UPSC Prelims Practice Questions — The Government of India Constitutes the ‘High Level Committee on Banking for Viksit Bharat’

Q1. With reference to the Priority Sector Lending (PSL) framework of the Reserve Bank of India, consider the following statements: Which of the statements given above is/are correct?

  1. A bank that misses its PSL target is required to pay the shortfall amount to the RBI as a non-interest-bearing monetary penalty.
  2. Measuring the target against the higher of Adjusted Net Bank Credit and the credit equivalent of off-balance sheet exposure stops a bank from shrinking its PSL obligation merely by shifting exposure off its balance sheet.
  3. Shortfall amounts that banks are made to deposit in funds such as the RIDF earn interest that falls as the size of the shortfall rises.
  • A. 2 and 3 only
  • B. 1 and 2 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A bank whose loan book is concentrated in large corporate lending can still meet its priority sector lending obligation without itself originating loans to agriculture or micro enterprises.
  2. Under the Priority Sector Lending Certificate mechanism, the selling bank transfers the underlying priority sector loans, along with their credit risk, to the buying 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

Q3. With reference to the Lead Bank Scheme of the Reserve Bank of India, consider the following statements: Which of the statements given above is/are correct?

  1. The scheme grew out of an 'area approach', under which plans for banking and credit structure are drawn up geographically, district by district.
  2. The District Consultative Committee is a district-level forum where bankers, including RRBs and cooperative banks, sit with State Government departments, the RBI and NABARD.
  3. The lead bank of a district is expected to meet the entire credit requirement of that district from its own resources.
  • A. 1 only
  • B. 1 and 2 only
  • C. 1 and 3 only
  • D. 2 and 3 only

Q4. With reference to the Banking Regulation (Amendment) Act, 2020 and the legal framework for rural and cooperative banking, consider the following statements: Which of the statements given above is/are correct?

  1. The amendments do not apply to Primary Agricultural Credit Societies that do not use the word 'bank' in their name and do not act as drawers of cheques.
  2. Regional Rural Banks are cooperative institutions registered under State cooperative societies laws.
  3. The amendments widened the RBI's powers over cooperative banks in areas such as management, audit, capital and reconstruction or amalgamation.
  • A. 2 and 3 only
  • B. 2 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q5. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Development finance institutions such as NaBFID have been set up to provide long-tenor, non-recourse finance for infrastructure projects.
  2. Commercial banks fund themselves largely through short-term deposits, so holding long-tenor infrastructure loans creates an asset-liability mismatch for them.
  • 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

Q6. With reference to the instruments used by development finance institutions to support long-term infrastructure lending in India, consider the following statements: Which of the statements given above is/are correct?

  1. NaBFID's mandate includes developing the bond and derivatives markets needed for infrastructure finance, besides lending directly to projects.
  2. Takeout financing lets a long-term lender take over an infrastructure loan from the original lender after a period, which eases the original lender's maturity mismatch.
  3. Partial credit enhancement aims to raise the credit rating of infrastructure bonds so that long-term investors such as insurers and pension funds can hold them.
  • A. 1 and 2 only
  • B. 2 only
  • C. 1, 2 and 3
  • D. 1 and 3 only