Free Banking Exam Awareness Question and Answers — Questions and Answers
Question 1: The Banking Regulation Act's Section 9 forbids banking companies from holding any real estate other than what they would utilize themselves for a period of not more than one year. The RBI has the option to extend this time frame by another :
- 4 years
- 5 years (Correct answer)
- 6 years
- 2 years
Correct answer: 5 years
As per Section 9 of the Banking Regulation Act, 1949, the Reserve Bank of India (RBI) may extend the initial period of holding immovable property (other than for the bank's own use) for an additional period of five years. Therefore, the maximum permissible holding period for such immovable property, including the extension, would be up to twelve years from the date of acquisition.
Question 2: Which of the following stock exchanges was allegedly operating with major irregularities on November 19, 2014, according to SEBI?
- Delhi Stock Exchange (Correct answer)
- Calcutta Stock Exchange
- Bangalore Stock Exchange
- Bangalore Stock Exchange
Correct answer: Delhi Stock Exchange
The Delhi Stock Exchange (DSE) was indeed the subject of major irregularities and non-compliance issues, as alleged by SEBI (Securities and Exchange Board of India) around November 2014. These allegations led to SEBI's intervention and ultimately the de-recognition of the DSE. This was a significant event in Indian financial news at the time.
Question 3: Which one of the following is not a General Insurance function?
- Fire Insurance
- Crop Insurance
- Medical Insurance (Correct answer)
- Cattle Insurance
Correct answer: Medical Insurance
General insurance typically covers non-life assets and liabilities, such as property (fire, crop, cattle), motor vehicles, and travel. While medical insurance is a form of health insurance, which general insurers often provide, in the context of classifying core general insurance functions, fire, crop, and cattle insurance are classic examples of property and liability coverage. Medical insurance, though related, is often considered a distinct category of health insurance.
Question 4: The balance sheet's liability section consists of:
- Capital and reserve
- Current liabilities
- Long-term liabilities
- All of the above (Correct answer)
Correct answer: All of the above
The liability section of a balance sheet provides a snapshot of what a company owes to external parties and its owners. This includes current liabilities (short-term debts), long-term liabilities (long-term debts), and capital and reserves (owner's equity), which represent the owners' claim on the company's assets. Therefore, all these components collectively constitute the liability side of a balance sheet.
Question 5: These are the minimum cash reserves required by law.
- A percentage of capital & reserves of the bank
- A percentage of aggregate loans and advances of the bank
- A percentage of aggregate deposits of the bank (Correct answer)
- None of these
Correct answer: A percentage of aggregate deposits of the bank
This question refers to the Cash Reserve Ratio (CRR), a monetary policy tool mandated by the central bank (RBI in India). Banks are legally required to maintain a certain percentage of their Net Demand and Time Liabilities (NDTL), which primarily comprise aggregate deposits from the public, as cash reserves with the RBI. This ensures liquidity in the banking system and helps control the money supply.
Question 6: Which of the following organizations or agencies has asked banks for a Rs. 1000 crore emergency fund to deal with the severe liquidity problem that is preventing the granting of loans to micro borrowers?
- NABARD (Correct answer)
- Micro Finance Institutions
- Regional Rural & Cooperative Banks
- RBI
Correct answer: NABARD
NABARD (National Bank for Agriculture and Rural Development) is India's apex development bank focused on rural development and agriculture. It plays a crucial role in providing refinancing support and liquidity to microfinance institutions (MFIs) and rural banks. An emergency fund to address liquidity problems for micro-borrowers directly aligns with NABARD's mandate to promote inclusive rural finance.
Question 7: Which of the following account types is referred to as a "Demat Account"?
- Zero Balance Accounts
- Accounts in which shares of various companies are traded in electronic form (Correct answer)
- Accounts which are operated through internet banking facility
- Accounts which are opened to facilitate repayment of a loan taken from the bank. No other business can be conducted from there
Correct answer: Accounts in which shares of various companies are traded in electronic form
A Demat (Dematerialized) account is an account that holds shares and other securities in electronic form, eliminating the need for physical share certificates. This digital format facilitates seamless and secure trading of securities on stock exchanges. When shares are bought or sold, they are credited to or debited from the Demat account, making the process efficient.
Question 8: The mortgage is a:
- Facility on immovable property
- Concession on immovable property
- Security on movable property for a loan
- Security on immovable property for a loan (Correct answer)
Correct answer: Security on immovable property for a loan
A mortgage is a legal agreement where a borrower pledges an immovable property, such as land or a building, as collateral to secure a loan. This arrangement provides security to the lender, as they have the right to seize and sell the property if the borrower defaults on the loan. It is a common form of secured lending for real estate.
Question 9: In India, obtaining a license from the RBI is required before operating a new branch. A requirement of the ___ Act states that.
- Section 22 of RBI Act
- KYC Guidelines by RBI
- Section 22 of NABARD
- Section 22 of banking Regulation Act (Correct answer)
Correct answer: Section 22 of banking Regulation Act
Section 22 of the Banking Regulation Act, 1949, is a cornerstone of banking regulation in India. It explicitly mandates that no company can conduct banking business in India, including opening new branches, without first obtaining a license from the Reserve Bank of India (RBI). This provision ensures that all banking operations are properly authorized and supervised, maintaining financial stability.
Question 10: According to the following, all banking companies must contain the word "bank" in its name, and no company other than a banking company may use the words "bank," "banker," or "banking" as part of their name:
- Section 7 of RBI Act
- Section 7 of SEBI Act
- Section 7 of Nationalization Act
- Section 7 of Banking Regulation Act (Correct answer)
Correct answer: Section 7 of Banking Regulation Act
Section 7 of the Banking Regulation Act, 1949, dictates the naming conventions for banking companies in India. It states that all banking companies must include the word 'bank' in their name, and conversely, no company other than a banking company is permitted to use the words 'bank,' 'banker,' or 'banking' as part of its name. This provision helps prevent public confusion and ensures clear identification of regulated banking entities.
Question 11: Whose property are the cash notes stored in the currency chest?
- RBI (Correct answer)
- SBI
- Respective bank
- Government of India
Correct answer: RBI
Currency chests are facilities located in commercial bank branches that store banknotes and coins on behalf of the Reserve Bank of India (RBI). While commercial banks manage these chests, the cash notes held within them legally belong to the RBI. This system allows the RBI to efficiently manage currency circulation and distribution across the country.
Question 12: What is a fixed deposit receipt, which is stored with the bank for security, called?
- Locker
- Safe deposit
- Valid safe deposit
- Safe custody (Correct answer)
Correct answer: Safe custody
When a customer entrusts valuable documents or articles, such as a Fixed Deposit Receipt (FDR), to a bank for safekeeping, this service is known as 'safe custody.' The bank acts as a custodian, securely holding these items on the customer's behalf, often for a fee. This differs from a locker, where the customer retains direct control over the contents.
Question 13: Who of the following is responsible for overseeing banking operations?
- Parliament
- State Government
- Central Government
- Reserve Bank of India (Correct answer)
Correct answer: Reserve Bank of India
The Reserve Bank of India (RBI) is the central bank and the primary regulatory authority for banking operations in India. It is responsible for formulating and implementing monetary policy, supervising commercial banks, issuing licenses, and ensuring the overall stability and integrity of the country's financial system. Its powers are enshrined in the RBI Act and the Banking Regulation Act.
Question 14: Accepting public deposits is a bank's primary function. A bank may, however, decline to allow the establishment of an account on behalf of :
- Arrested persons
- Artificial persons
- Convicted persons
- Undesirable persons (Correct answer)
Correct answer: Undesirable persons
While banks generally accept public deposits, they are legally permitted to decline opening accounts for individuals or entities deemed 'undesirable.' This typically includes persons involved in illegal activities, money laundering, or those who pose a significant reputational or financial risk to the bank. Banks must adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations to mitigate such risks.
Question 15: The RBI regulates the acceptance of deposits by non-banking financial institutions under:
- Non- banking financial companies acceptance of deposits money lenders (Revenue Bank) directions, 1998
- Non - banking financial companies acceptance of private deposits (Revenue Bank) directions, 1998
- Non - banking financial companies acceptance of government deposits (Revenue Bank) directions, 1998
- Non - banking financial companies acceptance of public deposits (Revenue Bank) directions 1998 (Correct answer)
Correct answer: Non - banking financial companies acceptance of public deposits (Revenue Bank) directions 1998
The Reserve Bank of India (RBI) regulates Non-Banking Financial Companies (NBFCs) through specific guidelines, particularly concerning their ability to accept deposits from the public. The 'Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998' (and subsequent amendments) is the key regulatory framework that governs the terms, conditions, and restrictions under which NBFCs can collect public deposits, aiming to protect depositors.
Question 16: A corporation that intends to collect public deposits but is not a non-banking financial company is subject to the __ Act.
- Banking companies Act
- Companies Act 1956 (Correct answer)
- Central Government
- RBI Act 1934
Correct answer: Companies Act 1956
If a corporation that is neither a banking company nor a Non-Banking Financial Company (NBFC) intends to collect public deposits, its ability to do so is primarily governed by the Companies Act. The Companies Act, 1956 (now the Companies Act, 2013) contains specific provisions and restrictions regarding the acceptance of deposits by companies from the public, distinct from the regulations applicable to banks and NBFCs.
Free Banking Exam Awareness Question and Answers
The Banking Regulation Act's Section 9 forbids banking companies from holding any real estate other than what they would utilize themselves for a period of not more than one year.
The RBI has the option to extend this time frame by another :