Under RBI's resolution framework for financial stress, what is the key trigger for invoking prompt corrective action (PCA) for a bank?
AWhen net profit declines by 10% YoY
BWhen capital ratio falls below specified thresholds or when net NPA exceeds 6%
CWhen operating expenses exceed 50% of operating income
DWhen return on assets becomes negative for a quarter
Correct Answer:
B. When capital ratio falls below specified thresholds or when net NPA exceeds 6%
Explanation:
RBI's PCA framework is triggered when a bank's capital ratio, asset quality (Net NPA > 6%), or profitability metrics breach specified thresholds. This is designed to protect financial stability.
A bank's efficiency ratio (operating expenses to operating income) is 42%. What does this indicate about the bank's operational health?
AThe bank is highly efficient; below 45% is considered strong
BThe bank is inefficient; efficiency ratio should be below 30%
CThe bank's cost structure is unsustainable
DThe bank must immediately reduce staff costs
Correct Answer:
A. The bank is highly efficient; below 45% is considered strong
Explanation:
Efficiency ratio of 42% (operating expenses/operating income) indicates strong operational efficiency. Industry benchmark for healthy banks is typically 40-50%. Lower ratios indicate better cost management.
A bank's Net Interest Margin (NIM) improved from 2.8% to 3.2% year-on-year. If the bank's total assets are ₹5,00,000 crore, what is the approximate increase in NIM in absolute terms?
A bank's Deposit Growth Rate was 12% and Advances Growth Rate was 15% in FY2024. What does this scenario suggest?
ALoan-to-Deposit ratio is decreasing
BLoan-to-Deposit ratio is increasing
CCredit expansion is slower than deposit mobilization
DThe bank faces liquidity risk
Correct Answer:
B. Loan-to-Deposit ratio is increasing
Explanation:
When advances grow faster than deposits (15% > 12%), the Loan-to-Deposit ratio increases, indicating higher credit expansion relative to deposit mobilization
Analyze the quarterly data: Bank A's Non-Performing Assets decreased from ₹18,000 crore to ₹15,000 crore, while its Gross Advances remained ₹3,00,000 crore. Calculate the change in Gross NPA ratio:
ADecreased from 5% to 6%
BIncreased from 5% to 6%
CDecreased from 6% to 5%
DRemained constant at 5.5%
Correct Answer:
C. Decreased from 6% to 5%
Explanation:
Previous NPA ratio = (18,000/3,00,000) × 100 = 6%. New NPA ratio = (15,000/3,00,000) × 100 = 5%. The ratio decreased.
