Chapter 1: Legal Framework for Regulation of Banks (CAIIB – Paper 4)
1. Under Section 6 of the Banking Regulation Act, 1949, which of the following is considered as the 'Business of Banking'?
A. Running chit funds
B. Agricultural farming
C. Accepting deposits and lending money
D. Manufacturing goods
Section 6 of the Banking Regulation Act, 1949 defines 'Business of Banking' which primarily includes accepting deposits, lending, investment, and other related financial services.
2. A banking company in India can be constituted in which of the following forms?
A. Company under Companies Act, 2013
B. Sole Proprietorship
C. Partnership firm with unlimited partners
D. Co-operative society without registration
Banks in India can be constituted as companies under the Companies Act, statutory corporations, or co-operative societies. Private partnerships or proprietorships are not permitted.
3. Which section of the RBI Act, 1934 provides the legal authority for issuance of currency notes in India?
A. Section 42
B. Section 7
C. Section 17
D. Section 22
Section 22 of the RBI Act, 1934 gives the Reserve Bank of India the sole right to issue currency notes in India.
4. As per the RBI Act, 1934, which body is responsible for determining the monetary policy of India?
A. Reserve Bank Board of Directors
B. Monetary Policy Committee (MPC)
C. Ministry of Finance
D. SEBI
The Monetary Policy Committee (MPC), introduced through amendments in 2016, decides repo rate and other monetary policy tools. RBI implements these policies.
5. Which of the following activities is not permitted for a banking company under the Banking Regulation Act, 1949?
A. Dealing in securities
B. Acting as an agent for insurance
C. Trading in goods directly
D. Issuing letters of credit
Banks are prohibited from directly trading in goods, as per Section 8 of the Banking Regulation Act, 1949. They can finance trade but not participate in trading themselves.
6. Which of the following correctly explains the term ‘Scheduled Bank’ under the RBI Act, 1934?
A. A bank included in the Second Schedule of the RBI Act, 1934
B. A bank registered under Companies Act, 2013
C. A bank having CRR with RBI
D. A bank that issues demand drafts
A Scheduled Bank is one which is listed in the Second Schedule of the RBI Act, 1934, and complies with prescribed capital and reserve requirements.
7. The Reserve Bank of India was established in which year under the RBI Act, 1934?
A. 1934
B. 1947
C. 1950
D. 1935
Though the RBI Act was passed in 1934, the Reserve Bank of India commenced operations on April 1, 1935.
8. Which authority can issue directions to banking companies in the interest of public or banking policy under the Banking Regulation Act, 1949?
A. Ministry of Finance
B. Reserve Bank of India
C. SEBI
D. State Governments
RBI has the power to issue binding directions to banks under the Banking Regulation Act, 1949 in the interest of depositors, public, or banking policy.
9. Under the Banking Regulation Act, 1949, which section empowers RBI to issue directions to banking companies in public interest?
A. Section 35
B. Section 22
C. Section 35A
D. Section 42
Section 35A of the Banking Regulation Act, 1949 empowers RBI to issue directions to banking companies in public interest or in the interest of banking policy.
10. Which of the following functions establishes RBI as the central bank of India?
A. Regulating stock market activities
B. Issuing currency and controlling monetary policy
C. Regulating cooperative societies
D. Monitoring insurance companies
RBI is the central bank of India because it has the sole authority to issue currency (Sec 22, RBI Act, 1934) and manage monetary policy of the country.
11. RBI regulates Non-Banking Financial Companies (NBFCs) under which Act?
A. Reserve Bank of India Act, 1934
B. Banking Regulation Act, 1949
C. Companies Act, 2013
D. Negotiable Instruments Act, 1881
NBFCs are regulated by RBI under the Reserve Bank of India Act, 1934, particularly Chapter IIIB (Sections 45-IA to 45-MC).
12. To commence or carry on business as an NBFC, a company must obtain a Certificate of Registration (CoR) from RBI under which section of the RBI Act, 1934?
A. Section 22
B. Section 42
C. Section 35
D. Section 45-IA
Section 45-IA of the RBI Act, 1934 requires NBFCs to obtain a Certificate of Registration (CoR) from RBI and maintain Net Owned Fund (NOF) as prescribed.
13. Which of the following is a distinguishing feature of NBFCs as compared to banks?
A. Both can accept demand deposits
B. NBFCs cannot accept demand deposits
C. NBFCs are part of the payment and settlement system
D. NBFCs are regulated by SEBI
Unlike banks, NBFCs are not permitted to accept demand deposits and are not part of the payment and settlement system.
14. The power to inspect books of banking companies under the Banking Regulation Act, 1949 lies with:
A. Ministry of Finance
B. Comptroller & Auditor General of India
C. Reserve Bank of India
D. Registrar of Companies
RBI has the authority under Section 35 of the Banking Regulation Act, 1949 to inspect the books and accounts of banking companies.
15. Which of the following correctly explains the dual role of RBI in the financial system?
A. Central bank and regulator of both banks and NBFCs
B. Regulator of stock market and insurance sector
C. Controller of cooperative societies and mutual funds
D. Regulator of international trade and WTO policies
RBI acts as the central bank of the country and regulates both banking institutions and NBFCs, ensuring financial stability and protecting depositors.
16. Under Section 8 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, who has the power to issue directions to nationalized banks?
A. Reserve Bank of India
B. Central Government
C. Ministry of Corporate Affairs
D. State Government
The Central Government has the power to issue policy directions to nationalized banks under Section 8 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
17. Dual control of co-operative banks in India is exercised by:
A. SEBI and RBI
B. RBI and Ministry of Finance
C. RBI and Registrar of Co-operative Societies
D. RBI and IRDAI
Co-operative banks are under dual control: RBI regulates their banking functions, while the Registrar of Co-operative Societies/State Governments regulate their management aspects.
18. The Banking Regulation (Amendment) Act, 2020 gave which additional powers to RBI over co-operative banks?
A. Power to supersede board and appoint administrator
B. Power to regulate agricultural cooperatives
C. Power to amend State Co-operative Acts
D. Power to control insurance cooperatives
The 2020 Amendment empowered RBI to supersede the board of co-operative banks, appoint administrators, and regulate capital adequacy and governance standards.
19. Which authority regulates the capital market operations of banks, such as issue of shares or listing on stock exchanges?
A. RBI
B. Ministry of Finance
C. Registrar of Companies
D. SEBI
SEBI regulates the capital market activities of banks, including issue of shares, listing, and investor protection compliance.
20. Insurance activities of banks, such as bancassurance, are regulated by which authority?
A. RBI
B. SEBI
C. IRDAI
D. Ministry of Finance
Insurance activities of banks, including bancassurance, are regulated by IRDAI (Insurance Regulatory and Development Authority of India).
21. Which authority oversees anti-money laundering compliance of banks under the PMLA, 2002?
A. RBI
B. Financial Intelligence Unit – India (FIU-IND)
C. SEBI
D. Ministry of Corporate Affairs
The Financial Intelligence Unit – India (FIU-IND), under the Ministry of Finance, monitors compliance with anti-money laundering provisions under PMLA, 2002.
22. Which of the following best represents the multi-regulatory framework for banks in India?
A. RBI, Central Government, SEBI, IRDAI, FIU-IND
B. RBI only
C. Ministry of Corporate Affairs only
D. Registrar of Companies only
Banks are regulated by multiple authorities: RBI (banking operations), Central Government (policy control), SEBI (capital market), IRDAI (insurance), and FIU-IND (AML compliance).
