Examine the comparative data: Bank A has NPA ratio of 1.8% with provision coverage of 72%, Bank B has NPA ratio of 2.2% with provision coverage of 68%. Which bank has better asset quality indicators in terms of net NPA?
ABank A with 0.50% net NPA
BBank A with 0.35% net NPA
CBank B with 0.70% net NPA
DBoth banks are equivalent
Correct Answer:
B. Bank A with 0.35% net NPA
Explanation:
Net NPA = GNPA × (1 - Provision Coverage). Bank A: 1.8% × (1 - 0.72) = 1.8% × 0.28 = 0.504% ≈ 0.50%. Bank B: 2.2% × 0.32 = 0.704% ≈ 0.70%. Bank A is better
A bank's Loan-to-Deposit (LTD) ratio increased from 78% in FY2023 to 82% in FY2024. What does this indicate?
AThe bank is advancing more loans relative to deposits received
BThe bank's deposit base has increased significantly
CThe bank's profitability has improved
DThe bank's liquidity coverage ratio has strengthened
Correct Answer:
A. The bank is advancing more loans relative to deposits received
Explanation:
LTD ratio measures advances as a percentage of deposits. An increase from 78% to 82% means the bank is lending more aggressively relative to deposits, which could indicate higher credit expansion or lower deposit growth.
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).
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.
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 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.
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.
