Banking terminology encompasses the specialized financial vocabulary, operational concepts, and regulatory abbreviations used within the global and Indian banking systems. A firm grasp of these definitions ranging from monetary policy tools like the Cash Reserve Ratio (CRR) and Repo Rate to digital payment mechanisms like RTGS and NEFT is indispensable for anyone preparing for competitive banking exams such as IBPS, SBI, and RBI Grade B. Furthermore, understanding terms like Non-Performing Assets (NPAs), Bancassurance, and the Marginal Cost of Funds based Lending Rate (MCLR) helps candidates interpret complex financial news and economic policies. Mastering this vocabulary not only aids in passing written objective tests but also proves highly valuable during personal interviews and group discussions.
1. What is the 'Repo Rate' in the context of Indian banking?
Correct Answer: b) The rate at which the Reserve Bank of India (RBI) lends short-term money to commercial banks
Explanation:
Repo (Repurchase Agreement) Rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds, usually against government securities.
2. Which of the following best describes the 'Reverse Repo Rate'?
Correct Answer: a) The rate at which the RBI borrows money from commercial banks
Explanation:
Reverse Repo Rate is the short-term borrowing rate at which the RBI borrows money from commercial banks. It is used to control liquidity in the market.
3. What does CRR stand for in banking?
Correct Answer: b) Cash Reserve Ratio
Explanation:
CRR stands for Cash Reserve Ratio. It is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
4. Which assets are banks required to maintain under the Statutory Liquidity Ratio (SLR)?
Correct Answer: c) Liquid assets such as cash, gold, and approved government securities
Explanation:
SLR requires commercial banks to maintain a certain percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets like cash, gold, or approved unencumbered securities.
5. What is the Marginal Standing Facility (MSF)?
Correct Answer: b) A window for banks to borrow overnight funds from RBI against approved securities
Explanation:
MSF is a special window for banks to borrow overnight funds from the RBI against approved government securities in an emergency situation when inter-bank liquidity dries up completely.
6. In banking terminology, what is a 'Bank Rate'?
Correct Answer: b) The standard rate at which the RBI is prepared to buy or rediscount bills of exchange or other commercial paper
Explanation:
Bank rate is the long-term rate at which the central bank lends money to domestic banks, often without requiring collateral, or rediscounts bills of exchange.
7. What are Open Market Operations (OMO)?
Correct Answer: b) The buying and selling of government securities by the RBI in the open market
Explanation:
OMO refers to the purchase and sale of government securities by the central bank to regulate the money supply in the economy.
8. What does LAF stand for in monetary policy?
Correct Answer: a) Liquidity Adjustment Facility
Explanation:
LAF (Liquidity Adjustment Facility) is a monetary policy tool used by the RBI that allows banks to borrow money through repurchase agreements (repos) or make loans to the RBI through reverse repo agreements.
9. What is 'Call Money' in the money market?
Correct Answer: b) Money borrowed or lent for a period of 1 day (overnight)
Explanation:
Call Money is a short-term money market instrument where funds are borrowed and lent for exactly one day or overnight.
10. If money is borrowed or lent in the interbank market for a period between 2 days and 14 days, it is known as:
Correct Answer: b) Notice Money
Explanation:
Notice Money refers to funds borrowed or lent in the money market for a period of 2 to 14 days.
11. Which of the following is true regarding NEFT (National Electronic Funds Transfer)?
Correct Answer: b) It settles transactions in half-hourly batches
Explanation:
NEFT is a nationwide payment system facilitating one-to-one funds transfer. It operates in half-hourly batches, unlike RTGS which is real-time.
12. What is the minimum amount that can be remitted through RTGS (Real Time Gross Settlement)?
Correct Answer: d) Rs. 2,00,000
Explanation:
The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is Rs. 2,00,000 with no upper ceiling.
13. What does IMPS stand for?
Correct Answer: a) Immediate Payment Service
Explanation:
IMPS stands for Immediate Payment Service, an instant interbank electronic fund transfer service available 24x7x365.
14. Which organization developed the Unified Payments Interface (UPI)?
Correct Answer: c) National Payments Corporation of India (NPCI)
Explanation:
UPI is an instant real-time payment system developed by the National Payments Corporation of India (NPCI) facilitating inter-bank peer-to-peer and person-to-merchant transactions.
15. What is a VPA in the context of UPI?
Correct Answer: a) Virtual Payment Address
Explanation:
VPA stands for Virtual Payment Address. It is a unique identifier (like user@bank) that maps to a bank account in the UPI system, eliminating the need to share bank account details.
16. What is the primary function of the SWIFT network?
Correct Answer: b) To provide secure international financial messaging between banks
Explanation:
SWIFT (Society for Worldwide Interbank Financial Telecommunication) provides a secure network that allows financial institutions worldwide to send and receive information about financial transactions securely.
17. What is the purpose of the Cheque Truncation System (CTS)?
Correct Answer: b) To stop the physical movement of cheques and replace it with electronic images
Explanation:
CTS is the process of stopping the physical movement of cheques issued by a drawer to the drawee branch. Instead, an electronic image of the cheque is sent to the clearing house, speeding up clearance.
18. How many characters does an IFSC (Indian Financial System Code) consist of?
Correct Answer: c) 11 characters
Explanation:
An IFSC is an 11-character alphanumeric code used to uniquely identify all bank branches participating in the NEFT, RTGS, and IMPS systems.
19. The MICR code found on a cheque consists of how many digits?
Correct Answer: b) 9 digits
Explanation:
MICR (Magnetic Ink Character Recognition) code is a 9-digit code. The first three digits represent the city, the next three represent the bank, and the last three represent the branch.
20. What does CASA ratio indicate for a bank?
Correct Answer: b) Ratio of Current Accounts and Savings Accounts to total deposits
Explanation:
The CASA ratio is the ratio of deposits in current and savings accounts to total deposits. A higher CASA ratio indicates a lower cost of funds for the bank, as these accounts pay little or no interest.
21. Which type of bank account is best suited for a business with a high volume of daily transactions?
Correct Answer: b) Current Account
Explanation:
Current Accounts are intended for businesses, firms, and companies that have a high number of regular transactions. They typically do not earn interest and offer overdraft facilities.
22. What does NRE stand for in the context of NRI banking?
Correct Answer: a) Non-Resident External
Explanation:
An NRE (Non-Resident External) account is a rupee-denominated account opened by an NRI to deposit foreign earnings. The funds are fully repatriable, and interest earned is tax-free in India.
23. Which account should an NRI open to manage income earned within India (e.g., rent, pension)?
Correct Answer: c) NRO Account
Explanation:
An NRO (Non-Resident Ordinary) account is used by NRIs to manage income earned in India. Unlike NRE accounts, interest earned on NRO accounts is subject to TDS (tax deduction at source).
24. What is unique about an FCNR account?
Correct Answer: c) It is maintained in designated foreign currencies
Explanation:
FCNR (Foreign Currency Non-Resident) accounts are term deposit accounts for NRIs maintained in freely convertible foreign currencies, eliminating currency exchange risk.
25. In international banking, what is a 'Nostro' account?
Correct Answer: a) A domestic bank's account held in a foreign bank in foreign currency
Explanation:
Nostro translates to 'Ours'. A Nostro account is an account that a domestic bank holds in a foreign bank, denominated in the currency of that foreign country.
26. What is a 'Vostro' account?
Correct Answer: b) Your account with us
Explanation:
Vostro translates to 'Yours'. It refers to an account a foreign bank holds with a domestic bank in the domestic currency.
27. What is a 'Loro' account?
Correct Answer: c) Their account with them
Explanation:
Loro translates to 'Theirs'. In banking, it refers to a third-party account. For instance, Bank A discussing Bank B's account held at Bank C.
28. What is a Demat account used for?
Correct Answer: c) To hold shares and securities in an electronic format
Explanation:
A Demat (Dematerialized) account is used to hold financial securities (equity or debt) in electronic form, eliminating the need for physical share certificates.
29. What is the defining feature of a Basic Savings Bank Deposit Account (BSBDA)?
Correct Answer: c) It does not require any minimum balance
Explanation:
A BSBDA is a zero-balance account designed to provide basic banking services to all citizens, promoting financial inclusion without the burden of maintaining a minimum balance.
30. What does MCLR stand for?
Correct Answer: b) Marginal Cost of Funds based Lending Rate
Explanation:
MCLR is the internal benchmark rate used by banks to price their loans, based on the marginal cost of funds, operating costs, and tenor premium.
31. What is the 'Base Rate' in banking?
Correct Answer: b) The minimum interest rate below which a bank cannot lend
Explanation:
The Base Rate was the minimum interest rate of a bank below which it is not viable to lend. It was introduced to ensure transparency in credit pricing before being replaced by MCLR and external benchmarks.
32. What is an EMI?
Correct Answer: b) Equated Monthly Installment
Explanation:
EMI is a fixed payment amount made by a borrower to a lender at a specified date each calendar month, consisting of both principal and interest components.
33. What does Loan-to-Value (LTV) ratio determine?
Correct Answer: b) The proportion of a property's value that a bank is willing to finance
Explanation:
LTV is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. For example, an 80% LTV means the bank will finance 80% of the property's value.
34. In a loan agreement, what is a 'Moratorium Period'?
Correct Answer: c) A holiday period during which the borrower is not obligated to make EMI payments
Explanation:
A moratorium period (or repayment holiday) is a time during the loan term when the borrower is not required to make any repayments, though interest usually continues to accrue.
35. What is 'Collateral' in the context of lending?
Correct Answer: a) An asset pledged by a borrower to a lender to secure a loan
Explanation:
Collateral is an item of value (like real estate or vehicles) that a borrower pledges to secure a loan. If the borrower defaults, the lender can seize the collateral.
36. An 'Overdraft' facility is most commonly associated with which type of account?
Correct Answer: b) Current Account
Explanation:
An overdraft allows a current account holder to withdraw money even if the account has no funds, up to an approved limit, acting as a short-term credit facility.
37. What is 'Cash Credit'?
Correct Answer: c) A short-term loan provided to businesses to meet working capital requirements
Explanation:
Cash Credit is a short-term source of financing offered to businesses, usually backed by inventory or receivables, to meet their daily working capital needs.
38. What does 'Amortization' mean in finance?
Correct Answer: b) The process of paying off a debt over time through regular installments
Explanation:
Amortization refers to spreading repayment of a loan across a specific timeframe, with each payment covering a portion of both principal and interest.
39. In Indian banking, an asset is classified as a Non-Performing Asset (NPA) if interest or principal is overdue for a period of more than:
Correct Answer: c) 90 days
Explanation:
According to RBI guidelines, an asset becomes non-performing when it ceases to generate income for the bank, typically when payments remain overdue for more than 90 days.
40. What is a 'Substandard Asset'?
Correct Answer: a) An asset that has been an NPA for less than or equal to 12 months
Explanation:
An NPA is classified as a Substandard Asset if it has remained in the NPA category for a period less than or equal to 12 months.
41. When does a Substandard Asset become a 'Doubtful Asset'?
Correct Answer: a) When it remains a substandard asset for more than 12 months
Explanation:
An asset is classified as doubtful if it has remained in the substandard category for a period of 12 months.
42. What defines a 'Loss Asset' in banking?
Correct Answer: b) An asset where loss has been identified by the bank or auditor but the amount has not been written off wholly
Explanation:
A Loss Asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
43. Which Act allows banks to auction properties of defaulters to recover loans without court intervention?
Correct Answer: c) SARFAESI Act, 2002
Explanation:
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act empowers banks to recover their non-performing assets without the intervention of the court.
44. What is the function of a DRT (Debt Recovery Tribunal)?
Correct Answer: b) To facilitate the speedy recovery of debt payable to banks and financial institutions
Explanation:
DRTs were established to facilitate the speedy recovery of loans given by banks and financial institutions, handling cases above a certain monetary threshold.
45. What is a 'Bad Bank'?
Correct Answer: b) An entity set up to buy the bad loans and illiquid assets of other financial institutions
Explanation:
A Bad Bank (like NARCL in India) is created to isolate high-risk, non-performing assets held by banks, allowing the original banks to clear their balance sheets and resume normal lending.
46. In debt resolution, what does a 'Haircut' refer to?
Correct Answer: b) The difference between the actual loan amount due and the amount accepted by the bank as full settlement
Explanation:
A haircut is the loss a bank agrees to take when settling a bad loan. If a bank accepts Rs. 60 against a due of Rs. 100, the Rs. 40 loss is the haircut.
47. What is meant by 'Provisioning' in banking?
Correct Answer: b) Setting aside a portion of profits to cover expected losses on bad loans
Explanation:
Banks are required to set aside a portion of their profits as a provision against bad assets (NPAs) to ensure they have enough capital to absorb potential losses.
48. What is the role of an Asset Reconstruction Company (ARC)?
Correct Answer: b) To buy bad loans from banks and attempt to recover them
Explanation:
An ARC is a specialized financial institution that buys NPAs from banks at a mutually agreed value and attempts to recover the debts or resolve the assets.
49. Under the Negotiable Instruments Act, 1881, what is a 'Promissory Note'?
Correct Answer: b) An instrument in writing containing an unconditional undertaking to pay a certain sum of money
Explanation:
A promissory note is a financial instrument that contains a written promise by one party to pay another party a definite sum of money, either on demand or at a specified future date.
50. How does a 'Bill of Exchange' differ from a Promissory Note?
Correct Answer: b) A Bill of Exchange contains an unconditional order to pay, while a Promissory Note contains a promise to pay
Explanation:
A bill of exchange is drawn by the creditor (ordering payment), whereas a promissory note is made by the debtor (promising payment).
51. What is a 'Cheque' legally defined as?
Correct Answer: b) A Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise than on demand
Explanation:
Section 6 of the NI Act defines a cheque as a bill of exchange drawn on a specified banker, always payable on demand.
52. What is a 'Bearer Cheque'?
Correct Answer: b) A cheque payable to the person possessing it or presenting it at the bank counter
Explanation:
A bearer cheque does not have the word 'Bearer' cancelled and can be encashed over the counter by anyone who presents it to the bank.
53. What is the effect of 'Crossing' a cheque?
Correct Answer: b) It directs the bank to pay the money only through an account and not over the counter
Explanation:
Drawing two parallel transverse lines on the face of a cheque (crossing) ensures the funds are credited only to a bank account, making it safer than a bearer cheque.
54. In India, after how many months does a cheque become a 'Stale Cheque'?
Correct Answer: b) 3 months from the date of issue
Explanation:
As per RBI guidelines, a cheque is valid for 3 months from the date of its issue. After this period, it becomes a 'stale cheque' and will not be honored by banks.
55. What is a 'Post-dated Cheque' (PDC)?
Correct Answer: b) A cheque bearing a date in the future, which cannot be encashed before that date
Explanation:
A PDC bears a future date and serves as a valid payment instrument only on or after the date mentioned on it.
56. Why is a Demand Draft (DD) considered safer than a cheque by a payee?
Correct Answer: b) It cannot be dishonored due to insufficient funds as it is pre-paid
Explanation:
A DD is issued by a bank only after receiving the funds from the applicant. Therefore, unlike a cheque, a DD cannot bounce due to insufficient funds.
57. What does 'Endorsement' mean in relation to negotiable instruments?
Correct Answer: b) Signing on the back of the instrument for the purpose of transferring the title to another person
Explanation:
Endorsement is the act of a person who is a holder of a negotiable instrument signing their name on the back of it, thereby transferring the rights to the payee.
58. In the context of a cheque, who is the 'Drawee'?
Correct Answer: b) The bank on which the cheque is drawn and which is directed to pay
Explanation:
The drawer is the person writing the cheque, the drawee is the bank holding the drawer's account, and the payee is the person receiving the money.
59. What distinguishes the 'Money Market' from the 'Capital Market'?
Correct Answer: b) The money market is for short-term funds (up to 1 year), while the capital market is for long-term funds
Explanation:
The money market fulfills short-term borrowing and lending needs (maturity up to 1 year), whereas the capital market handles long-term investments like stocks and bonds.
60. What is a 'Commercial Paper' (CP)?
Correct Answer: b) An unsecured, short-term debt instrument issued by highly rated corporate borrowers
Explanation:
CP is an unsecured money market instrument issued in the form of a promissory note by large corporations to raise short-term funds directly from the market.
61. Who primarily issues a Certificate of Deposit (CD)?
Correct Answer: c) Commercial Banks and All-India Financial Institutions
Explanation:
CDs are negotiable money market instruments issued in dematerialized form or as a Usance Promissory Note by banks and eligible financial institutions for funds deposited.
62. What are Treasury Bills (T-Bills)?
Correct Answer: b) Short-term borrowing instruments of the Government of India
Explanation:
T-Bills are money market instruments issued by the Government of India as a promissory note with guaranteed repayment at a later date. They are issued at a discount and redeemed at par.
63. What does IPO stand for?
Correct Answer: b) Initial Public Offering
Explanation:
An IPO is the process by which a private company offers its shares to the public for the first time, effectively becoming a publicly traded company.
64. What is ASBA in the context of investing in an IPO?
Correct Answer: b) Applications Supported by Blocked Amount
Explanation:
ASBA is a mechanism developed by SEBI where the applicant's bank account is blocked to the extent of the application money, preventing deduction until shares are actually allotted.
65. Which regulatory body governs the capital markets in India?
Correct Answer: c) Securities and Exchange Board of India (SEBI)
Explanation:
SEBI is the statutory regulatory body established to protect the interests of investors in securities and to promote and regulate the securities market in India.
66. What characterizes a 'Bull Market'?
Correct Answer: c) A financial market in which prices are rising or are expected to rise
Explanation:
A bull market is the condition of a financial market in which prices of securities are rising or are expected to rise, often accompanied by investor optimism.
67. What is a 'Mutual Fund'?
Correct Answer: b) A financial vehicle that pools money collected from many investors to invest in securities like stocks and bonds
Explanation:
Mutual funds are operated by professional money managers who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.
68. How does Foreign Direct Investment (FDI) differ from Foreign Portfolio Investment (FPI)?
Correct Answer: a) FDI involves investing in physical assets or a significant stake in a company, while FPI is investment in financial assets like stocks and bonds
Explanation:
FDI implies establishing a lasting interest and control in a foreign enterprise, whereas FPI refers to passive investment in foreign financial markets.
69. What does LIBOR stand for?
Correct Answer: a) London Interbank Offered Rate
Explanation:
LIBOR was a benchmark interest rate at which major global banks lent to one another in the international interbank market for short-term loans (currently being phased out).
70. What is SOFR, the benchmark rate replacing LIBOR?
Correct Answer: b) Secured Overnight Financing Rate
Explanation:
SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, designed as a safer alternative to LIBOR.
71. What is meant by 'Hedging' in finance?
Correct Answer: b) A risk management strategy used to offset losses in investments by taking an opposite position in a related asset
Explanation:
Hedging is similar to taking out an insurance policy on an investment. If a negative event happens, the hedge pays off, limiting the overall financial loss.
72. What is 'Arbitrage'?
Correct Answer: a) The simultaneous purchase and sale of an asset in different markets to profit from a difference in the price
Explanation:
Arbitrage exploits price inefficiencies across different markets, offering a risk-free profit by buying low in one market and selling high in another.
73. What is a 'Letter of Credit' (LC) in international trade?
Correct Answer: b) A document issued by a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount
Explanation:
An LC substitutes the bank's credit for the buyer's credit, reducing the risk for the seller in international transactions.
74. What is the 'Balance of Payments' (BoP)?
Correct Answer: b) A statement of all economic transactions between entities in one country and the rest of the world over a specific period
Explanation:
The BoP accounts for a country's exports and imports of goods, services, and financial capital, providing a comprehensive view of its economic interactions globally.
75. What are Special Drawing Rights (SDRs)?
Correct Answer: a) An international reserve asset created by the IMF to supplement its member countries' official reserves
Explanation:
SDRs are not a currency themselves, but their value is based on a basket of five currencies (USD, Euro, Yuan, Yen, GBP) and can be exchanged for usable currencies by IMF members.
76. What is the primary objective of the 'Basel Norms'?
Correct Answer: b) To ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses
Explanation:
Basel Accords (I, II, and III) are international regulatory frameworks aimed at improving the banking sector's ability to deal with financial and economic stress.
77. What does CAR (or CRAR) stand for in banking regulations?
Correct Answer: b) Capital Adequacy Ratio
Explanation:
CAR, also known as Capital to Risk-Weighted Assets Ratio (CRAR), is a measure of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures.
78. In the context of Basel norms, what is 'Tier 1 Capital'?
Correct Answer: b) A bank's core capital, which includes equity capital and disclosed reserves
Explanation:
Tier 1 capital is the highest quality capital a bank holds, acting as the primary funding source and the best indicator of its financial strength.
79. What is the Prompt Corrective Action (PCA) framework of the RBI?
Correct Answer: b) A watchlist and intervention mechanism for banks with weak financial metrics (like high NPAs or low capital)
Explanation:
The PCA framework places restrictions (like halting dividend payments or branch expansion) on banks whose capital, asset quality, or profitability fall below certain thresholds.
80. What does the 'C' stand for in the CAMELS rating system?
Correct Answer: c) Capital adequacy
Explanation:
CAMELS is an international bank-rating system where bank supervisory authorities rate institutions according to six factors: Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk.
81. What is the primary purpose of KYC (Know Your Customer) guidelines?
Correct Answer: b) To prevent banks from being used for money laundering or terrorist financing activities
Explanation:
KYC processes require banks to verify the identity and address of customers, ensuring they are who they claim to be, thereby preventing financial crimes.
82. What does AML stand for in the financial sector?
Correct Answer: b) Anti-Money Laundering
Explanation:
Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.
83. What is the role of the Financial Action Task Force (FATF)?
Correct Answer: b) To act as a global money laundering and terrorist financing watchdog
Explanation:
The FATF is an inter-governmental body that sets international standards to prevent money laundering and terrorist financing.
84. Who is a 'Banking Ombudsman'?
Correct Answer: b) A senior official appointed by the RBI to redress customer complaints against deficiency in banking services
Explanation:
The Banking Ombudsman scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks.
85. What is the maximum limit of deposit insurance cover provided by DICGC per depositor per bank?
Correct Answer: c) Rs. 5 Lakhs
Explanation:
The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures principal and interest up to a maximum amount of Rs. 5 lakhs per depositor, per bank, in the event of a bank failure.
86. What does 'Bancassurance' mean?
Correct Answer: b) The selling of insurance products by banks in partnership with insurance companies
Explanation:
Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base.
87. What is a 'White Label ATM'?
Correct Answer: a) An ATM set up, owned, and operated by non-bank entities
Explanation:
White Label ATMs are operated by non-banking corporate entities. They do not bear the logo of any particular bank and aim to increase ATM penetration in rural and semi-urban areas.
88. How does a 'Brown Label ATM' differ from a White Label ATM?
Correct Answer: b) The hardware is owned by a service provider, but cash management and network connectivity are provided by a sponsor bank
Explanation:
In a Brown Label ATM, a private company owns the ATM hardware, but a sponsor bank provides the cash and manages the network connectivity, bearing the bank's brand logo.
89. What is the primary objective of the Pradhan Mantri Jan Dhan Yojana (PMJDY)?
Correct Answer: b) To ensure comprehensive financial inclusion by providing universal access to banking facilities
Explanation:
PMJDY is a National Mission for Financial Inclusion to ensure access to financial services, namely, basic savings bank accounts, need-based credit, remittances facility, insurance, and pension.
90. What is the main function of the MUDRA (Micro Units Development and Refinance Agency) Bank?
Correct Answer: c) To provide funding to the non-corporate small business sector
Explanation:
MUDRA was set up to develop and refinance all Micro-finance Institutions (MFIs) which are in the business of lending to micro/small business entities engaged in manufacturing, trading, and service activities.
91. What is the 'Lead Bank Scheme'?
Correct Answer: b) A scheme assigning specific districts to banks to coordinate financial and developmental activities in that area
Explanation:
Introduced by RBI, the Lead Bank Scheme assigns a particular bank a 'lead role' in a district to act as a consortium leader for coordinating the efforts of all banks and financial institutions for regional development.
92. What is a Self-Help Group (SHG) in the context of microfinance?
Correct Answer: b) A small, informal association of people, usually from similar socio-economic backgrounds, who pool savings to lend to members
Explanation:
SHGs are typically composed of 10-20 local individuals (often women) who pool their savings and provide micro-loans to members, linking them to formal banking through the SHG-Bank Linkage Programme.
93. What does 'Microfinance' entail?
Correct Answer: b) Providing financial services to unemployed or low-income individuals or groups who lack access to conventional banking
Explanation:
Microfinance provides small loans, savings, and insurance to marginalized populations to help them engage in productive activities and grow small businesses.
94. What does 'Financial Literacy' refer to?
Correct Answer: c) The possession of a set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources
Explanation:
Financial literacy involves understanding financial concepts like budgeting, investing, managing debt, and saving, empowering individuals to make smart financial choices.
95. How does an NBFC (Non-Banking Financial Company) differ from a traditional bank in India?
Correct Answer: b) NBFCs cannot accept demand deposits (like savings/current accounts) and do not form part of the payment and settlement system
Explanation:
While NBFCs offer many banking services like loans, they are legally prohibited from accepting demand deposits (funds withdrawn on demand) and issuing self-drawn cheques.
