Scheduled Banks and Banking Regulations Quiz

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Questions and Answers

What defines a scheduled bank under the RBI Act, 1934?

All banks operating in India irrespective of regulatory compliance.

Only banks with a government ownership.

Banks that are included in the second schedule of the RBI Act. (correct)

Banks that exclusively offer fixed deposit accounts.

What is a primary advantage for scheduled banks compared to non-banking finance companies (NBFCs)?

Less regulatory compliance than NBFCs.

Ability to accept unlimited deposits without regulatory oversight.

Access to refinancing from the RBI. (correct)

Higher lending rates than NBFCs.

What requirement must scheduled banks comply with regarding their demand and time liabilities?

Limit their lending capacity to 80% of their deposits.

Report quarterly to the government.

Maintain a percentage as Cash Reserve Ratio (CRR) with the RBI. (correct)

Maintain a loan-to-value ratio of 70%.

What is a characteristic feature of non-banking finance companies (NBFCs)?

Their cost of funds is generally higher than that of banks. Signup and view all the answers

What must an entity obtain to operate as a bank in India?

A license from the Reserve Bank of India (RBI). Signup and view all the answers

What is the primary purpose of the Office established in the Treasury?

To gather information about the insurance industry Signup and view all the answers

Which of the following authorities does the SEC have according to the content?

To impose a fiduciary duty on brokers giving investment advice Signup and view all the answers

What does the Federal Reserve need to ensure regarding fees charged to merchants by credit card companies?

They are reasonable and proportional to processing costs Signup and view all the answers

What does the Banking Regulation Act, 1949 define as a banking company?

A company that transacts the business of banking in India Signup and view all the answers

According to the Banking Regulation Act, 1949, what is prohibited from accepting deposits withdrawable by cheque?

Any institution other than a banking company Signup and view all the answers

How does a well-regulated banking system benefit stakeholders?

By ensuring stability and confidence in the economy Signup and view all the answers

Which type of banks does the RBI primarily regulate?

Banks Signup and view all the answers

Which of the following is considered a type of Commercial Bank?

Nationalised banks Signup and view all the answers

What is the maximum allowable shareholding for an individual to exercise full voting rights in a private bank?

10% Signup and view all the answers

What happens if the assets of foreign bank branches in India exceed 15% of the banking system's assets?

Further entry of new foreign banks may be restricted. Signup and view all the answers

What is the minimum capital adequacy ratio that banks must maintain?

9% Signup and view all the answers

How long can directors other than the Chairman and whole-time directors hold office continuously in a banking company?

8 years Signup and view all the answers

What is the maximum percentage of dividend payout allowed according to RBI regulations?

40% Signup and view all the answers

What must be done before declaring dividends in a bank?

Capitalized expenses must be written off. Signup and view all the answers

What percentage of the board of directors in a banking company must have special knowledge or practical experience in relevant fields?

51% Signup and view all the answers

What percentage of net NPAs should not be exceeded in order to declare dividends?

7% Signup and view all the answers

Which category of banks may be required to set up a Wholly Owned Subsidiary (WOS) in India?

Banks incorporated in jurisdictions with preferential claims in winding up Signup and view all the answers

What is the minimum capital adequacy ratio required for a WOS in India?

10 percent of risk weighted assets Signup and view all the answers

How many of the directors in a WOS are mandated to be Indian nationals resident in India?

At least 50 percent Signup and view all the answers

What is a potential requirement for banks that do not provide adequate disclosure in their home jurisdiction?

They may be required to set up a WOS Signup and view all the answers

What is the primary purpose of establishing a WOS for foreign banks in India?

To ensure compliance with local regulations Signup and view all the answers

What constitutes a complex structure that may affect a bank's ability to operate in India without a WOS?

A convoluted ownership chain or multiple subsidiaries Signup and view all the answers

Which of the following statements correctly reflects the expectations for board members of a WOS?

A minimum of one-third should be independent of management Signup and view all the answers

What implications does the WTO commit for the branch expansion of foreign banks in India?

Limit of 12 branches as originally established Signup and view all the answers

What happens when an investment classified as Held to Maturity is reclassified as Available for Sale?

It is re-measured at market value. Signup and view all the answers

What is a condition under which a bank can reclassify a security from Held for Trading to Available for Sale?

If market conditions become unidirectional. Signup and view all the answers

What is the implication of Capital Account Convertibility?

It affects the ability to exchange local currency for foreign currency. Signup and view all the answers

Which of the following is NOT a reason for a bank to classify a security as Held to Maturity?

The bank has sold more than 5% of its HTM investments. Signup and view all the answers

What is the allowed treatment for transferring securities from HFT to AFS?

At acquisition cost or book value on the date of transfer. Signup and view all the answers

In what category do most countries fall regarding capital account convertibility?

Largely non-convertible. Signup and view all the answers

How is the book value of individual securities affected when an investment is reclassified?

It will undergo change with a corresponding entry to Profit and Loss. Signup and view all the answers

What overall restriction is placed on banks regarding the reclassification of securities from AFS?

Banks cannot reclassify securities out of AFS while held. Signup and view all the answers

What is the primary purpose of having a nominee for a bank account?

To ensure the transfer of the account balance after the account holder's death Signup and view all the answers

In what scenario can nomination be made in favor of a minor?

If another adult is appointed to receive the deposit on behalf of the minor Signup and view all the answers

What is required when making, cancelling, or varying a nomination?

A witness and signatures of all account holders Signup and view all the answers

Who can make a nomination for a deposit held in the name of a minor?

A person lawfully entitled to act on behalf of the minor Signup and view all the answers

What happens to the bank's obligation once payment is made to the nominee?

The bank is released from its obligation on the account Signup and view all the answers

What must a nominee provide when claiming the deposit after the account holder's death?

Proof of death of depositor and identity proof of nominee Signup and view all the answers

Which types of accounts can utilize the nomination facility?

All types of bank accounts including savings, current, and fixed deposit Signup and view all the answers

What must be true for a nominee to receive the deposit without legal formalities?

The account holder must have made a valid nomination Signup and view all the answers

Study Notes

NCFM Banking Sector Module

Test Details: The module includes various modules with their respective fees, test duration, number of questions, maximum marks, passing percentage, and certificate validity.
Module Listing: Various modules are listed with their fees, such as Financial Markets (beginner's), Mutual Funds (beginner's), Currency Derivatives (beginner's), Equity Derivatives (beginner's), Interest Rate Derivatives (beginner's), Commercial Banking in India (beginner's), Securities Market (basic), Capital Market (dealers), Derivatives Market (dealers), FIMMDA-NSE Debt Market (basic), Investment Analysis & Portfolio Management, and more. There are examination modules including insurance, macroeconomics, and NISM series certifications.
Contents: The document includes a chapter-by-chapter outline outlining the topics that make up the banking sector module. These range from Introduction to Banking, the banking and economic role, Bank deposits and Deposit Insurance, Bank-Customer relationships, Security Creation and, Non-Performing Assets (NPA). NPA categories, Provisioning norms, and Securitisation are also covered in depth, including a range of subtopics for each chapter.
Curriculum: The complete curriculum for various modules except those of FPSB India, FLIP, and IMS Proschool are linked to the NSE website.
Weights: The distribution of the topics for the Banking Sector Module Curriculum is provided showing the weight of each chapter/section in percentage.
Regulatory Framework: The document mentions the Indian Contract Act, 1872, the Sale of Goods Act, 1930, and the Negotiable Instruments Act, 1881. It covers aspects of Anti-Money Laundering, Know Your Customer, and Customer Risk Categorisation.
Financial Inclusion: This chapter discusses the provision of financial services to weaker sections of society, micro-finance through Self Help Groups (SHGs), and the roles of NGOs, and other organizations.
Balance Sheet: Sample balance sheets and profit & loss accounts are briefly presented.
BASEL Framework: The role of the Bank for International Settlements (BIS) and how it impacts international banking regulations/standards are mentioned. It describes how the Basel framework, Basel I, and Basel II apply to banks.
NPA and Securitization: This chapter details how non-performing assets (NPA) are categorized and the provisioning rules. Also includes the aspect of securitization, asset reconstruction, enforcement of security interest, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, and the Debt Recovery Tribunal.

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Description

Test your knowledge on scheduled banks as defined by the RBI Act, 1934, and their advantages over non-banking finance companies (NBFCs). This quiz covers key regulations from the Banking Regulation Act, 1949, and explores the role of the RBI in regulating the banking system. Challenge yourself and see how well you understand banking concepts and regulations in India.