Indian Banking System & RBI Functions MCQs

India General Knowledge

Indian Banking System & RBI Functions MCQs

MODULE 7: Banking, Finance & Financial Awareness

📘 Sub-Topic 1: Basics & Structure of the Indian Banking System

Q1. Which of the following best describes the structure of the Indian banking system?

A. Unitary banking system
B. Dual banking system
C. Mixed banking system
D. Centralised banking system

✅ Correct Answer: C. Mixed banking system

📝 Explanation:
India follows a mixed banking system, which includes public sector banks, private sector banks, cooperative banks, and regional rural banks. Both government-owned and privately owned banks operate simultaneously under RBI regulation.

Q2. Which institution acts as the apex monetary authority of India?

A. State Bank of India
B. Ministry of Finance
C. NABARD
D. Reserve Bank of India

✅ Correct Answer: D. Reserve Bank of India

📝 Explanation:
The Reserve Bank of India (RBI) is India’s central bank, responsible for issuing currency, controlling monetary policy, regulating banks, and maintaining financial stability.

Q3. Which category of banks mainly focuses on rural credit and agricultural financing?

A. Foreign Banks
B. Regional Rural Banks
C. Small Finance Banks
D. Payments Banks

✅ Correct Answer: B. Regional Rural Banks

📝 Explanation:
Regional Rural Banks (RRBs) were created to serve rural areas, especially small farmers, agricultural labourers, artisans, and SHGs, by providing affordable banking and credit services.

Q4. Public Sector Banks in India are primarily owned by whom?

A. RBI
B. State Governments
C. Central Government
D. Private shareholders

✅ Correct Answer: C. Central Government

📝 Explanation:
Public Sector Banks are those in which the Government of India holds more than 50% ownership, ensuring public accountability and financial inclusion.

Q5. Which bank is known as the largest public sector bank in India?

A. Punjab National Bank
B. Bank of Baroda
C. Canara Bank
D. State Bank of India

✅ Correct Answer: D. State Bank of India

📝 Explanation:
State Bank of India (SBI) is India’s largest public sector bank in terms of assets, deposits, branches, and customer base.

📘 Sub-Topic 2: Evolution & Types of Banks in India

Q6. When was the Reserve Bank of India established?

A. 1930
B. 1935
C. 1947
D. 1950

✅ Correct Answer: B. 1935

📝 Explanation:
The RBI was established in 1935 under the Reserve Bank of India Act, 1934, initially as a privately owned institution.

Q7. Which banks are authorised to accept demand deposits but cannot issue loans?

A. Small Finance Banks
B. Cooperative Banks
C. Payments Banks
D. Development Banks

✅ Correct Answer: C. Payments Banks

📝 Explanation:
Payments Banks can accept deposits (up to a prescribed limit) and offer remittance services but cannot provide loans or credit.

Q8. Which type of bank focuses on long-term industrial and infrastructure financing?

A. Commercial Banks
B. Development Banks
C. Cooperative Banks
D. Payments Banks

✅ Correct Answer: B. Development Banks

📝 Explanation:
Development Banks provide long-term capital for industrial growth, infrastructure projects, and economic development.

Q9. Cooperative banks primarily operate under which principle?

A. Profit maximisation
B. Government control
C. Mutual assistance
D. Centralised authority

✅ Correct Answer: C. Mutual assistance

📝 Explanation:
Cooperative banks operate on cooperative principles, emphasising mutual help, democratic control, and service over profit.

Q10. Which category of banks mainly serves NRIs and international trade?

A. Small Finance Banks
B. Cooperative Banks
C. Foreign Banks
D. Regional Rural Banks

✅ Correct Answer: C. Foreign Banks

📝 Explanation:
Foreign Banks operate branches in India and mainly handle international trade finance, NRI banking, and global financial services.

📘 Sub-Topic 3: Core Functions of the Reserve Bank of India

Q11. Which of the following is NOT a function of the RBI?

A. Issuing currency
B. Controlling inflation
C. Managing foreign exchange
D. Providing personal loans

✅ Correct Answer: D. Providing personal loans

📝 Explanation:
RBI is a regulatory and supervisory authority, not a commercial bank. It does not lend directly to individuals.

Q12. RBI acts as the banker’s bank by performing which function?

A. Accepting public deposits
B. Providing loans to customers
C. Lending to commercial banks
D. Issuing debit cards

✅ Correct Answer: C. Lending to commercial banks

📝 Explanation:
RBI acts as a lender of last resort, providing emergency liquidity to banks during financial stress.

Q13. Which function of RBI involves issuing currency notes?

A. Custodian of cash reserves
B. Controller of credit
C. Note issuing authority
D. Clearing house

✅ Correct Answer: C. Note issuing authority

📝 Explanation:
RBI has the sole authority to issue currency notes, ensuring uniformity and public confidence in money.

Q14. RBI acts as the custodian of which of the following?

A. Gold reserves
B. Foreign exchange reserves
C. Both A and B
D. Share capital of banks

✅ Correct Answer: C. Both A and B

📝 Explanation:
RBI manages India’s gold and foreign exchange reserves, helping maintain external stability.

Q15. Which RBI function involves settling inter-bank transactions?

A. Bank rate policy
B. Clearing house function
C. Supervisory function
D. Credit control

✅ Correct Answer: B. Clearing house function

📝 Explanation:
RBI acts as a clearing house, settling claims between banks and facilitating smooth payment systems.

📘 Sub-Topic 4: Monetary Policy & Credit Control Tools

Q16. Which RBI tool involves changing the interest rate at which it lends to banks?

A. CRR
B. SLR
C. Bank Rate
D. Open Market Operations

✅ Correct Answer: C. Bank Rate

📝 Explanation:
Bank Rate is the rate at which RBI lends to commercial banks. Increasing it makes borrowing costlier, reducing money supply.

Q17. Cash Reserve Ratio (CRR) refers to:

A. Cash held by banks for lending
B. Cash deposited by banks with RBI
C. Cash held by RBI
D. Cash issued by RBI

✅ Correct Answer: B. Cash deposited by banks with RBI

📝 Explanation:
CRR is the percentage of deposits that banks must keep with RBI, controlling liquidity in the economy.

Q18. Which tool involves buying and selling government securities?

A. Repo Rate
B. Reverse Repo Rate
C. Open Market Operations
D. Statutory Liquidity Ratio

✅ Correct Answer: C. Open Market Operations

📝 Explanation:
Through Open Market Operations (OMO), RBI regulates money supply by purchasing or selling government securities.

Q19. An increase in Repo Rate generally leads to:

A. Increased lending
B. Lower inflation
C. Cheaper loans
D. Expansion of credit

✅ Correct Answer: B. Lower inflation

📝 Explanation:
Higher Repo Rate makes borrowing costlier, reducing credit flow and helping control inflation.

Q20. Which of the following is a qualitative credit control tool?

A. CRR
B. SLR
C. Moral Suasion
D. Repo Rate

✅ Correct Answer: C. Moral Suasion

📝 Explanation:
Moral Suasion involves persuasion and guidance by RBI to influence banks’ lending behaviour without formal directives.

📘 Sub-Topic 5: Regulatory & Supervisory Role of RBI

Q21. RBI regulates banks under which Act?

A. Banking Companies Act, 1930
B. RBI Act, 1934
C. Banking Regulation Act, 1949
D. Companies Act, 2013

✅ Correct Answer: C. Banking Regulation Act, 1949

📝 Explanation:
The Banking Regulation Act, 1949 empowers RBI to regulate, supervise, and inspect banks.

Q22. Which function ensures financial discipline among banks?

A. Credit creation
B. Supervision and inspection
C. Note issuance
D. Clearing operations

✅ Correct Answer: B. Supervision and inspection

📝 Explanation:
RBI regularly inspects banks to ensure sound management, solvency, and depositor protection.

Q23. Which institution licenses banks in India?

A. Ministry of Finance
B. SEBI
C. RBI
D. NABARD

✅ Correct Answer: C. RBI

📝 Explanation:
RBI grants licenses to banks, ensuring only financially sound institutions operate.

Q24. RBI issues guidelines mainly to protect:

A. Bank shareholders
B. Borrowers only
C. Depositors’ interests
D. Government revenue

✅ Correct Answer: C. Depositors’ interests

📝 Explanation:
RBI’s regulations aim to safeguard depositors, ensuring banking stability and trust.

Q25. Which role of RBI ensures overall economic stability?

A. Developmental role
B. Custodial role
C. Regulatory role
D. Stabilising role

✅ Correct Answer: D. Stabilising role

📝 Explanation:
By managing inflation, liquidity, and financial crises, RBI plays a stabilising role in the economy.

📘 Sub-Topic 6: Developmental & Promotional Functions of RBI

Q26. RBI promotes financial inclusion mainly through:

A. Commercial lending
B. Branch expansion and digital banking
C. Issuing bonds
D. Tax collection

✅ Correct Answer: B. Branch expansion and digital banking

📝 Explanation:
RBI encourages banking access in rural and underserved areas and promotes digital payment systems.

Q27. RBI supports priority sector lending to promote:

A. Luxury consumption
B. Speculative trading
C. Balanced economic growth
D. Corporate monopolies

✅ Correct Answer: C. Balanced economic growth

📝 Explanation:
Priority Sector Lending ensures credit to agriculture, MSMEs, education, and weaker sections.

Q28. Which RBI initiative focuses on strengthening payment systems?

A. Monetary tightening
B. Financial inclusion drives
C. Digital payment reforms
D. Bank nationalisation

✅ Correct Answer: C. Digital payment reforms

📝 Explanation:
RBI actively promotes safe, efficient, and digital payment ecosystems in India.

Q29. RBI’s developmental role mainly targets:

A. Short-term profits
B. Long-term economic growth
C. Private sector dominance
D. Foreign investment only

✅ Correct Answer: B. Long-term economic growth

📝 Explanation:
Through policy support and institution building, RBI contributes to sustainable long-term development.

Q30. Overall, the RBI can best be described as:

A. A profit-making bank
B. A commercial lender
C. A regulatory and monetary authority
D. A cooperative institution

✅ Correct Answer: C. A regulatory and monetary authority

📝 Explanation:
RBI is India’s central monetary authority, balancing growth, stability, and public confidence in the financial system.

✅ Exam Relevance & Coverage

These MCQs are fully aligned with the India-specific GK syllabus and are highly relevant for:

• UPSC, SSC, Banking (IBPS, SBI), RBI Exams
• State PSCs, Railways, Defence, Insurance
• School, College, University & Entrance Exams

• RBI functions MCQs

• Indian banking system GK questions

• Banking awareness MCQs India

• RBI monetary policy questions

• Indian banking system objective questions

• Banking and finance MCQs for competitive exams

• RBI credit control tools MCQs

• Indian banking GK for UPSC SSC Banking

⭐ Indian Banking System & RBI Functions MCQs

Understanding the Indian Banking System and the functions of the Reserve Bank of India is essential for mastering banking awareness, finance, and economic GK.
This MCQ set is systematically organised, starting from the structure of Indian banks to the regulatory, monetary, developmental, and supervisory roles of RBI, ensuring strong conceptual clarity.

These questions are designed to help learners:

• Build fundamental to advanced banking concepts

• Strengthen exam-oriented problem-solving skills

• Revise high-frequency topics repeatedly asked in competitive exams

Regular practice of these MCQs will significantly improve accuracy and confidence in Banking, SSC, UPSC, and State-level examinations.

❓ FAQ Section

Q1. What is the Indian banking system?

The Indian banking system includes public sector banks, private sector banks, cooperative banks, regional rural banks, payments banks, and foreign banks, regulated by RBI.

Q2. Why are RBI functions important for competitive exams?

RBI functions are a core topic in banking awareness, frequently asked in IBPS, SBI, RBI Grade B, SSC, UPSC, and State PSC exams.

Q3. Which RBI functions are most important for exams?

Key exam-relevant RBI functions include monetary policy tools, credit control methods, regulatory supervision, currency issuance, and lender of last resort role.

Q4. Are these MCQs useful for school and college students?

Yes, these MCQs are aligned with school, college, university, and entrance-level syllabi, making them useful beyond competitive exams.

Q5. How can I score better in banking awareness exams?

Consistent practice of topic-wise MCQs with explanations, along with revision of RBI policies and banking terms, is the most effective strategy.

🎯 Targeting Exams

🎓 Exams Covered by These MCQs

These Indian Banking System & RBI Functions MCQs are highly relevant for:

• Banking Exams: IBPS PO/Clerk, SBI PO/Clerk, RBI Grade B, RBI Assistant

• Central Government Exams: UPSC CSE, SSC CGL, SSC CHSL, SSC MTS

• State Exams: State PSCs, State Banking & Finance Exams

• Defence & Insurance Exams: CDS, AFCAT, LIC, ADO, Insurance AO

• Academic Exams: School exams, College & University semester exams, Entrance tests