Banking Awareness Study Material - Financial Reforms in Banking Sector

Banking Awareness Study Material – Financial Reforms in Banking Sector

Contents

Banking Awareness Study Material Computer Awareness Marketing Aptitude

A new era of banking industry in India was started after independence. In this era, efforts were made to improve banks’s methodology and responsibilities and various committees were formed in this regard. Apart from this, banks also took various steps to improve their working procedure.

Important Acts Related to Banking Regulation

Banking Regulation Act, 1949
The Banking Regulation Act, 1949 came into force on 16th Mar, 1949. It contained various aspects related to Banking Companies in India.
Its purpose is to

provide safety in the interest of depositors;
prevent misuse of powers by managers of banks;
see that the act does not supersede, but supplements to the Companies Act, 1956.

State Bank of India Act, 1955
Imperical Bank of India was transformed into SBI through SBI Act, 1955 passed by Indian Parliament. As a result of it banking services were expanded to rural as well as semi-urban areas.

The State Bank of India
(Subsidiary Banks) Act, 1959 This Act provides the formation of Certain Government or Government Associated Banks as subsidiary of the State Bank of India.

Banking Laws
(Miscellaneous Provisions) Act, 1963 With a view to restraining the control exercised by particular group of persons over the affairs of banks and to providing for stricter Control Over Bank by the Reserve Bank, the banking laws (miscellaneous provisions) Act was passed in 1963.

Banking Law (Amendment) Act, 1968
In this act, it was decided as to which businesses banks are allowed to give loans. The role of banks in the areas of economic and social development was also specified.

The Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970 As per this act, no shareholder of the Corresponding New Bank, other than the Central Government shall be entitled to exercise voting rights in respect of any shares held by him. Under this provision, 14 banks were nationalised in 1970.

Regional Rural Banks Act, 1976
Regional Rural Banks were established under the provisions of an Ordinance passed on 26th Sep, 1975 and the RRB Act, 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors. These were setup on the recommendations of the Narasimham working group.

SARFAESI Act, 2002
The full form of Sarfaesi Act is Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Banks utilise this act as an effective tool for bad loans (NPA) recovery. It is possible that non performing assets are backed by securities charged to the bank by way of hypothecation or mortgage or assignment.
Upon loan default, banks can seize the securities (except agricultural land) without intervention of the court. Sarfaesi is effective only for secured loans where bank can enforce the underlying security e.g. hypothecation, pledge and mortgages. The Sarfaesi Act, 2002 gives powers of ‘seize and desist’ to banks. Banks can give a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days.

Amendments to Sarfaesi Act (in 2016)
It allows District Magistrate (DM) to take possession over collateral within 30 days for securing the creditors. It empowers District Magistrate (DM) to assist banks to take over the management of a company, in case the company is unable to repay loans. It creates a central database to integrate records of property registered under various registration systems with central registry meant for maintaining records of transactions related to secured assets.

RBI Amendment Act, 2006
In 2006, Government amended the RBI Act, 1974 , and the Banking Regulation Act. Under the act, Government removed the floor and CAR on CRR and floor on statutory liquidity ratio to provide flexibility to the RBI to manage liquidity. After this, RBI was not required to pay any interest on the CRR deposits of banks. The amendments also established RBI as regulator of the bond market and the currency market.

The Banking Laws (Amendment) Bill, 2011
This Bill would strengthen the regulatory powers of Reserve Bank of India (RBI) and to further develop the banking sector in India. It will also enable the nationalised banks to raise capital by issue of preference shares or rights issue or issue of bonus shares.

The salient features of the bill are as follows:

To increase the cap on restrictions on voting rights.
To provide for special audit of co-operative banks at instance of RBI.
To enable the nationalised banks to raise capital through ‘bonus’ and ‘rights’ issue and also enable them to increase or decrease the authorised capital with approval from the Government and RBI without being limited by the ceiling of a maximum of ? 3000 crore.
Voting rights in banks may be restricted up to 26%.

Committees Related to Banking Sector Reform
Various committees related to Banking Sector Reform are as follows

Narsimham Committee I, 1991
This committee was setup on August* 1991 in order to study the problems of the Indian financial system and to suggest recommendations for improvement in the efficiency and productivity of financial institutions under following areas.

The committee recommended their gradual reduction of SLR to 25% and CRR to 3.5%.
The committee recommended that the actual number of public sector banks need to be reduced.
Regarding the Regional Rural Banks (RRBs), it recommended that they should focus on agriculture and rural financing.
The committee recommended the establishment of an Asset Reconstruction Fund (ARF). This fund would take over the proportion of the bad and doubtful debts from the banks and financial institutes. It would help banks to get rid of bad debts.
It considered and recommended that the RBI should be the only main agency to regulate banking in India.
The committee recommended that the public sector banks should be free and autonomous.
Some of these recommendations were later accepted by the Government of India and became banking reforms.

Narsimham Committee II, 1998
This committee was setup on 26th Dec, 1997. It submitted its report to the government in April, 1998 with the following recommendations

The committee considered the stronger banking system in the context of the Current Account Convertibility (CAC).
It recommended ‘Narrow Banking concept’ where weak banks would be allowed to place their funds only in short term and risk free assets.
The committee recommended that the government should raise the prescribed capital adequacy norms.
The committee considered that there was an urgent need for reviewing and amending main laws governing Indian banking industry like RBI Act, Banking Regulation Act, State Bank of India Act, Bank Nationalisation Act, etc.

Damodaran Committee, 2011
The committee, headed by former SEBI Chairman M Damodaran, was setup by the Central Bank to look into the issues of customer services and evaluate the existing system of grievance redressal mechanism prevalent in banks, its structure and efficacy and recommend measures for expeditious resolution of complaints.

Recommendations of the Committees

Bank should offer No Frill Saving Accounts with certain basic facilities such as cheque book and ATM card without prescribing any minimum balance.
All fixed deposit receipts should prominently indicate the annualised interest rate to help customers take more informed decisions.
The Indian Banks Association should standardise the account opening form for all banks, similar to the one used for loans. Title deeds of property should be returned to customers within 15 days of the full settlement of home loans.

MV Nair Committee, 2011
The Reserve Bank had constituted the Committee under the chairmanship of Shri M V Nair on 25th Aug, 2011 pursuant to the announcement made in the Monetary Policy Statement 2011-12. The Committee was to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues.

Nachiket Mor Committee, 2013
The RBI appointed a committee on comprehensive financial services for small businesses and low income under the Chairmanship of Sri Nachiket Mor member of the Central Board of Directors, RBI in the month of September, 2013. Motive of the panel is to frame a clear and detailed vision for financial inclusion and financial depending in India.

Recommendations of Nachiket Mor Committee
Recommendations of the Committee are as follows:

Every adult (above 18 yr) of our country should have a bank account by 1st Jan, 2016. This account will be known as Universal Electronic Bank Account (UEBA).
Every resident should be issued an account at the time of receiving Aadhaar number (UIDAI) by a bank itself.
It recommends abolition of interest subsidies and loan waivers. It suggested that government should transfer benefits directly to farmers.
It recommends for payment Bank.
Permission to banks for pricing farm loans below base rate should be withdrawn.
Statutory Liquidity Ratio has outlived its utility for both banks NBFCs.
It recommends raising priority sector lending cap for bank to 50% from the current 40%.

Bimal Jalan Committee/New Bank Licences, 2014
A committee, under the chairmanship of former RBI Governor Bimal Jalan, was constituted to scrutinise the application for new banks in India. The committee submitted it’s report in February 2014, recommending for the ‘in-principle’ approval of banking licenses to Bandhan Microfinance and IDFC (Infrastructure Development and Finance Corporation). Within a period of 18 months these two entities are required to

get a net worth of ? 1000 crore or more;
open at least 25% branches in unbanked rural areas.
These new banks will be provided licence under the Banking Regulation Act, 1949 (Section 22(1)), only after the fulfillment of these two conditions.

Bandhan Finance
It is a microfinance company, based in West Bengal (Kolkata). It is headed by Shri Chandra Sekhar Ghosh and has a net worth of ? 1100 crore. About 45% of its branches are in the rural areas. ‘Bandhan Bank’ received ‘in-principle’ approval of the RBI in April 2014, the banking regulator gave its final nod in June 2015. Bandhan Bank started operating banking services on 24 August, 2015.

IDFC
The Infrastructure Development and Finance Corporation (IDFC) is based in Mumbai. It is originally an investment finance company, headed by Shri Rajiv Lai. IDFC has the net worth of ? 21000 crore, but with a lower rural presence. IDFC started operating banking services on 1st Oct, 2015 under RBI Banking licence.

Deepak Mohanty Committee, 2015

The Reserve Bank of India (RBI) has constituted a committee on 15th July, 2015 to prepare five year action plan to spread the reach of financial services across country to unbanked population. The Committee will be headed by RBI Executive Director Deepak Mohanty and comprise total of 14 members. Deepak Mohanty is an economist at India’s Central Bank, the Reserve Bank of India (RBI). He holds the post of Executive Director at the Head Office of RBI in Mumbai.

Various other Committees of Banking Reform

Innovative Banking
In India, public sector banks have also started to boost Innovative activities related to banking sector. A concise description of these activities is given below

Know Your Customer (KYC) Norms

The Reserve Bank of India advised banks to make the Know Your Customer (KYC) procedures mandatory while opening and operating the accounts. At the time of opening an account, bank has to ensure that the prospective customer is the person who he/she claims to be. This is to prevent fraudsters using the name, address and forged signature of others for doing fraudulent transactions, benami transactions, encashment of stolen cheques, drafts, dividend, warrants, etc.

Relaxed KYC Procedure
The relaxation in KYC procedures is applicable for low income group customers. Individuals falling under the ‘No Frill Accounts’. Low income group customers are those who keep balances not exceeding ? 50000 in all their accounts (FDR/CA/SB) taken together and total credit summation in all the accounts taken together is not exceed ₹ 1 lakh in a year

The documents required by bank under KYC
‘Proof of identity’ under KYC	These six documents are Passport, Driving Licence, Voter’s Identity Card, PAN Card, Aadhaar Card issued by UIDAI and MNREGA Job Card. Customer need to submit any one of these documents as proof of identity
‘Proo of address’ for bank	Bank statement, electricity/telephone bill, credit card statement (should be not more them 3 months old). or, any officietlly vedid document which contains address details.

New Guideline for KYC
These are as follows

RBI has rectified the criteria of KYC for dealing with the problems coming in the completion of KYC process of identification of bank customers. The guidelines related to this were issued on 23rd July, 2013.
As per revised laws of RBI, the KYC formalities must be fulfilled in the following format
- High risk customers—once in two years.
- Medium risk customers—once in 8 years.
- Low risk customers—once in 10 years
As per the RBI’s new rules, banks are allowed to adopt system of current identification for making strong relation with their customers.

Mutual Banking
It is a financial institution chartered by a central or regional government, without capital stock, that is owned by its members who subscribe to a common fund. From this fund claims, loans etc., are paid. Profits after deductions are shared among the members. The institution is intended to provide a safe place for individual members to save and to invest those savings in mortgages, loans, stocks, bonds and other securities and to share in any profits or losses that result. The members own the business. ,

Factoring
It is a financial transaction in which a business sells its accounts receivable (i.e. invoices) to a third party (called a factor) at a discount. Factoring is a process of fulfilling the credit requirement by lending of material or asset to another person. This process is very popular in manufacturing industries.

Venture Capital (VC)
It is financial capital provided to early stage, high potential, high risk, growth startup companies. The venture capital fund earns money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT and software.

Microfinance
It is a source of financial services for entrepreneurs and small businesses lacking access to banking and related services. The two main mechanisms for the delivery of
financial services to such clients are as follows

Relationship-based banking for individual entrepreneurs and small businesses.
Group-based models, where several entrepreneurs as a group come together to apply for loans and other services.

Islamic Banking
A banking system that is based on the principles of Islamic law (also known Shariah) and is guided by Islamic economics, is known as Islamic Banking. Two basic principles behind Islamic banking are the sharing of profit and loss and is significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law. The Dubai Islamic Bank has the distinction of being the world’s first full-fledged Islamic bank founded in 1975. Saudi Arabia’s Islamic Development Bank has decided to open its first branch in India at Ahmedabad, Gujarat.

Electronic Banking
Electronic banking, also known as Electronic Funds Transfer (EFT), is simply the use of ¹ electronic means to transfer funds directly from one account to another, rather than by cheque or cash. Some important electronic banking services.

Direct Deposit and Withdrawal Services: It allows consumers to authorise specific deposits, such as paycheques or social security cheques, to their accounts on a regular basis.
Payment by Phone Systems: Let consumers phone their financial institutions with instructions to pay certain bills or to transfer funds between accounts.
Point-of-Sale (POS) Transfer Terminals: It allows consumers to pay for retail purchase with a cheque card, a new name for debit card. This card looks like a credit card, but with a significant difference— the money for the purchase is transferred immediately from your account to the store’s account.
Personal Computer Banking Services: It offers consumers the convenience of conducting many banking transactions electronically using a personal computer (PC).
Internet Banking: Such of system allows setting up of various access levels for specific user groups and controlling the authorisation levels and transaction limits, as assigned to various employees of your company.
Home Banking: The practice of conducting banking transactions from home rather than at branch locations is known as Home Banking. Home banking generally refers to either banking over the telephone or on the internet.
Smart Cards: It is sometimes called stored-value cards, have a specific amount of credit embedded electronically in the card.
Direct Deposit System: It is also known as direct credit. It is a banking term that describes a deposit of money straight from the source into a bank account, by electronic funds transfer or other means where the payment is initiated by the payer not the payee. The money is transferred directly to the recipient bank through a payment system.
Mobile Banking: It is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or personal digital assistant.
The Indian Financial Network: [INFINET] It is the communication backbone for the Indian Banking and Financial Sector. All banks in the public sector, private sector, co-operative etc., and the premier financial institutions in the country are eligible to become members of the INFINET.

Banking Ombudsman

Banking Ombudsman Scheme was introduced by the RBI in 14 June, 1995 under the Banking Regulation Act, 1949. It is a senior official appointed by RBI to redress customer complaints against deficiency in certain banking services.
Decision of Banking Ombudsman can be appealed against to the appellate authority (vested in a Deputy Governor of RBI).
Banking Ombudsman can award compensation to the complainant. In this, it takes into account the loss of the complainant’s time, expenses incurred and the harassment and mental anguish suffered.
It has jurisdiction over all Commercial Banks, RRBs, Scheduled primary co-operative banks, NBFCs, etc. It deals with matters less than or equal to ? 10 lakh.

Board of Financial Supervision
It was constituted in November 1994, as a committee of the Centred Board of Directors of the Reserve Bank of India with an objective to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

Central Board of Banking Fraudulence
It was established by Finance Minister in year 1997. It was established to enquiry about CBI cases pertaining to officers of rank of chief managers.

Debts Recovery Tribunal
The Debts Recovery Tribunal have been constituted under Section 3 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. The original aim of the Debts Recovery Tribunal was to receive claim applications from Banks and Financial Institutions against their defaulting borrowers. The Debts Recovery Tribunal of India have become model institutions for many a country to follow

Electronics Reforms of Banks
These are as follows

National Electronic Funds Transfer (NEFT)

It is a nation wide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country.
Even such individuals, firms or corporates who do not have a Bank account can also deposit cash at the NEFT. Enabled branch with instructions to transfer funds using NEFT.
There is not limit either minimum or maximum on the amount of funds that could be transferred using NEFT.

Electronic Clearing Service (ECS)

The Reserve Bank of India has introduced Electronic Clearing Service (ECS).
This uses a series of electronic payment instructions for transfer of funds instead of paper instruments.
The ‘ECS-Credit’ enables companies to pay interest or dividend to large number of beneficiaries by direct credit of the amount to their Bank accounts.
‘ECS-Debit’ facilitates payment of charges to utility services, such as electricity, telephone companies, payment of insurance premium and loan instalments, directly to the customer’s account with a bank.

Magnetic Ink Character Recognition (MICR)

MICR is a technology which allows machines to read and process cheques enabling thousands of cheque transactions in a short time.
The MICR encoding, called the MICR line, is at the bottom of cheques and other vouchers and typically includes the documents-type indicator, bank code, bank account number, cheque number, cheque amount, and a control indicator.
MICR code is usually a nine digit code comprising of some important information about the transaction and the bank. The first three digits in the MICR code represent the city code that is the city in which the bank branch is located.
In most cases it is in line with the PIN code of the postal addresses in India. The next three digits stand for the bank code while the last three digits represent the bank branch code.

Cheque Truncation System (CTS)

CTS or Image-based Clearing System (ICS), in India, is a project undertaken by the Reserve Bank of India (RBI) in 2008, for faster clearing of cheques.
CTS is based on a cheque truncation or online image-based cheque clearing system where cheque images and magnetic ink character recognition (MICR) data are captured at the collecting bank branch and transmitted electronically.

Real Time Gross Settlement System

RTGS system is a funds transfer mechanism for transfer of money from one bank to another on a ‘real time’ and on ‘gross basis’.
This is the fastest possible money transfer system through the banking channel.
Settlement in ‘real time’ means payment transaction is not subject to any waiting period. The transactions are settled as soon as they are processed. ‘Gross settlement’ means the transaction is settled on one to one basis without bunching with any other transactions.
The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ? 2 lakh. There is no upper ceiling for RTGS transactions.

Indian Financial System Code (IFSC)

IFSC or Indian Financial System Code is an alphanumeric code that identifies a bank branch participating in the NEFT.
This is a 11 digit code with the first 4 alpha characters representing the bank and last 6 numeric characters representing the branch.
IFSC is used by NEFT (RTGS) to route the messages to the destination Banks/ Branches. RBI directs the Bank to print IFSC code on passbooks and statement of accounts.

International Financial Reporting Standards (IFRS)
IFRS are set of International Accounting Standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. (IAS were issued in 1973 and lasted till 2000.) IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC).

Tit-Bits

The first experiments with internet banking I? started in the early 1980s, but it did not become popular until the mid 1990s, when home internet access was widespread.
In 1999 Gujarat was the first Indian state to introduce a smart card license system.
Reserve Bank of India has stated that financial statements of banks need to be International Financial Reporting Standards (IFRS) compliant for periods beginning on after 1st April, 2011.

RBI Guidelines for Banks
These are as follows

RBI Guidelines for New Private Banks
RBI released the Guidelines for “Licensing of New Banks in the Private Sector” in February, 2013. As a part of the guidelines, RBI provided several parameters.

Should have a’past record of sound credentials and integrity, be financially sound with a successul track record of 10 yr.
At the start of banking operations non-operative financial holding company (NOFGC) should hold a minimum of 40% of the equity capital of the bank with a lock-in period of five years. Later, it has to be brought down to 15 percent within 12 yr from that onwards.
Separate set of RBI norms Condition of to launch 25% of branches in unbanked rural areas with population upto 9,999. New bank should also achieve priority sector lending target of 40%.
FDI is capped at 49% for first five year, later as per extent norms.
The initial minimum paid-up voting equity capital for the bank shall be 5 billion. The NOFHC shall initially hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15 per cent within 12 yr.

RBI allowed Banks to Merge, Shift or Close Branches in Urban Areas
RBI has taken decision to allow banks to merge, shift or close branches in urban areas on their own discretion. In this regard, RBI has issued a notification that mention detailed provisions of above decisions. This move will give banks greater operational freedom but it would not be valid for rural areas. As per RBI notification – Merger, shifting or closure of any rural branch as well as a sole semi-urban branch will require prior approval of the District Level Review Committee (DLRC) or District Consultative Committee (DCC), Banks making changes should inform customers of its branch time before actual merger, shifting or closure of the office.

RBI Guidelines for Merger NBFCs
According to Reserve Bank of India (RBI), Non-Banking Financial Companies (NBFCs) will take its prior approval before buying shares of other NBFCs or for merger and acquisition with another entity. This rule will be applicable to both deposit taking and non-deposit accepting companies and any infringement of it may cost the company its registration. Prior written clearance of RBI would also be mandatory before approaching the Court or Tribunal seeking order for mergers or amalgamations with other companies or NBFCs.

RBI Guidelines for Minors’ Bank Accounts
As per the guidelines issued by the RBI, minors above 10 yrs of age have been allowed to open and operate independently savings bank account and use other facilities like ATM and cheque books. As per the modified guidelines by RBI:

All minors can now open a savings/fixed/recurring bank deposit account through either his/her natural guardian or legally appointed guardian.
The minors, who have attained 10 yrs of age, will be permitted to open and operate savings bank accounts independently.
The banks can also decide on the minimum documents which are required for opening of accounts by minors.

Question Bank

1. Real time gross settlement benefits

the customers
the banks
Reserve Bank of India
Both 1 and 2
None of these

2. The financial assistance of loans of ₹ 10000 by a bank to very a small borrower will be called

Business finance
Government finance
Micro finance
Small finance
KYC finance

3. Which of the following acts is specially launched to facilitate banks in recovery of bad loans?

RBI Act
Banking Regulation Act
Companies Act
Income Tax Act
SARFAESI Act

4. The Narasimham Committee I was setup to suggest some recommendations for improvement in the

efficiency and productivity of the financial institution
banking reform process
export of IT sector
fiscal reform process
None of the above

5. Narsimham Committee recommended to reduce SLR and CLR to

25% and 3.5% respectively
24% and 3.5% respectively
25% and 3% respectively
20% and 5% respectively .
25% and 5% respectively

6. Which of the following is not a recommendation of the Narsimham Committee, 1991?

Reduction of CRR and SLR
Phasing out directed credit programme
Reduction of Capital Adequacy Ratio
Establishment of ARF Fund
Autonomy to Public Sector Bank

7. Which of the following banks have entered capital market in the wake of Narasimham Committee recommendations?

State Bank of India
Oriental Bank of Commerce
Bank of India
All of the above
None of the above

8. The Narsimham Committee II was setup to suggest some recommendations for improvement in the

efficiency and productivity of the financial institution
banking reform process
export of IT sector
fiscal reform process
None of the above

9. One of the major challenges banking industry is facing these days is money laundering. Which of the following acts/norms are launched by the banks to prevent money laundering in general?

Know Your Customer Norms
Banking Regulation Act
Negotiable Instrument Act
Narcotics and Psychotropic Substance Act
None of the above

10. Which of the following are the recommendation of the Committee on Banking Sector Reforms (Narasimham Committee II)?

A general provision of 1% on standard assets should be introduced
Banks should bring out revised operational manuals and update them regularly
There is a need for disclosure in a phased manner of the maturity pattern of assets and liabilities, foreign currency assets and liabilities, movements in provision account and NPAs
All of the above
None of the above

11. The recommendations of the Committee on Banking Sector Reforms (Narasimham Committee II) include

the ‘Basel Core Principles of Effective Bank supervision’ should be regarded as the minimum to be attained
the banks and primary dealers alone should be allowed in the interbank call and notice money markets
opening the Treasury Bill market to foreign institutional investors for broadening its base
All of the above
None of the above

12. A working group on cheque transactions and E-cheques was constituted by the Reserve Bank of India under the chairmanship of Dr RB Barman and major recommendations of group include

the physical cheque will be truncated within the presenting bank
settlement will be generated on the basis of current MICR code line data
electronic images will be used for payment processing
All of the above
None of the above

13. Which of the following are the other recommendations made by the working group?

Grey scale technology will be deploy for imaging
Images will be preserved for eight years
A centralised agency per clearing location will act as an image warehouse for the banks
Both 1 and 2
All of the above

14. Every about (above 18 year) of our country should have a bank account by as recommended by Nachiket Mor Committee. This account will be known as

Universal transfer Bank Account
Universal Electronic Bank Account
Universal credit Bank Account
Universal saving Bank Account
Universal Natrual Bank Account

15. The Banking Regulation Act, 1949 came into force on…….

1st Jan, 1956
1st Mar, 1966
16th Mar, 1949
16th April, 1950
20th June, 1950

16. Issue related to voting rights

Banking Regulation Act, 1949
State Bank of India Act, 1955
The Banking Companies Act, 1970
RRB Act, 1976
None of the above

17. This act as an effective tool for bad loans recovery

RBI Amendment Act, 2006
The Banking Laws Bill, 2011
RRB Act, 1976
Sarfaesi Act, 2002
None of the above

18. ECB is a means of raising funds from overseas. What is its full form?

External Commercial Borrowing
Essential Commodities Borrowing
External Credit and Business
Essential Commodity Buyers
External credit Buyers

19. Know Your Customer (KYC) norms are required to be strictly followed by banks. It means

providing improved customer services
determining the identity and residence proof of account holders through approved documents
ensuring that staff members know the customers
organising regular customer service meetings
None of the above

20. Which of following is necessary to transfer funds through the RTGS facility?

Beneficiary’s bank account number
The IFSC number of the beneficiary’s bank branch
There is a minimum amount specified for transfer
All of the above
None of the above

21. How can a Indian Financial Services Code number be identified?

It is a 11 digit alphanumeric code
It is available on the cheque leaves of an individual’s cheque book
It is provided by the bank if asked
All of the above
None of the above

22. According to Sarfaesi Act, 2002, the registration and regulation of securitisation companies or reconstruction companies is done by

RBI
SEBI
SBI
All of these
None of these

23. The Sarfaesi Act amendment bill 2016 provides the facilities that the District Magistrate has to assist in the recovery process of the seemed creditors and complete process within

10 days
30 days
45 days
50 days
55 days

24. The Sarfaesi Act provides alternative methods for recovery of non performing assets

Securitisation
Asset Reconstruction
Enforcement of Security without the intervention of the Court
1 and 2
All of the above

25. The assets of the banks which do not perform are called

Non Performing Assets (NPA)
Bad loans
Fixed loans
1 and 2
All of the above

26. According to RBI, terms loans on which interest or instalment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a

IFSC
ECS
NPA
CTS
MICR

27. In……. Gujarat was the 1st Indian State to introduce a smart Card License system.

2011
2012
2013
1999
2000

28. Bandhan Bank Ltd. received the ‘in-principle’ approval of the (RBI) for setting up a universal bank in

April, 2011
April, 2012
April, 2013
April, 2014
April, 2015

29. Which committee has been constituted to give recommendations on Fiscal Responsibility and Budget Management (FRBM)?

Ajay Shankar committee
NR Madhava Menon committee
NK Singh committee
H Devaraj committee
G C Gupta

30. Which committee has been constituted to examine the feasibility of a new financial year?

Shankar Acharya committee
Rajiv Kumar committee
KM Chandrasekhar committee
PV Rajaraman committee
None of the above

31. Reserve Bank of India (RBI) has constituted a committee to prepare a 5 year action plan to spread the reach of financial services across country to unbanked population. The committee will be headed by RBI executive director

Deepak Mohanty
Shankar Acharya
Rajiv Kumar
KM Chandrasekhar
PV Rajaraman

32. Prime Minister Narendra Modi’s government has ordered the formation of a Special Investigation Team (SIT) to investigate black money. The SIT will be headed by retired Supreme Court judge

Deepak Mohanty
Shankar Acharya
Rajiv Kumar
KM Chandrasekhar
MB Shah

33. The Reserve Bank of India (RBI) has setup an inter-regulatory working group to study the regulatory issues relating to Financial Technology (Fintech) and Digital Banking in India. The inter-regulatory working group will be headed by

Shankar Acharya
Rajiv Kumar
Sudarshan Sen
KM Chandrasekhar
MB Shah

34. The “Committee on Comprehensive Financial Services for Small Businesses and Low Income Households” was setup by the RBI under the chairmanship of

Rajiv Kumar
Sudarshan Sen
KM Chandrasekhar
MB Shah
NachiketMor

35. ……… was included in the 4 member RBI panel led by Bimal Jalan which examine applications for new bank licenses.

Rajiv Kumar
Sudarshan Sen
Nachiket Mor
KM Chandrasekhar
MB Shah

36. The Reserve Bank of India (RBI) panel on priority sector lending proposed increment in the target (priority sector) for foreign banks to

37. Reserve Bank panel headed by…. has made some important recommendations on priority sector lending.

M V Nair
Sudarshan Sen
Nachiket Mor
KM Chandrasekhar
MB Shah

38. The report on Customer Service in Banks by a committee chaired by

M Damodaran
MV Nair
Sudarshan Sen
Nachiket Mor
KM Chandrasekhar

39. KYC is the process of a business verifying the identity of its clients. What is Y in KYC?

Yield
Young
Your
You
Yes

40. RBI allowed bank to merge, shift or close branches

Rural areas
Semi-rural areas
Urban areas
1 and 3
None of these

41. The Reserve Bank of India introduced KYC guidelines for all banks in

2002
2007
2009
2010
2011

42. A mutual savings bank is setup specifically to be operated for the benefit of the

client
depositors
friend
creditor
None of these

43. Smart cards can provide

personal identification
authentication
data storage
application processing
All of the above

44. Islamic banking is banking or banking activity that is consistent with the principles of

Debit law
Credit law
Sharia
Indian banking law
Internation banking law

45. A lot of Banks in India these days are offering M-Banking Facility to their customers. What is the full form of ‘M’ in ‘M-Banking’?

Money
Marginal
Message
Mutual Fund
Mobile Phone

46. Which one of the following does not qualify as priority sector lending by commercial banks?

Software industries
Small business loans
Education loans
Small loans to rural educated unemployed
None of the above

47. Banking Ombudsman Scheme was introduced by the RBI in

1975
1980
1995
1998
2005

48. Factoring process is very popular in

Manufacturing industry
IT industry
Publication industry
Software industry
Medical industry

49. Which one of the following is incorrectly matched?
Committee Name Area Covered

YV Reddy Small Saving Reforms
Deepak Mohanty Base Rate
Justice MB Shah Financial Inclusion
AKKhandelwal HR Issues of PSBs
NK Singh Review, recommendations of FRBM Act

50. IDFC stands for

Infrastructure Development and Finance Corporation
Indian Development and Finance Corporation
Indian Development and Finance Company
Infrastructure Development and Finance Company
Infrastructure Deem and Finance Corporation

51. Central Board of Banking Fraudulence was established by Finance Minister of India in year

1985
1990
1997
2003
2011

52. Banking Ombudsman deals with matters less than or equal to

₹ 2 lakh
₹ 10 lakh
₹ 50 lakh
₹ 2 crore
₹ 10 crore

53. Recommendations for every adult (above 18 yrs) of our country should have a bank account by 1st Jan, 2016 was given by

Narsimham Committee
Bimal Jalan Committee
Deepak Mohan Committee
Mohanty Committee
Nachiket Mor Committee

54. This committee recommended that the public sector bank should be free and autonomous

Narsimham Committee
Nachiket Mor Committee
Mohanty Committee
Bimal Jalan Committee
None of the above

55. Which of the following is not a electronic banking services?

Mobile Banking
POS transfer
Home Banking
Home Loan
PC Banking Services

56. Which of the following is not an act related to Banking regulation?

Banking Laws Act, 1963
State Bank of India Act, 1963
RBI Amendment Act, 2006
1 and 2
All of the above

57. Consider the following statement(s) regarding IFRS.
I. IFRS are issued by the International Accounting Standards Board,
II. International Accounting Standards (IAS) was replaced by IFRS.
III. RBI has started IFRS in year 2015.
Codes

Only II
II and III
I and II
All of these
None of these

58. Consider the following statement(s) regarding IFSC.
I. IFSC is an alphanumeric code.
II. IFSC is a 11 digit code.
III. IFSC is used by NEFT.
Codes

I and II
II and Ed
I and m
I, II and III
Only III

59. Choose the correct statement(s) regarding Banking Regulation Act, 1949.
I. Provide safety in the interest of depositors,
II. Prevent misuse of powers by managers of banks.
III. Act does not supersede.
Codes

Only II
I and II
I, II and III
II and III
Only III

60. Choose the correct statement(s) regarding IDFC.
I. IDFC started operating banking services on 1st Oct, 2015.
II. IDFC is based in Mumbai.
III. It is originally on investment finance company.
Codes

I and II
II and III
II and III
I and III
None of these

61. Choose the correct statement(s).
I. Deepak Mohanty is an economist.
II. Deepak Mohanty Committee is constituted by RBI.
III. Mohanty Committee was constituted on 15 July, 2015.
Codes

Only I
I and II
II and III
I and III
All of these

62. Consider the following statement(s) regarding Bandhan Bank.
I. Bandhan Bank started operating its banking services on 1st Oct, 2016.
II.RBI gave its final nod for banking services in 2015,
III. Head office of Bandhan Bank in Kolkata.
Codes

Only II
II and III
I and III
I and II
All of these

63. Consider the following statement(s) regarding Islamic Banking.
I. It is based on the principles of Islamic law also known shariah.
II. The Dubai Islamic Bank is the world’s first full-fledged Islamic bank.
ID. Collecting interest is not permitted under Islamic law.
Codes

I and II
II and III
I and III
I, II and III
Only 111

64. Banks usually frame their KYC policies incorporating the following key elements
I. Customer Policy;
II. Customer Identification Procedures;
III. Monitoring of Transactions; and
IV. Risk management.
Codes

I, II and III
II and IV
I, in and IV
I, II, III and IV
II, III and IV

65. NEFT means [IBPS Clerk 2011]

National Electronic Funds Transfer System
Negotiated Efficient Fund Transfer System
National Efficient Fund Transfer Solution
Non-Effective Fund Transfer System
Negotiated Electronic Foreign Transfer System

66. Which of the following is the purpose of introducing ‘Know Your Customer’ norms by the banks? [SBI PO 2011]

To bring more and more people under the banking net
Identifying people who do not pay income tax
To ensure that the money deposited in banks has come from genuine sources
To ensure whether the money deposited in the bank is of an India or a foreign national
None of the above

67. Which of the following is the popular name of the norms by which a bank satisfies itself about the customer’s identity and activities? [Corporation Bank 2011]

Basel norms
KYC norms
Service norms
Lending norms
None of these

68. Which of the following is/was not included in the agenda set for the banking reforms in India? [Andhra Bank 2011]

Dismantling of administered interest rates
Measures to strengthen risk management
Promulgation of Sarfaesi Act
Promotion of the concept of easy credit to all with a guaranteed subsidy from government
Granting of operational autonomy to public sector banks and allowing them to raise capital from the open market

69. In respect of which one of the following areas, YH Malegam Committee has submitted its recommendations? [Andhra Bank 2011]

Interest on Microfinance loans
Teaser loans
Rural development
Advances to agriculture
None of the above

70. Many times we read a term CBS used in banking operations. What is the full form of the letter C in the term ‘CBS’ ? [Indian Overseas Bank 2011]

Complete
Credit
Continuous
Core
None of these

71. The YH Malegam Committee, which submitted its report a few months back, was setup to report on further improvement of functioning of [RBI Grade B 2011]

Micro Finance Institutions
Stock Exchanges in India
Cooperative Banks
Regional Rural Banks
Foreign Banks having offices in India

72. Banking Ombudsman Scheme is applicable to the business of [IBPS PO 2012]

all scheduled commercial banks excluding RRBs
all scheduled commercial banks including RRBs
only public sector banks
all banking companies
all scheduled banks except private banks

73. In which of the following fund transfer mechanisms, can funds be moved from one bank to another and where the transaction is settled instantly without being bunched with any other transaction? [IBPS PO 2012]

RTGS
NEFT
TT
EFT
MT

74. An ECS transaction gets bounced and you are unable to recover your money from your customer. Under which Act criminal action can be initiated? [IBPS PO 2012]

Indian Penal Code
Negotiable Instruments Act
Criminal Procedure Code
Payment and Settlements Act
Indian Contract Act

75. In which of the following fund transfer mechanisms, transaction is not subject to any waiting period? [SBI Clerk 2012]

RTGS
NEFT
TT
EFT
MT

76. General Clients of various banks in India can make a complaint to which of the following offices, on the issues related to deficiency in services which do not get resolved at banks’ level? [SBI Assistant 2012]

Comptroller and Auditor General of India
Attorney General of India
Ombudsman
Indian Audit Bureau
Indian Banks Association

77. Banking Ombudsman is appointed by……. [SBI PO 2013]

Government of India
State governments
RBI
ECGC
Exim Bank

78. With a view to providing a simpler, faster, reliable and cost effective solution for repetitive payment transactions such salary, pension, interest, commission, dividend, etc by companies, corporations and government departments, the Reserve Bank introduced in April, 1995

MICR Clearing [RBI Assistant 2018]
Electronic Funds Transfer (EFT)
Electronic Clearing Service (Credit) (ECS Credit)
Shared Payment Network System (SPNS)
None of the above

79. The ECS (Credit) envisages [RBI Assistant 2013]

substitution of the paper instrument by electronic instructions for bulk and repetitive payment transactions
use of cheques by corporate clients only
reduction of work load of clerical staff in banks
encouraging competition among public sector and private sector banks
None of the above

80. What is the individual credit limit under the ECS (Credit)? [RBI Assistant 2013]

₹ 25000
₹ 50000
₹ 1 lakh
₹ 5 lakh
No limit

81. The Reserve Bank of India recently issued guidelines allowing minors over 10 yr of age to operate bank account independently with a view to [SBI PO 2014]

promote financial inclusion
increase low cost deposits of banks
improve CASA percentage of banks
mobilise savings bank deposits of banks
To put ATMs and other infrastructure to optimum use

82. Which of the following is the correct full form of ECS often used in banking? [IBPS PO 2015]

Electronic Clash System
Electronic Cash Service
Electronic Clearing Service
Electronic Charging System
Other than those given as options

83. The abbreviation ‘EPoS’ stands for[IBPS PO 2015]

Electronic Payment of Sale
Electronic Point of Sale
Electronic Purchase of Sale
Electronic Price of Sale
Electronic Platform of Sale

84. The maximum amount that can be remitted through RTGS is [IBPS PO 2015]

₹ 1 crore
₹ 50 lakh
₹ 2 lakh
₹ 10 lakh
No upper ceiling

85. IFSC has how many digits? [IBPS PO 2015]

86. “Sarfaesi Act 2001” is applicable in banking industry for [SBI Clerk 2015]

regulating the service conditions of employee
appointment of nominee directors on the bank boards
Other than those given as options
streamlining documentation
facilitating enforcement of security for recovery of bad loans

87. Desirability and feasibility for new financial year committee headed by [SBI PO 2016]

SC Gupta
Sharkar Acharya
AK Khandelwal
YH Malegam
YV Reddy

88. NK Singh committee on [SBI PO 2016]

Base Rate
Financial Inclusion
Fiscal Responsibility and Budget Management Act
Money lending and Enforcement Machinery
Small Savings Reforms

89. What is the full form of the letter T in the term RTGS? [SBI Clerk 2016]

Time
Transaction
Tax
Transfer
Temporarily

90. Minimum age for saving account [SBI Clerk 2016]

Banking Awareness Study Material – Financial Reforms in Banking Sector

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