Commercial Banks are financial institutions that accept deposits, provide loans and offer various banking services to individuals and businesses. They play an important role in economic growth by mobilizing savings and financing investments. Practice these MCQs with explanations for better preparation in competitive examinations.
The functions of commercial banks in India include
Purchase and sale of shares and securities on behalf of customers.
Acting as executors and trustees of wills.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
A commercial bank is a kind of financial institution which carries all the operations related to deposits and withdrawal of money for the general public, providing loans for investment etc. Other functions of the commercial bank are purchase and sale of shares and securities on behalf of customers and acting as executors and trustees of wills.
Ques: 2
The Chairman of public sector banks are selected by the :
Correct Answer:
(A) Banks Board Bureau
Chairmen and other top officials of public sector banks are selected by the Bank Board Bureau (BBB). The Bureau started functioning from April 01, 2016 as an autonomous recommendatory body. It is tasked to improve the governance of public sector banks, recommend selection of top-level posts of public sectors banks and financial institutions and to help banks in developing strategies and capital raising plans.
Ques: 3
What is the importance of the term ‘Interest Coverage Ratio’ of a firm in India?
It helps in understanding the present risk of a firm that a bank is going to give loan to.
It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
The higher a borrowing firm's level of Interest Coverage Ratio, the worse is its ability to service its debt.
Select the correct answer using the code given below:
Correct Answer:
(A) 1 and 2 only
The 'Interest Coverage Ratio' (ICR) is a debt ratio and profitability ratio used to measure how easily a firm can pay interest on its outstanding debt. A higher coverage ratio is better, although the ideal ratio may vary by industry. Hence, statement 3 is incorrect. 'ICR' is also sometimes called the 'times interest earned, ratio. Lenders, investors and creditors often use this to determine a company's riskiness relative to its current debt on for future borrowing. Hence, statement 1 is correct. This ratio is also used by creditors and prospective lenders to assess the risk of lending capital to a firm. Hence, statement 2 is also correct.
Ques: 4
What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently?
Correct Answer:
(D)
To aim at faster resolution of stressed assets of Rs. 50 crore or more which are-under consortium lending.
The Inter-Creditor Agreement (ICA) and its implementation in July 2018.
Implementation: The ICA was implemented as part of the government's project 'Sashakt' to tackle bad loans.
Signatories: In July 2018, various banks (public, private, and foreign) and financial institutions signed the agreement.
Purpose: The agreement aimed to expedite the resolution of stressed assets exceeding Rs. 50 crores under consortium lending.
Decision-making: The agreement stipulated that a resolution plan approved by 66% of lenders by value would be binding on all lenders involved.
Ques: 5
Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?
Correct Answer:
(B) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
The Reserve Bank of India has introduced on 13 June, 2016 the ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’ to offer adequate deep financial restructuring opportunities to large borrowers (i.e. big corporate entities) facing genuine difficulties. The S4A scheme aims to strengthen the lenders’ ability to deal with large stressed assets facing genuine hardship and offers a realistic chance for reworking the financial structure of such entities. Under this scheme, a company’s debt is bifurcated into two parts- sustainable and unsustainable, based on the cash flows of the company’s project.
Ques: 6
Consider the following statements :
The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat, command the payment system providers that
They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India.
They shall ensure that the systems are owned and operated by public sector enterprises.
They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.
Which of the statements given above is/are correct?
Correct Answer:
(A) 1 only
The Reserve Bank of India issued directives relating to ‘Storage of Payment System Data’ on 6th April, 2018. These directives command the payment system providers that, they shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details/ information collected/carried/processed as part of the message/payment instruction. Thus, statement 1 is correct. According to the directives, system providers shall submit the System Audit Report (SAR) on completion of the above requirement and the audit should be conducted by CERTIN empaneled auditors. The SAR should be submitted to the Reserve Bank not later than December 31, 2018. Thus, statement 3 is not correct. On the other hand, statement 2 is also incorrect because it is not necessary that the systems are owned and operated by public sector enterprises. Therefore, option (a) is the right answer.
Ques: 7
Which one of the following best describes the term ‘Merchant Discount Rate’ sometimes seen in news?
Correct Answer:
(C) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
‘Merchant Discount Rate’ (MDR) is a fee charged from a merchant by a bank for accepting payments from customers through credit and debit cards in their establishments. MDR compensates the card issuing bank, the lender which puts the PoS terminal and payment gateways such as MasterCard or Visa for their services. MDR charges are usually shared in pre-agreed proportion between the bank and a merchant and is expressed in percentage of transaction amount.
Ques: 8
Which one of the following links all the ATMs in India?
Correct Answer:
(C) National Payments Corporation of India
National Financial Switch (NFS) was designed, developed and deployed by the RBI’s Institution for Development and Research in Banking Technology (IDRBT) in 2004, with the goal of inter-connecting the ATMs in the country. NFS was taken over by the National Payments Corporation of India (NPCI) from IDRBT in December, 2009. NFS provides the linkages to ATM network in India. Therefore, option (c) is the correct answer.