Bank Promotion Exam Quiz: Trivia!

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Bank Promotion Exam Quiz: Trivia! - Quiz

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Questions and Answers
  • 1. 

    What is the sales turnover limit to classify an account under Regularly Retail Portfolio under BASEL II norms?

    • A.

      Upto Rs 10 crores

    • B.

      Upto Rs 50 crores

    • C.

      Upto Rs 100 Crores

    • D.

      No Sales Turnover norms

    • E.

      Only Size of Balance Sheet is reckoned

    Correct Answer
    B. Upto Rs 50 crores
    Explanation
    Under BASEL II norms, an account is classified under the Regularly Retail Portfolio based on its sales turnover limit. The correct answer is "Upto Rs 50 crores", which means that if the sales turnover of an account is up to Rs 50 crores, it will be classified under the Regularly Retail Portfolio. This classification is important for determining risk weights and capital requirements for banks.

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  • 2. 

    What is BCBS?

    • A.

      Basle Committee on Banking Supervision

    • B.

      Bank of Commerce Bumiputra Shd

    • C.

      Banking Companies Binary Software

    • D.

      Bilingual Committee on Banking Supervision

    • E.

      None of the above

    Correct Answer
    A. Basle Committee on Banking Supervision
    Explanation
    The correct answer is Basle Committee on Banking Supervision. The Basle Committee on Banking Supervision (BCBS) is an international committee that sets global standards for banking regulations and supervisory practices. It aims to enhance financial stability by promoting effective banking supervision and ensuring consistent implementation of regulatory standards across countries. The committee consists of central bankers and banking supervisors from various countries and meets regularly to discuss and develop policies related to banking supervision.

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  • 3. 

    What is the other name(s) given to Non Performing assets?

    • A.

      Impaired Assets

    • B.

      Stressed Assets

    • C.

      Assets with well defined credit weakness

    • D.

      Underperfoming assets

    • E.

      A & B & C above

    Correct Answer
    E. A & B & C above
    Explanation
    The other names given to Non Performing Assets are Impaired Assets, Stressed Assets, and Assets with well-defined credit weakness. These terms are used interchangeably to refer to assets that are not generating the expected level of income or are at risk of defaulting on their payments.

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  • 4. 

    What is the option available for computing capital on market risks?

    • A.

      Standardised Approach

    • B.

      Basic Indicator Approach

    • C.

      Standardised Duration Approach

    • D.

      Standardised Duration Approach

    • E.

      Health Code System

    Correct Answer
    C. Standardised Duration Approach
    Explanation
    The correct answer is Standardised Duration Approach. This approach is one of the options available for computing capital on market risks. It involves calculating the capital requirement based on the duration of the assets and liabilities of a financial institution. The duration measures the sensitivity of the value of these assets and liabilities to changes in interest rates. By using the Standardised Duration Approach, financial institutions can assess and manage their exposure to market risks more effectively.

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  • 5. 

    An asset which becomes NPA as soon as it is disbursed is known as

    • A.

      Quick NPA

    • B.

      Short Mortality Account

    • C.

      Immortality Account

    • D.

      Immature Asset

    • E.

      Quick Mortality Account

    Correct Answer
    E. Quick Mortality Account
    Explanation
    A "Quick Mortality Account" refers to an asset that becomes a non-performing asset (NPA) as soon as it is disbursed. This means that the asset fails to generate the expected income or repayment within a short period of time after being disbursed. The term "quick mortality" suggests that the asset quickly deteriorates in terms of its performance or value, leading to its classification as an NPA.

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  • 6. 

    What is the maturity period of innovative instruments raised as Tier I capital?

    • A.

      Perpetual

    • B.

      5 years

    • C.

      Short Term equivalent to the maximum maturity of Treasury Bill

    • D.

      5 years with an enxtension of another 5 years

    • E.

      7 years

    Correct Answer
    A. Perpetual
    Explanation
    The correct answer is perpetual. Perpetual instruments have no fixed maturity date and can be considered as a form of permanent capital. They do not have to be repaid by the issuer, and they provide a stable source of funding for the issuer. In the context of Tier I capital, perpetual instruments are often used as a means of raising capital for banks and financial institutions.

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  • 7. 

    What are the elements of Tier I Capital?

    • A.

      Paid-up equity capital, statutory reserves, and other disclosed free reserves, if any

    • B.

      Capital reserves representing surplus arising out of sale proceeds of assets

    • C.

      Innovative perpetual debt instruments eligible for inclusion in Tier 1 capital, which comply with the regulatory require

    • D.

      Perpetual Non-Cumulative Preference Shares (PNCPS), which comply with the regulatory requirements

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The elements of Tier I Capital include paid-up equity capital, statutory reserves, and other disclosed free reserves, if any. It also includes capital reserves representing surplus arising out of sale proceeds of assets. Additionally, innovative perpetual debt instruments eligible for inclusion in Tier 1 capital, which comply with the regulatory requirements, and perpetual Non-Cumulative Preference Shares (PNCPS), which also comply with the regulatory requirements, are part of Tier I Capital. Therefore, all the options mentioned in the question are correct elements of Tier I Capital.

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  • 8. 

    What is a consolidated Bank?

    • A.

      A Group of Banks

    • B.

      A Group of entities where a licensed bank is the controlling entity

    • C.

      A Group of Banks likely to be merged

    • D.

      State Bank of India

    • E.

      Indian Banks Association

    Correct Answer
    B. A Group of entities where a licensed bank is the controlling entity
    Explanation
    A consolidated bank refers to a group of entities where a licensed bank is the controlling entity. In this structure, the licensed bank has control over the other entities within the group. This means that the licensed bank has the authority to make decisions and exercise control over the operations and activities of the other entities. This allows for centralized management and coordination of the group's banking activities, ensuring a unified approach and potentially greater efficiency in operations.

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  • 9. 

    Who is the counterparty in Bank credit transactions?

    • A.

      The person who stands across the counter to remit the EMI or part payment.

    • B.

      The third paty guarantor

    • C.

      The Co obligant

    • D.

      A party to whom a bank has an on- or off-balance sheet credit exposure.

    • E.

      The consultant who canvasses business

    Correct Answer
    D. A party to whom a bank has an on- or off-balance sheet credit exposure.
    Explanation
    The correct answer is "A party to whom a bank has an on- or off-balance sheet credit exposure." This means that the counterparty in bank credit transactions is the individual or entity that the bank has a credit exposure to, whether it is on their balance sheet or off their balance sheet. This could include borrowers, issuers of securities, or other entities that the bank has provided credit to.

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  • 10. 

    What are the various other risks not comprehensively covered under BASEL II norms?

    • A.

      Interest rate risk in the banking book and Credit concentration risk

    • B.

      Liquidity risk Settlement risk Reputational risk Strategic risk Risk of weakness in the credit-risk mitigants

    • C.

      Risk of under-estimation of credit risk under the Standardised approach

    • D.

      “Model risk” i.e., the risk of under-estimation of credit risk under the IRB approaches Residual risk of securitisation

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The correct answer is "All the above." This means that all the risks mentioned in the options, such as interest rate risk, credit concentration risk, liquidity risk, settlement risk, reputational risk, strategic risk, risk of weakness in credit-risk mitigants, risk of under-estimation of credit risk under the standardized approach, "model risk" or the risk of under-estimation of credit risk under the IRB approaches, and residual risk of securitization, are not comprehensively covered under BASEL II norms.

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  • 11. 

    What is a hair cut in Basel II?

    • A.

      A haircut is a percentage that is subtracted from the par value of the assets that are being used as collateral

    • B.

      The size of the haircut depends on the riskiness of the security offered as collateral

    • C.

      Deduction from Capital

    • D.

      Deduction from risk weight

    • E.

      A & B above

    Correct Answer
    E. A & B above
    Explanation
    A haircut in Basel II refers to a percentage that is deducted from the par value of assets used as collateral. The size of the haircut is determined by the riskiness of the security offered as collateral. This deduction from the par value helps to account for potential losses in case the value of the collateral decreases. Therefore, the correct answer is A & B above because both statements accurately describe the concept of a haircut in Basel II.

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  • 12. 

    In the comprehensive approach, when taking collateral, banks will need to calculate their adjusted exposure to a counterparty for capital adequacy purposes in order to take account of the effects of that collateral. Banks are required to adjust both the amount of the exposure to the counterparty and the value of any collateral received in support of that counterparty to take account of possible future fluctuations in the value of either, occasioned by market movements. These are referred as ______.

    • A.

      Cushions

    • B.

      Deductions

    • C.

      Discount

    • D.

      Haircut

    • E.

      Exemptions

    Correct Answer
    D. Haircut
    Explanation
    In the comprehensive approach, banks are required to adjust both the amount of exposure to a counterparty and the value of any collateral received to account for possible future fluctuations in value due to market movements. This adjustment is referred to as a "haircut". A haircut is a reduction in the value of an asset or collateral to reflect its potential risk or volatility. By applying haircuts, banks ensure that they have a sufficient cushion or buffer to absorb potential losses in case the value of the collateral or exposure decreases.

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  • 13. 

    What is PNCPS?

    • A.

      Perpetual Non-Cumulative Preference Shares

    • B.

      Preferred Non Cumulative Preference Shares

    • C.

      Prirority Non Credit Purchase System

    • D.

      Primary Novel Cash Purchase Scheme

    • E.

      None of the above

    Correct Answer
    A. Perpetual Non-Cumulative Preference Shares
    Explanation
    PNCPS stands for Perpetual Non-Cumulative Preference Shares. These are a type of preferred shares that do not have a fixed maturity date and do not accumulate dividends if they are not paid. They are considered a hybrid security, combining features of both equity and debt. These shares have a fixed dividend rate, which is paid regularly to the shareholders. However, if the company fails to pay the dividend, it does not accumulate and the shareholders do not have the right to claim the unpaid dividends in the future.

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  • 14. 

    In order to ensure a smooth transition to BASEL II,Banks are adivised to have a _______ ______ and the __________ of Banks should rview the results on a __________ basis.

    • A.

      Separate programme, results, annual

    • B.

      Parallel run, Board, Quarterly

    • C.

      Simple MIS , CMD, Monthly

    • D.

      Simulation tehnique, auditors, half yearly

    • E.

      None of the above

    Correct Answer
    B. Parallel run, Board, Quarterly
    Explanation
    Banks are advised to have a parallel run, where they run both the existing system and the new BASEL II system simultaneously to ensure a smooth transition. The Board of Banks should review the results of this parallel run on a quarterly basis to monitor and assess the progress and effectiveness of the transition.

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  • 15. 

    Revaluation Reserve will be considered at a _______ of __ % for inclusion in Tier-II Capital

    • A.

      Exchange , 0.25

    • B.

      Cap , 100%

    • C.

      Premium , 25

    • D.

      Discount , 55

    • E.

      None of the above

    Correct Answer
    D. Discount , 55
    Explanation
    Revaluation Reserve will be considered at a discount of 55% for inclusion in Tier-II Capital.

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  • 16. 

    Banks are allowed to include the ‘General Provisions on Standard Assets', Floating Provisions ‘Provisions held for Country Exposures’, and ‘Investment Reserve Account’ in Tier 2 capital. However, these four items will be admitted as Tier 2 capital up to a maximum of ____ percent of the total risk-weighted assets.

    • A.

      100%

    • B.

      2%

    • C.

      75%

    • D.

      50%

    • E.

      1.25%

    Correct Answer
    E. 1.25%
    Explanation
    Banks are allowed to include the 'General Provisions on Standard Assets', Floating Provisions 'Provisions held for Country Exposures', and 'Investment Reserve Account' in Tier 2 capital. However, these four items will be admitted as Tier 2 capital up to a maximum of 1.25% of the total risk-weighted assets.

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  • 17. 

    What is a hybrid debt capital instrument?

    • A.

      It is high yielding variety of capital

    • B.

      Created by artificial semanation techniques

    • C.

      A & B above

    • D.

      Which combine certain characteristics of equity and certain characteristics of debt

    • E.

      Quasi equity

    Correct Answer
    D. Which combine certain characteristics of equity and certain characteristics of debt
    Explanation
    A hybrid debt capital instrument is a financial instrument that combines certain characteristics of both equity and debt. This means that it possesses some features of equity, such as the potential for ownership or profit-sharing, as well as some features of debt, such as regular interest payments and a fixed maturity date. This combination allows investors to benefit from both equity-like upside potential and debt-like stability and income.

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  • 18. 

    When subordinated debt can be included in Tier II capital?

    • A.

      The instrument should be fully paid-up and unsecured

    • B.

      It should be subordinated to the claims of other creditors,free of restrictive clauses

    • C.

      They should not be redeemable at the initiative of the holder or without the consent of the Reserve Bank of India.

    • D.

      A & B above

    • E.

      A & C above

    Correct Answer
    E. A & C above
    Explanation
    Subordinated debt can be included in Tier II capital when it meets the following criteria: it should be fully paid-up and unsecured, and it should not be redeemable at the initiative of the holder or without the consent of the Reserve Bank of India. Therefore, the correct answer is A & C above.

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  • 19. 

    What is the maturity period of Subordinated debt for inclusion in Tier-II Capital?

    • A.

      Minimum five years

    • B.

      Residual maturity should bot be less than one year

    • C.

      Less Than five years and residual maturity less than 5 years

    • D.

      A & B above

    • E.

      A , B , C above

    Correct Answer
    E. A , B , C above
    Explanation
    The maturity period of Subordinated debt for inclusion in Tier-II Capital should be a minimum of five years. Additionally, the residual maturity should not be less than one year. Therefore, options A, B, and C are all correct as they include these requirements.

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  • 20. 

    What are the items to be deducted from Tier I capital?

    • A.

      Intangible assets and losses in the current period and those brought forward from previous periods should be deducted from Tier 1 capital

    • B.

      Good will

    • C.

      Investment in Subsidiaries

    • D.

      Other intangible Assets

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The items to be deducted from Tier I capital are goodwill, investment in subsidiaries, and other intangible assets. These deductions are necessary because they represent intangible assets and losses that cannot be easily converted into cash. By deducting these items from Tier I capital, a more accurate measure of a bank's financial strength and ability to absorb losses is obtained.

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  • 21. 

    What is the maturity period of innovative instruments raised as Tier I capital?

    • A.

      5 years

    • B.

      5 years with an option to extend by another 5 years

    • C.

      Perpetual

    • D.

      Short Term equivalent to the maximum maturity of Treasury Bill

    • E.

      None of the above

    Correct Answer
    C. Perpetual
    Explanation
    The maturity period of innovative instruments raised as Tier I capital is perpetual, meaning that there is no fixed maturity date. These instruments do not have a specific time frame for repayment and can be considered as a permanent source of capital for the issuer.

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  • 22. 

    The innovative instrument in excess of 15% of Total Tier I capital should be treated as

    • A.

      Other Time Liability

    • B.

      As Tier II Capital

    • C.

      Subject to limits prescribed for Tier 2 capital

    • D.

      B & C above

    • E.

      All the above

    Correct Answer
    D. B & C above
    Explanation
    The innovative instrument in excess of 15% of Total Tier I capital should be treated as Tier II Capital and subject to limits prescribed for Tier 2 capital. This means that any innovative instrument that exceeds 15% of Total Tier I capital should be classified as Tier II capital and must adhere to the limits set for Tier 2 capital. This ensures that there are appropriate regulations and restrictions in place for these instruments to maintain the stability and integrity of the financial system.

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  • 23. 

    What is the rate of interest payable on the innovative instruments?

    • A.

      At a fixed rate

    • B.

      Or at a floating rate referenced to a market determined rupee interest benchmark rate

    • C.

      Bench Mark Prime Lending Rate (BPLR)

    • D.

      Bank Rate

    • E.

      A & B above

    Correct Answer
    E. A & B above
    Explanation
    The rate of interest payable on the innovative instruments can be either at a fixed rate or at a floating rate referenced to a market determined rupee interest benchmark rate. This means that the instruments can have a predetermined interest rate or have an interest rate that fluctuates based on market conditions. Both options are available for the innovative instruments.

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  • 24. 

    What are the available options under innovative instruments?

    • A.

      Call Option

    • B.

      Put Option

    • C.

      American Option

    • D.

      European Option

    • E.

      In the Money or Out of the Money Option

    Correct Answer
    A. Call Option
    Explanation
    The available options under innovative instruments include Call Option, Put Option, American Option, European Option, and In the Money or Out of the Money Option. A Call Option is a financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a specific time period. It allows investors to profit from an increase in the price of the underlying asset.

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  • 25. 

    While exercising the call option, what are the conditions to be satisfied?

    • A.

      After the instrument has run for at least ten years

    • B.

      Call option shall be exercised only with the prior approval of RBI (Department of Banking Operations & Development).

    • C.

      There should not have been any default in payment of interest

    • D.

      There should not be a run on Banks during this period

    • E.

      A & B above

    Correct Answer
    E. A & B above
    Explanation
    The correct answer is A & B above. In order to exercise the call option, two conditions must be satisfied. Firstly, the instrument must have run for at least ten years. Secondly, the call option can only be exercised with the prior approval of RBI (Department of Banking Operations & Development). The other two options, no default in payment of interest and no run on Banks, are not conditions that need to be satisfied for exercising the call option.

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  • 26. 

    What RBI will look into when the Banks application for the exercise of call option reach them for a decision?

    • A.

      CRAR at the time of Call Option

    • B.

      CRAR after exercise of the call option

    • C.

      Net Interest Margin

    • D.

      Return on Assets

    • E.

      A & B above

    Correct Answer
    E. A & B above
    Explanation
    The RBI will look into the CRAR at the time of the call option and the CRAR after the exercise of the call option, as these are important indicators of the bank's financial health and ability to meet its obligations. The CRAR (Capital to Risk-Weighted Assets Ratio) measures the bank's capital adequacy and its ability to absorb losses, while the Net Interest Margin measures the bank's profitability. The Return on Assets indicates the bank's efficiency in generating profits from its assets. Therefore, the RBI will consider both the CRAR at the time of the call option and the CRAR after the exercise of the call option to make an informed decision.

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  • 27. 

    What other option can be exercised by Banks at the time of Call Option?

    • A.

      None

    • B.

      Foreclosure

    • C.

      Step Up Option

    • D.

      Step Down

    • E.

      Conversion

    Correct Answer
    C. Step Up Option
    Explanation
    Banks have the option to exercise a "Step Up Option" at the time of a Call Option. This means that they can increase the interest rate or other terms of a loan or investment. This option allows the bank to adjust the terms of the agreement to better suit their needs or to reflect changes in the market. It gives the bank flexibility and the ability to protect their interests in the event of changing circumstances.

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  • 28. 

    When Issuing Bank need not pay interest in case of Innovative Debt Instruments?

    • A.

      If the bank’s CRAR is below the minimum regulatory requirement prescribed by RBI

    • B.

      If the impact of such payment results in bank’s capital to risk assets ratio (CRAR) falling below or remaining below the minimum regulatory requirement prescribed by Reserve Bank of India

    • C.

      A & B above

    • D.

      Payment of Interest cannot be defaulted

    • E.

      Payment of Interest can be deferred

    Correct Answer
    C. A & B above
    Explanation
    If the bank's CRAR (Capital to Risk Assets Ratio) is below the minimum regulatory requirement prescribed by RBI (Reserve Bank of India), it means that the bank does not have enough capital to cover its risk assets. In such a situation, the bank may not be able to afford paying interest on the innovative debt instruments. Additionally, if the payment of interest would further decrease the bank's CRAR or keep it below the minimum requirement, the bank may choose not to pay interest in order to maintain regulatory compliance. Therefore, both options A and B provide valid reasons for the issuing bank not paying interest in case of innovative debt instruments.

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  • 29. 

    Banks may still pay interest under innovative debt instruments with the prior approval of RBI when the impact of such payment may result in net loss or increase the net loss, provided the CRAR remains _____ the regulatory norm.

    • A.

      Equal to regulatory norm

    • B.

      Above

    • C.

      Below

    • D.

      Plus or Minus the regulatory norm by 5%

    • E.

      None of the above

    Correct Answer
    B. Above
    Explanation
    Banks may still pay interest under innovative debt instruments with the prior approval of RBI when the impact of such payment may result in net loss or increase the net loss, provided the CRAR remains above the regulatory norm. This means that even if the payment of interest on these debt instruments leads to a net loss for the bank, it is still allowed as long as the Capital to Risk-Weighted Assets Ratio (CRAR) remains higher than the regulatory norm set by the RBI.

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  • 30. 

    Payment of interest under innovative debt instrument on a ________ basis.

    • A.

      Regular

    • B.

      Irregular

    • C.

      Cumulative

    • D.

      Non Cumulatice

    • E.

      Alternative

    Correct Answer
    D. Non Cumulatice
    Explanation
    The correct answer is "Non Cumulative" because it indicates that the interest payment is not accumulated or added to the principal amount. In a non-cumulative debt instrument, the interest is paid periodically, usually at fixed intervals, and does not compound over time. This means that each interest payment is treated separately and does not contribute to the overall balance of the debt.

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  • 31. 

    What are the claims of the investors in innovative instruments?

    • A.

      Superior to the claims of investors in equity shares

    • B.

      Subordinated to the claims of all other creditors

    • C.

      Subordinated to the International claims of all other creditors

    • D.

      A & B above

    • E.

      Subordinated to the Sovereign Claim

    Correct Answer
    D. A & B above
    Explanation
    The claims of the investors in innovative instruments are both superior to the claims of investors in equity shares and subordinated to the claims of all other creditors. This means that the investors in innovative instruments have a higher priority in receiving payment compared to equity shareholders, but their claims are still lower in priority compared to other creditors.

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  • 32. 

    The total amount raised by a bank through innovative instruments shall not be reckoned as liability for calculation of net demand and time liabilities for the purpose of _______ requirements and, as such, will not attract ___ / ___ requirements.

    • A.

      Reserve , CRR/ SLR

    • B.

      Reserve, Repo/Reverse Repo

    • C.

      Quantitative, Rate/Bank Rate

    • D.

      Qualitative, Credit Control

    • E.

      All the above

    Correct Answer
    A. Reserve , CRR/ SLR
    Explanation
    The total amount raised by a bank through innovative instruments shall not be reckoned as liability for calculation of net demand and time liabilities for the purpose of Reserve requirements and, as such, will not attract CRR/SLR requirements.

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  • 33. 

    A bank's investment in innovative instruments issued by other banks and Financial institutions will be reckoned along with the investment in other instruments eligible for capital status while computing compliance with the overall ceiling of __ percent for cross-holding of capital among banks/FIs prescribed.

    • A.

      10

    • B.

      15

    • C.

      25

    • D.

      40

    • E.

      None of the above

    Correct Answer
    A. 10
    Explanation
    A bank's investment in innovative instruments issued by other banks and financial institutions will be included in the calculation of compliance with the overall ceiling of 10 percent for cross-holding of capital among banks/FIs prescribed. This means that the bank's investment in these innovative instruments will be considered as part of its total investment in eligible instruments for capital status, and it cannot exceed 10 percent of the overall ceiling.

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  • 34. 

    What is the amount of loan that can be granted against innovative instruments?

    • A.

      25% of Face Value of the instruments

    • B.

      25% of The Maturity Value of the instrument

    • C.

      25% of Market Value of the instrument

    • D.

      25% of the YTM value of instrument

    • E.

      No loan can be granted

    Correct Answer
    E. No loan can be granted
    Explanation
    The question asks about the amount of loan that can be granted against innovative instruments. The given options suggest different percentages of the value of the instrument. However, the correct answer is "No loan can be granted." This means that there is no specific amount of loan that can be granted against innovative instruments.

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  • 35. 

    How the step-up option can be exercised under innovative perpetual instruments?

    • A.

      Can be exercised only once during the whole life of the instrument

    • B.

      In conjunction with the call option

    • C.

      After the lapse of ten years from the date of issue

    • D.

      The step-up shall not be more than 100 bps

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The step-up option can be exercised under innovative perpetual instruments by following all of the mentioned conditions. It can only be exercised once during the entire lifespan of the instrument, in conjunction with the call option. The step-up option can be exercised after ten years have passed since the date of issue. Additionally, the step-up rate cannot exceed 100 basis points.

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  • 36. 

    Market Discipline is all about ----------

    • A.

      Disclosures

    • B.

      Procedures

    • C.

      Practices

    • D.

      Principles

    • E.

      Ethics

    Correct Answer
    A. Disclosures
    Explanation
    Market discipline refers to the mechanism by which market participants, such as investors and creditors, use information and disclosures provided by companies to make informed decisions. In this context, disclosures play a crucial role as they provide transparency and accountability, allowing market participants to evaluate the financial health and performance of a company. By providing relevant and accurate information, disclosures enable market discipline by empowering investors and creditors to assess risks and make informed decisions about their investments. Therefore, the correct answer is "Disclosures".

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  • 37. 

    Expand SREP

    • A.

      Supervisory Review and Evaluation Process

    • B.

      Special Regulatory Enabling Provision

    • C.

      Special Regional Economic Package

    • D.

      Systems Regulated Embedded Package

    • E.

      None of the above

    Correct Answer
    A. Supervisory Review and Evaluation Process
    Explanation
    The correct answer is "Supervisory Review and Evaluation Process." This is the most appropriate explanation because SREP is a commonly used acronym in the financial industry to refer to the supervisory review and evaluation process. This process is conducted by regulatory authorities to assess the financial soundness and risk management practices of banks and other financial institutions. It involves evaluating various aspects such as capital adequacy, risk management, governance, and internal controls. Therefore, this explanation aligns with the commonly understood meaning of SREP.

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  • 38. 

    What is ICAAP?

    • A.

      Internal Capital Adequacy Assessment Process

    • B.

      Institute of Chartered Accountants Accounting Procedures

    • C.

      Institute of Cost Accountants Accounting Practices

    • D.

      Internal Capital Adequacy Actuarial Practices

    • E.

      None of the above

    Correct Answer
    A. Internal Capital Adequacy Assessment Process
    Explanation
    ICAAP stands for Internal Capital Adequacy Assessment Process. It is a process that financial institutions use to assess their capital needs and ensure that they have enough capital to withstand potential risks and losses. This process involves identifying and measuring risks, determining the appropriate level of capital needed to mitigate those risks, and regularly reviewing and updating the capital adequacy plan. The ICAAP helps institutions to maintain financial stability and comply with regulatory requirements.

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  • 39. 

    What are the four key principles in regard to the Supervisory Review Process envisaged under Pillar 2?

    • A.

      Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels

    • B.

      Supervisors should review and evaluate the banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with the regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process

    • C.

      Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require the banks to hold capital in excess of the minimum.

    • D.

      Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The correct answer is "All the above" because all four principles mentioned in the options are key principles in regard to the Supervisory Review Process under Pillar 2. These principles include banks having a process for assessing their capital adequacy and maintaining their capital levels, supervisors reviewing and evaluating banks' internal assessments and strategies, supervisors expecting banks to operate above minimum regulatory capital ratios, and supervisors intervening early and requiring remedial action if capital is not maintained or restored.

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  • 40. 

    What are the various other risks not comprehensively covered under BASEL II norms?

    • A.

      Interest rate risk in the banking book and Credit concentration risk

    • B.

      Liquidity risk Settlement risk Reputational risk Strategic risk Risk of weakness in the credit-risk mitigants

    • C.

      “Model risk” i.e., the risk of under-estimation of credit risk under the IRB approaches Residual risk of securitisation

    • D.

      Risk of under-estimation of credit risk under the Standardised approach

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The correct answer is "All the above" because all the risks mentioned in the options are risks that are not comprehensively covered under BASEL II norms. These risks include interest rate risk in the banking book, credit concentration risk, liquidity risk, settlement risk, reputational risk, strategic risk, risk of weakness in credit-risk mitigants, model risk, residual risk of securitization, and risk of under-estimation of credit risk under both the IRB approaches and the standardized approach. Therefore, all of these risks are not fully addressed by BASEL II norms.

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  • 41. 

    Which committee recommended Income Recognition and Asset Classification norms?

    • A.

      Dr Manmohan Singh Committee

    • B.

      P Chidambaram Commmittee

    • C.

      S S Tarapore Committee

    • D.

      Robin Cook Committee

    • E.

      Narasimham Committee

    Correct Answer
    E. Narasimham Committee
    Explanation
    The Narasimham Committee is known for recommending various reforms in the Indian banking sector. One of their key recommendations was the implementation of Income Recognition and Asset Classification norms. These norms were introduced to ensure that banks accurately classify their assets and recognize income based on the actual repayment status of borrowers. This helps in maintaining the financial stability of banks and improves transparency in the banking system.

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  • 42. 

    When an asset becomes non-performing?

    • A.

      When it fails to generate any income for the borrower

    • B.

      When it fails to generate any income forthe Bank

    • C.

      When it is dead

    • D.

      When there is no performance in the unit

    • E.

      When the Bank declares the asset as non performing

    Correct Answer
    B. When it fails to generate any income forthe Bank
  • 43. 

    What is out of order status in NPA accounts?

    • A.

      An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power

    • B.

      In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period

    • C.

      I f such accounts are not renewed within 180 days from the due date

    • D.

      All the above

    • E.

      A & B above A & B above

    Correct Answer
    E. A & B above A & B above
    Explanation
    An account is considered 'out of order' in NPA accounts if the outstanding balance exceeds the sanctioned limit or drawing power continuously. Additionally, if the outstanding balance is below the sanctioned limit but there have been no credits for 90 days or the credits are insufficient to cover the interest debited during the same period, the account is also considered 'out of order'. Therefore, the correct answer is A & B above, which includes both scenarios.

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  • 44. 

    What is overdue?

    • A.

      2 monthly dues arrears

    • B.

      3 monthly dues arrears

    • C.

      Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.

    • D.

      6 monthly dues arrears

    • E.

      Depends upon the repayment fixation

    Correct Answer
    C. Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
    Explanation
    The correct answer explains that any amount due to the bank under any credit facility is considered 'overdue' if it is not paid on the due date determined by the bank. This means that if a payment is not made on time according to the bank's set due date, it is considered overdue.

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  • 45. 

    What is the method of recognizing income in advance accounts?

    • A.

      Accrual basis

    • B.

      Actual record of recovery

    • C.

      Actuarial basis

    • D.

      Accounting Standard basis

    • E.

      Case to case to basis

    Correct Answer
    B. Actual record of recovery
    Explanation
    The method of recognizing income in advance accounts is based on the actual record of recovery. This means that income is recognized when it is actually received or when there is a reasonable expectation of receiving it. This method ensures that income is not recognized until it is earned and can be reliably measured. It is a conservative approach that helps to accurately reflect the financial position of a business.

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  • 46. 

    Even if there is no recovery, on what type of advances income can be recognized?

    • A.

      Advances against term deposits, NSCs, IVPs, KVPs and Life policies

    • B.

      However adequate Margin should be available in such accounts

    • C.

      Fees and commissions earned by the banks as a result of re­negotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered by the re­negotiated or rescheduled extension of credit.

    • D.

      All the above

    • E.

      A & B above

    Correct Answer
    D. All the above
    Explanation
    The correct answer is "All the above" because income can be recognized on advances against term deposits, NSCs, IVPs, KVPs, and life policies, as well as fees and commissions earned through re-negotiations or rescheduling of outstanding debts. However, it is important that there is adequate margin available in such accounts. Therefore, all of the options mentioned in the answer are valid for recognizing income in these cases.

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  • 47. 

    Where the finance charge component of finance income is defined?

    • A.

      NI Act

    • B.

      Sch of Charges

    • C.

      Notes on Accounts

    • D.

      AS 19 of ICAI

    • E.

      All the above

    Correct Answer
    D. AS 19 of ICAI
    Explanation
    The correct answer is AS 19 of ICAI. AS 19, or Accounting Standard 19, is a guideline provided by the Institute of Chartered Accountants of India (ICAI) that specifically deals with the recognition and measurement of finance income and finance charges. It provides the definition and criteria for determining the finance charge component of finance income. Therefore, AS 19 is the appropriate source to refer to when defining the finance charge component of finance income.

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  • 48. 

    If interest is debited to the NPA account, where it should be parked?

    • A.

      Interest Suspense Account

    • B.

      Any Proforma Account like undebited interest

    • C.

      Banks can use their discretion

    • D.

      Banks can use their discretiion to choose either A or B

    • E.

      None of the above

    Correct Answer
    D. Banks can use their discretiion to choose either A or B
    Explanation
    When interest is debited to the NPA account, it means that the account is not generating enough income to cover the interest expense. In such cases, banks have the discretion to park the interest in either the Interest Suspense Account or a Proforma Account like undebited interest. The choice between A and B depends on the bank's internal policies and procedures.

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  • 49. 

    What are the items to be deducted from Gross NPAs to arrive at Net NPAs?

    • A.

      Balance in Interest Suspense Account

    • B.

      DICGC/ECGC claims received and held, pending adjustment

    • C.

      Part payment received and kept in Sundry creditors account pending adjustment

    • D.

      Total provisions held

    • E.

      All the above

    Correct Answer
    E. All the above
    Explanation
    The items to be deducted from Gross NPAs to arrive at Net NPAs include the balance in Interest Suspense Account, DICGC/ECGC claims received and held pending adjustment, part payment received and kept in Sundry creditors account pending adjustment, and total provisions held. All of these deductions are necessary to calculate the accurate value of Net NPAs.

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  • 50. 

    While deducting provisions from Gross NPAs what are the items to be excluded?

    • A.

      Technical write off

    • B.

      Provision on standard assets

    • C.

      Recovery in Writtenn off accounts

    • D.

      A & B above

    • E.

      A & B & C above

    Correct Answer
    D. A & B above
    Explanation
    The correct answer is A & B above. When deducting provisions from Gross NPAs, the items to be excluded are Technical write off and Provision on standard assets. Recovery in Written off accounts should not be excluded as it is a part of the recovery process for the written off accounts.

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 18, 2009
    Quiz Created by
    Rajatvk
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