UPSC Prelims Practice Questions — Government Approves Strategic Restructuring of IDBI Bank Ltd.

Q1. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Even when the Government of India and LIC together held over 94% of its equity, IDBI Bank was categorised by RBI as a private sector bank for regulatory purposes.
  2. For RBI's regulatory categorisation, a bank in which the Central Government's own shareholding is below a majority is not treated as a public sector bank, even if a government-owned corporation holds a controlling stake in it.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q2. Consider the following facts: RBI recategorised IDBI Bank as a private sector bank from January 2019 after LIC acquired 51% of its equity, while the Government of India continued to hold about 46%. RBI's banking statistics place IDBI Bank among public sector banks for 2017-18 and among private sector banks for 2018-19. Which of the following inferences can be drawn from the above?

  1. The recategorisation implies that the combined holding of public entities in the bank had fallen below one-half.
  2. The recategorisation means that the bank could no longer receive equity capital from the Central Government.
  3. An unadjusted comparison of the public sector bank group's aggregate business between 2017-18 and 2018-19 would partly reflect a change in the group's composition rather than actual growth.
  • A. 3 only
  • B. 1 and 3 only
  • C. 1, 2 and 3
  • D. 2 and 3 only

Q3. With reference to the Reserve Bank of India's Prompt Corrective Action (PCA) framework, consider the following statements: Which of the statements given above is/are correct?

  1. Placing a bank under PCA initiates its resolution, during which depositors' withdrawals are capped until the bank is merged or reconstructed.
  2. PCA is triggered when a bank breaches risk thresholds on indicators of capital, asset quality or leverage.
  3. Under PCA, RBI can restrict a bank's dividend distribution and branch expansion and may curb management compensation.
  • A. 3 only
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q4. With reference to recapitalisation of public sector banks through recapitalisation bonds, consider the following statements: Which of the statements given above is/are correct?

  1. The bank's capital increases while the Government incurs no net cash outgo in the year of infusion.
  2. Since no cash leaves the treasury at the time of infusion, the arrangement carries no fiscal cost for the Government in subsequent years.
  3. The capital infused shows up on the bank's asset side as holdings of Government securities rather than as fresh lendable cash.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 only
  • D. 1 and 3 only

Q5. With reference to the regulation of ownership of private sector banks in India, consider the following statements: Which of the statements given above is/are correct?

  1. Acquiring a major shareholding in a banking company requires the prior approval of the Reserve Bank of India, irrespective of whether the acquirer is Indian or foreign.
  2. RBI expects major shareholders of a bank to remain 'fit and proper' on a continuing basis, not merely at the time of acquisition.
  3. While granting approval for such an acquisition, RBI may impose conditions that it considers necessary.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 1, 2 and 3
  • D. 2 and 3 only

Q6. The Government of India will receive its share of the proceeds from the strategic sale of IDBI Bank. With reference to how these proceeds are treated in the Union Budget, consider the following statements: Which of the statements given above is/are correct?

  1. They are classified as non-debt capital receipts of the Union Government.
  2. Other things remaining the same, they reduce the Centre's fiscal deficit for that year.
  3. Being non-tax in nature, they reduce the Centre's revenue deficit for that year.
  • A. 1 only
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q7. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. After acquiring 60.72 per cent of IDBI Bank's equity, the Fairfax-owned acquirer will not be able to exercise voting rights in proportion to its entire shareholding.
  2. The Banking Regulation Act, 1949 prohibits any single entity from owning more than 26 per cent of the paid-up equity of a private sector bank.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q8. A foreign-parented company wins a competitive bid to acquire a controlling stake in an Indian private sector bank, and the Union Cabinet approves the sale. Which one of the following must still happen before the company can become the bank's controlling shareholder?

  • A. Parliament must pass a resolution approving the bank's transfer to private control
  • B. SEBI must assess the acquirer as 'fit and proper' and approve the acquisition
  • C. The Competition Commission must certify the bid price as the bank's fair value
  • D. The RBI must assess the acquirer as 'fit and proper' and approve the acquisition

Q9. Consider the following facts about IDBI Bank. It was placed under the RBI's Prompt Corrective Action (PCA) framework in May 2017. The RBI categorised it as a private sector bank with effect from January 2019. The Government and LIC infused fresh capital into it in 2019. The RBI lifted the PCA restrictions in March 2021, subject to conditions and continuous monitoring. The CCEA gave in-principle approval for its strategic disinvestment in May 2021. Which of the following inferences can validly be drawn from these facts?

  1. The capital infused in 2019 was by itself enough to bring the bank out of PCA immediately.
  2. A change in a bank's classification from public sector to private sector does not, by itself, take the bank out of the PCA framework.
  3. Exit from PCA is a statutory precondition for the strategic disinvestment of any bank.
  • A. 2 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q10. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. In evaluating bids for the strategic sale of IDBI Bank, the prevailing market price of the bank's shares was not used as the benchmark of value.
  2. One of the valuation methods used in the sale counted the bank's tangible and intangible assets, including land, net of its liabilities.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct