Chapter 26: Other Financial Services Provided by Banks (JAIIB – Paper 4)
1. What does 'third-party product distribution' in retail banking refer to?
A. Banks selling only their own financial products
B. Banks issuing loans directly to customers
C. Banks distributing products of other financial institutions like insurance or mutual funds
D. Banks acting as regulators for other banks
Third-party product distribution means a bank acts as an intermediary, selling products like insurance, mutual funds, or pension schemes of other institutions to its customers.
2. Which regulatory body oversees the distribution of mutual funds by banks in India?
A. RBI
B. SEBI
C. IRDAI
D. NABARD
SEBI (Securities and Exchange Board of India) regulates the mutual fund business, including distribution channels like banks.
3. When a bank distributes third-party insurance products, which role does it primarily play?
A. Underwriter of insurance policies
B. Claim assessor
C. Regulator of insurance companies
D. Corporate agent / intermediary
Banks act as corporate agents or intermediaries, selling insurance products of other companies, without underwriting the policy themselves.
4. Which of the following is an advantage for customers when banks distribute mutual fund products?
A. Easy access and convenience through bank branches
B. Guaranteed returns
C. Exemption from all taxes
D. Bank underwriting the investment risk
Banks offer customers the convenience of purchasing mutual funds at branches or via digital platforms, making investment easier. Returns depend on market performance, not guaranteed.
5. Which of the following is a responsibility of banks when distributing mutual funds as third-party products?
A. Guaranteeing fund performance
B. KYC compliance and suitability assessment
C. Managing the fund's portfolio
D. Setting fund NAVs
Banks are responsible for customer due diligence, ensuring KYC norms are followed, and assessing the suitability of mutual fund products for customers, but they do not manage the funds.
6. What is a primary source of revenue for banks from distributing third-party products?
A. Interest income
B. Dividend from mutual funds
C. Commission / distribution fees
D. Capital gains
Banks earn commission or distribution fees from financial institutions for selling their third-party products, which is a key revenue stream from wealth management services.
7. What is the primary function of insurance business in banks?
A. To provide risk coverage and protection to customers
B. To offer guaranteed investment returns
C. To manage the bank’s capital reserves
D. To regulate other insurance companies
Banks distribute insurance products to provide risk protection to customers, such as life, health, and general insurance.
8. Which regulatory authority governs the insurance business in India?
A. RBI
B. IRDAI
C. SEBI
D. NABARD
The Insurance Regulatory and Development Authority of India (IRDAI) regulates insurance companies, products, and intermediaries including banks.
9. Which of the following is a social security insurance scheme aimed at providing financial security to unorganized workers?
A. Pradhan Mantri Jan Dhan Yojana
B. Atal Pension Yojana
C. Pradhan Mantri Suraksha Bima Yojana
D. Public Provident Fund
Pradhan Mantri Suraksha Bima Yojana provides accidental death and disability coverage to people, especially targeting unorganized sector workers.
10. Which insurance scheme provides life insurance cover at a low premium for people aged 18–50 years?
A. Atal Pension Yojana
B. Employee State Insurance Scheme
C. Pradhan Mantri Jan Dhan Yojana
D. Pradhan Mantri Jeevan Jyoti Bima Yojana
Pradhan Mantri Jeevan Jyoti Bima Yojana offers life insurance cover of ₹2 lakh at a nominal annual premium to individuals aged 18–50.
11. In social security insurance schemes, what is the usual mode of premium collection by banks?
A. One-time lump sum payment only
B. Auto-debit from savings account / recurring monthly payment
C. Cash payment at government offices only
D. Cheque payment once a year
Banks typically collect premiums through auto-debit from savings accounts or recurring monthly deductions to ensure seamless participation in social security schemes.
12. What is the main benefit of the Atal Pension Yojana?
A. Immediate lump sum payment at joining
B. Insurance cover against accidental death
C. Guaranteed pension after retirement
D. Tax-free fixed deposit returns
Atal Pension Yojana ensures subscribers receive a fixed monthly pension after retirement, helping in old-age financial security.
13. What is the main objective of cross-selling in retail banking?
A. To reduce regulatory compliance
B. To manage NPA accounts
C. To attract only high-value customers
D. To offer multiple relevant products to existing customers and increase revenue
Cross-selling is the practice of offering additional products or services to existing customers to meet their financial needs and increase bank revenue.
14. Which of the following is an example of cross-selling in banks?
A. Only issuing fixed deposits to new customers
B. Offering insurance or mutual fund products to existing loan or savings account holders
C. Reducing interest rates on existing loans
D. Increasing branch opening hours
Banks cross-sell by offering products like insurance, mutual funds, or credit cards to existing customers who already hold savings or loan accounts.
15. Which entity regulates depository services in India?
A. SEBI
B. RBI
C. IRDAI
D. NSE/BSE only
SEBI regulates depository services through depositories like NSDL and CDSL, which handle electronic securities and dematerialized accounts.
16. What is the main function of a depository participant (DP) in banks?
A. Trading shares on behalf of clients
B. Regulating stock exchanges
C. Maintaining demat accounts and facilitating electronic securities transactions
D. Issuing IPOs
Banks act as DPs to maintain demat accounts, facilitate buying/selling of securities electronically, and provide account statements to investors.
17. Portfolio Management Services (PMS) are mainly offered to:
A. All retail banking customers without minimum investment
B. High-net-worth individuals (HNIs) for customized investment solutions
C. Only government institutions
D. Only mutual fund distributors
PMS is designed for HNIs, providing professionally managed, customized portfolios of equity, debt, or hybrid instruments based on individual investment goals.
18. Which regulatory body oversees Portfolio Management Services in India?
A. RBI
B. IRDAI
C. NSE / BSE
D. SEBI
SEBI regulates PMS in India, ensuring transparency, risk management, and compliance for portfolio managers serving clients.
19. Which of the following is a key advantage of PMS over mutual funds?
A. Customized portfolio tailored to individual investor requirements
B. Guaranteed returns
C. No management fees
D. Available to all bank account holders
Unlike mutual funds, PMS offers tailor-made investment strategies based on the investor’s risk appetite, objectives, and financial goals.
20. Banks earn revenue from PMS primarily through:
A. Fixed deposit interest
B. Loan processing fees
C. Management fees and performance-based fees
D. Commission from insurance companies only
Revenue from PMS comes from fixed management fees based on assets under management and performance-linked fees for exceeding benchmark returns.
21. What is the primary purpose of factoring services offered by banks?
A. To provide long-term loans to companies
B. To manage and finance a company’s accounts receivable
C. To issue bonds on behalf of the company
D. To act as an insurance agent
Factoring allows banks to buy or manage a company’s receivables, providing immediate cash and outsourcing credit and collection management.
22. Which of the following is NOT a typical service provided under factoring?
A. Invoice discounting
B. Collection of receivables
C. Credit risk assessment of debtors
D. Providing term loans for fixed assets
Factoring focuses on short-term receivables financing and credit management, not long-term loans for assets.
23. Which agency business is typically carried out by banks on behalf of clients?
A. Selling insurance policies directly to customers
B. Issuing mutual fund schemes themselves
C. Collection of dividends, rent, and cheques on behalf of clients
D. Underwriting corporate bonds
Banks act as agents to collect dividends, rent, utility payments, and cheques on behalf of their clients without taking ownership of the funds.
24. Which of the following is a key benefit of factoring for businesses?
A. Immediate cash flow and reduction in credit risk
B. Long-term capital investment
C. Tax exemption on profits
D. Guaranteed profit on sales
Factoring provides businesses with immediate funds by converting receivables into cash and also reduces the risk of customer default.
25. When a bank collects cheques or bills on behalf of a client, it is performing which type of service?
A. Custodial service
B. Agency service
C. Underwriting service
D. Portfolio management
Collecting cheques, dividends, or bills on behalf of clients is part of a bank's agency business where it acts as an intermediary without taking ownership of funds.
26. Which of the following statements is TRUE about factoring?
A. Factoring is mainly for long-term investment in fixed assets
B. Banks underwrite the company’s securities
C. Factoring involves financing receivables and collection services
D. Factoring guarantees profit on sales
Factoring services provide working capital against accounts receivable and manage the collection process, without guaranteeing profits or handling long-term assets.
