This category would provide specific resources for individuals preparing for competitive exams in the banking sector. It would cover relevant topics such as quantitative aptitude, reasoning, general awareness (especially related to banking and finance) and potentially specialized knowledge of banking procedures and regulations . The content would include practice MCQs, test-taking strategies, and analysis of previous year’s question papers to help understand the exam pattern and the types of questions asked . The importance of this category would be in equipping aspiring banking professionals with the necessary skills and knowledge to excel in
Describe the role of a ‘Commercial Bank’ in an economy.
Question
- A. To regulate the money supply
- B. To act as intermediaries between savers and borrowers
- C. To issue currency
- D. To collect taxes
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Correct Answer ( B )
Commercial banks play a vital role in an economy by acting as intermediaries between savers and borrowers. They accept deposits from individuals and businesses and provide loans for various purposes such as personal consumption, business expansion and housing ; this process facilitates the flow of funds within the economy, enabling investment and economic growth . Commercial banks also offer a range of other financial services, such as payment processing, investment banking services and foreign exchange transactions ; their activities contribute to the overall efficiency and stability of the financial system, supporting economic development and prosperity
Explain the concept of ‘Liquidity’ in the banking sector. |.
Question
- A. The total amount of money a bank has
- B. The bank's ability to meet its short-term obligations
- C. The value of a bank's investments
- D. The number of customers a bank has
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Correct Answer ( B )
In the banking sector, liquidity refers to a bank’s ability to meet its short-term obligations without incurring significant losses. It’s the ease with which a bank can convert its assets into cash. High liquidity indicates that a bank has sufficient readily available funds to meet its immediate needs, such as withdrawals from depositors, payments to creditors and other financial obligations . Maintaining adequate liquidity is crucial for a bank’s stability and solvency. Insolvency occurs when a bank cannot meet its short-term obligations
What is a ‘Non-Performing Asset’ (NPA) in banking? | npas.
Question
- A. A loan that is fully repaid
- B. A loan that has not been serviced for a specified period
- C. A loan given to a high-credit-worthy borrower
- D. A loan with a very low interest rate
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Correct Answer ( B )
A Non-Performing Asset (NPA) is a loan or advance that has not been serviced by the borrower for a specified period, that is, the borrower has not made any interest or principal payments on the loan for a specified period (usually 90 days) NPAs represent a significant risk to banks, as they represent a potential loss of capital. The higher the percentage of NPAs a bank has the higher its risk profile . Banks are required to make provisions for NPAs, which reduces
What is the SLR (Statutory Liquidity Ratio) and its purpose?
Question
- A. The ratio of a bank's non-performing assets to its total assets
- B. The percentage of a bank's deposits that must be held in the form of liquid assets
- C. The rate at which banks lend to each other
- D. The ratio of a bank's capital to its risk-weighted assets
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Correct Answer ( B )
The Statutory Liquidity Ratio (SLR) is the percentage of total deposits of a commercial bank that it is required to maintain in liquid assets by law . These assets include gold, cash and government securities . It acts as a safeguard against liquidity crises and promotes financial stability within the banking system . Changes to the SLR, similar to changes in CRR , affect the amount of money banks can lend and indirectly affect credit availability and economic activity .
What is the significance of the CRR (Cash Reserve Ratio)?
Question
- A. The ratio of a bank's profits to its expenses
- B. The ratio of a bank's loans to its deposits
- C. The percentage of a bank's total deposits that must be maintained with the RBI
- D. The interest rate on government bonds
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Correct Answer ( C )
The Cash Reserve Ratio (CRR) is the percentage of the total deposits that a bank is required to maintain with the Reserve Bank of India (RBI) in the form of cash or balances . This regulation ensures that banks have enough liquidity to meet their daily obligations and prevents excessive lending . A higher CRR reduces the money available for lending, tightening the money supply and possibly curbing inflation . A lower CRR increases the money available for lending , potentially stimulating economic growth .
Define ‘Bank Rate’ and its role in monetary policy. |.
Question
- A. The interest rate on savings accounts
- B. The rate at which banks lend to each other
- C. The rate at which the central bank lends money to commercial banks
- D. The rate at which the government borrows from banks
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Correct Answer ( C )
The Bank Rate is the rate at which the central bank (in India, the RBI) lends money to commercial banks. It is a benchmark lending rate that influences other interest rates in the economy. Changes in the Bank Rate indicate the central bank’s stance on monetary policy . An increase in the Bank Rate signals a tightening of monetary policy , aiming to curb inflation by making borrowing more expensive , whereas a decrease signals a loosening of policy aimed to stimulate economic growth by making borrowing
Explain the concept of ‘Repo Rate’ in banking. | raises.
Question
- A. The rate at which banks lend to each other
- B. The rate at which the RBI lends to the government
- C. The rate at which the RBI lends money to commercial banks against government securities
- D. The interest rate on savings accounts
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Correct Answer ( C )
The Repo Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks against the security of government securities. Essentially, it is a short-term lending mechanism : when the RBI wants to increase the money supply in the economy it lowers the Repo Rate, making it cheaper for banks to borrow, thus encouraging lending and boosting economic activity . Conversely, when inflation is high, the RBI raises the Repo Rate, making borrowing more expensive, thus reducing the money supply and curb
What is the primary function of the Reserve Bank of.
Question
- A. To provide loans to individuals
- B. To manage the stock market
- C. To regulate the monetary policy and oversee the banking system
- D. To collect taxes for the government
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Correct Answer ( C )
The Reserve Bank of India (RBI) serves as the central bank of India and its primary function is to regulate the monetary policy of the country. This includes managing inflation, maintaining exchange rate stability and ensuring the overall health and stability of the Indian financial system. RBI also oversees the banking system, licensing new banks and supervising existing ones to maintain financial integrity and prevent crises. Furthermore, it acts as the banker to the government, managing government accounts and issuing currency .