Bank Promotion Exam Quiz: Trivia!

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  • 1/80 Questions

    What is BCBS?

    • Basle Committee on Banking Supervision
    • Bank of Commerce Bumiputra Shd
    • Banking Companies Binary Software
    • Bilingual Committee on Banking Supervision
    • None of the above
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About This Quiz

This quiz prepares candidates for bank promotion exams, covering BASEL II norms, BCBS, non-performing assets, market risks, and Tier I capital.

Bank Promotion Exam Quiz: Trivia! - Quiz

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  • 2. 

    What is the present delinquency norm for identifying an advance as NPA?

    • 30 days

    • 60 days

    • 90 days

    • 180 days

    • 360 days

    Correct Answer
    A. 90 days
    Explanation
    The present delinquency norm for identifying an advance as NPA is 90 days. This means that if a borrower fails to make loan repayments for a period of 90 days or more, the loan is classified as a non-performing asset (NPA). This classification indicates that the borrower is at a high risk of defaulting on the loan and the lender may need to take necessary actions to recover the outstanding amount.

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  • 3. 

    What is PNCPS?

    • Perpetual Non-Cumulative Preference Shares

    • Preferred Non Cumulative Preference Shares

    • Prirority Non Credit Purchase System

    • Primary Novel Cash Purchase Scheme

    • 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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  • 4. 

    What is overdue?

    • 2 monthly dues arrears

    • 3 monthly dues arrears

    • 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.

    • 6 monthly dues arrears

    • Depends upon the repayment fixation

    Correct Answer
    A. 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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  • 5. 

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

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

    • Good will

    • Investment in Subsidiaries

    • Other intangible Assets

    • All the above

    Correct Answer
    A. 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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  • 6. 

    Expand SREP

    • Supervisory Review and Evaluation Process

    • Special Regulatory Enabling Provision

    • Special Regional Economic Package

    • Systems Regulated Embedded Package

    • 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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  • 7. 

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

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

    • 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

    • A & B above

    • Payment of Interest cannot be defaulted

    • Payment of Interest can be deferred

    Correct Answer
    A. 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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  • 8. 

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

    • Interest rate risk in the banking book and Credit concentration risk

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

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

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

    • All the above

    Correct Answer
    A. 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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  • 9. 

    What is NBV?

    • Net Block Value

    • Net Banking Value

    • Non Banking Value

    • Net Book Value (i.e., book value less provisions held)

    • None of the above

    Correct Answer
    A. Net Book Value (i.e., book value less provisions held)
    Explanation
    NBV stands for Net Book Value, which refers to the value of an asset after deducting any provisions that have been set aside for potential losses or depreciation. This value is calculated by subtracting the provisions held from the book value of the asset. Therefore, the correct answer is Net Book Value (i.e., book value less provisions held).

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  • 10. 

    What are the claims of the investors in innovative instruments?

    • Superior to the claims of investors in equity shares

    • Subordinated to the claims of all other creditors

    • Subordinated to the International claims of all other creditors

    • A & B above

    • Subordinated to the Sovereign Claim

    Correct Answer
    A. 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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  • 11. 

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

    • 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

    • 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

    • 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.

    • 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.

    • All the above

    Correct Answer
    A. 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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  • 12. 

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

    • Balance in Interest Suspense Account

    • DICGC/ECGC claims received and held, pending adjustment

    • Part payment received and kept in Sundry creditors account pending adjustment

    • Total provisions held

    • All the above

    Correct Answer
    A. 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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  • 13. 

    What is a hair cut in Basel II?

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

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

    • Deduction from Capital

    • Deduction from risk weight

    • A & B above

    Correct Answer
    A. 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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  • 14. 

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

    • CRAR at the time of Call Option

    • CRAR after exercise of the call option

    • Net Interest Margin

    • Return on Assets

    • A & B above

    Correct Answer
    A. 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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  • 15. 

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

    • After the instrument has run for at least ten years

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

    • There should not have been any default in payment of interest

    • There should not be a run on Banks during this period

    • A & B above

    Correct Answer
    A. 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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  • 16. 

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

    • Quick NPA

    • Short Mortality Account

    • Immortality Account

    • Immature Asset

    • Quick Mortality Account

    Correct Answer
    A. 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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  • 17. 

    What are the stages, at which the restructuring/rescheduling/renegotiation of the terms of the loan agreement could take place?

    • Before commencement of commercial production

    • After commencement of commercial production and after the asset has been classified as sub standard.

    • The rescheduling, etc., of principal and/or of interest could take place, with or without sacrifice

    • After commencement of commercial production and before the asset has been classified as sub standard.

    • All the above

    Correct Answer
    A. All the above
    Explanation
    The restructuring/rescheduling/renegotiation of the terms of a loan agreement can take place at various stages. It can occur before the commencement of commercial production, after the commencement of commercial production and after the asset has been classified as substandard, and also after the commencement of commercial production but before the asset has been classified as substandard. In all these stages, the principal and/or interest of the loan can be rescheduled or restructured, with or without any sacrifice. Therefore, all the options mentioned above are correct stages at which the restructuring/rescheduling/renegotiation of the loan agreement can occur.

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  • 18. 

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

    • Interest rate risk in the banking book and Credit concentration risk

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

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

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

    • All the above

    Correct Answer
    A. 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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  • 19. 

    What is ICAAP?

    • Internal Capital Adequacy Assessment Process

    • Institute of Chartered Accountants Accounting Procedures

    • Institute of Cost Accountants Accounting Practices

    • Internal Capital Adequacy Actuarial Practices

    • 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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  • 20. 

    Which committee recommended Income Recognition and Asset Classification norms?

    • Dr Manmohan Singh Committee

    • P Chidambaram Commmittee

    • S S Tarapore Committee

    • Robin Cook Committee

    • Narasimham Committee

    Correct Answer
    A. 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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  • 21. 

    Colllateral immovable property should be got valued once in ___________ years.

    • 2

    • 3

    • 4

    • 5

    • 6

    Correct Answer
    A. 3
    Explanation
    Collateral immovable property should be valued once in every three years. This is important to ensure that the property's value is accurately assessed and updated periodically. By getting the property valued regularly, the lender can have a clear understanding of its current market value, which is crucial for determining the loan amount or assessing the overall risk associated with the collateral. Additionally, regular valuations help in identifying any changes or damages to the property that may affect its value.

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  • 22. 

    What are the elements of Tier I Capital?

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

    • Capital reserves representing surplus arising out of sale proceeds of assets

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

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

    • All the above

    Correct Answer
    A. 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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  • 23. 

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

    • 5 years

    • 5 years with an option to extend by another 5 years

    • Perpetual

    • Short Term equivalent to the maximum maturity of Treasury Bill

    • None of the above

    Correct Answer
    A. 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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  • 24. 

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

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

    • In conjunction with the call option

    • After the lapse of ten years from the date of issue

    • The step-up shall not be more than 100 bps

    • All the above

    Correct Answer
    A. 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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  • 25. 

    When an asset becomes non-performing?

    • When it fails to generate any income for the borrower

    • When it fails to generate any income forthe Bank

    • When it is dead

    • When there is no performance in the unit

    • When the Bank declares the asset as non performing

    Correct Answer
    A. When it fails to generate any income forthe Bank
  • 26. 

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

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

    • However adequate Margin should be available in such accounts

    • 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.

    • All the above

    • A & B above

    Correct Answer
    A. All the above
    Explanation
    Income can be recognized on advances against term deposits, NSCs, IVPs, KVPs, and life policies, as well as on fees and commissions earned by banks through re-negotiations or rescheduling of outstanding debts. However, it is important to ensure that there is adequate margin available in such accounts. Therefore, the correct answer is "All the above" as all the mentioned types of advances can generate income that can be recognized.

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  • 27. 

    On What basis, Banks can sell NPAs to another Bank?

    • Cash Basis

    • Accrual basis

    • Sans Recourse basis

    • With recourse

    • A & C above

    Correct Answer
    A. A & C above
    Explanation
    Banks can sell non-performing assets (NPAs) to another bank on a cash basis and sans recourse basis. Selling on a cash basis means that the transaction is settled in cash, while selling on a sans recourse basis means that the purchasing bank assumes the risk and responsibility for the NPA and the selling bank is not liable for any losses. Therefore, the correct answer is A & C above.

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  • 28. 

    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.

    • Separate programme, results, annual

    • Parallel run, Board, Quarterly

    • Simple MIS , CMD, Monthly

    • Simulation tehnique, auditors, half yearly

    • None of the above

    Correct Answer
    A. 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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  • 29. 

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

    • At a fixed rate

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

    • Bench Mark Prime Lending Rate (BPLR)

    • Bank Rate

    • A & B above

    Correct Answer
    A. 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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  • 30. 

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

    • Impaired Assets

    • Stressed Assets

    • Assets with well defined credit weakness

    • Underperfoming assets

    • A & B & C above

    Correct Answer
    A. 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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  • 31. 

    What is a consolidated Bank?

    • A Group of Banks

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

    • A Group of Banks likely to be merged

    • State Bank of India

    • Indian Banks Association

    Correct Answer
    A. 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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  • 32. 

    What is a hybrid debt capital instrument?

    • It is high yielding variety of capital

    • Created by artificial semanation techniques

    • A & B above

    • Which combine certain characteristics of equity and certain characteristics of debt

    • Quasi equity

    Correct Answer
    A. 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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  • 33. 

    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.

    • Reserve , CRR/ SLR

    • Reserve, Repo/Reverse Repo

    • Quantitative, Rate/Bank Rate

    • Qualitative, Credit Control

    • 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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  • 34. 

    The Income Recognition Asset Classification Provisioning and Capital Adequacy norms replaced the earlier _____________

    • Pendharkar Committee Norms

    • Health Code-­based system for classification of advances

    • Secretarial Return Forms

    • Credit Administration Forms (CAF)

    • Audit Return Forms (AR)

    Correct Answer
    A. Health Code-­based system for classification of advances
    Explanation
    The correct answer is the Health Code-based system for classification of advances. The Income Recognition Asset Classification Provisioning and Capital Adequacy norms replaced the earlier system of classifying advances based on health codes. This means that the previous method of categorizing advances according to their health status was replaced by the new norms.

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  • 35. 

    For the purpose of asset classification, the accounts are to be tackled.

    • Borrowerwise

    • Facilitywise

    • Individual Accountwise

    • Liabilitywise

    • None of the above

    Correct Answer
    A. Borrowerwise
    Explanation
    The correct answer is "Borrowerwise" because for the purpose of asset classification, the accounts are classified based on the borrower. This means that each borrower's accounts are analyzed and categorized separately to assess their creditworthiness and potential risk. By classifying the accounts borrowerwise, it becomes easier to evaluate the overall financial health and repayment capacity of each individual borrower.

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  • 36. 

    When the NPA buying Bank can once again sell it to another Bank?

    • After 15 months of holding the same in their books

    • At any time

    • But should not sell it back to the Bank from whom it was purchased

    • All the above

    • A & C above

    Correct Answer
    A. A & C above
    Explanation
    The correct answer is A & C above because according to the given information, the NPA buying Bank can sell it to another Bank after holding it in their books for 15 months. Additionally, they should not sell it back to the Bank from whom it was purchased. Therefore, both options A and C are correct.

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  • 37. 

    The institutions have also a right of ____________ of their debt into equity when they are participating in the restructure exercise. What is this right?

    • Conversion

    • Reissue

    • Preferential issue

    • Recompense

    • None of the above

    Correct Answer
    A. Conversion
    Explanation
    The institutions have the right of conversion of their debt into equity when they are participating in the restructure exercise. This means that they can convert the amount of debt owed to them into shares or ownership in the company. This allows the institutions to become shareholders and potentially benefit from any future growth or success of the company.

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  • 38. 

    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 ______.

    • Cushions

    • Deductions

    • Discount

    • Haircut

    • Exemptions

    Correct Answer
    A. 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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  • 39. 

    When the assets are to be classified as Loss Assets straightaway?

    • If the available value of realisable security is less than 10% of the loan oustanding

    • If the available value of realisable security is less than 20% of the loan oustanding

    • If the available value of realisable security is less than 50% of the loan oustanding

    • If the available value of realisable security is less than 75% of the loan oustanding

    • If the available value of realisable security is less than 100% of the loan oustanding

    Correct Answer
    A. If the available value of realisable security is less than 10% of the loan oustanding
    Explanation
    Assets are classified as Loss Assets straightaway when the available value of realisable security is less than 10% of the loan outstanding. This means that if the value of the security that can be recovered is very low compared to the amount of the loan, the assets are immediately classified as loss assets. This indicates that the loan is unlikely to be recovered and the assets are considered to be a loss for the lender.

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  • 40. 

    Banks can not reschedule /restructure /renegotiate borrowal accounts with _______________ effect

    • Prospective

    • Immediate

    • Contingent

    • Future

    • Retrospective

    Correct Answer
    A. Retrospective
    Explanation
    Banks cannot reschedule/restructure/renegotiate borrowal accounts with retrospective effect. This means that they cannot make changes to the terms and conditions of a loan agreement that apply to a period of time that has already passed. They can only make changes that apply to future periods.

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  • 41. 

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

    • Perpetual

    • 5 years

    • Short Term equivalent to the maximum maturity of Treasury Bill

    • 5 years with an enxtension of another 5 years

    • 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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  • 42. 

    Who is the counterparty in Bank credit transactions?

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

    • The third paty guarantor

    • The Co obligant

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

    • The consultant who canvasses business

    Correct Answer
    A. 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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  • 43. 

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

    • Disclosures

    • Procedures

    • Practices

    • Principles

    • 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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  • 44. 

    For the advances under Consortium Arrangements, how will you arrive at the NPA status?

    • As per Leader Bank's Classification

    • Based on the record of recovery of the individual member banks

    • Depends upon the classification of 75% of the member Banks

    • As per Borrower's Auditor's observation

    • As per RBI Inspector's observation

    Correct Answer
    A. Based on the record of recovery of the individual member banks
    Explanation
    The NPA status under Consortium Arrangements will be determined based on the record of recovery of the individual member banks. This means that each member bank's ability to recover loans will be assessed to determine if the loan has become a Non-Performing Asset (NPA). The NPA status is not dependent on the classification of 75% of the member banks, the Borrower's Auditor's observation, or the RBI Inspector's observation.

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  • 45. 

    When erosion in the value of security can be reckoned as significant to classify such an account straightaway as "Doubtful"?

    • 10 %

    • 20 %

    • 30 %

    • 40 %

    • 50 %

    Correct Answer
    A. 50 %
    Explanation
    When erosion in the value of security reaches 50%, it is considered significant enough to classify the account as "Doubtful". This means that the value of the security has decreased by half, indicating a high level of risk and uncertainty regarding the recovery of the funds.

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  • 46. 

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

    • Exchange , 0.25

    • Cap , 100%

    • Premium , 25

    • Discount , 55

    • None of the above

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

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  • 47. 

    What is the provisioning to be made for Country Risk?

    • 0.25%

    • 100%

    • 0.25% to 100% on a graded Scale

    • According to Country Risk

    • C & D above

    Correct Answer
    A. C & D above
    Explanation
    The provisioning to be made for Country Risk is 0.25% to 100% on a graded scale, according to Country Risk. This means that the amount of provisioning required will vary depending on the level of risk associated with a particular country. The provision can range from as low as 0.25% to as high as 100% based on the risk assessment. Therefore, both options C and D, which state the same answer, are correct.

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  • 48. 

    The difference in assessment in the value of securities among Bank,Borrower,Auditor and Valuer is known as

    • Convergence

    • Deviation

    • Difference

    • Divergence

    • Emergence

    Correct Answer
    A. Divergence
    Explanation
    Divergence refers to the difference in assessment of the value of securities among different parties such as the bank, borrower, auditor, and valuer. It indicates that these parties have varying opinions or evaluations regarding the value of the securities. This difference in assessment can arise due to various factors such as differing methodologies, information asymmetry, or subjective judgments.

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  • 49. 

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

    • Other Time Liability

    • As Tier II Capital

    • Subject to limits prescribed for Tier 2 capital

    • B & C above

    • All the above

    Correct Answer
    A. 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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Quiz Review Timeline (Updated): Mar 22, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

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