Which of the following is shown as a contingent liability, that is, as an off-balance-sheet item, in a bank's accounts?

The correct answer is C, deposits of customers. A deposit is money the bank owes back to the depositor, so it is a claim on the bank and is shown under liabilities in Form A of the Third Schedule to the Banking Regulation Act, 1949, along with capital, reserves and surplus, borrowings and other liabilities and provisions. Deposits are normally the largest liability of a commercial bank.

Option A, advances, is wrong because a loan is money owed to the bank and therefore its asset. Option B, investments in government securities, is also an asset; banks hold such approved securities partly to meet the statutory liquidity requirement under Section 24. Option D, cash balances with the Reserve Bank, is an asset too, even though the cash reserve ratio compels the bank to keep it. Candidates who think in the depositor's language, that the money is theirs and the loan is the bank's, invert both sides; the balance sheet is written from the bank's point of view.

The correct answer is B, current account and savings account deposits. CASA is short for current account and savings account, and the CASA ratio is current plus savings deposits divided by total deposits, shown as a percentage. It matters because a current account earns the depositor no interest and a savings account only a low rate, so these are a bank's cheapest funds; a high CASA ratio lowers the cost of deposits and widens the spread.

Option A describes cash reserves and statutory liquidity holdings, which belong to the assets side and are governed by the cash reserve ratio and Section 24 of the Banking Regulation Act, not by CASA. Option C, capital and surplus, is the owners' stake and is used in the capital adequacy ratio. Option D invents a lending ratio; the share of advances in deposits is the credit-deposit ratio, a different measure altogether. The trap in this question is reading the letter C as credit or cash instead of current.

The correct answer is B, interest earned minus interest expended. Net interest income, written as NII, is the core earning of a bank: the interest it collects on advances and investments less the interest it pays on deposits and borrowings. Expressed against average earning assets it becomes the net interest margin, the ratio examiners pair with it.

Option A, total income minus operating expenses, leaves interest paid inside the figure and mixes in fee and treasury income, so it describes neither net interest income nor operating profit correctly. Option C reverses the order of the profit and loss account: provisions and contingencies are deducted from operating profit to reach net profit, so net profit minus provisions is not a defined figure. Option D subtracts the wrong expense, operating expenses such as salaries and rent, from interest earned; those expenses belong to the cost-to-income ratio. Remember that net interest income counts only interest on both sides, and other income is kept separate.

The correct answer is B, total advances by total deposits. The credit-deposit ratio, usually written as the CD ratio and given in per cent, shows how much of every hundred rupees of deposits a bank has lent out. A low ratio points to idle funds and lost interest income, while a ratio above a hundred per cent means lending exceeds deposits and the gap is being filled by borrowings.

Option A inverts the formula and gives the deposit-credit ratio, which is not the measure the question names; an inverted option is the commonest distractor in this chapter. Option C uses risk-weighted assets, the denominator of the capital to risk-weighted assets ratio, which measures capital adequacy and not deployment of deposits. Option D, net profit over deposits, is a profitability idea closer to return on assets. Remember also that under the Lead Bank Scheme banks are expected to keep a credit-deposit ratio of at least sixty per cent in rural and semi-urban branches.

The correct answer is C, the Third Schedule. Section 29 of the Banking Regulation Act, 1949 requires every banking company to prepare, as on the last working day of its accounting year, a balance sheet and a profit and loss account in the forms set out in the Third Schedule to the Act. Form A of that Schedule is the balance sheet and Form B is the profit and loss account, which is why bank accounts across India look alike and can be compared ratio by ratio.

Option A, the First Schedule, and Option D, the Fourth Schedule, do not carry these forms. Option B, the Second Schedule, is the familiar trap, but the Second Schedule that matters to banking is in the Reserve Bank of India Act, 1934: a bank listed in it is called a scheduled bank. Candidates mix the two Acts, so fix the pair in memory as forms in the Third Schedule of the Banking Regulation Act, scheduled banks in the Second Schedule of the Reserve Bank of India Act.