1. Which of the following best defines a Banking System?
A. Only commercial banks operating in a country
B. Only cooperative banks and RRBs
C. Network of institutions that accept deposits, lend funds, and provide financial services
D. Only central bank and its policies
A banking system is the structure of financial institutions including commercial banks, cooperative banks, RRBs, and central banks that mobilize savings and provide credit & services to the economy.
2. Which was the first bank established in India?
A. State Bank of India
B. Bank of Hindustan (1770)
C. Allahabad Bank
D. Imperial Bank of India
The Bank of Hindustan, founded in 1770, was the first bank established in India. Though it later ceased operations, it marked the beginning of formal banking in India.
3. In the context of a bank branch, profitability refers to:
A. Only the growth of deposits
B. Only the growth of advances
C. The increase in number of customers
D. The ability of the branch to earn net income over expenses
Profitability is not just about growing business size, but about ensuring the branch earns income higher than its expenses, thereby generating profit for the bank.
4. A bank branch reports an income of ₹25 crore and expenses of ₹20 crore. What is its profit?
A. Net profit after deducting all operating and non-operating expenses
B. Profit after deducting direct expenses from total revenue
C. Profit after deducting tax and provisions
D. Surplus of assets over liabilities
Gross Profit = Revenue – Direct Expenses (like interest paid on deposits, direct operating costs). Net profit is derived later by subtracting indirect and overhead expenses.
6. Case Study: A branch has interest income ₹80 lakh, fee-based income ₹20 lakh, interest paid on deposits ₹60 lakh, and operating expenses ₹15 lakh. What is the Gross Profit?
A. ₹20 lakh
B. ₹25 lakh
C. ₹40 lakh
D. ₹35 lakh
Total Income = ₹80 lakh + ₹20 lakh = ₹100 lakh.
Direct Expenses (Interest paid) = ₹60 lakh.
Gross Profit = Income – Direct Expenses = ₹100 lakh – ₹60 lakh = ₹40 lakh.
(Operating expenses are considered after Gross Profit while deriving Net Profit).
7. Operating Profit of a bank branch is calculated as:
A. Gross Profit – Operating Expenses
B. Net Profit – Taxes
C. Gross Profit + Non-operating Income
D. Net Profit + Depreciation
Operating Profit = Gross Profit – Operating Expenses (like staff cost, rent, electricity). It shows profit earned from core operations before provisions and taxes.
8. Net Profit of a bank is obtained after:
A. Subtracting only operating expenses from income
B. Deducting provisions but not taxes
C. Deducting staff and overheads only
D. Subtracting operating expenses, provisions, and taxes from income
Net Profit is the final profit left after deducting operating expenses, provisions for NPAs, depreciation, and taxes from total income.
9. In banking, what is the key difference between Profit and Profitability?
A. Profitability is an absolute figure; Profit is a relative measure
B. Profit is absolute income over expenses, while Profitability measures efficiency of earning profit relative to resources
C. Profitability is always higher than Profit
D. Profit applies only to individuals, Profitability only to banks
Profit = Income – Expenses (absolute figure). Profitability = Efficiency of profit generation relative to assets, equity, or resources (e.g., ROA, ROE).
10. Which of the following is a traditional measure of profitability in banks?
A. EVA (Economic Value Added)
B. Risk Adjusted Return on Capital (RAROC)
C. Return on Assets (ROA)
D. Balanced Scorecard
Traditional measures include ROA (Return on Assets) and ROE (Return on Equity), which are basic indicators of bank profitability. Modern measures include EVA and RAROC.
11. Case Study: A branch shows Gross Profit of ₹12 crore, Operating Expenses ₹4 crore, Provisions ₹2 crore, and Taxes ₹1 crore. What is the Net Profit?
ROE = Net Profit ÷ Shareholders’ Equity × 100. It measures the return earned for the equity holders on their investment.
13. Return on Assets (ROA) of a bank measures:
A. Profitability relative to shareholders’ equity
B. Net Profit relative to total assets employed
C. Profit earned per branch
D. Profit before tax relative to deposits
ROA = Net Profit ÷ Total Assets × 100. It shows how efficiently a bank uses its assets to generate profit.
14. If a bank has Net Profit of ₹200 crore and total assets of ₹10,000 crore, what is its ROA?
A. 0.1%
B. 0.5%
C. 5%
D. 2%
ROA = (200 ÷ 10,000) × 100 = 2%. A higher ROA means better utilization of assets to earn profit.
15. Return on Equity (ROE) is more relevant to:
A. Shareholders, as it shows profitability relative to their investment
B. Borrowers, as it shows loan pricing
C. Depositors, as it shows interest earning
D. RBI, as it reflects monetary policy impact
ROE = Net Profit ÷ Shareholders’ Equity × 100. It indicates the return generated for owners/shareholders on their capital.
16. A bank has Net Profit of ₹150 crore and Equity of ₹1,000 crore. What is the ROE?
A. 10%
B. 25%
C. 15%
D. 20%
ROE = (150 ÷ 1,000) × 100 = 15%. This means shareholders earn 15% return on their equity capital.
17. Branch Operating Efficiency is best measured by which ratio?
A. Capital Adequacy Ratio
B. Statutory Liquidity Ratio
C. Gross NPA Ratio
D. Cost to Income Ratio
Branch Operating Efficiency is commonly measured by Cost to Income Ratio = (Operating Expenses ÷ Operating Income) × 100. Lower ratio means higher efficiency.
18. Case Study: A branch has Operating Income of ₹100 crore and Operating Expenses of ₹60 crore. What is its Cost to Income Ratio?
A. 30%
B. 60%
C. 40%
D. 50%
Cost to Income Ratio = (60 ÷ 100) × 100 = 60%. A lower ratio indicates better efficiency in controlling costs.
19. Which of the following is NOT a strategy to improve efficiency in banking operations?
A. Automation of routine processes
B. Cross-selling of products
C. Increasing manual paperwork
D. Centralized processing hubs
Increasing paperwork reduces efficiency. Banks improve efficiency through automation, centralization, and better use of technology and manpower.
20. Which factor among the following directly affects the profitability of banks in India?
A. Net Interest Margin (NIM)
B. Literacy rate of the country
C. Number of ATMs per branch
D. Value of currency in foreign exchange
Net Interest Margin (NIM) is a key driver of bank profitability, as it reflects the difference between interest earned and interest paid relative to assets.
21. High level of NPAs (Non-Performing Assets) in banks leads to:
A. Higher profitability
B. Reduced provisions
C. Lower operating costs
D. Lower profitability due to increased provisions
High NPAs reduce profitability as banks must create provisions for potential losses, reducing net profit.
22. Profitability analysis of a bank branch primarily helps in:
A. Only regulatory compliance
B. Identifying income sources, cost drivers, and improvement areas
C. Hiring more employees
D. Expansion of branch premises
Profitability analysis helps in understanding how income is generated, where costs occur, and which areas need efficiency improvements.
23. Which of the following is NOT a factor affecting branch profitability?
A. Volume of low-cost deposits
B. Credit portfolio quality
C. Distance of branch manager’s residence
D. Cost of funds
Operational and financial factors like deposits, loan quality, and cost of funds impact profitability. Non-business factors like residence distance are irrelevant.
24. Case Study: A branch has high deposit growth but profitability is stagnant. Which could be the possible reason?
A. High cost of deposits reducing Net Interest Margin
B. High fee-based income growth
C. Reduction in provisions for NPAs
D. Strong credit recovery performance
Even if deposits grow, if they are high-cost (like bulk deposits), profitability may stagnate as Net Interest Margin remains low.
25. Which of the following is the first step to improve branch profitability?
A. Increasing branch staff strength
B. Identifying income streams and cost centers
C. Expanding branch premises
D. Opening more ATMs
The first step is to analyze existing income sources and cost drivers to identify strengths and weaknesses for profitability improvement.
26. Improving branch profitability can be achieved by:
A. Offering more high-cost bulk deposits
B. Increasing NPA levels
C. Reducing fee-based income
D. Mobilizing low-cost CASA deposits and cross-selling products
Mobilizing low-cost deposits and enhancing non-interest income through cross-selling are proven methods to improve profitability.
27. Which of the following is NOT a step to improve branch profitability?
A. Cost control and efficient resource utilization
B. Enhancing fee-based services
C. Increasing operational inefficiencies
D. Better credit monitoring
Operational inefficiency reduces profitability. Cost control, fee-based income, and credit monitoring are positive steps.
28. Continuous improvement in profitability requires:
A. Regular monitoring of performance indicators like NIM, ROA, and cost-income ratio
B. Ignoring market competition
C. Focusing only on lending activities
D. Avoiding technology upgradation
Profitability requires regular monitoring of key ratios and adapting strategies based on performance analysis.
29. One of the essential factors for sustainable profitability improvement is:
A. Over-dependence on a single income source
B. Ignoring customer relationship management
C. Increasing NPAs
D. Diversification of income sources including fee-based income
Diversifying income reduces risk and ensures sustainability by not relying on only interest income.
30. Case Study: A branch shows consistent profit growth for 3 years but stagnation in the 4th year. What could be the most appropriate step for continuous improvement?
A. Ignore the stagnation and continue existing strategy
B. Reduce focus on customer service
C. Reassess performance indicators, adopt new technology, and explore fee-based services
D. Increase only staff salaries
For continuous profitability, periodic reassessment and adaptation (new products, technology, and services) are essential.
