Chapter 21 - Indian Banking Structure (JAIIB - MODULE C)

1. Which of the following is NOT a primary function of banks?

• A. Accepting deposits
• B. Granting loans
• C. Issuing company shares
• D. Facilitating fund transfers

Issuing shares is a function of companies, not banks. Banks primarily accept deposits, provide credit, and facilitate payments.

2. The first Indian bank to be established was:

• A. State Bank of India
• B. Bank of Hindustan
• C. Punjab National Bank
• D. Allahabad Bank

The first bank established in India was the Bank of Hindustan in 1770, though it ceased operations later.

3. A bank is classified as a 'Scheduled Bank' when it is included in which schedule of the RBI Act, 1934?

• A. Second Schedule of the Banking Regulation Act, 1949
• B. First Schedule of the Companies Act, 2013
• C. First Schedule of the RBI Act, 1934
• D. Second Schedule of the RBI Act, 1934

A bank is classified as a Scheduled Bank if it is listed in the Second Schedule of the RBI Act, 1934 and maintains required paid-up capital and reserves.

4. Regional Rural Banks (RRBs) were established in India primarily to:

• A. Provide banking facilities in rural and semi-urban areas
• B. Finance large industries
• C. Handle foreign exchange transactions
• D. Provide investment banking services

RRBs were set up in 1975 to provide credit and banking services in rural areas with a focus on agriculture and small industries.

5. Which of the following is a key difference between Public Sector Banks and Private Sector Banks in India?

• A. Public sector banks operate only in rural areas
• B. Private sector banks cannot raise deposits
• C. Ownership - majority held by Government in public sector banks
• D. Private sector banks are not regulated by RBI

Public sector banks are majority-owned by the Government of India, whereas private sector banks are owned by private promoters/investors. Both are regulated by RBI.

6. Local Area Banks (LABs) in India are registered as:

• A. Cooperative societies
• B. Companies under the Companies Act, 1956
• C. Public sector undertakings
• D. NBFCs

LABs are registered as companies under the Companies Act, 1956 and licensed by RBI to operate in limited areas.

7. What is the minimum capital requirement for setting up a Local Area Bank in India?

• A. ₹10 crore
• B. ₹20 crore
• C. ₹25 crore
• D. ₹5 crore

RBI stipulated that a Local Area Bank should have a minimum paid-up capital of ₹5 crore, with promoters’ contribution at least ₹2 crore.

8. Which of the following was the primary objective of setting up Regional Rural Banks (RRBs)?

• A. To provide credit to agriculture and rural development
• B. To finance large industries
• C. To regulate stock exchanges
• D. To provide housing loans in urban areas

RRBs were created under the RRB Act, 1976 to meet the credit needs of agriculture, rural artisans, and small entrepreneurs.

9. The shareholding pattern of RRBs in India is:

• A. 100% by Government of India
• B. 50% Government of India, 50% Sponsor Bank
• C. 50% Government of India, 15% State Government, 35% Sponsor Bank
• D. 40% RBI, 60% Sponsor Bank

The capital of RRBs is contributed by Government of India (50%), State Government (15%), and Sponsor Bank (35%).

10. Which of the following statements about Local Area Banks (LABs) is correct?

• A. LABs can operate across India without restriction
• B. LABs are controlled by NABARD
• C. LABs are primarily meant for foreign exchange business
• D. LABs are permitted to operate only in 3 contiguous districts

LABs were allowed to operate in three contiguous districts to provide focused financial services at the local level.

11. Cooperative banks in India are regulated by:

• A. Only Ministry of Finance
• B. Only NABARD
• C. Both RBI and the respective State Governments
• D. Only SEBI

Cooperative banks are regulated by RBI under the Banking Regulation Act and also by the respective State Cooperative Societies Acts.

12. Urban Cooperative Banks (UCBs) primarily cater to which segment?

• A. Small borrowers and businesses in urban & semi-urban areas
• B. Large industries
• C. Export-import traders
• D. Government departments

UCBs mainly provide credit to small borrowers, artisans, and small businesses in towns and semi-urban centers.

13. Which of the following services are NOT allowed for Payment Banks in India?

• A. Accepting deposits up to ₹2 lakh per customer
• B. Issuing debit cards
• C. Providing remittance and payment services
• D. Granting loans and credit cards

Payment Banks are restricted from lending. They can accept deposits up to ₹2 lakh, issue debit cards, and offer payment/remittance services.

14. The primary objective of Small Finance Banks (SFBs) is to:

• A. Finance large corporate projects
• B. Provide credit and savings facilities to small businesses, farmers, and unorganized sector
• C. Manage foreign exchange reserves
• D. Offer only internet banking

SFBs are meant to further financial inclusion by providing credit to small and marginal farmers, small businesses, and underserved populations.

15. Which of the following is the first Payment Bank to start operations in India?

• A. Airtel Payments Bank
• B. Paytm Payments Bank
• C. India Post Payments Bank
• D. Fino Payments Bank

Airtel Payments Bank was the first to start operations in 2017 after receiving the RBI license for Payments Banks.

16. Which of the following activities is NOT allowed for NBFCs?

• A. Leasing and hire purchase
• B. Investment in shares and debentures
• C. Accepting demand deposits
• D. Providing loans and advances

NBFCs are prohibited from accepting demand deposits (like savings/current accounts). They can only accept term deposits in some cases.

17. Which of the following is a key difference between NBFCs and Banks?

• A. Both can issue cheques drawn on themselves
• B. Banks are part of the payment and settlement system, NBFCs are not
• C. NBFCs are regulated by SEBI only
• D. NBFCs require CRR and SLR maintenance like banks

Banks are part of the payment and settlement system and can issue cheques, while NBFCs cannot. NBFCs are regulated mainly by RBI, not SEBI.

18. As per RBI guidelines, NBFCs must maintain a minimum Net Owned Fund (NOF) of:

• A. ₹10 lakh
• B. ₹1 crore
• C. ₹50 lakh
• D. ₹2 crore

RBI mandates NBFCs to have a minimum Net Owned Fund of ₹2 crore (higher for certain categories like Infrastructure Finance Companies).

19. Which of the following types of NBFCs is primarily engaged in lending against securities and shares?

• A. NBFC-ICCs (Investment and Credit Companies)
• B. NBFC-MFIs
• C. NBFC-Factors
• D. NBFC-IDFs

NBFC-Investment and Credit Companies (ICCs) provide loans, including lending against shares, securities, and personal loans.

20. According to RBI’s scale-based regulation (2021), NBFCs are categorized into:

• A. Small, Medium, Large NBFCs
• B. Base Layer, Middle Layer, Upper Layer, Top Layer
• C. Micro, Meso, Macro NBFCs
• D. Core Layer, Standard Layer, Growth Layer

RBI introduced a Scale-Based Regulatory Framework for NBFCs with four layers: Base, Middle, Upper, and Top, depending on size, risk, and activities.