MCQs on Indian Financial System – An Overview

Indian Financial System – MCQs

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1. What does a financial system primarily facilitate?

A) Political stability
B) Religious practices
C) Transfer and allocation of funds
D) Social integration

Correct Answer: C) Transfer and allocation of funds

2. Which institution was established in 1935?

A) State Bank of India
B) Reserve Bank of India
C) NABARD
D) ICICI Bank

Correct Answer: B) Reserve Bank of India

3. When was the Reserve Bank of India nationalized?

A) 1935
B) 1949
C) 1969
D) 1991

Correct Answer: B) 1949

4. What was a major outcome of the Narasimham Committee Report (1991)?

A) Abolition of all private banks
B) Increased CRR and SLR
C) Restructuring weak banks and capital norms
D) Complete privatization

Correct Answer: C) Restructuring weak banks and capital norms

5. Which technological improvement was introduced during the 1992–2008 banking reforms?

A) SWIFT messaging
B) Core Banking Solutions (CBS)
C) Bitcoin integration
D) Cheque truncation

Correct Answer: B) Core Banking Solutions (CBS)

6. What is the formula for Capital Adequacy Ratio (CAR)?

A) Tier 1 / Risk Assets
B) (Tier 1 + Tier 2) / Risk Weighted Assets
C) Risk Assets / Capital
D) Total Assets / Equity

Correct Answer: B) (Tier 1 + Tier 2) / Risk Weighted Assets

7. If Tier 1 Capital = ₹10,000 Cr, Tier 2 Capital = ₹5,000 Cr, and Risk Weighted Assets = ₹100,000 Cr, what is the CAR?

A) 5%
B) 10%
C) 15%
D) 20%

Correct Answer: C) 15%

8. Which of the following banks is a private sector bank?

A) Punjab National Bank
B) Bank of Baroda
C) HDFC Bank
D) Indian Bank

Correct Answer: C) HDFC Bank

9. What characterized the Indian financial system before 1951?

A) Strong regulatory framework
B) Complete nationalization
C) Dominance of informal systems
D) Entry of foreign banks

Correct Answer: C) Dominance of informal systems

10. In which year was the State Bank of India established?

A) 1949
B) 1955
C) 1969
D) 1971

Correct Answer: B) 1955

11. What marked the 1969 reform in the Indian banking sector?

A) Establishment of RBI
B) LPG reforms
C) Nationalization of 14 major banks
D) Introduction of UPI

Correct Answer: C) Nationalization of 14 major banks

12. What was a key feature of financial reforms post-1991?

A) Increased government control
B) Liberalization and privatization
C) Closure of private banks
D) Reversal of bank nationalization

Correct Answer: B) Liberalization and privatization

13. What does Basel I primarily focus on?

A) Exchange rate stability
B) Capital adequacy and credit risk
C) Inflation control
D) Deposit insurance

Correct Answer: B) Capital adequacy and credit risk

14. What is a recent focus area of the Indian banking sector?

A) Paper-based banking
B) Foreign exchange controls
C) Digital banking and financial inclusion
D) Privatizing all banks

Correct Answer: C) Digital banking and financial inclusion

15. What does NPA stand for in banking?

A) National Payment Authority
B) Non-Performing Asset
C) Net Profit Amount
D) Notified Processing Agreement

Correct Answer: B) Non-Performing Asset

16. What was one of the recommendations of the Narasimham Committee?

A) Increase SLR and CRR
B) Complete abolition of rural banks
C) Phased reduction in priority sector lending
D) Nationalization of private banks

Correct Answer: C) Phased reduction in priority sector lending

17. What is the minimum Capital Adequacy Ratio required by Basel III?

A) 6%
B) 7%
C) 8%
D) 9%

Correct Answer: C) 8%

18. What is India's required CAR under Basel III including buffer?

A) 7%
B) 8%
C) 9% plus buffer
D) 11%

Correct Answer: C) 9% plus buffer

19. Which of the following is a component of Tier 1 capital?

A) Revaluation reserves
B) Retained earnings
C) Subordinated debt
D) Investment fluctuation reserve

Correct Answer: B) Retained earnings

20. What was a key objective of nationalizing banks in 1969?

A) Increase profits
B) Encourage foreign investment
C) Serve the development needs of the economy
D) Eliminate private sector competition

Correct Answer: C) Serve the development needs of the economy

21. Which committee laid the foundation for modern banking reforms in India?

A) Kelkar Committee
B) Rangarajan Committee
C) Narasimham Committee
D) Shere Committee

Correct Answer: C) Narasimham Committee

22. What does RRB stand for in Indian banking?

A) Rural Regional Banking
B) Regional Reserve Bank
C) Regional Rural Bank
D) Reserve Rural Board

Correct Answer: C) Regional Rural Bank

23. Which phase introduced liberalization, privatization, and globalization in the Indian financial system?

A) Phase I (Pre-1951)
B) Phase II (1951–Mid 80s)
C) Phase III (Post-1991)
D) Phase IV (2008 onwards)

Correct Answer: C) Phase III (Post-1991)

24. What is the purpose of capital adequacy norms?

A) Maximize bank loans
B) Ensure bank profitability
C) Maintain financial stability
D) Increase CRR

Correct Answer: C) Maintain financial stability

25. Which among the following is a public sector bank?

A) Axis Bank
B) ICICI Bank
C) Canara Bank
D) IDFC First Bank

Correct Answer: C) Canara Bank

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Tags: Indian Financial System, Banking Reforms, Narasimham Committee, Financial Phases, Banking Sector