NEW SET OF 100 MULTIPLE-CHOICE QUESTIONS (MCQs) – DISTINCT FROM

PREVIOUS SET

Below is a fresh set of 100 questions (with four options each), covering the same syllabus
areas from Modules 3, 4, and 6 without repeating the questions used previously. Correct
answers are bolded.

MODULE 3: LAW OF BANKING REGULATIONS

A. Regulation of Banking Operations, Social Control, and Nationalization

1. Which of the following was a major aim of the Banking Regulation Act, 1949?
a) To replace the Companies Act for all financial institutions
b) To consolidate and regulate banking practices for public interest
c) To create multiple private banks
d) To eliminate public sector banks
2. The key legislative intervention that introduced ‘social control’ on Indian banks
occurred in:
a) 1955
b) 1968
c) 1980
d) 1991
3. Which phrase best captures the essence of social control over banks prior to
nationalization?
a) Promoting only large corporates
b) Steering credit towards priority sectors and preventing economic
concentration
c) Encouraging speculation in foreign markets
d) Privatizing all banks
4. Bank nationalization in 1969 effectively shifted ownership from private hands to:
a) Local municipalities
b) The Government of India
c) Trust-run bodies
d) RBI employees
5. Which outcome was expected from the first wave of bank nationalization?
a) Greater branch expansion into semi-urban and rural areas
b) Huge cutback on rural lending
c) Reduced deposit mobilization
d) Elimination of RBI regulations
6. The second wave of nationalization (1980) was primarily justified on grounds of:
a) Adopting free-market principles
b) Furthering financial inclusion and catering to underbanked areas
c) Privatizing older banks
d) Liquidating weaker banks
7. Which among these was a direct result of the government’s social control
measure?
a) Complete autonomy to private banks
 b) Mandating that bank boards represent broader public interests
c) Stopping all new branch openings
d) Cutting all priority sector loans
8. One reason for the shift from total state control to a regulated approach by the
RBI was to:
a) Reduce the role of banking in the economy
b) Privatize PSU banks en masse
c) Balance socio-economic goals with efficiency and market principles
d) Dissolve the deposit insurance scheme
9. Social control measures were codified in:
a) Companies (Social) Act, 1956
b) Reserve Bank of India Amendment Act, 1934
c) Negotiable Instruments Act, 1881
d) Banking Laws (Amendment) Act, 1968
10. Which statement is TRUE about the impact of social control on banking?
a) It led to immediate privatization of banks
b) It restricted the RBI’s authority
c) It removed the concept of priority sector lending
d) It laid groundwork for ensuring banks serve larger societal needs

B. Licensing of Banking Activities (Section 22 of the BR Act, RBI Guidelines)

11. Section 22 stipulates that no company can carry on banking business unless:
a) It holds a license from the Reserve Bank of India
b) It has capital of Rs. 1 crore
c) It is recommended by the central government
d) The Supreme Court permits it
12. Under RBI guidelines, new private banks must commonly demonstrate:
a) Zero foreign shareholding
b) No rural branch obligations
c) Adequate capital, fit-and-proper promoters, and a viable business plan
d) Only a commitment to urban lending
13. Which of the following is a core reason for RBI to deny a banking license?
a) The bank plans to operate in multiple states
b) The bank name is too generic
c) The bank’s board has finance experts
d) The applicant’s affairs are detrimental to depositor interests
14. When granting a license, RBI primarily checks:
a) The location of the proposed bank’s cafeteria
b) Whether the company is or will be in a position to pay its depositors in full
c) If the bank can issue insurance policies
d) If the government recommends certain shareholders
15. A non-operative financial holding company (NOFHC) structure is introduced to:
a) Merge NBFCs with banks
b) Ring-fence the bank from other group businesses and simplify regulation
c) Bypass RBI’s capital norms
d) Reserve the bank’s profits only for promoters
 16. In applying for a banking license, the promoter group must usually:
a) Be from a single background (e.g., real estate)
b) Have no net worth requirements
c) Have adequate net worth and track record of financial soundness
d) Guarantee 100% FDIC coverage
17. If a bank carries on business without a valid RBI license:
a) It is considered unlawful under Section 22 of the BR Act
b) It automatically becomes an NBFC
c) It is protected under the Companies Act
d) It can only serve corporate clients
18. ‘Fit and proper’ test by RBI includes checks on:
a) Physical fitness of top managers
b) Language proficiency
c) Integrity, experience, and financial capability
d) Politically influential backgrounds
19. RBI may revoke a banking license if:
a) The bank has too many rural branches
b) The bank fails to comply with conditions of the license or mismanages
depositors’ funds
c) Depositors are earning high interest
d) The board changes management structure
20. The licensing process ensures:
a) Only sound institutions with adequate capital and governance can accept
public deposits
b) Every applicant automatically gets a license
c) RBI has no oversight once the license is issued
d) The bank remains unregulated post-licensing

C. Capital, Reserve, and Liquid Asset Requirements

21. Capital adequacy requirements protect against:

a) Insolvency risk and ensure depositor protection
b) Excessive marketing expenditure
c) High management salaries
d) Board reappointments
22. The Basel framework primarily addresses:
a) Insurance coverage
b) Consumer grievance mechanisms
c) Minimum capital requirements and risk management for banks
d) E-payments alone
23. Tier 1 capital under Basel norms generally comprises:
a) Borrowings from external markets
b) Equity capital, disclosed reserves, intangible premium on shares
c) Revaluation reserves alone
d) Government grants only
24. The ratio that compares a bank’s regulatory capital to its risk-weighted assets is
known as:
a) Capital to Risk Weighted Assets Ratio (CRAR)
 b) Net Interest Margin (NIM)
c) Statutory Liquidity Ratio (SLR)
d) Current Ratio
25. SLR (Statutory Liquidity Ratio) mandates banks to hold liquid assets in the
form of:
a) Corporate bonds only
b) Overseas investments
c) Precious metals exclusively
d) Cash, gold, and government securities
26. CRR (Cash Reserve Ratio) requires:
a) A portion of a bank’s deposits to be kept with RBI
b) Maintaining foreign currency only
c) Zero reserves for time deposits
d) The entire deposit base placed in public sector undertakings
27. Tier 2 capital typically includes:
a) Paid-up share capital
b) Free reserves
c) Undisclosed reserves, subordinated debt, revaluation reserves
d) Public deposits
28. Under Section 19, a banking company’s investment in shares of any company:
a) Is restricted beyond a certain limit to prevent speculation
b) Is freely allowed up to 90%
c) Must be in the same group only
d) Is not regulated by RBI at all
29. Capital adequacy under Basel III introduced:
a) Lower liquidity coverage ratio
b) No concept of leverage ratio
c) Stricter capital buffers (e.g., Capital Conservation Buffer)
d) Merging CRR and SLR into a single ratio
30. One main objective of ensuring adequate capital is to:
a) Absorb unexpected losses and maintain public confidence
b) Avoid paying interest on deposits
c) Provide extra dividends to shareholders
d) Eliminate priority sector lending

D. Managerial Organs (Board of Directors) and Section 10A

31. Section 10A in the Banking Regulation Act primarily deals with:
a) Repo rate
b) Mergers of banks
c) Board composition requirements
d) Cheque dishonour
32. A key requirement for a bank’s board is that:
a) It can only comprise promoter’s family
b) RBI has no say
c) It must have persons with diverse professional expertise
d) Directors need no qualifications
 33. RBI’s power to remove managerial personnel is triggered if:
a) They have conflicting personal interests harming depositors
b) They are found unfit to manage the affairs of the bank
c) Board meeting is not quorate
d) They implement priority sector loans
34. A ‘whole-time director’ under banking law means:
a) An individual in full-time employment dedicated to the bank’s functioning
b) A part-time non-executive director
c) Government-appointed official with no pay
d) A short-term consultant
35. The fit-and-proper test for directors generally covers:
a) Integrity, competence, and track record
b) Only net worth above 1 crore
c) Government clearance alone
d) No background checks are needed
36. Section 10A aims to ensure the board is composed of:
a) A majority from a single family
b) Professionals capable of guiding a banking business
c) Politically connected individuals
d) Solely foreign nationals
37. If the board composition violates Section 10A norms, RBI can:
a) Immediately liquidate the bank
b) Direct changes or removal of certain directors
c) Do nothing, as it’s a board matter
d) Only penalize depositors
38. Why is professional expertise on the board crucial for a banking company?
a) To meet corporate social responsibility only
b) Ensure decisions are financially sound and comply with banking regulations
c) So that outsiders can’t question the bank’s policies
d) Guarantee no risk of NPAs
39. An important role of the board is to:
a) Mandate foreign bank acquisitions
b) Oversee risk management and banking policy
c) Only handle day-to-day cash transactions
d) Provide permanent positions to founders
40. Which statement about board oversight is TRUE?
a) The board is exempt from RBI guidelines
b) Directors cannot be removed under any circumstance
c) The board must ensure compliance with RBI norms and protect depositor
interests
d) Board composition is purely shareholder-driven with no statutory constraints

E. Amalgamation & Reconstruction (Section 44-A)

41. Section 44-A addresses:

a) Licensing banks
b) Raising CRR
 c) Amalgamation of banking companies
d) Audits of NBFCs
42. A scheme of amalgamation typically requires approval from:
a) RBI and the shareholders
b) District court
c) SEBI
d) The finance ministry alone
43. Amalgamation is primarily done to:
a) Enhance financial strength, synergy, and efficiency
b) Evade RBI oversight
c) Reduce depositors’ access
d) Cancel deposit insurance
44. Which of the following is NOT a reason for bank amalgamation?
a) Strengthening capital base
b) Allowing shadow banking to flourish
c) Expanding reach and synergy
d) Overcoming mounting NPAs
45. An amalgamation scheme is binding on:
a) Only majority shareholders
b) All members and creditors once approved by the RBI
c) Only depositors
d) No one until a court validates it
46. If a bank’s amalgamation scheme is rejected by RBI:
a) The bank can force it through an EGM
b) The scheme cannot be implemented
c) It automatically merges with an NBFC
d) The shareholders can proceed ignoring RBI
47. Post-amalgamation, existing staff typically:
a) Are all terminated
b) Get absorbed subject to terms of the scheme
c) Must be reemployed from scratch
d) Must shift to the statutory auditor’s office
48. One advantage of bank amalgamation is:
a) Reduced depositors’ rights
b) Stricter interest rate controls by court
c) Exemption from RBI reporting
d) Enhanced economies of scale and improved service
49. The final sanction of an amalgamation scheme is granted by:
a) NABARD
b) Competition Commission
c) Reserve Bank of India
d) Finance Ministry
50. In certain recent amalgamations, one well-known example is:
a) HDFC Bank merging with IndusInd
b) Corporation Bank & Andhra Bank merging into Union Bank
c) SBI merging with ICICI
d) No public sector amalgamation occurred
Accounts & Audit (135-138)

51. Banks must have a statutory audit generally:

a) Every 5 years
b) Annually by qualified auditors
c) Only if profit crosses 10%
d) By an internal staff committee
52. The balance sheet of a banking company must be prepared under the guidelines
of:
a) NI Act, 1881
b) Companies Act, 2013 only
c) Banking Regulation Act and RBI directives
d) SEBI Regulations
53. Under Section 30, the auditor’s role includes:
a) Solely preparing budgets
b) Reporting on the accounts with a ‘true and fair view’
c) Issuing deposit licenses
d) Deciding interest rates
54. A statutory auditor who discovers serious malpractice must:
a) Keep it confidential to protect the bank’s image
b) Report it per the legal and regulatory framework
c) Immediately resign
d) Publish it in newspapers
55. One key outcome of the statutory audit is:
a) Assurance of transparency, compliance, and accuracy for stakeholders
b) Automatic release from RBI oversight
c) Mandatory merger with a bigger bank
d) Shift from public to private capital
56. If a bank’s financial statements are not providing a true and fair view, the
auditor should:
a) Approve them without comment
b) Return them to shareholders quietly
c) Qualify or modify the audit report
d) Hide any discrepancies
57. In the context of bank audits, an auditor is appointed primarily to:
a) Evaluate marketing strategies
b) Examine correctness of accounts and compliance
c) Provide only performance appraisals
d) Determine staff salaries
58. RBI can direct appointment of auditors in certain banks if:
a) There is a need to ensure reliability in light of financial irregularities
b) The bank requests no audit
c) Auditors are only novices
d) No such powers exist
59. Auditors must check compliance with:
a) Only the Companies Act
b) RBI guidelines, Banking Regulation Act, and accounting standards
c) State legislation alone
d) Labor laws exclusively
 60. If banks violate auditing provisions repeatedly, they face:
a) Freedom from future audits
b) Possible penalties, license cancellation, or prosecution
c) Unconditional amnesty
d) Automatic RBC (Risk-based compliance)

MODULE 4: NEGOTIABLE INSTRUMENTS – LAW &

PROCEDURE
A. Meaning, Need & Types

61. A Negotiable Instrument is best described as:

a) A share certificate guaranteeing fixed dividend
b) A policy document for insurance
c) A transferable, signed document guaranteeing payment of a sum of money
d) A record of partnership capital
62. Which is a recognized negotiable instrument under NI Act, 1881?
a) Demand draft only
b) Bank Guarantee
c) Promissory Note
d) Letter of Credit
63. Negotiation differs from assignment because negotiation:
a) Conveys good title to the instrument holder in due course
b) Always requires a court order
c) Is exclusively for immovable property
d) Protects no one from prior defects
64. Endorsement is used to:
a) Invalidate the instrument
b) Transfer rights to a subsequent holder
c) Record a protest for non-acceptance
d) Stop the instrument from being negotiated further
65. ‘Holder in due course’ generally enjoys:
a) All liabilities of previous holders
b) The instrument after maturity only
c) Protection from prior defects in title
d) No right to sue parties

B. Promissory Note

66. Which statement about a promissory note is CORRECT?

a) The maker makes an unconditional promise in writing to pay the payee
b) It must have three parties
c) It requires acceptance by the payee
d) It is always payable after sight
 67. Promissory notes differ from bills of exchange because:
a) Promissory note has two parties, while bill of exchange has three
b) Promissory note must be accepted by the drawee
c) Bill of exchange is not negotiable
d) The maker’s liability is secondary in a note
68. Which is an essential feature of a promissory note?
a) Must mention “or bearer”
b) Must contain a request to pay
c) Must require acceptance from the payee
d) Must clearly specify the sum to be paid
69. If the maker of a promissory note fails to pay on the due date:
a) The payee has no recourse
b) The maker can be sued for breach of contract
c) The instrument becomes a bearer bond
d) Payment is deferred automatically
70. Which of these is NOT applicable to a promissory note?
a) Unconditional promise
b) Signed by the maker
c) Requires an acceptance from the payee
d) Must be in writing

C. Bill of Exchange

71. A Bill of Exchange is an unconditional order to:

a) Transfer property
b) Issue shares in a company
c) Pay a definite sum to the payee
d) Grant a license
72. Parties to a bill of exchange are typically:
a) Promisor, promisee, witness
b) Lender, borrower, notary
c) Drawer, drawee, and payee
d) Maker, endorser, holder in due course
73. Acceptance of a bill of exchange means:
a) The drawer acknowledges the payee’s identity
b) The drawee signs agreeing to pay on maturity
c) The payee endorses it to another
d) The notary public attests it
74. If a bill of exchange is payable at a future date, it is known as a:
a) Time bill
b) Demand draft
c) Cheque
d) Postal order
75. Retiring a bill before maturity implies:
a) Settling the bill early with mutual consent
b) Dishonoring it
c) Presenting it for acceptance only
d) Canceling the entire transaction
D. Cheques

76. A Cheque is a bill of exchange drawn on:

a) A banker, payable on demand
b) A financial company at a future date
c) The government treasury
d) An insurance firm
77. Which crossing ensures that the cheque is payable only through a particular
bank?
a) General crossing
b) Special crossing
c) Crossed & Co.
d) Not crossing at all
78. If a cheque is dishonoured due to ‘insufficient funds,’ the payee may invoke:
a) Civil action only
b) No remedy if more than 2 months have passed
c) Arbitration under Company Law Board
d) Section 138 NI Act for criminal liability
79. Which statement about a cheque is FALSE?
a) It is drawn on a specified banker
b) It must be accepted by the bank for validity
c) It is payable on demand
d) It can be transferred by endorsement
80. Days of grace do not apply to cheques because:
a) Cheques are not recognized by RBI
b) They are payable on demand
c) The Act specifically excludes them from any date extension
d) They can be accepted by notaries only

E. Negotiable Instruments – General

81. Holder in Due Course obtains better title if:

a) The instrument is acquired before maturity, for consideration, and in good
faith
b) They rely on a forged signature knowingly
c) They receive it after it’s due
d) They are aware of prior defects
82. An instrument is said to be ambiguous if:
a) The sum is indefinite
b) The date is missing
c) It can be reasonably interpreted either as a note or as a bill
d) The drawer’s name is slightly misspelled
83. When there is a difference between the amount in words and in figures:
a) The amount in words shall prevail
b) The instrument is automatically invalid
 c) The amount in figures is final
d) The payee decides which to accept
84. Countermanding a cheque means:
a) Adding a new payee’s name
b) Issuing a stop payment instruction to the bank
c) Forcing the payee to surrender the cheque
d) Replacing the drawer’s signature
85. Section 138 of the NI Act deals with:
a) Payment of interest
b) Criminal penalty for cheque dishonour
c) Stamp duty on bills
d) Transfer of promissory notes
86. Interim compensation under the NI Act can be up to:
a) 10% of the cheque amount
b) 50% of the cheque amount
c) 20% of the cheque amount
d) No specific limit is set
87. Which one is NOT correct about ‘Holder’?
a) Holder is entitled to possession of the instrument
b) Holder can receive or recover the amount
c) Holder must always be the payee’s bank
d) Holder can be a subsequent endorsee
88. In an ‘inchoate instrument,’ the maker has:
a) Signed but left some details to be filled in by the holder
b) Denied any future endorsement
c) Authorized only the payee’s bank to add details
d) Rendered it invalid for all time
89. Protest is used to:
a) Indicate acceptance
b) Cross a cheque
c) Formally note the dishonour of a bill by a notary
d) Transfer liability from drawer to holder
90. A cheque endorsed ‘non-transferable’ implies:
a) It becomes invalid for payment
b) It is negotiable to a limited set of parties
c) The payee can convert it into a bill of exchange
d) It can only be collected by the payee’s account

MODULE 6: SARFAESI ACT, 2002

91. SARFAESI stands for:
a) Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest
b) Statutory Arrangement for Refinance of Assets for Enforcement & Settlement of
Interest
c) State Authority for Recovering Funds and Ensuring Secure Investments
d) Supreme Authority for Recovery & Finance Enforcement India
92. A key purpose of SARFAESI is to:
a) Nationalize all banks
b) Issue guidelines for insurance claims
c) Facilitate speedy recovery of non-performing assets
d) Provide free credit to defaulters
93. Asset Reconstruction Companies (ARCs) are empowered to:
a) Acquire NPAs from banks and enforce security
b) Only advise banks on marketing
c) Convert deposits into shares
d) Guarantee deposit insurance
94. Central Registry (CERSAI) helps:
a) Prevent multiple lending on the same security
b) Approve bank mergers
c) Determine foreign direct investment
d) Provide automatic interest subsidies
95. Before taking possession under Section 13(4), the secured creditor issues a
demand notice giving the borrower:
a) 30 days
b) 120 days
c) 60 days
d) 15 days
96. Which is NOT a valid measure under SARFAESI?
a) Imposing criminal imprisonment for default
b) Taking possession of the secured asset
c) Appointing a manager to manage the borrower’s business
d) Selling the secured asset to recover dues
97. Appeals against the actions taken by secured creditors under SARFAESI lie
before:
a) High Court
b) Ministry of Finance
c) SEBI
d) Debt Recovery Tribunal
98. The constitutionality of the SARFAESI Act was upheld in:
a) Mardia Chemicals v. Union of India
b) Bank of Rajasthan v. RBI
c) Sahara v. SEBI
d) Maneka Gandhi v. Union of India
99. If a borrower has an objection to the 60-day notice, they can:
a) Send a representation to the secured creditor who must reply within the
statutory timeline
b) File for winding up
c) Move to the Supreme Court first
d) Remain silent, as no remedy is available
100. Once the asset is taken over, the secured creditor may:
a) Only keep the asset idle
b) Sell, lease, or manage it to realize the debt
c) Donate it to a third party
d) Return it after 6 months automatically