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Question 1 of 5
1. Question
2 points
The term ‘Securitization’ refers to which of the following:
Correct
Answer: (b)
Securitization is the process of pooling and repackaging of financial assets (like debt papers generally) into marketable securities that can be sold to investors. For example, an NBFC has given loan to different companies. Now these different loan papers are an asset for NBFC. Suppose all the loan papers is of Rs. 100 crores. Now, one lakh shares have been created out of this asset worth Rs. 100 each and these shares can be sold to different people. NBFCs will get immediate liquidity/money and the share price will vary depending on whether the loan is being serviced/repaid properly or not. If the companies to whom NBFC gave loan are not returning the principal or interest, the price of security/share will fall.
Banks/NBFCs can sell these loan papers directly (“Direct Assignment” with certain restrictions) or they can also create security (“Securitization”) out of this loan paper and sell. Both routes are adopted when they want liquidity.
Incorrect
Answer: (b)
Securitization is the process of pooling and repackaging of financial assets (like debt papers generally) into marketable securities that can be sold to investors. For example, an NBFC has given loan to different companies. Now these different loan papers are an asset for NBFC. Suppose all the loan papers is of Rs. 100 crores. Now, one lakh shares have been created out of this asset worth Rs. 100 each and these shares can be sold to different people. NBFCs will get immediate liquidity/money and the share price will vary depending on whether the loan is being serviced/repaid properly or not. If the companies to whom NBFC gave loan are not returning the principal or interest, the price of security/share will fall.
Banks/NBFCs can sell these loan papers directly (“Direct Assignment” with certain restrictions) or they can also create security (“Securitization”) out of this loan paper and sell. Both routes are adopted when they want liquidity.
Question 2 of 5
2. Question
2 points
The Government is planning merger of public sector banks. It will benefit in which of the following ways:
Correct
Answer:
(b)
Government is merging public sector banks to make them more efficient and achieve economies of scale and consolidation. Just merging of banks will not reduce the absolute value of NPAs.
Incorrect
Answer:
(b)
Government is merging public sector banks to make them more efficient and achieve economies of scale and consolidation. Just merging of banks will not reduce the absolute value of NPAs.
Question 3 of 5
3. Question
2 points
Consider the following statements regarding the “Banks Board Bureau (BBB)” constituted in 2016:
(i) It will be responsible for appointment of heads in PSBs and Financial Institutions
(ii) It will help PSBs in developing strategies and capital raising plans
(iii) It will improve the governance of the Public Sector Banks (PSBs)
Select the correct answer using the code given below:
Correct
Answer: (d)
• With a view to improve the Governance of Public Sector Banks (PSBs), the GoI appointed an autonomous Banks Board Bureau (BBB) which started functioning from 1st April, 2016. The Board has three ex-officio members and three expert members in addition to a Chairman. The following are the functions of the BBB
• It will be responsible for the selection and appointment of Board of Directors in PSBs and Financial Institutions (FIs)
• It will advise the Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Board of Directors
• It will help banks to develop a robust leadership succession plan for critical positions
• It will build a data bank containing data relating to the performance of PSBs/FIs and its officers
Incorrect
Answer: (d)
• With a view to improve the Governance of Public Sector Banks (PSBs), the GoI appointed an autonomous Banks Board Bureau (BBB) which started functioning from 1st April, 2016. The Board has three ex-officio members and three expert members in addition to a Chairman. The following are the functions of the BBB
• It will be responsible for the selection and appointment of Board of Directors in PSBs and Financial Institutions (FIs)
• It will advise the Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Board of Directors
• It will help banks to develop a robust leadership succession plan for critical positions
• It will build a data bank containing data relating to the performance of PSBs/FIs and its officers
Question 4 of 5
4. Question
2 points
Consider the following statements regarding the insurance cover provided to depositors by Deposit Insurance and Credit Guarantee Corporation (DICGC)
(i) All commercial banks and urban cooperative banks have to register with DICGC for providing insurance to depositors
(ii) RBI incurs the insurance premium burden
(iii) Government incurs the insurance premium burden
Select the correct answer using the code given below:
Correct
Answer:
(a)
As per “The Deposit Insurance and Credit Guarantee Corporation (DICGC) Act 1961”, DICGC must register all commercial banks (scheduled and non-scheduled both) and Urban Cooperative banks (UCB) and State and District Central Cooperative Banks (StCB/DCCB) as an insured bank. (StCB/DCCB are rural cooperative banks)
And every insured bank is liable to pay premium to DICGC as may be notified by DICGC after the approval of RBI. But the premium shall not exceed fifteen paise per annum for
Every hundred rupees of the total amount of the deposits in that bank. Which means premium has been capped under the DICGC Act. As per the rules, premium cost is required to be borne by the bank themselves and cannot be passed on to depositors.
Since the insurance cover has been increased from the presently Rs. 1 lakh per depositor per bank to Rs. 5 lakh per depositor per bank, the insurance premium has also been increased from presently 10 paise per Rs. 100 of deposit to 12 paise per Rs. 100 of deposit.
Incorrect
Answer:
(a)
As per “The Deposit Insurance and Credit Guarantee Corporation (DICGC) Act 1961”, DICGC must register all commercial banks (scheduled and non-scheduled both) and Urban Cooperative banks (UCB) and State and District Central Cooperative Banks (StCB/DCCB) as an insured bank. (StCB/DCCB are rural cooperative banks)
And every insured bank is liable to pay premium to DICGC as may be notified by DICGC after the approval of RBI. But the premium shall not exceed fifteen paise per annum for
Every hundred rupees of the total amount of the deposits in that bank. Which means premium has been capped under the DICGC Act. As per the rules, premium cost is required to be borne by the bank themselves and cannot be passed on to depositors.
Since the insurance cover has been increased from the presently Rs. 1 lakh per depositor per bank to Rs. 5 lakh per depositor per bank, the insurance premium has also been increased from presently 10 paise per Rs. 100 of deposit to 12 paise per Rs. 100 of deposit.
Question 5 of 5
5. Question
2 points
Consider the following statements regarding payment banks:
(i) They can open demand and time deposit accounts both
(ii) They are set up as differentiated banks
(iii) They may act as Business Correspondents for other banks
(iv) They will provide payments / remittance services to migrant labour workforce and small businesses
Select the correct answer using the code given below:
Correct
Answer: (C)
The objectives of setting up of payments banks is to promote financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganized sector entities and other users.
The following will be the scope of activities for payment banks:
Acceptance of demand deposits (savings and current) but no time deposibank
No lending activity
Issuance of ATM/debit cards but not credit cards
Payments and remittance services through various channels
Acting as Banking Correspondent (BC) of another bank
Distribution of simple financial products like mutual funds/insurance products, etc.
Payment banks will be required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The total deposits of the public must be invested in government securities and/ or deposited in other commercial banks (i.e. no lending is allowed). This makes the public deposit in payment banks safe. Payment banks will be set up as differentiated banks for serving niche interests. (Differentiated banks have restrictions either in geography or in operation or both. Opposite of differentiated banks are universal banks).
Incorrect
Answer: (C)
The objectives of setting up of payments banks is to promote financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganized sector entities and other users.
The following will be the scope of activities for payment banks:
Acceptance of demand deposits (savings and current) but no time deposibank
No lending activity
Issuance of ATM/debit cards but not credit cards
Payments and remittance services through various channels
Acting as Banking Correspondent (BC) of another bank
Distribution of simple financial products like mutual funds/insurance products, etc.
Payment banks will be required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The total deposits of the public must be invested in government securities and/ or deposited in other commercial banks (i.e. no lending is allowed). This makes the public deposit in payment banks safe. Payment banks will be set up as differentiated banks for serving niche interests. (Differentiated banks have restrictions either in geography or in operation or both. Opposite of differentiated banks are universal banks).
