CAIIB ABM Module C UNIT 17 MCQ - Overview of Credit Management

CAIIB ABM Module C UNIT 17 MCQ – Overview of Credit Management.

Question 1: How does the availability of credit primarily contribute to accelerating industrial production and services?

A. By enabling consumers to spend less money.
B. By providing leverage for entrepreneurs to undertake larger projects.
C. By reducing the need for future earnings to repay loans.
D. By limiting the scope of projects undertaken by entrepreneurs.

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Correct Answer: B. By providing leverage for entrepreneurs to undertake larger projects. Credit allows businesses to initiate and execute projects of a greater scale than would be possible using only their own capital, thereby boosting production and service delivery.

Question 2: What potential negative consequence can arise from excessive availability of credit, particularly when used for non-productive purposes?

A. Deflationary pressure on the economy.
B. A decrease in consumer demand.
C. Reduced need for monetary tools by the Reserve Bank of India.
D. Inflationary pressure on the economy.

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Correct Answer: D. Inflationary pressure on the economy. When there is too much credit available, especially for purposes that do not directly increase the supply of goods and services, it can lead to increased demand without a corresponding increase in supply, thus causing prices to rise.

Question 3: What significant change occurred in the flow of bank credit in India following the nationalisation of banks in 1969?

A. Credit flow decreased significantly towards all sectors.
B. Credit flow became concentrated solely in the hands of private moneylenders.
C. Credit flow shifted more towards previously neglected sectors of the economy.
D. Credit flow was directed exclusively towards large business houses.

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Correct Answer: C. Credit flow shifted more towards previously neglected sectors of the economy. Post-nationalisation, the Reserve Bank of India guided banks to ensure credit reached sectors that were previously underserved, moving away from the earlier concentration on large businesses.

Question 4: Which concept became an integral part of the Indian banking system after bank nationalisation, ensuring credit flow to specific sectors?

A. Monetary Policy Control
B. Priority Sector Lending
C. Non-Fund Based Credit
D. Sole Proprietorship Financing

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Correct Answer: B. Priority Sector Lending. Following nationalisation, the Reserve Bank of India established the concept of the ‘Priority Sector’ to mandate that a significant portion of bank credit be allocated to designated crucial sectors of the economy.

Question 5: Which principle of credit emphasizes the need for the lending institution to ensure the borrower’s venture is likely to generate sufficient returns to repay the loan and interest?

A. Safety of funds
B. Purpose
C. Profitability
D. Security

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Correct Answer: C. Profitability. The principle of profitability requires banks to assess whether the activity being financed is economically viable and capable of generating enough income for the borrower to meet repayment obligations.

Question 6: Under which Act are Partnership firms primarily governed in the context of borrowing?

A. Indian Contract Act 1872
B. Companies Act 2013
C. Indian Partnership Act 1932
D. Limited Liability Partnership Act 2008

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Correct Answer: C. Indian Partnership Act 1932. Different types of borrowers are subject to different laws; partnership firms fall under the regulations outlined in the Indian Partnership Act of 1932.

Question 7: What distinguishes fund-based credit from non-fund-based credit provided by banks?

A. Fund-based credit involves a commitment, while non-fund-based involves actual money transfer.
B. Fund-based credit involves actual transfer of money, while non-fund-based involves a commitment that may lead to future money transfer.
C. Fund-based credit is only for individuals, while non-fund-based is for companies.
D. Fund-based credit carries no risk, while non-fund-based credit is high risk.

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Correct Answer: B. Fund-based credit involves actual transfer of money, while non-fund-based involves a commitment that may lead to future money transfer. In fund-based facilities, the bank disburses funds directly to the borrower, whereas in non-fund-based facilities, the bank provides a guarantee or commitment that might result in a payout later.

Question 8: What is considered the primary responsibility of banks concerning the funds they lend?

A. Ensuring maximum profitability from the loan.
B. Ensuring the proper end use of the funds by the borrower.
C. Maximising the disbursal of credit limits sanctioneD.
D. Acquiring fixed assets using working capital finance.

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Correct Answer: B. Ensuring the proper end use of the funds by the borrower. Banks must establish systems to monitor that the borrowed funds are used strictly for the purposes for which the credit was sanctioned.

Question 9: According to guidelines on the end use of funds, what is an unacceptable use of working capital finance provided by banks?

A. Paying salaries of employees.
B. Purchasing raw materials for production.
C. Acquisition of fixed assets or investments in associate companies.
D. Meeting day-to-day operational expenses.

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Correct Answer: C. Acquisition of fixed assets or investments in associate companies. Banks must ensure that funds sanctioned as working capital are not diverted for purposes like buying fixed assets, or investing in subsidiaries, associate companies, shares, or other capital market instruments.

Question 10: Which of the following is a method banks might use to monitor the end use of funds lent to borrowers?

A. Increasing the credit limit automatically each year.
B. Avoiding any visits to the borrower’s business premises.
C. Conducting periodical scrutiny of the borrower’s books of accounts.
D. Relying solely on the borrower’s verbal assurance.

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Correct Answer: C. Conducting periodical scrutiny of the borrower’s books of accounts. Banks employ various monitoring techniques, including examining the borrower’s financial records, scrutinising progress reports, visiting units, inspecting assets, and potentially conducting stock audits.

Question 11: Under which Section RBI issued the Master Directions – Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025?

A. Section 21 of the Banking Regulation Act, 1949
B. Section 35A of the Banking Regulation Act, 1949
C. Section 56 of the Banking Regulation Act, 1949
D. All of the above

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Correct Answer: D. All of the above. The Reserve Bank of India has issued these directions under Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949.

Question 12: According to the Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025, to which of the following banks do these directions apply?

A. Every Commercial Bank including Regional Rural Bank (RRB), Small Finance Bank (SFB), and Local Area Bank (LAB)
B. Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank
C. Both A and B
D. Only Salary Earners’ Bank

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Correct Answer: C. Both A and B. The provisions apply to every Commercial Bank including Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank (LAB) and Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank. So, basically it applies to all banks except Salary Earners’ Bank.

Question 13: What are the various loan categories included under the priority sector lending?

A. Agriculture, Micro, Small and Medium Enterprises, Export Credit, Education, Housing, Social Infrastructure, Renewable Energy, and Others
B. Agriculture, MSMEs, Export, Education, Shelter, Social Development, Renewable Energy, and Others
C. Farming, Small Businesses, Export Finance, Schools, Home Loans, Community Projects, Green Energy, and Additional Categories
D. Agriculture, Micro, Small, and Medium Businesses, Export Loans, Higher Education, Housing, Social Programs, Solar Energy, and Other Sectors

Show Explanation

Correct Answer: A. Agriculture, Micro, Small and Medium Enterprises, Export Credit, Education, Housing, Social Infrastructure, Renewable Energy, and Others. These are the categories included in the priority sector.

Question 14: What is the Total Priority Sector Lending Target for Domestic Commercial Banks (excluding Regional Rural Banks & Small Finance Banks) and Foreign Banks with 20 branches and above?

A. 18% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is higher.
B. 40% of ANBC or CEOBSE, whichever is higher.
C. 7.5% of ANBC or CEOBSE, whichever is higher.
D. 12% of ANBC or CEOBSE, whichever is higher.

Show Explanation

Correct Answer: B. 40% of ANBC or CEOBSE, whichever is higher. The total priority sector lending target is 40% of ANBC or CEOBSE, whichever is higher.

Question 15: What is the Agriculture Lending Target for Domestic Commercial Banks (excluding Regional Rural Banks & Small Finance Banks) and Foreign Banks with 20 branches and above?

A. 18% of ANBC or CEOBSE, whichever is higher.
B. 40% of ANBC or CEOBSE, whichever is higher.
C. 7.5% of ANBC or CEOBSE, whichever is higher.
D. 12% of ANBC or CEOBSE, whichever is higher.

Show Explanation

Correct Answer: A. 18% of ANBC or CEOBSE, whichever is higher. The agriculture lending target is 18% of ANBC or CEOBSE, whichever is higher.

Question 16: What percentage of ANBC or CEOBSE is prescribed for Non-Corporate Farmers (NCFs) within the Agriculture Lending Target for Domestic Commercial Banks (excluding Regional Rural Banks & Small Finance Banks) and Foreign Banks with 20 branches and above?

A. 18%
B. 40%
C. 14%
D. 10%

Show Explanation

Correct Answer: C. 14%. 14% is prescribed for Non-Corporate Farmers (NCFs) within the Agriculture Lending Target.

Question 17: What percentage of ANBC or CEOBSE is prescribed for Small and Marginal Farmers (SMFs) within the Agriculture Lending Target for Domestic Commercial Banks (excluding Regional Rural Banks & Small Finance Banks) and Foreign Banks with 20 branches and above?

A. 18%
B. 40%
C. 14%
D. 10%

Show Explanation

Correct Answer: D. 10%. A target of 10% is prescribed for Small and Marginal Farmers (SMFs).

Question 18: What is the Micro Enterprises Lending Target for Domestic Commercial Banks (excluding Regional Rural Banks & Small Finance Banks) and Foreign Banks with 20 branches and above?

A. 18% of ANBC or CEOBSE, whichever is higher.
B. 40% of ANBC or CEOBSE, whichever is higher.
C. 7.5% of ANBC or CEOBSE, whichever is higher.
D. 12% of ANBC or CEOBSE, whichever is higher.

Show Explanation

Correct Answer: C. 7.5% of ANBC or CEOBSE, whichever is higher. The micro enterprises lending target is 7.5% of ANBC or CEOBSE, whichever is higher.

Question 19: What is the Advances to Weaker Sections Lending Target for Domestic Commercial Banks (excluding Regional Rural Banks & Small Finance Banks) and Foreign Banks with 20 branches and above?

A. 18% of ANBC or CEOBSE, whichever is higher.
B. 40% of ANBC or CEOBSE, whichever is higher.
C. 7.5% of ANBC or CEOBSE, whichever is higher.
D. 12% of ANBC or CEOBSE, whichever is higher.

Show Explanation

Correct Answer: D. 12% of ANBC or CEOBSE, whichever is higher. The advances to weaker sections lending target is 12% of ANBC or CEOBSE, whichever is higher.

Question 20: What is the Total Priority Sector Lending Target for Foreign Banks with less than 20 branches?

A. 32% of ANBC or CEOBSE, whichever is higher
B. 40% of ANBC or CEOBSE, whichever is higher
C. 8% of ANBC
D. 75% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: B. 40% of ANBC or CEOBSE, whichever is higher. Foreign Banks with less than 20 branches have a total priority sector lending target of 40% of ANBC or CEOBSE, whichever is higher.

Question 21: For Foreign Banks with less than 20 branches, what is the maximum percentage of the Total Priority Sector Lending Target that can be in the form of Export Credit?

A. Up to 40%
B. Up to 8%
C. Up to 32%
D. At least 8%

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Correct Answer: C. Up to 32%. For Foreign Banks with less than 20 branches, up to 32% can be in the form of Export Credit.

Question 22: For Foreign Banks with less than 20 branches, what is the minimum percentage of the Total Priority Sector Lending Target that should be allocated to any other priority sector?

A. At least 40%
B. At least 32%
C. At least 15%
D. At least 8%

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Correct Answer: D. At least 8%. For Foreign Banks with less than 20 branches, at least 8% should be allocated to any other priority sector.

Question 23: What is the Agriculture Lending Target for Foreign Banks with less than 20 branches?

A. 18 per cent of ANBC or CEOBSE, whichever is higher
B. 14 per cent of ANBC or CEOBSE, whichever is higher
C. 10 per cent of ANBC or CEOBSE, whichever is higher
D. Not applicable

Show Explanation

Correct Answer: D. Not applicable. The Agriculture Lending Target is not applicable for Foreign Banks with less than 20 branches.

Question 24: What is the Micro Enterprises Lending Target for Foreign Banks with less than 20 branches?

A. 7.5 per cent of ANBC or CEOBSE, whichever is higher
B. 12 per cent of ANBC or CEOBSE, whichever is higher
C. 15 per cent of ANBC or CEOBSE, whichever is higher
D. Not applicable

Show Explanation

Correct Answer: D. Not applicable. The Micro Enterprises Lending Target is not applicable for Foreign Banks with less than 20 branches.

Question 25: What is the Advances to Weaker Sections Lending Target for Foreign Banks with less than 20 branches?

A. 12 per cent of ANBC or CEOBSE, whichever is higher
B. 15 per cent of ANBC or CEOBSE, whichever is higher
C. 7.5 per cent of ANBC or CEOBSE, whichever is higher
D. Not applicable

Show Explanation

Correct Answer: D. Not applicable. The Advances to Weaker Sections Lending Target is not applicable for Foreign Banks with less than 20 branches.

Question 26: What is the Total Priority Sector Lending Target for Regional Rural Banks (RRBs)?

A. 40% of ANBC or CEOBSE, whichever is higher
B. 60% of ANBC or CEOBSE, whichever is higher
C. 75% of ANBC or CEOBSE, whichever is higher
D. 18% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: C. 75% of ANBC or CEOBSE, whichever is higher. Regional Rural Banks (RRBs) have a Total Priority Sector Lending Target of 75% of ANBC or CEOBSE, whichever is higher.

Question 27: For Regional Rural Banks (RRBs), lending to which of the following shall be counted up to 15% of ANBC?

A. Micro Enterprises
B. Small Enterprises
C. Medium Enterprises, Social Infrastructure, and Renewable Energy
D. Agriculture

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Correct Answer: C. Lending to Medium Enterprises, Social Infrastructure, and Renewable Energy shall be counted up to 15% of ANBC for Regional Rural Banks (RRBs).

Question 28: What is the Agriculture Lending Target for Regional Rural Banks (RRBs)?

A. 10% of ANBC or CEOBSE, whichever is higher
B. 14% of ANBC or CEOBSE, whichever is higher
C. 18% of ANBC or CEOBSE, whichever is higher
D. 7.5% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: C. 18% of ANBC or CEOBSE, whichever is higher. The Agriculture Lending Target for Regional Rural Banks (RRBs) is 18% of ANBC or CEOBSE, whichever is higher.

Question 29: For Regional Rural Banks (RRBs), what percentage is prescribed within the Agriculture Lending Target for Non-Corporate Farmers (NCFs)?

A. 7.5%
B. 10%
C. 14%
D. 18%

Show Explanation

Correct Answer: C. 14%. Within the Agriculture Lending Target for Regional Rural Banks (RRBs), 14% is prescribed for Non-Corporate Farmers (NCFs).

Question 30: What target is prescribed for Small and Marginal Farmers (SMFs) within the Agriculture Lending Target for Regional Rural Banks (RRBs)?

A. 7.5%
B. 10%
C. 14%
D. 18%

Show Explanation

Correct Answer: B. 10%. A target of 10% is prescribed for Small and Marginal Farmers (SMFs) within the Agriculture Lending Target for Regional Rural Banks (RRBs).

Question 31: What is the Micro Enterprises Lending Target for Regional Rural Banks (RRBs)?

A. 7.5% of ANBC or CEOBSE, whichever is higher
B. 10% of ANBC or CEOBSE, whichever is higher
C. 15% of ANBC or CEOBSE, whichever is higher
D. 18% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: A. 7.5% of ANBC or CEOBSE, whichever is higher. The Micro Enterprises Lending Target for Regional Rural Banks (RRBs) is 7.5% of ANBC or CEOBSE, whichever is higher.

Question 32: What is the Advances to Weaker Sections Lending Target for Regional Rural Banks (RRBs)?

A. 7.5% of ANBC or CEOBSE, whichever is higher
B. 10% of ANBC or CEOBSE, whichever is higher
C. 12% of ANBC or CEOBSE, whichever is higher
D. 15% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: D. 15% of ANBC or CEOBSE, whichever is higher. The Advances to Weaker Sections Lending Target for Regional Rural Banks (RRBs) is 15% of ANBC or CEOBSE, whichever is higher.

Question 33: What is the Total Priority Sector Lending Target for Small Finance Banks (SFBs)?

A. 40% of ANBC or CEOBSE, whichever is higher
B. 60% of ANBC or CEOBSE, whichever is higher
C. 75% of ANBC or CEOBSE, whichever is higher
D. 18% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: C. 75% of ANBC or CEOBSE, whichever is higher. Small Finance Banks (SFBs) have a Total Priority Sector Lending Target of 75% of ANBC or CEOBSE, whichever is higher.

Question 34: What is the Agriculture Lending Target for Small Finance Banks (SFBs)?

A. 10% of ANBC or CEOBSE, whichever is higher
B. 14% of ANBC or CEOBSE, whichever is higher
C. 18% of ANBC or CEOBSE, whichever is higher
D. 7.5% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: C. 18% of ANBC or CEOBSE, whichever is higher. The Agriculture Lending Target for Small Finance Banks (SFBs) is 18% of ANBC or CEOBSE, whichever is higher.

Question 35: For Small Finance Banks (SFBs), what percentage is prescribed within the Agriculture Lending Target for Non-Corporate Farmers (NCFs)?

A. 7.5%
B. 10%
C. 14%
D. 18%

Show Explanation

Correct Answer: C. 14%. Within the Agriculture Lending Target for Small Finance Banks (SFBs), 14% is prescribed for Non-Corporate Farmers (NCFs).

Question 36: What target is prescribed for Small and Marginal Farmers (SMFs) within the Agriculture Lending Target for Small Finance Banks (SFBs)?

A. 7.5%
B. 10%
C. 14%
D. 18%

Show Explanation

Correct Answer: B. 10%. A target of 10% is prescribed for Small and Marginal Farmers (SMFs) within the Agriculture Lending Target for Small Finance Banks (SFBs).

Question 37: What is the Micro Enterprises Lending Target for Small Finance Banks (SFBs)?

A. 7.5% of ANBC or CEOBSE, whichever is higher
B. 10% of ANBC or CEOBSE, whichever is higher
C. 15% of ANBC or CEOBSE, whichever is higher
D. 18% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: A. 7.5% of ANBC or CEOBSE, whichever is higher. The Micro Enterprises Lending Target for Small Finance Banks (SFBs) is 7.5% of ANBC or CEOBSE, whichever is higher.

Question 38: What is the Advances to Weaker Sections Lending Target for Small Finance Banks (SFBs)?

A. 7.5% of ANBC or CEOBSE, whichever is higher
B. 10% of ANBC or CEOBSE, whichever is higher
C. 12% of ANBC or CEOBSE, whichever is higher
D. 15% of ANBC or CEOBSE, whichever is higher

Show Explanation

Correct Answer: C. 12% of ANBC or CEOBSE, whichever is higher. The Advances to Weaker Sections Lending Target for Small Finance Banks (SFBs) is 12% of ANBC or CEOBSE, whichever is higher.

Question 39: What is the Total Priority Sector target for UCBs as a percentage of ANBC or CEOBSE, whichever is higher?

A. 7.5%
B. 12%
C. 60%
D. 40%

Show Explanation

Correct Answer: C. 60%. The Total Priority Sector target for UCBs is 60% of ANBC or CEOBSE, whichever is higher.

Question 40: What is the Micro Enterprises target for UCBs as a percentage of ANBC or CEOBSE, whichever is higher?

A. 60%
B. 12%
C. 7.5%
D. 40%

Show Explanation

Correct Answer: C. 7.5%. The Micro Enterprises target for UCBs is 7.5% of ANBC or CEOBSE, whichever is higher.

Question 41: What is the Advances to Weaker Sections target for UCBs as a percentage of ANBC or CEOBSE, whichever is higher?

A. 7.5%
B. 60%
C. 12%
D. 40%

Show Explanation

Correct Answer: C. 12%. The Advances to Weaker Sections target for UCBs is 12% of ANBC or CEOBSE, whichever is higher.

Question 42: With effect from FY 2024-25, what higher weight shall be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹9,000)?

A. 100%
B. 90%
C. 125%
D. 75%

Show Explanation

Correct Answer: C. 125%. With effect from FY 2024-25, a higher weight (125%) shall be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹9,000).

Question 43: What lower weight will be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹42,000)?

A. 125%
B. 100%
C. 90%
D. 75%

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Correct Answer: C. 90%. A lower weight (90%) will be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹42,000).

Question 44: The lending to agriculture sector will include:

A. Farm Credit only
B. Lending for Agriculture Infrastructure only
C. Lending for Ancillary Activities only
D. Farm Credit, lending for Agriculture Infrastructure and Ancillary Activities

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Correct Answer: D. Farm Credit, lending for Agriculture Infrastructure and Ancillary Activities. The lending to agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for Agriculture Infrastructure and Ancillary Activities.

Question 45: As per Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025, loans against pledge/hypothecation of agricultural produce should not exceed how many months?

A. 6 months
B. 9 months
C. 12 months
D. 15 months

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Correct Answer: C. 12 months. The directions specify that loans against pledge/hypothecation of agricultural produce should not exceed 12 months.

Question 46: What is the maximum limit for loans against Negotiable Warehouse Receipts (NWRs)/Electronic Negotiable Warehouse Receipts (eNWRs) under priority sector lending?

A. ₹50 lakh
B. ₹60 lakh
C. ₹80 lakh
D. ₹90 lakh

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Correct Answer: D. ₹90 lakh. The limit for loans against NWRs or eNWRs is up to ₹90 lakh.

Question 47: What is the maximum limit for loans against warehouse receipts other than Negotiable Warehouse Receipts (NWRs)/Electronic Negotiable Warehouse Receipts (eNWRs) under priority sector lending?

A. ₹60 lakh
B. ₹70 lakh
C. ₹80 lakh
D. ₹90 lakh

Show Explanation

Correct Answer: A. ₹60 lakh. The limit for loans against warehouse receipts other than NWRs or eNWRs is up to ₹60 lakh.

Question 48: Loans up to ₹4 crore per borrowing entity, will be eligible for priority sector classification under which of the following categories?

A. Loans for the installation of solar power plants on barren land owned by farmers
B. Export credit to the agriculture sector, including pre-shipment and post-shipment export credit
C. Loans to individuals for educational purposes, including vocational courses.
D. Farm Credit – Corporate farmers, Farmer Producer Organisations/Companies (FPOs)/(FPCs) of Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and Allied Activities.

Show Explanation

Correct Answer: D. Farm Credit – Corporate farmers, Farmer Producer Organisations/Companies (FPOs)/(FPCs) of Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and Allied Activities. These loans are subject to an aggregate limit of ₹4 crore per borrowing entity and will be eligible for priority sector classification.

Question 49: What is the loan limit against pledge/hypothecation of agricultural produce under Farm Credit for Corporate farmers, Farmer Producer Organisations/Companies (FPOs)/(FPCs) of Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and Allied Activities, for a period not exceeding 12 months, against warehouse receipts other than NWRs or eNWRs?

A. ₹2.5 crore
B. ₹4 crore
C. ₹10 crore
D. ₹90 lakh

Show Explanation

Correct Answer: A. ₹2.5 crore. Loans up to ₹4 crore against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs or eNWRs and up to ₹2.5 crore against warehouse receipts other than NWRs or eNWRs

Question 50: What is the maximum loan amount per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price?

A. ₹2.5 crore
B. ₹4 crore
C. ₹10 crore
D. ₹50 crore

Show Explanation

Correct Answer: C. ₹10 crore. Loans up to ₹10 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price

Question 51: What is the maximum loan amount for purchase of the produce of members directly engaged in agriculture and allied activities?

A. ₹2.5 crore
B. ₹4 crore
C. ₹10 crore
D. ₹50 crore

Show Explanation

Correct Answer: C. ₹10 crore. Loans up to ₹10 crore for purchase of the produce of members directly engaged in agriculture and allied activities

Question 52: Are UCBs permitted to lend to co-operatives of farmers?

A. Yes, without any restrictions
B. Yes, with a limit of ₹10 crore
C. No
D. Yes, with prior approval from RBI

Show Explanation

Correct Answer: C. No. UCBs are not permitted to lend to co-operatives of farmers.

Question 53: What is the loan limit against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs or eNWRs?

A. ₹2.5 crore
B. ₹4 crore
C. ₹10 crore
D. ₹90 lakh

Show Explanation

Correct Answer: B. ₹4 crore. Loans up to ₹4 crore against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs or eNWRs.

Question 54: What is the aggregate sanctioned limit for loans towards agriculture infrastructure, per borrower, from the banking system?

A. ₹50 crore
B. ₹25 crore
C. ₹100 crore
D. ₹150 crore

Show Explanation

Correct Answer: C. ₹100 crore. Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system.

Question 55: Loans up to what amount to Start-ups that are engaged in agriculture and allied services shall be eligible to be classified in the Ancillary Services PSL category?

A. ₹25 crore
B. ₹50 crore
C. ₹75 crore
D. ₹100 crore

Show Explanation

Correct Answer: B. ₹50 crore. Loans up to ₹50 crore to Start-ups that are engaged in agriculture and allied services shall be eligible to be classified in Ancillary Services category.

Question 56: What type of outstanding deposits with NABARD are eligible to be classified under the Ancillary Services category?

A. Outstanding deposits under Rural Infrastructure Development Fund (RIDF) on account of priority sector lending shortfall
B. Outstanding deposits under Micro and Small Enterprises loans
C. Outstanding deposits related to housing loans
D. Outstanding deposits under education loans

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Correct Answer: A. Outstanding deposits under Rural Infrastructure Development Fund (RIDF) on account of priority sector shortfall. Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector shortfall shall be eligible to be classified in Ancillary Services category.

Question 57: What is the landholding limit for a Marginal Farmer, for the purpose of priority sector lending sub-target achievement?

A. Up to 2 hectares
B. More than 1 hectare and up to 2 hectares
C. Up to 1 hectare
D. More than 2 hectares

Show Explanation

Correct Answer: C. Up to 1 hectare. Farmers with landholding of up to 1 hectare (Marginal Farmers).

Question 58: What is the landholding limit for a Small Farmer, for the purpose of priority sector lending sub-target achievement?

A. Up to 1 hectare
B. More than 2 hectares
C. More than 1 hectare and up to 2 hectares
D. No limit

Show Explanation

Correct Answer: C. More than 1 hectare and up to 2 hectares. Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers).

Question 59: What is the loan limit for individuals solely engaged in allied activities without any accompanying land holding criteria, to be eligible for categorization as lending to Small and Marginal Farmers (SMFs)?

A. ₹1 lakh
B. ₹2 lakh
C. ₹2.5 lakh
D. ₹5 lakh

Show Explanation

Correct Answer: C. Loans up to ₹2.5 lakh to individuals solely engaged in allied activities without any accompanying land holding criteria.

Question 60: Under what condition is bank credit to registered NBFCs (other than MFIs) towards on-lending for the ‘term lending’ component under agriculture eligible for PSL classification?

A. Up to ₹20 lakh per borrower
B. Up to ₹5 lakh per borrower
C. Up to ₹10 lakh per borrower
D. Up to ₹15 lakh per borrower

Show Explanation

Correct Answer: C. Up to ₹10 lakh per borrower. Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘term lending’ component under agriculture will be eligible for PSL classification up to ₹10 lakh per borrower subject to conditions.

Question 61: What is the maximum amount of bank credit to registered NBFCs (other than MFIs) for on-lending to micro and small enterprises to be eligible for classification as priority sector lending?

A. ₹10 lakh per borrower
B. ₹20 lakh per borrower
C. ₹15 lakh per borrower
D. ₹25 lakh per borrower

Show Explanation

Correct Answer: B. ₹20 lakh per borrower. Micro & Small enterprises: Up to ₹20 lakh per borrower provided banks maintain disaggregated data of such loans in the portfolio.

Question 62: Bank credit to NBFCs (including HFCs) for on-lending will be eligible for PSL classification up to what limit of individual bank’s total priority sector lending of the previous financial year?

A. 10%
B. 2%
C. 5%
D. 7.5%

Show Explanation

Correct Answer: C. 5%. Bank credit to NBFCs (including HFCs) for on-lending will be eligible for PSL classification up to an overall limit of 5% of individual bank’s total priority sector lending of the previous financial year.

Question 63: To which of the following is lending by banks to NBFCs and MFIs for on-lending in agriculture not applicable?

A. Commercial Banks
B. Regional Rural Banks (RRBs)
C. Small Finance Banks (SFBs)
D. Both B and C

Show Explanation

Correct Answer: D. Both B and C. Lending by banks to NBFCs and MFIs for on-lending in agriculture is not applicable to RRBs, UCBs, SFBs and LABs.

Question 64: The provisions of Factoring Transactions are not applicable to which of the following?

A. Regional Rural Banks (RRBs)
B. Primary (Urban) Co-operative Banks (UCBs)
C. Small Finance Banks (SFBs)
D. Both A and B

Show Explanation

Correct Answer: D. Both A and B. The provisions of Factoring Transactions are not applicable to RRBs and UCBs.

Question 65: What is the limit for incremental export credit over the corresponding date of the preceding year for domestic banks, Wholly Owned Subsidiaries (WOS) of Foreign Banks, Small Finance Banks (SFBs), and Urban Co-operative Banks (UCBs)?

A. Up to 1% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is higher.
B. Up to 2% of ANBC or CEOBSE, whichever is higher, subject to a sanctioned limit of ₹50 crore per borrower.
C. Export credit up to 32% of ANBC or CEOBSE, whichever is higher.
D. Up to 5% of ANBC or CEOBSE, whichever is higher, subject to a sanctioned limit of ₹25 crore per borrower.

Show Explanation

Correct Answer: B. Up to 2% of ANBC or CEOBSE, whichever is higher, subject to a sanctioned limit of ₹50 crore per borrower. This is the correct limit for incremental export credit for these banks.

Question 66: For foreign banks with 20 branches and above, what is the limit for incremental export credit over the corresponding date of the preceding year?

A. Up to 1% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is higher.
B. Up to 2% of ANBC or CEOBSE, whichever is higher.
C. Export credit up to 32% of ANBC or CEOBSE, whichever is higher.
D. Up to 5% of ANBC or CEOBSE, whichever is higher.

Show Explanation

Correct Answer: B. Up to 2% of ANBC or CEOBSE, whichever is higher. This is the correct limit for foreign banks with 20 branches and above.

Question 67: What is the export credit limit for foreign banks with less than 20 branches?

A. Incremental export credit over the corresponding date of the preceding year, up to 2% of ANBC or CEOBSE, whichever is higher.
B. Incremental export credit over the corresponding date of the preceding year, up to 5% of ANBC or CEOBSE, whichever is higher.
C. Export credit up to 32% of ANBC or CEOBSE, whichever is higher.
D. Export credit up to 10% of ANBC or CEOBSE, whichever is higher.

Show Explanation

Correct Answer: C. Export credit up to 32% of ANBC or CEOBSE, whichever is higher. This is the correct limit for foreign banks with less than 20 branches.

Question 68: What is the maximum amount of loans to individuals for educational purposes, including vocational courses, that will be considered eligible for priority sector classification?

A. ₹10 lakh
B. ₹15 lakh
C. ₹20 lakh
D. ₹25 lakh

Show Explanation

Correct Answer: D. ₹25 lakh. Loans to individuals for educational purposes, including vocational courses, not exceeding ₹25 lakh will be considered as eligible for priority sector classification.

Question 69: According to the RBI PSL guidelines, what is the loan limit and maximum cost of the dwelling unit for individuals purchasing a house in centres with a population of 50 lakh and above?

A. Loan limit is ₹45 lakh, and the maximum cost of the dwelling unit should not exceed ₹57 lakh.
B. Loan limit is ₹35 lakh, and the maximum cost of the dwelling unit should not exceed ₹44 lakh.
C. Loan limit is ₹50 lakh, and the maximum cost of the dwelling unit should not exceed ₹63 lakh.
D. Loan limit is ₹63 lakh, and the maximum cost of the dwelling unit should not exceed ₹50 lakh.

Show Explanation

Correct Answer: C. Loan limit is ₹50 lakh, and the maximum cost of the dwelling unit should not exceed ₹63 lakh. The loan must satisfy both the loan amount limit and the maximum cost of the dwelling unit criteria for eligibility in centres with a population of 50 lakh and above.

Question 70: For housing loans to be eligible under priority sector classification in centres with a population below 10 lakh, what are the loan limit and the maximum cost of the dwelling unit?

A. The loan limit is ₹50 lakh, and the maximum cost of the dwelling unit should not exceed ₹63 lakh.
B. The loan limit is ₹45 lakh, and the maximum cost of the dwelling unit should not exceed ₹57 lakh.
C. The loan limit is ₹35 lakh, and the maximum cost of the dwelling unit should not exceed ₹44 lakh.
D. The loan limit is ₹10 lakh, and the maximum cost of the dwelling unit should not exceed ₹35 lakh.

Show Explanation

Correct Answer: C. The loan limit is ₹35 lakh, and the maximum cost of the dwelling unit should not exceed ₹44 lakh. To be eligible, the loan must satisfy both the loan amount limit and the maximum cost of the dwelling unit criteria for centres with a population below 10 lakh.

Question 71: What are the loan limit and maximum cost criteria for a dwelling unit in centres with a population of 10 lakh and above but below 50 lakh, to be eligible for priority sector classification?

A. ₹50 lakh loan limit and maximum dwelling unit cost of ₹63 lakh
B. ₹35 lakh loan limit and maximum dwelling unit cost of ₹44 lakh
C. ₹45 lakh loan limit and maximum dwelling unit cost of ₹57 lakh
D. ₹57 lakh loan limit and maximum dwelling unit cost of ₹45 lakh

Show Explanation

Correct Answer: C. ₹45 lakh loan limit and maximum dwelling unit cost of ₹57 lakh. The loan must meet both criteria to be eligible.

Question 72: What is the loan limit and maximum cost of the dwelling unit for priority sector classification of loans for repairs to damaged dwelling units in centres with a population of 50 lakh and above?

A. Loan limit is ₹12 lakh, and the maximum cost of the dwelling unit is ₹57 lakh.
B. Loan limit is ₹10 lakh, and the maximum cost of the dwelling unit is ₹44 lakh.
C. Loan limit is ₹15 lakh, and the maximum cost of the dwelling unit is ₹63 lakh.
D. Loan limit is ₹63 lakh, and the maximum cost of the dwelling unit is ₹15 lakh.

Show Explanation

Correct Answer: C. Loan limit is ₹15 lakh, and the maximum cost of the dwelling unit is ₹63 lakh. The loan must satisfy both criteria.

Question 73: For loans aimed at repairs to damaged dwelling units, what are the loan limit and maximum cost requirements for priority sector classification in centres with a population below 10 lakh?

A. Loan limit is ₹15 lakh, and the maximum cost of the dwelling unit is ₹63 lakh.
B. Loan limit is ₹12 lakh, and the maximum cost of the dwelling unit is ₹57 lakh.
C. Loan limit is ₹10 lakh, and the maximum cost of the dwelling unit is ₹44 lakh.
D. Loan limit is ₹44 lakh, and the maximum cost of the dwelling unit is ₹10 lakh.

Show Explanation

Correct Answer: C. Loan limit is ₹10 lakh, and the maximum cost of the dwelling unit is ₹44 lakh. Both conditions must be met for eligibility.

Question 74: To be eligible for priority sector classification, what should be the loan limit and maximum cost of the dwelling unit for loans towards repairs to damaged dwelling units in centres with a population of 10 lakh and above but below 50 lakh?

A. ₹15 lakh loan limit and ₹63 lakh maximum dwelling unit cost
B. ₹10 lakh loan limit and ₹44 lakh maximum dwelling unit cost
C. ₹12 lakh loan limit and ₹57 lakh maximum dwelling unit cost
D. ₹57 lakh loan limit and ₹12 lakh maximum dwelling unit cost

Show Explanation

Correct Answer: C. ₹12 lakh loan limit and ₹57 lakh maximum dwelling unit cost. The loan must adhere to both limits.

Question 75: What is the loan limit per borrower for setting up schools, drinking water facilities, and sanitation facilities under the priority sector classification?

A. ₹12 crore
B. ₹35 crore
C. ₹10 lakh
D. ₹8 crore

Show Explanation

Correct Answer: D. ₹8 crore. According to the guidelines, the loan limit is ₹8 crore per borrower for setting up schools, drinking water facilities, and sanitation facilities.

Question 76: According to the guidelines, what is the loan limit per borrower for building health care facilities in Tier II to Tier VI centres?

A. ₹8 crore
B. ₹35 crore
C. ₹10 lakh
D. ₹12 crore

Show Explanation

Correct Answer: D. ₹12 crore. The guidelines specify a loan limit of ₹12 crore per borrower for building health care facilities in Tier II to Tier VI centres.

Question 77: What is the loan limit for borrowers for renewable energy-based power generators to be eligible for priority sector classification?

A. ₹10 lakh
B. ₹8 crore
C. ₹12 crore
D. ₹35 crore

Show Explanation

Correct Answer: D. ₹35 crore. Bank loans up to ₹35 crore to borrowers for renewable energy-based power generators are eligible for priority sector classification.

Question 78: What is the loan limit per borrower for individual households obtaining loans for renewable energy-based power generators under priority sector classification?

A. ₹35 crore
B. ₹12 crore
C. ₹10 lakh
D. ₹8 crore

Show Explanation

Correct Answer: C. ₹10 lakh. For individual households, the loan limit for renewable energy-based power generators is ₹10 lakh per borrower.

Question 79: What is the maximum amount of loans provided by banks to Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) for activities other than agriculture or MSME?

A. ₹1.00 lakh
B. ₹50 crore
C. ₹2.00 lakh
D. ₹5.00 lakh

Show Explanation

Correct Answer: C. ₹2.00 lakh. Loans not exceeding ₹2.00 lakh provided by banks to SHG/JLG for activities other than agriculture or MSME are eligible for priority sector classification.

Question 80: What is the loan limit for distressed persons, other than distressed farmers indebted to non-institutional lenders, to prepay their debt to non-institutional lenders?

A. ₹2.00 lakh
B. ₹50 crore
C. ₹1.00 lakh
D. ₹5.00 lakh

Show Explanation

Correct Answer: C. ₹1.00 lakh. Loans to distressed persons (other than distressed farmers indebted to non-institutional lenders) not exceeding ₹1.00 lakh per borrower are eligible for priority sector classification.

Question 81: What is the loan limit for Start-ups, that are engaged in activities other than agriculture or MSME, to be eligible for priority sector classification?

A. ₹2.00 lakh
B. ₹1.00 lakh
C. ₹5.00 lakh
D. ₹50 crore

Show Explanation

Correct Answer: D. ₹50 crore. Loans up to ₹50 crore to Start-ups, that are engaged in activities other than agriculture or MSME, are eligible for priority sector classification.

Question 82: Under what classification can the overdraft availed by Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders be categorized?

A. Loans to Agriculture
B. Loans to MSMEs
C. Loans to Weaker Sections
D. Loans to Housing

Show Explanation

Correct Answer: C. Loans to Weaker Sections. Overdraft availed by PMJDY account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time may be classified under loans to Weaker Sections.

Question 83: What is the loan limit per borrower for banks on-lending to HFCs under the ‘Housing’ category for priority sector classification?

A. ₹10 lakh
B. ₹15 lakh
C. ₹20 lakh
D. ₹50 lakh

Show Explanation

Correct Answer: C. ₹20 lakh. Bank credit to HFCs for on-lending for housing has a loan limit of ₹20 lakh per borrower under the ‘Housing’ category.

Question 84: What is the overall limit for PSL classification of bank credit to NBFCs (including HFCs) for on-lending?

A. 10% of the bank’s total priority sector lending of the previous financial year.
B. 2.5% of the bank’s total priority sector lending of the previous financial year.
C. 5% of the bank’s total priority sector lending of the previous financial year.
D. 15% of the bank’s total priority sector lending of the previous financial year.

Show Explanation

Correct Answer: C. 5% of the individual bank’s total priority sector lending of the previous financial year. Bank credit to NBFCs (including HFCs) for on-lending is eligible for PSL classification up to an overall limit of 5%.

Question 85: How often will the compliance of banks be monitored to ensure a continuous flow of credit to priority sectors?

A. Annually
B. Semi-annually
C. Quarterly
D. Monthly

Show Explanation

Correct Answer: C. Quarterly. To ensure continuous flow of credit to priority sectors, the compliance of banks will be monitored on a calendar quarter basis.

Question 86: What happens when banks (excluding UCBs under all-inclusive directions) report a shortfall in priority sector lending vis-à-vis the prescribed targets?

A. They will be penalised with a monetary fine.
B. They will face a reduction in their credit rating.
C. They will be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) and other funds.
D. They will be barred from participating in government schemes.

Show Explanation

Correct Answer: C. They will be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) and other funds with NABARD/NHB/SIDBI/MUDRA Ltd. Banks reporting shortfall in priority sector lending shall be allocated amounts for contribution to specified funds.

Question 87: How is the overall shortfall/excess in priority sector target achievement calculated at the end of the year?

A. By considering the highest shortfall/excess of any quarter.
B. By considering the shortfall/excess of the last quarter.
C. By taking a simple average of the shortfall/excess of all quarters.
D. By adding up the shortfall of all quarters.

Show Explanation

Correct Answer: C. By taking a simple average of the shortfall/excess of all quarters. The achievement is monitored quarterly, and a simple average is used for year-end computation.

Question 88: If there is no shortfall in the overall PSL target but a shortfall in any sub-target, what interest rate will apply to the bank’s contribution to RIDF and other funds?

A. Bank Rate minus 4 percentage points
B. Bank Rate minus 3 percentage points
C. Bank Rate minus 2 percentage points
D. Bank Rate minus 5 percentage points

Show Explanation

Correct Answer: C. Bank Rate minus 2 percentage points. This rate applies when there is no overall shortfall but a shortfall in any sub-target. Note: The deposit rates for shortfalls in the overall priority sector lending target are determined based on the extent of the shortfall: If the shortfall is less than 5 percentage points, the applicable deposit rate will be Bank Rate minus 2 percentage points. If the shortfall is 5 percentage points or more but less than 10 percentage points, the applicable deposit rate will be Bank Rate minus 3 percentage points. If the shortfall is 10 percentage points or more, the applicable deposit rate will be Bank Rate minus 4 percentage points.

Question 89: What will happen to mis-classifications in PSL identified by the Reserve Bank’s Department of Supervision (DoS)?

A. The bank will be given a warning.
B. The mis-classifications will be adjusted from the PSL achievement of the relevant year, and shortfall will be allocated to various funds.
C. The bank will have to pay a penalty.
D. The mis-classifications will be ignored.

Show Explanation

Correct Answer: B. The mis-classifications will be adjusted from the PSL achievement of the relevant year, and shortfall will be allocated to various funds. Mis-classifications are adjusted from the PSL achievement.

Question 90: How does the non-achievement of priority sector targets and sub-targets affect banks?

A. It has no impact on banks.
B. It will result in a monetary penalty.
C. It will be taken into account while granting regulatory clearances/approvals for various purposes.
D. It will lead to the bank’s license being revoked.

Show Explanation

Correct Answer: C. It will be taken into account while granting regulatory clearances/approvals for various purposes. Non-achievement is considered for regulatory clearances.

Question 91: What is the service charge limit for priority sector loans?

A. No limit
B. ₹1,00,000
C. ₹50,000
D. ₹25,000

Show Explanation

Correct Answer: C. ₹50,000. No loan related and ad hoc service charges/inspection charges shall be levied on priority sector loans up to ₹50,000.

Question 92: What does ANBC stands for in context of Priority Sector Lending?

A. Annual Net Bank Credit
B. Adjusted National Bank Credit
C. Adjusted Net Bank Credit
D. Annual National Bank Credit

Show Explanation

Correct Answer: C. Adjusted Net Bank Credit. This is a key metric used to calculate PSL targets.

Question 93: What does CEOBSE stands for in context of Priority Sector Lending ?

A. Credit Equivalent of Bank Exposure
B. Credit Equivalent of Off-Balance Sheet Exposure
C. Credit Equivalent of Business Exposure
D. None of these

Show Explanation

Correct Answer: B. Credit Equivalent of Off-Balance Sheet Exposure. This represents the credit equivalent of non-funded exposures.

Question 94: Imagine a district called “Sochpur” has very low per capita PSL lending, less than ₹9,000. If a bank gives a new priority sector loan in “Sochpur”, what weight will be applied to that loan for PSL achievement calculation?

A. 90%
B. 100%
C. 125%
D. 150%

Show Explanation

Correct Answer: C. 125%. A higher weight is given to encourage more lending in these underserved districts.

Question 95: Suppose a district named (Samridhhapur) has a high per capita PSL of more than ₹42,000. What weight would the RBI apply to new priority sector loans given by banks in Samridhhapur?

A. 75%
B. 90%
C. 100%
D. 125%

Show Explanation

Correct Answer: B. 90%. A lower weight is applied to discourage excessive concentration of PSL lending in these districts.

Question 96: If a Domestic Commercial Bank has an ANBC of ₹1000 crore and a CEOBSE of ₹1100 crore, what is its overall Priority Sector Lending target?

A. ₹180 crore
B. ₹400 crore
C. ₹440 crore
D. ₹750 crore

Show Explanation

Correct Answer: C. ₹440 crore. The target is 40% of the higher value, which is ₹1100 crore (CEOBSE). 40% of ₹1100 crore = ₹440 crore.

Question 97: If a Regional Rural Bank has an ANBC of ₹500 crore, what is its overall Priority Sector Lending target?

A. ₹90 crore
B. ₹200 crore
C. ₹375 crore
D. ₹500 crore

Show Explanation

Correct Answer: C. ₹375 crore. The target for RRBs is 75% of ANBC. 75% of ₹500 crore = ₹375 crore.

Question 98: A Small Finance Bank has an ANBC of ₹800 crore and CEOBSE of ₹700 crore. What amount should it lend to Agriculture?

A. ₹80 crore
B. ₹144 crore
C. ₹56 crore
D. ₹600 crore

Show Explanation

Correct Answer: B. ₹144 crore. The agriculture target is 18% of the higher value (ANBC in this case). 18% of ₹800 crore = ₹144 crore.

Question 99: A Foreign Bank with 25 branches has an ANBC of ₹2000 crore and CEOBSE of ₹2200 crore. How much should it allocate to Micro Enterprises?

A. ₹150 crore
B. ₹165 crore
C. ₹200 crore
D. ₹220 crore

Show Explanation

Correct Answer: B. ₹165 crore. The Micro Enterprises target is 7.5% of the higher value (CEOBSE in this case). 7.5% of ₹2200 crore = ₹165 crore.

Question 100: A Regional Rural Bank has an ANBC of ₹600 crore. What is its target for lending to Weaker Sections?

A. ₹45 crore
B. ₹60 crore
C. ₹72 crore
D. ₹90 crore

Show Explanation

Correct Answer: D. ₹90 crore. The Weaker Sections target for RRBs is 15% of ANBC. 15% of ₹600 crore = ₹90 crore.

Question 101: What is the maximum investment limit for a Micro Enterprise under the revised MSME classification?

A. ₹1 crore
B. ₹5 crore
C. ₹2.5 crore
D. ₹10 crore

Show Explanation

Correct Answer: C. ₹2.5 crore. The revised classification sets the investment limit for Micro Enterprises at ₹2.5 crore.

Question 102: What is the maximum turnover limit for a Small Enterprise under the revised MSME classification?

A. ₹50 crore
B. ₹100 crore
C. ₹250 crore
D. ₹500 crore

Show Explanation

Correct Answer: B. ₹100 crore. The turnover limit for Small Enterprises is now ₹100 crore.

Question 103: What is the maximum investment limit for a Medium Enterprise under the revised MSME classification?

A. ₹25 crore
B. ₹50 crore
C. ₹125 crore
D. ₹250 crore

Show Explanation

Correct Answer: C. ₹125 crore. The investment limit for Medium Enterprises is now ₹125 crore.

Question 104: What is the maximum turnover limit for a Micro Enterprise under the revised MSME classification?

A. ₹5 crore
B. ₹10 crore
C. ₹50 crore
D. ₹100 crore

Show Explanation

Correct Answer: B. ₹10 crore. The turnover limit for Micro Enterprises is now ₹10 crore.

Question 105: What is the maximum investment limit for a Small Enterprise under the revised MSME classification?

A. ₹10 crore
B. ₹25 crore
C. ₹50 crore
D. ₹125 crore

Show Explanation

Correct Answer: B. ₹25 crore. The investment limit for Small Enterprises is now ₹25 crore.

Question 106: What is the maximum turnover limit for a Medium Enterprise under the revised MSME classification?

A. ₹100 crore
B. ₹250 crore
C. ₹500 crore
D. ₹1000 crore

Show Explanation

Correct Answer: C. ₹500 crore. The turnover limit for Medium Enterprises is now ₹500 crore.

Question 107: Which enterprise category has its investment limit increased to ₹25 crore?

A. Micro Enterprise
B. Small Enterprise
C. Medium Enterprise
D. All of the above

Show Explanation

Correct Answer: B. Small Enterprise. The Small Enterprise category now has an investment limit of ₹25 crore.

Question 108: Which enterprise category has its turnover limit doubled to ₹100 crore?

A. Micro Enterprise
B. Small Enterprise
C. Medium Enterprise
D. None of the above

Show Explanation

Correct Answer: B. Small Enterprise. The Small Enterprise category now has a turnover limit of ₹100 crore.

Question 109: The investment limit for a Micro Enterprise has been increased to what amount?

A. ₹10 crore
B. ₹50 crore
C. ₹2.5 crore
D. ₹125 crore

Show Explanation

Correct Answer: C. ₹2.5 crore. The Micro Enterprise investment limit is now ₹2.5 crore.

Question 110: The turnover limit for a Medium Enterprise has been doubled to what amount?

A. ₹100 crore
B. ₹250 crore
C. ₹500 crore
D. ₹1000 crore

Show Explanation

Correct Answer: C. ₹500 crore. The Medium Enterprise turnover limit is now ₹500 crore.

Question 111: What is the primary purpose of the Reserve Bank of India advising banks to fix limits on their exposure to specific industries or counterparties?

A. To encourage concentration of credit risks in profitable sectors.
B. To ensure banks lend exclusively to large corporations.
C. To achieve better risk management and avoid concentration of credit risks.
D. To simplify the process of credit approval for banks.

Show Explanation

Correct Answer: C. To achieve better risk management and avoid concentration of credit risks. Fixing exposure limits helps banks diversify their lending portfolio and prevents excessive losses if a particular sector or counterparty faces financial difficulties.

Question 112: Effective from 1st April 2019, the Reserve Bank of India implemented the Large Exposure Framework (LEF) primarily to align Indian banking norms with which standards?

A. International Monetary Fund (IMF) standards
B. World Bank lending standards
C. Basel Committee on Banking Supervision (BCBS) standards
D. Securities and Exchange Board of India (SEBI) standards

Show Explanation

Correct Answer: C. Basel Committee on Banking Supervision (BCBS) standards. The implementation of the LEF was a step taken by the RBI to align India’s banking regulations concerning large exposures with international best practices set by the BCBS.

Question 113: According to the Large Exposure Framework (LEF), when is the sum of all exposure values of a bank to a counterparty or group of connected counterparties considered a ‘Large Exposure’?

A. When it is equal to or above 5% of the Bank’s Tier-1 Capital.
B. When it is equal to or above 10% of the Bank’s total Capital Funds.
C. When it is equal to or above 10% of the Bank’s Tier-1 Capital.
D. When it exceeds 25% of the Bank’s Tier-1 Capital.

Show Explanation

Correct Answer: C. When it is equal to or above 10% of the Bank’s Tier-1 Capital. The LEF defines a ‘Large Exposure’ based on a threshold linked to the bank’s core capital (Tier-1 Capital), replacing the previous linkage to total capital funds.

Question 114: What is the maximum exposure ceiling limit for a bank to a single non-NBFC counterparty, as a percentage of its Tier-1 capital, under normal circumstances according to the LEF guidelines?

A. 10%
B. 15%
C. 20%
D. 25%

Show Explanation

Correct Answer: C. 20%. The standard limit for exposure to a single counterparty (that is not an NBFC) is capped at 20% of the bank’s Tier-1 capital, although the bank’s board may approve an additional 5% in exceptional cases.

Question 115: What is the maximum exposure ceiling limit for a bank to a group of connected counterparties (non-NBFC), as a percentage of its Tier-1 capital, according to the LEF guidelines?

A. 15%
B. 20%
C. 25%
D. 30%

Show Explanation

Correct Answer: C. 25%. For a group of connected counterparties, the aggregate exposure is limited to 25% of the bank’s Tier-1 capital.

Question 116: Under the Large Exposure Framework, which condition defines a ‘control relationship’ between two or more counterparties, making them ‘connected counterparties’?

A. Both counterparties operate in the same industry sector.
B. One counterparty directly or indirectly controls the other(s), or a third party controls them.
C. The counterparties share the same geographic location.
D. The sum of exposures to the counterparties exceeds 5% of the bank’s capital.

Show Explanation

Correct Answer: B. One counterparty directly or indirectly controls the other(s), or a third party controls them. A control relationship, where one entity exerts control over another or a common entity controls multiple parties, is a key criterion for identifying connected counterparties.

Question 117: Under the Large Exposure Framework, when is it mandatory for a bank to identify possible connected counterparties based on ‘economic interdependence’?

A. Only when a control relationship also exists.
B. In all cases, irrespective of the exposure amount.
C. When the sum of all exposures to one individual counterparty exceeds 5% of the bank’s Tier 1 Capital.
D. Only when the counterparties are Non-Banking Financial Companies (NBFCs).

Show Explanation

Correct Answer: C. When the sum of all exposures to one individual counterparty exceeds 5% of the bank’s Tier 1 Capital. The criterion of economic interdependence (where financial problems in one entity would likely cause difficulties for the other) must be assessed if the exposure to a single entity crosses this 5% threshold.

Question 118: How are entities connected with the sovereign (government) treated under the definition of a ‘group of connected counterparties’ in the LEF?

A. They are always considered part of a connected group.
B. They are subject to lower exposure limits.
C. They are exempted from the definition of a group of connected counterparties.
D. They require special approval from RBI to be excluded.

Show Explanation

Correct Answer: C. They are exempted from the definition of a group of connected counterparties. Entities connected with the government are specifically excluded from being automatically grouped as connected counterparties based on control or economic interdependence criteria.

Question 119: What is the exposure ceiling limit for a bank’s exposure to a single Non-Banking Financial Company (NBFC), as a percentage of the bank’s Tier-1 capital?

A. 15%
B. 20%
C. 25%
D. 20% plus an additional 5% forbearance

Show Explanation

Correct Answer: B. 20%. The exposure limit for a single NBFC is restricted to 20% of the bank’s Tier-1 capital.

Question 120: Is the additional 5% exposure allowance (beyond the standard single counterparty limit), which a bank’s Board can approve in exceptional cases, applicable to exposures to NBFCs?

A. Yes, it is applicable just like for non-NBFC counterparties.
B. Yes, but only for NBFCs involved in infrastructure lending.
C. No, this forbearance is not available for exposures to NBFCs.
D. No, unless specifically permitted by the RBI on a case-by-case basis.

Show Explanation

Correct Answer: C. No, this forbearance is not available for exposures to NBFCs. The guidelines explicitly state that the additional 5% exposure allowance cannot be applied to NBFC counterparties.

Question 121: For calculating exposure limits under the LEF, can capital funds infused into a bank after its published balance sheet date be considered for reckoning Tier-1 capital?

A. No, only capital as per the last published balance sheet can be used.
B. Yes, but only after the next balance sheet is published.
C. Yes, provided the bank obtains an external auditor’s certificate and submits it to the RBI.
D. Yes, but only up to 5% of the existing Tier-1 capital.

Show Explanation

Correct Answer: C. Yes, provided the bank obtains an external auditor’s certificate and submits it to the RBI. Banks can include post-balance sheet capital infusion for calculating the eligible capital base after fulfilling the requirement of obtaining and submitting an auditor’s certificate.

Question 122: Under the Large Exposure Framework’s Look Through Approach (LTA), when may a bank assign the total exposure amount to a structure (like a securitisation vehicle) itself, treating the structure as a distinct counterparty?

A. In all cases where the bank invests through a structure.
B. Only if the structure invests solely in government securities.
C. If the total amount of the bank’s exposure to the structure does not exceed 0.25% of its Tier-1 capital.
D. If the underlying assets of the structure are all rated AAA.

Show Explanation

Correct Answer: C. If the total amount of the bank’s exposure to the structure does not exceed 0.25% of its Tier-1 capital. Below this threshold, the bank can treat the structure itself as the counterparty instead of looking through to the underlying assets or assigning it to the ‘unknown client’.

Question 123: If a bank’s exposure to a structure (like a collective investment undertaking) exceeds 0.25% of its Tier-1 capital, and the Look Through Approach (LTA) cannot identify the underlying counterparties sufficiently, how should the bank treat this exposure under LEF?

A. It should assign the exposure amount to the structure itself.
B. It should assign the exposure amount to the ‘unknown client’.
C. It should apply for a waiver from the RBI.
D. It should treat the exposure as exempt from LEF limits.

Show Explanation

Correct Answer: B. It should assign the exposure amount to the ‘unknown client’. Exposures via structures exceeding the 0.25% threshold, where look-through is not possible, are aggregated under a single ‘unknown client’ counterparty for LEF limit purposes.

Question 124: Which type of exposure is explicitly exempted from the Large Exposure Framework (LEF) guidelines?

A. Exposures to large Non-Banking Financial Companies (NBFCs).
B. Exposures to State Governments.
C. Exposures to major private sector corporations.
D. Exposures secured by corporate guarantees.

Show Explanation

Correct Answer: B. Exposures to State Governments. Exposures to the Government of India, RBI, and State Governments are among those specifically exempted from the LEF norms.

Question 125: Are intra-group exposures (exposures between entities within the same banking group) governed by the Large Exposure Framework (LEF)?

A. Yes, they are subject to the standard LEF limits.
B. Yes, but with higher limits than external exposures.
C. No, they are exempted from LEF as they continue to be governed by other specific RBI circulars.
D. No, unless the exposure exceeds 50% of Tier-1 capital.

Show Explanation

Correct Answer: C. No, they are exempted from LEF as they continue to be governed by other specific RBI circulars. Intra-group exposures are specifically listed as an exemption from the LEF framework because they fall under separate regulatory guidelines.

Question 126: Which of the following types of advances are banks required to observe restrictions or prohibitions on, according to RBI guidelines?

A. Advances for agricultural activities.
B. Advances against Fixed Deposits of other banks.
C. Advances for educational purposes.
D. Advances to Micro, Small, and Medium Enterprises (MSMEs).

Show Explanation

Correct Answer: B. Advances against Fixed Deposits of other banks. RBI guidelines list several areas where banks face restrictions, including lending against the term deposits (like FDRs) held with other banks.

Question 127: RBI guidelines place restrictions on banks providing finance for which specific purpose related to corporate funding?

A. Funding working capital requirements.
B. Funding export activities.
C. Financing promoter’s contribution towards equity capital.
D. Financing the purchase of standard machinery.

Show Explanation

Correct Answer: C. Financing promoter’s contribution towards equity capital. Banks are restricted from financing the equity contribution that promoters are required to bring into a project or company.

Question 128: Are banks permitted to finance the purchase of gold in any form or invest in Gold ETFs and Gold Mutual Funds according to statutory restrictions?

A. Yes, without any restrictions.
B. Yes, but only up to a certain limit per borrower.
C. No, there are restrictions/prohibitions on such advances/investments.
D. No, unless the borrower is a registered jeweller.

Show Explanation

Correct Answer: C. No, there are restrictions/prohibitions on such advances/investments. The list of statutory restrictions includes prohibitions or limitations related to financing the purchase of bullion, primary gold, Gold ETFs, and Gold MFs.

Question 129: What term is used to define a borrower whose Aggregate Sanctioned Credit Limit (ASCL) from the banking system exceeds ₹10,000 crores?

A. Large Corporate Borrower
B. Priority Sector Borrower
C. Specified Borrower
D. Systemically Important Borrower

Show Explanation

Correct Answer: C. Specified Borrower. Borrowers with an ASCL above ₹10,000 crores are termed ‘Specified Borrowers’ under the framework for enhancing credit supply through market mechanisms.

Question 130: For a ‘Specified Borrower’, what is the ‘Normally Permitted Lending Limit’ (NPLL) for the banking system in the financial years succeeding the ‘reference date’?

A. 100% of the incremental funds raised above the ASCL.
B. 50% of the incremental funds raised above the ASCL as on the reference date.
C. 25% of the total ASCL as on the reference date.
D. 60% of the borrower’s annual turnover.

Show Explanation

Correct Answer: B. 50% of the incremental funds raised above the ASCL as on the reference date. The NPLL restricts bank lending to 50% of the new funds raised by the specified borrower beyond their credit limit established on the date they became a specified borrower.

Question 131: What are the consequences for the banking system if its incremental exposure to a ‘Specified Borrower’ exceeds the Normally Permitted Lending Limit (NPLL)?

A. The bank must recall the excess loan amount immediately.
B. Additional provisions (3%) and additional risk weight (75%) are applied to the exposure beyond NPLL.
C. The borrower is barred from raising further funds from the banking system.
D. The RBI imposes a monetary penalty on the lead bank.

Show Explanation

Correct Answer: B. Additional provisions (3%) and additional risk weight (75%) are applied to the exposure beyond NPLL. Exceeding the NPLL triggers higher provisioning and risk weight requirements for the banks’ exposure above the permitted limit, encouraging borrowers to access market-based funding.

Question 132: The ‘Loan System for Delivery of Bank Credit’ mandates a minimum loan component for borrowers above a certain threshold to enhance what?

A. Profitability for the bank.
B. Credit discipline among large borrowers.
C. Ease of access to funds for borrowers.
D. Reporting requirements to RBI.

Show Explanation

Correct Answer: B. Credit discipline among large borrowers. The system aims to instill better financial discipline by requiring large borrowers to take a significant portion of their working capital limit as a structured loan rather than solely relying on cash credit.

Question 133: To which category of borrowers does the requirement of having a minimum ‘loan component’ of 60% for working capital facilities apply?

A. All borrowers availing working capital from the banking system.
B. Borrowers with aggregate fund-based working capital limit of ₹50 crores and above.
C. Borrowers with aggregate fund-based working capital limit of ₹150 crores and above.
D. Only borrowers classified as ‘Specified Borrowers’.

Show Explanation

Correct Answer: C. Borrowers with aggregate fund-based working capital limit of ₹150 crores and above. This specific loan system rule applies to borrowers whose total fund-based working capital limits from the entire banking system reach or exceed ₹150 crores.

Question 134: Under the Loan System for Delivery of Bank Credit for applicable borrowers, what is the minimum percentage of the sanctioned fund-based working capital limit that must be in the form of a ‘loan component’?

A. 40%
B. 50%
C. 60%
D. 75%

Show Explanation

Correct Answer: C. 60%. For borrowers with aggregate fund-based working capital limits of ₹150 crore or more, at least 60% of the limit must be structured as a Working Capital Loan (loan component).

Question 135: When bifurcating the working capital limit into ‘loan’ and ‘cash credit’ components under the Loan System, which limits are excluded before calculating the 60% loan component?

A. Term loan limits and non-fund based limits.
B. Export credit limits (pre-shipment and post-shipment) and bills limit for inland sales.
C. Limits sanctioned for capital expenditure.
D. Ad hoc limits and Temporary Overdrafts (TODs).

Show Explanation

Correct Answer: B. Export credit limits (pre-shipment and post-shipment) and bills limit for inland sales. These specific limits are excluded from the total working capital limit before the 60/40 bifurcation into loan and cash credit components is applied.

Question 136: Why did an Internal Study Group (ISG) constituted by the Reserve Bank of India recommend a switchover from internal benchmarks like Base Rate/MCLR to an external benchmark system?

A. Because internal benchmarks led to excessive bank profitability.
B. Because internal benchmarks were too complex for borrowers to understand.
C. Because internal benchmarks had not delivered effective transmission of monetary policy.
D. Because external benchmarks were easier for banks to calculate.

Show Explanation

Correct Answer: C. Because internal benchmarks had not delivered effective transmission of monetary policy. The ISG observed that changes in the RBI’s policy rates were not adequately reflected in the lending rates set by banks using internal benchmarks, hindering monetary policy effectiveness.

Question 137: Since October 01, 2019, new floating rate loans extended by banks to Micro and Small Enterprises must be priced with reference to which benchmark?

A. Marginal Cost of Funds based Lending Rate (MCLR)
B. Base Rate
C. External Benchmark-based Lending Rate (EBLR)
D. Prime Lending Rate (PLR)

Show Explanation

Correct Answer: C. External Benchmark-based Lending Rate (EBLR). RBI mandated the use of EBLR for all new floating rate loans to MSEs from this date to ensure better transmission of policy rates.

Question 138: For Rupee loans sanctioned or credit limits renewed from April 1, 2016, which are not covered under the mandatory EBLR linkage (like certain corporate loans), what serves as the internal benchmark unless the bank switches them to EBLR?

A. Base Rate
B. Bank Rate
C. Prime Lending Rate (PLR)
D. Marginal Cost of Funds based Lending Rate (MCLR)

Show Explanation

Correct Answer: D. Marginal Cost of Funds based Lending Rate (MCLR). MCLR was introduced as the internal benchmark for loans sanctioned from this date onwards, replacing the earlier Base Rate system, for loan categories not mandated to be linked to EBLR.

Question 139: Which of the following is NOT a component used in the calculation of the Marginal Cost of Funds based Lending Rate (MCLR)?

A. Marginal cost of funds
B. Operating costs
C. Credit Risk Premium
D. Tenor premium

Show Explanation

Correct Answer: C. Credit Risk Premium. MCLR itself is the benchmark rate calculated based on cost of funds, negative carry on CRR, operating costs, and tenor premium. The Credit Risk Premium is added as part of the ‘spread’ over the MCLR to arrive at the final lending rate for a specific borrower.

Question 140: What does the ‘Negative carry on CRR’ component within the MCLR calculation account for?

A. The cost incurred by banks for maintaining excess reserves.
B. The administrative cost of managing the Cash Reserve Ratio.
C. The potential loss of interest income as banks earn no interest on CRR balances held with RBI.
D. The premium charged for lending for longer tenors.

Show Explanation

Correct Answer: C. The potential loss of interest income as banks earn no interest on CRR balances held with RBI. Since the mandatory CRR balances do not earn interest, this component represents the opportunity cost or loss incurred by the bank on those funds.

Question 141: Which of the following is explicitly mentioned as a permissible external benchmark that banks can use for linking their floating rate loans under EBLR?

A. The bank’s own deposit rate.
B. The inflation rate published by the government.
C. The Government of India 3-Months Treasury Bill yield published by FBIL.
D. The average lending rate of the top five banks.

Show Explanation

Correct Answer: C. The Government of India 3-Months Treasury Bill yield published by FBIL. RBI guidelines specify certain external benchmarks like the RBI repo rate or Treasury Bill yields published by FBIL that banks can choose from.

Question 142: Can a bank adopt multiple external benchmarks (e.g., Repo Rate for home loans and T-Bill Rate for MSME loans) within the same loan category under the EBLR framework?

A. Yes, banks have complete freedom to use multiple benchmarks.
B. Yes, but only if approved by their Board of Directors.
C. No, a bank must adopt a uniform external benchmark within a specific loan category.
D. No, unless the loan amount exceeds a certain threshold.

Show Explanation

Correct Answer: C. No, a bank must adopt a uniform external benchmark within a specific loan category. To ensure transparency and standardisation, RBI guidelines prohibit banks from using multiple external benchmarks within the same loan category.

Question 143: Under the MCLR framework, when is an increase in the spread charged to an existing borrower generally permitted?

A. Whenever the bank decides to increase its overall profitability.
B. Only on account of deterioration in the credit risk profile of the customer.
C. Annually, as per the bank’s policy review.
D. If the market interest rates have increased significantly.

Show Explanation

Correct Answer: B. Only on account of deterioration in the credit risk profile of the customer. For loans linked to MCLR, the spread cannot be increased unless the borrower’s credit risk profile worsens, supported by a risk review (except for consortium/multiple banking loans).

Question 144: Under the EBLR framework, how often can the ‘other components of spread’ (excluding credit risk premium), such as operating costs, be altered by the bank?

A. Monthly
B. Quarterly
C. Annually
D. Once in three years

Show Explanation

Correct Answer: D. Once in three years. While the credit risk premium under EBLR can change if the borrower’s credit assessment changes substantially, other components like operating cost included in the spread can only be revised once every three years.

Question 145: Can banks lend funds at rates below the relevant benchmark rate (MCLR or EBLR) for loans linked to that benchmark?

A. Yes, for high-value customers.
B. Yes, if approved by the branch manager.
C. No, there should be no lending below the benchmark rate for that maturity for loans linked to it.
D. No, except for loans guaranteed by the government.

Show Explanation

Correct Answer: C. No, there should be no lending below the benchmark rate for that maturity for loans linked to it. The benchmark rate serves as the floor rate for loans linked to it, and the final lending rate is determined by adding a spread.

Question 146: Which category of advances is explicitly exempted from the applicability of the MCLR guidelines?

A. Loans to Medium Enterprises.
B. Advances to the bank’s own employees.
C. Housing loans above a certain limit.
D. Working capital loans to large corporates.

Show Explanation

Correct Answer: B. Advances to the bank’s own employees. The guidelines provide specific exemptions from MCLR, including loans granted to the bank’s own staff and retired employees.

Question 147: Are fixed-rate loans completely exempt from any linkage to the MCLR benchmark?

A. Yes, all fixed-rate loans are exempt regardless of tenor.
B. No, fixed-rate loans with a tenor up to three years must have rates not less than the sum of MCLR components for the corresponding maturity.
C. No, all fixed-rate loans must be priced based on MCLR plus a fixed spreaD.
D. Yes, unless they are part of a hybrid loan structure.

Show Explanation

Correct Answer: B. No, fixed-rate loans with a tenor up to three years must have rates not less than the sum of MCLR components for the corresponding maturity. While fixed-rate loans over three years are exempt, shorter-term fixed-rate loans have a floor linked to the MCLR cost structure.

Question 148: What is the maximum permissible periodicity for the reset of interest rates for floating rate loans linked to MCLR?

A. Three months or lower.
B. Six months or lower.
C. One year or lower.
D. Three years or lower.

Show Explanation

Correct Answer: C. One year or lower. Banks must reset the interest rate on MCLR-linked loans at least once a year, and the exact periodicity must be mentioned in the loan contract.

Question 149: What is the minimum frequency for resetting the interest rate for loans linked to an External Benchmark (EBLR)?

A. At least once a month.
B. At least once in three months.
C. At least once in six months.
D. At least once a year.

Show Explanation

Correct Answer: B. At least once in three months. Interest rates linked to EBLR must be reset more frequently than MCLR loans, with a minimum reset frequency of once every three months.

Question 150: For existing floating rate loan borrowers (under BPLR/Base Rate/MCLR) who are eligible to prepay without charges, what condition applies if they opt to switch over to the EBLR regime?

A. They must pay standard foreclosure charges.
B. The switchover is permitted without any charges except reasonable administrative/legal costs.
C. They can switch over only if their loan tenure is more than 5 years.
D. The interest rate after switchover can be higher than the rate for new EBLR borrowers.

Show Explanation

Correct Answer: B. The switchover is permitted without any charges except reasonable administrative/legal costs. To facilitate migration, eligible borrowers can switch to EBLR without incurring prepayment or switchover fees, barring nominal administrative costs.

Question 151: When an eligible borrower switches an existing floating rate loan (linked to BPLR/Base Rate/MCLR) to the EBLR framework, what should the final rate charged post-switchover be comparable to?

A. The original rate at which the loan was sanctioned.
B. The average EBLR rate of the banking industry.
C. The rate charged for a new loan of the same category, type, tenor, and amount at that time.
D. The lowest EBLR rate offered by the bank.

Show Explanation

Correct Answer: C. The rate charged for a new loan of the same category, type, tenor, and amount at that time. The principle is that the switched borrower should get the same rate as a new borrower taking a similar loan under EBLR at the time of the switch.

Question 152: While banks are generally required to charge interest at monthly rests, what is the guideline regarding the periodicity of charging interest on agricultural advances for long duration crops?

A. Interest should be charged monthly.
B. Interest should be charged quarterly.
C. Interest should be charged at annual rates.
D. Interest should be charged only at the time of loan closure.

Show Explanation

Correct Answer: C. Interest should be charged at annual rates. Recognising the longer cycle of such crops, RBI guidelines specify annual charging of interest for long duration crop loans.

Question 153: For agricultural advances related to short duration crops and allied activities, how should banks determine the timing for charging interest?

A. Strictly at monthly rests, similar to other loans.
B. Based on due dates fixed considering the borrower’s cash flow (fluidity) and harvesting/marketing season.
C. Only after the crop has been successfully harvested and solD.
D. At a flat annual rate irrespective of the crop cycle.

Show Explanation

Correct Answer: B. Based on due dates fixed considering the borrower’s cash flow (fluidity) and harvesting/marketing season. The timing for interest charging and compounding (if overdue) for these loans should align with the specific agricultural cycle and the borrower’s repayment capacity.

Question 154: Is there a restriction on charging penal interest on loans granted to borrowers under the priority sector?

A. No, penal interest can be charged on all priority sector loans similar to other loans.
B. Yes, no penal interest should be charged for priority sector loans up to ₹25,000.
C. Yes, penal interest is completely prohibited for all priority sector loans regardless of the amount.
D. Yes, penal interest can only be charged if the default exceeds 90 days.

Show Explanation

Correct Answer: B. Yes, no penal interest should be charged for priority sector loans up to ₹25,000. For small loans under the priority sector classification up to this amount, banks are prohibited from levying penal interest.

Question 155: According to RBI guidelines, the policy formulated by banks for charging penal interest should be governed by which principles?

A. Maximising penalty income and discouraging all defaults.
B. Strict enforcement regardless of borrower circumstances.
C. Transparency, fairness, incentive to service debt, and consideration of genuine customer difficulties.
D. Uniform application of the highest possible penalty rate across all loan types.

Show Explanation

Correct Answer: C. Transparency, fairness, incentive to service debt, and consideration of genuine customer difficulties. While banks have freedom to set policy, it must be transparent, fair, encourage timely repayment, and account for genuine borrower problems, rather than being purely punitive.

Question 156: How is liquidity defined in the context of a bank’s operations?

A. The ability to generate profit from assets.
B. The capacity to fund increases in assets and meet obligations at reasonable cost without incurring unacceptable losses.
C. The ratio of liabilities to assets on the balance sheet.
D. The process of managing investment portfolios.

Show Explanation

Correct Answer: B. The capacity to fund increases in assets and meet obligations at reasonable cost without incurring unacceptable losses. Liquidity refers to a bank’s ability to manage its cash flow needs, covering both expected and unexpected demands for funds efficiently.

Question 157: Which of the following are considered primary liabilities for a bank?

A. Loans granted to customers.
B. Reserves held by the bank.
C. Clients’ deposits.
D. Investments made by the bank.

Show Explanation

Correct Answer: C. Clients’ deposits. Primary liabilities for a bank are funds it owes, with client deposits being the foremost example as they must be returned on demand.

Question 158: What constitutes a bank’s primary assets?

A. Deposits received from clients.
B. Borrowings from the central bank.
C. Reserves and loans.
D. Capital raised from shareholders.

Show Explanation

Correct Answer: C. Reserves and loans. Primary assets are what is owed to the bank; this includes reserves it holds and loans it has extended to borrowers.

Question 159: What is typically considered the primary source of liquidity for a bank?

A. Borrowing from other banks.
B. Raising additional capital.
C. The bank’s investment portfolio.
D. Selling existing loans.

Show Explanation

Correct Answer: C. The bank’s investment portfolio. While other options are sources of liquidity, the investment portfolio is generally regarded as the primary source.

Question 160: Besides the primary source, what is another way a bank can generate liquidity?

A. Increasing interest rates on loans.
B. Reducing operational expenses.
C. Selling loans or borrowing from other banks or the central bank.
D. Merging with another financial institution.

Show Explanation

Correct Answer: C. Selling loans or borrowing from other banks or the central bank. Banks have several secondary methods to obtain liquidity, including interbank borrowing, central bank facilities, and loan sales.

Question 161: What situation might lead to a ‘bank run’?

A. A sudden increase in the bank’s profits.
B. The bank’s inability to generate adequate cash to meet depositors’ demands without substantial losses.
C. A decrease in the bank’s lending activities.
D. An increase in the bank’s capital reserves.

Show Explanation

Correct Answer: B. The bank’s inability to generate adequate cash to meet depositors’ demands without substantial losses. A bank run occurs when many depositors withdraw their funds simultaneously due to fears about the bank’s solvency, which the bank may struggle to meet without incurring significant losses.

Question 162: According to the Principles for Sound Liquidity Risk Management and Supervision (2008), who holds the responsibility for setting a bank’s liquidity risk tolerance?

A. Only the Senior Management.
B. Only the Board of Directors.
C. The Board of Directors and Senior Management (e.g., ALCO).
D. External auditors.

Show Explanation

Correct Answer: C. The Board of Directors and Senior Management (e.g., ALCO). The governance principles assign joint responsibility to the Board and Senior Management for establishing the bank’s approach to liquidity risk.

Question 163: What is the primary objective of the Liquidity Coverage Ratio (LCR)?

A. To promote long-term funding stability.
B. To ensure a bank has sufficient high-quality liquid assets to survive a one-month stress period.
C. To limit the bank’s overall leverage.
D. To calculate the bank’s profitability.

Show Explanation

Correct Answer: B. To ensure a bank has sufficient high-quality liquid assets to survive a one-month stress period. The LCR aims to enhance short-term resilience by requiring banks to hold assets that can be easily converted to cash during a stress scenario.

Question 164: Which assets are typically included in the calculation of High Quality Liquid Assets (HQLA) for LCR?

A. Only cash.
B. Cash and certain government securities.
C. Loans and advances.
D. Property and equipment owned by the bank.

Show Explanation

Correct Answer: B. Cash and certain government securities. HQLA primarily consists of cash, government securities exceeding the minimum SLR requirement, and certain securities within the mandatory SLR allowed under specific facilities like the Marginal Standing Facility.

Question 165: What is the minimum required level for the Liquidity Coverage Ratio (LCR)?

A. 50%
B. 75%
C. 100%
D. 125%

Show Explanation

Correct Answer: C. 100%. The LCR requirement mandates that the stock of HQLA must be at least equal to the total net cash outflows over a 30-day stress period.

Question 166: What is the purpose of the Net Stable Funding Ratio (NSFR)?

A. To measure short-term liquidity needs.
B. To promote resilience over a longer term by encouraging stable funding sources.
C. To calculate the capital adequacy ratio.
D. To assess credit risk in the loan portfolio.

Show Explanation

Correct Answer: B. To promote resilience over a longer term by encouraging stable funding sources. The NSFR focuses on ensuring banks maintain a stable funding profile over a one-year horizon to support their activities.

Question 167: How is the Net Stable Funding Ratio (NSFR) calculated?

A. Total Assets / Total Liabilities
B. Available Amount of Stable Funding / Required Amount of Stable Funding
C. Tier 1 Capital / Total Exposures
D. Stock of HQLA / Net Cash Outflows

Show Explanation

Correct Answer: B. Available Amount of Stable Funding / Required Amount of Stable Funding. The NSFR compares the amount of stable funding a bank has available with the amount it requires based on its assets and off-balance sheet activities.

Question 168: What constitutes ‘Available Stable Funding’ in the NSFR calculation?

A. Short-term borrowings expected to mature within 30 days.
B. The portion of capital and liabilities considered reliable over a one-year time horizon.
C. Assets that can be quickly converted to cash.
D. Gross income generated by the bank.

Show Explanation

Correct Answer: B. The portion of capital and liabilities considered reliable over a one-year time horizon. Available stable funding includes sources like equity, long-term debt, and stable deposits expected to remain with the bank for at least one year.

Question 169: What determines the ‘Required Stable Funding’ in the NSFR calculation?

A. The bank’s expected profits for the next year.
B. The total value of high-quality liquid assets held.
C. The liquidity characteristics and residual maturities of the bank’s assets and off-balance sheet exposures.
D. The amount of short-term liabilities held by the bank.

Show Explanation

Correct Answer: C. The liquidity characteristics and residual maturities of the bank’s assets and off-balance sheet exposures. Required stable funding is calculated based on the nature of a bank’s assets and commitments, assigning higher requirements to less liquid assets.

Question 170: Which of the following is typically categorised under Operating Income for a bank?

A. Provisions made for potential loan losses.
B. Interest income from loans and investments.
C. Staff salaries and administrative expenses.
D. Write-back of provisions previously made.

Show Explanation

Correct Answer: B. Interest income from loans and investments. Operating income primarily consists of earnings generated from core banking activities, such as interest earned on assets and fees for services.

Question 171: Which of the following is considered an Expense for a bank?

A. Interest income received on loans.
B. Fees earned from commissions.
C. Interest paid on deposits.
D. Write-back of provisions for loan losses.

Show Explanation

Correct Answer: C. Interest paid on deposits. Expenses represent the costs incurred by the bank, including interest paid to depositors, staff costs, and provisions for potential losses.

Question 172: What is the fundamental purpose of the Capital Conservation Buffer (CCB)?

A. To increase bank profitability during normal times.
B. To ensure banks build up capital buffers during normal times that can be drawn down during stressed periods.
C. To provide a measure of a bank’s leverage.
D. To fund expansion into new markets.

Show Explanation

Correct Answer: B. To ensure banks build up capital buffers during normal times that can be drawn down during stressed periods. The CCB aims to enhance a bank’s resilience by requiring extra capital accumulation in good times to absorb losses during downturns.

Question 173: How are banks expected to rebuild their Capital Conservation Buffer if it has been drawn down?

A. By increasing lending activities significantly.
B. By reducing discretionary distributions such as dividends and staff bonuses.
C. By decreasing the interest rates offered on deposits.
D. By investing heavily in high-risk assets.

Show Explanation

Correct Answer: B. By reducing discretionary distributions such as dividends and staff bonuses. When buffers are depleted, conserving earnings by limiting payouts like dividends or bonuses is a primary method for rebuilding them, alongside potentially raising new capital.

Question 174: What does the Leverage Ratio measure?

A. The bank’s profitability relative to its assets.
B. The proportion of high-quality liquid assets held by the bank.
C. The relationship between a bank’s Tier 1 capital and its total exposure measure.
D. The ratio of non-performing assets to total loans.

Show Explanation

Correct Answer: C. The relationship between a bank’s Tier 1 capital and its total exposure measure. The Leverage Ratio provides a non-risk-based measure of solvency by comparing core capital to the bank’s overall balance sheet size.

Question 175: What is the primary goal of the Countercyclical Capital Buffer (CCCB)?

A. To ensure banks have enough liquid assets for short-term stress.
B. To require banks to build up extra capital during periods of excessive credit growth.
C. To measure the operational risk faced by the bank.
D. To set minimum capital requirements based on risk-weighted assets.

Show Explanation

Correct Answer: B. To require banks to build up extra capital during periods of excessive credit growth. The CCCB aims to moderate excessive lending during economic booms by increasing capital requirements, which can then be released during downturns to support lending.

Question 176: What was the primary objective behind introducing prudential norms for income recognition, asset classification, and provisioning for bank advances in India?

A. To decrease the operational costs for banks.
B. To align with international practices and increase consistency and transparency in published accounts.
C. To simplify the loan application process for borrowers.
D. To encourage banks to lend more aggressively.

Show Explanation

Correct Answer: B. To align with international practices and increase consistency and transparency in published accounts. These norms were introduced following recommendations from the Committee on the Financial System (Chairman Shri M. Narasimham) to improve the reliability and clarity of bank financial statements.

Question 177: How is a non-performing asset (NPA) generally defined for a bank?

A. An asset generating higher than expected income.
B. Any asset held by the bank for more than one year.
C. An asset, including a leased asset, that ceases to generate income for the bank.
D. An asset that has been fully repaid by the borrower.

Show Explanation

Correct Answer: C. An asset, including a leased asset, that ceases to generate income for the bank. The core definition of an NPA is based on its failure to produce income for the lending institution.

Question 178: Under what condition does a standard term loan become classified as a non-performing asset (NPA)?

A. When the borrower requests a restructuring of the loan.
B. When the interest or principal instalment remains overdue for more than 90 days.
C. When the loan amount exceeds a certain predefined limit.
D. When the collateral value decreases significantly.

Show Explanation

Correct Answer: B. When the interest or principal instalment remains overdue for more than 90 days. For term loans, the specific trigger for NPA classification is a payment default exceeding the 90-day period.

Question 179: When is a Cash Credit (CC) or Overdraft (OD) account treated as ‘out of order’?

A. If the account holder makes frequent withdrawals.
B. If the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days.
C. If the account has a positive balance for 30 consecutive days.
D. If the interest rate charged on the account is changed.

Show Explanation

Correct Answer: B. If the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. An OD/CC account is also considered ‘out of order’ if credits are insufficient to cover interest debited or if there are no credits for 90 days, even below the limit.

Question 180: If an Overdraft (OD) account operates within its sanctioned limit but has had no credits deposited into it for a continuous period, how long must this situation persist for the account to be classified as ‘out of order’?

A. 30 days
B. 60 days
C. 90 days
D. 120 days

Show Explanation

Correct Answer: C. 90 days. Even if the balance is within limits, an absence of any credits for 90 consecutive days renders an OD/CC account ‘out of order’.

Question 181: For bills purchased or discounted by a bank, when are they classified as non-performing assets (NPA)?

A. Immediately upon purchase or discount.
B. If the bill remains overdue for more than 30 days.
C. If the bill remains overdue for more than 90 days.
D. If the amount of the bill exceeds the bank’s internal limit.

Show Explanation

Correct Answer: C. If the bill remains overdue for more than 90 days. Similar to term loans, a 90-day overdue period is the criterion for classifying unpaid bills purchased or discounted as NPAs.

Question 182: In the context of agricultural loans for short duration crops, when does the loan become an NPA?

A. If the principal or interest remains overdue for one crop season.
B. If the principal or interest remains overdue for two crop seasons.
C. If the principal or interest remains overdue for more than 90 days.
D. If the crop yield is lower than expected.

Show Explanation

Correct Answer: B. If the principal or interest remains overdue for two crop seasons. For short duration crops, the NPA classification depends on the number of overdue crop seasons, not a fixed number of days.

Question 183: For agricultural loans associated with long duration crops, what is the overdue period condition for classifying the loan as an NPA?

A. Overdue for more than 90 days.
B. Overdue for one crop season.
C. Overdue for two crop seasons.
D. Overdue for more than 180 days.

Show Explanation

Correct Answer: B. Overdue for one crop season. Loans for long duration crops (those with a season longer than one year) are classified as NPA if principal or interest is overdue for a single crop season.

Question 184: Who determines the ‘crop season’ duration for different crops in each State, which is used for classifying agricultural loans as NPAs?

A. The individual bank branch manager.
B. The Reserve Bank of India central office.
C. The State Level Bankers’ Committee (SLBC).
D. The Ministry of Agriculture.

Show Explanation

Correct Answer: C. The State Level Bankers’ Committee (SLBC). The SLBC in each state is responsible for defining the crop season duration, which forms the basis for NPA classification timelines for agricultural advances.

Question 185: When does an overdue receivable from a derivative transaction, representing a positive mark-to-market value, lead to an NPA classification?

A. If it remains unpaid for 30 days from the due date.
B. If it remains unpaid for 60 days from the due date.
C. If it remains unpaid for 90 days from the specified due date.
D. As soon as the payment becomes overdue.

Show Explanation

Correct Answer: C. If it remains unpaid for 90 days from the specified due date. Overdue positive mark-to-market values on derivative contracts are treated as NPA if they are not settled within 90 days of their due date.

Question 186: What fundamental principle governs the policy of income recognition for banks regarding advances?

A. It should be based on the potential profitability of the borrower.
B. It must be subjective and consider the bank’s overall financial health.
C. It has to be objective and based on the actual record of recovery.
D. It should prioritize recognizing income as early as possible.

Show Explanation

Correct Answer: C. It has to be objective and based on the actual record of recovery. The norms mandate that income recognition should rely on tangible evidence of recovery rather than assumptions or subjective assessments.

Question 187: What is the general rule regarding charging interest and taking it to the income account for a Non-Performing Asset (NPA)?

A. Banks can charge interest if the loan is guaranteed by the government.
B. Banks should not charge and take interest to the income account on any NPA.
C. Banks can charge interest if the collateral value is sufficient.
D. Banks should charge interest but keep it in a suspense account.

Show Explanation

Correct Answer: B. Banks should not charge and take interest to the income account on any NPA. This rule applies universally to NPAs, including those with government guarantees, based on the principle of objective income recognition tied to recovery.

Question 188: Under what specific condition can banks take interest to the income account on the due date for advances against Term Deposits, NSCs, KVPs, and life insurance policies, even if potentially classifiable as NPA otherwise?

A. If the loan amount is below a certain threshold.
B. If the borrower provides additional collateral.
C. If adequate margin is available in the accounts.
D. If the interest rate on the advance is very low.

Show Explanation

Correct Answer: C. If adequate margin is available in the accounts. An exception exists for these specific secured advances, allowing income recognition only if the security’s value sufficiently covers the outstanding amount (principal plus interest).

Question 189: On what basis should banks classify non-performing assets?

A. Facility-wise, classifying each loan separately.
B. Borrower-wise, considering all facilities extended to a single borrower together.
C. Based on the industry sector of the borrower.
D. According to the size of the loan outstanding.

Show Explanation

Correct Answer: B. Borrower-wise, considering all facilities extended to a single borrower together. Asset classification norms require banks to assess the NPA status based on the overall position of a borrower, not just individual loans.

Question 190: How is a ‘Substandard Asset’ defined based on the duration it has remained an NPA?

A. An asset that has remained NPA for more than 12 months.
B. An asset that has remained NPA for a period less than or equal to 12 months.
C. An asset that has remained NPA for exactly 6 months.
D. An asset identified as having unrecoverable loss.

Show Explanation

Correct Answer: B. An asset that has remained NPA for a period less than or equal to 12 months. This is the initial category for NPAs after the standard 90-day overdue period, indicating defined credit weaknesses.

Question 191: What characteristic defines a ‘Doubtful Asset’?

A. It has remained NPA for less than 6 months.
B. It has remained in the substandard category for a period of 12 months.
C. It shows temporary credit weaknesses that can be easily correcteD.
D. It is fully secured by government securities.

Show Explanation

Correct Answer: B. It has remained in the substandard category for a period of 12 months. An asset transitions from substandard to doubtful after 12 months in the substandard category, signifying higher improbability of full recovery.

Question 192: What defines a ‘Loss Asset’?

A. An asset that has been NPA for exactly 12 months.
B. An asset secured by inadequate collateral.
C. An asset where loss has been identified by the bank or auditors, and it is considered uncollectible.
D. An asset classified as substandard for more than 6 months.

Show Explanation

Correct Answer: C. An asset where loss has been identified by the bank or auditors, and it is considered uncollectible. Loss assets have negligible value, and their continuation as bankable assets isn’t warranted, even if some minor recovery is possible.

Question 193: Which types of advances are specifically exempted from being treated as NPAs provided adequate margin exists?

A. Advances against gold ornaments and government securities.
B. Advances against plant and machinery.
C. Advances against term deposits, NSCs eligible for surrender, KVPs, and life insurance policies.
D. Advances against book debts and receivables.

Show Explanation

Correct Answer: C. Advances against term deposits, NSCs eligible for surrender, KVPs, and life insurance policies. These specific advances have an exemption due to the nature of the security, but only if sufficient margin covers the outstanding dues.

Question 194: When is a credit card account classified as a non-performing asset?

A. If the cardholder exceeds the credit limit.
B. If the full outstanding balance is not paid within 90 days of the statement date.
C. If the minimum amount due is not paid fully within 90 days from the payment due date mentioned in the statement.
D. If the cardholder uses the card for cash withdrawals frequently.

Show Explanation

Correct Answer: C. If the minimum amount due is not paid fully within 90 days from the payment due date mentioned in the statement. The trigger for NPA status in credit cards is the non-payment of the minimum due amount within the 90-day timeframe from the specified due date.

Question 195: How long must an infrastructure project loan fail to commence commercial operations beyond its original Date of Commencement of Commercial Operations (DCCO) to be classified as NPA?

A. 6 months
B. 1 year
C. 2 years
D. 3 years

Show Explanation

Correct Answer: C. 2 years. An infrastructure project loan is classified as NPA if commercial operations do not start within two years from the originally scheduled DCCO.

Question 196: What is the primary basis for determining the provisioning requirement for non-performing assets according to prudential norms?

A. The borrower’s credit history.
B. The classification of assets into prescribed categories (Substandard, Doubtful, Loss).
C. The overall profitability of the bank.
D. The prevailing interest rates.

Show Explanation

Correct Answer: B. The classification of assets into prescribed categories (Substandard, Doubtful, Loss). Prudential norms require provisions to be made based on how an NPA is categorised, reflecting its perceived risk and recovery prospects.

Question 197: What should a bank do with an asset classified as a ‘Loss Asset’?

A. Apply a 25% provision.
B. Write it off or provide 100% of the outstanding amount if kept on the books.
C. Apply a 15% provision.
D. Reclassify it as doubtful after 12 months.

Show Explanation

Correct Answer: B. Write it off or provide 100% of the outstanding amount if kept on the books. Loss assets are considered uncollectible, necessitating either a full write-off or a 100% provision if maintained in the accounts for any reason.

Question 198: For a ‘Doubtful Asset’, what provision is required for the portion of the advance not covered by the realisable value of the security?

A. 25%
B. 40%
C. 50%
D. 100%

Show Explanation

Correct Answer: D. 100%. The unsecured portion of a doubtful asset, meaning the amount exceeding the realistically estimated value of the security, must be fully provided for at 100%.

Question 199: If the secured portion of an advance has remained in the ‘doubtful’ category for a period of up to one year, what is the required provisioning percentage?

A. 15%
B. 25%
C. 40%
D. 100%

Show Explanation

Correct Answer: B. 25%. For the secured part of a doubtful asset, the provision requirement is 25% during its first year in the doubtful category.

Question 200: What is the provisioning requirement for the secured portion of an advance that has remained in the ‘doubtful’ category for more than three years?

A. 25%
B. 40%
C. 75%
D. 100%

Show Explanation

Correct Answer: D. 100%. Once a secured doubtful asset remains in that category for over three years, the provision requirement increases to 100% of the secured portion.

Question 201: What is the general provision requirement for assets classified as ‘Substandard’?

A. 10% on the total outstanding amount.
B. 15% on the total outstanding amount.
C. 25% on the total outstanding amount.
D. 40% on the total outstanding amount.

Show Explanation

Correct Answer: B. 15% on the total outstanding amount. A standard provision of 15% is applied to all substandard assets, calculated on the total outstanding balance without considering security or guarantees at this stage.

Question 202: What additional provision is required for ‘unsecured exposures’ that are classified as ‘Substandard’?

A. An additional 5%, making a total of 20%.
B. An additional 10%, making a total of 25%.
C. An additional 15%, making a total of 30%.
D. No additional provision is required.

Show Explanation

Correct Answer: B. An additional 10%, making a total of 25%. Unsecured substandard exposures attract a higher total provision of 25% (15% general + 10% additional) due to the lack of security.

Question 203: How is an ‘unsecured exposure’ defined for provisioning purposes?

A. Where the realisable value of security is less than 50% of the outstanding exposure.
B. Where there is no security pledged against the loan.
C. Where the realisable value of security is not more than 10% of the outstanding exposure.
D. Where the security consists only of personal guarantees.

Show Explanation

Correct Answer: C. Where the realisable value of security is not more than 10% of the outstanding exposure. An exposure is considered unsecured if the assessed value of the security is 10% or less of the outstanding loan amount from the beginning.

Question 204: What is the general provisioning rate required for standard assets in the ‘Farm Credit to agricultural activities’ sector?

A. 0.40%
B. 1.00%
C. 0.75%
D. 0.25%

Show Explanation

Correct Answer: D. 0.25%. Standard assets related to farm credit for agriculture, individual housing loans, and SME sectors require a general provision of 0.25% on the funded outstanding amount.

Question 205: What provisioning rate applies to standard assets classified as advances to the ‘Commercial Real Estate (CRE)’ Sector?

A. 0.25%
B. 0.40%
C. 1.00%
D. 0.75%

Show Explanation

Correct Answer: C. 1.00%. Advances to the standard Commercial Real Estate (CRE) sector require a higher general provision of 1.00%.

Question 206: For standard assets representing ‘All other loans and advances’ not specifically categorised elsewhere (like Agri, SME, CRE, CRE-RH, Teaser, Restructured), what is the applicable general provisioning rate?

A. 0.25%
B. 0.40%
C. 0.75%
D. 1.00%

Show Explanation

Correct Answer: B. 0.40%. A general provision rate of 0.40% applies to all standard assets that do not fall into the specifically mentioned categories with different rates.

Question 207: How should a bank make provisions for an advance classified as doubtful but guaranteed by the Export Credit Guarantee Corporation (ECGC)?

A. Provision should be made on the full outstanding amount.
B. No provision is required due to the guarantee.
C. Provision should be made only for the balance amount exceeding the ECGC guarantee.
D. A flat 15% provision should be made on the guaranteed portion.

Show Explanation

Correct Answer: C. Provision should be made only for the balance amount exceeding the ECGC guarantee. For doubtful advances guaranteed by ECGC, the provision is calculated only on the portion of the loan not covered by the guarantee.

Question 208: If an advance guaranteed under schemes like CGTMSE or NCGTC becomes non-performing, what provision is required for the portion covered by the guarantee?

A. 15% provision.
B. 100% provision.
C. No provision needs to be made towards the guaranteed portion.
D. 0.40% provision.

Show Explanation

Correct Answer: C. No provision needs to be made towards the guaranteed portion. For NPAs covered by specified credit guarantee schemes (where zero risk weight is applicable), banks are exempt from making provisions on the guaranteed part.

Question 209: When foreign currency denominated loans (disbursed in Rupees) require revaluation due to adverse exchange rate movements, how should the loss on revaluation be treated?

A. It should be ignored for accounting purposes.
B. It should be added to the bank’s capital reserves.
C. It has to be booked in the bank’s Profit & Loss Account.
D. It should be deducted directly from the provision amount.

Show Explanation

Correct Answer: C. It has to be booked in the bank’s Profit & Loss Account. Any loss arising from the revaluation of such assets due to exchange rate fluctuations must be recorded as an expense in the Profit & Loss account.

Question 210: If revaluation of a foreign currency denominated asset results in a gain due to exchange rate fluctuation, how should this gain be utilised?

A. It should be distributed as dividends to shareholders.
B. It should be added directly to the bank’s Tier 1 capital.
C. The full amount should be used to make provisions against the corresponding asset, in addition to standard NPA provisions.
D. It can be recognised immediately as income.

Show Explanation

Correct Answer: C. The full amount should be used to make provisions against the corresponding asset, in addition to standard NPA provisions. Any revaluation gain due to favourable currency movement must be set aside fully as additional provision against that specific asset.

Question 211: What does the Provisioning Coverage Ratio (PCR) primarily indicate?

A. The bank’s profitability margin.
B. The ratio of Tier 1 capital to risk-weighted assets.
C. The extent of funds a bank has set aside to cover loan losses, relative to gross NPAs.
D. The ratio of liquid assets to total assets.

Show Explanation

Correct Answer: C. The extent of funds a bank has set aside to cover loan losses, relative to gross NPAs. PCR measures the proportion of gross non-performing assets for which provisions (funds set aside) have been made.

Question 212: From a macro-prudential viewpoint, when is it considered ideal for banks to build up provisioning and capital buffers?

A. During economic downturns.
B. When profits are good (good times).
C. When interest rates are low.
D. Only when mandated by specific regulatory instructions.

Show Explanation

Correct Answer: B. When profits are good (good times). The macro-prudential approach suggests banks should accumulate buffers during profitable periods to absorb losses during subsequent downturns, enhancing stability.

Question 213: What minimum total provisioning coverage ratio (including floating provisions) were banks advised to maintain?

A. 50%
B. 60%
C. 70%
D. 100%

Show Explanation

Correct Answer: C. 70%. To enhance soundness, banks were advised to augment provisions to ensure the total PCR, including floating provisions, reached at least 70%.

Question 214: Why is the asset quality of banks considered a crucial indicator?

A. It determines the bank’s market share.
B. It is one of the most important indicators of their financial health.
C. It directly impacts the interest rates offered on deposits.
D. It reflects the bank’s ability to attract foreign investment.

Show Explanation

Correct Answer: B. It is one of the most important indicators of their financial health. Asset quality, particularly the level of non-performing assets, significantly reflects a bank’s stability and financial condition.

Question 215: For effective NPA management, what kind of mechanism should banks implement for early detection of distress?

A. A manual system based on branch manager reports.
B. A robust Management Information System (MIS) mechanism.
C. Periodic review meetings with large borrowers only.
D. An annual external audit process.

Show Explanation

Correct Answer: B. A robust Management Information System (MIS) mechanism. Banks require strong MIS to detect early warning signs of stress at both individual account and segment levels.

Question 216: According to the framework for resolution of stressed assets, how should lenders classify loan accounts immediately upon default to recognise incipient stress?

A. As Non-Performing Assets (NPA).
B. As Loss Assets.
C. As Special Mention Accounts (SMA).
D. As Restructured Assets.

Show Explanation

Correct Answer: C. As Special Mention Accounts (SMA). SMA classification is the first step upon default to identify and report early stress before an account potentially becomes an NPA.

Question 217: How is an account classified under the SMA-0 sub-category?

A. Principal or interest payment is overdue between 31 to 60 days.
B. Principal or interest payment is overdue up to 30 days.
C. Principal or interest payment is overdue between 61 to 90 days.
D. The account balance exceeds the sanctioned limit.

Show Explanation

Correct Answer: B. Principal or interest payment is overdue up to 30 days. SMA-0 covers the initial period of default, where payments are overdue for 1 to 30 days.

Question 218: For revolving credit facilities like cash credit or overdraft, how is an account classified under the SMA-2 sub-category?

A. Outstanding balance exceeds limit/drawing power for 1 to 30 days.
B. Outstanding balance exceeds limit/drawing power for more than 30 days and up to 60 days.
C. Outstanding balance exceeds limit/drawing power for more than 60 days and up to 90 days.
D. Outstanding balance exceeds limit/drawing power for more than 90 days.

Show Explanation

Correct Answer: C. Outstanding balance exceeds limit/drawing power for more than 60 days and up to 90 days. For CC/OD accounts, SMA-2 applies when the excess outstanding persists beyond 60 days but not more than 90 days.

Question 219: To which central repository must scheduled commercial banks report credit information, including SMA classification, for borrowers with aggregate exposure above a certain threshold?

A. CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India)
B. CIC (Credit Information Companies)
C. CRILC (Central Repository of Information on Large Credits)
D. RBI (Reserve Bank of India) Database

Show Explanation

Correct Answer: C. CRILC (Central Repository of Information on Large Credits). Banks report credit data, including SMA status, for borrowers with aggregate exposure of ₹5 crore and above to CRILC.

Question 220: How frequently are banks advised to forward data on wilful defaulters (suit filed and non-suit filed accounts of ₹25 lakh and above) to Credit Information Companies (CICs)?

A. Quarterly
B. Half-yearly
C. Annually
D. At the earliest, but not later than a month from the reporting date.

Show Explanation

Correct Answer: D. At the earliest, but not later than a month from the reporting date. To ensure timely information dissemination, banks should report wilful defaulter data to CICs promptly, within a month.

Question 221: What is the primary purpose of CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India)?

A. To provide credit scores for borrowers.
B. To act as a central repository for large credits (CRILC).
C. To register transactions relating to securitisation, asset reconstruction, and security interests created by banks.
D. To regulate the functioning of Credit Information Companies.

Show Explanation

Correct Answer: C. To register transactions relating to securitisation, asset reconstruction, and security interests created by banks. CERSAI serves as a central registry for recording security interests in various types of assets.

Question 222: Which type of security interest creation are banks required to register with CERSAI?

A. Mortgage by deposit of title deeds.
B. Hypothecation of plant and machinery, stocks, or debts.
C. Security interest in intangible assets like patents or trademarks.
D. All of the above.

Show Explanation

Correct Answer: D. All of the above. Banks must register various types of security interests created, including different forms of mortgages, hypothecation of movable assets, and charges on intangible assets, with CERSAI.

Question 223: What historical event popularised the term ‘Settlement Risk’ and contributed to the formation of the Basel Committee on Banking Supervision (BCBS)?

A. The Latin American debt crisis.
B. The failure of Bankhaus Herstatt in Germany in 1974.
C. The Asian financial crisis of 1997.
D. The Global Financial Crisis of 2008.

Show Explanation

Correct Answer: B. The failure of Bankhaus Herstatt in Germany in 1974. The collapse of Bankhaus Herstatt highlighted settlement risk in foreign exchange transactions and led to the establishment of the BCBS by G-10 countries.

Question 224: What are the three main pillars of the Basel Capital Framework?

A. Credit Risk, Market Risk, Operational Risk.
B. Minimum Capital Requirement, Supervisory Review, Market Discipline.
C. Tier 1 Capital, Tier 2 Capital, Tier 3 Capital.
D. Liquidity Coverage Ratio, Net Stable Funding Ratio, Leverage Ratio.

Show Explanation

Correct Answer: B. Minimum Capital Requirement, Supervisory Review, Market Discipline. The Basel framework is structured around these three pillars to ensure comprehensive regulation and supervision.

Question 225: Which types of risks are explicitly covered under Pillar 1 (Minimum Capital Requirements) of the Basel framework?

A. Only Credit Risk.
B. Credit Risk and Market Risk only.
C. Credit Risk, Market Risk, and Operational Risk.
D. Liquidity Risk and Interest Rate Risk.

Show Explanation

Correct Answer: C. Credit Risk, Market Risk, and Operational Risk. Pillar 1 sets out the calculation methods for minimum capital requirements against these three major risk categories.

Question 226: Which category of capital is considered ‘Going Concern’ capital, capable of absorbing losses without triggering bank bankruptcy?

A. Only Tier 2 Capital.
B. Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) Capital.
C. Only Common Equity Tier 1 (CET1) Capital.
D. Subordinated Debt included in Tier 2.

Show Explanation

Correct Answer: B. Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) Capital. Both CET1 (highest quality) and AT1 capital are designed to absorb losses while the bank continues to operate.

Question 227: What constitutes ‘Gone Concern’ capital, which absorbs losses primarily during liquidation?

A. Common Equity Tier 1 (CET1).
B. Additional Tier 1 (AT1).
C. Tier 2 Capital.
D. Retained Earnings.

Show Explanation

Correct Answer: C. Tier 2 Capital. Tier 2 capital instruments, like subordinated debt, absorb losses only after a bank has failed and is being liquidated.

Question 228: What is the minimum required Common Equity Tier 1 (CET1) ratio as a percentage of risk-weighted assets (RWAs) under the Basel III framework as implemented in India?

A. 4.5%
B. 5.5%
C. 7.0%
D. 9.0%

Show Explanation

Correct Answer: B. 5.5%. Banks are required to maintain a minimum CET1 ratio of 5.5% of RWAs.

Question 229: What is the maximum percentage of Risk-Weighted Assets (RWAs) that Additional Tier 1 (AT1) capital can constitute within the minimum Tier 1 capital requirement?

A. 1.0%
B. 1.5%
C. 2.0%
D. 2.5%

Show Explanation

Correct Answer: B. 1.5%. Within the minimum Tier 1 ratio of 7%, AT1 capital is capped at 1.5% of RWAs.

Question 230: What is the maximum percentage of Risk-Weighted Assets (RWAs) that Tier 2 capital can constitute within the minimum Capital to Risk-weighted Assets Ratio (CRAR) of 9%?

A. 1.5%
B. 2.0%
C. 2.5%
D. 3.5%

Show Explanation

Correct Answer: B. 2.0%. Within the overall minimum CRAR of 9%, the contribution of Tier 2 capital is limited to a maximum of 2% of RWAs.

Question 231: Besides the minimum capital ratios, what additional buffer is designed to absorb losses during periods of financial and economic stress?

A. Leverage Ratio Buffer.
B. Market Risk Buffer.
C. Capital Conservation Buffer (CCB).
D. Operational Risk Buffer.

Show Explanation

Correct Answer: C. Capital Conservation Buffer (CCB). The CCB is an additional layer of CET1 capital required above the minimum, intended to be used to absorb losses during stressed periods.

Question 232: What is the formula for calculating the Capital to Risk-weighted Assets Ratio (CRAR)?

A. Total Assets / Total Capital
B. (Tier 1 Capital / Total Risk Weighted Assets)
C. (Total Capital / Total Risk Weighted Assets)
D. (Tier 1 Capital + Tier 2 Capital) / Total Assets

Show Explanation

Correct Answer: C. (Total Capital / Total Risk Weighted Assets). CRAR is calculated by dividing the bank’s total eligible capital (Tier 1 + Tier 2) by its total risk-weighted assets.

Question 233: What risk weight is applied to direct claims on the central government or claims guaranteed by the central government?

A. 0%
B. 10%
C. 20%
D. 50%

Show Explanation

Correct Answer: A. 0%. Exposures to the central government (direct or guaranteed) are considered risk-free and assigned a 0% risk weight.

Question 234: What risk weight is applied to claims guaranteed by a state government in India?

A. 0%
B. 10%
C. 20%
D. 50%

Show Explanation

Correct Answer: C. 20%. While direct claims on state governments carry 0% risk weight, claims guaranteed by state governments attract a 20% risk weight.

Question 235: What is the prescribed capital charge for Operational Risk under the Basic Indicator Approach, expressed as a fixed percentage of average gross income?

A. 10%
B. 12%
C. 15%
D. 20%

Show Explanation

Correct Answer: C. 15%. Under the Basic Indicator Approach, the capital charge for operational risk is calculated as a fixed 15% of the bank’s average gross income over the previous three years.

Question 236: Under which of the following conditions is a Cash Credit (CC) or Overdraft (OD) account considered ‘out of order’?

A. The outstanding balance continuously exceeds the sanctioned limit/drawing power for 90 days.
B. The outstanding balance is within the limit/drawing power, but no credits are received for 90 days.
C. The outstanding balance is within the limit/drawing power, but credits received during the 90 days are insufficient to cover the interest debited during that perioD.
D. All of the above conditions individually qualify the account as ‘out of order’.

Show Explanation

Correct Answer: D. All of the above conditions individually qualify the account as ‘out of order’. An OD/CC account becomes ‘out of order’ if the balance exceeds the limit for 90 days, or if credits are absent or insufficient to cover interest for 90 days even when within the limit.

Question 237: For agricultural advances involving short duration crops, when is the account classified as a Non-Performing Asset (NPA)?

A. When the instalment of principal or interest remains overdue for 1 crop season.
B. When the instalment of principal or interest remains overdue for 2 crop seasons.
C. When the instalment of principal or interest remains overdue for 3 crop seasons.
D. When the instalment of principal or interest remains overdue for 90 days.

Show Explanation

Correct Answer: B. When the instalment of principal or interest remains overdue for 2 crop seasons. NPA classification for short duration crop loans is linked to crop seasons, specifically becoming NPA after two consecutive seasons of overdue payments.

Question 238: Which statement accurately reflects the income recognition policy for Non-Performing Assets (NPAs)?

A. Banks must recognise income on NPAs if they are guaranteed by the government.
B. Banks should not recognise income on any NPA, including government-guaranteed ones, unless interest is actually realised.
C. Banks can always recognise income on advances against Term Deposits or NSCs on the due date, regardless of margin.
D. Banks should recognise income accrued on NPAs but reverse it only at year-end.

Show Explanation

Correct Answer: B. Banks should not recognise income on any NPA, including government-guaranteed ones, unless interest is actually realised. The policy requires income recognition to be based on actual recovery; however, an exception allows recognition on dues against specific securities like TDs, NSCs, KVPs, life policies if adequate margin exists.

Question 239: How is a ‘Doubtful Asset’ primarily defined in the context of asset classification?

A. An asset that has remained NPA for a period less than or equal to 12 months.
B. An asset that has remained in the substandard category for a period of 12 months.
C. An asset where loss has already been identified by auditors.
D. An asset secured by collateral whose value has decreased by 10%.

Show Explanation

Correct Answer: B. An asset that has remained in the substandard category for a period of 12 months. An asset moves from the substandard category to the doubtful category after being substandard for 12 months, indicating increased doubt about recovery.

Question 240: If the realisable value of security backing a loan erodes significantly but is still assessed to be more than 10% but less than 50% of the value assessed previously, how might such an NPA be directly classified?

A. Standard Asset
B. Substandard Asset
C. Doubtful Asset
D. Loss Asset

Show Explanation

Correct Answer: C. Doubtful Asset. Significant erosion in security value (e.g., below 50% of assessed value) can lead to direct classification as a doubtful asset due to heightened recovery risk, provided the value is not below 10% which would indicate a loss asset.

Question 241: In cases of identified fraud committed by borrowers, banks have the option to spread the required provisioning over a period. What is the maximum number of quarters allowed for this purpose, starting from the quarter the fraud was detected?

A. 2 quarters
B. 4 quarters
C. 6 quarters
D. 8 quarters

Show Explanation

Correct Answer: B. 4 quarters. To mitigate the immediate impact on profitability, banks can distribute the provisioning burden due to fraud over a maximum of four quarters.

Question 242: The Liquidity Coverage Ratio (LCR) mandates that a bank must hold sufficient High Quality Liquid Assets (HQLA) to withstand a period of significant stress. What is the duration of this stress period?

A. 15 days
B. 30 days
C. 60 days
D. 90 days

Show Explanation

Correct Answer: B. 30 days. LCR aims to ensure banks have enough liquid assets to survive a 30-calendar-day liquidity stress scenario.

Question 243: Among various methods a bank can use to obtain liquidity, which one is considered the primary source?

A. Borrowing from the central bank.
B. Selling existing loans to other institutions.
C. Raising additional capital from shareholders.
D. Utilising the bank’s investment portfolio.

Show Explanation

Correct Answer: D. Utilising the bank’s investment portfolio. The portfolio of investments held by a bank is typically regarded as its principal source for meeting liquidity needs.

Question 244: Which of the following assets are typically included in the calculation of High Quality Liquid Assets (HQLA) for the Liquidity Coverage Ratio (LCR)?

A. Cash held by the bank.
B. Government securities held in excess of the minimum Statutory Liquidity Ratio (SLR).
C. Government securities within the mandatory SLR that are eligible under the Marginal Standing Facility (MSF).
D. All of the above.

Show Explanation

Correct Answer: D. All of the above. HQLA comprises cash, excess government securities beyond SLR needs, and specific SLR securities usable under facilities like MSF.

Question 245: Which statement regarding bank performance metrics is correct?

A. A high Return on Assets (ROA) suggests efficient earnings generation from assets.
B. Return on Equity (ROE) relates income attributable to shareholders to their investment.
C. Net Interest Margin (NIM) is a profitability ratio where higher is generally better.
D. A lower Cost Income Ratio indicates better operational efficiency.
E. All of the statements (A, B, C, D) are correct.

Show Explanation

Correct Answer: E. All of the statements (A, B, C, D) are correct. ROA measures efficiency in using assets, ROE measures return on shareholder investment, NIM measures net interest earning capability, and a lower Cost Income Ratio signifies better efficiency.

Question 246: Which of the following items would typically appear under the ‘Income’ section of a bank’s financial statement?

A. Provisions made for anticipated loan losses.
B. Interest paid out to depositors.
C. Write-back of provisions previously made but no longer requireD.
D. Provisions made specifically due to detected fraud.

Show Explanation

Correct Answer: C. Write-back of provisions previously made but no longer required. Write-backs represent the reversal of previous expense provisions and are treated as income (or reduction of expense) in the current period.

Question 247: Which of the following expenses incurred by a bank is generally NOT classified as a non-interest expenditure?

A. Expenses related to staff salaries and benefits.
B. Expenses paid as interest on customer deposits.
C. Expenses related to the Board of Directors (fees, travel etc.).
D. Expenses related to electricity and premises maintenance.

Show Explanation

Correct Answer: B. Expenses paid as interest on customer deposits. Interest paid on deposits is the primary component of interest expenditure; the others are operating expenses classified as non-interest expenditure.

Question 248: The Basel III framework for banking supervision and regulation is built upon three fundamental pillars. What are these three pillars?

A. Capital Adequacy, Liquidity Management, Risk Assessment.
B. Minimum Capital Requirement, Supervisory Review Process, Market Discipline.
C. Credit Risk Control, Market Risk Mitigation, Operational Risk Management.
D. Retail Banking, Corporate Banking, Investment Banking.

Show Explanation

Correct Answer: B. Minimum Capital Requirement, Supervisory Review Process, Market Discipline. These three pillars form the comprehensive structure of the Basel III regulatory framework.

Question 249: When calculating the Capital Adequacy Ratio (CAR) under Basel norms, which categories of risk must banks primarily take into account?

A. Credit risk and Liquidity risk only.
B. Market risk and Operational risk only.
C. Credit risk, Market risk, and Operational risk.
D. Business risk and Strategic risk only.

Show Explanation

Correct Answer: C. Credit risk, Market risk, and Operational risk. Pillar 1 of the Basel framework mandates capital requirements for these three principal types of risk faced by banks.

Question 250: What does the abbreviation NSFR stand for in the context of banking regulations?

A. Net Systemic Funding Ratio
B. Net Stable Funding Ratio
C. National Standardised Funding Requirement
D. Net Shortfall Funding Ratio

Show Explanation

Correct Answer: B. Net Stable Funding Ratio. NSFR is a key liquidity standard under Basel III, designed to promote stable funding sources over a longer time horizon.

Question 251: According to Basel III implementation guidelines in India, what is the minimum required Tier 1 capital ratio as a percentage of risk-weighted assets (RWAs)?

A. 5.5%
B. 7.0%
C. 9.0%
D. 11.5%

Show Explanation

Correct Answer: B. 7.0%. The minimum Tier 1 capital ratio, comprising both Common Equity Tier 1 and Additional Tier 1 capital, is set at 7.0% of RWAs.

Question 252: Which statement regarding the minimum capital requirements under Basel III in India is NOT correct?

A. Minimum Common Equity Tier 1 (CET1) capital ratio is 5.5%.
B. Maximum Tier 2 capital admissible within the minimum total capital is 2.0%.
C. Minimum Total Capital Ratio (Tier 1 + Tier 2) is 9.0%.
D. Minimum Tier 1 capital ratio should be 8.0%.

Show Explanation

Correct Answer: D. Minimum Tier 1 capital ratio should be 8.0%. The minimum Tier 1 capital ratio is 7.0% (5.5% CET1 + 1.5% AT1); 8.0% represents the minimum CET1 including the Capital Conservation Buffer.

Question 253: Under Basel III norms, what is the required size of the Capital Conservation Buffer (CCB) that banks must maintain, expressed as a percentage of risk-weighted assets?

A. 1.5%
B. 2.5%
C. 3.5%
D. 5.5%

Show Explanation

Correct Answer: B. 2.5%. Banks are required to maintain a CCB of 2.5% of RWAs, composed entirely of Common Equity Tier 1 capital, in addition to the minimum capital ratios.

Question 254: Which risk categories fall under the scope of Pillar 1 (Minimum Capital Requirements) of the Basel norms?

A. Market Risk only.
B. Credit Risk and Market Risk only.
C. Operational Risk only.
D. Credit Risk, Market Risk, and Operational Risk.

Show Explanation

Correct Answer: D. Credit Risk, Market Risk, and Operational Risk. Pillar 1 specifies the calculation methodologies and minimum capital requirements for these three major risk types.

Question 255: What method is used to measure a bank’s exposure to interest rate risk by assessing the sensitivity of its Net Interest Income (NII) to interest rate changes over a specific horizon?

A. Duration Gap Analysis (DGA)
B. Traditional Gap Analysis (TGA)
C. Maturity Ladder Analysis
D. Value at Risk (VaR) Analysis

Show Explanation

Correct Answer: B. Traditional Gap Analysis (TGA). TGA focuses on the impact of interest rate movements on a bank’s Net Interest Income by analysing the gaps between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) over time buckets.

Question 256: Which analytical method involves categorising all Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) into time bands based on residual maturity or re-pricing dates and then calculating a modified duration gap?

A. Traditional Gap Analysis (TGA)
B. Duration Gap Analysis (DGA)
C. Net Interest Margin (NIM) Analysis
D. Scenario Analysis

Show Explanation

Correct Answer: B. Duration Gap Analysis (DGA). DGA uses the concept of modified duration applied to assets and liabilities bucketed by time bands to measure the sensitivity of the bank’s market value of equity to interest rate changes.

Question 257: What is the primary focus of Duration Gap Analysis (DGA) in measuring a bank’s interest rate risk exposure?

A. Sensitivity of Net Interest Income (NII) to rate movements.
B. Sensitivity of the Market Value of Equity (MVE) to rate movements.
C. Sensitivity of Non-Performing Assets (NPAs) to rate movements.
D. Sensitivity of Operating Costs to rate movements.

Show Explanation

Correct Answer: B. Sensitivity of the Market Value of Equity (MVE) to rate movements. DGA assesses how changes in interest rates are likely to affect the net worth or market value of equity of the bank.

Question 258: What does the Modified Duration (MD) of an asset or liability approximately measure?

A. The time remaining until its maturity date.
B. The percentage change in its value for a 1 basis point change in interest rate.
C. The percentage change in its value for a 100 basis point (1%) change in interest rate.
D. The total interest income it will generate over its life.

Show Explanation

Correct Answer: C. The percentage change in its value for a 100 basis point (1%) change in interest rate. Modified Duration quantifies the price sensitivity of a financial instrument to a 1% change in interest rates.

Question 259: According to standard Asset Liability Management (ALM) guidelines, are ‘Bills Payable’ typically considered rate-sensitive liabilities?

A. Yes
B. No
C. Only if their maturity is greater than one year.
D. Only if they are denominated in foreign currency.

Show Explanation

Correct Answer: B. No. Bills Payable are generally considered non-rate sensitive liabilities within the standard ALM framework.

Question 260: As per standard Asset Liability Management (ALM) guidelines, are ‘Current Deposits’ typically treated as interest rate sensitive?

A. Yes
B. No
C. Only the portion above a certain thresholD.
D. Yes, but only during periods of rising interest rates.

Show Explanation

Correct Answer: B. No. Current account deposits are usually classified as non-rate sensitive liabilities in ALM frameworks as they typically do not bear interest or have administered rates.

Question 261: The Basel III capital regulations are founded on three mutually reinforcing Pillars. Which option correctly lists these pillars?

A. Capital, Liquidity, Leverage
B. Minimum Capital Requirements, Supervisory Review of Capital Adequacy, Market Discipline
C. Credit Risk, Market Risk, Operational Risk
D. Regulation, Supervision, Enforcement

Show Explanation

Correct Answer: B. Minimum Capital Requirements, Supervisory Review of Capital Adequacy, Market Discipline. These three pillars form the core structure of the Basel III framework.

Question 262: Under Basel norms, the Standardised Approach, Foundation Internal Rating Based Approach, and Advanced Internal Rating Based Approach are options available for computing capital requirements for which type of risk?

A. Market Risk
B. Credit Risk
C. Operational Risk
D. Liquidity Risk

Show Explanation

Correct Answer: B. Credit Risk. These different approaches provide banks with options (subject to regulatory approval) for calculating the capital needed to cover potential losses from credit risk.

Question 263: The Basic Indicator Approach (BIA), The Standardised Approach (TSA), and the Advanced Measurement Approach (AMA) are methodologies available under Basel norms for computing capital requirements for which risk category?

A. Credit Risk
B. Market Risk
C. Liquidity Risk
D. Operational Risk

Show Explanation

Correct Answer: D. Operational Risk. These approaches offer varying levels of sophistication for banks to calculate the capital required to cover losses arising from operational failures or events.

Question 264: Which approach were all commercial banks in India (excluding Local Area Banks and Regional Rural Banks) mandated to adopt for computing capital requirements for credit risk by March 2009?

A. Basic Indicator Approach
B. Standardised Approach
C. Advanced Measurement Approach
D. Standardised Duration Approach

Show Explanation

Correct Answer: B. Standardised Approach. The RBI mandated the Standardised Approach for credit risk for universal adoption by commercial banks in India within that timeframe.

Question 265: From which date were the Basel III capital regulations implemented in India, albeit in a phased manner?

A. April 01, 2012
B. April 01, 2013
C. April 01, 2014
D. March 31, 2019

Show Explanation

Correct Answer: B. April 01, 2013. India commenced the phased implementation of Basel III norms starting from April 1, 2013.

Question 266: What is the minimum Pillar 1 Capital to Risk-weighted Assets Ratio (CRAR) that banks in India are required to maintain on an ongoing basis, excluding buffers like CCB?

A. 7.0%
B. 8.0%
C. 9.0%
D. 11.5%

Show Explanation

Correct Answer: C. 9.0%. The mandatory minimum CRAR under Pillar 1 is set at 9.0% for banks in India.

Question 267: Is the statement “Tier 1 capital is also known as Gone-concern capital” true or false?

A. True
B. False

[Answer: B. False. Tier 1 capital (CET1 + AT1) is considered ‘Going-concern’ capital, designed to absorb losses while the bank operates. Tier 2 capital is considered ‘Gone-concern’ capital.]

Question 268: Is the statement “Going-concern capital is the capital which will absorb losses only in a situation of liquidation of the bank” true or false?
A. True
B. False

[Answer: B. False. Going-concern capital (Tier 1) absorbs losses without triggering bankruptcy. Gone-concern capital (Tier 2) absorbs losses primarily during liquidation.]

Question 269: What minimum percentage of risk-weighted assets (RWAs) must Common Equity Tier 1 (CET1) capital constitute on an ongoing basis?
A. 4.5%
B. 5.0%
C. 5.5%
D. 7.0%

Show Explanation

Correct Answer: C. 5.5%. The minimum requirement specifically for CET1 capital is 5.5% of RWAs.

Question 270: What is the maximum proportion of Risk-Weighted Assets (RWAs) that Additional Tier 1 (AT1) capital can represent?

A. 1.0%
B. 1.5%
C. 2.0%
D. 2.5%

Show Explanation

Correct Answer: B. 1.5%. The contribution of AT1 capital towards the minimum Tier 1 ratio (7.0%) is capped at 1.5% of RWAs.

Question 271: In addition to the minimum Common Equity Tier 1 (CET1) capital requirement of 5.5% of RWAs, banks must maintain a Capital Conservation Buffer (CCB). What is the size of this CCB, also expressed as a percentage of RWAs?

A. 1.5%
B. 2.0%
C. 2.5%
D. 3.0%

Show Explanation

Correct Answer: C. 2.5%. The CCB requirement is an additional 2.5% of RWAs, which must also be met with CET1 capital.

Question 272: Which of the following is NOT typically considered an element of Common Equity Tier 1 (CET1) Capital?

A. Common shares (paid-up equity capital).
B. Perpetual Non-Cumulative Preference Shares (PNCPS).
C. Stock surplus (share premium) arising from common share issuance.
D. Statutory reserves created out of retained earnings.

Show Explanation

Correct Answer: B. Perpetual Non-Cumulative Preference Shares (PNCPS). PNCPS are typically classified under Additional Tier 1 (AT1) capital, not CET1 capital.

Question 273: Which of the following instruments is generally eligible for inclusion in Additional Tier 1 (AT1) Capital?

A. Common shares.
B. Retained earnings.
C. Debt capital instruments meeting specific eligibility criteria for AT1.
D. General provisions or general loan-loss reserves.

Show Explanation

Correct Answer: C. Debt capital instruments meeting specific eligibility criteria for AT1. Specially designed debt instruments, along with PNCPS, can qualify as AT1 capital if they meet stringent loss-absorption and permanence criteria.

Question 274: What risk weight is applied to both fund-based and non-fund-based claims on the Central Government of India?

A. 0%
B. 10%
C. 20%
D. 100%

Show Explanation

Correct Answer: A. 0%. All claims on the central government, whether direct loans or non-fund based exposures like guarantees, are assigned a zero risk weight.

Question 275: What risk weight is applied to claims guaranteed by the Central Government of India?

A. 0%
B. 10%
C. 20%
D. 50%

Show Explanation

Correct Answer: A. 0%. Claims explicitly guaranteed by the central government also receive a zero risk weight, similar to direct claims.

Question 276: The risk weight applicable to claims on the central government also applies to claims on which other entities?

A. State Governments and Public Sector Undertakings.
B. Reserve Bank of India (RBI), DICGC, and CGTMSE.
C. All other commercial banks.
D. Non-Banking Financial Companies (NBFCs).

Show Explanation

Correct Answer: B. Reserve Bank of India (RBI), DICGC, and CGTMSE. Claims on the RBI, Deposit Insurance and Credit Guarantee Corporation (DICGC), and Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) are treated similarly to central government claims with a 0% risk weight.

Question 277: What risk weight is assigned to claims on the Export Credit Guarantee Corporation (ECGC)?

A. 0%
B. 10%
C. 20%
D. 50%

Show Explanation

Correct Answer: C. 20%. Exposures to ECGC are assigned a risk weight of 20%.

Question 278: What risk weight is applied to direct loan or investment exposures of banks to State Governments in India?

A. 0%
B. 10%
C. 20%
D. 50%

Show Explanation

Correct Answer: A. 0%. Direct claims on State Governments (like loans or investments in State Government securities) carry a zero risk weight.

Question 279: What risk weight is assigned to claims that are guaranteed by State Governments in India?

A. 0%
B. 10%
C. 20%
D. 100%

Show Explanation

Correct Answer: C. 20%. Unlike direct claims, claims guaranteed by State Governments attract a 20% risk weight.

Question 280: What risk weight should be applied to the outstanding amount receivable by a bank from the Government of India under the Agricultural Debt Waiver Scheme, 2008?

A. 0%
B. 20%
C. 50%
D. 100%

Show Explanation

Correct Answer: A. 0%. Amounts documented as receivable from the central government under specific schemes like the ADWS 2008 are treated as claims on the government and attract a zero risk weight.

Question 281: How are risk weights typically assigned to claims on foreign sovereigns?

A. A flat 0% for all foreign sovereigns.
B. A flat 100% for all foreign sovereigns.
C. Based on ratings assigned by international rating agencies.
D. Based on the GDP of the foreign sovereign country.

Show Explanation

Correct Answer: C. Based on ratings assigned by international rating agencies. The risk weight for claims on foreign governments depends on the credit rating assigned to that sovereign by recognised international rating agencies.

Question 282: How are claims on domestic public sector entities (PSEs) typically risk-weighted?

A. Always assigned a 0% risk weight.
B. Always assigned a 20% risk weight.
C. In a manner similar to claims on Corporates.
D. Based on the sector in which the PSE operates.

Show Explanation

Correct Answer: C. In a manner similar to claims on Corporates. Exposures to domestic PSEs are generally risk-weighted using the same framework applied to corporate exposures, often based on credit ratings.

Question 283: Under Basel III norms, what is the standard risk weight assigned to Consumer Credit exposures, including Personal Loans?

A. 50%
B. 75%
C. 100%
D. 125%

Show Explanation

Correct Answer: C. 100%. Consumer credit facilities like personal loans typically carry a 100% risk weight.

Question 284: What risk weight is typically applied to Credit Card receivables?

A. 75%
B. 100%
C. 125%
D. 150%

Show Explanation

Correct Answer: C. 125%. Due to their higher inherent risk, credit card exposures are assigned a 125% risk weight.

Question 285: What risk weight is assigned to exposures related to Capital Market investments?

A. 100%
B. 125%
C. 150%
D. 200%

Show Explanation

Correct Answer: B. 125%. Capital market exposures generally attract a higher risk weight of 125%.

Question 286: Exposures to Venture Capital Funds are assigned which risk weight?

A. 100%
B. 125%
C. 150%
D. 200%

Show Explanation

Correct Answer: C. 150%. Investments in or exposures to venture capital funds carry a high risk weight of 150%.

Question 287: What risk weight applies to loans up to ₹1 lakh granted against the pledge of gold ornaments?

A. 0%
B. 20%
C. 50%
D. 75%

Show Explanation

Correct Answer: C. 50%. Small ticket loans (up to ₹1 lakh) secured solely by gold ornaments are assigned a 50% risk weight.

Question 288: If a bank staff member takes a loan secured by a mortgage on property or by superannuation benefits, what risk weight applies?

A. 0%
B. 20%
C. 50%
D. 75%

Show Explanation

Correct Answer: B. 20%. Loans to staff that are well-secured by mortgage or terminal benefits attract a concessional risk weight of 20%.

Question 289: What risk weight applies to other loans granted to bank staff (not secured by mortgage/superannuation) or Education Loans (EL) to any individual?

A. 20%
B. 50%
C. 75%
D. 100%

Show Explanation

Correct Answer: C. 75%. Unsecured or differently secured loans to staff, as well as education loans, are typically assigned a 75% risk weight.

Question 290: Which committee recommended that the policy of Income Recognition should be objective and based on the record of recovery?

A. Damodaran Committee
B. Bimal Jalan Committee
C. M. Narasimham Committee
D. R. Gandhi Committee

Show Explanation

Correct Answer: C. M. Narasimham Committee. The recommendations of the Narasimham Committee on the Financial System emphasized the need for objective income recognition based on recovery.

Question 291: If interest charged on an advance during a quarter is not fully serviced within how many days from the end of that quarter does the advance risk being treated as a Non-Performing Asset (NPA)?

A. 30 days
B. 60 days
C. 90 days
D. 180 days

Show Explanation

Correct Answer: C. 90 days. The standard definition for NPA includes interest or principal remaining overdue for more than 90 days.

Question 292: Is the statement “If the Principal or Interest on a loan for a short duration crop remains overdue for one crop season, it becomes NPA” true or false?

A. True
B. False

[Answer: B. False. For short duration crops, the loan becomes NPA if the principal or interest remains overdue for two crop seasons.]

Question 293: When does a Credit Card account become an NPA?
A. When the cardholder exceeds the limit for 90 days.
B. When the minimum amount due is not paid fully within 90 days from the transaction date.
C. When the minimum amount due is not paid fully within 90 days from the payment due date mentioned in the statement.
D. When the total outstanding balance is not paid within 60 days from the statement date.

Show Explanation

Correct Answer: C. When the minimum amount due is not paid fully within 90 days from the payment due date mentioned in the statement. The trigger is non-payment of the minimum due relative to the statement’s due date.

Question 294: To ensure the drawing power calculation in a Cash Credit/Overdraft account is current, the stock statement relied upon by the bank should not be older than how many months/days?

A. 6 months
B. 180 days
C. 90 days (or 3 months)
D. 30 days

Show Explanation

Correct Answer: C. 90 days (or 3 months). Stock statements older than 3 months are considered outdated for calculating drawing power, potentially making the account irregular or ‘out of order’ if limits are exceeded based on old stock data.

Question 295: If the regular or ad-hoc credit limits for an account have not been reviewed or renewed within a specific period from the due date, the account may be treated as NP

A. What is this period?
A. 90 days
B. 120 days
C. 180 days
D. 1 year

Show Explanation

Correct Answer: C. 180 days. Failure to review/renew credit limits within 180 days of the due date is a condition that can lead to NPA classification.

Question 296: If the value of security erodes by more than 50% of the value assessed by the bank or accepted by RBI Inspection, how should the asset be classified straight away?

A. Standard
B. Substandard
C. Doubtful
D. Loss

Show Explanation

Correct Answer: C. Doubtful. A significant erosion in security value (more than 50%) warrants a direct classification as Doubtful, reflecting the increased risk to recovery.

Question 297: If the realisable value of security, as assessed, is less than a certain percentage of the outstanding balance, the security’s existence should be ignored for provisioning, and the asset classified potentially as ‘loss’. What is this percentage threshold?

A. 50%
B. 25%
C. 10%
D. 5%

Show Explanation

Correct Answer: C. 10%. If the realizable security value dips below 10% of the outstanding amount, it’s considered negligible, and the asset should typically be classified as a loss asset (or doubtful if fraud is involved, depending on specifics).

Question 298: In cases of fraud committed by borrowers, how should the advance generally be classified?

A. Always Substandard
B. Always Standard, but with higher monitoring
C. Either Doubtful or Loss asset, as appropriate depending on circumstances.
D. As a Special Mention Account (SMA) indefinitely.

Show Explanation

Correct Answer: C. Either Doubtful or Loss asset, as appropriate depending on circumstances. Fraud cases usually lead to immediate classification as doubtful or loss, based on the assessed recoverability and security position.

Question 299: If an advance is guaranteed by the Central Government, under what specific condition is it treated as NPA?

A. When the principal or interest is overdue for more than 90 days.
B. When the principal or interest is overdue for more than 180 days.
C. Only when the Government repudiates its guarantee when invokeD.
D. It can never be treated as NPA.

Show Explanation

Correct Answer: C. Only when the Government repudiates its guarantee when invoked. Central Government guaranteed accounts are exempt from standard NPA time norms unless the government explicitly refuses to honour its guarantee.

Question 300: Are advances guaranteed by State Governments exempt from the standard 90-day overdue norm for NPA classification?

A. Yes, they follow the same rule as Central Government guarantees.
B. No, this exemption does not apply; they become NPA if overdue for more than 90 days.
C. Yes, but only if the State Government’s rating is AAA.
D. No, but the overdue period is extended to 180 days.

Show Explanation

Correct Answer: B. No, this exemption does not apply; they become NPA if overdue for more than 90 days. The special treatment for Central Government guarantees does not extend to State Government guarantees.

Question 301: What term is used for advances given by multiple banks to a single borrower under a common arrangement, typically coordinated by one bank?

A. Syndicated Loans
B. Participatory Loans
C. Consortium Advances
D. Club Deals

Show Explanation

Correct Answer: C. Consortium Advances. This term refers to joint financing by several banks to one borrower under a formal arrangement, usually led by a designated ‘Lead Bank’.

Question 302: Do advances granted against Term Deposits need to be treated as NPAs if interest remains unpaid, provided adequate margin exists in the account?

A. Yes, after 90 days overdue.
B. Yes, after 180 days overdue.
C. No, such advances are exempt from NPA classification if adequate margin is available.
D. Yes, unless the Term Deposit is with the same bank.

Show Explanation

Correct Answer: C. No, such advances are exempt from NPA classification if adequate margin is available. Advances against TDs, NSCs (surrenderable), KVPs, and Life Policies are exempt if the security value (margin) is sufficient, regardless of interest payment status.

Question 303: If an advance is classified as NPA for the first time, what should be done with interest accrued and credited to the income account in previous periods but not actually realised?

A. It should be kept in the income account.
B. It should be reversed or provided for.
C. It should be transferred to a contingency reserve.
D. It should be capitalised and added to the principal outstanding.

Show Explanation

Correct Answer: B. It should be reversed or provided for. Unrealised interest credited in past periods on an account now turning NPA must be reversed from the income account.

Question 304: Can banks recognise income on an accrual basis for project loans under implementation if the project loan asset is classified as ‘substandard’?

A. Yes, accrual basis is permitted for all project loans.
B. No, income should only be recognised on a cash basis (realisation) for substandard assets.
C. Yes, but only up to 50% of the accrued interest.
D. No, income recognition must stop completely, even on a cash basis.

Show Explanation

Correct Answer: B. No, income should only be recognised on a cash basis (realisation) for substandard assets. While accrual is allowed for standard project loans under implementation, it stops once the asset becomes substandard; income is then booked only upon actual receipt.

Question 305: What is the provisioning requirement for the secured portion of an asset that has been classified as ‘Doubtful’ for a period between one year and three years?

A. 25%
B. 40%
C. 60%
D. 100%

Show Explanation

Correct Answer: B. 40%. The provision for the secured portion of a doubtful asset increases to 40% after it has remained doubtful for one year, up to three years.

Question 306: What is the standard provisioning requirement for assets classified as ‘Standard’ within the Farm Credit (agricultural activities), individual housing loans, and Small and Micro Enterprises (SMEs) sectors?

A. 0.00%
B. 0.25%
C. 0.40%
D. 1.00%

Show Explanation

Correct Answer: B. 0.25%. These specific sectors have a concessional standard asset provisioning rate of 0.25% applied to the outstanding funded amount.