Banking & Financial Awareness Mixed Quiz: Set 30

The correct answer is B, 2 and 3 only. Urban Cooperative Banks are regulated by the RBI, not by local boards, and they may raise capital through equity and preference shares.

Statement 1 is wrong: UCBs are registered under State or Multi-State Cooperative Societies Acts, but their banking functions are regulated and supervised by the Reserve Bank of India; no local boards of State Governments do this. Statement 2 is correct: the Banking Regulation (Amendment) Act, 2020 lets cooperative banks, with RBI approval, issue equity shares, preference shares and other securities to raise capital. Statement 3 is correct: cooperative banks were brought under the Banking Regulation Act, 1949 from 1 March 1966, through an amendment applying the Act to cooperative societies.

A is wrong because statement 1 is false.

C is wrong because it keeps the false statement 1 and drops the true statement 2.

D is wrong because statement 1 is incorrect.

Exam tip: cooperative banks came under the BR Act in 1966; the 2020 amendment strengthened RBI control over them.

The correct answer is A, the Gadgil Study Group. The Study Group of the National Credit Council on the organisational framework for the implementation of social objectives, headed by Professor D. R. Gadgil, reported in 1969 that large parts of the country had no banking facility at all and recommended that credit be planned area by area, with a district as the unit. Option B is wrong because the Narasimham Committee reports of 1991 and 1998 dealt with banking sector reform, capital adequacy and prudential norms. Option C is wrong because the Tandon Committee of 1974 laid down norms for working capital finance and inventory. Option D is wrong because the Chakravarty Committee of 1985 reviewed the working of the monetary system. In this chapter two names must be kept apart: Gadgil for the area approach and Nariman for the allotment of districts to banks.

The correct answer is B, five years from the date of the transaction. Section 12 requires every reporting entity to maintain a record of all transactions of the prescribed nature and value for a period of five years from the date of the transaction between the client and the entity, and to maintain records of the identity of its clients for five years after the business relationship ends or the account is closed. The records must allow an individual transaction to be reconstructed if an authority calls for it. Option A is wrong because three years is shorter than the statutory period and would leave the trail cold in long investigations. Option C is wrong because eight years is not prescribed anywhere in the Act or the rules. Option D is wrong because fifteen years is far longer than required; the earlier law prescribed ten years, which was reduced to five by amendment.

The correct answer is C, 2005. The Prevention of Money Laundering Act was passed by Parliament in 2002 and is numbered as an Act of that year, but it was brought into force only on the first of July 2005, together with the Prevention of Money-laundering Maintenance of Records Rules of 2005, which set out the reporting duties of banks. Candidates must keep the two dates apart because papers ask for either one. Option A is wrong because 2002 is the year of enactment, the year that appears in the short title of the Act, not the year of commencement. Option B is wrong because 2003 is the year the Act received the assent of the President, in January of that year. Option D is wrong because 2012 is the year of a major amendment, which widened the definition of the proceeds of crime and removed the earlier monetary threshold for some scheduled offences; later amendments followed in 2019.

The correct answer is B, 15 to 25. A branch's service area was drawn up of roughly fifteen to twenty-five villages, chosen on the twin tests of proximity and contiguity so that the cluster could actually be served and surveyed by the staff of one branch. The branch then conducted village surveys, estimated credit needs and prepared a service area credit plan, which fed into the block and district plans. Option A is wrong because a cluster that small would have left many villages unallotted and defeated the purpose of universal coverage. Option C and option D are wrong because clusters of thirty to sixty villages would have been impossible for a single rural branch to survey and serve, and the Reserve Bank's instructions never set numbers that high. The figure fifteen to twenty-five, the proximity and contiguity test, and the exclusion of urban branches are the three points asked about this approach.

The correct answer is C, CRISIL. The Credit Rating Information Services of India Limited was set up in 1987 as India's first credit rating agency, promoted by ICICI and the Unit Trust of India, and the global firm S and P Global later became its majority shareholder. Option A is wrong because ICRA, the Investment Information and Credit Rating Agency of India Limited, came four years later in 1991, promoted by IFCI, and is now majority held by Moody's. Option B is wrong because CARE, the Credit Analysis and Research Limited, was set up in 1993 and promoted by IDBI, making it the third of the Indian agencies. Option D is wrong because Brickwork Ratings is a much later entrant. The order to memorise is CRISIL in 1987, ICRA in 1991 and CARE in 1993, each promoted by a different development finance institution.

The correct answer is B, 2014. The Reserve Bank of India issued the D-SIB framework on 22 July 2014, setting out how banks would be picked for the sample, how their systemic importance score would be computed from size, interconnectedness, substitutability and complexity, and how much additional Common Equity Tier 1 capital each bucket would attract. The first names under the framework were disclosed the following year.

Option A, 2011, is the year the Financial Stability Board began publishing the global list of Systemically Important Banks, which is a different exercise carried out at the world level, so it is a classic distractor. Option C, 2017, is the year the earlier Prompt Corrective Action framework for banks was issued, not the D-SIB framework. Option D, 2021, is the year the revised PCA framework was notified. Candidates who mix up these three dates lose an easy mark, so remember 2014 for D-SIBs and 2021 for revised PCA.

The correct answer is B. The digital rupee is money, a liability of the Reserve Bank, so a transfer from one wallet to another is final the moment it happens and no interbank settlement follows. UPI, by contrast, is a payment instruction system run by the National Payments Corporation of India that moves money already held as a deposit in a bank account, and the banks settle between themselves afterwards. Option A is wrong because the digital rupee is issued by the Reserve Bank and is not an NPCI product at all. Option C is wrong and reverses the position: the digital rupee is legal tender under the amended Reserve Bank of India Act, while UPI is only a way of giving a payment instruction and can never be legal tender. Option D is wrong because the digital rupee deliberately pays no interest, so that savers are not drawn away from bank deposits.

The correct answer is B, three working days. Under the Reserve Bank's circular of 6 July 2017, where the fault lies neither with the bank nor with the customer but somewhere else in the system, the customer's liability is nil if the unauthorised transaction is reported within three working days of receiving the bank's communication about it. The day on which that communication was received is excluded from the count, and working days follow the home branch's schedule.

Option A, one working day, is stricter than the rule and would leave many genuine victims uncovered. Option C, seven working days, is the outer edge of the limited liability window, where the customer does bear a capped amount, so it is the most attractive wrong answer. Option D, fifteen working days, has no place in the framework; a report after seven working days is dealt with under the bank's own board-approved policy. Fix the pair in mind: three days for zero liability, four to seven days for capped liability.

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 B, 1989. The Financial Action Task Force was set up in 1989 at the summit of the Group of Seven industrial countries held in Paris, and its secretariat is housed at the headquarters of the Organisation for Economic Co-operation and Development in Paris. It issues the Forty Recommendations on money laundering and terrorist financing and reviews member countries through mutual evaluations, placing weak jurisdictions on the increased monitoring list, informally the grey list, or the call for action list, informally the black list. India became a full member in June 2010. Option A is wrong because 1974 is the year the Basel Committee on Banking Supervision was set up, a different body dealing with prudential regulation. Option C is wrong because 1995 is the year the Egmont Group of financial intelligence units was founded in Brussels. Option D is wrong because 2001 is the year the Task Force extended its mandate to terrorist financing, not the year of its creation.

The correct answer is A, insurance. The committee chaired by R. N. Malhotra, a former Governor of the Reserve Bank, reported in 1993 on the reform of the insurance sector; it recommended opening the sector to private companies and the creation of an independent regulator, from which the Insurance Regulatory and Development Authority was set up at the end of the decade. Option B, mutual funds, come under the Securities and Exchange Board of India, which was given statutory powers by an Act of 1992. Option C, commodity markets, were regulated by the Forward Markets Commission, later merged into SEBI. Option D, cooperative banks, have been the subject of several separate working groups of the Reserve Bank. Learn Malhotra with insurance in the same way as Narasimham with banking and Tarapore with convertibility.

The correct answer is A, government-sponsored schemes. By tying every village to one branch, the Service Area Approach had removed the borrower's choice: a farmer served badly by his service area branch could not take his account elsewhere, and competition between branches disappeared. In December 2004 the Reserve Bank therefore withdrew the restrictive provisions and allowed borrowers to approach any branch of their choice, while keeping the restriction for government-sponsored schemes, where a village has to be identified with a particular branch so that subsidy and beneficiary lists can be matched. Option B is wrong because export credit is governed by separate Reserve Bank guidelines and was never part of the service area restriction. Option C is wrong because gold loans are an ordinary secured advance with no area restriction. Option D is wrong because housing loans are largely an urban product and urban branches were always outside the approach. Branches kept their survey and planning duties even after 2004.

The correct answer is B, 5 years. The eighth issue of the National Savings Certificate is a five-year certificate on which interest is compounded annually and paid along with the principal when it matures, and deposits in it qualify for deduction under section 80C. Option A, three years, is wrong; three years is one of the terms available under the Post Office Time Deposit, not for the NSC. Option C, seven years, is wrong and recalls the discontinued ninth issue of the certificate, which ran for a longer term. Option D, ten years, is wrong because no current small savings certificate runs for ten years. The five-year block is worth remembering because the NSC, the Senior Citizens' Savings Scheme, the Monthly Income Scheme and the Recurring Deposit all share it.

The correct answer is B, Leverage. The 2017 framework watched capital, asset quality and profitability, with return on assets as the profitability indicator. The revised framework notified on 2 November 2021 and effective from 1 January 2022 keeps capital and asset quality but drops profitability and brings in leverage, measured by the Tier 1 leverage ratio, as the third core area. This is the single most asked point from the revised framework.

Option A, liquidity, is a prudential concern addressed through the liquidity coverage ratio and the net stable funding ratio, not through PCA parameters. Option C, credit growth, is monitored by the supervisor in other ways but is not a PCA trigger. Option D, provision coverage, is a measure of how much a bank has set aside against bad loans; it is a supervisory expectation rather than a PCA parameter. So the three areas to memorise are capital, asset quality and leverage.

The correct answer is C, 2013. PFRDA was first created in 2003 by a resolution of the Government as an interim authority to oversee the new defined contribution pension arrangement, and it ran the National Pension System for a decade without a statute; the Pension Fund Regulatory and Development Authority Act 2013 gave it statutory standing. Option A, 2003, is therefore the year of its creation as an interim body and is the obvious trap in this question. Option B, 2008, is wrong; that year the National Pension System was opened to the public and the central recordkeeping agency and pension funds were appointed, but no Act was passed. Option D, 2016, is wrong and belongs to the Insolvency and Bankruptcy Code, under which the Insolvency and Bankruptcy Board of India began on 1 October 2016. A clean way to remember the sequence of statutes is 1934, 1992, 1999, 2013 and 2016 for RBI, SEBI, IRDAI, PFRDA and IBBI.

The correct answer is A, rupees 5,000. The Reserve Bank's liability table sets the lowest ceiling for Basic Savings Bank Deposit accounts, which are the no-frills accounts opened for financial inclusion, because their holders are the least able to absorb a loss. The customer pays the transaction value or five thousand rupees, whichever is lower, so a fraud of two thousand rupees costs the customer two thousand, not five.

Option B, rupees 10,000, is the ceiling for ordinary savings accounts, prepaid payment instruments and gift cards, current or overdraft accounts of micro and small enterprises, individual current accounts with a limit up to twenty five lakh rupees, and credit cards with a limit up to five lakh rupees. Option C, rupees 25,000, is the ceiling for other current, cash credit and overdraft accounts and for credit cards with a limit above five lakh rupees. Option D is wrong because zero liability needs a report within three working days.

The correct answer is A. The Financial Intelligence Unit India works under the Department of Revenue in the Ministry of Finance and reports to the Economic Intelligence Council, the apex body on economic offences, which is chaired by the Union Finance Minister. The Council coordinates the work of the enforcement and intelligence agencies that deal with economic crime. Option B is wrong because the Central Board of Direct Taxes administers income tax and is a sister body under the same department, not the unit's reporting authority. Option C is wrong because the Monetary Policy Committee of the Reserve Bank fixes the policy interest rate to meet the inflation target and has nothing to do with financial intelligence. Option D is wrong on two counts: the Financial Stability and Development Council deals with macro-prudential supervision and inter-regulatory coordination, and it is chaired by the Union Finance Minister, not the Prime Minister.

The correct answer is A, Usha Thorat. The Reserve Bank constituted a High Level Committee under its Deputy Governor Usha Thorat to review the Lead Bank Scheme after four decades, and the committee reported in 2009. It found the forums had become ritual meetings, and recommended that they concentrate on financial inclusion, that credit plans be drawn up keeping the state government's own plans in view, that the scheme be extended to metropolitan areas, and that banks prepare roadmaps for taking banking services to villages without them. Option B is wrong because C. Rangarajan chaired committees on financial inclusion and on the measurement of poverty, and was a Governor of the Reserve Bank. Option C is wrong because Raghuram Rajan chaired the committee on financial sector reforms of 2008 and later became Governor. Option D is wrong because Deepak Mohanty headed a committee on the medium term path to financial inclusion. The names are close, so attach each to its own subject.

The correct answer is B, Three. The PCA framework arranges breaches into three risk thresholds, each more serious than the last, and attaches mandatory corrective actions to each. Risk Threshold 1 restricts dividend distribution and requires the owners to bring in capital. Risk Threshold 2 adds curbs on branch expansion in India and abroad. Risk Threshold 3 adds limits on capital expenditure, leaving out technology upgrades within board-approved limits.

Option A, two, understates the structure. Option C, four, is a tempting choice because candidates confuse the three thresholds with the four quarterly results needed for exit from PCA. Option D, five, is the number of buckets in the D-SIB framework, not the number of PCA thresholds, so it is the standard cross-topic trap. Keep the pair in mind: five buckets under D-SIB, three thresholds under PCA.