Banking & Financial Awareness Mixed Quiz: Set 2

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 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, 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 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, 1949. The Reserve Bank of India began as a shareholders' bank and was taken into public ownership on 1 January 1949 under the Reserve Bank (Transfer to Public Ownership) Act, 1948. Since then the entire capital has been held by the Government of India, although the Bank continues to be run by a Central Board under its own Act of 1934.

Option A, 1971, is the year in which the Bank's insurance related subsidiary work expanded and is close to the 1969 bank nationalisation, so it is placed to confuse. Option B, 1956, is the year the Imperial Bank of India became the State Bank of India, which candidates often mix up with this event. Option D, 1935, is the year the Reserve Bank began operations, on 1 April, under the Act of 1934, and is the commonest wrong answer of the four.

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 C, 1955. The All India Rural Credit Survey Committee found that rural credit needed a bank with a nationwide branch network, so Parliament passed the State Bank of India Act, 1955, and the Imperial Bank of India was taken over and renamed the State Bank of India with effect from 1 July 1955. The Imperial Bank itself had been formed in 1921 by joining the presidency banks of Bengal, Bombay and Madras.

Option A, 1947, is the year of independence and of no banking statute of this kind. Option B, 1965, is far too late; by then the State Bank already had its associate banks under the Act of 1959. Option D, 1950, is the year the Constitution came into force, and candidates pick it by association. Note also that 1949 was the year the Reserve Bank was nationalised, which is a different event from the creation of the State Bank.

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, Teller. ATM stands for Automated Teller Machine. A teller is the bank employee who takes and pays out cash at the counter, and the machine was built to do that same job without a person, which is how it got the name. The first ATM in India was installed by HSBC in Mumbai in 1987. Machines set up and run by non-bank companies, under the rules of the Reserve Bank, are called White Label ATMs, the first of which was Indicash, launched by Tata Communications in 2013. Option A is wrong because a transfer is a movement of money between accounts, not part of this abbreviation. Option C is wrong because a transaction is any banking entry, again not what the T stands for. Option D is wrong because trunk belongs to telephone terminology, such as trunk call. Exam tip: PIN means Personal Identification Number and ATM means Automated Teller Machine.

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 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 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. 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 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 C, Mumbai. RBL Bank, a private sector bank, has its corporate office in Mumbai, the financial capital of the country, while its registered office stays in Kolhapur in Maharashtra, where the bank was founded in 1943 as the Ratnakar Bank. It served traders and farmers of the Kolhapur and Sangli belt for decades, was renamed RBL Bank in 2014 and now works across the country in retail, credit card and microfinance business. Option A is wrong because Srinagar is the headquarters of Jammu and Kashmir Bank, a bank promoted by that state. Option B is wrong because no large commercial bank keeps its corporate office in Patna. Option D is wrong because Bengaluru is the headquarters of Canara Bank, which was started in Mangaluru in 1906. Exam tip: RBL Bank was born as Ratnakar Bank in Kolhapur, 1943, and is run from Mumbai.

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 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 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 B, 1934. The Reserve Bank of India Act, 1934 is the statute that created the Bank and it carries the provisions on the custody and deployment of the country's foreign exchange reserves, which the Bank holds and invests. The day to day dealings of residents in foreign exchange are separately governed by the Foreign Exchange Management Act, 1999, which replaced the older regulation Act of 1973, but the Bank's own reserve management powers flow from its founding Act.

Option A, 1947, is the year of independence and of the earlier foreign exchange regulation law, which makes it tempting. Option C, 1923, is simply too early, as the Hilton Young Commission that recommended the Bank reported only in 1926. Option D, 1971, matches no relevant statute of the Reserve Bank.

The correct answer is A, 1990. SIDBI was set up under the Small Industries Development Bank of India Act, 1989 and began operations in 1990 as the principal financial institution for the promotion, financing and development of micro, small and medium enterprises. It started as a subsidiary of IDBI and its head office is at Lucknow, which is itself a frequently asked detail.

Option B, 1988, is the year before the Act and is a common trap. Option C, 1992, is the year the Securities and Exchange Board of India became a statutory body, and Option D, 1994, is the year the first new generation private banks were licensed after the Narasimham Committee report. Keeping the development institutions in order helps: NABARD in 1982, SIDBI in 1990, and the National Housing Bank in 1988, each set up by its own Act of Parliament.