Indian Banking System Practice Examination
(2026–2027 Edition)Hard-Level Multiple
Choice Questions with Detailed Answers,
Expert Rationales, and the Latest RBI
Regulations, Banking Reforms, Financial
Sector, and Digital Banking Updates
Question 1
Which institution was established under the Reserve Bank of
India Act, 1934, with the primary objective of regulating the
issue of banknotes and maintaining monetary stability?
A. State Bank of India
B. Industrial Development Bank of India
C. Reserve Bank of India
D. National Bank for Agriculture and Rural Development
Rationale: The Reserve Bank of India (RBI), established under
the RBI Act, 1934, serves as India's central bank. It regulates
currency issuance, monetary policy, financial stability, and
banking supervision. SBI, IDBI, and NABARD perform
commercial or developmental banking roles rather than
central banking functions.
Question 2
,Which of the following best describes the Cash Reserve Ratio
(CRR)?
A. Percentage of deposits invested in government securities
B. Percentage of Net Demand and Time Liabilities
maintained with the RBI as cash
C. Percentage of loans reserved for agriculture
D. Percentage of capital kept by commercial banks for
operational expenses
Rationale: CRR refers to the mandatory proportion of a bank's
Net Demand and Time Liabilities (NDTL) that must be
maintained with the RBI in cash. Banks earn no interest on
CRR balances. It is a quantitative monetary policy instrument
used to control liquidity.
Question 3
The Statutory Liquidity Ratio (SLR) primarily requires banks to
maintain:
A. Deposits only in foreign currencies
B. Cash exclusively with the RBI
C. Liquid assets such as cash, gold, and approved
government securities
D. Equity shares of public sector enterprises
Rationale: SLR is the proportion of NDTL that banks must
maintain in liquid assets, including cash, gold, and approved
government securities. Unlike CRR, SLR assets remain under
the bank's control.
,Question 4
Which committee is credited with recommending financial
sector reforms that introduced prudential norms and capital
adequacy standards in India?
A. Rangarajan Committee
B. Kelkar Committee
C. Narasimham Committee I
D. Chakravarty Committee
Rationale: The Narasimham Committee I (1991) initiated
comprehensive banking reforms, recommending capital
adequacy norms, income recognition standards, provisioning
requirements, and reduction of government control over
banks.
Question 5
Basel III norms primarily focus on:
A. Agricultural credit expansion
B. Strengthening capital adequacy, liquidity, and risk
management
C. Exchange rate management
D. Rural branch expansion targets
Rationale: Basel III was introduced following the global
financial crisis to improve banks' resilience by enhancing
capital quality, leverage regulation, liquidity standards, and
risk management.
, Question 6
Priority Sector Lending (PSL) in India primarily aims to:
A. Maximize profits of commercial banks
B. Increase lending only to multinational corporations
C. Ensure adequate institutional credit to sectors critical for
inclusive development
D. Replace cooperative banking institutions
Rationale: PSL ensures that vulnerable and productive sectors
such as agriculture, MSMEs, education, housing, renewable
energy, and weaker sections receive sufficient institutional
credit to promote balanced economic growth.
Question 7
Which banking institution primarily regulates Regional Rural
Banks (RRBs)?
A. Securities and Exchange Board of India only
B. Ministry of Commerce exclusively
C. Reserve Bank of India and NABARD jointly in specified
functional areas
D. Insurance Regulatory and Development Authority of India
Rationale: While RBI is the principal banking regulator,
NABARD supervises and supports Regional Rural Banks in
areas relating to rural credit, inspection, and development.
(2026–2027 Edition)Hard-Level Multiple
Choice Questions with Detailed Answers,
Expert Rationales, and the Latest RBI
Regulations, Banking Reforms, Financial
Sector, and Digital Banking Updates
Question 1
Which institution was established under the Reserve Bank of
India Act, 1934, with the primary objective of regulating the
issue of banknotes and maintaining monetary stability?
A. State Bank of India
B. Industrial Development Bank of India
C. Reserve Bank of India
D. National Bank for Agriculture and Rural Development
Rationale: The Reserve Bank of India (RBI), established under
the RBI Act, 1934, serves as India's central bank. It regulates
currency issuance, monetary policy, financial stability, and
banking supervision. SBI, IDBI, and NABARD perform
commercial or developmental banking roles rather than
central banking functions.
Question 2
,Which of the following best describes the Cash Reserve Ratio
(CRR)?
A. Percentage of deposits invested in government securities
B. Percentage of Net Demand and Time Liabilities
maintained with the RBI as cash
C. Percentage of loans reserved for agriculture
D. Percentage of capital kept by commercial banks for
operational expenses
Rationale: CRR refers to the mandatory proportion of a bank's
Net Demand and Time Liabilities (NDTL) that must be
maintained with the RBI in cash. Banks earn no interest on
CRR balances. It is a quantitative monetary policy instrument
used to control liquidity.
Question 3
The Statutory Liquidity Ratio (SLR) primarily requires banks to
maintain:
A. Deposits only in foreign currencies
B. Cash exclusively with the RBI
C. Liquid assets such as cash, gold, and approved
government securities
D. Equity shares of public sector enterprises
Rationale: SLR is the proportion of NDTL that banks must
maintain in liquid assets, including cash, gold, and approved
government securities. Unlike CRR, SLR assets remain under
the bank's control.
,Question 4
Which committee is credited with recommending financial
sector reforms that introduced prudential norms and capital
adequacy standards in India?
A. Rangarajan Committee
B. Kelkar Committee
C. Narasimham Committee I
D. Chakravarty Committee
Rationale: The Narasimham Committee I (1991) initiated
comprehensive banking reforms, recommending capital
adequacy norms, income recognition standards, provisioning
requirements, and reduction of government control over
banks.
Question 5
Basel III norms primarily focus on:
A. Agricultural credit expansion
B. Strengthening capital adequacy, liquidity, and risk
management
C. Exchange rate management
D. Rural branch expansion targets
Rationale: Basel III was introduced following the global
financial crisis to improve banks' resilience by enhancing
capital quality, leverage regulation, liquidity standards, and
risk management.
, Question 6
Priority Sector Lending (PSL) in India primarily aims to:
A. Maximize profits of commercial banks
B. Increase lending only to multinational corporations
C. Ensure adequate institutional credit to sectors critical for
inclusive development
D. Replace cooperative banking institutions
Rationale: PSL ensures that vulnerable and productive sectors
such as agriculture, MSMEs, education, housing, renewable
energy, and weaker sections receive sufficient institutional
credit to promote balanced economic growth.
Question 7
Which banking institution primarily regulates Regional Rural
Banks (RRBs)?
A. Securities and Exchange Board of India only
B. Ministry of Commerce exclusively
C. Reserve Bank of India and NABARD jointly in specified
functional areas
D. Insurance Regulatory and Development Authority of India
Rationale: While RBI is the principal banking regulator,
NABARD supervises and supports Regional Rural Banks in
areas relating to rural credit, inspection, and development.
