General Awareness

Banking and Financial Awareness: Practice Questions with Answers

106 practice questions on Banking and Financial Awareness, with answers; most also have an explanation or a worked solution. Try each one before you open its answer.

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1. Q.1

   In which year was the Reserve Bank of India nationalised?

   1. A 1949
   2. B 1935
   3. C 1969
   4. D 1991
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   Correct answer: (A) 1949

   The RBI, originally privately owned, was nationalised in 1949, transferring ownership to the Government of India.

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2. Q.2

   What is the purpose of crossing a cheque (drawing two parallel lines across it)?

   1. A It can only be deposited into a bank account, not cashed directly over the counter
   2. B It doubles the cheque's value
   3. C It cancels the cheque
   4. D It allows the cheque to be cashed by anyone who holds it
   Show answer

   Correct answer: (A) It can only be deposited into a bank account, not cashed directly over the counter

   A crossed cheque can only be deposited into a bank account and cannot be encashed directly at the counter, making it safer than an open cheque.

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3. Q.3

   Which organization acts as the apex regulatory body for exports and imports in India?

   1. A NPCI (National Payments Corporation of India)
   2. B EXIM Bank (Export-Import Bank of India)
   3. C SEBI (Securities and Exchange Board of India)
   4. D RBI (Reserve Bank of India)
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   Correct answer: (B) EXIM Bank (Export-Import Bank of India)

   EXIM Bank (Export-Import Bank of India) is the apex body for exports and imports in India.

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4. Q.4

   As per RBI norms, what is the minimum Capital to Risk-weighted Assets Ratio (CRAR) an Indian scheduled commercial bank must maintain?

   1. A 9%
   2. B 8%
   3. C 11.5%
   4. D 6%
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   Correct answer: (A) 9%

   RBI mandates a minimum CRAR of 9% for Indian banks, a full percentage point above the global Basel III minimum of 8%.

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5. Q.5

   Which organization acts as the apex regulatory body for agriculture and rural development in India?

   1. A NPCI (National Payments Corporation of India)
   2. B NHB (National Housing Bank)
   3. C SEBI (Securities and Exchange Board of India)
   4. D NABARD (National Bank for Agriculture and Rural Development)
   Show answer

   Correct answer: (D) NABARD (National Bank for Agriculture and Rural Development)

   NABARD (National Bank for Agriculture and Rural Development) is the apex body for agriculture and rural development in India.

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6. Q.6

   A 'crossed cheque' generally means what for the payee?

   1. A It cannot be encashed at the counter and must be deposited into a bank account
   2. B It can only be cashed by the bank manager
   3. C It is automatically cancelled after 24 hours
   4. D It can be cashed at any bank branch in cash
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   Correct answer: (A) It cannot be encashed at the counter and must be deposited into a bank account

   A crossed cheque (marked with two parallel lines) cannot be cashed directly at the counter - it must be deposited into a bank account for clearing.

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7. Q.7

   What does ATM stand for?

   1. A Automated Teller Machine
   2. B Automatic Transfer Mode
   3. C Authorized Transaction Machine
   4. D Automated Transfer Machine
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   Correct answer: (A) Automated Teller Machine

   ATM stands for Automated Teller Machine, a self-service machine for cash withdrawals and other banking transactions.

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8. Q.8

   What is a 'Letter of Credit' primarily used for?

   1. A A guarantee from a buyer's bank that a seller will receive payment, commonly used in international trade
   2. B A loan given directly to small farmers
   3. C A certificate proving a person's creditworthiness for a job
   4. D A receipt issued after a cash deposit
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   Correct answer: (A) A guarantee from a buyer's bank that a seller will receive payment, commonly used in international trade

   A Letter of Credit is a bank's guarantee of payment to a seller on a buyer's behalf, widely used to reduce risk in international trade.

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9. Q.9

   Which Act governs the use of cheques, promissory notes and bills of exchange in India?

   1. A The Negotiable Instruments Act, 1881
   2. B The Banking Regulation Act, 1949
   3. C The Indian Contract Act, 1872
   4. D The Companies Act, 2013
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   Correct answer: (A) The Negotiable Instruments Act, 1881

   The Negotiable Instruments Act, 1881 governs cheques, promissory notes and bills of exchange in India.

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10. Q.10

    How many members does the RBI's Monetary Policy Committee (MPC) have?

    1. A 6
    2. B 4
    3. C 9
    4. D 5
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    Correct answer: (A) 6

    The MPC has 6 members in total - 3 from the RBI (including the Governor as chairperson) and 3 external members appointed by the government - and it decides the policy repo rate.

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11. Q.11

    What does CRR (a monetary policy tool used by RBI) stand for?

    1. A Cash Reserve Ratio
    2. B Credit Reserve Ratio
    3. C Cash Revenue Ratio
    4. D Capital Reserve Ratio
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    Correct answer: (A) Cash Reserve Ratio

    CRR stands for Cash Reserve Ratio - the minimum percentage of a bank's deposits it must keep as reserves with the RBI.

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12. Q.12

    An 'order cheque' is payable to whom?

    1. A The specific person named on it, or their order
    2. B Whoever is holding it at the time
    3. C Only a government office
    4. D No one - it is void by default
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    Correct answer: (A) The specific person named on it, or their order

    An order cheque is payable only to the specific person (or entity) named on it, or to someone they formally endorse it to.

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13. Q.13

    In which Swiss city is the Bank for International Settlements (BIS), which issues the Basel norms for banks, headquartered?

    1. A Basel
    2. B Geneva
    3. C Zurich
    4. D Bern
    Show answer

    Correct answer: (A) Basel

    The BIS, often called the 'central bank for central banks,' is headquartered in Basel, Switzerland - which also gives the Basel norms their name.

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14. Q.14

    What does MICR (printed on cheques) stand for?

    1. A Magnetic Ink Character Recognition
    2. B Machine Interpreted Character Recognition
    3. C Magnetic Index Character Reading
    4. D Manual Ink Character Recognition
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    Correct answer: (A) Magnetic Ink Character Recognition

    MICR stands for Magnetic Ink Character Recognition - a technology used to print cheque details in a form machines can read quickly.

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15. Q.15

    Which committee/body decides the repo rate in India?

    1. A RBI's Monetary Policy Committee (MPC)
    2. B The Parliament of India
    3. C SEBI's board
    4. D Individual commercial banks
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    Correct answer: (A) RBI's Monetary Policy Committee (MPC)

    The repo rate is decided by the RBI's Monetary Policy Committee (MPC), which meets periodically to review and set key policy rates.

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16. Q.16

    Which organization acts as the apex regulatory body for insurance in India?

    1. A SEBI (Securities and Exchange Board of India)
    2. B EXIM Bank (Export-Import Bank of India)
    3. C IRDAI (Insurance Regulatory and Development Authority of India)
    4. D DICGC (Deposit Insurance and Credit Guarantee Corporation)
    Show answer

    Correct answer: (C) IRDAI (Insurance Regulatory and Development Authority of India)

    IRDAI (Insurance Regulatory and Development Authority of India) is the apex body for insurance in India.

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17. Q.17

    In which year was the Reserve Bank of India established?

    1. A 1935
    2. B 1947
    3. C 1949
    4. D 1955
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    Correct answer: (A) 1935

    The RBI was established on 1 April 1935 under the Reserve Bank of India Act, 1934.

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18. Q.18

    A Recurring Deposit (RD) involves what?

    1. A Depositing a fixed amount at regular intervals (e.g. monthly) over a fixed tenure
    2. B Depositing a lump sum once with no fixed tenure
    3. C Only withdrawing money, never depositing
    4. D A type of insurance policy
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    Correct answer: (A) Depositing a fixed amount at regular intervals (e.g. monthly) over a fixed tenure

    A Recurring Deposit requires depositing a fixed amount at regular intervals (commonly monthly) over an agreed tenure, building up savings gradually.

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19. Q.19

    What does IRDAI regulate?

    1. A The insurance sector
    2. B The stock market
    3. C Agricultural credit
    4. D Foreign exchange reserves
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    Correct answer: (A) The insurance sector

    IRDAI (Insurance Regulatory and Development Authority of India) regulates and promotes the insurance industry.

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20. Q.20

    What does PMJDY (a major financial-inclusion scheme) stand for?

    1. A Pradhan Mantri Jan Dhan Yojana
    2. B Pradhan Mantri Jeevan Dhan Yojana
    3. C Pradhan Mantri Jan Suraksha Yojana
    4. D Pradhan Mantri Jan Awas Yojana
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    Correct answer: (A) Pradhan Mantri Jan Dhan Yojana

    PMJDY stands for Pradhan Mantri Jan Dhan Yojana, a national financial-inclusion scheme aimed at providing bank accounts to unbanked households.

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21. Q.21

    The Kisan Credit Card (KCC) scheme is primarily designed to provide farmers with what?

    1. A Timely and affordable credit for agricultural and allied needs
    2. B Free crop insurance
    3. C Subsidised fertiliser directly
    4. D A fixed monthly pension after retirement
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    Correct answer: (A) Timely and affordable credit for agricultural and allied needs

    The Kisan Credit Card scheme gives farmers easy, timely access to credit for cultivation expenses and other agricultural and allied activities, typically at concessional interest rates.

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22. Q.22

    What is a 'post-dated cheque'?

    1. A A cheque bearing a date later than the date it is issued, payable only on or after that future date
    2. B A cheque that has already expired
    3. C A cheque payable only to a named person, not bearer
    4. D A cheque that has been cancelled by the drawer
    Show answer

    Correct answer: (A) A cheque bearing a date later than the date it is issued, payable only on or after that future date

    A post-dated cheque carries a future date and cannot be honoured by the bank before that date arrives.

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23. Q.23

    A 'bearer cheque' can be encashed by whom?

    1. A Whoever presents/holds the cheque
    2. B Only the person named on the cheque
    3. C Only the account holder who issued it
    4. D Only a bank employee
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    Correct answer: (A) Whoever presents/holds the cheque

    A bearer cheque is payable to whoever presents (holds) it, unlike an order cheque which is payable only to the named person.

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24. Q.24

    What is the primary purpose of deposit insurance provided by DICGC in India?

    1. A Protecting bank depositors' money up to a specified limit if the bank fails
    2. B Insuring a bank's office building against fire
    3. C Insuring bank employees' health
    4. D Guaranteeing stock market returns
    Show answer

    Correct answer: (A) Protecting bank depositors' money up to a specified limit if the bank fails

    DICGC (Deposit Insurance and Credit Guarantee Corporation) insures bank deposits up to a specified limit per depositor per bank, protecting savers if a bank fails.

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25. Q.25

    What does MCLR, the benchmark rate banks use to price loans, stand for?

    1. A Marginal Cost of Funds based Lending Rate
    2. B Maximum Cost of Lending Rate
    3. C Minimum Credit Lending Rate
    4. D Monetary Control Lending Rate
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    Correct answer: (A) Marginal Cost of Funds based Lending Rate

    MCLR stands for Marginal Cost of Funds based Lending Rate, the internal benchmark banks use to set loan interest rates.

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26. Q.26

    What does SIP, a popular method of investing in mutual funds, stand for?

    1. A Systematic Investment Plan
    2. B Standard Interest Policy
    3. C Secured Investment Programme
    4. D Savings and Insurance Plan
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    Correct answer: (A) Systematic Investment Plan

    SIP stands for Systematic Investment Plan, which lets an investor put a fixed amount into a mutual fund scheme at regular intervals rather than investing a lump sum.

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27. Q.27

    What is the full form of CIBIL, the organisation that maintains individuals' credit history and credit scores in India?

    1. A Credit Information Bureau (India) Limited
    2. B Central Indian Banking Information League
    3. C Credit Investigation Bureau of India
    4. D Consumer Information and Banking Index Ltd
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    Correct answer: (A) Credit Information Bureau (India) Limited

    CIBIL stands for Credit Information Bureau (India) Limited, which compiles credit histories and generates credit scores for individuals and businesses.

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28. Q.28

    What does SLR stand for?

    1. A Statutory Liquidity Ratio
    2. B Standard Liquidity Ratio
    3. C Statutory Loan Ratio
    4. D Structured Liquidity Ratio
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    Correct answer: (A) Statutory Liquidity Ratio

    SLR stands for Statutory Liquidity Ratio - the minimum percentage of deposits a bank must maintain in liquid assets such as cash, gold, or approved securities.

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29. Q.29

    Sovereign Gold Bonds (SGBs), an alternative to holding physical gold, are issued by the RBI on behalf of whom?

    1. A Government of India
    2. B World Gold Council
    3. C Individual commercial banks
    4. D State governments
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    Correct answer: (A) Government of India

    Sovereign Gold Bonds are government securities denominated in grams of gold, issued by the RBI on behalf of the Government of India as a substitute for holding physical gold.

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30. Q.30

    In which year was NABARD (National Bank for Agriculture and Rural Development) established?

    1. A 1982
    2. B 1969
    3. C 1991
    4. D 1935
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    Correct answer: (A) 1982

    NABARD was established on 12 July 1982 to promote agricultural and rural development.

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31. Q.31

    Which was the first bank established in India?

    1. A Bank of Hindustan
    2. B State Bank of India
    3. C Reserve Bank of India
    4. D Bank of Bengal
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    Correct answer: (A) Bank of Hindustan

    The Bank of Hindustan, established in 1770, is considered the first bank established in India (it was later liquidated).

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32. Q.32

    What does SWIFT, the global messaging network used by banks to process international fund transfers, stand for?

    1. A Society for Worldwide Interbank Financial Telecommunication
    2. B System for Worldwide International Fund Transfers
    3. C Standard Wire Interbank Funds Transfer
    4. D Secure Worldwide Interbank Financial Transfer
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    Correct answer: (A) Society for Worldwide Interbank Financial Telecommunication

    SWIFT stands for Society for Worldwide Interbank Financial Telecommunication; it provides the standardised messaging network banks use to instruct international payments, though it does not itself move funds.

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33. Q.33

    What is an NRE (Non-Resident External) account primarily used for?

    1. A Depositing foreign income earned abroad and using it in India; fully repatriable and tax-free
    2. B Depositing income earned within India, such as rent or dividends
    3. C A term deposit held only in foreign currency
    4. D A joint account that only residents can open
    Show answer

    Correct answer: (A) Depositing foreign income earned abroad and using it in India; fully repatriable and tax-free

    An NRE account lets NRIs deposit foreign earnings for use in India; both principal and interest are fully repatriable and tax-free in India.

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34. Q.34

    The 'reverse repo rate' is the rate at which which of these happens?

    1. A RBI borrows funds from commercial banks
    2. B RBI lends funds to commercial banks
    3. C Commercial banks lend to businesses
    4. D The government borrows from RBI
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    Correct answer: (A) RBI borrows funds from commercial banks

    The reverse repo rate is the rate at which the RBI borrows funds from commercial banks, absorbing excess liquidity from the banking system.

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35. Q.35

    Which was the first credit rating agency to be established in India?

    1. A CRISIL
    2. B ICRA
    3. C CARE Ratings
    4. D Fitch India
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    Correct answer: (A) CRISIL

    CRISIL (Credit Rating Information Services of India Limited), incorporated in 1987, was India's first credit rating agency.

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36. Q.36

    In which year did the Government of India demonetise Rs 500 and Rs 1,000 currency notes?

    1. A 2016
    2. B 2014
    3. C 2018
    4. D 2019
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    Correct answer: (A) 2016

    On 8 November 2016, the Government of India demonetised all Rs 500 and Rs 1,000 banknotes then in circulation.

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37. Q.37

    Which organization acts as the apex regulatory body for deposit insurance in India?

    1. A NPCI (National Payments Corporation of India)
    2. B RBI (Reserve Bank of India)
    3. C DICGC (Deposit Insurance and Credit Guarantee Corporation)
    4. D PFRDA (Pension Fund Regulatory and Development Authority)
    Show answer

    Correct answer: (C) DICGC (Deposit Insurance and Credit Guarantee Corporation)

    DICGC (Deposit Insurance and Credit Guarantee Corporation) is the apex body for deposit insurance in India.

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38. Q.38

    What is the full form of SARFAESI?

    1. A Equated Monthly Installment
    2. B National Electronic Funds Transfer
    3. C Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
    4. D Non-Banking Financial Company
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    Correct answer: (C) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest

    SARFAESI stands for Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest.

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39. Q.39

    What is 'Legal Tender'?

    1. A Money that must be legally accepted as payment for a debt
    2. B Money issued only by private banks
    3. C A cheque that has expired
    4. D A loan guaranteed by the government
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    Correct answer: (A) Money that must be legally accepted as payment for a debt

    Legal tender is currency that the law recognises as valid for settling a debt, meaning a creditor cannot lawfully refuse it as payment.

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40. Q.40

    The 'repo rate' is the rate at which which of these happens?

    1. A RBI lends short-term funds to commercial banks
    2. B Commercial banks lend to individual customers
    3. C RBI accepts deposits from the public
    4. D Two commercial banks lend to each other
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    Correct answer: (A) RBI lends short-term funds to commercial banks

    The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against government securities.

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41. Q.41

    What does IMPS stand for?

    1. A Immediate Payment Service
    2. B International Money Payment Service
    3. C Instant Mobile Payment System
    4. D Immediate Mobile Payment Service
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    Correct answer: (A) Immediate Payment Service

    IMPS stands for Immediate Payment Service - an instant, round-the-clock electronic fund-transfer system.

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42. Q.42

    As per RBI's asset classification norms, a loan is classified as a Non-Performing Asset (NPA) if interest or principal remains overdue for more than how many days?

    1. A 90 days
    2. B 30 days
    3. C 180 days
    4. D 60 days
    Show answer

    Correct answer: (A) 90 days

    A loan is classified as an NPA if interest or principal remains overdue for more than 90 days.

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43. Q.43

    What does ASBA, the mechanism investors use to apply for an IPO without losing interest on their bank balance, stand for?

    1. A Application Supported by Blocked Amount
    2. B Automatic Savings and Banking Application
    3. C Account Statement for Bank Applicants
    4. D Application Submitted by Authorised Broker
    Show answer

    Correct answer: (A) Application Supported by Blocked Amount

    ASBA stands for Application Supported by Blocked Amount; the application money stays blocked in the investor's own bank account (continuing to earn interest) rather than being debited upfront.

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44. Q.44

    A bill of exchange and a promissory note are both examples of which category of financial instrument?

    1. A Negotiable instruments
    2. B Equity instruments
    3. C Derivative instruments
    4. D Government securities
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    Correct answer: (A) Negotiable instruments

    Cheques, bills of exchange, and promissory notes are all classified as negotiable instruments, which can be transferred from one person to another.

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45. Q.45

    What does EBLR, the RBI-mandated benchmark that replaced MCLR-based pricing for new floating-rate retail and MSME loans from October 2019, stand for?

    1. A External Benchmark Lending Rate
    2. B Extended Base Lending Rate
    3. C External Bank Loan Rate
    4. D Effective Base Lending Ratio
    Show answer

    Correct answer: (A) External Benchmark Lending Rate

    EBLR stands for External Benchmark Lending Rate; from October 2019, the RBI required banks to price new floating-rate retail and MSME loans against an external benchmark (commonly the repo rate) instead of their internal MCLR.

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46. Q.46

    Which organisation developed and operates UPI?

    1. A National Payments Corporation of India (NPCI)
    2. B Reserve Bank of India (RBI)
    3. C Securities and Exchange Board of India (SEBI)
    4. D Ministry of Finance
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    Correct answer: (A) National Payments Corporation of India (NPCI)

    UPI was developed and is operated by the National Payments Corporation of India (NPCI).

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47. Q.47

    Which organization acts as the apex regulatory body for small industries in India?

    1. A RBI (Reserve Bank of India)
    2. B SIDBI (Small Industries Development Bank of India)
    3. C NPCI (National Payments Corporation of India)
    4. D SEBI (Securities and Exchange Board of India)
    Show answer

    Correct answer: (B) SIDBI (Small Industries Development Bank of India)

    SIDBI (Small Industries Development Bank of India) is the apex body for small industries in India.

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48. Q.48

    What does NPA stand for in banking?

    1. A Non-Performing Asset
    2. B Net Performing Asset
    3. C Non-Payable Account
    4. D Net Payable Account
    Show answer

    Correct answer: (A) Non-Performing Asset

    An NPA (Non-Performing Asset) is a loan or advance for which the principal or interest payment has remained overdue for a specified period.

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49. Q.49

    In which year was the IRDAI Act (for insurance regulation) passed?

    1. A 1999
    2. B 1988
    3. C 1992
    4. D 2000
    Show answer

    Correct answer: (A) 1999

    The Insurance Regulatory and Development Authority Act was passed in 1999, establishing IRDAI as the insurance sector regulator.

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50. Q.50

    Regional Rural Banks (RRBs) are typically jointly owned by whom?

    1. A The Central Government, a State Government, and a sponsor bank
    2. B Only private shareholders
    3. C Only foreign investors
    4. D Only the state government
    Show answer

    Correct answer: (A) The Central Government, a State Government, and a sponsor bank

    RRBs have a structured ownership pattern shared among the Central Government, the concerned State Government, and a sponsor (commercial) bank.

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