A bank's provision coverage ratio (PCR) on Gross NPAs increased from 58% to 67% YoY. What does this signify?
AThe bank's asset quality has improved significantly
BThe bank has made higher provisions, improving loss absorption capacity
CThe bank's profitability has increased
DThe bank faces stricter NPA classification norms
Correct Answer:
B. The bank has made higher provisions, improving loss absorption capacity
EXPLANATION
PCR measures provisions made against Gross NPAs. An increase from 58% to 67% indicates the bank has provisioned more of its NPAs, improving its capacity to absorb potential losses and reducing future profit volatility.
A bank's Dividend Payout Ratio increased from 35% to 48% despite a 12% decline in net profit. What is the strategic implication?
AThe bank is prioritizing shareholder returns over capital retention
BThe bank's capital adequacy ratio will increase
CThe bank's profitability is improving
DThis indicates stronger asset quality
Correct Answer:
A. The bank is prioritizing shareholder returns over capital retention
EXPLANATION
Higher payout ratio (48%) despite lower profit indicates the bank is distributing more of its earnings as dividends, retaining less capital for growth and strengthening reserves. This can impact future capital buffers.
Under the Basel III framework as per RBI guidelines (2024), what is the total capital requirement (Tier-1 + Tier-2) for a non-SIB scheduled commercial bank?
A9.50%
B10.50%
C11.50%
D12.50%
Correct Answer:
C. 11.50%
EXPLANATION
Basel III requires minimum CET1 of 4.5%, Tier-1 capital of 6%, and Total capital of 9% plus Capital Conservation Buffer of 2.5%, totaling 11.5% for non-SIB banks.
Examine the data: A bank's foreign exchange earnings increased from ₹2,400 crore to ₹2,850 crore while forex outflows increased from ₹1,900 crore to ₹2,100 crore. Calculate the change in net forex earnings.
AIncreased by ₹250 crore
BIncreased by ₹350 crore
CDecreased by ₹50 crore
DIncreased by ₹100 crore
Correct Answer:
A. Increased by ₹250 crore
EXPLANATION
Previous net forex = 2,400 - 1,900 = ₹500 crore. Current net forex = 2,850 - 2,100 = ₹750 crore. Change = 750 - 500 = ₹250 crore increase.
The RBI announced a reduction in the Standing Deposit Facility (SDF) rate by 25 basis points to 6.50%. What is the immediate market implication?
ABanks will have higher incentive to keep excess liquidity with RBI
BBanks will have lower incentive to deposit with RBI and may lend more
CThe money supply will automatically decrease
DAll banks must reduce their deposit rates immediately
Correct Answer:
B. Banks will have lower incentive to deposit with RBI and may lend more
EXPLANATION
SDF rate reduction makes RBI deposits less attractive, incentivizing banks to deploy liquidity in market lending rather than parking with RBI, potentially increasing money supply and lending.
Under Basel III norms (as amended by RBI in 2024), what is the minimum Common Equity Tier-1 (CET1) capital requirement for Systemically Important Banks (SIBs)?
A5.50%
B6.00%
C6.50%
D7.00%
Correct Answer:
C. 6.50%
EXPLANATION
Basel III requires CET1 minimum of 4.5% plus Capital Conservation Buffer of 2.5%. For SIBs, an additional 0.5% surcharge applies, totaling 6.50% minimum CET1 requirement.
A bank's Gross NPA increased from ₹18,500 crore in FY2023 to ₹22,300 crore in FY2024, while total advances grew from ₹2,10,000 crore to ₹2,35,000 crore. What is the change in Gross NPA ratio?
AIncreased from 8.81% to 9.49%
BDecreased from 8.81% to 9.49%
CIncreased from 8.33% to 9.05%
DRemained constant at 8.81%
Correct Answer:
A. Increased from 8.81% to 9.49%
EXPLANATION
Gross NPA Ratio FY2023 = (18,500/2,10,000) × 100 = 8.81%. FY2024 = (22,300/2,35,000) × 100 = 9.49%. The ratio increased despite advances growth, indicating asset quality deterioration.
Analyze the data: A bank's CASA ratio decreased from 42% in Q2 to 39% in Q3. What regulatory and operational concern does this raise?
AThe bank's liquidity position has improved
BThe bank is relying more on expensive term deposits, impacting NIM
CThe bank's Capital Adequacy Ratio will increase
DThe bank's advance portfolio has become riskier
Correct Answer:
B. The bank is relying more on expensive term deposits, impacting NIM
EXPLANATION
CASA (Current Account & Saving Account) ratio declining means lower proportion of low-cost deposits. The bank must fund advances with more expensive term deposits, which increases Cost of Funds and compresses NIM.
A scheduled commercial bank's Priority Sector Lending (PSL) target for FY2024-25 is 40% of adjusted net bank credit. The bank achieved 38% in Q3. What is the regulatory implication?
AThe bank has exceeded the target and will receive incentives
BThe bank is non-compliant and faces penalty
CThe bank must reach 40% by end of FY2024-25 or face penalties
DThe bank is fully compliant as Q3 performance is final
Correct Answer:
C. The bank must reach 40% by end of FY2024-25 or face penalties
EXPLANATION
PSL compliance is measured at the end of the financial year. Banks must maintain 40% PSL by March 31. Non-compliance attracts penalties equal to shortfall amount at repo rate + 50 bps.
If a bank's Cost of Funds increased by 75 basis points while the Yield on Assets increased by 50 basis points, what is the likely impact on Net Interest Margin (NIM)?
ANIM will increase by 25 basis points
BNIM will decrease by 25 basis points
CNIM will remain unchanged
DNIM will increase by 75 basis points
Correct Answer:
B. NIM will decrease by 25 basis points
EXPLANATION
NIM = Yield on Assets - Cost of Funds. If Cost of Funds increases by 75 bps and Yield increases by only 50 bps, NIM decreases by 25 bps (50 - 75 = -25).
