Indian Banking System MCQs for IBPS, SBI and RBI Exams | Important Questions with Answers & Detailed Explanations
Indian Banking System MCQs for IBPS, SBI and RBI Exams – 30 Multiple Choice Questions (MCQs) with Answers and Detailed Explanations
The following 30 exam-oriented MCQs are designed for IBPS PO, IBPS Clerk, SBI PO, SBI Clerk, RBI Grade B, RBI Assistant, NABARD, LIC AAO, UPSC, SSC, Railways, PSC, State PCS, Insurance, and other competitive examinations in India. Each question includes the correct answer and a detailed explanation to strengthen conceptual understanding.
1. Which institution is known as the Central Bank of India?
A. State Bank of India (SBI)
B. Reserve Bank of India (RBI)
C. NABARD
D. SIDBI
✅ Answer: B. Reserve Bank of India (RBI)
Explanation:
The Reserve Bank of India (RBI) is India’s central bank. It was established on 1 April 1935 under the Reserve Bank of India Act, 1934.
Its primary functions include:
- Issuing currency notes
- Regulating banks
- Formulating monetary policy
- Maintaining financial stability
- Managing foreign exchange reserves
Option Analysis
- SBI is India’s largest commercial bank.
- NABARD promotes agricultural and rural development.
- SIDBI supports micro, small, and medium enterprises (MSMEs).
2. RBI was nationalised in which year?
A. 1935
B. 1947
C. 1949
D. 1955
✅ Answer: C. 1949
Explanation:
Although RBI began operations in 1935 as a privately owned institution, it was nationalised on 1 January 1949.
Nationalisation enabled the Government of India to exercise greater control over monetary policy.
3. Which Act governs the Reserve Bank of India?
A. Banking Regulation Act, 1949
B. RBI Act, 1934
C. Companies Act, 2013
D. Negotiable Instruments Act, 1881
✅ Answer: B. RBI Act, 1934
Explanation:
The Reserve Bank of India Act, 1934 provides the legal framework for the establishment and functioning of RBI.
The Banking Regulation Act mainly governs commercial banks.
4. Who is known as the ‘Banker to the Government’?
A. SBI
B. RBI
C. NABARD
D. LIC
✅ Answer: B. RBI
Explanation:
RBI acts as:
- Banker to the Government
- Banker to Banks
- Lender of Last Resort
It manages government accounts and public debt.
5. Which bank is called the ‘Banker’s Bank’?
A. SBI
B. RBI
C. PNB
D. Canara Bank
✅ Answer: B. RBI
Explanation:
Commercial banks maintain accounts with RBI and borrow funds from it when required. Hence RBI is called the Banker’s Bank.
6. Which committee recommended the establishment of RBI?
A. Narasimham Committee
B. Hilton Young Commission
C. Rangarajan Committee
D. Chakravarty Committee
✅ Answer: B. Hilton Young Commission
Explanation:
The Hilton Young Commission (Royal Commission on Indian Currency and Finance) recommended establishing a central bank for India.
7. Which is the largest public sector bank in India?
A. Punjab National Bank
B. Bank of Baroda
C. State Bank of India
D. Union Bank of India
✅ Answer: C. State Bank of India
Explanation:
State Bank of India (SBI) is India’s largest public sector bank in terms of branches, deposits, customers, and assets.
8. SBI was nationalised in:
A. 1949
B. 1955
C. 1969
D. 1980
✅ Answer: B. 1955
Explanation:
The Imperial Bank of India was converted into the State Bank of India in 1955 through nationalisation.
9. Which bank was formerly known as the Imperial Bank of India?
A. Punjab National Bank
B. Bank of India
C. State Bank of India
D. Canara Bank
✅ Answer: C. State Bank of India
Explanation:
The Imperial Bank of India was established in 1921 and became the State Bank of India (SBI) in 1955.
10. Which of the following is NOT a scheduled commercial bank?
A. SBI
B. PNB
C. RBI
D. Bank of Baroda
✅ Answer: C. RBI
Explanation:
Scheduled commercial banks conduct regular banking business.
RBI is the central bank and is not a commercial bank.
11. Which Act regulates commercial banks in India?
A. RBI Act, 1934
B. Banking Regulation Act, 1949
C. Companies Act, 2013
D. FEMA, 1999
✅ Answer: B. Banking Regulation Act, 1949
Explanation:
The Banking Regulation Act provides rules regarding:
- Licensing
- Management
- Supervision
- Regulation of banking companies
12. Which institution regulates monetary policy in India?
A. Ministry of Finance
B. RBI
C. SBI
D. NITI Aayog
✅ Answer: B. RBI
Explanation:
RBI controls inflation, money supply, and liquidity through monetary policy.
13. What is CRR?
A. Capital Reserve Ratio
B. Cash Reserve Ratio
C. Credit Recovery Ratio
D. Current Reserve Ratio
✅ Answer: B. Cash Reserve Ratio
Explanation:
CRR is the percentage of deposits that banks must keep as cash with RBI.
Purpose:
- Controls money supply
- Maintains liquidity
- Helps control inflation
14. SLR stands for:
A. Statutory Liquidity Ratio
B. State Liquidity Reserve
C. Scheduled Lending Rate
D. Security Lending Ratio
✅ Answer: A. Statutory Liquidity Ratio
Explanation:
SLR is the percentage of deposits banks must maintain in the form of:
- Cash
- Gold
- Approved government securities
15. Which rate is called the policy rate of RBI?
A. Repo Rate
B. Reverse Repo Rate
C. Bank Rate
D. Base Rate
✅ Answer: A. Repo Rate
Explanation:
Repo Rate is the rate at which RBI lends money to commercial banks against government securities.
Increasing Repo Rate generally reduces inflation.
16. Reverse Repo Rate means:
A. Banks borrow from RBI
B. RBI borrows from banks
C. Banks lend to customers
D. Government borrows from RBI
✅ Answer: B. RBI borrows from banks
Explanation:
Banks park surplus funds with RBI and earn interest through the Reverse Repo Rate.
17. Which organisation insures bank deposits in India?
A. SIDBI
B. NABARD
C. DICGC
D. SEBI
✅ Answer: C. DICGC
Explanation:
The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides deposit insurance to eligible bank depositors in India, subject to the prevailing insurance limit.
18. NEFT stands for:
A. National Electronic Fund Transfer
B. National Exchange Fund Transfer
C. New Electronic Finance Transfer
D. National Equity Fund Transfer
✅ Answer: A. National Electronic Fund Transfer
Explanation:
NEFT is an electronic payment system enabling bank-to-bank fund transfers across India.
19. RTGS stands for:
A. Real Time Gross Settlement
B. Reserve Transfer Gross Settlement
C. Real Transfer Government System
D. Regional Transaction Gross Settlement
✅ Answer: A. Real Time Gross Settlement
Explanation:
RTGS is meant for real-time settlement of high-value transactions on a gross basis without netting.
20. IMPS stands for:
A. Immediate Payment Service
B. Instant Money Payment Scheme
C. Immediate Public Settlement
D. Integrated Payment System
✅ Answer: A. Immediate Payment Service
Explanation:
IMPS allows 24×7 instant inter-bank fund transfers through mobile banking and internet banking.
21. UPI stands for:
A. Unified Payment Interface
B. Universal Payment Interface
C. Unified Public Interface
D. Universal Payment Integration
✅ Answer: A. Unified Payment Interface
Explanation:
UPI is a real-time digital payment system developed by the National Payments Corporation of India (NPCI) that enables instant bank-to-bank transfers.
22. Which organisation developed UPI?
A. RBI
B. NPCI
C. SBI
D. SEBI
✅ Answer: B. NPCI
Explanation:
The National Payments Corporation of India (NPCI) developed UPI to promote fast, secure, and interoperable digital payments.
23. Which banking service allows withdrawal using only Aadhaar authentication?
A. RTGS
B. NEFT
C. AEPS
D. ECS
✅ Answer: C. AEPS
Explanation:
Aadhaar Enabled Payment System (AEPS) allows customers to perform banking transactions using Aadhaar authentication through authorised banking correspondents.
24. Which institution primarily promotes agricultural and rural development?
A. SIDBI
B. NABARD
C. EXIM Bank
D. RBI
✅ Answer: B. NABARD
Explanation:
National Bank for Agriculture and Rural Development (NABARD) finances and promotes agriculture and rural development.
25. SIDBI mainly promotes:
A. Agriculture
B. Foreign Trade
C. MSMEs
D. Housing
✅ Answer: C. MSMEs
Explanation:
The Small Industries Development Bank of India (SIDBI) provides financial assistance and developmental support to Micro, Small, and Medium Enterprises.
26. EXIM Bank primarily finances:
A. Housing Loans
B. Agriculture
C. Foreign Trade
D. Education
✅ Answer: C. Foreign Trade
Explanation:
The Export-Import Bank of India (EXIM Bank) supports India’s international trade by financing exports and imports.
27. Which card allows direct deduction from a customer’s bank account?
A. Credit Card
B. Debit Card
C. Charge Card
D. Smart Card
✅ Answer: B. Debit Card
Explanation:
When a debit card is used, the purchase amount is deducted directly from the linked bank account.
28. Which banking term refers to customers completing banking transactions through smartphones?
A. Merchant Banking
B. Mobile Banking
C. Wholesale Banking
D. Retail Banking
✅ Answer: B. Mobile Banking
Explanation:
Mobile banking enables customers to access banking services such as fund transfers, balance enquiries, bill payments, and account management through mobile applications.
29. Which banking sector reform committee submitted its report in 1991?
A. Sarkaria Committee
B. Narasimham Committee
C. Balwant Rai Mehta Committee
D. Kelkar Committee
✅ Answer: B. Narasimham Committee
Explanation:
The Narasimham Committee (1991) recommended major banking sector reforms, including strengthening prudential norms, improving capital adequacy, enhancing operational autonomy, and increasing competition in the banking system.
30. Which of the following is the primary objective of the Indian banking system?
A. Maximising government revenue only
B. Providing financial services and supporting economic development
C. Financing only large industries
D. Issuing passports
✅ Answer: B. Providing financial services and supporting economic development
Explanation:
The Indian banking system plays a vital role in:
- Mobilising public savings
- Providing credit to individuals and businesses
- Facilitating secure payment systems
- Promoting financial inclusion
- Supporting agriculture, industry, trade, and infrastructure
- Contributing to overall economic growth and financial stability
Option Analysis
- Option A is incorrect because banks serve the broader economy, not just government revenue.
- Option B is correct and captures the core role of the banking system.
- Option C is incorrect because banks serve all sectors, including agriculture, MSMEs, retail customers, and large industries.
- Option D is incorrect because issuing passports is not a banking function.
Quick Revision Table
| Topic | Key Point |
|---|---|
| RBI Established | 1 April 1935 |
| RBI Nationalised | 1 January 1949 |
| RBI Act | 1934 |
| Banking Regulation Act | 1949 |
| Largest Public Sector Bank | State Bank of India (SBI) |
| SBI Formed | 1955 |
| Imperial Bank Became | SBI |
| Monetary Policy | RBI |
| CRR | Cash Reserve Ratio |
| SLR | Statutory Liquidity Ratio |
| Policy Rate | Repo Rate |
| Deposit Insurance | DICGC |
| Digital Payments | UPI, IMPS, NEFT, RTGS |
| UPI Developed By | NPCI |
| Rural Development Bank | NABARD |
| MSME Development Bank | SIDBI |
| Foreign Trade Bank | EXIM Bank |
| Banking Reforms | Narasimham Committee (1991) |
