Banking Regulations Quiz

Questions and Answers

What year was the Reserve Bank of India established?

1949

1935 (correct)

1926

1934

Who was the first Governor of the Reserve Bank of India?

C.D. Deshmukh

John Hilton Young

Shaktikanta Das

Osborne Smith (correct)

What is the maximum term for which the Governor and Deputy Governors can hold office?

Four years

Six years

Three years

Five years (correct)

In which city was the Central Office of the Reserve Bank originally established?

Calcutta Signup and view all the answers

Which commission recommended the establishment of the Reserve Bank of India?

Royal Commission of Indian Currency and Finance Signup and view all the answers

How many Directors are nominated to the Central Board from the Local Boards?

Four Directors, one from each of the four Local Boards Signup and view all the answers

What happened to the ownership of the Reserve Bank of India after nationalisation in 1949?

It was fully nationalised Signup and view all the answers

What is the term of office for a Director appointed to the Central Board?

Four years Signup and view all the answers

What constitutes an unsecured advance according to RBI guidelines?

An advance where the value of security is not more than 10% of the outstanding Signup and view all the answers

Which activity is NOT permitted for a banking company according to the guidelines?

Trading goods for profit Signup and view all the answers

For how long can a banking company hold immovable property before it must be disposed of?

Seven years Signup and view all the answers

Which of the following terms is restricted to be used only by banking companies?

Banking Signup and view all the answers

Which of the following actions can a banking company engage in?

Acting as an agent for government Signup and view all the answers

Which of the following amounts is exempted from Net Demand and Time Liabilities (NDTL) for CRR maintenance?

Credit balances in ACU (US$) Accounts Signup and view all the answers

What type of deposits mobilized by banks is exempt from maintaining CRR and SLR until November 04, 2022?

Incremental FCNR (B) deposits Signup and view all the answers

Which loan taken by a scheduled/non-scheduled commercial bank is excluded from NDTL computation for CRR/SLR?

Loan from NaBFID Signup and view all the answers

What is the status of the subsidy received and kept in the form of Zero percent interest Time Deposit in relation to NDTL?

It is exempted from NDTL computation Signup and view all the answers

Which of the following liabilities does NOT contribute to the NDTL for CRR maintenance?

Demand liabilities in relation to domestic clients Signup and view all the answers

Which statement about loans/refinance from NaBFID for scheduled co-operative banks is correct?

Excluded only for CRR Signup and view all the answers

What happens to claims received from ECGC upon invoking the guarantee?

They are exempted from NDTL Signup and view all the answers

What is the relevance of the amount received from DICGC towards claims held by banks?

It is pending adjustments and is exempt from NDTL Signup and view all the answers

What is the penal interest rate a banking company incurs for a default in SLR maintenance on the first instance of default?

3% per annum above bank rate Signup and view all the answers

When does the penal interest rate increase to 5% per annum above the bank rate?

After the second instance of default on a successive alternate Friday Signup and view all the answers

What is the period within which a bank must pay the penalty after receiving a notice from the Reserve Bank?

14 days Signup and view all the answers

What is the maximum limit for banks to borrow under the Marginal Standing Facility (MSF)?

2% of their NDTL outstanding Signup and view all the answers

What is the primary purpose of the Marginal Standing Facility (MSF)?

To act as a safety valve against liquidity shocks Signup and view all the answers

What is the MSF rate placed at in relation to the policy repo rate?

25 basis points above the policy repo rate Signup and view all the answers

What does the acronym SLR stand for in the context of banking?

Statutory Liquidity Ratio Signup and view all the answers

Under which condition can banks access overnight funds against their excess SLR holdings?

Under the MSF facility Signup and view all the answers

What is the maximum denomination of bank notes that can be issued by the RBI?

Rs. 10000/- Signup and view all the answers

What must the Issue Department receive in exchange for issuing bank notes?

Other bank notes or permitted securities Signup and view all the answers

Which of the following notes are issued by the Government of India?

Rs. 1/- notes and coins Signup and view all the answers

What type of bank notes will the Bank not re-issue?

Notes that are torn, defaced, or excessively soiled Signup and view all the answers

What obligation does the RBI have concerning stamp duty on bank notes?

RBI is exempt from paying stamp duty Signup and view all the answers

Which of the following types of currency notes are NOT issued by the Issue Department?

Torn or defaced notes Signup and view all the answers

What is the role of the Finance Secretary in relation to currency issuance?

Signing for the issuance of Rs. 1/- notes and coins Signup and view all the answers

What is the primary function of the Issue Department?

To issue bank notes in exchange for specific securities Signup and view all the answers

Study Notes

Bank Note Issuance Regulations

The Issue Department is restricted from issuing bank notes to the Banking Department or any individual, unless exchanged for eligible bank notes, coins, bullion, or securities as per the Act.
The Reserve Bank of India (RBI) can issue bank notes in denominations ranging from Rs. 2 to Rs. 10,000.
Rs. 1 notes and coins are issued by the Government of India with the Finance Secretary's signature.
The RBI is prohibited from re-issuing torn, defaced, or excessively soiled bank notes.

Exemptions and Liabilities

RBI is exempt from stamp duty regarding bank notes.
Various financial agreements like claims from DICGC, ECGC, and CGTMSE are excluded from Net Demand and Time Liabilities (NDTL) for Reserve Maintenance criteria.
Special exemptions are in place for incremental FCNR (B) and NRE Term deposits raised before November 4, 2022, for CRR and SLR maintenance.

Formation and Structure of RBI

Established following the John Hilton Young Commission's recommendation in 1926.
Officially founded on April 1, 1935, under the Reserve Bank of India Act, 1934.
Initially set up in Calcutta, moved to Mumbai in 1937.
RBI has 27 Regional Offices and 4 Sub Offices.
Nationalized in 1949, making it fully owned by the Government of India.
Sir Osborne Smith was the first RBI Governor; Shri C.D. Deshmukh was the first Indian Governor. The current Governor is Shri Shaktikanta Das, the 25th Governor.

Central Board Governance

Governed by a Central Board of Directors appointed by the Government of India.
Consists of a Governor, up to four Deputy Governors, four directors from local boards, and additional directors nominated by the Central Government.
Governor and Deputy Governors serve up to five years with eligibility for re-appointment. Nominated Directors serve for four years and can be re-appointed.

Penalties for SLR Default

If the SLR securities of a banking company fall below the minimum required, a penalty interest of 3% per annum above the bank rate applies for that day.
Repeated defaults on consecutive alternate Fridays increase the penalty to 5% per annum for subsequent defaults.
Penalties must be paid within 14 days following a notice from the Reserve Bank.

Marginal Standing Facility (MSF)

Banks can borrow overnight from the RBI against their SLR portfolio up to 2% limit as a safeguard against liquidity shocks.
The MSF rate is 25 basis points above the policy repo rate.
Eligible banks can borrow based on their NDTL outstanding at the end of the second preceding fortnight.

Banking Operations

Banking companies may conduct various businesses including borrowing, lending, and dealing in foreign exchange, bills of exchange, and bullion.
The use of banking-related terminology such as "bank," "banker," or "banking" is restricted to licensed banking entities.
Banking companies are prohibited from trading in goods except when recovering secured assets.
Non-banking assets cannot be held for over seven years, but RBI may extend this period by up to five additional years in specific cases.

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Description

Test your knowledge on banking regulations with this quiz. Explore the rules governing the issuance of bank notes and related securities. Perfect for finance students and professionals alike.