Banking & Financial Awareness Mixed Quiz: Set 9

The correct answer is B, its statutory liquidity ratio securities. The marginal standing facility lets a bank borrow overnight from the Reserve Bank by dipping into the government securities it holds for the statutory liquidity ratio, up to a prescribed share of its net demand and time liabilities. It is priced above the repo rate because it is an emergency window, and the bank rate is aligned with the MSF rate, so the two move together.

Option A is wrong because the cash reserve ratio balance is a reserve kept as cash with the Reserve Bank and cannot be used as security. Option C is wrong because the window accepts only eligible government securities, not corporate bonds. Option D describes the standing deposit facility, under which the Reserve Bank absorbs money from banks without giving securities in exchange, which is the reverse of borrowing.

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, three months. The Reserve Bank of India directed that cheques, drafts, pay orders and banker's cheques would be payable for three months from the date of the instrument, with effect from 1 April 2012, cutting the earlier period of six months. A cheque presented after that period is called a stale or out of date cheque and is returned unpaid.

Option A, one month, is the period within which a complaint must be filed after the cause of action arises under Section 138, and candidates often import it here. Option C, six months, was the position before April 2012 and remains the commonest wrong answer. Option D, one year, has never been the rule. Note also that the validity runs from the date written on the cheque, so an ante-dated cheque is good only for three months from that written date.

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 C, about 1 per cent. The real rate of interest is the nominal rate less the rate of inflation, so seven per cent minus six per cent leaves roughly one per cent. This is the relation stated by the Fisher equation, and it is what actually matters to a saver, because money that grows at seven per cent while prices rise at six per cent buys only about one per cent more goods at the end of the year.

Option A, thirteen per cent, comes from adding the two rates instead of subtracting, which is the commonest error. Option B, seven per cent, is the nominal rate itself and ignores inflation altogether. Option D, six per cent, is the inflation rate. Note that when inflation is higher than the nominal rate the real rate turns negative, which is what erodes the value of savings during a period of high prices.

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, three. A bill of exchange, defined in Section 5 of the Negotiable Instruments Act, 1881, is an unconditional order in writing by which the drawer directs another person, the drawee, to pay a certain sum to or to the order of the payee. The drawer, the drawee and the payee are therefore the three parties, and the bill must be accepted by the drawee before it binds them.

Option A, two, is the number of parties to a promissory note, where only the maker and the payee exist, and that is the trap in this question. Option C, four, and option D, five, describe no instrument under the Act, though in practice the same person can hold two roles, as when a drawer draws a bill in their own favour. A cheque, being a species of bill of exchange, also has three parties, with the bank always as the drawee.

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, 40 per cent. A domestic scheduled commercial bank must lend forty per cent of its adjusted net bank credit, or of the credit equivalent of its off balance sheet exposure if that is higher, to the priority sector. The categories are agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy and the weaker sections, and a shortfall has to be placed in the Rural Infrastructure Development Fund and other funds with NABARD.

Option A, eighteen per cent, is the sub-target within that forty per cent for agriculture. Option B, twenty-five per cent, is not a priority sector figure at all. Option D, seventy-five per cent, is the much higher target set for regional rural banks and for small finance banks, which are meant to serve exactly these borrowers, so it is the trap for a candidate who mixes the bank categories.

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, the transferee gets no better title than the transferor had. Section 130 provides that a person taking a cheque crossed 'not negotiable' shall not have, and shall not be capable of giving, a better title than the person from whom they took it had. The instrument therefore remains transferable, but it loses the special quality of negotiability by which a holder in due course would otherwise get a clean title, and a defect in the title passes down the chain.

Option A is wrong because the words do not stop transfer; they only limit the title that passes. Option C is wrong because the cheque is still crossed, and a crossed cheque under Section 126 cannot be paid over the counter. Option D confuses the crossing with the three month validity of a cheque, which has nothing to do with Section 130. So B states the effect correctly.

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, Rs 50,000 to Rs 5 lakh. The Pradhan Mantri MUDRA Yojana was launched in April 2015 to refinance small business loans given by banks, non-banking finance companies and micro finance institutions to non-farm income generating activities. Its three original categories were named after the stages of growth, Shishu for the smallest loan, Kishore for the middle band and Tarun for the largest, and no collateral is required for these loans.

Option A, up to Rs 50,000, is the Shishu category, meant for a borrower just setting up. Option C, Rs 5 lakh to Rs 10 lakh, is the Tarun category as the scheme was launched. Option D describes a higher band added later for borrowers who had repaid an earlier MUDRA loan. The order Shishu, Kishore, Tarun in rising size is the point the examiner tests.

The correct answer is C, the SAPAP model. The South Asia Poverty Alleviation Programme model is called the international model of self help group formation because it was taken up with the support of the United Nations Development Programme and followed the same design across South Asian countries, beginning in India in the districts of Andhra Pradesh. It builds a three-tier structure, the group of poor women at the bottom, a village organisation above it and a federation at the mandal level, with savings first and credit afterwards.

Option A, the CDF model, refers to the Cooperative Development Foundation work in Andhra Pradesh, which is a cooperative thrift model. Option B, the SEWA model, grew out of the Self Employed Women's Association of Ahmedabad and its own bank. Option D, DWCRA, the Development of Women and Children in Rural Areas, was a government programme of 1982 and is the domestic, not the international, model.

The correct answer is B, three days. Section 22 of the Act provides that the maturity of a promissory note or bill of exchange payable after a stated period is the day on which the period ends, and that three days of grace are added in computing that date. So a bill drawn payable one month after a date matures three days after the end of that month, and if the day of maturity is a public holiday, Section 25 makes it fall due on the next preceding business day.

Options A, C and D are round numbers offered to see whether the candidate remembers the exact figure, and none of them appears in the Act. A further point worth holding is that days of grace apply only to instruments payable after date or after sight; they never apply to a cheque, because a cheque is always payable on demand.

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 C, letter of credit. In a non-fund based facility the bank does not part with money at the time the facility is granted; it only undertakes to pay if the customer fails to, and it charges a commission for that undertaking. A letter of credit is such an undertaking given to a seller that the buyer's bill will be paid, and a bank guarantee is the other common example. The exposure becomes a funded one only if the promise is invoked.

Option A, cash credit, is a fund based running limit against stock and receivables. Option B, overdraft, is fund based because the customer actually draws money beyond the balance in the account. Option D, term loan, is plainly fund based, since the sanctioned amount is disbursed for a fixed asset. Bill discounting too is fund based, as the bank pays the seller at once.

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 B, fifteen days. The Section 138 timeline runs in three steps. The payee must give the drawer a written notice demanding payment within thirty days of receiving information from the bank that the cheque has been returned unpaid. The drawer then has fifteen days from the receipt of that notice to make the payment. Only if the payment is not made within those fifteen days does the cause of action arise, and the complaint must then be filed within one month of that date.

Option A, seven days, appears in no part of this scheme. Option C, thirty days, is the time allowed for sending the notice, not for paying, and is the commonest wrong choice. Option D, forty five days, is not in the Act. Keep the sequence in mind as thirty, fifteen and one month, because papers ask each of the three figures in turn.

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.