Chapter 22 - Banking Regulation Act 1949 And RBI Act 1934 (JAIIB - MODULE C)
1. The Reserve Bank of India Act, 1934 came into force on:
A. 1st April 1935
B. 1st January 1934
C. 1st April 1935
D. 1st July 1934
Though the RBI Act was passed in 1934, the Reserve Bank of India commenced operations on 1st April 1935.
2. Which section of the RBI Act, 1934 empowers RBI to issue banknotes?
A. Section 22 of the Banking Regulation Act, 1949
B. Section 35 of the RBI Act, 1934
C. Section 26 of the RBI Act, 1934
D. Section 22 of the RBI Act, 1934
Section 22 of the RBI Act, 1934 gives the Reserve Bank of India the sole right to issue banknotes in India.
3. Under the Banking Regulation Act, 1949, which section deals with the licensing of banks?
A. Section 22
B. Section 35
C. Section 42
D. Section 24
Section 22 of the Banking Regulation Act, 1949 provides for licensing of banking companies by RBI.
4. A new bank seeks to open in India. Before granting a license, RBI will examine:
A. Only the paid-up capital of the bank
B. Adequacy of capital, earning prospects, public interest, and management
C. Whether promoters are from the public sector only
D. Only whether the bank has applied under Section 35
RBI evaluates multiple factors before granting a license, including capital adequacy, earning prospects, public interest, and managerial competence.
5. Which chapter of the RBI Act, 1934 deals with the composition and functions of the Central Board of Directors?
A. Chapter II
B. Chapter IV
C. Chapter II
D. Chapter V
Chapter II of the RBI Act, 1934 covers the composition, functions, and powers of the Central Board of Directors.
6. Under Section 42 of the RBI Act, 1934, scheduled banks are required to maintain a minimum Cash Reserve Ratio (CRR) with RBI. This is to:
A. Ensure profitability of banks
B. Provide loans to priority sector
C. Maintain Statutory Liquidity Ratio
D. Ensure liquidity and control inflation
Section 42 requires scheduled banks to keep a Cash Reserve Ratio (CRR) with RBI to ensure liquidity in the banking system and as a tool for controlling inflation.
7. The Second Schedule to the RBI Act, 1934 contains:
A. List of Cooperative Societies
B. List of Scheduled Banks
C. List of NBFCs
D. List of Rural Banks only
The Second Schedule of the RBI Act, 1934 specifies the list of Scheduled Banks which are entitled to certain privileges such as access to RBI refinance.
8. A bank is classified as a Scheduled Bank under the Second Schedule of RBI Act, 1934 if:
A. It is more than 5 years old
B. It is a government-owned bank
C. It has deposits of at least ₹500 crore
D. Its paid-up capital and reserves are not less than ₹5 lakh, and it satisfies RBI that its affairs are not detrimental to depositors
A bank qualifies as a Scheduled Bank if its paid-up capital and reserves are at least ₹5 lakh and it meets RBI’s satisfaction regarding depositor safety.
9. Which Part of the Banking Regulation Act, 1949 deals with the business of banking companies?
A. Part II
B. Part III
C. Part I
D. Part IV
Part II of the Banking Regulation Act, 1949 contains detailed provisions on the business of banking companies, including restrictions and regulatory compliance.
10. As per Section 6 of the Banking Regulation Act, 1949, banks can engage in which of the following activities?
A. Trading in goods directly for profit
B. Manufacturing activities
C. Accepting deposits, lending, dealing in bills of exchange, and related financial services
D. Running non-financial businesses
Section 6 allows banks to conduct financial activities like accepting deposits, lending, discounting bills, issuing guarantees, and related financial services.
11. Which section of the Banking Regulation Act, 1949 prohibits banks from creating a charge on unpaid capital?
A. Section 8
B. Section 14
C. Section 19
D. Section 21
Section 14 prohibits banks from creating a charge on unpaid capital, ensuring depositor protection and financial discipline.
12. Section 19 of the Banking Regulation Act, 1949 restricts banks from:
A. Holding shares in any company exceeding 30% of the paid-up share capital of that company or 30% of the bank’s own paid-up capital and reserves, whichever is less
B. Investing in government securities
C. Issuing preference shares
D. Giving loans against government bonds
Section 19 restricts banks from holding shares in any company beyond the permitted limits to prevent concentration of risk and conflict of interest.
13. The Banking Regulation Act, 1949 was originally passed as:
A. The Reserve Bank Act, 1949
B. The Indian Banking Companies Act, 1949
C. The Banking Companies Act, 1949
D. The Banking and Financial Institutions Act, 1949
The Act was originally named the Banking Companies Act, 1949. It was later amended and renamed the Banking Regulation Act, 1949.
14. The Banking Regulation Act, 1949 applies to:
A. Only Scheduled Commercial Banks
B. All banking companies in India, cooperative banks, and RRBs (with certain exceptions)
C. Only Cooperative Banks
D. Only Foreign Banks in India
The Act applies to all banking companies in India, cooperative banks, and Regional Rural Banks, subject to modifications and exceptions notified by RBI/Government.
15. The main objective behind enacting the Banking Regulation Act, 1949 was to:
A. Provide for nationalization of banks
B. Regulate insurance business of banks
C. Provide for merger of public sector banks
D. Regulate banking companies, safeguard depositors, and maintain public confidence in banking
The objective was to regulate banking business, protect depositors’ interests, and ensure stability and confidence in the financial system.
16. The structure of the Banking Regulation Act, 1949 consists of how many parts?
A. Five Parts
B. Three Parts
C. Four Parts
D. Six Parts
The Act is structured into Five Parts, covering definitions, regulation of business, control over management, suspension/winding up, and special provisions.
17. Which part of the Banking Regulation Act, 1949 deals with the suspension of business and winding up of banking companies?
A. Part II
B. Part I
C. Part III and Part III-A
D. Part V
Part III and Part III-A cover suspension of business, moratorium, amalgamation, and winding up of banking companies.
18. Part V of the Banking Regulation Act, 1949 is applicable specifically to:
A. Private Sector Banks
B. Cooperative Banks
C. Payment Banks
D. NBFCs
Part V contains provisions applicable to Cooperative Banks, recognizing their special role and structure in the Indian banking system.
19. Section 5 of the Banking Regulation Act, 1949 defines the term “banking” as:
A. Lending money to industries only
B. Accepting deposits repayable after 5 years
C. Investing in capital markets
D. Accepting deposits for lending or investment, repayable on demand or otherwise, and withdrawable by cheque, draft, or otherwise
Section 5(b) defines “banking” as accepting deposits from the public for lending or investment, repayable on demand or otherwise, and withdrawable by cheque, draft, or otherwise.
20. As per Section 7 of the Act, a banking company cannot use the word “bank” in its name unless:
A. It is duly licensed by RBI
B. It is more than 10 years old
C. It has government approval
D. It is registered as a cooperative society
Section 7 prohibits any company from using the words “bank”, “banker” or “banking” in its name unless it is a licensed banking company.
21. Which section of the Banking Regulation Act, 1949 makes it mandatory for banks to maintain Cash Reserve Ratio (CRR) with the RBI?
A. Section 18
B. Section 20
C. Section 42(1) of the RBI Act and Section 18 of the BR Act for non-scheduled banks
D. Section 24
Scheduled banks maintain CRR under Section 42(1) of the RBI Act, while non-scheduled banks must maintain cash reserve under Section 18 of the Banking Regulation Act.
22. Section 20 of the Act prohibits banks from:
A. Giving loans to agriculture
B. Granting loans or advances on the security of their own shares
C. Investing in government securities
D. Discounting bills of exchange
Section 20 prohibits a banking company from granting loans or advances on the security of its own shares, to avoid conflict of interest and protect depositors.
23. Section 21 empowers RBI to:
A. Control advances by issuing directions on lending policies
B. Nationalize private banks
C. Change statutory auditors of banks directly
D. Issue bank licenses
Section 21 authorizes RBI to control advances by issuing directions to banking companies regarding lending policy, purposes of advances, and margins.
24. Section 24 of the Banking Regulation Act, 1949 requires banks to maintain:
A. Reserves with SEBI
B. Investment in foreign securities
C. Minimum capital adequacy ratio
D. Statutory Liquidity Ratio (SLR) in approved securities
Section 24 requires every bank to maintain a certain percentage of its net demand and time liabilities in the form of cash, gold, or approved government securities — called SLR.
25. Under Section 35 of the Banking Regulation Act, 1949, RBI has the power to:
A. Appoint directors in private banks
B. Frame the Companies Act rules
C. Conduct inspection of banks
D. Regulate NBFCs
Section 35 gives RBI the power to inspect books and accounts of banks to ensure compliance and protect depositors.
26. Section 45 of the Banking Regulation Act, 1949 deals with:
A. Amalgamation of foreign banks
B. Compulsory amalgamation of banks on RBI’s recommendation with Central Government approval
C. Licensing of new banks
D. Appointment of auditors
Section 45 empowers RBI, with the approval of the Central Government, to prepare schemes for compulsory amalgamation of banking companies in public interest.
27. Section 56 of the Banking Regulation Act, 1949 is significant because it:
A. Extends provisions of the Act to Cooperative Banks with modifications
B. Deals with only foreign banks
C. Provides for CRR requirements
D. Deals with appointment of auditors
Section 56 makes the provisions of the Act applicable to cooperative banks with necessary modifications to suit their structure and functioning.
