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Money and Banking (part – II)

📆 September 24, 2024

Total Questions: 268

1. 'Gullak Bachcha Bank' is a bank based in : [B.P.S.C. (Pre) 2017]

Correct Answer: (b) Patna
Solution:'Gullak Bachcha Bank' is a bank managed entirely by the children at the Bal Bhavan-Kilkari in Patna. Opened on Children's Day, November 14, 2009 by Bihar Chief Minister Nitish Kumar, it was an experiment in thrift education. This bank has four objectives help children understand the importance and correct use of money; develop the habit of saving; promote understanding of the banking system; and encourage the spirit of mutual cooperation.

2. Which among the following is an asset for a Commercial Bank? [U.P.P.C.S. (Mains) 2007]

Correct Answer: (a) Credit to farmers
Solution:Among the given options, credit to farmers is an asset for a commercial bank. Liabilities and assets of commercial banks are as follows:
 Liabilities  Assets
1. paid-up capital and Reserves1. Cash in hand and with RBI
2. Deposits :

(i) Time (Term) deposits

(ii) Demand deposits

2. Money at call and short notice
3. Borrowings3. Investments
4. Other liabilities4. Loans, advances, and bills discounted and purchased

3. Which of the following is not included in the assets of a commercial bank in India? [U.P.S.C. (Pre) 2019]

Correct Answer: (b) Deposits
Solution:Among the given options, deposits are not included in the assets of a commercial bank in India. Deposit is a liability of the commercial bank, as it has to be returned to the customer. Assets of a commercial bank in India include cash in hand and balances with the RBI, money at call at short notice, investments (government securities, other approved securities and other securities), loans, advances and bills discounted-or purchased etc. Liabilities of a commercial bank in India include deposits (both term and demand deposits), borrowings, paid-up capital, payable bills etc.

4. Which of the following is the most important component of the liabilities of commercial banks in India ? [U.P.P.C.S. (Mains) 2008, 2009]

Correct Answer: (b) Time deposits
Solution:Time Deposits are the most important component of the liabilities of commercial banks and after that Saving deposits and Demands deposits are the important component of the liabilities of commercial banks in India.

Time deposits, also known as fixed deposits, are generally the largest source of funds for banks because they offer stability and predictability. Unlike demand deposits, which can be withdrawn at any time, time deposits are held for a fixed period, allowing banks to plan their lending activities more effectively and manage their risk. While demand deposits and other borrowings are also important liabilities, time deposits are typically the largest in terms of volume and significance for commercial banks.

  • Demand deposits:
    While demand deposits are crucial for day-to-day transactions and liquidity, they are typically smaller in volume compared to time deposits.
  • Inter-bank liabilities:
    These are liabilities to other banks, and while they can be significant in some cases, they are not the primary source of funds for a commercial bank.
  • Other borrowings:
    These can include various forms of borrowing, such as from the central bank or other financial institutions, but they are not the primary source of funds for commercial banks.

5. Non- performing assets in commercial banks mean : [U.P.P.C.S. (Pre) 2009]

Correct Answer: (c) Loans in which interest or principal amount is not recovered
Solution:A non-performing asset (NPA) refers to classification for loans or advances that are in default or in arrears. A loan is an arrears when its principal or interest payments are missed. As per the RBI guidelines, any advance or loan is classified as non-performing asset when it is overdue for more than 90 days.

Based on the period of interest payment overdue, Non Performing Assets are classified into the following three categories.
Substandard Assets
Assets that have been classified as Non Performing Assets for a duration of 12 months or less are referred to as Substandard Assets.
Doubtful Assets
If the asset remains in the substandard category for a period of 12 months, it is categorized as Doubtful Asset.
Loss Assets
Those assets which have become uncollectible and are no longer continue as a bankable asset.

6. Priority sector lending by banks in India constitutes the lending to : [U.P.S.C (Pre) 2013]

Correct Answer: (d) All of the above
Solution:According to the priority sector lending norms of the RBI, banks have to extend at least 40% of their credit to the priority sector. Some of the priority sectors lending mentioned by the RBI are agriculture, micro, small and medium enterprises, education, housing, export credit, social infrastructure, renewable energy etc. Lending to weaker sections constitutes a major part of this. Hence, option (d) is the correct answer.

7. Short Term Loans is of : [R.A.S./R.T.S. (Pre) 1999, 2000]

Correct Answer: (a) Maximum 15 months
Solution:Loans are classified generally into three categories on the basis of their duration:
Short-term loanUpto 1 year (or 15 month )
Medium-term loanAbove 1 year (or 15 months ) and upto 3 years (or 5 years )
Long-term loanAbove 3 years (or 5 years )

Note : However, sometimes, short-term loan provides for upto 2 years. But it depends on different institutions.

8. Why is the offering of 'teaser loans' by commercial banks a cause of economic concern ? [U.P.S.C (Pre) 2011]

1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in futures.

2. In India, the loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.

Which of the Statement given above is/are correct?

Correct Answer: (a) 1 only
Solution:A teaser loan is nothing, but, a special loan that is offered for a fixed duration and could then be withdrawn. It generally offers a low interest rate in the initial years or some special offer and then gets back to the normal interest rates. Teaser loans' are the unofficial term used to describe housing loans that carry ultra-low fixed rate in initial years, but charge market-linked rates thereafter. It is considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future. The Reserve Bank of India had insisted that there be a higher provisioning for such loans as they carry a higher risk of default. It is not given to inexperienced entrepreneurs to set up manufacturing or export units. Hence, option (a) is the correct answer.

9. Consider the following : [U.P.S.C (Pre) 2001]

1. Market borrowing

2. Treasury bills

3. Special securities issued to RBI

Which of these is/are component (s) of internal debt ?

Correct Answer: (d) 1, 2 and 3
Solution:Public debt is the total liabilities of the Central Government contracted against the Consolidated Fund of India. It is of 2 types - Internal debt and External debt. Internal debt is categorized into marketable and non-marketable securities. Marketable government securities include G-secs and T-bills issued through auction. Non-marketable securities include intermediate treasury bills issued to State Governments, special securities issued to RBI among others. Hence, option (d) is the correct answer.

10. In the context of the Indian economy, non-financial debt includes which of the following ? [U.P.S.C (Pre) 2020]

1. Housing loans owed by households

2. Amounts outstanding on credit cards

3. Treasury bills

Select the correct answer using the code given below :

Correct Answer: (d) 1, 2 and 3
Solution:Non-financial debt consists of credit instruments issued by government entities, households and businesses that are not covered in the financial sector. Hence, statement 1,2 and 3 all are correct.
  • Housing loans owed by households: Households are considered a non-financial sector of the economy. When households take out loans, such as housing loans (mortgages), this debt is owed by a non-financial entity. Therefore, housing loans owed by households are a form of non-financial debt.
  • Amounts outstanding on credit cards: Credit card debt is typically incurred by households or sometimes by non-financial
    corporations for operational expenses. Both households and non-financial corporations are part of the non-financial sector. Thus, outstanding amounts on credit cards represent debt owed by non-financial entities and are considered non-financial debt.
  • Treasury bills: Treasury bills (T-bills) are short-term debt instruments issued by the government (usually the central government) to raise funds. The government is a major part of the non-financial sector. The debt represented by Treasury bills is owed by the government. Therefore, Treasury bills are a form of government debt, which is a significant component of non-financial debt.
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