Digital Banking and E-Banking Questions and Answers

Answer: C

Correct answer: Certain companies

Minimum Alternate Tax under section 115JB applies to certain companies, not to all. It was introduced to catch profitable companies that reduced their taxable income to nil or near nil through exemptions, deductions and accelerated depreciation, by levying a minimum tax on book profit instead.

Several categories are outside its scope, including companies in specified sectors and those opting for the concessional tax régimes under sections 115BAA and 115BAB. Partnership firms and associations of persons are not companies at all, and are dealt with by the separate Alternate Minimum Tax provisions.

Answer: D

Correct answer: i, ii and iii

A merchant banker is a capital market intermediary registered with SEBI, not a bank. It may not accept deposits (i), may not advance loans in the banking sense (ii), and may not carry on other banking activities (iii) - so all three of those statements are untrue of it.

Statement (iv) is true and therefore not part of the answer: acting as lead manager to a public issue is precisely a merchant banker's core function, alongside underwriting, advising on capital structure, and managing rights issues and takeovers.

Answer: C

Correct answer: (A) is true, but (R) is false

The assertion is accurate. An indent is an order for goods placed by an importer with an overseas supplier, usually through an indent house, and it may be open or closed: an open indent leaves price and other particulars to the agent's discretion, while a closed indent specifies brand, price, quantity, packing, shipping mode and insurance.

The reason is wrong in its attribution. The indent belongs to the import procedure, being the buyer's instruction to procure, and it is a commercial document of the trade rather than something required as part of export formalities.

Answer: D

Correct answer: They can set up subsidiaries to undertake non-banking financial service activities.

This is the statement that is not true. The RBI's guidelines expressly bar a Small Finance Bank from setting up subsidiaries for non-banking financial service activities. The model is deliberately narrow - the bank is to concentrate on basic deposit-taking and lending to underserved segments rather than build a financial conglomerate.

The other three are correct: minimum paid-up equity capital of ₹100 crore, at least 50 per cent of the loan portfolio in advances of up to ₹25 lakh, and single-borrower exposure capped at 10 per cent of capital funds and group exposure at 15 per cent.

Answer: A

Correct answer: 1948

The Industrial Finance Corporation of India was set up in 1948 under a special Act of Parliament, the first development financial institution in independent India. Its purpose was to supply medium and long-term finance to industry when the capital market was too shallow and the commercial banks too short-term in outlook to do so.

The others followed as the gaps became apparent: ICICI in 1955 with World Bank backing, IDBI in 1964 as the intended apex institution, and IRBI in 1985 for industrial rehabilitation.

Answer: D

Correct answer: Book keeping

Book keeping is not one of the three pillars. The Basel II framework, on which India's revised capital adequacy regime was based, rests on minimum capital requirements, supervisory review and market discipline.

The first sets the capital a bank must hold against credit, market and operational risk. The second requires supervisors to assess whether a bank's own capital assessment is adequate for its risk profile. The third obliges disclosure sufficient for the market to form its own judgement. Book keeping is an accounting function that underlies all three but is not a pillar of the framework.

Answer: D

Correct answer: Walter leaf

The definition quoted - a banker as a person or corporation holding itself out to receive deposits from the public payable on demand by cheque - is Walter Leaf's. It picks out the two features that distinguish a bank from any other institution taking money: the deposits come from the public generally, and they are withdrawable on demand by cheque.

That second element is what makes bank deposits function as money, since a cheque transfers purchasing power without cash moving. Findlay Shirras, Kinley and Hart each offered definitions of their own, differing in emphasis.

Answer: B

Correct answer: Reserve Bank of India

The Reserve Bank of India is the odd one out because it is the central bank - the note-issuing authority, the banker to the government and to other banks, and the regulator of the banking system. It does not take deposits from or lend to the public.

State Bank of India, Union Bank of India and Central Bank of India are all commercial banks doing ordinary retail and corporate business. Central Bank of India is the trap: despite the name it is a commercial bank, one of the oldest in India, and has never been a central bank.

Answer: D

Correct answer: Letter of credit does not indicate that the bank will pay the value of imports to the exporter.

This is the untrue statement, and it inverts what a letter of credit is for. An LC is precisely an undertaking by the issuing bank to pay the exporter the value of the goods, provided the documents presented conform to its terms. That substitution of the bank's credit for the importer's is the whole reason exporters accept it.

The other statements are accurate as given: institutional infrastructure supports market intelligence, the STC acts as a canalising agency for agricultural trade, and the ITPO organises trade fairs and exhibitions.

Answer: B

Correct answer: (A) is true but (R) is false and it is not correct explanation of (A).

The assertion is true: through credit creation banks control a large part of the money supply, since every loan creates a deposit and the process multiplies the original cash base.

The reason is false. Banks certainly do influence the nature and character of production, precisely because they decide who receives credit - priority sector lending requirements, sectoral exposure limits and the banks' own appraisal all steer investment towards some activities and away from others. Being false, it cannot explain the assertion either.