Banking System Practice Questions
20 free Banking System practice questions for the Static GK. Tap an option to answer — you get instant feedback, the correct answer, and a detailed explanation for every question.
Which institution is known as the 'Lender of Last Resort' in the Indian banking system?
- A State Bank of India
- B Reserve Bank of India
- C Ministry of Finance
- D Central Bank of India
Correct answer: Reserve Bank of India
The Reserve Bank of India (RBI) acts as a lender of last resort by providing liquidity to commercial banks when they face a financial crisis. This function ensures the stability of the financial system and prevents bank runs.
What does 'CRR' stand for in the context of banking regulations?
- A Cash Reserve Ratio
- B Credit Rating Record
- C Capital Risk Rate
- D Currency Recovery Ratio
Correct answer: Cash Reserve Ratio
Cash Reserve Ratio (CRR) is the specific share of total deposits that commercial banks must maintain as liquid cash with the Central Bank. It is a tool used by the regulator to control liquidity and inflation in the economy.
In which year was the Reserve Bank of India (RBI) established based on the Hilton Young Commission's recommendations?
- A 1921
- B 1935
- C 1947
- D 1950
Correct answer: 1935
The RBI was established on April 1, 1935, under the Reserve Bank of India Act, 1934. It started its operations as a private shareholder's bank before being nationalized in 1949.
What is the primary difference between a Cheque and a Demand Draft (DD)?
- A A DD can be issued by an individual, whereas a cheque cannot
- B A cheque can be dishonored for insufficient funds, but a DD is pre-paid
- C A Demand Draft has no expiry date, while a cheque expires within 6 months
- D There is no difference between the two
Correct answer: A cheque can be dishonored for insufficient funds, but a DD is pre-paid
A Demand Draft is a pre-paid instrument issued by a bank, meaning the amount is already secured and it cannot be dishonored. A cheque is issued by an account holder and may bounce if the account has insufficient balance.
What is the 'Base Rate' in the banking sector?
- A The rate at which the RBI lends to commercial banks against securities
- B The minimum rate below which a bank cannot lend to its customers
- C The interest rate offered on savings accounts
- D The rate of inflation in the country
Correct answer: The minimum rate below which a bank cannot lend to its customers
The Base Rate is the internal benchmark rate for a bank. Except for specific cases allowed by the RBI, banks cannot offer loans at an interest rate lower than the Base Rate.
Which of the following is NOT a type of 'Near Money'?
- A Savings bonds
- B Treasury bills
- C Currency notes
- D Fixed deposits
Correct answer: Currency notes
Near Money refers to non-cash assets that are highly liquid and can be easily converted into cash, such as bonds or deposits. Currency notes are 'Actual Money' or legal tender, not near money.
What does 'NPA' stand for in banking terminology?
- A Net Profit Amount
- B Non-Performing Asset
- C New Pension Account
- D Nominal Price Adjustment
Correct answer: Non-Performing Asset
A Non-Performing Asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days or more. It is a key indicator of a bank's financial health and asset quality.
Which was the first bank to be established in India in 1770?
- A Bank of Bengal
- B Bank of Hindustan
- C General Bank of India
- D State Bank of India
Correct answer: Bank of Hindustan
The Bank of Hindustan was the earliest bank in India, established in Calcutta under European management. Although it was successful for a time, the bank eventually liquidated in 1832.
The 'Imperial Bank of India' was renamed to which bank after nationalization in 1955?
- A Punjab National Bank
- B Reserve Bank of India
- C State Bank of India
- D Bank of Baroda
Correct answer: State Bank of India
The State Bank of India (SBI) was formed by taking over the Imperial Bank of India through the State Bank of India Act, 1955. The Imperial Bank itself was created in 1921 by merging the three Presidency banks.
Which regulatory body governs the functioning of Stock Markets in India?
- A RBI
- B IRDAI
- C SEBI
- D NABARD
Correct answer: SEBI
The Securities and Exchange Board of India (SEBI) is the regulatory authority for the securities and commodity markets in India. It was established to protect the interests of investors and promote the development of the market.
What is 'Repo Rate'?
- A The rate at which commercial banks deposit their excess funds with the RBI
- B The rate of interest on fixed deposits
- C The rate at which the government borrows from the public
- D The rate at which the RBI lends money to commercial banks
Correct answer: The rate at which the RBI lends money to commercial banks
Repo Rate (Repurchase Option) is the rate at which the central bank lends money to commercial banks against government securities. An increase in Repo Rate makes borrowing expensive for banks, helping to control inflation.
Under which act are Banking Companies in India regulated?
- A Companies Act, 1956
- B RBI Act, 1934
- C Negotiable Instruments Act, 1881
- D Banking Regulation Act, 1949
Correct answer: Banking Regulation Act, 1949
The Banking Regulation Act, 1949, provides the framework for the supervision and regulation of all banking firms in India. It gives the RBI the power to license banks and regulate their shareholding and operations.
What is the full form of 'NEFT' in online banking?
- A National Electronic Funds Transfer
- B Net Effective Financial Transaction
- C National Exchange for Foreign Trade
- D New Electronic Fund System
Correct answer: National Electronic Funds Transfer
NEFT is a nationwide payment system that allows one-to-one funds transfer. Unlike RTGS, NEFT transactions are processed in batches rather than in real-time.
What is 'Financial Inclusion'?
- A Increasing the profitability of top private banks through policy reform
- B Including foreign investment capital in the overall national budget
- C A system where only digital payments are allowed
- D Affordable access to banking and financial services for all citizens
Correct answer: Affordable access to banking and financial services for all citizens
Financial inclusion aims to provide universal access to banking, credit, and insurance services. Schemes like Pradhan Mantri Jan Dhan Yojana were launched specifically to promote this objective in India.
Which of the following is a 'scheduled bank'?
- A A bank included in the Second Schedule of the RBI Act, 1934
- B A bank that operates only on specific pre-scheduled banking days
- C A bank that does not have any branches
- D A bank that is not regulated by the RBI
Correct answer: A bank included in the Second Schedule of the RBI Act, 1934
Scheduled banks are those which satisfy specific criteria regarding paid-up capital and reserves and are listed in the Second Schedule of the RBI Act. They are eligible for loans from the RBI at the bank rate.
What is the 'IFS Code' used for in the Indian banking system?
- A To identify the bank account holder
- B To track international transactions only
- C To identify and track the currency used in each banking transaction
- D To identify a specific bank branch for electronic fund transfers
Correct answer: To identify a specific bank branch for electronic fund transfers
The Indian Financial System Code (IFSC) is an 11-character alphanumeric code. The first four characters represent the bank, the fifth is zero, and the last six characters represent the specific branch.
What does 'Liquidity' refer to in banking?
- A The total amount of gold held by a bank
- B The number of customers a bank has
- C The physical infrastructure and condition of a bank's main office
- D The ease of converting an asset into cash without losing value
Correct answer: The ease of converting an asset into cash without losing value
Liquidity is a measure of how easily a bank can meet its short-term obligations using cash or assets that can be quickly sold. High liquidity is essential for maintaining public confidence in the banking system.
Who was the first Indian Governor of the Reserve Bank of India?
- A Osborne Smith
- B Manmohan Singh
- C James Braid Taylor
- D C.D. Deshmukh
Correct answer: C.D. Deshmukh
Sir Chintaman Dwarakanath Deshmukh (C.D. Deshmukh) was the first Indian to be appointed as the Governor of the RBI in 1943. Sir Osborne Smith was the first-ever Governor, but he was British.
What is the 'Fiscal Deficit'?
- A The gap between total government expenditure and revenue
- B The total amount of money a commercial bank has in its vault
- C The rate of interest on home loans
- D The profit made by the central bank
Correct answer: The gap between total government expenditure and revenue
Fiscal Deficit occurs when the government's total expenditure exceeds the total revenue it generates (excluding borrowings). It indicates the total amount of money the government needs to borrow to meet its expenses.
Which organization provides insurance for bank deposits in India?
- A DICGC
- B SEBI
- C IRDAI
- D EXIM Bank
Correct answer: DICGC
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of the RBI. It insures all bank deposits, such as savings, fixed, current, and recurring, up to a limit of ₹5 lakhs per depositor per bank.