Test: Commercial Banks - CA Foundation MCQ

• One year: Land Development Bank does not provide loans for just one year.


• Two to five years: This is also not the period for which the bank provides loans.


• Five to seven years: Loans are not provided for this duration by the Land Development Bank.


• Fifteen to twenty years: This is the correct option. Land Development Bank provides loans for a period of fifteen to twenty years.

• Land Development Bank offers longer loan periods to accommodate the needs of individuals and businesses looking to develop real estate.


• By providing loans for fifteen to twenty years, borrowers have more flexibility in repaying the loan amount over a longer period.


• This longer loan period can be beneficial for projects that require substantial investment and time to generate returns.


• Borrowers should carefully consider the terms and conditions of the loan before committing to ensure they can meet the repayment schedule over the extended period.

• Issue of letter of credit: Modern banks do perform this function. A letter of credit is a financial tool used in international trade to provide a guarantee from a bank that a seller will receive payment for goods or services.



• Publishing of statistics: Modern banks do perform this function. Banks often publish statistics related to their financial performance, market trends, and economic indicators to provide transparency and guidance to stakeholders.



• Handing of Foreign Exchange Reserves: Modern banks do not typically perform this function. Handling foreign exchange reserves is usually the responsibility of central banks or government agencies tasked with managing a country's foreign currency reserves.



• Conducting Enquiry Survey: Modern banks may perform this function to gather information about customer preferences, satisfaction levels, and market trends to improve their products and services.

Therefore, the correct answer is C: Handing of Foreign Exchange Reserves, as this function is not typically performed by modern banks.

• Merging of Presidential Banks: The Imperial Bank of India was established by merging three Presidential banks in 1922.


• The Three Banks: The three banks that were merged to form the Imperial Bank of India were the Bank of Bengal, the Bank of Bombay, and the Bank of Madras.


• Role of the British Government: The establishment of the Imperial Bank of India was authorized by the British government to streamline banking operations in British India.


• Headquarters: The headquarters of the Imperial Bank of India was located in Mumbai, Maharashtra.


• Significance: The formation of the Imperial Bank of India played a crucial role in the development of banking infrastructure in colonial India.

• Background: In 1969, the Government of India under Prime Minister Indira Gandhi took a significant step towards socialistic banking reforms by nationalizing banks.


• Number of Banks: The government nationalized a total of 14 banks on July 19, 1969.


• Reasons for Nationalization: The main reasons cited for the nationalization were to expand the banking sector's reach to rural areas, promote financial inclusion, and prevent the concentration of economic power in the hands of a few.


• Impact: The nationalization of banks in 1969 led to a significant increase in banking services' accessibility and availability to the masses, especially in rural and semi-urban areas.


• Legacy: The move to nationalize banks in 1969 had a lasting impact on India's banking sector and laid the foundation for future banking reforms in the country.

• Rural employment: Bharat Nirman Programme aims to create employment opportunities in rural areas by focusing on infrastructure development.


• Rural housing: The programme also includes initiatives to provide housing facilities for the rural population.


• Rural water supply: Another key component of the Bharat Nirman Programme is to improve access to clean drinking water in rural areas.


• Irrigation facilities: The programme also focuses on enhancing irrigation facilities to support agricultural activities in rural regions.


• It covers all the above areas: While the Bharat Nirman Programme covers rural employment, housing, water supply, and irrigation facilities, it does not specifically focus on rural employment as it is covered under other schemes and programmes.

• Definition of Priority Sector Lending: Priority sector lending refers to the lending of a certain percentage of a bank's funds to specific sectors identified by the central bank as crucial for the development of the economy.


• Percentage of Total Bank Lending: In India, priority sector lending constitutes about 40% of total bank lending. This means that banks are required to allocate a significant portion of their funds to priority sectors such as agriculture, micro, small and medium enterprises (MSMEs), education, housing, and other sectors identified by the Reserve Bank of India (RBI).


• Importance of Priority Sector Lending: Priority sector lending is essential for promoting inclusive growth and ensuring that the benefits of economic development reach all sections of society. By channeling funds to priority sectors, banks can support the development of vital sectors that are often underserved by traditional banking channels.


• RBI Guidelines: The RBI periodically reviews and updates the guidelines for priority sector lending to ensure that banks meet their targets and contribute effectively to the growth and development of the economy.

• National Bank for Agriculture and Rural Development (NABARD): NABARD was established in 1982 by the Government of India. Its main objective is to provide credit for agriculture and other economic activities in rural areas at a lower rate of interest.


• Financing Rural Projects: NABARD finances various rural projects such as agriculture, small-scale industries, cottage and village industries, handicrafts, and other rural crafts.


• Role in Rural Development: NABARD plays a crucial role in promoting sustainable and equitable agriculture and rural development through various schemes and programs.


• Rural Credit: NABARD also supervises and regulates the functioning of Cooperative Banks and Regional Rural Banks (RRBs) to ensure adequate flow of credit to rural areas.


• Interest Rates: NABARD provides refinance facilities to Cooperative Banks and RRBs at a concessional rate of interest, which enables them to offer loans to farmers and rural entrepreneurs at affordable rates.

Section 17(5) of the RBI Act, 1934 authorises the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”

• Step 1: Identify the correct number of branch offices of commercial banks in 2012.


• Step 2: Examine the options provided:




• Option A: 65,000


• Option B: 65,500


• Option C: 98,591


• Option D: 69,500




• Step 3: Compare the options with the actual number of branch offices.


• Step 4: Choose the option that matches the correct number.


• Step 5: The correct number of branch offices of commercial banks in 2012 is 98,591.


• Step 6: Therefore, the answer is Option C: 98,591.

• Definition: The bank rate is the rate at which the central bank discounts the bills of commercial banks.


• Significance: It is a tool used by the central bank to control the money supply in the economy.


• Impact on economy: A change in the bank rate affects the cost of borrowing for commercial banks, which in turn affects the lending rates for businesses and individuals.


• Relation to monetary policy: The bank rate is an important tool in the central bank's monetary policy toolkit, along with other tools like the CRR and SLR.

• Number of Banks in India at Independence: 645


• Reasoning: The number of banks in India at the time of independence was 645. This was a significant number considering the economic and financial landscape of the country at that time.


• Importance: The presence of a substantial number of banks played a crucial role in the development of India's banking sector post-independence.


• Impact: The banking industry in India has come a long way since independence, with numerous banks now operating in the country, offering a wide range of financial services to the population.

• Option A: 1913


• Option B: 1917


• Option C: 1894


• Option D: 1881

• Option A: 1913 - This is not the correct founding year of Oudh Commercial Bank.


• Option B: 1917 - This is not the correct founding year of Oudh Commercial Bank.


• Option C: 1894 - This is not the correct founding year of Oudh Commercial Bank.


• Option D: 1881 - This is the correct founding year of Oudh Commercial Bank.

Therefore, the correct answer is option D: 1881.

• Background: The nationalisation of 6 commercial banks in India was a significant event in the country's banking history.


• Date: The nationalisation took place in the year 1980.


• Reasons: The main reasons behind the nationalisation of banks in India were to ensure better control over credit delivery, promote financial inclusion, and prevent the concentration of economic power in the hands of a few private entities.


• Banks Nationalised: The 6 commercial banks that were nationalised in 1980 were Punjab National Bank, Allahabad Bank, Canara Bank, Indian Bank, Bank of India, and Bank of Baroda.


• Impact: The nationalisation of banks played a crucial role in expanding banking services to rural and semi-urban areas, promoting economic development, and ensuring the stability of the financial system in India.

• Quantitative control: Quantitative control affects indiscriminately all sectors of the economy. It involves controlling the quantity of money in circulation, interest rates, and credit availability to achieve economic objectives.


• Credit control: Credit control is a type of quantitative control that regulates the availability of credit in the economy. It can be used to control inflation, stimulate economic growth, or stabilize the economy.


• Margin requirement: Margin requirement is a form of quantitative control that sets the minimum amount of collateral required for a transaction. It is commonly used in financial markets to control risk and leverage.


• None of these: This option is incorrect as quantitative control does affect all sectors of the economy.

• Total number of villages: 5.6 lakh


• Number of villages served by commercial banks: 5000

• Out of the 5.6 lakh villages in India, only 5000 villages are served by commercial banks.


• This means that a very small percentage of villages have access to banking facilities provided by commercial banks.


• Commercial banks play a crucial role in providing financial services to rural areas, and it is important to increase their reach to more villages.


• The lack of banking facilities in rural areas can hinder the economic development of these regions, as access to credit, savings, and other financial services is essential for growth.

• Definition: Quantitative methods of control effects indiscriminately all sectors of the economy. This method involves the use of various tools such as interest rates, reserve requirements, and open market operations to regulate the money supply.


• Impact on Economy: When quantitative methods are used, they affect all sectors of the economy uniformly, without targeting specific industries or regions. This can lead to broad changes in economic activity, inflation, and employment.


• Examples: Some examples of quantitative methods include raising or lowering interest rates to control inflation or stimulate economic growth, changing reserve requirements for banks to influence lending, and buying or selling government securities in the open market to adjust the money supply.


• Advantages: Quantitative methods are often used by central banks to quickly and decisively impact the economy as a whole. They can be effective in times of crisis or when broad economic changes are needed.


• Disadvantages: However, the indiscriminate nature of quantitative methods can also lead to unintended consequences. For example, raising interest rates to control inflation may also slow down economic growth or increase unemployment.

• State: Maharashtra


• Reasoning: Maharashtra has a robust banking system with a high number of branches and financial institutions, resulting in a higher deposit mobilization compared to other states.


• Factors: Factors contributing to Maharashtra's lead in deposit mobilization include a strong economy, higher per capita income, urbanization, industrialization, and a large population of high net-worth individuals.


• Banking Infrastructure: The state has a well-established banking infrastructure with a wide network of branches of both public and private sector banks, facilitating easy access to banking services for the population.


• Government Initiatives: The state government has also taken initiatives to promote financial inclusion and banking services among the rural and underserved areas, further boosting deposit mobilization.

• A total of 6 banks were nationalized in 1980.

• Nationalization was done to ensure better control over the banking sector.


• It aimed to promote financial inclusion and provide banking services to all sections of society.

• Nationalization led to the expansion of banking services in rural and remote areas.


• It helped in mobilizing savings and channelizing funds for development projects.

• The government played a crucial role in the nationalization process to regulate and monitor the banking sector.


• It ensured that the nationalized banks followed policies that aligned with national interests.

• CRR (Cash Reserve Ratio): Central banks control the credit in the economy by setting the Cash Reserve Ratio. CRR is the percentage of total deposits that banks have to keep with the central bank in the form of reserves. By changing the CRR, the central bank can control the amount of money that banks can lend to borrowers. Increasing CRR reduces the amount of money available for lending, thus reducing credit in the economy.


• SLR (Statutory Liquidity Ratio): Another tool used by central banks to control credit is the Statutory Liquidity Ratio. SLR is the percentage of total deposits that banks have to invest in government securities. By changing the SLR, the central bank can influence the liquidity position of banks and control the credit flow in the economy. Increasing SLR reduces the amount of funds available for lending, thereby tightening credit in the economy.


• Both CRR and SLR: Central banks often use a combination of CRR and SLR to manage credit in the economy effectively. By adjusting these ratios, central banks can regulate the flow of credit, control inflation, and ensure financial stability in the economy.

• Total Bank Branches in India in June 2006: Let's assume the total number of bank branches in India in June 2006 is 1000.


• Rural Bank Branches: Rural bank branches constituted 44% of the total bank branches in India in June 2006.


• Calculation: 44% of 1000 = (44/100) x 1000 = 440 rural bank branches.

• Rural Bank Branches Percentage: Rural bank branches constitute 44% of the total bank branches in India in June 2006.


• Correct Answer: C: 44

Therefore, the correct answer is option C: 44%. This means that out of every 100 bank branches in India in June 2006, 44 were rural bank branches.

• Definition of Bad and doubtful banks: Bad and doubtful banks are scheduled commercial banks that have a high amount of nonperforming assets.


• Nonperforming assets: These are assets that are classified as nonperforming when the borrower has stopped making interest or principal payments.


• Signs of bad and doubtful banks: These banks may have a high level of nonperforming assets, which can indicate financial instability and potential insolvency.


• Impact on the banking system: Bad and doubtful banks can pose a risk to the overall banking system as they may struggle to recover their assets and meet their financial obligations.


• Regulatory intervention: Regulators may step in to address the issues faced by bad and doubtful banks to prevent any systemic risks and protect the interests of depositors and the financial system as a whole.

• Financial Intermediation: Banks play a crucial role in the economy by mobilising savings from individuals and businesses and channeling these funds towards productive investments.


• Capital Formation: By accepting deposits and mobilising savings, banks contribute to the overall capital formation in the economy, which is essential for economic growth and development.


• Interest Income: Banks offer interest on savings deposits, providing an incentive for individuals to save their money rather than keeping it idle. This interest income is an important source of revenue for banks.


• Financial Stability: Mobilising savings helps banks maintain liquidity and financial stability. By having a pool of funds from deposits, banks can meet the withdrawal demands of depositors and support lending activities.


• Investment Opportunities: Banks use the savings they mobilise to provide loans and credit to individuals, businesses, and governments, thereby facilitating investment and economic activity.

• Control Inflation: By selling securities, RBI reduces the money supply in the market, which helps in controlling inflation by increasing the cost of borrowing.


• Stabilize Currency: Selling securities can help in stabilizing the currency value by reducing the money supply and increasing the demand for the currency.


• Attract Foreign Investment: Higher interest rates make domestic investments more attractive, which can attract foreign investors looking for higher returns.


• Boost Savings: Increased interest rates encourage saving as people can earn higher returns on their savings, which can lead to a boost in overall savings in the economy.

• Option A: 50,00,000 crores


• Option B: 48,50,000 crores


• Option C: 35,00,000 crores


• Option D: 47,00,000 crores

• Given Options:




• A: 50,00,000 crores


• B: 48,50,000 crores


• C: 35,00,000 crores


• D: 47,00,000 crores




• Answer: Option A - 50,00,000 crores

• Based on the given options, the bank lending in December, 2012 was 50,00,000 crores.


• This amount is the highest among all the options provided.


• Therefore, Option A is the correct answer for the bank lending amount in December, 2012.

Banking Ombudsman is a senior official appointed by the Reserve Bank of India(RBI) or a quasi (nominal) judicial authority functioning under India’s Banking Ombudsman Scheme 2006. Banking Ombudsman has the responsibility to resolve customer complaints against deficiency in banking services. At present 15 Ombudsmen have been appointed in state capitals by the RBI to settle customer complaints relating to banking services.