MCQ Test: Banking Sector Reforms- 2 - Bank Exams MCQ

The correct answer is (B) State Bank of India Act, 1963. The State Bank of India Act, 1963, is not directly related to banking regulation. While it is an important legislation governing the establishment and functioning of the State Bank of India (SBI), it specifically pertains to the State Bank of India and not to the broader banking regulation in India.

On the other hand, the other options mentioned in the question, namely the Banking Laws Act, 1963, and the RBI Amendment Act, 2006, are directly related to banking regulation:

A) The Banking Laws Act, 1963, is an act that consolidates and amends various banking laws in India. It provides a comprehensive framework for the regulation and functioning of banks in the country.

C) The RBI Amendment Act, 2006, refers to the amendment made to the Reserve Bank of India Act, 1934. This amendment act introduced various changes and enhancements to the regulatory framework governing the Reserve Bank of India (RBI), India's central banking institution.

Therefore, option (B) is the correct answer as it is not an act directly related to banking regulation, unlike the other options.

The correct answer is (A) Narsimham Committee. The Narsimham Committee, officially known as the Committee on the Financial System, was appointed by the Government of India in 1991 to assess and recommend reforms for the Indian financial sector.
One of the key recommendations made by the Narsimham Committee was related to public sector banks. The committee recommended that public sector banks should be given greater autonomy and be operated as independent entities. This would allow them to function with more flexibility, make business decisions based on commercial considerations, and operate in a competitive environment.
The committee emphasized the need for public sector banks to be free from excessive government interference and to be run on professional lines. This recommendation aimed to improve the efficiency and performance of public sector banks, enabling them to compete with private sector banks and contribute to the overall development of the Indian banking sector.
Therefore, the Narsimham Committee recommended that public sector banks should be free and autonomous, marking an important step towards reforming the Indian banking system.

The correct answer is (C) 1997. The Central Board of Banking Fraudulence (CBBF) was established by the Finance Minister of India in the year 1997.
The CBBF was formed to address the growing concern of banking frauds in India and to strengthen the measures for fraud detection, prevention, and resolution in the banking sector. The establishment of the CBBF aimed to centralize the efforts to combat banking fraud and coordinate the actions of various agencies involved in tackling financial frauds.
The board's primary objective is to enhance the effectiveness of the banking system in dealing with fraud-related issues and ensure that appropriate actions are taken against individuals or entities involved in fraudulent activities. It works towards creating a robust framework for fraud risk management and implementing best practices to safeguard the interests of banks and their customers.
By establishing the Central Board of Banking Fraudulence, the government demonstrated its commitment to address and combat banking frauds effectively, thereby strengthening the integrity and stability of the banking sector in India.

The correct answer is (C) 1995. The Banking Ombudsman Scheme was introduced by the Reserve Bank of India (RBI) in 1995.
The Banking Ombudsman Scheme is a mechanism provided by the RBI to address and resolve customer complaints against banking services and practices. It serves as an independent and impartial forum for customers to seek redressal for their grievances with banks, without having to approach the courts.
Under the scheme, the RBI appoints Banking Ombudsmen who are responsible for handling and resolving customer complaints related to various aspects of banking services such as deposits, loans, credit cards, remittances, etc. The ombudsman's role is to facilitate a fair and prompt resolution of complaints through mediation and conciliation between the customer and the bank.
The introduction of the Banking Ombudsman Scheme has provided a convenient and accessible avenue for customers to seek resolution for their complaints without the need for prolonged legal processes. It has played a significant role in enhancing customer protection and improving the standards of customer service in the Indian banking sector.

The correct answer is (C) Sharia. Islamic banking is banking or banking activity that is consistent with the principles of Sharia, which is the Islamic legal framework based on the teachings of the Quran and the Hadith (sayings and actions of Prophet Muhammad).

Islamic banking operates on the principles of Islamic finance, which prohibits the charging or receiving of interest (riba) and promotes ethical and socially responsible financial practices. Instead of traditional interest-based transactions, Islamic banking utilizes principles such as profit-sharing (Mudarabah), cost-plus financing (Murabaha), leasing (Ijarah), and partnership (Musharakah) to facilitate financial transactions.

The primary objective of Islamic banking is to conduct banking activities in a manner that aligns with Islamic principles, which include avoiding interest-based transactions, promoting risk-sharing, and ensuring ethical conduct in financial dealings. Islamic banking institutions adhere to specific guidelines and governance frameworks to ensure compliance with Sharia principles.

It is important to note that Islamic banking is primarily practiced in countries with a significant Muslim population, although it has also gained some recognition and adoption in non-Muslim-majority countries as an alternative banking system that offers ethical and Sharia-compliant financial services.

The correct answer is (C) Urban areas. The Reserve Bank of India (RBI) allows banks to merge, shift, or close branches in urban areas.

The RBI regulates and supervises the banking sector in India, including the branch network of banks. While banks are required to maintain a certain number of branches in rural and semi-rural areas to promote financial inclusion and access to banking services in underserved areas, they have more flexibility in managing their branch network in urban areas.

Banks can make decisions regarding the merger, shifting, or closure of branches in urban areas based on factors such as business strategies, customer demand, operational efficiency, and market conditions. The RBI provides guidelines and regulations to ensure that such decisions are taken in a prudent manner and do not adversely affect the interests of customers or banking operations.

It is important to note that while banks have more flexibility in urban areas, they still need to comply with the RBI's regulatory framework and obtain necessary approvals or permissions before implementing any significant changes in their branch network.

The correct answer is (D) 40%. The Reserve Bank of India (RBI) panel on priority sector lending proposed an increment in the target for foreign banks to 40%.
The priority sector refers to certain sectors of the economy that require special attention and support from banks to promote inclusive and equitable growth. The RBI sets specific targets for banks to allocate a certain percentage of their lending to priority sectors, which include agriculture, micro and small enterprises, education, housing, and other socio-economic sectors.
In the case of foreign banks operating in India, the RBI panel recommended increasing the target for lending to priority sectors from the existing level to 40%. This proposal aimed to ensure that foreign banks contribute adequately to the development and welfare of the priority sectors in line with the broader policy objectives of promoting inclusive growth and financial inclusion in India.
It is worth noting that the proposal made by the RBI panel is subject to the RBI's final approval and implementation.

The correct answer is (E) Nachiket Mor. The "Committee on Comprehensive Financial Services for Small Businesses and Low Income Households" was set up by the Reserve Bank of India (RBI) under the chairmanship of Nachiket Mor.

The committee was formed with the objective of examining the issues and challenges related to providing comprehensive financial services to small businesses and low-income households in India. It aimed to identify the gaps in the existing financial ecosystem and propose recommendations to enhance access to financial services for these underserved segments of the population.

Nachiket Mor, a prominent figure in the Indian financial sector, led the committee and played a crucial role in analyzing the financial needs and constraints of small businesses and low-income households. The committee's recommendations aimed to promote financial inclusion, improve access to credit, and enhance the overall financial well-being of these marginalized sections of society.

The committee's report, commonly known as the Nachiket Mor Committee Report, provided valuable insights and recommendations for policymakers and regulators in formulating strategies to foster financial inclusion and expand the reach of financial services to underserved segments in India.

The correct answer is (E) MB Shah. Prime Minister Narendra Modi's government did indeed order the formation of a Special Investigation Team (SIT) to investigate black money. The SIT was headed by retired Supreme Court judge MB Shah.

The SIT on black money was established in 2014 with the aim of investigating and combating the issue of black money and illicit funds, both within India and held abroad. The team was responsible for coordinating and supervising the investigation and enforcement efforts of various government agencies in relation to black money.

Under the leadership of MB Shah, the SIT worked to identify and take necessary actions against individuals and entities involved in black money activities, including tax evasion, money laundering, and illegal overseas holdings. The SIT submitted periodic reports to the government detailing its findings and recommendations for further actions to tackle the black money problem.

The formation of the SIT demonstrated the government's commitment to addressing the issue of black money and strengthening efforts to curb illicit financial activities.

The correct answer is (C) NK Singh committee. The committee constituted to give recommendations on Fiscal Responsibility and Budget Management (FRBM) is the NK Singh committee.

The NK Singh committee, officially known as the Committee on Review of the FRBM Act, was set up by the Government of India in 2016. The committee was chaired by NK Singh, a former bureaucrat and Member of Parliament.

The objective of the committee was to review the existing FRBM framework and provide recommendations for enhancing fiscal discipline, ensuring fiscal sustainability, and improving the quality of public expenditure in India. The committee examined various aspects of fiscal policy, including the fiscal deficit targets, debt management, and fiscal rules.

The NK Singh committee submitted its report to the government in 2017, containing its findings and recommendations for reforms in the FRBM framework. The report proposed changes to the fiscal deficit targets, fiscal rules, and institutional mechanisms for fiscal governance.

The committee's recommendations played a significant role in shaping the subsequent amendments to the FRBM Act and guiding fiscal policy in India.

The correct answer is C) NPA, which stands for Non-Performing Asset. According to the Reserve Bank of India (RBI), loans that have not received interest payments or principal repayments for a period exceeding 90 days from the end of a particular quarter are categorized as Non-Performing Assets. In other words, when borrowers fail to make timely payments on their loans, those loans are considered non-performing. The classification of loans as NPAs indicates a higher level of risk for the lending institution and can have implications for the borrower and the overall banking system.

The correct answer is B) 30 days. The Sarfaesi Act amendment bill 2016 introduced provisions to expedite the recovery process for secured creditors. According to the amendment, the District Magistrate is required to assist in the recovery process and ensure that it is completed within 30 days. This amendment aimed to streamline and accelerate the recovery of dues by providing a time-bound framework for the resolution of defaulted loans, thereby strengthening the rights of secured creditors in India.

The correct answer is D) Sarfaesi Act, 2002. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is considered an effective tool for bad loan recovery in India. The act empowers banks and financial institutions to take possession of collateral assets and sell them to recover outstanding loans in the event of default by the borrower. It provides a legal framework for faster and more efficient resolution of non-performing assets (NPAs) and enables lenders to enforce their security interests without the intervention of the court. The Sarfaesi Act has been instrumental in improving the recovery of bad loans and reducing the burden of NPAs on banks and financial institutions.

The correct answer is D) All of the above. All three banks mentioned, State Bank of India (SBI), Oriental Bank of Commerce (OBC), and Bank of India (BOI), have entered the capital market in response to the recommendations made by the Narasimham Committee. The Narasimham Committee, formed in 1991 under the chairmanship of M. Narasimham, made several recommendations to reform the Indian banking sector. One of the key recommendations was for public sector banks to raise capital from the market to strengthen their financial position. Following these recommendations, SBI, OBC, and BOI entered the capital market by issuing shares to raise additional funds and enhance their capital base.

The correct answer is A) Reduction of CRR and SLR. The Narsimham Committee, formed in 1991, made various recommendations to reform the Indian banking sector. However, the specific recommendation of reducing the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) was not a part of their recommendations. The CRR is the portion of deposits that banks are required to keep with the central bank, while the SLR is the percentage of certain assets that banks must maintain in the form of liquid assets. The Narsimham Committee's recommendations focused on phasing out directed credit programs, reducing the Capital Adequacy Ratio, establishing an Asset Reconstruction Fund (ARF), and providing autonomy to public sector banks.