Chapter 22: Funding and Regulatory Aspects (CAIIB – Paper 2)
1. What is the primary purpose of maintaining Cash Reserve Ratio (CRR) by banks with the RBI?
A. To earn interest income from RBI
B. To enhance bank profitability
C. To control liquidity and inflation
D. To finance government expenditure directly
CRR is maintained with the RBI to control liquidity in the banking system, indirectly managing inflation and money supply.
2. Statutory Liquidity Ratio (SLR) is the minimum percentage of net demand and time liabilities (NDTL) that a bank has to maintain in which of the following forms?
A. Cash with RBI only
B. Approved government securities, gold, or cash
C. Loans to corporates
D. Investment in equities
SLR is the minimum proportion of a bank's NDTL that must be invested in approved government securities, gold, or kept as cash to ensure financial stability.
3. Which of the following statements is TRUE regarding CRR and SLR?
A. CRR is maintained in gold and approved securities
B. SLR is maintained with RBI only
C. Both CRR and SLR earn no interest
D. CRR is maintained with RBI, SLR is maintained by banks themselves
CRR is a portion of NDTL kept with RBI and earns no interest, while SLR is maintained by banks themselves in approved securities and cash.
4. If RBI wants to reduce inflationary pressure, which action regarding CRR is most likely?
A. Increase CRR to reduce liquidity
B. Decrease CRR to reduce liquidity
C. Keep CRR unchanged
D. Convert CRR into SLR
By increasing CRR, RBI absorbs excess liquidity from banks, reducing money supply and controlling inflation.
5. Which of the following instruments can be used by banks to maintain SLR?
A. Corporate bonds
B. Government securities approved by RBI
C. Commercial papers
D. Shares of listed companies
Banks maintain SLR in the form of approved government securities, gold, or cash as per RBI guidelines to ensure liquidity and financial stability.
6. What is the primary objective of the Liquidity Adjustment Facility (LAF) operated by RBI?
A. To provide long-term funding to banks
B. To regulate fiscal deficit
C. To manage short-term liquidity in the banking system
D. To control foreign exchange rates directly
LAF allows banks to borrow or deposit funds with RBI to manage short-term liquidity mismatches and stabilize the money market.
7. Which of the following instruments are part of LAF?
A. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
B. Repo and Reverse Repo operations
C. Treasury bills only
D. Government bonds maturing after 10 years
LAF consists mainly of repo (borrowing by banks from RBI) and reverse repo (lending by banks to RBI) to manage day-to-day liquidity.
8. In a repo operation under LAF, the bank:
A. Borrows funds from RBI by selling securities with an agreement to repurchase
B. Lends funds to RBI by selling securities
C. Adjusts CRR with RBI
D. Invests in corporate bonds to manage liquidity
In a repo, banks borrow funds from RBI against approved government securities, agreeing to repurchase them later at a pre-determined rate.
9. Reverse repo under LAF is used by RBI primarily to:
A. Provide long-term credit to banks
B. Finance government expenditure
C. Replace SLR requirements temporarily
D. Absorb excess liquidity from banks
In a reverse repo, RBI absorbs surplus liquidity from the banking system by lending money against government securities, helping control inflation.
10. The repo rate under LAF indicates:
A. The interest rate paid by RBI on reverse repo
B. The rate at which banks borrow from RBI under repo
C. The SLR requirement for banks
D. The CRR percentage mandated by RBI
The repo rate is the rate at which RBI lends short-term funds to banks under LAF to manage liquidity in the money market.
11. Which of the following is the primary purpose of the Payment and Settlement Systems in India?
A. To provide credit to borrowers
B. To regulate fiscal deficit
C. To ensure smooth, safe, and efficient transfer of funds
D. To manage foreign exchange reserves
Payment and settlement systems are designed to facilitate the safe, timely, and efficient transfer of funds between banks and customers in India.
12. Which of the following is a **real-time gross settlement (RTGS) system** feature?
A. Settlement occurs at the end of the day
B. Funds are transferred individually in real-time
C. Only cash payments are allowed
D. Only foreign currency transactions are processed
RTGS is a real-time system where high-value transactions are settled individually as they occur, ensuring instant finality of payment.
13. The National Electronic Funds Transfer (NEFT) system operates on which settlement basis?
A. Real-time gross settlement
B. Deferred credit settlement
C. Immediate gross settlement
D. Deferred net settlement in batches
NEFT processes transactions in batches and settles them on a deferred net basis at specific intervals during the day.
14. Which of the following is **not a function of the Unified Payments Interface (UPI)**?
A. Lending loans to customers
B. Instant fund transfer using mobile phones
C. Linking multiple bank accounts to a single mobile application
D. Merchant payments and QR code payments
UPI is a digital payment system enabling instant bank-to-bank fund transfers and merchant payments; it does not provide loans.
15. The Real Time Gross Settlement (RTGS) minimum transaction amount as per RBI guidelines is:
A. ₹1,000
B. ₹2,00,000
C. ₹5,00,000
D. No minimum limit
RTGS is designed for high-value transactions and, as per RBI, the minimum amount that can be transferred through RTGS is ₹2 lakh.
16. A bank has Net Demand and Time Liabilities (NDTL) of ₹500 crore. If the CRR requirement is 4%, how much should the bank maintain with RBI?
A. ₹15 crore
B. ₹20 crore
C. ₹25 crore
D. ₹10 crore
CRR = 4% of NDTL = 4% × ₹500 crore = ₹20 crore. This is the amount the bank must maintain with RBI.
17. A bank has NDTL of ₹800 crore. If the SLR requirement is 18%, how much should the bank invest in approved government securities?
A. ₹120 crore
B. ₹140 crore
C. ₹144 crore
D. ₹160 crore
SLR = 18% of NDTL = 18% × ₹800 crore = ₹144 crore. This is the minimum amount bank must invest in approved securities.
18. A bank has NDTL of ₹600 crore. CRR is 4%, and SLR is 18%. The bank maintains ₹30 crore with RBI and ₹100 crore in government securities. How much is the shortfall in CRR and SLR?
A. CRR shortfall ₹10 crore, SLR shortfall ₹10 crore
B. CRR shortfall ₹5 crore, SLR shortfall ₹8 crore
C. CRR shortfall ₹2 crore, SLR shortfall ₹5 crore
D. CRR shortfall ₹-6 crore (excess), SLR shortfall ₹8 crore
Required CRR = 4% of ₹600 cr = ₹24 cr. Bank maintains ₹30 cr → CRR excess ₹6 cr.
Required SLR = 18% of ₹600 cr = ₹108 cr. Bank maintains ₹100 cr → SLR shortfall ₹8 cr.
19. A bank’s NDTL is ₹1,000 crore. CRR is 4.5% and SLR is 19.5%. If the bank maintains ₹40 crore with RBI and ₹180 crore in approved securities, what is the total shortfall or excess in reserve requirements?
A. CRR excess ₹5 crore, SLR shortfall ₹15 crore
B. CRR shortfall ₹5 crore, SLR shortfall ₹15 crore
C. CRR shortfall ₹10 crore, SLR excess ₹10 crore
D. CRR shortfall ₹0, SLR shortfall ₹0
Required CRR = 4.5% of ₹1000 cr = ₹45 cr → bank has ₹40 cr → shortfall ₹5 cr.
Required SLR = 19.5% of ₹1000 cr = ₹195 cr → bank has ₹180 cr → shortfall ₹15 cr.
20. If a bank wants to meet its SLR requirement of 18% on NDTL of ₹700 crore, how much more investment in approved government securities is needed if it currently holds ₹110 crore?
