Banking Act or Policies MCQ Quiz - Objective Question with Answer for Banking Act or Policies - Download Free PDF

The correct answer is Reverse repo rate is less than the repo rate.

Important Points

• Repo Rate- It the rate at which RBI lends money to commercial banks in the event of any shortfall of funds.
• Reverse Repo Rate is the rate at which RBI borrows money from commercial banks within the country.

Additional Information

Key Differences between Repo Rate and Reverse Repo Rate:

• Some Similarities between Repo Rate and Reverse Repo Rate:-
• Both are prescribed by the Reserve Bank of India.
• Both are bank policy rates.
• Both affect the liquidity of the economy.
• Reserve Bank of India- 

1. RBI regulates commercial banks and non-banking finance companies working in India. 
2. It serves as the leader of the banking system and the money market. 
3. It regulates the money supply and credit in the country.
4. It commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934.
5. Headquartered at Mumbai

Current Rate as of August 2023-

The correct answer is Short term inter-bank transaction rate

• Call money is short-term finance repayable on demand, with a maturity period of 1 to 14 days (or overnight to a fortnight). It is used for inter-bank transactions.
• Call money, also known as "money at call," is a short-term financial loan that is payable immediately, and in full, when the lender demands it. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule, nor does the lender have to provide any advanced notice of repayment. 
• Call money is a short-term, interest-paying loan from one to 14 days made by a financial institution to another financial institution. Due to the short term nature of the loan, it does not feature regular principal and interest payments, which longer-term loans might. The interest charged on a call loan between financial institutions is referred to as the call loan rate. 
• Call money and short-notice money is similar, as both are short term loans between financial institutions. Call money must be repaid immediately when called by the lender. Alternatively, short notice money is repayable up to 14 days after the notice is given by the lender. Short notice money is also considered to be a highly liquid asset, trailing cash and call money on the balance sheet. 

The correct answer is Reverse repo rate is less than the repo rate.

Important Points

• Repo Rate- It the rate at which RBI lends money to commercial banks in the event of any shortfall of funds.
• Reverse Repo Rate is the rate at which RBI borrows money from commercial banks within the country.

Additional Information

Key Differences between Repo Rate and Reverse Repo Rate:

• Some Similarities between Repo Rate and Reverse Repo Rate:-
• Both are prescribed by the Reserve Bank of India.
• Both are bank policy rates.
• Both affect the liquidity of the economy.
• Reserve Bank of India- 

1. RBI regulates commercial banks and non-banking finance companies working in India. 
2. It serves as the leader of the banking system and the money market. 
3. It regulates the money supply and credit in the country.
4. It commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934.
5. Headquartered at Mumbai

Current Rate as of August 2023-

The correct answer is 2013.

Key Points

• The Companies Act, 2013 is an Act of the Parliament of India which regulates the incorporation, responsibilities, and dissolution of companies.
• It replaced the Companies Act, 1956, bringing significant changes to the legal framework governing Indian companies.
• The Act was enacted on 29 August 2013 and came into force on 1 April 2014.
• It introduced new concepts such as one-person companies, corporate social responsibility (CSR), and enhanced disclosure norms.
• The Act aims to improve corporate governance and protect investor interests.

Additional Information

• Corporate Social Responsibility (CSR)
  • The Companies Act, 2013 mandates certain companies to spend a minimum amount on CSR activities.
  • Companies with a net worth of Rs. 500 crores or more, or turnover of Rs. 1000 crores or more, or net profit of Rs. 5 crores or more during any financial year are required to spend at least 2% of their average net profits on CSR.
  • This provision aims to ensure that companies contribute to societal welfare and development.
• One-Person Company (OPC)
  • The concept of OPC allows a single individual to form a company, thereby providing a new avenue for solo entrepreneurs.
  • OPCs have simplified compliance requirements compared to private limited companies.
  • This has been introduced to encourage individual entrepreneurship and formalize small businesses.
• National Company Law Tribunal (NCLT)
  • The Companies Act, 2013 established the NCLT to adjudicate issues related to companies in India.
  • The NCLT consolidates the corporate jurisdiction of various authorities such as the Company Law Board, Board for Industrial and Financial Reconstruction, and the Appellate Authority for Industrial and Financial Reconstruction.
  • The NCLT provides a single window for corporate dispute resolution.
• Enhanced Disclosure Norms
  • The Act mandates increased transparency through enhanced disclosure requirements in financial statements and board reports.
  • Companies are required to disclose their policies on CSR, risk management, and other significant matters.
  • This aims to promote better governance and accountability.

The correct answer is Life insurance of human and animal.

Key Points

• Life insurance is a type of insurance that provides financial compensation to the insured's beneficiaries in the event of the insured's death.
• It can cover both human and animal lives, offering financial security to the policyholder's dependents or beneficiaries.
• Life insurance policies can vary significantly in terms of coverage, premium, and conditions, but the central concept remains the same: to provide financial protection.

Additional Information

• Option 1: Machine insurance - This is incorrect because machine insurance covers the risk of damage to machinery and equipment, not life insurance.
• Option 4: Human insurance - This is partially correct as it only covers human life insurance, not animals.

The correct answer is ₹2,00,000.

Key Points

• Rs. 2,00,000 is the minimum amount that can be remitted through Real Time Gross Settlement (RTGS).
• The acronym "RTGS" stands for Real-Time Gross Settlement, which can be described as a mechanism where fund transfers are settled continuously and in real-time, individually on a transaction basis (without netting).
• "Real-Time" means the delivery of instructions at the time of receipt; "Gross Settlement" means the settlement of instructions for the transfer of funds happens separately.
• The RTGS system is intended specifically for large-value transactions.

The correct answer is the State Bank of India.

Key Points

• The nationalization of banks began on July 19, 1969, during the tenure of Indira Gandhi.
• The whole process took place in two phases.
• In 1969, 14 Private Sector Banks were nationalized that accounted for around 80% of the money deposited in banks.
• This major financial step was taken up to reform the lending sector and provide credit to some priority sectors like agriculture and small scale businesses.
• Then in 1980, another 6 banks were nationalized.

Key Points

 State Bank of India:

• The merger of Bank of Calcutta, Bank of Madras and Bank of Bombay in 1921 laid the foundation of Imperial Bank of India.
• In 1955 after the enactment of the State Bank of India Act Imperial Bank was renamed as State Bank of India (SBI).
• Its 60% stake was bought by RBI and SBI came under the control of the Government as Public Sector Undertaking.
• In 1969, SBI was already under the control of the government hence there was no need to nationalize it.
• Therefore, although SBI is a Public Sector Bank but is not included in the list of nationalized banks.
• Currently, SBI is headquartered in Mumbai.

*Industrial Development Bank of India (IDBI) is another Public Sector Bank that is not nationalized.

The correct answer is option 4:

• Reserve Bank of India (RBI) is responsible for fixing Repo or Reverse Repo Rate.
• RBI regulates these rates as a part of its monetary policy.
• Monetary policy refers to the steps undertaken by the central bank to control the liquidity and supply of money in the market.
• Repo Rate: It is an Acronym for the Repurchasing Agreement Rate. It is the rate at which RBI lends money to other banks in the country for the short term.
• Reverse Repo Rate: When banks deposit their surplus funds with RBI for a short term, the rate then offered by RBI is called Reverse Repo Rate.

Reserve Bank of India (RBI):

• It was established on April 1, 1935, under the RBI Act 1934, but as a private bank.
• RBI was nationalized in 1949.
• It is the apex banking institute of India.

• The correct answer is option 2, i.e., MSP.
• MSP is NOT an instrument of RBI's Monetary Policy.
• MSP that is Minimum Support Price is the price fixed by the Government to protect the farmers against the excessive reduction in the price due to a bumper crop. This is the minimum price that the farmers will receive for their crops from the government.
• RBI's Monetary Policy has two types of instruments: Direct and Indirect Instruments.
• Direct Instruments -

1. CRR (Cash Reserve Ratio)
2. SLR (Statutory Liquidity Ratio)

• Indirect Instruments -

1. LAF (Liquidity Adjustment Facility)
2. OMO (Open Market Operations)
3. MSS (Market Stabilisation Scheme)
4. Repo Rate
5. Reverse Repo Rate

The Correct Answer is Option 4 i.e C.

• The validity of a cheque is estimated to be within a period of three months from the date of its issue.
• With effect from April 1, 2012, the validity period of Cheques, Demand Drafts, Pay Orders, and Banker's Cheques was reduced from 6 months to 3 months, from the date of its issue.
• Post-dated cheque: It is a cheque on which future date is written by the issuer for the payment.
• Outdated cheque: A cheque is outdated when it is outstanding for a period of more than 3 months from the date of issue.

• Repo rate is the rate at which the central bank lends to commercial banks.
• Repo rate is used by monetary authorities to control inflation.
• An increase in repo rate by the central bank controls money supply hence helps in controlling Inflation.

The correct answer is option 1,  i.e., CPI

• The Wholesale Price Index (WPI) was the main index for measurement of inflation in India till April 2014 when RBI adopted a new Consumer Price Index (CPI) (combined) as the key measure of inflation.
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics, etc, which Indian consumers buy for use.
• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc. Inflation measures the average price change in a basket of commodities and services over time.
• The opposite and rare fall in the price index of this basket of items is called ‘deflation’. Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentages.
• These are some of the chief reasons for the increase in prices:
  • High demand and low production or supply of multiple commodities create a demand-supply gap, which leads to a hike in prices.
  • Excess circulation of money leads to inflation as money loses its purchasing power.
  • With people having more money, they also tend to spend more, which causes increased demand.

The correct answer is option 4 i.e 6.25

The new reverse Repo rate announced by the Reserve Bank of India (RBI) as of 1st August 2018 was 6.25 %.​

* The rate mentioned in the table are as per Dec 2019.

The correct answer is 16.

Key Points 

Section 16 in BANKING REGULATION ACT,1949

• No banking company incorporated in India shall have as a director on its Board of Directors any person who is a director of any other banking company.
• No banking company referred to in sub-section (1) shall have in its Board of directors, more than three directors who are directors of companies which among themselves are entitled to exercise voting rights in excess of twenty percent of all shareholders' total voting rights to that banking company.

Additional Information The Banking Regulation Act, 1949:

• The Banking Regulation Act was passed in India in the year 1949.
• The act regulates all the banking firms in India.
• It came into effect on 16 March 1949 and was applicable in Jammu and Kashmir from 1956.
• Initially, it was applicable only to the banking companies, but later, in 1965, it was applicable to cooperative banks as well, after an amendment.