26th Nov 2021 Shift 1:
| Examination: | UGC NET |
| Subject: | COMMERCE (Paper 2) |
| Exam cycle: | 26th Nov 2021 Shift 1 |
| Types of Paper: | PYQ’s (Previous Year Questions) |
| Which Unit? | Unit 7 Banking and Financial Institutions |
Question No.1
In Banking Technologies, Star Topology involves:
- Each node is joined to the central node by a separate medium
- Devices are connected in a close loop
- Information is passed from one node to another in series
- Devices on the network are connected to a single continuous cable
Solutions:
The correct answer is – Each node is joined to the central node by a separate medium
Key Points
Star Topology in banks:
- In a star topology configuration, the remote branches can communicate securely with the corporate headquarters or central site.
- However, intercommunication between the branches is not permitted.
- Such a configuration could be deployed in a bank network so that compromise of one branch will not immediately lead to the compromise of a second branch without being detected.
- To gain access to a second branch, the attacker would have to first compromise the central network that would hopefully be able to detect such an attack.
Hence, In Banking Technologies, Star Topology involves each node is joined to the central node by a separate medium
Question No.2
Which one of the following statement is FALSE regarding transactions of Internet Banking?
- Statement of account is for a specific period
- Withdrawal of cash anywhere in India
- Balance inquiry
- Transfer of funds from one account to another account
Solutions:
The false statement is – Withdrawal of cash anywhere in India
Key Points
Internet Banking:
- Internet banking, often referred to as online banking, e-banking, or virtual banking, is a type of electronic payment system that allows customers of banks and other financial institutions to carry out a variety of financial transactions via the financial institution’s website.
- Anyone who has registered for online banking at the bank, has an active bank account, or has access to another financial institution can use internet banking.
- After signing up for online banking services, a customer no longer needs to go to the bank each time they wish to use a banking service.
- It is not only a safe way to conduct banking, but it is also convenient. Unique User/Customer IDs and passwords are used to protect net banking portals.
Important Points
Services Available through the Internet Banking:
- Account Balance Check
- IMPS Fund Transfer
- View Bank Statements
- NEFT & RTGS Fund Transfer
- Utility Bill Payment
- Start a Deposit
- Open/Close a Fixed Deposit
- Make Merchant Payments
- Issuance of Cheque Book
- Start Investments
- Buy General Insurance
- Recharge Prepaid Mobile/DTH
- Check Mortgages, Loans
- Setup/Cancel Automatic Payments
- Manage/Change Account Details
- Book Online Tickets
- Buy/Sell on E-Commerce Platforms
Hence, Withdrawal of cash is not available using internet banking. This facility is only available using ATM or visiting bank branch
Question No.3
Which of the following is NOT the feature of the Indian capital market?
- Government rules and regulations
- Utilises intermediaries
- Link between savers and investment opportunities
- Co-promotes state-level venture funds
Solutions:
The correct option is – Co-promotes state-level venture funds
Co-promotes state-level venture funds is not a feature of Indian capital Market
Important Points
Features of Indian Capital Market are as follows:
- Serves as link between Savers and Investment Opportunities: As money is transferred from savers to risk-taking borrowers on the capital market, it forms an essential link between the saving and investing processes.
- LongTerm Investment :The ability to put their hard-earned money into long-term investments is beneficial to investors.
- Helps in Capital Formation :The capital market provides chances for those investors who have extra funds and wish to store them in an investment, so they can benefit from compound interest.
- Helps Intermediaries: It requires the assistance of intermediaries, such as brokers, banks, etc., to transfer shares and money from one investor to another, aiding them in running their businesses.
- Rules and Regulations : The government regulates and controls how the capital markets operate, giving it a secure environment for trading.
Additional Information
Capital Market: A capital market is a location where funding instruments like shares, bonds, debentures, debt instruments, and E T Fs can be traded. It is a way to raise money for private citizens, businesses, and governments.
Types of Capital Market
Primary Market:
- New securities that are launched in the stock market for the first time are primarily dealt with in the primary market.
- As a result, the fresh issue market is another name for it.
- The primary market’s principal purpose is to make it easier for corporations to transfer newly issued shares to the general public.
- Financial institutions, banks, H N I, and others are the key investors in this type of market.
Secondary Market:
- Also known as the stock market, this market serves as the actual venue for the trading of securities.
- Here, securities are bought and sold.
- Current investors sell the securities, while new investors acquire the securities.
Question No.4
Comprehension:(Que No. 41 – 45)
Read the paragraph carefully and give an answer to the question
The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.
If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans
Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice. A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates. Many of these firms would face acute liquidity problems when the moratorium ends
Fast growth that embraces all businesses would avert a crisis. Such Goldilocks perfection rarely materializes in real life. Many companies that could survive with access to liquidity could go under when banks think it is time to do their asset quality reviews. The solution is to provide such companies with capital that does not need to be serviced when they do not make a profit on equity
Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival. The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.
This is the time to walk the talk. The equity stakes can be sold later, hopefully at a profit. Special situation funds, private equity, and allocations from retirement savings can be tapped for the needed capital, Managing the investment is the challenge.
Question:
Given below are two statements, one is labelled as Assertion A and the other is labelled as Reason R
Assertion A: A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates
Reason R: Regulatory forbearance must be an emergency medicine but not a staple diet
In light of the above statements, choose the most appropriate answer from the options given below
- Both A and R are correct and R is the correct explanation of A
- Both A and Rare correct but R is NOT the correct explanation of A
- A is correct but R is not correct
- A is not correct but R is correct
Solutions:
The correct answer is – Both A and R are correct and R is the correct explanation of A
Key Points
The fourth Statement of passage says – ” A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates”
Hence, Assertion is true.
The Third statement of the passage says – “Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice”
Hence, the Reason is true and is the correct explanation of Assertion.
Both A and R are correct and R is the correct explanation of A.
Question No.5
Comprehension:(Que No. 41 – 45)
Read the paragraph carefully and give an answer to the question
The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.
If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans
Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice. A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates. Many of these firms would face acute liquidity problems when the moratorium ends
Fast growth that embraces all businesses would avert a crisis. Such Goldilocks perfection rarely materializes in real life. Many companies that could survive with access to liquidity could go under when banks think it is time to do their asset quality reviews. The solution is to provide such companies with capital that does not need to be serviced when they do not make a profit on equity
Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival. The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.
This is the time to walk the talk. The equity stakes can be sold later, hopefully at a profit. Special situation funds, private equity, and allocations from retirement savings can be tapped for the needed capital, Managing the investment is the challenge.
Question:
Which could be a suitable title for the above paragraph?
- Forbearance and Corporate Funding in Crisis Times
- Funding during crisis
- Bad loans and Indian corporates
- Funding crisis and COVID-19
Solutions:
The correct answer is – Forbearance and Corporate Funding in Crisis Times
Key Points
The first line of the passage states that – “The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.“
According to the above statement, the passage can be titled as Forbearance and Corporate Funding in Crisis Times.
Question No.6
Comprehension:(Que No. 41 – 45)
Read the paragraph carefully and give an answer to the question
The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.
If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans
Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice. A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates. Many of these firms would face acute liquidity problems when the moratorium ends
Fast growth that embraces all businesses would avert a crisis. Such Goldilocks perfection rarely materializes in real life. Many companies that could survive with access to liquidity could go under when banks think it is time to do their asset quality reviews. The solution is to provide such companies with capital that does not need to be serviced when they do not make a profit on equity
Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival. The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.
This is the time to walk the talk. The equity stakes can be sold later, hopefully at a profit. Special situation funds, private equity, and allocations from retirement savings can be tapped for the needed capital, Managing the investment is the challenge.
Question:
What is the theme of the paragraph narrated above?
- Crisis of corporate funding during crisis times
- Forbearance of credit default
- Liquidity and survival of companies
- Moratorium by banks on debt service
Solutions:
The correct answer is – Crisis of corporate funding during crisis times
Key Points
The second statement of the passage states that – “If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans”
According to the above statement, the theme of the passage should be Crisis of corporate funding during crisis times.
Question No.7
Comprehension:(Que No. 41 – 45)
Read the paragraph carefully and give an answer to the question
The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.
If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans
Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice. A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates. Many of these firms would face acute liquidity problems when the moratorium ends
Fast growth that embraces all businesses would avert a crisis. Such Goldilocks perfection rarely materializes in real life. Many companies that could survive with access to liquidity could go under when banks think it is time to do their asset quality reviews. The solution is to provide such companies with capital that does not need to be serviced when they do not make a profit on equity
Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival. The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.
This is the time to walk the talk. The equity stakes can be sold later, hopefully at a profit. Special situation funds, private equity, and allocations from retirement savings can be tapped for the needed capital, Managing the investment is the challenge.
Question:
Given below are two statements, one is labelled as Assertion A and the other is labelled as Reason R
Assertion A: The government had promised a fund of funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises
Reason R: Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival.
In light of the above statements, choose the most appropriate answer from the options given below
- Both A and R are correct and R is the correct explanation of A
- Both A and R are correct but R is NOT the correct explanation of A
- A is correct but R is not correct
- A is not correct but R is correct
Solutions:
The correct answer is – Both A and R are correct and R is the correct explanation of A
Key Points
The tenth statement of the passage says – “The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.”
Hence, the Assertion is true.
The ninth statement of the passage says – “Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival.”
Hence, the Reason is true and is the correct explanation of Assertion
Both A and R are correct and R is the correct explanation of A
Question No.8
Comprehension:(Que No. 41 – 45)
Read the paragraph carefully and give an answer to the question
The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.
If followed through, this would mean a major squeeze on company finances, as they scramble for resources to service loans to avoid bankruptcy, and a big demand on the government to recapitalize the banks it owns, after they recognize and provide for a mass of bad loans
Regulatory forbearance must be an emergency medicine, not a staple diet, is sound advice. A moratorium by banks on debt service by borrowers has been a part of the COVID cushioning to corporates. Many of these firms would face acute liquidity problems when the moratorium ends
Fast growth that embraces all businesses would avert a crisis. Such Goldilocks perfection rarely materializes in real life. Many companies that could survive with access to liquidity could go under when banks think it is time to do their asset quality reviews. The solution is to provide such companies with capital that does not need to be serviced when they do not make a profit on equity
Companies would need a whole lot of capital, to service existing loans and to invest in new production, to cater to the demand thrown up by economic revival. The government had promised a fund to funds that would mobilize large volumes of capital to invest in micro, small and medium enterprises.
This is the time to walk the talk. The equity stakes can be sold later, hopefully at a profit. Special situation funds, private equity, and allocations from retirement savings can be tapped for the needed capital, Managing the investment is the challenge.
Question:
Given below are two statements:
Statement I: Forbearance of credit default is a common phenomenon in Indian banking system
Statement ll: Global financial crisis influences the quantum of bad loans in India
In light of the above statements, choose the correct answer from the options given below
- Both statement l and statement ll are true
- Both statement l and statement ll are false
- Statement l is true but statement ll is false
- Statement l is false but statement ll is true
Solutions:
The correct answer is – Both statement l and statement ll are true
Key Points
The first statement of the passage says that – “The Economic Survey cautions against extended forbearance of credit default, drawing the lessons that extended forbearance in the wake of the 2007-08 global financial crisis led to the build-up of bad loans and dragged down investment rates and economic growth.”
Hence, Both Statement I and II are correct.
Question No.9
Comprehension:(Que No. 46 – 50)
Read the given paragraph carefully and answer the questions that follow
For a developing economic nation, its industrial policy requires regular updation to meet the growing demands of the industry as well as to increase the share of manufacturing in overall GDP. As India’s GDP has been dominated by services rather than agriculture or manufacturing, there are structural modifications always required so that manufacturing activity be increased substantially to meet the global market requirements. This requires legal amendments, with the new laws aimed to facilitate better manufacturing and exports.
Actually, India faces two challenges, rather opportunities that the bullishness on the Indian economy is to be export-oriented as well as to feed its ever-growing domestic consumption. Also, no economy can only be consumption oriented as its people should also save and invest actively. This brings to an important direction of banking system which plays a critically important role in achieving the above two objectives. The public sector banks require to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements. Worth mentioning here is the data that the non-performing assets valuing Rs. 7.7 lakh crore (as on December 2017) as per the latest figures of the Finance Ministry. Nevertheless, given their large structure and geographic percolation, the public sector banks must be recognized in India’s development and that there is “no country in the world where banks have not had a problem.”
Question:
What problem is highlighted in the above passage?
- Low growth in GDP
- Balance of payments issue
- High fiscal deficit
- Role of banking sector
Solutions:
The correct answer is – High fiscal deficit
Key Points
The eighth Statement of the passage says that – “Worth mentioning here is the data that the non-performing assets valuing Rs. 7.7 lakh crore (as on December 2017) as per the latest figures of the Finance Ministry“
According to the above statement, the problem is highlighted in the above passage High fiscal deficit
Question No.10
Comprehension:(Que No. 46 – 50)
Read the given paragraph carefully and answer the questions that follow
For a developing economic nation, its industrial policy requires regular updation to meet the growing demands of the industry as well as to increase the share of manufacturing in overall GDP. As India’s GDP has been dominated by services rather than agriculture or manufacturing, there are structural modifications always required so that manufacturing activity be increased substantially to meet the global market requirements. This requires legal amendments, with the new laws aimed to facilitate better manufacturing and exports.
Actually, India faces two challenges, rather opportunities that the bullishness on the Indian economy is to be export-oriented as well as to feed its ever-growing domestic consumption. Also, no economy can only be consumption oriented as its people should also save and invest actively. This brings to an important direction of banking system which plays a critically important role in achieving the above two objectives. The public sector banks require to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements. Worth mentioning here is the data that the non-performing assets valuing Rs. 7.7 lakh crore (as on December 2017) as per the latest figures of the Finance Ministry. Nevertheless, given their large structure and geographic percolation, the public sector banks must be recognized in India’s development and that there is “no country in the world where banks have not had a problem.”
Question:
Which of the following is not a feature of the consumption economy?
- Increasing population with increasing consumption
- More contribution to indirect taxes
- It also prompts more exports than imports
- The unsold goods create problems/act
Solutions:
“It also prompts more exports than imports” is not a feature of the consumption economy
Key Points
Consumption Economy:
A Consumption economy is the economy where there is a Domestic consumption of goods and service by inhabitants of the economy.
Important Points
Feature of the consumption economy:
- It increases with increase in population since people purchase more goods for consumption.
- People purchasing more goods for consumption result in increase in collection of indirect taxes.
- If unsold goods exist, this creates problems.
- It also discourages more exports than imports due to ever growing domestic demand.
Question No.11
Comprehension:(Que No. 46 – 50)
Read the given paragraph carefully and answer the questions that follow
For a developing economic nation, its industrial policy requires regular updation to meet the growing demands of the industry as well as to increase the share of manufacturing in overall GDP. As India’s GDP has been dominated by services rather than agriculture or manufacturing, there are structural modifications always required so that manufacturing activity be increased substantially to meet the global market requirements. This requires legal amendments, with the new laws aimed to facilitate better manufacturing and exports.
Actually, India faces two challenges, rather opportunities that the bullishness on the Indian economy is to be export-oriented as well as to feed its ever-growing domestic consumption. Also, no economy can only be consumption oriented as its people should also save and invest actively. This brings to an important direction of banking system which plays a critically important role in achieving the above two objectives. The public sector banks require to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements. Worth mentioning here is the data that the non-performing assets valuing Rs. 7.7 lakh crore (as on December 2017) as per the latest figures of the Finance Ministry. Nevertheless, given their large structure and geographic percolation, the public sector banks must be recognized in India’s development and that there is “no country in the world where banks have not had a problem.”
Question:
Which of the following set defines Sustainable Consumption and Production (SCP)?
A. The use of services and related products which respond to basic needs and bring a better quality of life.
B. Minimizing the use of natural resources and toxic materials as well as the emission of waste as pollutants.
C. Pertinent use of service or product so as not to jeopardise the needs of future generations.
D. Planned cities with a lower cost of production minimizing the retail inflation.
Choose the correct answer from the options given below
- A, B and D only
- B, C and D only
- A, B and C only
- A, B, C and D
Solutions:
The correct answer is – A, B and C only
Key Points
Sustainable Consumption and Production (SCP):
- SCP, or sustainable consumption and production, emphasises getting more done with fewer resources.
- It also aims to promote sustainable lifestyles, improve resource efficiency, and uncouple economic growth from environmental deterioration.
Important Points
Sustainable consumption and production refers to “the use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardize the needs of future generations”.
According to the above definition of Sustainable consumption and production, the correct answer for this question is A, B and C only.
Mistake Points According to UGC NET official Answer key, the answer to this question is mentioned as A, B and D only.
However, upon researching we have found that the correct answer must be A, B and C only. The answer is marked accordingly.
Question No.12
Comprehension:(Que No. 46 – 50)
Read the given paragraph carefully and answer the questions that follow
For a developing economic nation, its industrial policy requires regular updation to meet the growing demands of the industry as well as to increase the share of manufacturing in overall GDP. As India’s GDP has been dominated by services rather than agriculture or manufacturing, there are structural modifications always required so that manufacturing activity be increased substantially to meet the global market requirements. This requires legal amendments, with the new laws aimed to facilitate better manufacturing and exports.
Actually, India faces two challenges, rather opportunities that the bullishness on the Indian economy is to be export-oriented as well as to feed its ever-growing domestic consumption. Also, no economy can only be consumption oriented as its people should also save and invest actively. This brings to an important direction of banking system which plays a critically important role in achieving the above two objectives. The public sector banks require to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements. Worth mentioning here is the data that the non-performing assets valuing Rs. 7.7 lakh crore (as on December 2017) as per the latest figures of the Finance Ministry. Nevertheless, given their large structure and geographic percolation, the public sector banks must be recognized in India’s development and that there is “no country in the world where banks have not had a problem.”
Question:
The credit appraisal process by a bank does NOT involve evaluation if the borrower on:
- Technical feasibility
- Economic viability
- Bank ability or credit worthiness
- Loan off takes and paying ability of related companies in the geographical area
Solutions:
The incorrect option is – Bank ability or credit worthiness
Key Points
Credit Appraisal:
- Credit appraisal is the assessment of the viability of proposed long term investments in terms of shareholder wealth and the formal analysis of all project costs and benefits which is used to justify the project proposal.
- Prior to making any loans, advances, or project financing, the bank will conduct a credit appraisal, which includes a review of the project’s commercial, financial, and technical viability as well as its proposed funding strategy.
- It also verifies the primary and collateral security coverage that will be used to recover the funds.
- The Credit Appraisal is a complete exercise which starts from the time a potential borrower walks into the branch and concludes in credit delivery and monitoring with the objective of certifying and maintaining the quality of lending and managing credit risk.
Important Points
Credit Appraisal is the process by which a lender/banker appraises the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower.
Key Points
considered for Appraisal:
1. Character: The honesty and integrity of the borrower is of primary importance. Even if a very good security is being offered by the customer, unless and until, his honesty and integrity is undoubted, no credit request should be entertained.
2. Capacity: This refers to the management’s ability to run the business. The advance is safe and secure if the management of the company is able and sound. The capacity or ability of the borrower for business is to be judged in the light of his qualification, experience and leadership qualities.
3. Capital : This refers to the amount invested in the business by the borrower. In other words, it represents the stake of the owner in the business. It is very important that the prospective borrowers have adequate stake in the business.
4. Collateral: To a banker, security is important in order to secure the credit exposure it offers. The security should be one having a good title, stability of value and ready marketability. Security is obtained as an insurance against any unforeseen developments.
5. Condition: Particularly in case of industrial advances, the condition of the country and position of the proposed borrower’s business in the industrial cycle at the time of credit request is of much importance. One has to make investigation about the existing business conditions and government regulations.
Question No.13
Comprehension:(Que No. 46 – 50)
Read the given paragraph carefully and answer the questions that follow
For a developing economic nation, its industrial policy requires regular updation to meet the growing demands of the industry as well as to increase the share of manufacturing in overall GDP. As India’s GDP has been dominated by services rather than agriculture or manufacturing, there are structural modifications always required so that manufacturing activity be increased substantially to meet the global market requirements. This requires legal amendments, with the new laws aimed to facilitate better manufacturing and exports.
Actually, India faces two challenges, rather opportunities that the bullishness on the Indian economy is to be export-oriented as well as to feed its ever-growing domestic consumption. Also, no economy can only be consumption oriented as its people should also save and invest actively. This brings to an important direction of banking system which plays a critically important role in achieving the above two objectives. The public sector banks require to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements. Worth mentioning here is the data that the non-performing assets valuing Rs. 7.7 lakh crore (as on December 2017) as per the latest figures of the Finance Ministry. Nevertheless, given their large structure and geographic percolation, the public sector banks must be recognized in India’s development and that there is “no country in the world where banks have not had a problem.”
Question:
The Indian banking sector requires that it:
- build more manpower and ICT resources
- be more technology dependent
- evaluate loan disbursals
- increase the frequency of change of the bank rates
Solutions:
The correct answer is – build more manpower and ICT resources
Key Points
The Seventh Statement of the passage states – ” The public sector banks require to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements.”
It is clear from the above statement that banks need to develop build more manpower and ICT resources to build on to the capabilities and expertise on the due diligence methods for the credit appraisal for the loan requirements.
Question No.14
Match List I with List II
| List I | List II | ||
| A. | Role of Commercial Bank | l. | Help to consumers |
| B. | NBFC service | ll. | Mutual saving bank |
| C. | Non-depository Institution | Ill. | Hire purchase |
| D. | Depository Institution | lv. | Mutual fund |
Choose the correct answer from the options given below:
- A – ll, B – l, C – lll, D – lV
- A – l, B – lll, C – lV, D – ll
- A – lV, B – ll, C – l, D – lll
- A – lll, B – lV, C – ll, D – l
Solutions:
The correct answer is – A – l, B – lll, C – lV, D – ll
| List I | List II | ||
| A. | Role of Commercial Bank | l. | Help to consumers |
| B. | NBFC service | Ill. | Hire purchase |
| C. | Non-depository Institution | lv. | Mutual fund |
| D. | Depository Institution | ll. | Mutual saving bank |
Key Points
Financial Institution – A company engaged in the business of handling financial and monetary activities, such as deposits, loans, investments, and currency exchange, is referred to as a financial institution. Banks, trust companies, insurance companies, brokerage firms, and investment dealers are just a few of the many business operations that fall under the umbrella term “financial institutions” in the financial services industry.
Important Points
Role of Commercial Bank-
- Commercial Banks provides services like accept deposits , Lend money, Process payments, Issue bank drafts and checks, Offer safety deposit boxes for items and documents of people.
- Thus, Commercial Bank helps consumer in their saving & providing loans and security to consumers.
NBFC service- NBFCS are quickly becoming a significant part of the Indian financial sector. It is a diverse collection of organisations that act as financial intermediaries in a number of ways besides commercial banks and cooperative banks, such as accepting deposits, disbursing loans and advances, leasing, hire purchases etc.
Non-depository Institution – Any financial organisation that serves as an intermediates in a financial transaction between two parties and does not offer conventional depository services such as brokerage houses, insurance companies, investment businesses, etc.
Depository Institution – A financial institution that primarily receives deposits from the general people. Commercial banks, savings and loan associations, savings banks, and credit unions are all included in this.
In above questions, it will be mutual saving Bank. A financial entity known as a mutual savings bank performs many of the same operations as a bank but has a distinct ownership structure. A mutual savings bank is owned by its depositors rather than by shareholders who own marketable shares (Depositors).
Question No.15
Arrange the following steps in a logical sequence of the claim settlement procedure in the Insurance
A. Scrutinisation
B. Investigation of an assessment
C. Claim form
D. Notice of loss
E. Settlement and Arbitration
Choose the correct answer from the options given below
- A, B, C, D, E
- C, A, D, B, E
- C, B, A, E, D
- D, C, A, B, E
Solutions:
The correct sequence is – D, C, A, B, E
Key Points
Claim settlement:
- A formal application to an insurance provider for payment in accordance with the provisions of the insurance policy is known as an insurance claim.
- After examining the claim for legitimacy, the insurance company decides whether to pay the insured directly or to the party making the request (on the insured’s behalf).
Important Points
Procedure for claim settlement in the Insurance:
- Notice of loss: The policyholder must make the insurer aware of the damage or loss as early as possible.
- Claim form: The policyholder has to fill a claim settlement forms giving each and every detail about the subject-matter.
- Scrutinisation: The insurance company will perform a scrutiny and verify the details and will perform an inquiry in case of accident.
- Investigation of an assessment: Insurance companies often conduct claims investigations to evaluate the legitimacy of a claim. The investigation process helps the claims’ adjuster make an educated decision about how to proceed with a claim.
- Settlement and Arbitration: Arbitration may be used to settle an insurance dispute between an insurance provider and a policyholder. If everything goes perfect, the settlement is made to the policyholder.
Question No.16
Which of the following is INCORRECT about ways, the RBI can affect the structure of interest rates?
A. By changing the treasury bill rate
B. Blending of leading and trading activities
C. By changing the Bank rate
D. Fixing the maximum interest on time deposits with the bank
E. Ineffective tapping and mobilization of savings
Choose the correct answer from the options given below:
- A and D only
- D and E only
- B and E only
- A, C, D and E only
Solutions:
The incorrect answer is – B and E only
Key Points
RBI (Reserve Bank of India) –
- The central bank of the country is the Reserve Bank of India (RBI), commonly referred to as the banker’s bank.
- RBI established in Under the provisions of the Reserve Bank of India Act, it started operating on April 1st, 1935.
- RBI was founded to promote financial stability in India by implementing monetary policies to ensure monetary stability.
- In addition to managing the country’s monetary system, government debt, foreign exchange reserves, and financial regulation and supervision, it also serves as a banker to the country’s banks and the government.
Important Points
Ineffective tapping and mobilization of savings-
- The amount of money that lenders and investors are willing to save and invest can be influenced by interest rates.
- With high interest rate on saving, people tend to save more and vice versa.
- High interest rate on lending people will borrow less and vice versa.
- By cash reserve ratio, statutory liquidity ratio, Bank rate, repo rates and others rates RBI control money supply and inflation level of an economy.
- Hence, Ineffective tapping and mobilization of savings is an incorrect statement about RBI.
Blending of leading and trading activities:
- Blending of leading and trading activities cannot affect the structure of interest rates as these activities are managed by SEBI.
Additional Information
Treasury Bills –
- Treasury bills are part of organised money market. they are used by Central Govt. to fulfill short term liquidity requirement upto 364 days.
- First treasury bill issued in 1986.There total 5 types of treasury bills ; 14 days TBs, 14 days TBs (auctionable TBs), 91 days TBs, 182 days, 364 TBs.
- These also function as short term investment for Banks and Financial institution.
Question No.17
Which of the following are the limitations in the creation of credit of commercial banks?
A. The amount of cash that commercial banks possess
B. Supply of collateral security
C. Monetary policy of the central bank
D. Allied deposits scheme
E. Deposits linked with special benefits
Choose the correct answer from the options given below:
- A, D and E only
- A, C and E only
- C and D only
- D and E only
Solutions:
The correct answer is – D and E only
Key Points
Commercial Banks – A commercial bank is a type of financial organisation that handles all transactions involving public money deposits and withdrawals, lending money for investments, and other similar activities. These banks are for-profit organisations that operate solely for financial gain.
Credit Creation: Credit creation is the process by which commercial banks are able to create loans in the form of new deposits.
Important Points
Allied deposits scheme and Deposits linked with special benefits tend to reduce the capacity of the commercial to create credit since, the amount invested in these schemes is generally used by banks to provide special attached benefits and credit creation is low.
Hence, Allied deposits scheme and Deposits linked with special benefits are the limitations of Credit Creation.
Question No.18
Which of the following order is followed in the issue of shares under the “Fixed Price Offer Method”?
A. Issue of a prospectus
B. Receipt by the company of application for share
C. Selection of merchant banker
D. Issue of share certificates
E. Allotment of shares to the applicant
Choose the correct answer from the options given below
- A, D, E, C, B
- C, B, A, D, E
- C, A, B, E, D
- E, B, A, C, D
Solutions:
The correct order is – C, A, B, E, D
Key Points
Fixed Price Offer Method of issue of shares:
- In a fixed price offer method, the company going public sets a preset price for the shares it will sell to investors.
- Before the company goes public, the investors are aware of the share price. Only after the issue has been resolved can the market’s demand be determined.
- The investor must apply and pay the entire share price in order to participate in this IPO.
Important Points
Procedure for issue of shares using Fixed Price offer Method:
Step 1: Selection of Merchant Bankers: The first step is to choose a merchant banker who could serve as a lead manager and who will make the appropriate arrangements for the company’s share issuance.
Step 2: Issue of Prospectus: To invite the public to subscribe for shares, the corporation first releases a prospectus. It is a document that solicits public contributions or offers for the subscription of the company’s shares or debentures.
Step 3: Receipt of Application Money: With the information from the prospectus in hand, the prospective shareholders submit their application for the shares to a designated bank in block letters, together with the application fee (which should equal at least 25% of the share’s face value). The business enters these details in the Application and Allotment Book once the subscription list has been closed.
Step 4: Receipt of Allotment Money/Allotment of Shares: In accordance with Sections 69 and 70 of the Companies Act, the Board of Directors allots the shares to the shareholders. The Board of Directors must determine a criterion for allotment if the public (shareholders) do not purchase all of the shares provided by the company or if more shares are requested than are available since they have the option to refuse or accept applications in part.
Step 5: Issue of share certificates: The right to receive a certificate of shares belongs to everyone whose name is listed as a member in a company’s register of members (Article 7(1)—Table A, Schedule II).
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