1. In the Balance Sheet of a Bank, what does the item "Non-Banking Assets" represent?
Immovable properties acquired in satisfaction of claims (e.g., from defaulters).
Assets like furniture and computers used in the bank.
Investments in shares of other companies.
Cash held with RBI.
Explanation:
Under the Banking Regulation Act, banks cannot hold immovable property (except for own use) for more than 7 years. Properties acquired from defaulters to recover loans are termed "Non-Banking Assets".
2. Where are "Acceptances, Endorsements and Other Obligations" shown in a Bank's Balance Sheet?
Under "Advances" (Schedule 9).
As "Contingent Liabilities" (Schedule 12).
As a footnote only.
Under "Other Liabilities and Provisions" (Schedule 5).
Explanation:
These are off-balance sheet items where the bank has a potential liability (e.g., Letters of Credit, Guarantees) that will crystallize only if the customer defaults. They are reported in Schedule 12.
3. Provision for Non-Performing Assets (NPAs) is debited to which item in the Bank's Profit & Loss Account?
Operating Expenses
Provisions and Contingencies
Other Income
Interest Expended
Explanation:
In Form B (P&L Account of a Bank), there is a specific head called "Provisions and Contingencies" where provisions for NPAs, Tax, and Diminution in Investments are recorded.
4. In the Balance Sheet of a Bank, "Gold" held as part of SLR requirements is classified under:
Investments.
Other Assets.
Cash and Balances with RBI.
Fixed Assets.
Explanation:
Schedule 8 (Investments) includes investments in Government securities, Shares, Debentures, and Gold . It is not treated as Cash.
5. In a Bank's Balance Sheet, "Silver" bullion is classified under:
Investments.
Fixed Assets.
Other Assets.
Cash and Balances with RBI.
Explanation:
Unlike Gold (which is an Investment), Silver is typically classified under Schedule 11: "Other Assets" in the banking balance sheet format.
6. Capital Adequacy Ratio (CRAR) is calculated as:
Total Capital / Total Deposits
Net Profit / Total Assets
(Tier I Capital + Tier II Capital) / Total Assets
(Tier I Capital + Tier II Capital) / Risk Weighted Assets
Explanation:
CRAR measures a bank's capital against its risk. The denominator is Risk Weighted Assets (RWA), not Total Assets.
7. "Bills for Collection" appears in the Bank's Balance Sheet as:
An Asset.
A Footnote (Off-Balance Sheet item).
Part of Deposits.
A Liability.
Explanation:
Bills for Collection is a service where the bank acts as an agent. It is neither an asset nor a liability of the bank until realized. It is shown as a footnote.
8. In the Balance Sheet of a Bank, "Inter-Office Adjustments (Net)" if debit, is shown under:
Schedule 9 - Advances.
Schedule 5 - Other Liabilities and Provisions.
Schedule 11 - Other Assets.
Schedule 7 - Balances with Banks.
Explanation:
If the net balance of Inter-Office Adjustments is a Debit, it represents an asset (receivable) and is shown under Schedule 11. If it is a Credit, it is shown under Schedule 5 (Liabilities).
9. Balances held with RBI for CRR maintenance are classified in the Bank's Balance Sheet under:
Schedule 11 - Other Assets.
Schedule 8 - Investments.
Schedule 6 - Cash and Balances with RBI.
Schedule 7 - Balances with Banks and Money at Call.
Explanation:
Schedule 6 specifically covers Cash in hand and Balances with the Reserve Bank of India. Schedule 7 covers balances with OTHER banks.
10. "Rebate on Bills Discounted" represents:
Income accrued but not received.
Income received in advance (Unexpired Discount).
A loss on discounting.
Income earned in the current year.
Explanation:
When a bank discounts a bill, it deducts interest for the full period upfront. If the bill matures in the *next* accounting year, the portion of interest relating to the next year is "Income Received in Advance" and is shown as a liability (Rebate on Bills Discounted).
11. In the "Notes to Accounts", banks must disclose the "Divergence in Asset Classification and Provisioning" if the divergence assessed by RBI exceeds:
15% of reported Net Profit.
10% of reported Net Profit.
5% of reported Gross NPAs.
Any amount.
Explanation:
RBI mandates disclosure of divergence if the additional provisioning required exceeds 10% of reported net profit OR if the additional Gross NPA exceeds 10% (was 15% earlier) of reported Gross NPA.
12. In Schedule 9 (Advances), banks must classify advances into:
Short Term and Long Term only.
Secured and Unsecured only.
Standard and NPA only.
Bills Purchased & Discounted, Cash Credits/Overdrafts, and Term Loans.
Explanation:
The statutory format requires classification by nature of facility: A. Bills Purchased and Discounted, B. Cash Credits, Overdrafts and Loans repayable on demand, C. Term Loans.
13. Schedule 1 of a Bank's Balance Sheet relates to:
Deposits
Capital
Borrowings
Reserves and Surplus
Explanation:
The schedules are fixed: 1-Capital, 2-Reserves, 3-Deposits, 4-Borrowings, 5-Other Liabilities. On Asset side: 6-Cash, 7-Balances with Banks, 8-Investments, 9-Advances.
14. As per RBI guidelines, Banks must disclose the "Provision Coverage Ratio" (PCR) in their notes to accounts. PCR is the ratio of:
Net Profit to Net NPAs.
Total Provisions to Total Assets.
Capital to Risk Assets.
Provisioning held for NPAs to Gross NPAs.
Explanation:
PCR measures the cushion a bank has against its bad loans. It is calculated as (Total Provisions held for NPAs / Gross NPAs) * 100.
15. For a "Doubtful Asset (D2)" (secured portion) which has remained in doubtful category for more than 1 year but up to 3 years, the provisioning requirement is:
Explanation:
Provisioning norms for Secured Doubtful Assets: D1 (up to 1 year) = 25%; D2 (1-3 years) = 40%; D3 (>3 years) = 100%.
16. Which of the following is NOT eligible for SLR maintenance by banks?
Gold valued at market price.
Balances with other commercial banks.
Cash in hand.
Investment in unencumbered approved securities.
Explanation:
SLR assets include Cash, Gold, and Unencumbered Approved Securities. Balances with other banks are NOT eligible for SLR (only excess balance with RBI is).
17. "Bills Purchased and Discounted" are shown in the Bank's Balance Sheet under:
Schedule 7 - Balances with Banks.
Schedule 11 - Other Assets.
Schedule 9 - Advances.
Schedule 8 - Investments.
Explanation:
Discounting a bill is effectively lending money to the customer against the security of the bill. Hence, it is an Advance (Loan).
18. In a Bank Balance Sheet, "Money at Call and Short Notice" is shown under:
Schedule 7
Schedule 8
Schedule 6
Schedule 9
Explanation:
Schedule 7 covers "Balances with Banks and Money at Call and Short Notice".
19. What is the standard provisioning rate for "Standard Assets" (Direct Advances to Agriculture and SME)?
Explanation:
RBI mandates 0.25% provision for standard assets in Agriculture and SME sectors. For commercial real estate, it is higher (1% or 0.75%). For general advances, it is 0.40%.
20. "Rebate on Bills Discounted" is treated as a liability in the Balance Sheet because:
It is a provision for bad debts.
It is a loss for the bank.
It represents interest received but not yet earned (income of future period).
It is an amount payable to the RBI.
Explanation:
Banks collect discount upfront. If a bill matures next year, the portion of discount relating to next year is "Income Received in Advance," which is a liability as per the Accrual Concept.
21. Which of the following is a "Contingent Liability" for a bank?
Fixed Deposits accepted.
Guarantees given on behalf of constituents.
Interest payable on deposits.
Savings Deposits.
Explanation:
Deposits are actual liabilities (Schedule 3). Guarantees become liabilities ONLY if the customer defaults. Hence, they are Contingent Liabilities (Schedule 12).
22. What is the provisioning requirement for the "Unsecured" portion of a Doubtful Asset?
Explanation:
Regardless of the period for which the asset has remained doubtful (D1, D2, or D3), the unsecured portion (not covered by realizable value of security) must be fully provided for (100%).
23. Which of the following is an "Off-Balance Sheet" item for a bank?
Deposits accepted.
Cash credit limit sanctioned but not drawn.
Loans given.
Interest accrued.
Explanation:
Undrawn limits are commitments. They do not appear on the BS as assets or liabilities until the customer actually draws the money. However, they represent a potential liquidity demand.
24. Though Gold is an Investment, Silver is shown in Bank Balance Sheet under:
Cash Balance
Investments
Other Assets
Fixed Assets
Explanation:
As per the Banking Regulation Act format, Silver is not considered an approved security for investment purposes in the same way as Gold. It is classified under Schedule 11 (Other Assets).