Abbreviations and Banking Terminology Questions and Answers

Answer: C

Correct answer: Provident Fund

A provident fund is a contributory retirement savings arrangement in which employer and employee both pay in and the accumulated balance with interest is paid out on retirement or exit.

In India the Employees' Provident Fund Organisation administers the statutory scheme, and the Public Provident Fund is its voluntary counterpart open to any individual. The distinguishing feature against a pension is that a provident fund pays a lump sum from a defined contribution, where a pension pays a stream, often from a defined benefit.

Answer: C

Correct answer: European Central Bank

ECB stands for the European Central Bank, the central bank of the nineteen European Union member states that use the euro, headquartered in Frankfurt. It sets monetary policy for the euro area - principally interest rates - with price stability as its primary mandate, and since 2014 it has also supervised the area’s significant banks through the Single Supervisory Mechanism. Note that in Indian banking papers the same three letters more often stand for External Commercial Borrowings, loans raised by Indian entities from non-resident lenders; read the options to see which sense a question intends. The abbreviation in this record had been corrupted to “ECD” and is restored above.

Answer: A

Correct answer: Bank Base Rate

The bank base rate is the reference rate a bank sets, on which its lending rates to customers are built - a loan being priced at the base rate plus a spread reflecting the borrower's risk and the tenor.

The point of such a system is transparency: the reference is published, so a change in it moves every linked loan visibly and identically. India has since moved through the base rate to the marginal cost of funds based lending rate and then to external benchmarks, each step tightening the link between the bank's own funding cost and the price it charges.

Answer: B

Correct answer: Punjab National Bank

Punjab National Bank was founded in 1894 at Lahore and was the first Indian bank started wholly with Indian capital, its founders including Lala Lajpat Rai.

It was nationalised in the first round of July 1969 and is today one of the largest public sector banks, having absorbed Oriental Bank of Commerce and United Bank of India in the 2020 amalgamation. Note the wording: it is Punjab National Bank, not "Punjab Nationalised Bank" - the name predates nationalisation by seventy-five years.

Answer: A

Correct answer: Life Insurance Corporation of India

The Life Insurance Corporation of India was created in 1956 by the Life Insurance Corporation Act, which nationalised life insurance and merged some two hundred and forty-five private insurers into a single state corporation.

It held a statutory monopoly until the sector was reopened in 2000, and it remains by far the largest life insurer and one of the largest institutional investors in the Indian market. General insurance was nationalised separately and later, in 1972, under the General Insurance Corporation.

Answer: B

Correct answer: Tax Information and Exchange Agreement

A tax information exchange agreement is a bilateral treaty under which two jurisdictions undertake to supply each other with information relevant to the administration of their tax laws.

India has signed a number of them, particularly with jurisdictions offering banking secrecy, to trace undisclosed assets held abroad. They differ from double taxation avoidance agreements, which allocate taxing rights between countries; a TIEA allocates nothing and does only one thing - make information available on request or, increasingly, automatically.

Answer: C

Correct answer: Indian Institute of Bank Management

The Indian Institute of Bank Management at Guwahati is a training and research institution for the banking sector, established with Reserve Bank support.

Its work is education and research rather than banking: management development for bank officers, and studies of rural credit and banking in the north-eastern region in particular. It belongs to the family of sector training bodies alongside the National Institute of Bank Management at Pune and the Indian Institute of Banking and Finance, which are frequently confused with it.

Answer: B

Correct answer: Reserve Bank of India

The Reserve Bank of India is the central bank, established on 1 April 1935 under the Reserve Bank of India Act 1934 and nationalised in 1949.

It issues the currency, conducts monetary policy, regulates and supervises banks, manages the government's accounts and public debt, and administers foreign exchange. Note the spelling: Reserve, not "Reserved" - the name refers to the reserves it holds. It is quite distinct from the State Bank of India, which is a commercial bank it regulates.

Answer: A

Correct answer: Certificate of Deposit

A certificate of deposit is a negotiable money market instrument issued by a bank against funds deposited for a fixed term, carrying a stated rate and maturity.

Its distinguishing feature is negotiability: unlike an ordinary term deposit it can be transferred by endorsement or delivery, so the holder can realise it before maturity by selling it rather than by breaking it. In India CDs are issued in dematerialised form, generally at a discount to face value, and are governed by RBI directions on minimum size and tenor.

Answer: C

Correct answer: Debt Recovery Tribunals

DRTs were set up under the 1993 Act to speed the recovery of debts owed to banks.