SLO

Banking Awareness: Banking Function and Business: Part-3

1.

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

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

2.

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

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.

3.

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

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.

4.

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

15 Months
In case of agriculture loans, there are three types of loans viz. Short term (tenure <15 months), medium term (tenure 15 months to 5 years) and long terms (tenure > 5 years).

5.

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

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.

6.

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

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.

7.

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)

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.

8.

NABARD administers a fund called Rural infrastructure Development Fund (RIDF). What is the major source of its funding?
[A]Penalties levied on domestic commercial banks who fail to meet PSL targets
[B]Penalties levied on foreign banks (with less than 20 branches) who fail to meet PSL targets
[C]Penalties levied on Central Government who fail to meet PSL targets
[D]None of the above

Penalties levied on domestic commercial banks who fail to meet PSL targets
The penalties levied on domestic commercial banks who fail to meet PSL targets is the major source of Rural infrastructure Development Fund (RIDF) funding. It is administered by NABARD.

9.

Which of the following is / are examples of Credit Creation by banks?
[A]Advancing loans
[B]Purchasing securities
[C]Selling securities
[D]Only A and B

Only A and B
Credit is created by commercial banks in two ways- advancing loans and by purchasing securities.

10.

Which of the following is also known as Contingent Liability of the banks?
[A]Cash Credits
[B]Non-fund based lending
[C]Fund Based lending
[D]Cash Reserve Ratio

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.

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