Banking & Financial Awareness Mixed Quiz: Set 23

The correct answer is C, 100 billion US dollars. The Contingent Reserve Arrangement was agreed at the Fortaleza summit of 2014 as a pool of 100 billion dollars on which a member facing short term pressure on its balance of payments may draw, so that it works for the BRICS group somewhat as the International Monetary Fund does for the world. Option A is wrong because 50 billion dollars was the initial subscribed capital of the New Development Bank itself, which is a different figure and a different purpose. Option B is wrong because no arrangement of this group is of that size. Option D is wrong because the authorised capital of the New Development Bank is 100 billion dollars, not 200 billion. Note that the bank lends for projects while the arrangement supports currencies.

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 A, the Hilton Young Commission. The Royal Commission on Indian Currency and Finance, known after its chairman as the Hilton Young Commission, reported in 1926 and recommended a central bank for India; the recommendation was carried out by the Reserve Bank of India Act of 1934, and the Reserve Bank began its operations on 1 April 1935. Option B, the Narasimham Committee, reported in 1991 and 1998 on the reform of the banking system that already existed, and crediting it with the creation of the Reserve Bank is the commonest error in this chapter. Option C, the Chakravarty Committee of 1985, reviewed the working of the monetary system. Option D, the Malhotra Committee of 1993, dealt with the insurance sector and led to the setting up of the insurance regulator.

The correct answer is A, 1930. The BIS was founded in 1930, which makes it the oldest international financial institution in the world, older than the Bretton Woods institutions by fourteen years. Option B is wrong because 1944 is the year of the Bretton Woods conference, which led to the International Monetary Fund and the World Bank, both of which began work in 1945 and 1946. Option C is wrong because 1955 marks no founding of this kind in international finance. Option D is wrong because 1974 is the year the Basel Committee on Banking Supervision was created by the central bank governors of the Group of Ten countries, which is hosted by the BIS but is not the BIS itself. Keep 1930 and 1974 apart in your notes.

The correct answer is B, 15 years. A PPF account runs for fifteen financial years counted from the end of the year in which it is opened, and after that it can be extended in blocks of five years, with or without fresh deposits. Option A, ten years, is wrong; no small savings scheme has a ten-year term, and the shorter certificates run for five years. Option C, twenty years, is wrong because an extended PPF account reaches twenty years only after one five-year block, which is a choice made by the holder and not the original maturity. Option D, twenty-one years, is the strongest distractor; that is the maturity of the Sukanya Samriddhi Account, counted from the date of opening. Fix fifteen with the PPF and twenty-one with Sukanya Samriddhi, because these two are the usual pair in a question.

The correct answer is C, 182 days. FEMA defines a person resident in India by a stay of more than one hundred and eighty-two days in the preceding financial year, with exceptions for a person who has gone abroad for employment, for business or for an uncertain period, and for a person who has come to India on those terms. Residence under the Act therefore depends on days present and not on citizenship. Option A is wrong because ninety days appears in other statutes but not in this definition. Option B is wrong because one hundred and twenty days is a threshold found in the residence rules of the Income-tax Act for certain Indian citizens, which is why it is a tempting distractor. Option D is wrong because two hundred and forty days has no place in the FEMA definition at all.

The correct answer is B, Washington DC. Both institutions were planned at the Bretton Woods conference of 1944 in the United States and both work from Washington DC, which is why they are called the Bretton Woods twins; the IMF looks after exchange stability and balance of payments while the World Bank lends for development. Option A is wrong because New York is the seat of the United Nations headquarters and of the stock exchange, not of these two. Option C is wrong because London hosts the European Bank for Reconstruction and Development, of which India became a shareholder in 2018. Option D is wrong because Paris is the seat of the Organisation for Economic Co-operation and Development and of the Financial Action Task Force. Keep the cities tied to the right institutions.

The correct answer is A, NABARD. A bank that falls short of its priority sector target is not fined; it is required to place the shortfall in the Rural Infrastructure Development Fund kept with the National Bank for Agriculture and Rural Development, or in the funds notified with SIDBI, the National Housing Bank and MUDRA, and it earns a deliberately low return there, the Bank Rate minus two to four percentage points depending on the size of the shortfall. Option B is wrong because SEBI regulates the securities market and has no role in bank credit. Option C is wrong because the Reserve Bank sets the targets and monitors them but does not itself hold the Rural Infrastructure Development Fund. Option D is wrong because the Ministry of Finance makes policy and owns the public sector banks, while the fund is operated by NABARD.

The correct answer is A, reform of the banking and financial system. The Committee on the Financial System of 1991, chaired by M. Narasimham, came at the start of liberalisation and recommended lower statutory liquidity and cash reserve ratios, prudential norms for income recognition and provisioning, the classification of assets as standard, sub-standard, doubtful and loss, a capital adequacy requirement and a four-tier banking structure; the second Narasimham report of 1998 added mergers of strong banks, narrow banking for weak ones and asset reconstruction companies. Option B, reform of the insurance sector, belongs to the Malhotra Committee of 1993. Option C, capital account convertibility, belongs to the Tarapore Committee of 1997 and 2006. Option D, digital payments, belongs to the Nandan Nilekani Committee of 2019, which is a far more recent report.

The correct answer is C, rupees five lakh. The Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India set up in 1978, insures deposits in commercial banks, regional rural banks, local area banks, payments and small finance banks and cooperative banks. The cover applies to each depositor in each bank, taking principal and interest together, and the same limit applies whether the depositor holds one account or several in that bank. The premium is paid by the bank and never charged to the customer.

Option A, one lakh, was the limit for many years before it was raised, so it is the commonest wrong answer. Option B, two lakh, is not a deposit insurance figure at all. Option D, ten lakh, is higher than the present cover. Deposits in different banks are separately insured, which is why spreading large savings across banks increases the protected amount.

The correct answer is C, 1,50,000 rupees. The Public Provident Fund Scheme allows a minimum of five hundred rupees and a maximum of one and a half lakh rupees in a financial year, the same ceiling that applies to the Sukanya Samriddhi Account and matching the limit of the deduction under section 80C. Option A, fifty thousand rupees, is wrong and far below the ceiling. Option B, one lakh rupees, is wrong but tempting because it was the limit in an earlier period before the ceiling was raised. Option D, two lakh rupees, is wrong; a two lakh ceiling belongs to the Mahila Samman Savings Certificate announced in the Union Budget for 2023-24, not to the PPF. If the deposit in a year exceeds the ceiling, the excess earns no interest and is simply returned.

The correct answer is B, hypothecation. In hypothecation a charge is created on movable property, such as a financed vehicle or the stock in a trader's shop, while the borrower keeps and uses the goods. Because the lender does not hold them, it must first take possession of the asset before it can sell it, which is why a defaulting borrower's car has to be seized, and the SARFAESI Act of 2002 gives a secured creditor that power.

Option A, pledge, is the charge under which the goods are delivered to the lender, as with gold kept in a bank's strong room, and it is governed by the Indian Contract Act of 1872. Option C, lien, is the right of the lender to retain goods or securities already in its hands until its dues are paid. Option D, mortgage, is a charge on immovable property and so does not belong to this group at all.

The correct answer is A, the Tarapore Committee. The committee chaired by S. S. Tarapore reported in 1997 and again in 2006 on capital account convertibility, that is the freedom to convert the rupee for capital transactions, and it set out preconditions such as fiscal consolidation, a low rate of inflation, a strengthened banking system and a low level of non-performing assets. Option B, the Verma Committee of 1999, examined the restructuring of weak public sector banks. Option C, the Ghosh Committee of 1992, reported on frauds and malpractices in banks. Option D, the Goiporia Committee of 1991, reported on customer service in banks, a subject revisited by the Damodaran Committee of 2011. The rupee is already convertible on the current account, so the whole debate this committee addressed is about the capital account.

The correct answer is B, the Indian Banks Association. NPCI was set up on the initiative of the Reserve Bank of India together with the Indian Banks Association, and ten core promoter banks held its first shareholding, which is why it is owned by the banking industry rather than by the government. Option A is wrong because SEBI regulates the securities market and has no role in retail payment systems. Option C is wrong because NITI Aayog is a policy think tank created in 2015, seven years after NPCI came into being. Option D is wrong because the ministry for electronics and information technology promotes digital services and runs schemes such as Digital India, but it did not promote NPCI. Remember the pair as the central bank plus the bankers association.

The correct answer is B, 10 years. Under the Sukanya Samriddhi Account Scheme a guardian may open an account in the name of a girl child who has not completed ten years of age, and a family may hold two such accounts, or three where twins or triplets are born. Option A, eight years, is wrong and is simply a lower number offered to unsettle the candidate. Option C, twelve years, is wrong; no age relaxation to twelve exists in the scheme rules. Option D, fourteen years, is wrong, although fourteen may be confused with the fifteen years for which deposits have to be made into the account. Remember the three numbers of this scheme in order: open before ten, deposit for fifteen years, mature at twenty-one years from opening.

The correct answer is A, the Banking Regulation Amendment Act of 2020. It ended the loose half of the old dual control by placing all urban cooperative banks and multi state cooperative banks squarely under the supervision of the Reserve Bank, giving the Bank powers over their boards, their capital raising and their amalgamation, after a series of failures had hurt depositors. Option B is wrong because the Companies Act of 2013 governs companies and not cooperative societies. Option C is wrong; the Payment and Settlement Systems Act of 2007 is the law behind payment systems such as white label cash machines. Option D is wrong because the Multi State Cooperative Societies Act of 2002 deals with the registration and management of societies working in more than one state, which is the cooperative side of the dual control rather than the banking side.

The correct answer is B, the Nachiket Mor Committee. The committee on comprehensive financial services for small businesses and low-income households, chaired by Nachiket Mor, reported in 2014 and proposed differentiated banking licences; from its work the Reserve Bank issued guidelines for payments banks, which may accept deposits but not lend, and for small finance banks, which lend mainly to small borrowers. Option A, the P. J. Nayak Committee of 2014, reported on the governance of bank boards and proposed a bank investment company for the government's shareholding. Option C, the Khan Working Group of 1998, dealt with harmonising the roles of development financial institutions and banks, the idea of universal banking. Option D, the Vaghul Committee of 1987, reported on the money market. Two committees of the same year are the trap here, so attach Mor to licences and Nayak to boards.

The correct answer is C, 21 years. The account matures twenty-one years after the date of opening, and it may close earlier if the girl marries after completing eighteen years. Option A, fifteen years, is the commonest wrong choice because deposits into the account have to be made only for fifteen years; the balance continues to earn interest for the remaining period without further deposits. Option B, eighteen years, is wrong, although at eighteen the girl becomes eligible to withdraw half the balance or to close the account on marriage, which is where the confusion comes from. Option D, twenty-five years, is wrong and has no place in the scheme. The deposit period and the maturity period being different is exactly the point a paper setter tests here.

The correct answer is A, the Urjit Patel Committee. The expert committee of 2014 chaired by Urjit Patel was asked to revise and strengthen the monetary policy framework; it recommended that consumer price inflation be made the nominal anchor, that a numerical inflation target be adopted, and that policy decisions be taken by a committee rather than by one person, which led to flexible inflation targeting and the Monetary Policy Committee. Option B, the Bimal Jalan Committee of 2019, reported on the economic capital framework of the Reserve Bank, that is how much capital the central bank should hold. Option C, the Deepak Mohanty Committee of 2015, set out a medium-term path for financial inclusion. Option D, the Tandon Committee of 1974, fixed the norms for working capital finance and belongs to an entirely different era of banking.

The correct answer is B, the Government Savings Promotion Act, 1873. This is the parent law under which the Public Provident Fund, National Savings Certificate, Sukanya Samriddhi, Senior Citizens' Savings and Kisan Vikas Patra schemes are notified, and it was called the Government Savings Banks Act, 1873 until the Finance Act of 2018 renamed it. Option A is wrong; the Banking Regulation Act of 1949 governs banking companies and their licensing and supervision, not post office savings schemes. Option C is wrong because the Reserve Bank of India Act of 1934 constitutes the central bank and its functions. Option D is wrong since the Payment and Settlement Systems Act of 2007 gives the Reserve Bank authority over payment systems. The small savings schemes are run by the Ministry of Finance and the Department of Posts, not by the Reserve Bank.