Bank PO / Clerk / RBI - MCQ Practice Questions

The Prompt Corrective Action (PCA) framework is an RBI supervisory tool that kicks in when a bank breaches defined risk thresholds — primarily related to Capital Adequacy Ratio (CAR), Net NPA ratio, and Return on Assets (RoA)/leverage. Once a bank is placed under PCA, RBI imposes restrictions such as curbs on dividend distribution, branch expansion, and fresh lending to prevent further deterioration. It is a preventive, not emergency, mechanism and does not involve RBI appointing directors or controlling inflation directly.

As per RBI's prudential norms, a term loan is classified as a Non-Performing Asset (NPA) when interest and/or principal installment remains overdue for a period of more than 90 days. This is the standard threshold for most loan categories. For agricultural loans, different crop-season-based norms apply. The 90-day norm was introduced by RBI in line with international best practices to align Indian banking standards with global norms.

Open Market Operations (OMO) refer to the purchase and sale of government securities (G-Secs) by the Reserve Bank of India in the open market to regulate liquidity. When RBI buys securities, it injects liquidity into the system; when it sells securities, it absorbs liquidity. OMOs are a key tool of monetary policy used alongside repo rate and Cash Reserve Ratio (CRR) adjustments. They do not involve foreign exchange transactions, direct lending to banks, or refinancing of NBFCs.

Under the Insolvency and Bankruptcy Code (IBC) 2016, the Corporate Insolvency Resolution Process (CIRP) must be completed within 180 days from the date of admission of the application. This period can be extended by up to 90 days by the National Company Law Tribunal (NCLT) on application, making the total maximum period 270 days. However, the IBC was amended in 2019 to set an overall mandatory outer limit of 330 days (including any litigation period), within which the CIRP must mandatorily be completed. Hence 330 days is the correct answer.

The Marginal Standing Facility (MSF) is a window introduced by RBI in 2011 under which scheduled commercial banks can borrow overnight funds from RBI by dipping into their Statutory Liquidity Ratio (SLR) holdings, up to a certain limit. The MSF rate is typically 25 basis points above the repo rate, making it a penal rate for emergency overnight borrowing. It forms the upper band of the interest rate corridor in RBI's Liquidity Adjustment Facility (LAF) framework. It is not a subsidised or medium-term facility.

The Financial Resolution and Deposit Insurance (FRDI) Bill was proposed to create a comprehensive resolution framework for financial service providers (banks, insurance companies, etc.) facing stress or failure. It also aimed to revise and strengthen the deposit insurance mechanism in India, which is currently handled by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The Bill proposed setting up a Resolution Corporation. It was withdrawn in 2018 due to concerns about the 'bail-in' clause but remains an important topic for bank exams.

As per RBI's Master Direction on Priority Sector Lending, domestic scheduled commercial banks and foreign banks with 20 or more branches are required to lend 40% of their Adjusted Net Bank Credit (ANBC) or the Credit Equivalent Amount of Off-Balance Sheet Exposures (CEOBE), whichever is higher, to the priority sector. This includes sub-targets for agriculture (18%), weaker sections (12%), and micro enterprises. The base is ANBC or CEOBE — not total deposits or total advances.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 empowers banks and other secured creditors to enforce their security interest (such as mortgaged property) without approaching a court, for recovery of dues. Under this Act, secured creditors can take possession of collateral, sell assets, manage the business of the defaulter, or assign the debt to an Asset Reconstruction Company (ARC). It is a key recovery mechanism alongside the Debt Recovery Tribunals (DRTs) and IBC.

A 'Teaser Rate' on home loans refers to a concessional or artificially low interest rate offered by banks for an initial fixed period (typically 1 to 3 years) to attract borrowers. After this introductory period, the interest rate reverts to the standard or higher floating rate applicable on the loan. The RBI has raised concerns about teaser rate home loans as they can create repayment stress for borrowers when the rate resets upward, potentially increasing NPA risk. RBI has asked banks to set aside higher provisioning for such loans.

The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of RBI, provides deposit insurance cover of up to ₹5 lakh per depositor per bank. This limit was revised from ₹1 lakh to ₹5 lakh in February 2020 following the amendment to the DICGC Act. The insurance cover applies to all types of deposits — savings, fixed, current, and recurring — held in the same capacity and same right. Interbank deposits, deposits of foreign governments, and deposits of state/central governments are excluded. DICGC is funded by premiums paid by insured banks, not by the government.