Banking Laws and Practices

Code 744E61 · Online · 30 Oct 2026 · organised by Kamlesh
2 candidates · total marks 50.00

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1Deepak Singh30.00 / 50.00
2Kamlesh kamlesh14.00 / 50.00

Question paper & answers

Q1. Under the Negotiable Instruments Act, 1881, a promissory note must be signed by: 1.00

  • A. The payee
  • B. The maker
  • C. The endorser
  • D. The drawee
Correct: B
Section 4 requires the maker to sign the instrument promising to pay.

Q2. A cheque crossed with two parallel lines with the words 'Account Payee' is: 1.00

  • A. Not negotiable
  • B. Restrictive as to the mode of collection
  • C. A general crossing
  • D. Void
Correct: B
An account payee crossing directs the collecting banker to credit only the payee's account.

Q3. Under Section 138 of the NI Act, the period within which the drawer must make payment after receipt of notice is: 1.00

  • A. 7 days
  • B. 15 days
  • C. 30 days
  • D. 45 days
Correct: B
The drawer gets 15 days from receipt of the notice to pay.

Q4. Under the NI Act, a holder in due course must have become the holder: 1.00

  • A. After maturity
  • B. Before maturity and without notice of defect
  • C. With notice of prior dishonour
  • D. Only through operation of law
Correct: B
Section 9 requires acquisition before maturity, for consideration, and in good faith.

Q5. A bill of exchange is drawn by: 1.00

  • A. The drawee
  • B. The payee
  • C. The maker
  • D. The drawer
Correct: D
Section 5 provides that a bill is drawn by the maker, i.e., the drawer.

Q6. Under the NI Act, the liability of the maker of a promissory note is: 1.00

  • A. Primary and unconditional
  • B. Secondary and conditional
  • C. Contingent on endorsement
  • D. Only after presentation
Correct: A
The maker is the principal debtor on a promissory note.

Q7. Under the Indian Contract Act, 1872, an agreement without consideration is valid when it is: 1.00

  • A. Made out of natural love and affection between parties standing in a near relation
  • B. Made orally between strangers
  • C. Made under coercion
  • D. Made for an unlawful object
Correct: A
Section 25(1) recognizes such agreements if in writing and registered.

Q8. Under Section 56 of the Indian Contract Act, a contract becomes void when: 1.00

  • A. One party commits breach
  • B. The contract is performed
  • C. Performance becomes impossible due to an event beyond the promisor's control
  • D. Notice of rescission is given
Correct: C
Section 56 embodies the doctrine of supervening impossibility.

Q9. In a contract of guarantee under the Indian Contract Act, the liability of the surety is: 1.00

  • A. Primary
  • B. Co-extensive with that of the principal debtor unless otherwise provided
  • C. Limited to half the debt
  • D. Extinguished on demand
Correct: B
Section 128 makes the surety's liability co-extensive with the principal debtor's.

Q10. Under the Indian Contract Act, a contract by a minor is: 1.00

  • A. Voidable at the minor's option
  • B. Valid if ratified after majority
  • C. Void ab initio
  • D. Enforceable against the minor's guardian
Correct: C
A minor's agreement is void as held in Mohori Bibee v. Dharmodas Ghose.

Q11. Under the Indian Contract Act, 'quasi-contracts' are based on the principle of: 1.00

  • A. Consensus ad idem
  • B. Unjust enrichment
  • C. Free consent
  • D. Consideration
Correct: B
Sections 68-72 prevent unjust enrichment.

Q12. Under the Indian Contract Act, when consent is caused by undue influence, the contract is: 1.00

  • A. Void
  • B. Valid
  • C. Voidable at the option of the party whose consent was so caused
  • D. Illegal
Correct: C
Section 19A makes such a contract voidable.

Q13. Under the RBI Act, 1934, the Reserve Bank is required to maintain a minimum reserve of gold and foreign securities of: 1.00

  • A. Rs. 200 crore of which Rs. 115 crore in gold
  • B. Rs. 500 crore of which Rs. 200 crore in gold
  • C. Rs. 100 crore of which Rs. 50 crore in gold
  • D. Rs. 300 crore of which Rs. 100 crore in gold
Correct: A
Section 33(2) requires Rs. 200 crore, with Rs. 115 crore in gold.

Q14. Under Section 42 of the RBI Act, the Bank Rate is: 1.00

  • A. The rate at which RBI lends to banks against government securities
  • B. The rate at which RBI buys foreign exchange
  • C. The rate at which banks lend to each other
  • D. The rate of interest on savings deposits
Correct: A
The Bank Rate is the standard rate for lending against eligible securities.

Q15. The RBI's power to issue directions to banking companies is contained in: 1.00

  • A. Section 21 of the BR Act
  • B. Section 35A of the BR Act
  • C. Section 45 of the RBI Act
  • D. Section 138 of the NI Act
Correct: B
Section 35A empowers RBI to issue directions in public interest.

Q16. Under the Banking Regulation Act, 1949, a banking company must maintain its subscribed capital and authorised capital at a minimum of: 1.00

  • A. 50% of paid-up capital
  • B. 25% of paid-up capital
  • C. 100% of paid-up capital
  • D. 10% of paid-up capital
Correct: A
Section 12 requires subscribed capital to be at least half of authorised capital.

Q17. Under the BR Act, the minimum paid-up capital and reserves for a new banking company is prescribed as: 1.00

  • A. Rs. 1 lakh
  • B. Rs. 5 lakh
  • C. Rs. 10 lakh
  • D. Such amount as RBI may specify, not less than Rs. 5 lakh
Correct: D
Section 11 prescribes a minimum as specified by RBI.

Q18. Under Section 24 of the BR Act, every banking company must maintain in India an aggregate value of cash, gold and unencumbered approved securities at not less than: 1.00

  • A. 10% of total demand and time liabilities
  • B. 15% of total demand and time liabilities
  • C. 20% of total demand and time liabilities
  • D. 25% of total demand and time liabilities
Correct: C
The SLR requirement under Section 24 is 20% of NDTL as per statute.

Q19. Under the RBI Act, the National Housing Credit (Long Term Operations) Fund was established under: 1.00

  • A. Section 46C
  • B. Section 17
  • C. Section 42
  • D. Section 45
Correct: A
Section 46C establishes the National Housing Credit Fund.

Q20. Under the NI Act, when a negotiable instrument is endorsed in blank, it: 1.00

  • A. Becomes payable to bearer
  • B. Becomes non-transferable
  • C. Requires further endorsement to be valid
  • D. Is void
Correct: A
Section 16 makes a blank endorsement render the instrument payable to bearer.

Q21. Under the RBI Master Direction on KYC, what is the maximum period for which a bank may defer the periodic updater of KYC for a low-risk customer, provided there is no adverse change in the customer's profile? 1.00

  • A. Three years from the date of last KYC updater
  • B. Ten years from the date of last KYC updater
  • C. Five years from the date of last KYC updater
  • D. Seven years from the date of last KYC updater
Correct: B
For low-risk customers, the period for periodic KYC updater is ten years under the Master Direction on KYC.

Q22. Which of the following best describes the 'Customer Due Diligence' requirement at the time of establishing a business relationship under the RBI KYC Master Direction? 1.00

  • A. CDD must be completed only before the first financial transaction, not at onboarding
  • B. CDD is mandatory only for accounts opened in physical form
  • C. CDD must be undertaken before a business relationship is established or account is opened
  • D. CDD may be postponed until the account balance exceeds INR 1 lakh
Correct: C
The Master Direction mandates CDD before establishing a business relationship or opening an account.

Q23. In the context of the RBI's Master Direction on KYC, a 'Politically Exposed Person' (PEP) includes which of the following? 1.00

  • A. Only individuals currently holding a public function in India
  • B. Only persons who have been convicted of corruption-related offences
  • C. Individuals entrusted with prominent public functions, including those in foreign countries and international organisations
  • D. Any customer holding a high-value deposit account above INR 50 lakh
Correct: C
PEPs include individuals entrusted with prominent public functions, whether domestic, foreign, or in international organisations.

Q24. Under the RBI guidelines on the Deposits policy, what is the maximum rate of interest a bank may pay on a domestic term deposit with a maturity of one year and above, as a multiple of the RBI repo rate, for a scheduled commercial bank? 1.00

  • A. There is no cap tied to the repo rate; banks are free to set rates subject to board-approved policy
  • B. Twice the repo rate
  • C. Three times the repo rate
  • D. One and a half times the repo rate
Correct: A
Interest rates on domestic term deposits are deregulated, subject to the bank's board-approved policy.

Q25. Which of the following is NOT a permissible mode of recovery under the RBI's guidelines on the recovery of bank dues? 1.00

  • A. Recovery through the Lok Adalat mechanism
  • B. Recovery through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  • C. Recovery through the Debt Recovery Tribunal
  • D. Recovery by deploying coercive agents at the borrower's residence during night hours without notice
Correct: D
Recovery agents cannot resort to coercive or illegal practices; night-time visits without notice are not permissible.

Q26. Under the RBI Master Guidelines on KYC, what is the threshold for a 'high-value' account requiring enhanced due diligence for individuals? 1.00

  • A. INR 10 lakh
  • B. INR 50 lakh
  • C. INR 1 crore
  • D. INR 25 lakh
Correct: C
Enhanced due diligence is required for accounts of individuals with a balance exceeding INR 1 crore, among other criteria.

Q27. As per the RBI's Master Direction on KYC, what is the maximum validity period of a periodic KYC updater for a high-risk customer? 1.00

  • A. Ten years
  • B. Two years
  • C. Five years
  • D. Eight years
Correct: B
For high-risk customers, the periodic KYC updater is required every two years.

Q28. Under the RBI's guidelines on the recovery of bank dues, what is the minimum notice period that must be given to a borrower before initiating proceedings under the SARFAESI Act, 2002? 1.00

  • A. 15 days
  • B. 30 days
  • C. 60 days
  • D. 90 days
Correct: C
A 60-day notice is required to be given to the borrower under Section 13(2) of the SARFAESI Act.

Q29. Under the RBI's Priority Sector Lending (PSL) guidelines, what is the maximum adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher, for a scheduled commercial bank to be classified as a 'small bank' for PSL purposes? 1.00

  • A. INR 500 crore
  • B. INR 1,000 crore
  • C. INR 10,000 crore
  • D. INR 5,000 crore
Correct: D
Banks with ANBC or credit equivalent of off-balance sheet exposure up to INR 5,000 crore may be treated as small banks for certain PSL norms.

Q30. In the RBI's PSL guidelines, which of the following is included under the 'weaker sections' category? 1.00

  • A. Small and marginal farmers
  • B. Micro, small and medium enterprises
  • C. Export-oriented units
  • D. Non-banking financial companies
Correct: A
Small and marginal farmers are explicitly included in the weaker sections under PSL guidelines.

Q31. Under the RBI's Master Guidelines on KYC, what is the maximum period for which a bank may allow a customer to operate an account without completing the KYC updater, after the due date? 1.00

  • A. One month
  • B. Three months
  • C. Six months
  • D. Twelve months
Correct: B
Banks may allow operations for up to three months after the due date for KYC updater, subject to conditions.

Q32. Under the RBI's deposit policy, what is the maximum rate of interest a bank may pay on a Non-Resident External (NRE) term deposit? 1.00

  • A. The rate is capped at the repo rate
  • B. The rate is capped at the LIBOR rate
  • C. There is no cap; banks may set rates subject to board-approved policy
  • D. The rate is capped at the bank's base rate
Correct: C
Interest rates on NRE term deposits are deregulated and determined by the bank's board-approved policy.

Q33. Under the RBI's PSL guidelines, what is the target for lending to the 'micro enterprises' category as a percentage of ANBC for scheduled commercial banks? 1.00

  • A. 7.5 percent
  • B. 5 percent
  • C. 10 percent
  • D. 12 percent
Correct: A
The target for lending to micro enterprises is 7.5 percent of ANBC.

Q34. Under the RBI Master Guidelines on KYC, what is the requirement for a bank before opening an account for a customer who is a 'high-risk' individual? 1.00

  • A. Only a self-declaration of identity is sufficient
  • B. Enhanced due diligence, including obtaining additional information and senior management approval
  • C. No special requirement beyond standard CDD
  • D. A recommendation from a local branch manager is sufficient
Correct: B
High-risk customers require enhanced due diligence and senior management approval before account opening.

Q35. Under the RBI's recovery guidelines, what is the maximum period for which a bank may engage a recovery agent without renewing the agreement? 1.00

  • A. One year
  • B. Two years
  • C. Five years
  • D. Three years
Correct: D
Recovery agent agreements are typically valid for a maximum of three years, after which they must be renewed.

Q36. Under the RBI's PSL guidelines, what is the maximum loan amount for a loan to be classified as a 'micro credit' under the 'weaker sections' category? 1.00

  • A. INR 50,000
  • B. INR 1,00,000
  • C. INR 2,00,000
  • D. INR 5,00,000
Correct: B
Micro credit is defined as a loan of up to INR 1,00,000 under the PSL guidelines.

Q37. Under the RBI's Master Direction on KYC, what is the maximum period for which a bank may retain records of transactions and identity of customers? 1.00

  • A. Five years from the date of transaction
  • B. Ten years from the date of transaction
  • C. Five years from the date of cessation of the business relationship
  • D. Ten years from the date of cessation of the business relationship
Correct: C
Records must be maintained for at least five years from the date of cessation of the business relationship.

Q38. Under the RBI's deposit policy, what is the maximum rate of interest a bank may pay on a domestic savings deposit? 1.00

  • A. The rate is capped at 3.5 percent
  • B. The rate is capped at 4 percent
  • C. The rate is deregulated and set by the bank's board-approved policy
  • D. The rate is capped at the repo rate
Correct: C
Interest rates on domestic savings deposits are deregulated and determined by the bank's board-approved policy.

Q39. Under the RBI's PSL guidelines, what is the target for lending to the 'agriculture' sector as a percentage of ANBC for scheduled commercial banks? 1.00

  • A. 18 percent
  • B. 10 percent
  • C. 12 percent
  • D. 15 percent
Correct: A
The target for lending to the agriculture sector is 18 percent of ANBC.

Q40. Under the RBI's Master Guidelines on KYC, what is the requirement for a bank before opening an account for a customer who is a 'non-resident'? 1.00

  • A. Only a passport copy is required
  • B. CDD must be conducted in accordance with the bank's policy, including verification of identity and address
  • C. No CDD is required for non-resident accounts
  • D. Only a self-declaration of foreign address is required
Correct: B
CDD is mandatory for non-resident customers, including verification of identity and address as per bank policy.

Q41. Under the Indian Partnership Act, 1932, what is the maximum number of partners allowed in a partnership firm as per the Companies (Miscellaneous) Rules, 2014? 1.00

  • A. 20
  • B. 50
  • C. 100
  • D. 10
Correct: B
The Companies (Miscellaneous) Rules, 2014 raised the maximum number of partners in a firm to 50.

Q42. A partner who lends money to the firm beyond the agreed capital and is entitled to interest is known as: 1.00

  • A. Nominal partner
  • B. Partner by estoppel
  • C. Sub-partner
  • D. Partner in profits only
Correct: A
A nominal partner is one who lends only his name and is liable to outsiders though he takes no share in profits.

Q43. Under Section 32 of the Indian Partnership Act, 1932, a partner may retire: 1.00

  • A. Only with the consent of all other partners
  • B. Only after giving 6 months' notice to the Registrar
  • C. With the consent of all partners, or by notice, or as per agreement
  • D. Only by an order of the court
Correct: C
Section 32 permits retirement with consent of all partners, by notice to all partners, or as per the partnership deed.

Q44. Which of the following is NOT a mode of dissolution of a partnership firm under the Indian Partnership Act, 1932? 1.00

  • A. Dissolution by agreement
  • B. Compulsory dissolution
  • C. Dissolution on the happening of contingencies
  • D. Dissolution by merger with a company
Correct: D
Merger with a company is not a statutory mode of dissolution under the Act; the Act provides agreement, notice, contingencies, court, and business completion.

Q45. Under the Income Tax Act, 1961, a partnership firm is taxed at a flat rate of: 1.00

  • A. 25%
  • B. 30% plus surcharge and cess as applicable
  • C. 20%
  • D. 35%
Correct: B
Firms are taxed at a flat rate of 30% plus applicable surcharge and health and education cess.

Q46. Under Section 80C of the Income Tax Act, 1961, the maximum deduction allowed to an individual for specified investments is: 1.00

  • A. ₹1,00,000
  • B. ₹2,00,000
  • C. ₹1,50,000
  • D. ₹2,50,000
Correct: C
Section 80C permits a maximum deduction of ₹1,50,000 for specified investments and expenses.

Q47. Which income is taxable under the head 'Income from Other Sources' under the Income Tax Act, 1961? 1.00

  • A. Salary received by an employee
  • B. Rent from a let-out house property
  • C. Interest on fixed deposits
  • D. Profits from a business
Correct: C
Interest on fixed deposits is generally taxed under 'Income from Other Sources' unless it is business income.

Q48. Under the Reserve Bank of India Act, 1934, the minimum reserve system requires the RBI to maintain assets of at least: 1.00

  • A. ₹200 crore
  • B. ₹500 crore
  • C. ₹100 crore
  • D. ₹1,000 crore
Correct: A
The RBI Act requires the Bank to maintain assets of not less than ₹200 crore under the minimum reserve system.

Q49. The Reserve Bank of India is required to transfer its surplus profits to the Central Government under which section of the RBI Act, 1934? 1.00

  • A. Section 42
  • B. Section 47
  • C. Section 17
  • D. Section 22
Correct: B
Section 47 of the RBI Act deals with the allocation of surplus profits to the Central Government.

Q50. Under the RBI Act, 1934, the RBI can issue currency notes of denomination up to: 1.00

  • A. ₹1,000 only
  • B. ₹2,000 only
  • C. ₹5,000 only
  • D. Any denomination as notified by the Central Government
Correct: D
The RBI can issue notes of any denomination as notified by the Central Government, subject to the Act's provisions.