Finance & Management Model Test Paper

RBI GRADE B

EXAM

FOR RBI GRADE B EXAM

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RBI Grade B

Finance & Management Model Test Paper

Q.1) From the given options, the phenomenon Money Illusion is related to?

(Topic Inflation: Level: Moderate)

A) Inflation

B) High Unemployment

C) High/Low Interest Rate

D) Deflation

E) None of the above

Answer: Option A) Inflation

Explanation:

• Money illusion is an economic theory stating that people have a tendency to view

their wealth and income in nominal dollar terms, rather than in real terms.

• It is assumed that people do not take into account the level of inflation in an

economy, wrongly believing that a dollar is worth the same as it was the prior year.

• Economists cite factors such as a lack of financial education, and the price

stickiness seen in many goods and services as triggers of money illusion.

Q.2) According to the GST Act, states are guaranteed compensation for any

revenue shortfall below what percent in growth for the first five years ending

2022?

(Topic GST: Level Easy)

A) 10%

B) 12%

C) 13%

D) 15%

E) 14%

Answer: Option E) 14%

Explanation:

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• GST Compensation Cess or GST Cess was introduced by the government to

compensate for the possible revenue losses suffered by such manufacturing states.

• The compensation cess payable to states is calculated based on the methodology

specified in the GST (Compensation to States) Act, 2017.

• The compensation fund so collected is released to the states every 2 months.

• The GST (Compensation to States) Act, 2017, states are guaranteed compensation

for loss of revenue on account of implementation of GST for a transition period of

five years (2017-22).

• The compensation is calculated based on the difference between the states’

current GST revenue and the protected revenue after estimating an annualised

14% growth rate from the base year of 2015-16.

• If a state’s GST revenue grows slower than 14 percent, such ‘loss of revenue’ will

be taken care of by the Centre by providing GST compensation grants to the state.

• To provide these grants, the Centre levies a GST compensation cess on certain

luxury and sin goods such as cigarettes and tobacco products, pan masala,

caffeinated beverages, coal, and certain passenger vehicles.

• The Act requires the Centre to credit this cess revenue into a separate

Compensation Fund and all compensation grants to states are required to be paid

out of the money available in this Fund.

Q.3) Recently, the 15th Finance Commission has submitted its interim report.

The Commission recommended setting up National and State Disaster

Management Funds for the promotion of local-level mitigation activities.

According to the above commission, what will be the cost sharing ratio

between the centre and state for the fund allocated to the National and State

Disaster Management Funds?

(Topic: Finance Commission: Level Moderate)

A) 80:20 for all states

B) 75:25 for all states

C) 60:40 for all states

D) 50:50 for all states

E) 70:30 for all states

Answer: Option B) 75:25 for all states

Explanation:

• The Finance Commission is a constitutionally mandated body that is at the centre

of fiscal federalism.

• It was set up under Article 280 of the Constitution, its core responsibility is to

evaluate the state of finances of the Union and State Governments, recommend

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the sharing of taxes between them, lay down the principles determining the

distribution of these taxes among States.

• The Fifteenth Finance Commission was constituted on 27 November 2017 against

the backdrop of the abolition of Planning Commission (as also of the distinction

between Plan and non-Plan expenditure) and the introduction of the goods and

services tax (GST), which has fundamentally redefined federal fiscal relations.

• According to the latest report of the 15th Finance Commission, the share of states

in the centre’s taxes is recommended to be decreased from 42% during the 2015-

20 period to 41% for 2020-21. The 1% decrease is to provide for the newly formed

union territories of Jammu and Kashmir, and Ladakh from the resources of the

central government.

• The Commission recommended setting up National and State Disaster

Management Funds (NDMF and SDMF) for the promotion of local-level mitigation

activities. The Commission has recommended retaining the existing cost-sharing

patterns between the centre and states to fund the SDMF (new) and the SDRF

(existing). The cost-sharing pattern between centre and states is (i) 75:25 for all

states, and (ii) 90:10 for north-eastern and Himalayan states.

Q.4) __________ is a type of financing that helps exporters receives immediate

cash by selling their receivables at a discount through a third party.

(Topic: Alternate Source of Finance, Level Easy)

A) Leasing

B) Factoring

C) Forfeiting

D) Peer to Peer Lending

E) Franchising

Answer: Option C) Forfeiting

Explanation:

• Forfaiting is a type of financing that helps exporters receives immediate cash by

selling their receivables at a discount through a third party.

• The payment amount is typically guaranteed by an intermediary such as a bank,

which is the forfaiter.

• Forfaiting also protects against credit risk, transfer risk, and the risks posed by

foreign exchange rate or interest rate changes.

• The receivables convert into a debt instrument such as an unconditional bill of

exchange or a promissory note which can then be traded on a secondary market.

• While these debt instruments can have a range of maturities, most maturity dates

are between one and three years from the time of sale.

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Q.5) Which derivative/option gives the buyer the right, but not the obligation

to sell the given quantity of the underlying asset at a given price on or before

a given date?

(Topic: Derivative: Forwards, future, options, Level: Easy)

A) Future Contract

B) Forward Contract

C) Call options

D) Put options

E) None of the above

Answer: Option D) Put Option

Explanation:

Futures:

• Futures contracts are financial derivatives that oblige the buyer to purchase some

underlying asset (or the seller to sell that asset) at a predetermined future price

and date.

• A futures contract allows an investor to speculate on the direction of a security,

commodity, or a financial instrument, either long or short, using leverage.

• The parties involved in a futures contract not only possess the right but also are

under the obligation, to carry out the contract as agreed.

• The contracts are standardized, meaning they are traded on the exchange market.

Forwards:

• Forwards contracts are similar to futures contracts in the sense that the holder of

the contract possess not only the right but is also under the obligation to carry out

the contract as agreed.

• They are traded over the counter and not on the exchange market. As the contracts

are not bound by a regulatory body’s rules and regulations, they are customizable

to suit the requirements of both parties involved.

• A Call Option gives the buyer the right, but not the obligation to buy the underlying

security at the exercise price, at or within a specified time.

• A Put Option gives the buyer the right, but not the obligation to sell the underlying

security at the exercise price, at or within a specified time.

Q.6) Suppose you are working for a private company. Apart from the regular

salary, the company provides you with things such as tuition reimbursement,

medical insurance etc. These things are known as __________.

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(Topic: Basic Management; Level Easy)

A) Social benefits

B) Incentives

C) Benefits

D) Rewards

E) Compensation

Answer: Option C) Benefits:

Explanation:

• The term associated with things such as tuition reimbursement, medical insurance

etc. is benefits which are provided apart from the regular compensation. i.e. the

benefits are forms of supplementary compensation. They represent monetary and

non-monetary payments over and above the wages paid.

• Incentives represent special compensation opportunities that are usually tied to

performance.

• Rewards are given in recognition of specific achievements whereas social benefits

in the form of say club memberships are given to enhance the employee status.

• Compensation is the financial remuneration given by the organization to its

employers for their work.

Q.7) Which factor is satisfiers as per the Two-Factor Theory of Motivation?

(Topic: Motivation, Level Moderate)

A) Achievement

B) Interpersonal relations

C) Salary

D) Job Security

E) None of the above

Answer: Option A) Achievement

Explanation:

• Motivational factors- According to Herzberg, the hygiene factors cannot be

regarded as motivators. The motivational factors yield positive satisfaction. These

factors are inherent to work. These factors motivate the employees for a superior

performance. These factors are called satisfiers.

• These are: Achievement, Recognition, Advancement, Work itself, Possibility of

growth and responsibility etc.

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Q.8) Likert has given a continuum of various systems of management. In which

system, the managers have complete trust and confidence in subordinates,

subordinates feel completely free to discuss things about the job with the

superior and superior always asks for ideas and opinions and make

constructive use of them

(Topic: Leadership; Level Moderate)

A) System 1

B) System 2

C) System 3

D) System 4

E) System 5

Answer: Option D) System 4

Explanation:

• Likert has given a continuum of four systems of management.

• He has taken seven variables to differentiate one management system from

others: Leadership, Motivation, Communication, interaction-influence, Decision

making process, Goal setting and Control Process

System 1 - Exploitative Authoritative:

• Responsibility lies in the hands of the people at the upper echelons of the

hierarchy.

• The superior has no trust and confidence in subordinates.

• The decisions are imposed on subordinates and they do not feel free at all to

discuss things about the job with their superior.

• The teamwork or communication is very little, and the motivation is based on

threats.

System 2 - Benevolent Authoritative:

• The responsibility lies at the managerial levels but not at the lower levels of the

organizational hierarchy.

• The superior has condescending confidence and trust in subordinates

• The subordinates do not feel free to discuss things about the job with their

superior.

• The teamwork or communication is very little, and motivation is based on a system

of rewards.

System 3 - Consultative:

• Responsibility is spread widely through the organizational hierarchy.

• The superior has substantial but not complete confidence in subordinates.

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• Some amount of discussion about job related things takes place between the

superior and subordinates.

• There is a fair amount of teamwork, and communication takes place vertically and

horizontally.

• The motivation is based on rewards and involvement in the job.

System 4 - Participative:

• Responsibility for achieving the organizational goals is widespread throughout the

organizational hierarchy.

• There is a high level of confidence that the superior has in his subordinates.

• There is a high level of teamwork, communication, and participation.

Q.9) The flow of information among persons at different levels, who have no

direct reporting relationships, is known as __________.

(Topic: Communication; Level: Easy)

A) Horizontal communication

B) Diagonal communication

C) Upward communication

D) Downward communication

E) None of the above

Answer: Option B) Diagonal Communication

Explanation:

• Downward Flow of Communication: Communication that flows from a higher

level in an organization to a lower level is a downward communication.

Communication from superiors to subordinates in a chain of command is a

downward communication.

• Upward Flow of Communication: Communication that flows to a higher level in an

organization is called upward communication. It provides feedback on how well

the organization is functioning. The subordinates use upward communication to

convey their problems and performances to their superiors.

• Diagonal Communication: Communication that takes place between a manager

and employees of other workgroups is called diagonal communication. It generally

does not appear on organizational chart.

• Lateral / Horizontal Communication: Communication that takes place at same

levels of hierarchy in an organization is called lateral communication, i.e.,

communication between peers, between managers at same levels or between any

horizontally equivalent organizational member.

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Q.10) It deals with chalking out a future course of action & deciding in advance

the most appropriate course of actions for achievement of pre-determined

goals. This function of management is known as ________.

(Topic: Basic Management; Level Easy)

A) Organizing

B) Planning

C) Staffing

D) Directing

E) Controlling

Answer: Option B) Planning

Explanation:

Planning:

• It deals with chalking out a future course of action & deciding in advance the most

appropriate course of actions for achievement of pre-determined goals.

• According to KOONTZ, “Planning is deciding in advance - what to do, when to do &

how to do. It bridges the gap from where we are & where we want to be

Organising:

• It is the process of bringing together physical, financial, and human resources and

developing productive relationship amongst them for achievement of

organizational goals.

• According to Henry Fayol, “To organize a business is to provide it with everything

useful or its functioning i.e. raw material, tools, capital and personnel’s”.

Staffing:

• It is the function of manning the organization structure and keeping it manned.

• According to Kootz & O’Donell, “Managerial function of staffing involves manning

the organization structure through proper and effective selection, appraisal &

development of personnel to fill the roles designed un the structure”.

Directing:

• It is that part of managerial function which actuates the organizational methods to

work efficiently for achievement of organizational purposes.

• It is considered life-spark of the enterprise which sets it in motion the action of

people because planning, organizing, and staffing are the mere preparations for

doing the work.

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Controlling:

• It implies measurement of accomplishment against the standards and correction

of deviation if any to ensure achievement of organizational goals.

• The purpose of controlling is to ensure that everything occurs in conformities with

the standards.

• An efficient system of control helps to predict deviations before they occur.

• According to Theo Haimann, “Controlling is the process of checking whether or not

proper progress is being made towards the objectives and goals and acting if

necessary, to correct any deviation”.

Q.11) Different barriers of communication may be grouped in different

categories. Badly expressed message falls under which type of barrier

category.

(Topic Communication; Level Easy)

A) Semantic

B) Psychological

C) Personal

D) Organizational

E) None of the above

Answer: Option A) Semantic

Explanation:

• Semantic Barriers: Semantics is the science of meaning. All communications are

symbolic that suggest certain meanings. The following types of semantic barriers

are more common: Symbols with different meaning, Badly Expressed Message,

Technical Jargons

• Psychological Barriers: Examples are Premature Evaluation, Inattention, Loss of

attention and poor retention

• Personal Barrier: Examples are attitude of superior, Fear of challenge to authority,

Lack of confidence in subordinate

• Organizational Barriers: Status Relationship, Organizational rules and regulations,

organizational policy

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Q.12) According to Maslow, a person who is looking for Self- respect, Self

Confidence, Feeling of Worthwhile, recognition of good work etc. is at which

level?

(Topic Motivation: Level Moderate)

A) Physiological

B) Safety

C) Social

D) Esteem

E) Self-actualization.

Answer: Option D)

Explanation:

Maslow’s need hierarchy Theory:

• This theory is based on the assumption that there is a hierarchy of five needs within

each individual.

• According to Maslow, individuals are motivated by unsatisfied needs. As each of

these needs is significantly satisfied, it drives and forces the next need to emerge.

Maslow grouped the five needs into two categories – Higher- order needs and

Lower-order needs

• The physiological and the safety needs constituted the lower-order needs. These

lower-order needs are mainly satisfied externally.

• The social, esteem, and self-actualization needs constituted the higher-order

needs. These higher-order needs are generally satisfied internally, i.e., within an

individual.

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Q.13) Job description is a written statement showing details of the job. The job

description does not contain which information?

(Topic: HRD, Performance Appraisal; Level Easy)

A) Job title, code number, department/division

B) Job responsibilities

C) Working Conditions

D) Relationship with other Job

E) All of the above are associated with job description

Answer: E

Explanation:

Job Description:

• It is an organized factual statement of job contents in the form of duties and

responsibilities of a specific job.

• The preparation of job description is very important before a vacancy is advertised.

• It tells in brief the nature and type of job.

• This type of document is descriptive in nature and it constitutes all those facts

which are related to a job such as :

1. Title/ Designation of job and location in the concern.

2. The nature of duties and operations to be performed in that job.

3. The nature of authority- responsibility relationships.

4. Necessary qualifications that are required for job.

5. Relationship of that job with other jobs in a concern.

6. The provision of physical and working condition or the work environment

required in performance of that job.

7. Working Conditions specifying specific hazards

Q.14) The barriers to effective appraisal may be grouped in three categories

i.e. Faulty Assumptions, Psychological blocks, and Technical pitfalls. Which one

of the following is not a technical problem in effective appraisal?

(Topic Performance Appraisal; Level Easy)

A) Halo Effect

B) Central Tendency

C) Distortion

D) Constant Errors

E) Manager’s feeling of insecurity

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Answer: Option E) Manager’s feeling of insecurity

Explanation:

• The main technical difficulties in appraisal fall into two categories- the criterion

problem and distortions that reduce the validity of results.

• Distortions occur in the form of biases and errors in making the evaluation. Such

distortions may be introduced by evaluator consciously or unconsciously.

• Halo effect: This distortion exists where the rater is influenced by ratee’s one or

two outstandingly good (or bad) performances and he evaluates the entire

performance accordingly.

• Central Tendency: This error occurs when the rater marks all or almost all his

personnel as average. He fails to discriminate between superior and inferior

persons. This may arise from the rater’s lack of knowledge of individuals he is

rating, or from haste, indifference, or carelessness.

• Constant Errors: There are easy raters and tough raters in all phases of life. Some

raters habitually rate everyone high; others tend to rate low. Some rate on

potential rather than on recently observed performance. In such a situation, the

results of two raters are hardly comparable.

Q.15) According to the Trait Theory, an individual who has traits relevant to

leadership emerges as an effective leader. Which of the following traits is not

required to become the effective leader?

A) Knowledge

B) Objectivity

C) Communication Skills

D) Emotional Stability

E) All are required

Answer: Option E) All are required

Explanation:

• According to the Trait Theory, an individual who has traits relevant to leadership

emerges as an effective leader.

• A trait is a distinguishable and relatively enduring quality of an individual that

affects his behaviour.

• For being a successful leader, a leader should have the following traits

1. Knowledge: should have intimate knowledge of his field.

2. Objectivity: The decision taken by leaders should be based on facts and

information and not on his own biases.

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3. Communication Skills: more particularly persuasive communication skills

4. Emotional Stability: Should have high level of emotional stability. Stability

in behaviour, refraining from anger etc.

5. Adaptability and flexibility: Effective leaders don't get stuck in a rut. They

are able to think outside of the box and adapt quickly to changing

situations.

6. Courage and resolution: The best leaders are brave and committed to the

goals of the group. They do not hide from challenges.

7. Creativity: Perhaps most importantly, great leaders not only possess their

own creativity, but they are also able to foster creativity among members

of the group.

8. Decisiveness: A great leader is capable of making a decision and is confident

in his or her choices.

Q.16) For the first five years of commencement of establishment of payment

banks, the promoter must contribute at least _________ of the paid-up equity

capital.

(Topic Financial Inclusion; Level Easy)

A) 20%

B) 25%

C) 30%

D) 40%

E) 35%

Answer: Option D) 40%

Explanation:

• A payments bank is like any other bank but operating on a smaller or restricted

scale.

• The payments bank will be registered as a public limited company under the

Companies Act, 2013, and licensed under Section 22 of the Banking Regulation

Act, 1949,

• The minimum paid-up equity capital of the payments bank shall be Rs. 100

crores.

• The promoters of the payments bank should hold at least 40 per cent of its paidup

equity capital for the first five years from the commencement of its business.

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Q.17) According to the Clause 49 of the Listing Agreement, Where the

chairman of the board is a non-executive director, at least __________ of the

board should comprise of independent directors.

(Topic: Corporate Governance; Level: Moderate)

A) One-third

B) Half

C) One-Fourth

D) One-fifth

E) None of the above

Answer: Option A) One-third

Explanation:

• Clause 49 of the Listing Agreement was introduced on the recommendations of

the Kumaramangalam Birla committee set up by SEBI.

• SEBI enshrined the Clause 49 in the Equity Listing Agreement (2000), which now

serves as a standard of corporate governance in India.

• According to the clause, where the chairman of the board is a non-executive

director, at least one-third of the board should comprise of independent directors.

In case the chairman is an executive director, at least half of the board should

comprise of independent directors.

• A qualified and independent audit committee shall be set up. The audit committee

shall have a minimum of three directors as members. Two-thirds of the members

of the audit committee shall be independent directors. The chairman of the audit

committee shall be an independent director.

Q.18) In view of the coronavirus pandemic, the implementation of Basel-III

norms for banking services has been deferred by a year till ___________.

(Topic Risk Management, Basel Norms; Level Easy)

A) January 1, 2022

B) January 1, 2023

C) March 1, 2023

D) April 1, 2022

E) April 1, 2023

Answer: Option B) January 1, 2023

Explanation:

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• In view of the coronavirus pandemic, the implementation of Basel-III norms for

banking services has been deferred by a year till January 1, 2023.

• The Basel Committee''s oversight body, the Group of Central BankGovernors and

Heads of Supervision (GHOS), has decided on deferring the implementation of the

norms which were scheduled to come into effect from January 1, 2022.

• The Group of Central Bank Governors and Heads of Supervision (GHOS), has

endorsed a set of measures to provide additional operational capacity for banks

and supervisors to respond to the immediate financial stability priorities resulting

from the impact of the coronavirus disease (Covid-19) on the global banking

system

• The implementation of the revised market risk framework and the revised Pillar-3

disclosure requirements have also been deferred by one year to January 1, 2023.

Q.19) When a bank is unable to conclude a large transaction in a particular

instrument near the current market price, then the bank is exposed to which

risk?

(Topic Risk Management; Level Easy)

A) Credit Risk

B) Operational Risk

C) Market Risk

D) Reputational Risk

E) None of the above

Answer: Option E) None of the above. The correct answer is Market Liquidity Risk

Explanation:

• Credit risk is the possibility of a loss resulting from a borrower's failure to repay a

loan or meet contractual obligations. It refers to the risk that a lender may not

receive the owed principal and interest, which results in an interruption of cash

flows and increased costs for collection.

• Operational Risk: It is the risk that arises due to failed internal processes, people

or systems or from external events. It includes a no. of risk such as fraud risk,

communication risk, documentation risk, competence risk, model risk, cultural risk,

external events risk, legal risk, regulatory risk, compliance risk, system risk etc. It

however does not include strategic risk or reputation risk.

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• Reputational Risk: Reputational risk is a threat or danger to the good name or

standing of a business or entity. Reputational risk can occur in the following ways:

Directly, as the result of the actions of the company itself. Indirectly, due to the

actions of an employee or employees.

• Market risk is the possibility of an investor experiencing losses due to factors that

affect the overall performance of the financial markets in which he or she is

involved. Market risk, also called systematic risk, cannot be eliminated through

diversification, though it can be hedged against in other ways.

• Market liquidity risk: When bank is not able to conclude a large transaction in a

particular instrument around the current market price (say bank could not sell a

share at a higher price which could have been done but for poor market liquidity

this could not be done), this is called, market liquidity risk.

Q.20) insolvency and bankruptcy board of India (IBBI) has proposed a cap on

the maximum number of ongoing insolvency or liquidation proceedings that

can be handled by insolvency professional. According to the guidelines, if the

insolvency professional is handling accounts with turnover of Rs 5000-10,000

crore he can handle maximum of _______cases.

(Topic: Changing Landscape of the Banking sector; Level Moderate)

A) 2

B) 3

C) 4

D) 5

E) 1

Answer: Option B) 3

Explanation:

• The Insolvency and Bankruptcy Board of India (IBBI) has proposed to limit the

number of corporate insolvency cases a single insolvency professional (IP) is

permitted to handle at any given time. Currently, there is no limit on the number

of assignments an IP is permitted to take.

• It is proposed to issue necessary guidelines to IPs advising them to limit the

maximum number of assignments handled by them to 5

• The proposed limit would be adjusted from five to one based on the turnover of

the corporate debtor the IP is appointed to.

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• An insolvency professional (IP) can handle a maximum of 5 assignments if he is

handling accounts with turnover of less than ₹1000 crore, 4 assignments in the

case of accounts with turnover of ₹1000-5000 crore, 3 cases if he is handling

₹5000-10,000 crore turnover accounts and 1 if its a large account of more than

₹50,000 crore.

Q.21) Under the Basel III Guidelines, total regulatory capital will consist of the

sum of the following categories: Tier 1 Capital which consists of Common

Equity Tier 1 and Additional Tier 1 and Tier 2 Capital. As per guidelines, the

minimum additional Tier 1 capital required as a percentage of RWA is

__________.

(Topic Risk Management; Basel Norms; Level Easy)

A) 2%

B) 2.5%

C) 1.5%

D) 5.5%

E) 1%

Answer: Option C) 1.5%

Explanation:

• According to the Basel III norms, the total regulatory capital will consist of the

sum of the following categories:

1. Tier 1 Capital (going-concern capital)

a) Common Equity Tier 1

b) Additional Tier 1

2. Tier 2 Capital (gone-concern capital)

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Q.22) In Compounding technique, the future value of the sum depends on

which factor?

(Topic Time Value of Money; Level Easy)

A) Number of years

B) Interest Rate

C) Compounding frequency

D) Only A and B

E) All A, B and C

Answer: Option E) All of the above

Explanation:

• The future value or compounded value of an investment after n years when the

interest rate is r percent is:

FVn = PV (1 + r) n

• In this equation (1 + r) n is called the future value interest factor or the future

value factor.

• The future value varies with the interest rate, the compounding frequency, and

the number of periods.

Q.23) Agri-commodity bourse NCDEX has increased the maximum

compensation limit from its investor protection fund to _________ lakh from

the present Rs 2.5 lakh.

(Topic Primary and Secondary Market (CA); Level Easy)

A) 3 lakh

B) 5 lakh

C) 7 lakh

D) 10 lakh

E) 7.5 lakh

Answer: Option B) 5 lakhs

Explanation:

• Agri-commodity bourse NCDEX has increased the maximum compensation limit

from its investor protection fund to Rs 5 lakh from Rs 2.5 lakh.

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• The objective of the protection fund, which is administered by way of registered

Trust, is to compensate investors in the event of defaulter's assets not being

sufficient to meet the admitted claims of investors, promoting investor education,

awareness, and research

• In the event of funds of a defaulter's member being insufficient, the Investor

Protection Fund Trust based on the recommendations of the relevant Committee,

compensates the admitted value of claims of an investor arising out of a defaulter

member subject to a compensation limit.

Q.24) Securities and Exchange Board of India (SEBI) has issued guidelines

curbing the practice of margin trading. According to the guidelines, the brokers

will be penalised if margin to clients is more than by what percent of the sum

of Value At Risk (VAR) and Extreme Loss Margin (ELM)?

(Topic: Financial System (RBI+ SEBI + SIDBI + NABARD + NHB); Level Moderate)

A) 10%

B) 15%

C) 20%

D) 25%

E) 30%

Answer: Option D) 25%

Explanation:

• The Securities and Exchange Board of India issued guidelines curbing the practice

of margin trading, which the broking community rued will put an end to leveraged

intraday trading and make a huge dent in turnover.

• SEBI has asked brokers to collect upfront so-called value at risk (VAR) margin and

extreme loss margin (ELM) even for trading in the equity cash segment.

• This will be implemented in three phases starting December 2020, where brokers

will be penalised if margin to clients is more than 25 per cent of the sum of VAR

and ELM.

• From March 2021 and June 2021, they will be penalised if the margin exceeds 50

per cent and 70 per cent of VAR+ELM, respectively. From August 2021 onwards,

brokers will be penalised if margin exceeds VAR+ELM.

Q.25) Which method determines the number of years required to recover

initial investment outlay?

(Topic: Capital Budgeting; Level Easy)

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A) Payback Method

B) NPV Method

C) Internal Rate of Return

D) Accounting Rate of Return

E) None of the above

Answer: Option A) Payback Method

Explanation:

Payback Method:

• The payback period refers to the amount of time it takes to recover the cost of an

investment.

• The payback period is the length of time an investment reaches a break-even point.

• The desirability of an investment is directly related to its payback period. Shorter

paybacks mean more attractive investments.

NPV Method:

• Net present value method (also known as discounted cash flow method) is a capital

budgeting technique that takes into account the time value of money.

• It uses net present value of the investment project as the base to accept or reject

a proposed investment in projects like purchase of new equipment, purchase of

inventory, expansion or addition of existing plant assets and the installation of new

plants etc.

• If present value of cash inflows is greater than the present value of the cash

outflows, the net present value is said to be positive and the investment proposal

is considered to be acceptable.

Internal Rate of Return

• IRR is the annual rate of growth an investment is expected to generate.

• IRR is calculated using the same concept as NPV, except it sets the NPV equal to

zero.

• IRR is ideal for analyzing capital budgeting projects to understand and compare

potential rates of annual return over time

Accounting Rate of Return

• Accounting Rate of Return (ARR) is the average net income an asset is expected to

generate divided by its average capital cost, expressed as an annual percentage.

• The ARR is a formula used to make capital budgeting decisions.

Q.26) The EBIT level at which the EPS is same for two alternative financial plans

is known as ___________.

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(Topic Leverages, Break Even Point, Level Moderate)

A) Break-even point Analysis

B) Indifference Point

C) EBIT-EPS Analysis

D) Cash Break-even point

E) Financial Break-Even Point

Answer: Option B) Indifference Point

Explanation:

• Indifference points refer to the EBIT level at which the EPS is same for two

alternative financial plans.

• According to J. C. Van Home, Indifference point refers to that EBIT level at which

EPS remains the same irrespective of debt equity mix.

Q.27) [A] is the difference between that company's total assets and total

liabilities. It reflects the total value of a company's assets that shareholders of

that company would receive if the company were to be liquidated. [A] is

known as?

(Topic: Bond Valuation; Level: Moderate)

A) Going Concern Value

B) Liquidation Value

C) Market Value

D) Book Value

E) None of the above

Answer: Option D) Book Value

Explanation:

• Liquidation value: It is the total worth of a company's physical assets if it were to

go out of business and the assets sold. The liquidation value is the value of

company real estate, fixtures, equipment, and inventory. Intangible assets are

excluded from a company's liquidation value.

• Going concern value: If a company is sold rather than liquidated, both the

liquidation value and intangible assets determine the company's going-concern

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value. Going-concern value is the idea that a company will continue to be in

business and be profitable.

• The book value: It is the difference between that company's total assets and total

liabilities. Book value reflects the total value of a company's assets that

shareholders of that company would receive if the company were to be liquidated.

• The market value of an asset is simply the market price at which the asset trades

in the marketplace. Often the market value is greater than the book value. Market

value provides the highest valuation of assets although the measure could be

lower than book value if the value of the assets has decreased due to market

demand rather than business use.

Q.28) The contract of buying or selling a commodity, security, or currency for

immediate settlement for cash is known as __________.

(Topic Derivatives Market; Level Easy)

A) Spot contract

B) Forward Contract

C) Swap Contract

D) Options Contract

E) Future Contract

Answer: Option A) Spot Contract

Explanation:

• A spot contract, spot transaction, or simply spot, is a contract of buying or selling

a commodity, security or currency for immediate settlement (payment and

delivery) on the spot date, which is normally two business days after the trade

date.

• It is effectively a ‘buy now, pay now’ deal. The contract is for the immediate

delivery of a commodity or currency. The settlement is called the spot price, as in

'on the spot', which is how much the asset will change hands for if it is sold straight

away.

• Spot contracts are commonly used in foreign exchanges. Commodities such as

crude oil are also frequently bought and sold on the spot market. It is sold for a

particular price per barrel and then delivered at the price it was purchased.

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Q.29) From the options given below, which Option can be exercised only at the

time of maturity?

(Topic Derivatives Market; Level Moderate)

A) European Option

B) American Option

C) Swaps

D) Call or Put Option

E) Shares and Stock Option

Answer: Option A) European Option

Explanation:

• American options can be exercised any time before the expiration date of the

option, while European options can only be exercised on the expiration date

(exercise date).

Q.30) A __________ bond is a multiple debt issue that matures at staggered

intervals before all segments finally mature.

(Topic: Bond; Level Easy)

A) Callable Bond

B) Puttable Bond

C) Non-Callable Bond

D) Serial Bond

E) Multiple Bond

Answer: Option D) Serial Bond

Explanation:

Serial Bond:

• A serial bond is a multiple debt issue that matures at staggered intervals before all

segments finally mature.

• Each maturation segment in the serial bond is issued concurrently, with the terms

of the repayment schedule spelled out in the offering prospectus.

• Serial bonds do not utilize sinking funds, and instead rely on the revenues

generated from the project that the bond is used to fund, making them popular

for certain municipal bonds.

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2 Markers:

Q.31) From the data given below, calculate the effective revenue deficit.

• Revenue deficit (RD) = 609219 crore

• Grants for capital asset = 206500 crore

• Primary deficit (PD) = 88134 crore

• Non-plan expenditure = 8956

(Topic Budget (Static); Level Moderate)

A) 411675

B) 402719

C) 323541

D) 521085

E) 512129

Answer: Option B) 402719

Explanation:

• Effective Revenue Deficit: It is the difference between revenue deficit and grants

for the creation of capital assets. The Effective Revenue Deficit excludes those

revenue expenditures which were done in the form of grants for the creation of

capital assets

• Effective Revenue Deficit = Revenue Deficit – Grants for capital for capital asset

Passage (Q32-34)

___________ [A] is the process concerned with the identification of sources from where

the personnel can be employed and motivating them to offer for employment. The

process is concerned with the identification of possible sources of human resource

supply and tapping those sources. __________ [B] is the process of choosing the most

suitable candidates out of the several candidates available. It is called a _________ [C]

process because there may be more candidates who are rejected than those who got

the offer.

(Topic: HRD, Performance Appraisal; Level Moderate)

Q.32) Which will replace the blank [A] and [B] respectively as mentioned in

the above passage?

A) Selection, Recruitment

RBI Grade B F&M Model Test Paper Free e-book

B) Placement, Recruitment

C) Recruitment, Selection

D) Placement, Selection

E) Job Analysis, Selection

Answer: Option C) Recruitment, Selection

Explanation:

• Recruitment refers to the process of identifying, attracting, interviewing, selecting,

hiring and on-boarding employees. It involves everything from the identification of

a staffing need to filling it.

• According to Edwin B. Flippo, Recruitment is the process of searching for

prospective employees and stimulating and encouraging them to apply for jobs in

an organisation.

• Selection: is the process of choosing the most suitable candidates out of the

several candidates available. It is called a negative [C] process because there may

be more candidates who are rejected than those who got the offer.

• Selection can also be defined as the process of interviewing the candidates and

evaluating their qualities, which are required for a specific job and then choosing

the suitable candidate for the position.

• The selection of a right applicant for a vacant position will be an asset to the

organization, which will be helping the organization in reaching its objectives.

___________ [A] is the process concerned with the identification of sources from where

the personnel can be employed and motivating them to offer for employment. The

process is concerned with the identification of possible sources of human resource

supply and tapping those sources. __________ [B] is the process of choosing the most

suitable candidates out of the several candidates available. It is called a _________ [C]

process because there may be more candidates who are rejected than those who got

the offer.

(Topic: HRD, Performance Appraisal; Level Moderate)

Q.33) Which of the following statements correctly explains the difference

between [A] and [B]?

A) The basic objective of [B] is to attract the maximum number of candidates so that more

options are available while that of [A] is to choose the best out of the available candidates.

B) [A] is known as the positive process while [B] is known as negative process.

C) [B] proceeds selection while [A] proceeds recruitment

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D) In [A] candidates must cross many hurdles while in [B] candidates have not to cross

many hurdles

E) [A] is a complex process while [B] is a simple process.

Answer: Option B) [A] is known as the positive process while [B] is known as negative

process.

Explanation:

• In the above passage [A] is replaced by Recruitment while [B] is replaced by

Selection.

Basis Recruitment Selection

Meaning It is an activity of establishing

contact between employers and

applicants.

It is a process of picking up

more competent and suitable

employees.

Objective It encourages large number of

Candidates for a job.

It attempts at rejecting

unsuitable candidates.

Process It is a simple process. It is a complicated process.

Hurdles The candidates have not to cross

over many hurdles.

Many hurdles have to be

crossed.

Approach It is a positive approach. It is a negative approach.

Sequence It proceeds selection. It follows recruitment.

Economy It is an economical method. It is an expensive method.

Time

Consuming

Less time is required. More time is required.

___________ [A] is the process concerned with the identification of sources from where

the personnel can be employed and motivating them to offer for employment. The

process is concerned with the identification of possible sources of human resource

supply and tapping those sources. __________ [B] is the process of choosing the most

suitable candidates out of the several candidates available. It is called a _________ [C]

process because there may be more candidates who are rejected than those who got

the offer.

(Topic: HRD, Performance Appraisal; Level Moderate)

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Q.34) 1) Advertisement

2) Casual Callers

3) Direct Recruitment

4) Transfer

5) Re-appointment of ex-employees.

From the options, given above, which of the following is/are the external

source of recruitment?

A) Only 1

B) 2, 3 and 5

C) 2 and 4

D) 1, 2 and 3

E) 1, 2 and 5

Answer: Option D) 1, 2 and 3

Explanation:

• Internal Recruitment - is a recruitment which takes place within the concern or

organization. Internal sources of recruitment are readily available to an

organization. Internal sources are primarily three - Transfers, promotions, and Reemployment

of ex-employees.

• External sources of recruitment must be solicited from outside the organization. It

involves lot of time and money. The external sources of recruitment include -

Employment at factory gate, advertisements, employment exchanges,

employment agencies, educational institutes, labour contractors,

recommendations, Casual callers, direct recruitment etc.

Q.35) Douglas McGregor formulated Theory X and Theory Y suggesting two

aspects of human behaviour at work. Which of the following is not correct

about his theory?

(Topic: Motivation; Level: Moderate)

A) Theory X employee intrinsically does not like work and tries to escape it whenever

possible.

B) Theory Y employees rank job security on top, and they have little or no aspiration/

ambition.

C) Theory X employees resist change.

D) Theory Y employees are happy to work on their own initiative.

E) Theory X employees Need to be supervised at every step.

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Answer: Option B) Theory Y employees rank job security on top, and they have little or

no aspiration/ ambition.

Explanation:

• Douglas McGregor formulated Theory X and Theory Y suggesting two aspects of

human behaviour at work, or two different views of individuals (employees): one

of which is negative, called as Theory X and the other is positive, so called as Theory

• According to McGregor, the perception of managers on the nature of individuals is

based on various assumptions.

Assumptions of Theory X

• An average employee intrinsically does not like work and tries to escape it

whenever possible.

• Since the employee does not want to work, he must be persuaded, compelled, or

warned with punishment so as to achieve organizational goals. A close supervision

is required on part of managers. The managers adopt a more dictatorial style.

• Many employees rank job security on top, and they have little or no aspiration/

ambition.

• Employees generally dislike responsibilities.

• Employees resist change.

• An average employee needs formal direction.

Assumptions of Theory Y

• Employees can perceive their job as relaxing and normal. They exercise their

physical and mental efforts in an inherent manner in their jobs.

• Employees may not require only threat, external control and coercion to work, but

they can use self-direction and self-control if they are dedicated and sincere to

achieve the organizational objectives.

• If the job is rewarding and satisfying, then it will result in employees’ loyalty and

commitment to organization.

• An average employee can learn to admit and recognize the responsibility. In fact,

he can even learn to obtain responsibility.

• The employees have skills and capabilities. Their logical capabilities should be fully

utilized. In other words, the creativity, resourcefulness and innovative potentiality

of the employees can be utilized to solve organizational problems.

Theory X presents a pessimistic view of employees’ nature and behaviour at work, while

Theory Y presents an optimistic view of the employees’ nature and behaviour at work

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Passage (Q36-Q37)

The ministry of corporate affairs (MCA) has launched a one-time amnesty scheme for

[A] companies that have failed to file the requisite statutory documents such as annual

statements, change in directors, etc. The move is aimed at promoting ease of doing

business as well as to cleanse the system. It provides these companies a one-time

relaxation in payment of additional fees and immunity from prosecution. It is aimed at

those LLPs whose paid-up capital is Rs ________ [B] but accumulated late fees have

reached Rs 5 lakh or more making compliance prohibitive. The scheme would permit

companies to submit their filings that were due till October 31, 2019. The concerned has

to pay a nominal additional fee of Rs __________[C] per day for the period of delay as

well as any fee that is to be paid for submitting a document. The additional fee per

document would be capped at Rs 5,000.

(Topic: Recent Development in Banking sector; Level Easy)

Q.36) Which will replace the blank [B] as mentioned in the above passage?

A) 50,000

B) 75, 000

C) 1 lakh

D) 2 lakh

E) 2.5 lakh

Answer: C) 1 Lakh

Explanation:

• The scheme mentioned in the above passage is Limited Liability Partnerships (LLP)

Settlement Scheme, 2020.

• It will allow a One-time condonation of delay in filing statutorily required

documents with the Registrar.

• LLPs are governed by the LLP Act, which is implemented by the Ministry of

Corporate Affairs.

• It is aimed at those LLPs whose paid-up capital is Rs 1 lakh but accumulated late

fees have reached Rs 5 lakh or more making compliance prohibitive.

The ministry of corporate affairs (MCA) has launched a one-time amnesty scheme for

[A] companies that have failed to file the requisite statutory documents such as annual

statements, change in directors, etc. The move is aimed at promoting ease of doing

business as well as to cleanse the system. It provides these companies a one-time

relaxation in payment of additional fees and immunity from prosecution. It is aimed at

those LLPs whose paid-up capital is Rs ________ [B] but accumulated late fees have

RBI Grade B F&M Model Test Paper Free e-book

reached Rs 5 lakh or more making compliance prohibitive. The scheme would permit

companies to submit their filings that were due till October 31, 2019. The concerned has

to pay a nominal additional fee of Rs __________[C] per day for the period of delay as

well as any fee that is to be paid for submitting a document. The additional fee per

document would be capped at Rs 5,000.

(Topic: Recent Development in Banking sector; Level Easy)

Q.37) Which will replace the blank [C] as mentioned in the above passage?

A) Rs. 10

B) Rs 5

C) Rs 25

D) Rs 50

E) Rs 100

Answer: Option A) Rs. 10

Explanation:

• The above scheme would be applicable to a defaulting LLP for filing overdue

documents, which were due for filing till 31st October 2019 on a payment of a

nominal additional fee of Rs 10/- per day for the period of delay.

• This is in addition to any fee as is payable for filing of such document or return,

subject to a maximum amount of Rs. 5,000/- as additional fee per document.

Passage (Q38-40)

Robert House and others have developed a model of leadership initially presented by

Evans. The Theory states that a good leader provides clear direction, sets high goals,

gets involved in goal achievement and supports his employees. The employees, as a

result, will be a more satisfied and productive team. It also states that employees will

accept a leader's direction if the employee believes that there will be an immediate or

future benefit that results from work.

(Topic: Leadership; Level: Moderate)

Q.38) Name the theory which was mentioned in the above passage?

A) Great Man Theory

B) Likert Theory

C) Situational Leadership Theory

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D) Path Goal Theory

E) Vroom’s Expectancy Theory

Answer: Option D) Path Goal Theory

Explanation:

• The theory mentioned in the above passage is Path Goal Theory.

• The theory was developed by Robert House and has its roots in the expectancy

theory of motivation. The theory is based on the premise that an employee’s

perception of expectancies between his effort and performance is greatly affected

by a leader’s behaviour.

Robert House and others have developed a model of leadership initially presented by

Evans. The Theory states that a good leader provides clear direction, sets high goals,

gets involved in goal achievement and supports his employees. The employees, as a

result, will be a more satisfied and productive team. It also states that employees will

accept a leader's direction if the employee believes that there will be an immediate or

future benefit that results from work.

(Topic: Leadership; Level: Moderate)

Q.39) The theory mentioned in the above passage is a combination of which

two theories?

A) Vroom’s Expectancy Theory of Motivation and Situational Leadership Theory

B) Situational Leadership and Hersey-Blanchard’s Situational model

C) Likert and Great man Theory

D) Vroom’s Expectancy Theory of Motivation and Goal Setting Theory

E) Goal Setting Theory and McClelland’s Need Theory

Answer: Option A) Vroom’s Expectancy Theory of Motivation and Situational Leadership

Theory

Explanation:

• The theory mentioned in the above passage is Path Goal Theory. It is basically a

combination of Vroom’s Expectancy Theory of Motivation and Situational

Leadership Theory.

• Path Goal Theory attempts to predict leadership effectiveness in different

situations.

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• According to the above theory, the main function of a leader is to clarify and set

goals with subordinates, to help them find the best path for achieving the goals,

and to remove the obstacles to their performance and need satisfaction.

• The path Goal leadership process is shown in the figure

Robert House and others have developed a model of leadership initially presented by

Evans. The Theory states that a good leader provides clear direction, sets high goals,

gets involved in goal achievement and supports his employees. The employees, as a

result, will be a more satisfied and productive team. It also states that employees will

accept a leader's direction if the employee believes that there will be an immediate or

future benefit that results from work.

(Topic: Leadership; Level: Moderate)

Q.40) According to the above theory, the leader may adopt one of the styles

depending on the situation. In which style the leader gives subordinates

specific orders and make it clear what is expected of them?

A) Directive

B) Supportive

RBI Grade B F&M Model Test Paper Free e-book

C) Participative

D) Achievement-oriented

E) None of the above

Answer: Option A) Directive

Explanation:

• According to the above theory, the four leadership styles are:

• Directive: The leader provides guidelines, lets subordinates know what is expected

of them, sets performance standards for them, and controls behaviour when

performance standards are not met. The style is the same as task-oriented one.

• Supportive: The leader is friendly towards subordinates and displays personal

concern for their needs, welfare, and well-being. This style is the same as peopleoriented

leadership.

• Participative: The leader believes in group decision-making and shares information

with subordinates. He consults his subordinates on important decisions related to

work, task goals, and paths to resolve goals.

• Achievement-oriented: The leader sets challenging goals and encourages

employees to reach their peak performance. The leader believes that employees

are responsible enough to accomplish challenging goals. This is the same as goalsetting

theory.

Passage (Q41-43)

___________ [A] theory of motivation is based on the social exchange process. This

theory points out that people are motivated to maintain fair relationship between their

performance and reward in comparison to others. It is based in the idea that individuals

are motivated by fairness, and if they identify inequities in the input or output ratios of

themselves and their referent group, they will seek to adjust their input to reach their

perceived equity.

(Topic: Motivation; Level: Moderate)

Q.41) Name the theory which is mentioned in the above passage?

A) Goal Setting Theory

B) ERG Theory

C) Vroom’s Expectancy Theory

D) Herzberg’s Theory

E) None of the above

Answer: Option E) None of the above. The theory is Equity Theory

RBI Grade B F&M Model Test Paper Free e-book

Explanation:

• John Stacey Adams introduced the idea that fairness and equity are key

components of a motivated individual.

• Equity theory is based in the idea that individuals are motivated by fairness, and if

they identify inequities in the input or output ratios of themselves and their

referent group, they will seek to adjust their input to reach their perceived equity.

• Adams suggested that the higher an individual's perception of equity, the more

motivated they will be and vice versa: if someone perceives an unfair environment,

they will be de-motivated.

___________ [A] theory of motivation is based on the social exchange process. This

theory points out that people are motivated to maintain fair relationship between their

performance and reward in comparison to others. It is based in the idea that individuals

are motivated by fairness, and if they identify inequities in the input or output ratios of

themselves and their referent group, they will seek to adjust their input to reach their

perceived equity.

(Topic: Motivation; Level: Moderate)

Q.42) According to the above theory, exchange relationship between a person’s

inputs/outcomes in relation to those of other persons may be of many types. Under

which condition the person experience guilt feelings?

A) Overpaid Inequity

B) Underpaid Inequity

C) Equity

D) Both A and B

E) None of the above

Answer: Option A) Overpaid Equity

Explanation:

• According to the above theory, while evaluating fairness, employee compares the

job input (in terms of contribution) to outcome (in terms of compensation) and

compares the same with that of another peer of equal cadre/category. D/I ratio

(output-input ratio) is used to make such a comparison.

• In Positive equity or Overpaid equity, the person experiences Guilt feeling

• In Negative or Underpaid equity, the person experiences Dissonance

• In Equity, the person experiences Satisfaction

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___________ [A] theory of motivation is based on the social exchange process. This

theory points out that people are motivated to maintain fair relationship between their

performance and reward in comparison to others. It is based in the idea that individuals

are motivated by fairness, and if they identify inequities in the input or output ratios of

themselves and their referent group, they will seek to adjust their input to reach their

perceived equity.

(Topic: Motivation; Level: Moderate)

Q.43) According to Herzberg’s motivation-hygiene theory, which one of the

following is the motivating factor?

A) Company policy and administration

B) Interpersonal relationship with peers

C) Salary

D) Job Security

E) Achievement and Recognition

Answer: Option E) Achievement and Recognition

Explanation:

• Herzberg’s Motivation Theory model, or Two Factor Theory, argues that there are

two factors that an organization can adjust to influence motivation in the

workplace. These factors are:

1. Motivators: These encourages employees to work harder.

2. Hygiene factors: These will not encourage employees to work harder but

they will cause them to become unmotivated if they are not present.

• Hygiene factors- Hygiene factors are those job factors which are essential for

existence of motivation at workplace. These do not lead to positive satisfaction for

long-term. But if these factors are absent / if these factors are non-existent at

workplace, then they lead to dissatisfaction.

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• These are: Company policies, Pay, wages, Job Security, interpersonal relationships

etc.

• Motivational factors- According to Herzberg, the hygiene factors cannot be

regarded as motivators. The motivational factors yield positive satisfaction. These

factors are inherent to work. These factors motivate the employees for a superior

performance. These factors are called satisfiers.

• These are: Achievement, Recognition, Advancement, Work itself, Possibility of

growth and responsibility etc.

Q.44) Which of the following statements is/are correct about the Commercial

Paper?

1) A commercial paper is an secured short-term promissory note, negotiable and

transferable by endorsement and delivery with a fixed maturity period.

2) Commercial paper is usually issued at face value and reflects prevailing market

interest rates.

3) CPs have a minimum maturity of seven days and a maximum of up to one year from

the date of issue.

4) Foreign institutional investors (FIIs) are eligible to invest in commercial papers but

within the limits set for their investments by the RBI.

(Topic: Financial Market (Primary + Secondary); Level Moderate)

A) 1, 2 and 4

B) Only 1

C) Only 3

D) 2, 3 and 4

E) 3 and 4

Answer: Options C) Only 3

Explanation:

• Commercial paper is a short-term debt instrument issued by companies to raise

funds generally for a time period up to one year.

• It is an unsecured money market instrument issued in the form of a promissory

note and was introduced in India for the first time in 1990.

• Companies that enjoy high ratings from rating agencies often use CPs to diversify

their sources of short-term borrowings. This gives investors an additional

instrument.

• They are typically issued by large banks or corporations to cover short-term

receivables and meet short-term financial obligations, such as funding for a new

project.

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• CPs have a minimum maturity of seven days and a maximum of up to one year

from the date of issue.

• They can be issued in denominations of Rs 5 lakh or multiples thereof.

• Since such instruments are not backed by collateral, only firms with high ratings

from a recognised credit rating agency can sell such commercial papers at a

reasonable price.

• CPs are usually sold at a discount to their face value, and carry higher interest rates

than bonds.

• A commercial paper can be issued to individuals, banks, companies, and other

registered Indian corporate bodies and unincorporated bodies.

• Non-resident Indians can be issued a commercial paper only on a non-transferable

and non-repatriable basis.

• Banks are not allowed to underwrite or co-accept the issue of a commercial paper.

• Foreign institutional investors (FIIs) are eligible to invest in commercial papers but

within the limits set for their investments by the SEBI.

Q.45) The Reserve Bank of India has announced the guidelines for on-tap

licensing of private sector SFBs. According to the guidelines, which of the

following statements is/are correct?

1) Payments banks can apply for conversion into small finance banks (SFBs) after 5 years

of operation after satisfying the criteria.

2) A minimum Rs 100 crore net worth is needed for the license of small finance bank.

3) Primary (Urban) Co-operative Banks (UCBs), desirous of voluntarily transiting into

SFBs initial requirement of net worth shall be at Rs 100 crore, which will have to be

increased to Rs 200 crore within ten years from the date of commencement of business.

4) If the initial promoter shareholding in Small Finance Bank is above 40%, it should be

brought down to 40% within a period of 5 years, 30% within 10 years, and 15% in 15

years.

(Topic: Financial Inclusion; Level: Moderate)

A) 1, 2 and 4 are correct

B) 1, 3 and 4 are correct

C) 1 and 4 are correct

D) 1 and 3 are correct

E) All are correct

Answer: Option C) 1 and 4 are correct.

Explanation:

RBI Grade B F&M Model Test Paper Free e-book

• A payments bank is like any other bank but operating on a smaller scale without

involving any credit risk.

• In 2013, the Reserve Bank of India constituted a committee headed by Dr Nachiket

Mor to study 'Comprehensive financial services for small businesses and lowincome

households'.

• The payments bank will be registered as a public limited company under the

Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act,

1949

• The payments bank will be given scheduled bank status once it commences

operations and is found suitable as per Section 42 (6) (a) of the Reserve Bank of

India Act, 1934.

• The payments bank will not have significant credit and market risks. However, it

will be exposed to operational risk.

• The minimum paid-up equity capital of the payments bank shall be Rs. 200 crores.

• The promoters of the payments bank should hold at least 40 per cent of its paidup

equity capital for the first five years from the commencement of its business

• If the initial promoter shareholding is above 40%, it should be brought down to

40% within a period of 5 years, 30% within 10 years, and 15% in 15 years.

The Reserve Bank of India (RBI) recently announced the final guidelines for on-tap

licensing of private sector SFBs (small finance banks).

• Payments banks can apply for conversion into small finance banks (SFBs) after 5

years of operation after satisfying the criteria.

• Primary (Urban) Co-operative Banks (UCBs), desirous of voluntarily transiting into

SFBs initial requirement of net worth shall be at Rs 100 crore, which will have to

be increased to Rs 200 crore within five years from the date of commencement of

business.

• Net worth requirement of small finance bank is raised to 200 cr rupees from 100

cr.

Passage (Q46-47)

The Reserve Bank of India proposed to tighten the rules governing home financiers,

including putting restrictions on lending to builders and doubling the minimum net

owned funds criterion. The regulator’s proposal has also clearly defined home finance

firms and those that are systemically important among them. According to the draft

regulations, RBI also classified housing finance companies as systemically important and

non-systemically important. Non-deposit taking HFCs with asset size of _______ [A]

crore and above; and all deposit taking HFCs irrespective of asset size will be treated as

systemically important HFCs. RBI also said that to qualify as a housing finance company,

RBI Grade B F&M Model Test Paper Free e-book

_________[B] of net assets should be to real estate lending, of which at least 75% should

be towards individual housing loans.

(Topic: Financial System (RBI+ SEBI + SIDBI + NABARD + NHB); Level Moderate)

Q.46) Which will come in place in Blank [A] and Blank [B] as mentioned in the

above passage?

A) 100 crore, 50%

B) 200 crore, 25%

C) 500 crore, 50%

D) 500 crore, 25%

E) 1000 crore, 75%

Answer: Option C) 500 crores, 50%

Explanation:

According to the guidelines

• Non-deposit taking HFCs with asset size of ₹500 crore and above; and all deposit

taking HFCs irrespective of asset size will be treated as systemically important

HFCs.

• HFCs with asset size below ₹500 crore will be treated as non-systemically

important HFCs.

• To qualify as a housing finance company, 50% of net assets should be to real estate

lending, of which at least 75% should be towards individual housing loans.

• Those HFCs that do not fulfil the qualification will be treated as NBFC–investment

and credit companies (NBFC-ICCs) and will be required to approach RBI for

conversion of their certificate of registration from HFCs to NBFC-ICC.