Banking & Financial Awareness Mixed Quiz: Set 17

The correct answer is B, 90 days. A loan becomes a non-performing asset when interest or an instalment of principal stays overdue for more than 90 days.

The Reserve Bank of India fixes this rule. For a term loan the 90 day test applies directly; a cash credit or overdraft account is treated as bad if it remains out of order for 90 days; and for a crop loan the limit is two crop seasons for short duration crops and one season for long duration crops. Once an account turns into an NPA the bank must set money aside as provision, and the asset is graded further as substandard, doubtful or loss. The gross NPA ratio is one of the main measures of a bank's health.

A is wrong: five years is far beyond any classification norm. C is wrong: 180 days was the older norm, replaced by 90 days from 31 March 2004. D is wrong: a bank cannot wait a full year before recognising a loan as bad.

Exam tip: an NPA is a loan overdue beyond 90 days, and the norm moved from 180 days to 90 days in 2004.

The correct answer is B, SBI. Ecowrap is the research report of the State Bank of India, brought out by its economic research department.

Ecowrap is written by the team of the group chief economic adviser at SBI and comments on growth, inflation, bank credit, government finances and the state of households. It is widely quoted in the press because it often carries an early estimate of GDP growth or of the fiscal position before the official figures appear. The edition of May 2020 studied the damage the Covid-19 lockdown was doing to incomes and to economic activity. SBI is the country's largest commercial bank, with its headquarters in Mumbai.

A is wrong: the Reserve Bank publishes its own Monetary Policy Report, Financial Stability Report and Annual Report, not Ecowrap. C is wrong: HDFC Bank brings out no report of this name. D is wrong: nor does ICICI Bank.

Exam tip: Ecowrap belongs to SBI Research, while the best known Reserve Bank reports are the Financial Stability Report and the Monetary Policy Report.

The correct answer is C, credit risk. The first accord was a simple framework that asked banks to hold capital equal to at least eight per cent of their risk weighted assets, with risk weights of zero, twenty, fifty and a hundred per cent assigned according to the creditworthiness of the borrower. India adopted it in 1992. Option A is wrong because operational risk, the risk of loss from failed processes, people, systems or external events, was brought into the capital charge only with Basel II in 2004. Option B is wrong because market risk, arising from movements in interest rates, exchange rates and prices, was added through an amendment after Basel I and formalised under Basel II. Option D is wrong because liquidity risk was addressed only in Basel III through the Liquidity Coverage Ratio and the Net Stable Funding Ratio.

The correct answer is C, five lakh rupees. Every depositor of an insured bank is covered up to five lakh rupees, and that figure takes in the principal and the accrued interest together. All the deposits a person holds in the same right and the same capacity in one bank are added up, across every branch and every account, before the limit is applied. Option A is wrong because one lakh rupees was the cover from 1 May 1993 until it was raised; it is the most tempting distractor because it stood for nearly three decades. Option B is wrong because two lakh rupees has never been a deposit insurance limit in India. Option D is wrong because ten lakh rupees is not the limit either, though candidates sometimes double the figure from memory. Note the unit of cover as well: money split across three branches of one bank still gets a single cover of five lakh rupees, while the same money in three different banks is covered three times over.

The correct answer is C, 90 days. The Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021 created an interim payment so that the depositors of a bank placed under all inclusive directions need not wait for the bank to be wound up. The bank must give the Corporation a list of claims within forty five days of the direction, and the Corporation must then pay eligible depositors up to the insured limit within the next forty five days, which makes ninety days in all. Option B is wrong because forty five days is only the first half of that window, the time allowed for the list of claims. Option A is wrong because thirty days is not a period fixed anywhere in the scheme. Option D is wrong because one hundred and eighty days was never prescribed. Before this amendment, a depositor of a bank under a moratorium could be shut out of their own money for years, and that is the real point behind the question.

The correct answer is A, Muhammad Yunus. Muhammad Yunus, an economist from Bangladesh, founded Grameen Bank. He grew it out of a lending experiment begun in the village of Jobra in 1976, and the bank was given formal status by law in 1983. It lends small sums without collateral, mostly to poor rural women organised in small groups whose members stand behind one another's repayment, and this model of microcredit has since been copied across Asia, Africa and Latin America. Yunus and the bank shared the Nobel Peace Prize in 2006 for creating economic and social development from below. B is wrong because Abdullah Abu Sayeed is a Bangladeshi writer and educationist. C is wrong because Anu Muhammad is an economist known for his writing on development, not the bank's founder. D is wrong because Atiur Rahman served as Governor of Bangladesh Bank. Exam tip: Muhammad Yunus, Grameen Bank of Bangladesh, microcredit, Nobel Peace Prize 2006.

The correct answer is B, 40 per cent of Adjusted Net Bank Credit. A domestic commercial bank, and a foreign bank with 20 or more branches in India, must lend 40 per cent of its Adjusted Net Bank Credit, or of the Credit Equivalent of Off-Balance Sheet Exposure where that is higher, to the priority sector. The figure has stood at 40 per cent since 1985 and is repeated in the Reserve Bank of India (Priority Sector Lending - Targets and Classification) Directions, 2025. Option A is wrong because 18 per cent is the sub-target for agriculture alone, not the whole priority sector. Option C is wrong because 60 per cent is the target set for small finance banks and for primary urban co-operative banks, which were created to serve small borrowers. Option D is wrong because 75 per cent applies to regional rural banks, whose whole business is rural lending.

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 B, 1995. The Reserve Bank of India notified the first Banking Ombudsman Scheme in 1995, exercising its powers under Section 35A of the Banking Regulation Act, 1949, to give bank customers a free and quick forum outside the courts. Option A is wrong because 1991 is the year of the economic reforms and of the Narasimham Committee on the financial system, not of the ombudsman. Option C is a strong distractor: the scheme was recast as the Banking Ombudsman Scheme, 2006, which ran, with a 2017 amendment, until it was merged into the integrated scheme, but 2006 was a revision and not the introduction. Option D is wrong because 2021 is the year of the Reserve Bank - Integrated Ombudsman Scheme. Read whether the question asks for the first scheme or the present one.

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 C, per depositor per bank. Every account a depositor holds in the same right and the same capacity in one bank is added together, across all its branches, and the five lakh rupee limit is then applied to that total of principal and interest. Option A is wrong because the cover is not granted afresh for each account; three fixed deposits in one bank share a single cover. Option B is wrong for the same reason, and it is the commonest error of all, since shifting money between branches of the same bank gains a depositor nothing. Option D is wrong because the family is not the unit of cover, although deposits genuinely held in a different capacity, say one account in a person own name and another held as the guardian of a minor, count as separate holdings and each get their own cover. The sound lesson is that spreading large savings across different banks, not different branches, multiplies the protection.

The correct answer is B, the Narasimham Working Group of 1975, which proposed a new kind of rural institution combining the local feel of a cooperative with the discipline of a commercial bank, and the first Regional Rural Banks followed on 2 October of that year. Option A is wrong because the Gorwala Committee, formally the All India Rural Credit Survey Committee of 1954, dealt with cooperative credit and state partnership in cooperatives. Option C is wrong; the Maclagan Committee of 1915 examined the working of cooperative societies in the colonial period. Option D is wrong because the Vaidyanathan Committee of 2004 recommended the revival of the short term rural cooperative credit structure. Note that the same name Narasimham also attaches to the two committees on banking sector reform of 1991 and 1998, so the year in the stem matters.

The correct answer is C, 18 per cent. Of the 40 per cent that a domestic commercial bank must lend to the priority sector, 18 per cent of Adjusted Net Bank Credit has to go to agriculture, which covers farm credit, agriculture infrastructure and ancillary activities. Within that 18 per cent there is a further sub-target of 10 per cent for small and marginal farmers and of 14 per cent for non-corporate farmers. Option A is wrong because 10 per cent is that small and marginal farmer slice, which sits inside the agriculture figure. Option B is wrong because 12 per cent is the target for weaker sections, an overlapping head that counts borrowers rather than activities. Option D is wrong because 7.5 per cent is the sub-target for micro enterprises under the micro, small and medium enterprises category.

The correct answer is B, the Benchmark Prime Lending Rate. Under the BPLR system a bank announced a prime rate for its best customers and then lent to many borrowers below it, so the announced rate told a customer very little and the lending book was not transparent. The base rate, in force from 1 July 2010, was defined as the floor below which no bank could lend, apart from a short list of exceptions such as loans against a bank's own deposits and loans to its own staff.

Option A, the MCLR, came four years after the base rate, not before it. Option C, the external benchmark lending rate, came in 2019 and is the latest of the three regimes. Option D, the bank rate, is a Reserve Bank policy rate aligned with the marginal standing facility and is not a bank's own lending benchmark at all.

The correct answer is D, 2021. The Reserve Bank - Integrated Ombudsman Scheme, or RB-IOS, was launched on 12 November 2021 and merged the Banking Ombudsman Scheme of 2006, the Ombudsman Scheme for Non-Banking Financial Companies of 2018 and the Ombudsman Scheme for Digital Transactions of 2019 into a single scheme on the principle of one nation, one ombudsman. Option A is wrong because 2017 is the year the 2006 scheme was amended to cover mis-selling and mobile banking. Option B is wrong because 2018 is the year of the separate scheme for non-banking financial companies. Option C is wrong because 2019 is the year of the scheme for digital transactions. The three years in the options are all real dates in the story, which is why the sequence is worth memorising.

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 C, primary co-operative societies. Insurance with the Corporation is compulsory for all commercial banks, including the branches of foreign banks working in India, for local area banks and regional rural banks, for payments banks and small finance banks, and for state, central and primary urban co-operative banks. Primary co-operative societies are not banks within the meaning of the Act, so they are not registered, and that is why the depositors of a credit society enjoy no deposit insurance at all. Option A is wrong because payments banks are registered and their deposits are insured. Option B is wrong because regional rural banks are insured just like other commercial banks. Option D is wrong because small finance banks are registered too. The distinction matters in real life, since a saver who hands money to an unregistered society sits outside the safety net, and papers test it as a which of the following is not covered question.

The correct answer is C, defence production. The Directions list eight categories: agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy and others. Defence production is not among them, however large the industry is, because the priority sector exists for borrowers who are starved of institutional credit, and defence firms borrow against government orders. Option A is wrong because export credit is the third listed category, kept there to help exporters who need working capital for short periods. Option B is wrong because social infrastructure is a category in its own right and carries loans for schools, drinking water, sanitation and health care facilities in smaller centres. Option D is wrong because renewable energy was added as a separate category, with a ceiling for a borrower and a smaller one for an individual household.

The correct answer is C, Chandigarh. The integrated scheme is jurisdiction neutral, so a complaint no longer has to be sent to the ombudsman office of a particular region; all complaints, whether filed online, by email or on paper, are received and processed at a single Centralised Receipt and Processing Centre set up at Chandigarh, which then assigns them. Option A is wrong because Mumbai is the head office of the Reserve Bank of India and of its Consumer Education and Protection Department, but not the receipt centre. Option B is wrong because New Delhi houses the National Consumer Disputes Redressal Commission, which is a different forum altogether. Option D is wrong because Hyderabad has no such role, though the Reserve Bank has a regional office and a training establishment in the city.

The correct answer is B, Palai Central Bank. The failure of the Palai Central Bank of Kerala in 1960, coming on top of trouble at other small banks, badly shook public confidence and pushed Parliament into passing the Deposit Insurance Act, 1961, under which cover began on 1 January 1962. Option A is wrong because the Imperial Bank of India never failed; it was taken over by the State and became the State Bank of India in 1955. Option C is wrong because the Bank of Hindustan, set up in 1770 and usually called the first bank in India, wound up in 1832, more than a century before the Act. Option D is wrong because the Presidency Bank of Bengal, founded in 1806 as the Bank of Calcutta, was one of the three presidency banks that were amalgamated in 1921 into the Imperial Bank of India. The lesson examiners want is that deposit insurance in India was a response to real bank failures.