Banking & Financial Awareness Mixed Quiz: Set 4

The correct answer is C, six. The Committee was created by the amendment of the Reserve Bank of India Act in 2016. Three members come from the Bank, namely the Governor as chairperson, the Deputy Governor in charge of monetary policy and an officer nominated by the Central Board, and three are appointed by the Central Government. Every member has one vote, the Governor has a casting vote when the votes are equal, and the Committee must meet at least four times in a year.

Option A, four, is the minimum number of meetings in a year and also the quorum for a meeting, so it is put here to confuse those two numbers with the strength. Option B, five, and option D, eight, match no provision of the Act. Remember that the decision is a committee decision, not the Governor's alone, which is the reform this amendment brought about.

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, Indian Bank. Allahabad Bank, founded in 1865 and one of the fourteen banks nationalised in 1969, was amalgamated into Indian Bank with effect from 1 April 2020. Indian Bank, founded in 1907 at Madras, was the anchor bank, so the older institution disappeared into the younger one, which is the detail examiners like about this pair.

Option A, Punjab National Bank, absorbed Oriental Bank of Commerce and United Bank of India in the same round. Option C, Canara Bank, absorbed Syndicate Bank. Option D, Bank of India, was not an anchor bank in this round at all and continues as a separate public sector bank. After this round the number of public sector banks came down from twenty-seven in 2017 to twelve.

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, lender of last resort. It is the classic central bank function: when a bank is solvent but short of cash and neither the market nor other banks will lend to it, the Reserve Bank lends against eligible securities so that a local shortage does not turn into a general panic and a run on deposits. The marginal standing facility is one modern form of this window.

Option A, banker to the Government, describes keeping the accounts of the Union and State Governments and making payments on their behalf. Option C, custodian of foreign exchange, describes holding and investing the country's reserves under the Foreign Exchange Management Act, 1999. Option D, manager of public debt, describes issuing Treasury Bills and dated securities, paying interest on them and redeeming them. All four are real functions of the Bank, but only one fits the description in the question.

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 B, Bank of Baroda. With effect from 1 April 2019, Vijaya Bank of Karnataka and Dena Bank of Gujarat were merged into Bank of Baroda. It was the first three way amalgamation of public sector banks in India, and the merged entity became one of the largest public sector banks by branch network.

Option A, Punjab National Bank, took in Oriental Bank of Commerce and United Bank of India a year later. Option C, Union Bank of India, took in Andhra Bank and Corporation Bank in the same 2020 round. Option D, State Bank of India, had completed its own merger in 2017 by absorbing five associate banks and Bharatiya Mahila Bank. Note that Dena Bank was one of the fourteen banks of 1969 and Vijaya Bank one of the six of 1980.

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 A. Since 1957 India has followed the Minimum Reserve System of note issue, under which the Reserve Bank must keep assets worth at least two hundred crore rupees against the notes in circulation, of which gold must be worth at least one hundred and fifteen crore rupees and the remainder may be held in foreign securities. The system replaced the earlier proportional reserve system and allows the note issue to expand with the needs of a growing economy instead of being tied to a fixed proportion of bullion.

Option B understates both figures. Option C overstates them. Option D is wrong because the reserve is not held wholly in gold; only the smaller gold component is fixed, and the rest may be in approved foreign securities. The pair of numbers is what papers test, so learn them together.

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 B, Rupees 50 crore. The cut off used in the first round of nationalisation was deposits of fifty crore rupees or more as on the relevant date, and fourteen banks crossed it. The purpose stated in the preamble was to control the commanding heights of the economy and to direct credit to agriculture, small industry, exports and the weaker sections.

Option A, twenty-five crore rupees, matches no round. Option C, one hundred crore rupees, is a figure candidates invent as a midpoint. Option D, two hundred crore rupees, is the threshold of the second round in 1980, when six banks were nationalised. The pair to memorise is fifty crore rupees with fourteen banks in 1969 and two hundred crore rupees with six banks in 1980; papers often give the year and ask the amount, or give the amount and ask the number.

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, the Payment and Settlement Systems Act, 2007. It makes the Reserve Bank the designated authority for the regulation and supervision of payment systems in India, so that no person may operate a payment system without its authorisation. Real Time Gross Settlement, the National Electronic Funds Transfer system and the retail systems run by the National Payments Corporation of India all work under this framework.

Option A, the Banking Regulation Act, 1949, governs the licensing, capital, management and inspection of banks themselves. Option C, the Negotiable Instruments Act, 1881, governs cheques, bills of exchange and promissory notes, including the offence of dishonour of a cheque, and it is the strongest distractor because cheques are a means of payment. Option D, the Companies Act, 2013, governs the incorporation and management of companies in general.

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.

The correct answer is B, the Bank Nationalisation case. R. C. Cooper, a shareholder and director of one of the affected banks, challenged the law of 1969, and an eleven judge bench of the Supreme Court struck it down because the compensation provided for the acquired undertakings was not adequate and the banks were barred from carrying on business. Parliament then enacted a fresh law, so nationalisation stood.

Option A, the Privy Purse case, is Madhav Rao Scindia v. Union of India, about the derecognition of the princes. Option C, the Fundamental Rights case, is Kesavananda Bharati v. State of Kerala of 1973, which laid down the basic structure doctrine. Option D, the Judges Transfer case, is S. P. Gupta v. Union of India. All four are landmark cases of the same period, which is why they appear together as options.

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 B, 1937. The Reserve Bank opened at Calcutta in 1935 and moved its central office permanently to Bombay two years later, which is where the Governor sits and where policy is announced. The Bank also has four Local Boards, for the western, eastern, southern and northern areas, with headquarters at Mumbai, Kolkata, Chennai and New Delhi.

Option A, 1935, is the year the Bank began operations, at Calcutta and not at Bombay. Option C, 1949, is the year of nationalisation, when ownership passed to the Government of India, and involved no change of office. Option D, 1955, is the year the State Bank of India was constituted out of the Imperial Bank of India. Three of these four years are real milestones, so the question rewards a candidate who has tied each year to the right event.

The correct answer is A, Allahabad Bank. It was founded in 1865 and is remembered as the oldest joint stock bank in India, a joint stock bank being one owned by shareholders rather than by a partnership of agency houses. The presidency banks were older but were chartered institutions of the East India Company rather than ordinary joint stock companies.

Option B, Bank of Baroda, was founded in 1908 by Maharaja Sayajirao Gaekwad III of Baroda, more than forty years later. Option C, Yes Bank, belongs to the generation of private banks licensed after the reforms of the 1990s and began business in 2004, so it cannot be the oldest anything. Option D, Punjab National Bank, was registered in 1894 and opened at Lahore; it holds a different distinction, that of the first bank floated with wholly Indian capital and Indian management, and examiners often swap the two claims in the options.

The correct answer is A, Bharatiya Mahila Bank. From 1 April 2017 the State Bank of India absorbed its five remaining associate banks, the State Bank of Bikaner and Jaipur, the State Bank of Hyderabad, the State Bank of Mysore, the State Bank of Patiala and the State Bank of Travancore, together with Bharatiya Mahila Bank, which had been set up in 2013 as a bank focused on women customers.

Option B, Dena Bank, was merged into Bank of Baroda in 2019. Option C, Corporation Bank, went into Union Bank of India in 2020. Option D, United Bank of India, went into Punjab National Bank in 2020. Note that two associate banks had been merged into the State Bank earlier, the State Bank of Saurashtra in 2008 and the State Bank of Indore in 2010, which is why only five were left in 2017.

The correct answer is A, 1974. Women of the Self-Employed Women's Association at Ahmedabad, who worked as vendors, headloaders and home-based workers, pooled their own share capital and registered a cooperative bank of their own in 1974 because ordinary banks would not deal with borrowers who had no collateral and no paperwork. It is a standard example of a cooperative bank owned by its members.

Option C, 1994, is close enough to look right to a candidate who remembers only the decade of microfinance growth, but the bank is twenty years older than that. Options B, 1894, and D, 1874, belong to the nineteenth century: 1894 is the year Punjab National Bank was registered, which is probably why it appears here. Note the wider point the question tests, that a cooperative bank is registered as a cooperative society and works on one member one vote.