Bank Accounts, Deposits and KYC Rules for Exams

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, 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, PAN card. The list of officially valid documents in the KYC rules is closed and contains the passport, the driving licence, proof of possession of an Aadhaar number, the voter identity card issued by the Election Commission, a job card issued under MGNREGA and signed by an officer of the state government, and a letter issued by the National Population Register. The PAN card is not in this list because it proves neither address nor, by itself, the standard of identity the rules require.

Options A, C and D are all in the list and are the documents customers most often produce. Note the separate rule that a bank must obtain the permanent account number or a declaration in Form 60 for income tax purposes, which is why many candidates wrongly treat the PAN card as a KYC document. Examiners exploit exactly this confusion, sometimes also placing the ration card among the options.

The correct answer is B, it requires no minimum balance to be kept. The Basic Savings Bank Deposit Account replaced the earlier no-frills account as the vehicle of financial inclusion. It can be opened by any person who satisfies the KYC rules, needs no minimum balance, and comes with a free ATM or debit card and a fixed number of free withdrawals every month, and the bank cannot charge a penalty for a low balance. A holder of such an account may not keep another savings account in the same bank.

Option A is wrong because the interest rate is the same as on an ordinary savings account in that bank. Option C is wrong because there is no age restriction; the account is open to all, and the Jan Dhan accounts are of this type. Option D is wrong because no overdraft comes automatically, though a small overdraft is allowed to eligible Jan Dhan account holders after satisfactory operation.

The correct answer is A, once in two years. Banks classify customers as low, medium or high risk when the account is opened, on the basis of identity, social and financial standing and the nature of the expected business. Periodic updation of records is then tied to that classification: once in two years for high risk customers, once in eight years for medium risk and once in ten years for low risk. Updation does not mean opening a new account; the customer confirms or corrects the existing details.

Option B, five years, is not a period used in the Direction at all. Option C, eight years, is the interval for medium risk customers, and option D, ten years, is the interval for low risk customers, so both are real numbers placed against the wrong category, which is the standard way this question is set. Remember the sequence two, eight and ten in rising order of safety.

The correct answer is C, rupees five lakh. The Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India set up in 1978, insures deposits in commercial banks, regional rural banks, local area banks, payments and small finance banks and cooperative banks. The cover applies to each depositor in each bank, taking principal and interest together, and the same limit applies whether the depositor holds one account or several in that bank. The premium is paid by the bank and never charged to the customer.

Option A, one lakh, was the limit for many years before it was raised, so it is the commonest wrong answer. Option B, two lakh, is not a deposit insurance figure at all. Option D, ten lakh, is higher than the present cover. Deposits in different banks are separately insured, which is why spreading large savings across banks increases the protected amount.

The correct answer is C, rupees fifty thousand. A small account is opened for a person who has no officially valid document, on the strength of a self-attested photograph and a signature or thumb impression made before a bank officer. Because identification is weak, the account carries three limits: the balance at any time may not exceed fifty thousand rupees, the total credits in a financial year may not exceed one lakh rupees, and withdrawals and transfers together may not exceed ten thousand rupees in a month.

Option A, ten thousand rupees, is the monthly withdrawal ceiling and not the balance limit. Option B is not a limit in the rules. Option D, one lakh rupees, is the annual credit ceiling. The three figures belong together, so the safe way to answer is to remember them as a set: fifty thousand balance, one lakh a year, ten thousand a month, valid for twelve months in the first instance.

The correct answer is B, recurring deposit. In a recurring deposit the customer promises to pay a fixed sum every month for a chosen period, and the bank pays interest at a rate close to that on a term deposit of the same maturity, the whole amount being returned with interest at the end. It suits a salary earner who can save a small amount each month rather than a lump sum, and a default in an instalment usually attracts a small penalty.

Option A, a fixed deposit, takes one lump sum at the beginning for the chosen period. Option C, a current account, is a demand deposit for business use and pays no interest. Option D, a demand draft, is not a deposit at all but an instrument a bank issues for remitting money to another place, payable to the named person. Only the recurring deposit is built on monthly instalments.

The correct answer is B, Depositor Education and Awareness Fund. Under the Banking Regulation Act as amended, a bank must transfer to this fund, maintained by the Reserve Bank of India, any deposit that has not been operated or claimed for ten years. The money is used for education and awareness of depositors, but the right of the depositor is not lost: the depositor or the legal heir may claim the amount from the bank at any time afterwards, with interest, and the bank then recovers it from the fund.

Option A, the Consolidated Fund of India, is the government's main account into which its revenues flow and has no connection with unclaimed deposits. Option C, the National Investment Fund, holds the proceeds of disinvestment of public sector undertakings. Option D, the Financial Inclusion Fund, is maintained with NABARD for developmental work in unbanked areas, which makes it a plausible but wrong option.

The correct answer is C, FCNR (B) account, the Foreign Currency Non-Resident Bank account. It is a term deposit held in a permitted foreign currency such as the US dollar, pound sterling, euro or yen, for a period of one to five years, and both principal and interest are repaid in that currency, so a change in the rupee rate does not affect the depositor. The exchange risk is carried by the bank.

Option A, the Non-Resident External account, is held in rupees; it is freely repatriable and the interest is exempt from income tax in India, but the depositor bears the exchange risk. Option B, the Non-Resident Ordinary account, is also in rupees and is meant for income earned in India such as rent, pension or dividend, with taxable interest and restricted repatriation. Option D, an escrow account, is a neutral account used to hold money until the conditions of a contract are met.

The correct answer is A, CERSAI, the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. It keeps the Central KYC Records Registry, in which banks and other reporting entities file the KYC records of their customers with a unique KYC identifier. A customer whose record is already in the registry need not repeat the whole process when dealing with another bank, insurer or mutual fund, which saves both time and paper.

Option B, the National Payments Corporation of India, runs retail payment systems such as UPI, RuPay, NACH and the IMPS service. Option C, SEBI, regulates the securities market. Option D, IRDAI, regulates insurance. All three are regulators or system operators in the financial sector, which makes them plausible, but the KYC registry belongs to CERSAI, a company set up under the SARFAESI framework.

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.