Scheduled Banks and Banking Regulations Quiz

Banks listed in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934. They are subject to stricter regulations and are considered safer than non-scheduled banks.

The percentage of a bank's demand and time liabilities that it must hold as reserves with the Reserve Bank of India (RBI).

Financial institutions that provide financial services but are not banks. They are not allowed to accept demand deposits (like checking accounts) but can accept fixed deposits.

The process of obtaining a license from the Reserve Bank of India (RBI) to operate a bank in India.

The Reserve Bank of India (RBI) has the authority to set the conditions for granting banking licenses in India.

A government office responsible for collecting information about the insurance industry, including access to affordable insurance by minorities and low-income individuals, and monitoring for systemic risks.

A legal obligation for brokers giving investment advice to act in the best interest of their clients.

The process of overseeing and regulating the banking system to ensure financial stability and protect consumers.

A type of bank that accepts deposits from the public and provides a range of financial services, including loans and credit cards.

Banks owned by the government, including State Bank of India (SBI) and its associates, and nationalized banks.

Banks owned by private individuals or corporations, including older established banks, new entrants, and foreign banks.

Banks established to enhance financial services in rural areas, primarily focusing on agricultural communities and promoting rural development.

Banks owned and operated by cooperative societies, serving members who share common goals.

A Wholly Owned Subsidiary (WOS) is a subsidiary company where the parent company owns 100% of the shares.

A WOS is the only way for certain types of banks to enter the Indian market. These banks are typically from countries with weak regulations or those with complex ownership structures.

The Reserve Bank of India (RBI) will only allow banks that meet certain requirements to enter India through a WOS.

The minimum capital adequacy ratio for WOSs in India is 10% of their risk-weighted assets. This means they must hold a certain amount of capital to cover potential losses.

To ensure that the WOS directors act in the best interests of the Indian entity, the RBI mandates certain criteria.

The WOSs in India are allowed to expand their branch networks in line with the branch expansion policy for domestic banks.

Foreign banks can enter India through the branch mode, but they are limited to a maximum of 12 branches or as may be modified.

The RBI may require other types of foreign banks to set up a WOS if they believe the supervisory arrangements and market discipline in the country of origin are inadequate or if they have concerns about financial stability.

A bank that is not chartered in India, but with branches in the country. Their assets exceeding a certain limit can lead to restrictions on their expansion.

A subsidiary company fully owned by a foreign bank, operating independently in India.

The minimum amount of capital required by a bank, set by the RBI. It ensures a bank has financial strength.

The maximum voting rights a shareholder can hold in a private bank, set to prevent one person from having too much power.

The maximum percentage of a bank's profit that can be distributed to shareholders, determined by regulatory factors.

The minimum percentage of a bank's capital that is required to be set aside as a reserve to absorb potential losses.

Loans that are unlikely to be recovered by the bank. Exceeding a certain limit can impact a bank's dividend.

Governance principles that ensure a bank operates ethically and transparently. It includes having a diverse board with expertise in various fields.

An option where the account holder can choose a nominee who will receive the deposit amount after their death, avoiding legal hassles.

The chosen person who will receive the deposit amount from the bank if the account holder passes away.

The bank account opening form allows the account holder to select a nominee and the nominee's right to claim the deposit amount after the account holder's death.

The nominated person receives the deposit amount from the bank after the account holder's death, in trust for the legal heirs. The nominee is responsible for distributing the money to the heirs.

A person legally entitled to act on behalf of a minor, like a parent or guardian, can make nominations for a child's account.

Only one person can be nominated for a bank account. Multiple nominations are not allowed.

The account holder has the right to cancel or change the nomination for their account at any time.

To prove the account holder's death and the nominee's identity, documents like a death certificate and ID are required when claiming the deposit amount.

A security is initially classified as "Held to Maturity (HTM)" when a bank intends to hold it until maturity. However, if the bank's intention or ability changes and it's no longer appropriate to classify it as HTM, it must be reclassified as "Available for Sale (AFS)" and valued at its market price. The difference between its book value and market value is recorded as "Unrealised gain/loss on AFS portfolio".

A bank cannot classify a security as HTM if it has sold or reclassified more than 5% of its HTM investments (at the end of the previous financial year) during the current financial year.

A bank cannot shift a security into or out of the "Held for Trading (HFT)" category while it is held. However, under exceptional circumstances (like liquidity constraints, extreme volatility, or market becoming unidirectional) shifting from the HFT category to the AFS category may be permitted with approval from the bank's Board of Directors/ALCO/Investment Committee.

When transferring from HFT to AFS, the security is valued at the least of the acquisition cost, book value, or market value on the transfer date.

A bank cannot reclassify securities out of the AFS category while it is held.

Every country sets restrictions on transactions between its residents and non-residents. These restrictions affect the conversion of local currency into foreign currency and vice versa, and this is known as convertibility.

Countries can have varying degrees of convertibility, broadly falling into three categories: largely non-convertible, convertible on current account, and fully convertible.

In a largely non-convertible country, almost every transaction with the outside world requires government or central bank approval. This was India's position before economic liberalization in the 1990s.

In a country with a convertible current account, most consumption-related transactions don't need permissions. Investments, however, may be limited or require approvals.

A fully convertible currency allows unrestricted movement of capital and currency between residents and non-residents.