Unit 7 Banking and Financial Institutions PYQ’s 6th Dec 2019 Shift 2

The following are the explanation for the correct match:

The correct answer is – d) → b) → c) → a)

The year of the establishment of the following institutions in ascending order are as follows:

1. Unit Trust Of India – 1963
2. Export-Import Bank of India – 1 January 1982
3. NABARD – 12 July 1982
4. National Housing Bank – 9 July 1988

Therefore, the ascending order for their year of establishment are d) → b) → c) → a)

The correct answer is – Genesis of insurance in India

Key Points

• Let’s have a look at the first two sentences from the paragraph:
• “Life Insurance in its modern form came to India from England in the year 1818. The Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian soil.”
• Upon perusal of the above statement, it can be concluded that the paragraph is about the Genesis of insurance in India.

The correct answer is – Initially, insurance companies used to discriminate between Indian and European clients

Key Points

• Let’s have a look at the 3rd sentence from the paragraph:
• “All the insurance companies established during that period were brought up with the purpose of looking after the needs of the European community and Indian natives were not being insured by these companies.”
• Upon perusal of the above statement, it can be concluded that initially, insurance companies used to discriminate between Indian and European clients.

The correct answer is – Provident Fund

Key Points

• Let’s have a look at the 3rd last sentence from the paragraph:
• “In the year 1912, Life Insurance Companies Act and Provident Fund Act were passed.”
• Upon perusal of the above statement, it can be concluded that Provident Fund grew along with insurance business in India.

The correct answer is – Europeans

Key Points

• Let’s have a look at the 2nd sentence from the paragraph:
• “The Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian soil.”
• Upon perusal of the above statement, it can be concluded Europeans were the first to start the insurance business in India.

The correct answer is – Swadeshi Life

Key Points

• Let’s have a look at the 9th sentence from the paragraph:
• “The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies established during the same period.”
• Upon perusal of the above statement, it can be concluded Swadeshi Life was later renamed Bombay Life.

Treasury Bill:

1. A Treasury Bill is an instrument for short-term borrowing by the Government of India.
2. It is issued by the Reserve Bank of India on behalf of the Government of India in the form of a promissory note.
3. The necessity for issuing treasury bills arises because of the periodic nature of receipts of Government while the Government expenditure is on a continuing basis.
4. Taxes are payable to the Government after quarterly intervals or so, but the Government has to meet its expenditure on a daily or monthly basis.
5. Thus, to bridge this gap between the timings of Government receipts and expenditure, the Government borrows money on a short-term basis by issuing Treasury Bills.
6. It is a risk-free instrument.

Key Points

1. Before, the 1960s the 91 days Treasury bills were sold on an auction basis.
2. Subsequently, these T-Bills were replaced by Tap sale of T-bills since the mid-1960s.
3. The tap bill rates varied consistently with changes in the Bank Rate till 1974 and thereafter the discount rate on tap bill was fixed at 4.6%.
4. 182 days T-bills were introduced in November 1986 on an auction basis.
5. The 182 days T-bills were replaced by the introduction of 364 days T-bills on a fortnightly auction basis since April 1992.
6. Subsequently, 91 days T-bills were introduced on an auction basis in January 1993.
7. When the 91 days ad-hoc T-bills were discontinued in April 1997, to enable finer cash management of the government and to provide an avenue for state governments and some foreign central banks to invest surplus funds, 14-days T-bills were introduced in April 1997.
8. Subsequently, the 14 days T-bills and 182 days T-Bills were discontinued.
9. Currently, 91 days T-Bills, 182 days T-Bills, and 364 days T-Bills are sold on an auction basis.

Treasury Bill:

1. A Treasury Bill is an instrument for short-term borrowing by the Government of India.
2. It is issued by the Reserve Bank of India on behalf of the Government of India in the form of a promissory note.
3. The necessity for issuing treasury bills arises because of the periodic nature of receipts of Government while the Government expenditure is on a continuing basis.
4. Taxes are payable to the Government after quarterly intervals or so, but the Government has to meet its expenditure on a daily or monthly basis.
5. Thus, to bridge this gap between the timings of Government receipts and expenditure, the Government borrows money on a short-term basis by issuing Treasury Bills.
6. It is a risk-free instrument.

Key Points

1. Before, the 1960s the 91 days Treasury bills were sold on an auction basis.
2. Subsequently, these T-Bills were replaced by Tap sale of T-bills since the mid-1960s.
3. The tap bill rates varied consistently with changes in the Bank Rate till 1974 and thereafter the discount rate on tap bill was fixed at 4.6%.
4. 182 days T-bills were introduced in November 1986 on an auction basis.
5. The 182 days T-bills were replaced by the introduction of 364 days T-bills on a fortnightly auction basis since April 1992.
6. Subsequently, 91 days T-bills were introduced on an auction basis in January 1993.
7. When the ad-hoc T-bills were discontinued in April 1997, to enable finer cash management of the government and to provide an avenue for state governments and some foreign central banks to invest surplus funds, 14-days T-bills were introduced in April 1997.
8. Subsequently, the 14 days T-bills and 182 days T-Bills were discontinued.
9. Currently, 91 days T-Bills, 182 days T-Bills, and 364 days T-Bills are sold on an auction basis.
10. There is no treasury bill issued with a maturity of 273 Days.

The Reserve Bank of India is the central bank of the country. Central banks are a relatively recent innovation and most central banks, as we know them today, were established around the early twentieth century.

The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to

• Regulate the issue of banknotes
• Maintain reserves with a view to securing monetary stability and
• To operate the credit and currency system of the country to its advantage.

The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts, and public debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore, and Cawnpore (Kanpur) became branches of the Issue Department. Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi, and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma till the Japanese Occupation of Burma and later up to April 1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan up to June 1948 when the State Bank of Pakistan commenced operations. The Bank, which was originally set up as a shareholder’s bank, was nationalized in 1949.

Bangladesh Bank is the central bank of Bangladesh and is a member of the Asian Clearing Union. It is fully owned by the Government of Bangladesh. Bangladesh Bank, the central bank and apex regulatory body for the country’s monetary and financial system, was established in Dhaka as a body corporate vide the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16th December 1971.

National Housing Bank (NHB)

1. It was set up in July 1988 under the National Housing Bank Act, 1987 as the apex bank in the field of housing finance.
2. It is a wholly-owned subsidiary of the Reserve Bank of India.
3. It is the principal agency to promote housing finance institutions at the regional and local levels and to provide financial and other support to such institutions.
4. NHB has an equity capital of Rs. 300 crores, which is contributed by the Reserve Bank of India.
5. NHB also raises resources through a variety of debt instruments such as bonds, debentures, and borrowings.
6. Its bonds which are guaranteed by the Government of India, are eligible securities for commercial banks for compiling with the statutory liquidity requirement under the Banking Regulation Act.
7. Moreover, it receives external assistance also from international agencies such as US AID and OECF(Japan). It accepts deposits through Home Loan Accounts maintained by commercial banks.
8. National housing bank provides re-finance to the Housing Finance Companies, which are spread all over the country and account for the major share, followed by commercial banks and co-operative banks and Land Development Banks.

Therefore, the National Housing Bank was established in 1987 as a wholly-owned subsidiary of the Reserve Bank of India.

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of the immovable property.

Key Points

NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non-deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows:

I. Asset Finance Company (AFC):

• An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earthmoving, and material handling equipment, moving on own power and general purpose industrial machines.
• Principal business for this purpose is defined as an aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.

II. Investment Company (IC): IC means any company which is a financial institution carrying on as its principal business the acquisition of securities,

III. Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.

Important Points

Foreign Trade Company (FTC): FTCs are companies that cover all import and export operations and procedures. This type of company buys products from one country and sells the same to other countries where it has its own distribution networks. They are not part of NBFCs.

Thus, Option 1 is the correct option.

the following are the types of cyber-attacks that may occur in the process of mobile banking:

Key Points

1. Backdoor attack:

• A backdoor is a malware type that negates normal authentication procedures to access a system.
• As a result, remote access is granted to resources within an application, such as databases and file servers, giving perpetrators the ability to remotely issue system commands and update malware.

2. Denial of service attack:

• A Denial-of-Service (DoS) attack is an attack meant to shut down a machine or network, making it inaccessible to its intended users.
• DoS attacks accomplish this by flooding the target with traffic or sending it information that triggers a crash.

3. Direct access attack:

• A direct-access attack is an attack where a hacker is able to gain access to a computer and be able to directly download data from it.
• They will be able to compromise security by modifying that software and adding key loggers, worms, etc.
• Eavesdropping is listening to a private conversation between hosts and networks.

Additional Information

1. Front door attack:

• A front door attack is a kind of cyber attack where the user gets tricked into opening such websites or URL links that open the front door for viruses.

• All front-door attacks require the actions of the user to allow the virus to infect the system.
• This is why they are referred to as a front-door attack, as metaphorically, the user is tricked into opening the front door and letting the virus in.

• These types of attacks are not possible in mobile banking.

Thus, option 4 is the correct answer.