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.
A bank's Total Income grew by 18% YoY while Operating Expenses grew by 24% YoY. What does this indicate about Cost-to-Income Ratio?
ACost-to-Income Ratio has improved
BCost-to-Income Ratio has deteriorated
CCost-to-Income Ratio remains constant
DCannot be determined without absolute figures
Correct Answer:
B. Cost-to-Income Ratio has deteriorated
Explanation:
When operating expenses grow faster (24%) than total income (18%), the Cost-to-Income Ratio deteriorates, indicating reduced operational efficiency. A lower C/I ratio is preferable.
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.
A bank's Liquidity Coverage Ratio (LCR) for the quarter is reported as 145%. What does this indicate about regulatory compliance?
AThe bank is non-compliant; LCR must be above 200%
BThe bank is compliant; minimum LCR requirement is 100%
CThe bank has excess liquidity that should be deployed
DThe bank faces immediate liquidity stress
Correct Answer:
B. The bank is compliant; minimum LCR requirement is 100%
Explanation:
RBI's minimum LCR requirement is 100%, to be maintained on a daily basis. At 145%, the bank is compliant with a comfortable liquidity buffer of 45% above the minimum.
A bank reports Floating Rate Advances of ₹1,50,000 crore and Fixed Rate Advances of ₹90,000 crore. If rates rise by 200 bps, what is the repricing benefit compared to a bank with 60% floating rate portfolio?
AThe first bank benefits more due to higher floating rate exposure
BBoth banks benefit equally regardless of floating rate mix
CThe second bank (60% floating) would benefit more
DCannot be determined without deposit repricing data
Correct Answer:
A. The first bank benefits more due to higher floating rate exposure
Explanation:
First bank has 62.5% floating rate (150,000/240,000), second bank has 60%. First bank will capture more repricing benefit when rates rise as more of its portfolio reprices upward, enhancing net interest income.
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.
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.
Analyze the quarterly data: A bank's Advances grew 14% QoQ while Deposits grew 8% QoQ. If this trend continues, which regulatory metric is most at risk?
AReturn on Equity (ROE)
BLoan-to-Deposit ratio and liquidity coverage metrics
CGross NPA ratio
DCost-to-Income ratio
Correct Answer:
B. Loan-to-Deposit ratio and liquidity coverage metrics
Explanation:
Advances growing faster (14%) than deposits (8%) will increase LTD ratio unsustainably and strain liquidity metrics. If continued, it could breach LCR and NSFR requirements, risking regulatory non-compliance.
A bank's Interest Earned increased by ₹850 crore while Interest Expended increased by ₹620 crore. What is the impact on Net Interest Income (NII)?
ANII increases by ₹230 crore
BNII decreases by ₹230 crore
CNII increases by ₹1,470 crore
DCannot be determined without prior year figures
Correct Answer:
A. NII increases by ₹230 crore
Explanation:
NII = Interest Earned - Interest Expended. If Interest Earned increases by ₹850 crore and Interest Expended increases by ₹620 crore, the net increase in NII = 850 - 620 = ₹230 crore.
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.
