Banking & Financial Awareness Mixed Quiz: Set 8

The correct answer is B, 9. MICR stands for Magnetic Ink Character Recognition, a technology in which the characters are printed in magnetic ink so that a machine can read them even if the paper is stamped or signed over. The MICR code on an Indian cheque has nine digits in three blocks of three: the first three give the city, matching the first three digits of its postal index number, the next three name the bank and the last three name the branch. It speeds up the clearing of cheques and cuts down errors.

Option A, six, matches only the branch part of an IFSC. Option C, eleven, is the length of the full IFSC used for electronic transfers. Option D, fifteen, is not a code length in Indian banking. The pair worth memorising is nine digits for MICR and eleven characters for IFSC, since a question on either usually offers the other as a trap.

The correct answer is D, Large amounts of loan. Microfinance means small loans to poor households that banks treat as too risky, so a large loan is the opposite of the idea. The Reserve Bank defines a microfinance loan as a collateral-free loan given to a household below a set annual income, and the whole model rests on small, frequent repayments rather than big sums. Option A is a real principle, because the borrower has no land or gold to pledge and the group's promise takes the place of security. Option B is a real principle: members of a joint liability group watch each other's repayment, and this peer pressure is why recovery rates stay high. Option C is a real principle, since self-help groups are built mainly around women, who save and repay more regularly and spend more on the family. NABARD's SHG-Bank Linkage Programme of 1992 carried this model across India. Exam tip: microfinance — small, collateral-free, group-guaranteed loans, mostly to women.

The correct answer is B, 2014. The Pradhan Mantri Jan Dhan Yojana was launched on 28 August 2014 as a national mission to give every household a bank account. The accounts opened under it are basic savings accounts with no minimum balance, and they carry a RuPay debit card, accident insurance cover and, after satisfactory operation, an overdraft facility of up to ten thousand rupees. The scheme also became the channel for direct benefit transfer of subsidies and pensions.

Option A, 2011, is the year the Reserve Bank deregulated savings interest rates and also the year of the earlier Swabhimaan campaign for village banking. Option C, 2016, is the year of demonetisation, of the launch of UPI and of the KYC Master Direction. Option D, 2019, saw the rollout of several digital payment measures. Only 2014 is the launch year of the Jan Dhan Yojana.

The correct answer is B, Kisan Credit Card. The Kisan Credit Card scheme was introduced in 1998 on the recommendation of the R V Gupta Committee and is worked by commercial banks, regional rural banks and cooperative banks. It gives a farmer a single revolving limit for seeds, fertiliser, labour and other crop expenses, valid for several years with a yearly review, so that he need not apply afresh every season. The limit has since been extended to animal husbandry and fisheries, and short-term crop loans under it carry an interest subvention with a further rebate for prompt repayment.

Option A, Krishi Credit Card, uses the Hindi word for agriculture and is the closest trap, but the scheme is named after the farmer, the kisan. Options C and D both end in Corporation, which would make the name that of an institution rather than of a credit instrument, so neither can be right.

The correct answer is B, 1 April 2016. The Reserve Bank introduced the MCLR from that date so that the price of a loan would follow the marginal, that is the latest, cost of raising funds rather than the average cost of old deposits. The MCLR is built from the marginal cost of deposits and borrowings, the negative carry on the balance kept for the cash reserve ratio, operating cost and a tenor premium, and every bank publishes it for tenors from overnight up to one year.

Option A, 1 July 2010, is the date the base rate came into force. Option C, 1 October 2019, is the date from which new floating rate retail and small business loans had to be linked to an external benchmark such as the repo rate. Option D, 2003, is close to the year the Benchmark Prime Lending Rate system was brought in. The three dates in order are 2010, 2016 and 2019.

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, 1881. The Negotiable Instruments Act was enacted in 1881 and came into force on 1 March 1882. It codified the law on promissory notes, bills of exchange and cheques, and it remains the governing statute for cheques in India, amended several times, most notably in 2002 to bring in the electronic and truncated cheque and in 2018 to add Sections 143A and 148.

Option A, 1972, is not connected with this Act. Option C, 1957, is remembered for other laws such as the Copyright Act of that year. Option D, 1950, is the year the Constitution came into force. Candidates often confuse the 1881 Act with the Banking Regulation Act of 1949 and the Reserve Bank of India Act of 1934, so keep the three years separate: 1881 for negotiable instruments, 1934 for the Reserve Bank and 1949 for banking regulation.

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 B, the Benchmark Prime Lending Rate. Under the BPLR system a bank announced a prime rate for its best customers and then lent to many borrowers below it, so the announced rate told a customer very little and the lending book was not transparent. The base rate, in force from 1 July 2010, was defined as the floor below which no bank could lend, apart from a short list of exceptions such as loans against a bank's own deposits and loans to its own staff.

Option A, the MCLR, came four years after the base rate, not before it. Option C, the external benchmark lending rate, came in 2019 and is the latest of the three regimes. Option D, the bank rate, is a Reserve Bank policy rate aligned with the marginal standing facility and is not a bank's own lending benchmark at all.

The correct answer is C, SBI. YONO, short for You Only Need One, is the State Bank of India's digital banking app, launched in November 2017. Its YONO Cash feature lets a customer start a withdrawal on the phone, get a six-digit reference number, and then collect the cash from an ATM, a branch counter or a shop point by entering that number with a PIN, so no debit card is needed. YONO Cash Point extended the same cardless service to retail outlets, which helps in small towns where ATMs are few. Option A is wrong because Citi Bank's Indian retail business was later sold to Axis Bank and it ran no YONO service. Option B is wrong because UBS is a Swiss investment bank with no retail ATM network in India. Option D is wrong because HDFC Bank's own apps are PayZapp and MobileBanking, not YONO. Exam tip: YONO belongs to SBI; iMobile is ICICI, PayZapp is HDFC and BHIM is the NPCI app.

The correct answer is A, at maturity. Section 22 of the Negotiable Instruments Act, 1881 says that the maturity of a promissory note or bill of exchange payable otherwise than on demand is the date on which it falls due, and the three days of grace are already counted in arriving at that date. Payment therefore becomes due on the date of maturity itself, and the holder may present the instrument on that day.

Option B, after maturity, is wrong because the instrument is already overdue then and the holder's rights against the earlier parties can be affected. Option C, before maturity, is wrong because no party is bound to pay ahead of the due date, though a bill may be discounted earlier by agreement. Option D is a distortion of the days of grace, which are added while computing maturity and are not a separate day of payment after it. So A alone states the rule correctly.

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, 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 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, Section 6. Section 6 says a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, and it goes on to include the electronic image of a truncated cheque and a cheque in the electronic form, both added by the amendment of 2002.

Option A, Section 4, defines a promissory note, an unconditional undertaking signed by the maker to pay a certain sum. Option B, Section 5, defines a bill of exchange, an unconditional order directing a person to pay. Option D, Section 13, defines the expression negotiable instrument itself and names the three instruments covered by the Act. All four sections sit close together, which is why the paper offers them as a set, but the definition of a cheque is in Section 6.

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, the Transfer of Property Act, 1882. Section 58 of that Act defines a mortgage as the transfer of an interest in specific immovable property to secure a loan, and it names six kinds: simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, mortgage by deposit of title deeds, which is also called an equitable mortgage, and the anomalous mortgage. Banks use the simple mortgage and the mortgage by deposit of title deeds most often in housing finance.

Option A, the Indian Contract Act of 1872, governs pledge and lien, which are charges on movable goods. Option C, the Negotiable Instruments Act of 1881, deals with cheques, bills of exchange and promissory notes. Option D, the Banking Regulation Act of 1949, governs the licensing and working of banks themselves, not the creation of security over land.

The correct answer is D, Section 138. Section 138 makes it a criminal offence to issue a cheque that is returned unpaid because the account has insufficient funds or because the amount exceeds the arrangement made with the bank. The punishment may extend to imprisonment for two years, or a fine of up to twice the amount of the cheque, or both, and Section 147 makes the offence compoundable so that the parties can settle.

Option A, Section 118, lays down the presumptions about negotiable instruments, such as the presumption that the instrument was made for consideration. Option B, Section 123, deals with a general crossing. Option C, Section 130, deals with a cheque crossed 'not negotiable'. All three are real sections of the same Act, which makes this a pure recall question, and the section on dishonour is 138.

The correct answer is C, 90 days. Under the Reserve Bank's income recognition and asset classification norms, a term loan becomes a non-performing asset when interest or an instalment of principal stays overdue beyond ninety days, and a cash credit or overdraft account becomes one when it remains out of order for the same period. The ninety day norm was brought in from the year ended March 2004, replacing the earlier one hundred and eighty day rule.

Option A, thirty days, and option B, sixty days, are the boundaries of the special mention account stages, SMA-1 for thirty-one to sixty days and SMA-2 for sixty-one to ninety days, which are early warning categories and not yet NPAs. Option D, one hundred and eighty days, was the old rule and is the trap for a candidate reading an outdated book.

The correct answer is A, general crossing. Section 123 of the Negotiable Instruments Act, 1881 provides that where a cheque bears across its face two parallel transverse lines, with or without words such as 'and company', that addition is a general crossing. The effect is that the cheque cannot be paid in cash over the counter and must be collected through a bank account, which protects the true owner if the cheque is lost.

Option B, a special crossing under Section 124, requires the name of a banker to be written across the face, and then only that banker can collect the cheque. Option C, a restrictive crossing, is the account payee crossing of banking practice, which the Act itself does not define. Option D is a crossing to which the words 'not negotiable' are added, bringing in Section 130 so that the transferee gets no better title than the transferor. The plain two lines alone are a general crossing.