Banking & Financial Awareness Mixed Quiz: Set 5

The correct answer is B, Malegam Committee. The Reserve Bank of India set up this sub committee of its Central Board under Y. H. Malegam in October 2010, after complaints of very high interest rates and harsh recovery in the microfinance business. Its report of January 2011 asked the RBI to treat microfinance lenders as a class of their own, and the RBI then created the NBFC-MFI category with rules on the share of qualifying assets, a ceiling on the borrower's income and loan size, and a cap on the margin and the interest rate. Option A is wrong because the Narasimham committees of 1991 and 1998 dealt with banking sector reform, capital adequacy and bad loans. Option C is wrong because the Deepak Parekh committee reported on financing infrastructure. Option D is wrong because the P. K. Mohanty working group of 2020 examined ownership and corporate structure of private banks. Exam tip: Malegam means microfinance, Narasimham means banking reforms.

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 D, Section 7. Section 7 of the Reserve Bank of India Act, 1934 lets the Central Government, after consulting the Governor, give the Reserve Bank such directions as it thinks necessary in the public interest, and it also allows the Governor and the Central Board to be superseded in that sense. The power has never been used formally, but it was discussed publicly in 2018 when the government and the Reserve Bank differed over lending rules and liquidity, which is why the section became an exam favourite. A is wrong because Section 5 deals with the offices and branches of the Bank. B is wrong because Section 1 only gives the short title and extent of the Act. C is wrong because Section 3 provides for the establishment and incorporation of the Reserve Bank itself. Exam tip: RBI Act 1934, Section 7 for government directions, Section 3 for the Bank's establishment, and the Bank began work on 1 April 1935.

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, Real Time Gross Settlement. RTGS is the system in which a transfer instruction is settled singly and immediately, rather than being held and netted off with others. Real time means the instruction is processed the moment it is received, and gross means every instruction is settled on its own without being set against any other. It is used for large value transfers, with a minimum of two lakh rupees and no upper limit fixed by the Reserve Bank of India, and it is available round the clock on all days.

Options A, B and D mix the words in ways that sound familiar but are wrong. The word scheme in A and D is the giveaway, because RTGS is a settlement system run by the Reserve Bank and not a scheme. Option B keeps the correct last word but replaces real time with rapid transfer. The contrast to remember is NEFT, which settles in half hourly batches, against RTGS, which settles instruction by instruction.

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, current account. A current account is meant for traders, firms and companies that need to receive and pay money many times a day. Because the bank must keep the whole amount ready at all times, it pays no interest on the balance; in return the customer gets an unlimited number of transactions, cheque facility and, where the bank agrees, an overdraft that allows withdrawal beyond the credit balance.

Option A, the savings account, is an interest bearing account meant to encourage thrift by individuals, so it is not the answer. Option C, a recurring deposit, needs a fixed instalment every month and pays interest like a term deposit. Option D, a fixed deposit, keeps a lump sum for a set period at the highest rate the bank offers and cannot be operated like a running account. Only the current account combines no interest with an overdraft.

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 D, 30 th December, 2016. Prime Minister Narendra Modi launched the BHIM app on 30 December 2016, a few weeks after the note ban of November 2016, to push people towards digital payment. BHIM stands for Bharat Interface for Money and is named after Dr B R Ambedkar, whose full name was Bhimrao Ramji Ambedkar. The app is built by the National Payments Corporation of India on the Unified Payments Interface, so money moves straight from one bank account to another using a UPI identifier or a mobile number, and it works in several Indian languages. A is wrong because 15 August 2016 saw no such launch. B is wrong because 31 October 2016 is before the note ban announcement. C is wrong because 26 January 2016 is Republic Day of that year and unconnected. Exam tip: BHIM, Bharat Interface for Money, NPCI, UPI, 30 December 2016.

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 C, White Label ATMs. An ATM set up, owned and operated by a non-bank company registered under the Companies Act is called a white label ATM, because it carries no bank's logo. The Reserve Bank allowed them in 2012 under the Payment and Settlement Systems Act to spread cash access into small towns and villages, and the first one in India was opened by Tata Communications Payment Solutions under the Indicash brand. The cash in the machine and the customer's account still belong to a sponsor bank, while the non-bank operator runs the machine and earns a fee from the banks. A brown label ATM, by contrast, is one whose hardware is owned by a service provider while a bank holds the licence and supplies the cash. A, B and D are wrong because yellow, black and grey label ATMs are not categories the Reserve Bank recognises. Exam tip: white label means non-bank owned; brown label means bank licensed, outsourced hardware.

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 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 C, 1949. The Reserve Bank opened in 1935 as a shareholders' bank with privately held share capital. Parliament passed the Reserve Bank of India (Transfer to Public Ownership) Act in 1948, and the transfer took effect from 1 January 1949, since when the Bank has been wholly owned by the Government of India.

Option A, 1947, is the year of independence, when the Reserve Bank was still privately owned and was in fact acting as the common central bank for both India and Pakistan until mid-1948. Option B, 1948, is the year the enabling Act was passed and is the trap in this question: the Act is of 1948, the nationalisation of 1949. Option D, 1950, is the year the Constitution came into force and the Planning Commission was set up, neither of which touches the ownership of the Bank. The Banking Regulation Act also dates from 1949.

The correct answer is A, Punjab National Bank. The slogan The Name you can Bank Upon belongs to Punjab National Bank. PNB was set up in 1894 at Lahore and was the first Indian bank started wholly with Indian capital, with Lala Lajpat Rai among those behind it; its head office is now in New Delhi. Taglines like this are asked often because each large bank keeps one for years, and PNB has used this line through its branding. B is wrong because the State Bank of India uses The Banker to Every Indian, and earlier With you all the way. C is wrong because HDFC Bank uses We understand your world. D is wrong because Canara Bank uses Together We Can. Exam tip: pair the bank with its line and its founding year, PNB 1894 Lahore and The Name you can Bank Upon, SBI 1955 and The Banker to Every Indian.

The correct answer is C, both I and II. The Reserve Bank is banker to banks: every scheduled bank keeps an account with it, holds its cash reserve ratio there, settles payments with other banks through those accounts and can borrow from it when short of funds. It is also the currency issuing authority, with the sole right to issue currency notes in India under the Reserve Bank of India Act, 1934.

Option A is wrong because it leaves out note issue, which is the function the Bank is best known for. Option D is wrong because it leaves out the banker to banks role, from which the description lender of last resort follows. Option B is wrong on both counts. The one refinement worth remembering is that the one rupee note and all coins are issued by the Government of India, although the Reserve Bank puts them into circulation, and that the Bank is also banker to the Government.

The correct answer is A, Reserve Bank of India. Under Section 22 of the Reserve Bank of India Act, 1934, the RBI alone has the right to issue currency notes in the country, and it decides how many notes of each denomination are printed. The work is done at four presses, two run by the government company SPMCIL at Nashik and Dewas and two by the RBI's own subsidiary BRBNMPL at Mysuru and Salboni. Coins and the one rupee note are issued by the Government of India, though the RBI puts them into circulation. Option B is wrong because NABARD is the apex bank for agriculture and rural development and refinances rural lending. Option C is wrong because the State Bank of India is a commercial bank, the largest in the country, and only handles notes as a bank. Option D is wrong because ICICI Bank is a private commercial bank. Exam tip: the RBI issues all notes above one rupee, the central government issues coins and the one rupee note.

The correct answer is C, I, II and III. All three belong to the monetary policy toolkit of the Reserve Bank of India. SLR, the Statutory Liquidity Ratio, is the part of its deposits that a bank must keep with itself in cash, gold or approved securities, and raising or lowering it changes how much a bank can lend. MSS, the Market Stabilisation Scheme, allows the Reserve Bank to absorb lasting surplus liquidity by issuing special treasury bills and dated securities. The corridor is the band formed by the standing facility rates around the policy repo rate, within which the overnight call money rate is expected to move.

Options A, B and D each leave out one of the three. They test whether a candidate treats the corridor as a mere description rather than as a working instrument, and whether the Market Stabilisation Scheme is remembered at all, since it is used only when liquidity is in lasting surplus.

The correct answer is B, Prevention of Money Laundering Act, 2002. Know Your Customer rules exist to stop the banking system being used to launder the proceeds of crime or to finance terrorism. The Act of 2002 and the Prevention of Money Laundering (Maintenance of Records) Rules of 2005 made under it require every banking company to verify the identity of its clients and keep records, and the Reserve Bank has collected these obligations in its Master Direction on KYC.

Option A, the Banking Regulation Act of 1949, governs licensing, management and supervision of banks but is not the source of KYC. Option C, the Negotiable Instruments Act of 1881, deals with cheques, bills of exchange and promissory notes. Option D, FEMA of 1999, governs foreign exchange transactions and non-resident accounts. Each is a real banking law, which is what makes this question worth attention.

The correct answer is B, 16. A debit card carries a 16-digit card number printed on its front, and this is the number a shop or a website reads to route the payment. The digits are not random. The first six form the Bank Identification Number, which names the card network and the bank that issued the card; the next nine identify the customer's account with that bank; and the last one is a check digit worked out by the Luhn formula, so a mistyped number is caught at once. RuPay, Visa and Mastercard debit cards issued in India all follow this pattern, usually printed in four groups of four. A is wrong because 15 digits belong to American Express cards, which are charge and credit cards. C and D are wrong because 14 and 17 digits do not match the pattern used for debit cards. Exam tip: 16 digits, the first six the BIN, the last one a Luhn check digit, and the three-digit CVV on the back.