Banking System — UPSC Prelims practice questions

Q: How many Banking System MCQs are available for UPSC Prelims practice?

PrelimsAI currently has 80+ Banking System MCQs under Indian Economy. This page shows 12 sample questions in full.

Q: How many Banking System previous year questions are included?

47+ questions in this chapter are tagged as UPSC Prelims PYQs. PYQs are prioritised in the visible sample set when available.

Q: Do these Banking System questions include explanations?

Yes. The 12 visible sample questions show the correct option and explanation on this page.

Q: Where should I go after practising Banking System?

Continue with Monetary Policy & Banking or Financial Markets, or return to the Indian Economy subject page for more chapter-wise practice.

Question 1

How many of the following countries among UAE, France, Germany, Singapore and Bangladesh currently accept international merchant payments under UPI?  (A) Only two (B) Only three (C) Only four (D) All five

Accepted Answer

(B) Only three — Correct. UAE, France and Singapore are the three among the listed countries where international merchant payments through UPI have been enabled.

Question 2

With reference to payment systems in India, consider the following statements:
1. In RTGS, fund settlement is done individually and in real time.
2. In NEFT, settlement is deferred and done in batches.
3. Banks are allowed to charge inward RTGS transactions to customers.
Which of the statements given above are correct? (A) 1 and 2 only (B) 1 and 3 only (C) 2 and 3 only (D) 1, 2 and 3

Accepted Answer

(A) 1 and 2 only — Correct. RTGS is real-time gross settlement and NEFT works through deferred net settlement batches; Statement 3 is wrong because inward RTGS transactions are not charged to customers.

Question 3

Consider the following statements:
1. Non-Banking Financial Companies can access the RBI's Liquidity Adjustment Facility like scheduled banks.
2. Foreign portfolio investors can hold Government securities in India subject to the applicable framework.
3. Stock exchanges can provide separate debt trading platforms.
Which of the statements given above are correct? (A) 1 and 2 only (B) 3 only (C) 1, 2 and 3 (D) 2 and 3 only

Accepted Answer

(D) 2 and 3 only — Correct. FPIs can hold Government securities and stock exchanges can operate debt platforms, but NBFCs do not access LAF as banks do.

Question 4

Which of the following is the correct description of 'syndicated lending'? (A) A single bank lends the entire loan amount to a small borrower (B) A group of lenders jointly provide a loan to a borrower, thereby spreading default risk across multiple institutions (C) The central bank directly lends to individual companies (D) Cooperative societies pool deposits to buy government securities only

Accepted Answer

(B) A group of lenders jointly provide a loan to a borrower, thereby spreading default risk across multiple institutions — Correct. Syndicated lending involves a consortium of lenders providing credit to a borrower, distributing the risk across participating institutions.

Question 5

With reference to the digital rupee, consider the following statements:
1. It is a sovereign currency issued by the Reserve Bank of India.
2. It appears as a liability on the balance sheet of the RBI.
3. It is automatically protected against inflation by design.
4. It is freely convertible into bank money and cash.
Which of the statements given above are correct? (A) 1 and 2 only (B) 1 and 3 only (C) 2 and 4 only (D) 1, 2 and 4 only

Accepted Answer

(D) 1, 2 and 4 only — Correct. The digital rupee is sovereign RBI money, is shown as an RBI liability and is convertible with other forms of money, but it does not guarantee protection from inflation.

Question 6

Self-Help Groups in the formal bank linkage programme in India were first promoted in a major way by: (A) SEBI through mutual fund distributors (B) NABARD through linkage with banks (C) RBI through open market operations (D) SIDBI through venture funding

Accepted Answer

(B) NABARD through linkage with banks — Correct. NABARD pioneered the SHG-Bank Linkage Programme to connect informal savings groups with formal banking.

Question 7

Which of the following best describes the concept of a Central Bank Digital Currency (CBDC)? (A) A cryptocurrency mined by private entities on a blockchain (B) A digital form of sovereign currency issued by a central bank (C) A prepaid payment instrument issued by banks (D) A digital token backed by corporate bonds

Accepted Answer

(B) A digital form of sovereign currency issued by a central bank — Correct. A CBDC is the electronic form of central bank money and remains a sovereign liability.

Question 8

Which of the following best reflects the role of the Banks Board Bureau as originally conceived? (A) It was created to conduct monetary policy meetings on behalf of RBI (B) It was meant to improve governance and recommend appointments in public sector banks (C) It directly resolved all bank insolvency cases under IBC (D) It replaced the Department of Financial Services in the Union Government

Accepted Answer

(B) It was meant to improve governance and recommend appointments in public sector banks — Correct. The Bureau was designed to help with leadership appointments and governance reforms in PSBs and financial institutions.

Question 9

With reference to urban cooperative banks, consider the following statements:
1. Their banking functions are regulated by the RBI.
2. They are free to issue equity shares to the public like listed commercial banks without restrictions.
Which of the statements given above is/are correct? (A) 1 only (B) 2 only (C) Both 1 and 2 (D) Neither 1 nor 2

Accepted Answer

(A) 1 only — Correct. RBI regulates the banking aspects of urban cooperative banks, but they are not freely listed entities issuing public equity like commercial banks.

Question 10

The expression "lender of last resort" in the Indian context refers to the function of the Reserve Bank of India to: (A) Provide crop insurance to distressed farmers (B) Provide emergency liquidity to solvent banks facing temporary shortage of funds (C) Nationalize weak private banks automatically (D) Fix lending rates of every loan in the economy

Accepted Answer

(B) Provide emergency liquidity to solvent banks facing temporary shortage of funds — Correct. As lender of last resort, RBI can lend to banks facing temporary liquidity stress to prevent systemic instability.

Question 11

Which of the following correctly describes the Interest Coverage Ratio?
1. It measures the ability of a borrower to service interest obligations on outstanding debt.
2. It is calculated as earnings before interest and taxes divided by interest payments.
3. A higher ratio always indicates greater financial distress. (A) 1 and 2 only (B) 2 and 3 only (C) 1 and 3 only (D) 1, 2 and 3

Accepted Answer

(A) 1 and 2 only — Correct. ICR measures debt-servicing capacity using EBIT relative to interest payments; Statement 3 is wrong because a higher ratio indicates greater strength, not distress.

Question 12

District Central Cooperative Banks are important because they primarily: (A) Channel agricultural and rural credit through the cooperative structure (B) Issue currency notes in rural districts (C) Replace Regional Rural Banks in all states (D) Provide foreign exchange cover to exporters

Accepted Answer

(A) Channel agricultural and rural credit through the cooperative structure — Correct. DCCBs are intermediate cooperative institutions that support PACS and rural credit delivery.

Banking System MCQs

Sample Banking System questions

Continue chapter practice

More UPSC Prelims practice

Frequently asked questions

Practise all Banking System questions