sector target for a universal domestic commercial bank, and it is the sharpest distractor because candidates remember that figure from the general priority sector chapter. Option B, sixty per cent, is not a target under these guidelines. Option D, fifty per cent, is a real figure in this chapter but for a different rule: at least half of a small finance bank's loan portfolio must consist of loans and advances of up to twenty five lakh rupees each, which limits the size of individual loans rather than the sector they go to.

The correct answer is B, the Regional Rural Banks Act, 1976. The first five Regional Rural Banks were created on 2 October 1975 by an Ordinance, and that Ordinance was replaced the next year by the Regional Rural Banks Act, 1976, which fixes their objects, capital and shareholding. Option A is wrong because the Banking Regulation Act of 1949 is the general law of banking in India and applies to these banks as it does to others, but it did not create them. Option C is wrong; the NABARD Act of 1981 set up the National Bank for Agriculture and Rural Development, which supervises and refinances Regional Rural Banks rather than establishing them. Option D is wrong because the Cooperative Societies Act of 1912 belongs to the cooperative side of rural credit altogether. Keep the pair of 1975 for the first banks and 1976 for the Act.

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, Banking. The Basel Norms are international standards for banking supervision.

They are issued by the Basel Committee on Banking Supervision, which works under the Bank for International Settlements at Basel in Switzerland. Their purpose is to make sure a bank holds enough capital against the risks it takes, so that losses fall on its shareholders and not on depositors. Basel I of 1988 dealt with credit risk, Basel II of 2004 added market and operational risk along with supervision and disclosure, and Basel III, framed after the crisis of 2008, raised the quality of capital and brought in liquidity and leverage rules. In India the Reserve Bank applies them and asks for a capital to risk weighted assets ratio of nine per cent.

Options A, C and D are wrong because insurance is governed by IRDAI, and the share and commodity markets by SEBI.

Exam tip: Basel Committee, Basel, Switzerland; India's CRAR requirement is nine per cent.

The correct answer is B, twenty five lakh rupees. The guidelines require that at least half of a small finance bank's loan portfolio be made up of loans and advances of up to twenty five lakh rupees each, and the purpose is to keep the bank lending small even as it grows, so that it does not drift towards large corporate credit once it has a licence. Option A, ten lakh rupees, is not the threshold in these guidelines, although candidates often recall it from other small borrower schemes. Option C, fifty lakh rupees, and option D, one crore rupees, are both far above the ceiling and would defeat the purpose of the category; they are offered because they sound like plausible small business figures. Note that this rule limits the size of individual loans, while the separate rule of seventy five per cent of adjusted net bank credit governs the sector the lending goes to.

The correct answer is A. The Banking Ombudsman is a senior officer appointed by the Reserve Bank of India to hear and settle customer complaints about deficiency in banking service. The scheme was first brought in under Section 35A of the Banking Regulation Act, 1949, and the ombudsman decides complaints on matters such as delayed payment, wrongly levied charges, card and digital transaction disputes and refusal to accept small coins. A customer must first take the complaint to the bank and may approach the ombudsman when the bank does not reply in thirty days or the reply is unsatisfactory. Option B is wrong because private banks, foreign banks, regional rural banks and scheduled cooperative banks are covered too, not only public sector banks. Option C is wrong because the complainant is free to reject the award and go elsewhere; it binds the bank once accepted. Option D is wrong because the whole process is free of cost to the customer. Exam tip: the ombudsman is appointed by the RBI, complain to the bank first, and the service costs nothing.

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 A, Punjab National Bank. The slogan The Name you can Bank Upon belongs to Punjab National Bank. PNB was set up in 1894 at Lahore and was the first Indian bank started wholly with Indian capital, with Lala Lajpat Rai among those behind it; its head office is now in New Delhi. Taglines like this are asked often because each large bank keeps one for years, and PNB has used this line through its branding. B is wrong because the State Bank of India uses The Banker to Every Indian, and earlier With you all the way. C is wrong because HDFC Bank uses We understand your world. D is wrong because Canara Bank uses Together We Can. Exam tip: pair the bank with its line and its founding year, PNB 1894 Lahore and The Name you can Bank Upon, SBI 1955 and The Banker to Every Indian.

The correct answer is B, twenty five per cent. At least a quarter of the banking outlets of a small finance bank must be in unbanked rural centres, which the guidelines define as centres with a population of up to 9,999 according to the latest census, the same definition used for universal banks; the requirement exists so that a bank licensed in the name of financial inclusion actually opens where banking is absent. Option A, ten per cent, is too low and has no basis in the guidelines. Option C, fifty per cent, is the share of the loan portfolio that must be in loans of up to twenty five lakh rupees, so it belongs to a different rule in the same chapter. Option D, seventy five per cent, is the priority sector lending target and the payments bank investment ratio, and it is the figure most often misplaced by candidates, since seventy five and twenty five recur through this chapter with different meanings.

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 Nachiket Mor Committee. The Reserve Bank set up the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households under Nachiket Mor in September 2013, and its report recommended differentiated bank licences, including payments banks, as a faster route to financial inclusion than waiting for full service banks to expand. Option A, the Narasimham Committee, reported in 1991 and 1998 on banking sector reform, capital adequacy and the structure of public sector banks, a full generation earlier. Option C, the Raghuram Rajan Committee on financial sector reforms, reported in 2008 and did discuss small banks, which makes it a genuine distractor, but the guidelines of 2014 followed the Mor Committee. Option D, the Urjit Patel Committee, recommended the move to inflation targeting and the monetary policy framework, which is a separate subject altogether.

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.