Bank PO / Clerk / RBI — MCQ Practice Questions & Answers

Question 1

Which of the following best describes the 'Prompt Corrective Action' (PCA) framework used by the Reserve Bank of India?

Accepted Answer

Correct answer: B. A structured early-intervention mechanism triggered when a bank breaches certain risk thresholds related to capital, asset quality, and leverage — The Prompt Corrective Action (PCA) framework is an RBI supervisory tool that kicks in when a bank breaches defined risk thresholds — primarily related to Capital Adequacy Ratio (CAR), Net NPA ratio, and Return on Assets (RoA)/leverage. Once a bank is placed under PCA, RBI imposes restrictions such as curbs on dividend distribution, branch expansion, and fresh lending to prevent further deterioration. It is a preventive, not emergency, mechanism and does not involve RBI appointing directors or controlling inflation directly.

Answer

A. A framework to provide emergency liquidity to banks facing short-term cash shortfalls

Answer

C. A scheme under which RBI directly appoints directors on the boards of public sector banks

Answer

D. A monetary policy tool used to control inflation by restricting bank credit to specific sectors

Question 2

As per RBI guidelines, which of the following accounts is classified as a 'Non-Performing Asset' (NPA)?

Accepted Answer

Correct answer: B. A term loan account where interest or principal has been overdue for more than 90 days — As per RBI's prudential norms, a term loan is classified as a Non-Performing Asset (NPA) when interest and/or principal installment remains overdue for a period of more than 90 days. This is the standard threshold for most loan categories. For agricultural loans, different crop-season-based norms apply. The 90-day norm was introduced by RBI in line with international best practices to align Indian banking standards with global norms.

Answer

A. A term loan account where interest or principal has been overdue for more than 60 days

Answer

C. A term loan account where interest or principal has been overdue for more than 30 days

Answer

D. A term loan account where interest or principal has been overdue for more than 180 days

Question 3

The term 'Open Market Operations' (OMO) conducted by the Reserve Bank of India primarily aims to:

Accepted Answer

Correct answer: B. Control liquidity in the banking system by buying or selling government securities in the open market — Open Market Operations (OMO) refer to the purchase and sale of government securities (G-Secs) by the Reserve Bank of India in the open market to regulate liquidity. When RBI buys securities, it injects liquidity into the system; when it sells securities, it absorbs liquidity. OMOs are a key tool of monetary policy used alongside repo rate and Cash Reserve Ratio (CRR) adjustments. They do not involve foreign exchange transactions, direct lending to banks, or refinancing of NBFCs.

Answer

A. Regulate foreign exchange reserves by buying and selling foreign currencies in the open market

Answer

C. Facilitate direct lending to commercial banks at the repo rate through open auctions

Answer

D. Provide long-term refinancing to non-banking financial companies at concessional rates

Question 4

Under the Insolvency and Bankruptcy Code (IBC) 2016, what is the maximum time limit for completion of the Corporate Insolvency Resolution Process (CIRP), including any extensions?

Accepted Answer

Correct answer: B. 330 days — Under the Insolvency and Bankruptcy Code (IBC) 2016, the Corporate Insolvency Resolution Process (CIRP) must be completed within 180 days from the date of admission of the application. This period can be extended by up to 90 days by the National Company Law Tribunal (NCLT) on application, making the total maximum period 270 days. However, the IBC was amended in 2019 to set an overall mandatory outer limit of 330 days (including any litigation period), within which the CIRP must mandatorily be completed. Hence 330 days is the correct answer.

Answer

A. 270 days

Answer

C. 365 days

Answer

D. 180 days

Question 5

Which of the following is the correct definition of 'Marginal Standing Facility' (MSF) offered by the Reserve Bank of India?

Accepted Answer

Correct answer: A. A facility under which scheduled commercial banks can borrow overnight funds from RBI against approved government securities at a rate above the repo rate — The Marginal Standing Facility (MSF) is a window introduced by RBI in 2011 under which scheduled commercial banks can borrow overnight funds from RBI by dipping into their Statutory Liquidity Ratio (SLR) holdings, up to a certain limit. The MSF rate is typically 25 basis points above the repo rate, making it a penal rate for emergency overnight borrowing. It forms the upper band of the interest rate corridor in RBI's Liquidity Adjustment Facility (LAF) framework. It is not a subsidised or medium-term facility.

Answer

B. A facility under which RBI provides medium-term loans to banks for priority sector lending at subsidised rates

Answer

C. A window through which banks park their excess short-term liquidity with RBI at the reverse repo rate

Answer

D. A facility under which small finance banks borrow from RBI at a rate below the repo rate to lend to weaker sections

Question 6

The Financial Resolution and Deposit Insurance (FRDI) Bill, proposed in India, primarily deals with:

Accepted Answer

Correct answer: B. Establishing a resolution framework for failing financial firms and revising deposit insurance provisions — The Financial Resolution and Deposit Insurance (FRDI) Bill was proposed to create a comprehensive resolution framework for financial service providers (banks, insurance companies, etc.) facing stress or failure. It also aimed to revise and strengthen the deposit insurance mechanism in India, which is currently handled by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The Bill proposed setting up a Resolution Corporation. It was withdrawn in 2018 due to concerns about the 'bail-in' clause but remains an important topic for bank exams.

Answer

A. Setting up a new regulator to oversee all financial sector mergers and acquisitions

Answer

C. Providing a legal framework for overseas borrowings by Indian financial institutions

Answer

D. Regulating the issuance of digital currencies by banks in India

Question 7

Which of the following correctly describes the 'Priority Sector Lending' (PSL) target for domestic scheduled commercial banks in India, as mandated by the RBI?

Accepted Answer

Correct answer: A. 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposures, whichever is higher — As per RBI's Master Direction on Priority Sector Lending, domestic scheduled commercial banks and foreign banks with 20 or more branches are required to lend 40% of their Adjusted Net Bank Credit (ANBC) or the Credit Equivalent Amount of Off-Balance Sheet Exposures (CEOBE), whichever is higher, to the priority sector. This includes sub-targets for agriculture (18%), weaker sections (12%), and micro enterprises. The base is ANBC or CEOBE — not total deposits or total advances.

Answer

B. 35% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposures, whichever is higher

Answer

C. 40% of total deposits mobilised during the financial year

Answer

D. 30% of Adjusted Net Bank Credit (ANBC) or total advances, whichever is lower

Question 8

The 'SARFAESI Act, 2002' primarily empowers which of the following entities?

Accepted Answer

Correct answer: B. Secured creditors such as banks to enforce their security interest and recover dues without court intervention — The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 empowers banks and other secured creditors to enforce their security interest (such as mortgaged property) without approaching a court, for recovery of dues. Under this Act, secured creditors can take possession of collateral, sell assets, manage the business of the defaulter, or assign the debt to an Asset Reconstruction Company (ARC). It is a key recovery mechanism alongside the Debt Recovery Tribunals (DRTs) and IBC.

Answer

A. The Reserve Bank of India to directly liquidate assets of wilful defaulters without court intervention

Answer

C. The Central Government to nationalise private sector banks in the event of systemic risk

Answer

D. Asset Reconstruction Companies to issue government-backed bonds for buying stressed assets

Bank PO / Clerk / RBI - MCQ Practice Questions