Banking -Why it is The Most Important Topic in Economics for Prelims ?

IASNOVA’s analysis found out that in Economy, Banking topic is one area which has the highest rate of return. Most of the questions from Economy are related to Banking, at least 3 questions every year. Our analysis is based on the past 8 years Prelims Question papers. But, to save time of aspirants ,we are providing the list of questions of last 4 years prelims (Banking-related) so that they can see the trend themselves and prepare Banking topic properly.

PRELIMS 2018

1- Which of the following best describes the term “Merchant Discount Rate” sometimes seen in news?

(a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.

(b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.

(d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machine and debit cards.

Answer: C

2- Which one of the following links all the ATMs in India?

(a) Indian Banks’ Association

(b) National Securities Depository Limit

(d) Reserve Bank of lndia

Answer: C

3- Which one of the following statements correctly describes the meaning of legal tender money?

(a) The money which is tendered in courts of law to defray the fee of legal cases

(b) The money which a creditor is under compulsion to accept in settlement of his claims

(d) The metallic money in circulation in a country

Answer: B

4- With reference to the governance of ‘public sector banking in India, consider the following statements:

Capital infusion into public sector banks by the Government of India has steadily increased in the last decade.
To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Answer: B

PRELIMS 2017

Q1- Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?

It decides the RBI’s benchmark interest rates.
It is a 12-member body including the Governor of RBI and is reconstituted every year.
It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below :

(a) 1 only

(b) 1 and 2 only

(d) 2 and 3 only

Solution: A

Q2-What is the purpose of setting up of Small Finance Banks (SFBs) in India?

To supply credit to small business units
To supply credit to small and marginal farmers
To encourage young entrepreneurs to set up business particularly in rural areas.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(d) 1, 2 and 3

Solution: A

Q3- Which of the following is a most likely consequence of implementing the ‘Unified Payments Interface (UPI)’?

(a) Mobile wallets will not be necessary for online payments.

(b) Digital currency will totally replace the physical currency in about two decades.

(d) Direct transfer of subsidies to poor people will become very effective.

Solution: A

Q4- The Global Infrastructure Facility is a/an

(a) ASEAN initiative to upgrade infrastructure in Asia and financed by credit from the Asian Development Bank.

(b) World Bank collaboration that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships (PPPs) to enable mobilization of private sector and institutional investor capital.

(c) Collaboration among the major banks of the world working with the OECD and focused on expanding the set of infrastructure projects that have the potential to mobilize private investment.

(d) UNCTAD funded initiative that seeks to finance and facilitate infrastructure development in the world.

Solution: B

Q5- Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?

(a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government.

(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

(d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.

Solution: B

Q6-Consider the following statements:

National Payments Corporation of India (NPCI) helps in promoting financial inclusion in the country.
NPCI has launched RuPay, a card payment scheme.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Solution: C

PRELIMS 2016

1- The term ‘Core Banking Solutions’ is sometimes seen in the news. Which of the following statements best describes/describe this term?

It is a networking of a bank’s branches which enables customers to operate their accounts from any branch of the bank on its network regardless of where they open their accounts.
It is an effort to increase RBI’s control over commercial banks through computerization.
It is a detailed procedure by which a bank with huge non- performing assets is taken over by another bank.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(d) 1, 2 and 3

Solution: A

2- What is/are the purpose/purposes of the `Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI?

These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.
These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Solution: C

3- Consider the following statements :

New Development Bank has been set up by APEC.
The headquarters of New Development Bank is in Shanghai.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Solution: B

4-‘European Stability Mechanism’, sometimes seen in the news, is an

(a) agency created by EU to deal with the impact of millions of refugees arriving from Middle East

(b) agency of EU that provides financial assistance to eurozone countries

(d) agency of EU to deal with the conflicts arising among the member countries

Solution: B

5- The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?

Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.
Payment Banks can issue both credit cards and debit cards.
Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 1 and 3 only

(d) 1, 2 and 3

Solution: B

6- With reference to `IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/are correct?

The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Solution: C

PRELIMS 2015

‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to
(a) develop national strategies for the conservation and sustainable use of biological diversity
(b) improve banking sector’s ability to deal with financial and economic stress and improve risk management
(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries
(d) transfer technology from developed Countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

Solution: b)

2. With reference to India economy, consider the following :

Bank rate
Open market operations
Public debt
Public revenue

Which of the above is/are component/components of Monetary Policy?

a) 1 only

b) 2, 3 and 4

c) 1 and 2

d) 1, 3 and 4

Solution: c)

3. When the Reserve Bank of India reduces the Statutory Liquidity by 50 basis points, which of the following is likely to happen?
a)India’s GDP growth rate increases drastically
b)Foreign Institutional Investors may bring more capital into our country
c)Scheduled Commercial Banks may cut their lending rates
d)It may drastically reduce the liquidity to the banking system.

Solution: c)

Inference– Banking ,RBI,International Banking Institutions ,Monetary Policy are must do topics to score well in Prelims any year.

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