Exercise Quiz & Test – 26


1. Which of the following is NOT a correct statement?
a. Interest rates on unsecured loans is higher than the secured loans
b. Mortgage Loan is a kind of secured loan
c. Credit Card is a kind of secured loan
d. Unsecured loans are given out on the basis of credit worthiness of the borrowers

Answer & Solution
c. Credit Card is a kind of secured loan
* In unsecured loans, the borrowers assets are not pledged as collateral. Examples of such loans are personal loans, education loans, credit cards etc. They are given out on the basis of credit worthiness of the borrowers.

2. “No Risk, No reward”. This quote is most closely associated with__?
a. Risk Diversification
b. Collateral Damage
c. Risk-return trade-off
d. None of the above

Answer & Solution
c. Risk-return trade-off
* The principle of Risk-return trade-off says that higher the potential return, higher is the risk. Low risk is associated with low potential returns, whereas high risk is associated with high potential returns.

3. In which among the following accounts, no cheque book is issued?
a. Minor Account
b. Joint Account
c. Illiterate Account
d. Non Resident Account

Answer & Solution
Illiterate Account
* Illiterate accounts are opened on discretion of the banks if the person personally goes to the bank along with a witness already known to the bank and the depositor. No cheque books are issued for such accounts. Any withdrawal is done by a thumb impression of the depositor in presence of the bank officer who is able to verify the identity

4. What is the priority sector loan target has been given to the foreign banks operating in India in terms of agriculture loans?
a. 32%
b. 15%
c. 21%
d. No specific target

Answer & Solution
No specific target
* In total loans, their target is fixed at 32%. There is no specific target for agricultural loans.

5. Which among the following are often described as Double Financial Repression for Banks in India?
a. Priority Sector Loans and Cash Reserve Ratio
b. Priority Sector Loans and Statutory Liquidity Ratio
c. Cash Reserve Ratio and Statutory Liquidity Ratio
d. Statutory Liquidity Ratio and Margin Requirements

Answer & Solution
Priority Sector Loans and Statutory Liquidity Ratio
* Priority Sector lending in India has been made a salient feature of the banking in India mainly due to the social and economic objectives that underlie PSL. However, banks are also required to keep certain amount to maintain Statutory Liquidity Ratio ( SLR) and from the remaining disposable amount, 40 per cent is dedicated for the priority sector. Thus, large fraction of banks’ resources cause the so called “Double Repression” on the banking system.

6. In banking language, which among the following is called Contingent Liability of the banks?
a. Fund based lending
b. Non fund based lending
c. Priority sector lending
d. Statutory pre-emptions

Answer & Solution
Non fund based lending
* In Non-fund based lending, bank does not make any funds outlay but only gives assurance. The “letter of credit” and “bank guarantees” fall into the category of non-funding loans. The non-funding loan can be converted to a fund-based advance if the client fails to fulfil the term of contract with the counterparty. In banking language, the non-funding advances are called Contingent Liability of the banks.

7. In terms of agricultural loans in India, the short term credit refers to the loans made for a period less than __:
a. 1 year
b. 15 Months
c. 18 Months
d. 24 Months

Answer & Solution
b. 15 Months
* In case of agriculture loans, there are three types of loans viz. Short term (tenure 5 years).

8. To call a loan NPA, the interest or instalment of principal should remain overdue for a minimum period of more than __?
a. 60 Days
b. 90 Days
c. 120 Days
d. 180 Days

Answer & Solution
90 Days
* According to RBI, terms loans on which interest or instalment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non- performing Asset.

9. What is the loan limit for education under Priority Sector Lending (PSL) for studying in India and abroad respectively?
a. Rs. 20 lakh, Rs. 10 Lakh
b. Rs. 10 lakh, Rs. 20 Lakh
c. Rs. 25 lakh, Rs. 25 Lakh
d. Rs. 20 lakh, Rs. 25 Lakh

Answer & Solution
Rs. 10 lakh, Rs. 20 Lakh
* Under Priority Sector Lending (PSL), the loans and advances granted to only individuals for educational purposes up to Rs.10 lakh for studies in India and Rs. 20 lakh for studies abroad.

10. Who monitors Priority Sector Lending (PSL) in commercial banks?
a. Reserve Bank of India (RBI)
b. Small Industries Development Bank of India (SIDBI)
c. National Bank for Agriculture and Rural Development (NABARD)
d. Government of India (GOI)

Answer & Solution
Reserve Bank of India (RBI)
* The priority sector lending by commercial banks is monitored by Reserve Bank of India (RBI) through periodical returns received from them.