Basic Banking Concepts MCQ Quiz - Objective Question with Answer for Basic Banking Concepts - Download Free PDF

Last updated on Jun 6, 2025

It is one of the essential topics for all the Banking, UPSC, Defence, Regulatory Bodies, Railway and the SSC exam. It is a key topic for logical reasoning which has more weightage in SSC, Railway, State and Banking exams. Basic Banking Concepts are the data related to banks' terms like repo rate, SLR, CRR and MSF. To answer such questions you have a basic knowledge of Banking and Institution along with their current affair. According to the question we have to read the option carefully. After reading it we have to understand the basic requirement of the question and with that eliminate the options which are not related to the question and with that choose the correct answer. Testbook has provided you with many questions related to it which will help you for better understanding and practising purposes so you could increase your accuracy required in all the exams.

Latest Basic Banking Concepts MCQ Objective Questions

Basic Banking Concepts Question 1:

Who among the Finance Minister's Crack Squad is responsible for the privatization of two of the following public sector banks?

  1. Ajay Seth
  2. Tuhin Kanta Pandey
  3. Vivek Joshi
  4. TV Somanathan

Answer (Detailed Solution Below)

Option 3 : Vivek Joshi

Basic Banking Concepts Question 1 Detailed Solution

The correct answer is Vivek Joshi.

Key Points

  • Vivek Joshi is an eminent member of the Finance Minister's Crack Squad responsible for strategic decisions.
  • He plays a crucial role in the privatization of public sector banks.
  • His extensive experience in financial policies and reforms has led to significant contributions to the sector.
  • Vivek Joshi has been actively involved in various governmental financial initiatives aimed at economic stability and growth.

Additional Information

  • Public Sector Banks (PSBs)
    • Public Sector Banks are banks where the majority stake is held by the government.
    • These banks play a pivotal role in the Indian economy by providing financial services to the underserved sectors.
    • PSBs are regulated by the Reserve Bank of India (RBI).
    • Examples include State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda.
  • Privatization
    • Privatization refers to the process of transferring ownership and management from the public sector to the private sector.
    • It aims to improve efficiency, reduce government burden, and increase competition.
    • Privatization can involve selling government stakes, outsourcing services, or involving private entities in public services.
    • It is considered a strategic tool for economic reforms and growth.
  • Finance Minister's Crack Squad
    • This is a team of experts appointed by the Finance Minister to tackle specific economic challenges.
    • The squad includes professionals from various fields like banking, finance, economics, and policy-making.
    • They are responsible for implementing crucial financial decisions and reforms.
    • Their goal is to ensure stability, growth, and transparency in the financial sector.
  • Economic Stability and Growth
    • Economic stability refers to a condition where the economy experiences steady growth, low inflation, and low unemployment.
    • Economic growth is measured by the increase in a country's output of goods and services over time.
    • Policies promoting stability and growth include fiscal policies, monetary policies, and structural reforms.
    • These policies aim to create a conducive environment for investment, job creation, and sustainable development.

Basic Banking Concepts Question 2:

In cheques, there is a Magnetic Ink Character Recognition code. This code contains how many digits?

  1. 7
  2. 12
  3. 6
  4. 9

Answer (Detailed Solution Below)

Option 4 : 9

Basic Banking Concepts Question 2 Detailed Solution

The correct answer is 9.

Key Points

  • The Magnetic Ink Character Recognition (MICR) code is a 9-digit code.
  • MICR code is used mainly by the banking industry to ease the processing and clearance of cheques and other documents.
  • The MICR code is printed on the bottom of cheques to enable fast and secure processing.
  • The MICR code consists of three parts: the city code, the bank code, and the branch code.

Additional Information

  • Magnetic Ink Character Recognition (MICR)
    • MICR is a technology used to verify the legitimacy and enhance the security of paper documents, especially checks.
    • It uses a special ink, which is sensitive to magnetic fields, allowing machines to read and process the information quickly and accurately.
    • The MICR code is typically found at the bottom of a cheque and consists of three sets of numbers: the first set represents the city (city code), the second set the bank (bank code), and the third set the branch (branch code).
    • This technology was introduced in the 1950s and has since become a standard in banking and finance for the efficient processing of cheques.
  • Components of MICR Code
    • City Code: The first three digits of the MICR code represent the city code, which is aligned with the PIN code used for postal addresses in India.
    • Bank Code: The next three digits represent the bank code, which identifies the specific bank.
    • Branch Code: The last three digits denote the branch code, identifying the specific branch of the bank.
  • Benefits of MICR Code
    • MICR technology ensures accuracy and speed in the processing of cheques, reducing the chances of errors and fraud.
    • It helps in the quick clearance of cheques, enabling faster transactions and efficient banking operations.
    • The use of magnetic ink and characters that can be read by machines enhances security and reduces the risk of forgery.

Basic Banking Concepts Question 3:

The first three digits of the Magnetic Ink Character Recognition number on your cheque specifies the _________ code in which you have the bank account.

  1. city
  2. country
  3. branch
  4. bank

Answer (Detailed Solution Below)

Option 1 : city

Basic Banking Concepts Question 3 Detailed Solution

The Correct answer is city.

Key Points

  • The first three digits of the Magnetic Ink Character Recognition (MICR) code represent the city where the bank branch is located.
  • MICR is a 9-digit code used to identify the location and branch of a bank, enabling smooth and secure cheque processing.
  • The MICR code is printed on cheques using magnetic ink, which allows for machine readability and reduces errors in processing.
  • The MICR code structure is as follows:
    • The first three digits represent the city (usually the PIN code prefix).
    • The next three digits signify the bank.
    • The last three digits indicate the specific branch.
  • This coding system is particularly important for electronic clearing systems (ECS) and facilitates faster cheque clearance.
  • For example, a MICR code starting with 110 indicates a bank located in Delhi, as 110 is the city PIN code prefix.
  • The MICR system was introduced by the Reserve Bank of India (RBI) to streamline cheque processing and enhance banking efficiency.

Additional Information

  • Branch
    • The last three digits of the MICR code represent the branch of the bank.
    • This helps in identifying the specific branch where the account is held.
    • For instance, in a MICR code, if the last three digits are 002, it could refer to the Connaught Place branch of a bank in Delhi.
  • Bank
    • The middle three digits of the MICR code are used to identify the bank.
    • This ensures that cheques are routed to the correct financial institution during clearance.
    • For example, 500 may indicate a specific bank like State Bank of India.
  • Country
    • The MICR code does not include any specific digits for identifying the country in its structure.
    • It is used within India for cheque processing and is regulated by the Reserve Bank of India (RBI).

Basic Banking Concepts Question 4:

What is Fiduciary Money?

  1. Money whose value is equal to the value of material which it is made of.
  2. Money whose value is decided on the confidence that it will be considered as medium of exchange.
  3. Money that can be claimed against financial institutions that can be used to purchase goods and services.
  4. Both 1 and 2
  5. None of the above

Answer (Detailed Solution Below)

Option 2 : Money whose value is decided on the confidence that it will be considered as medium of exchange.

Basic Banking Concepts Question 4 Detailed Solution

  • Fiduciary money is a type of money which are accepted as money on the basis of trust that issuer commands. For e.g. cheques, credit cards etc.
  • Cheques, credit card are not backed by any nation nor have any backing of gold.
  • Still they are used for transaction because of trust with the bank
  • They cannot be called as a Legal tender.

Basic Banking Concepts Question 5:

The upper or maximum ceiling of RTGS transaction in India is _______.

  1. Rs. 10 Lakhs
  2. Rs. 15 Lakhs 
  3. Rs. 25 Lakhs 
  4. It has no upper limit

Answer (Detailed Solution Below)

Option 4 : It has no upper limit

Basic Banking Concepts Question 5 Detailed Solution

The correct answer is It has no upper limit.

Key Points

  • The Real-Time Gross Settlement (RTGS) system in India does not have an upper transaction limit.
  • RTGS is primarily meant for large value transactions which are settled individually in real time.
  • It is managed by the Reserve Bank of India (RBI), ensuring secure and efficient fund transfers.
  • The minimum amount for RTGS transactions is Rs. 2 lakhs, but there is no maximum ceiling.

Additional Information

  • What is RTGS?
    • RTGS stands for Real-Time Gross Settlement, a system where the transfer of funds takes place from one bank to another on a "real-time" and on a "gross" basis.
    • "Real-time" means the processing of instructions at the time they are received, and "gross settlement" means the transaction is settled on a one-to-one basis without netting with any other transaction.
  • Operational Hours
    • RTGS services are available on all working days of the week from 7:00 AM to 6:00 PM.
    • Transactions made after the cutoff time will be processed on the next working day.
  • Benefits of RTGS
    • RTGS transactions are highly secure as they are managed by the RBI.
    • It is an ideal method for high-value transactions as there is no upper limit.
    • Immediate settlement reduces the risk of default in settlement.
  • Charges for RTGS
    • There are nominal charges associated with RTGS transactions, which vary from bank to bank.
    • However, the RBI has waived off the charges for RTGS transactions initiated online via internet banking and mobile banking.

Top Basic Banking Concepts MCQ Objective Questions

Banking comes under which of the following sectors of the economy?

  1. Primary sector
  2. Secondary sector
  3. Tertiary sector
  4. Both Secondary and Tertiary sectors

Answer (Detailed Solution Below)

Option 3 : Tertiary sector

Basic Banking Concepts Question 6 Detailed Solution

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The correct answer Tertiary sector.

Key Points

  • Banking comes under the tertiary sector.
  • The tertiary sector, also known as the service sector includes transport, banking, storage, communication, etc.
  • The primary sector is the one which is dependent on nature and makes use of raw materials. It includes agriculture, fishing, mining, etc.
  • The secondary sector is concerned with manufacturing, construction, processing, etc.

Muni bonds are issued by which of the following institutions?

  1. Local Government
  2. Central Government
  3. RBI
  4. EXIM
  5. IRDAI

Answer (Detailed Solution Below)

Option 1 : Local Government

Basic Banking Concepts Question 7 Detailed Solution

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The correct answer is option 1) i.e. Local Governments.

  • Municipal bond also known as 'Muni bond'  are loans investors make to local governments.
  • They are issued by cities, states, or other local governments.
  • For that reason, the interest they pay on the bonds is tax-free.
  • Recently SEBI  announced relaxation in norms for 'Muni Bonds' to help smart cities and other registered entities working in areas of city planning and urban development work like municipalities to raise funds through issuance and listing of their debt securities.
  • Municipal bonds exist in India since the year 1997. Bangalore Municipal Corporation is the first urban local body to issue municipal bonds in India. \
  • The municipal bonds lost the ground after the initial investors’ attraction it received and failed to raise the desired amount of funds. To revive the municipal bonds, the market watchdog SEBI came up with guidelines for the issue of municipal bonds in 2015.
  • A municipality should meet the following eligibility criteria to issue municipal bonds in India:
    • The municipality must not have a negative net worth in each of the three previous years.
    • The municipality must have no default in the repayment of debt securities and loans availed from the banks or non-banking financial companies in the last year.
    • The municipality, promoter and directors must not be enlisted in the wilful defaulters published by the Reserve Bank of India (RBI). The municipality should have no record of default in the payment of interest and repayment of principal with respect to debt instruments.

How many digits are there on a debit card?

  1. 15
  2. 16
  3. 14
  4. 17

Answer (Detailed Solution Below)

Option 2 : 16

Basic Banking Concepts Question 8 Detailed Solution

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  • Debit card is basically an ATM card issued by banks to allow the customers to withdraw money from ATM vending machines and facilitate online banking. 
  • The first digit represents the Industry code and is the Major Industry Identifier (MII).
  • The first six digits form the Issuer Identification Number (IIN).
  • The seventh to fifteenth digits are linked to one's bank account number though they do not reveal anything about the user's account directly.
  • The last digit is known as the check digit that checks and confirms the validity of the card.

Which organization helps in resolving balance of payments issues worldwide?

  1. World Bank
  2. ICC
  3. UNCTAD
  4. IMF

Answer (Detailed Solution Below)

Option 4 : IMF

Basic Banking Concepts Question 9 Detailed Solution

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The correct answer is option 4 i.e. IMF.

The International Monetary Fund (IMF) resolves all balance of payments issues around the world by lending money to fix the issue.

  • The IMF is a world organization to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic process, and reduce poverty round the world.
  • Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money.
  • These loan conditions make sure that the borrowing country are ready to repay the IMF which the country won't try to solve their balance-of-payment problems during a way that might negatively impact the international economy.
  • The IMF was established on December 27th, 1944 and is headquartered in Washington D.C. USA.

Micro Units Development & Refinance Agency Ltd (MUDRA) is a wholly-owned subsidiary of which bank?

  1. NABARD
  2. RBI
  3. ADB
  4. SIDBI
  5. None of the above.

Answer (Detailed Solution Below)

Option 4 : SIDBI

Basic Banking Concepts Question 10 Detailed Solution

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The correct answer is a- SIDBI.

Key Points

  • MUDRA would be responsible for refinancing all Last Mile Financiers such as Non-Banking Finance Companies, Micro Finance Institutions, Societies, Trusts.
  • MUDRA has been initially formed as a wholly-owned subsidiary of Small Industries Development bank of India (SIDBI) with 100% capital being contributed by it.
  • MUDRA is also refinancing Section 8 Companies [formerly Section 25], Small Finance Banks, and Regional Rural Banks which are in the business of lending to micro/small business entities engaged in manufacturing, trading, and services activities as well as agri-allied activities.
  • MUDRA would also partner with State/Regional level financial intermediaries to provide finance to Last Mile Financier of small/micro business enterprises.
  • Prime Minister Modi had launched PMMY in April 2015.
  • The objective was to provide non-corporate and non-agricultural small businesses with loans up to Rs 10 lakh.
  • Mudra loans are divided into three categories:
    • Shishu- loans up to Rs 50,000.
    • Kishor- loans between Rs. 50,001 and Rs. 5 lakh.
    • Tarun- loans between Rs. 5,00,001 and Rs. 10 lakh.
  • Public sector NPAs of loans issued under the scheme has increased by Rs 9,204.14 crore in just one year from Rs 7,277.31 crore in March 2018 to Rs 16,481.45 crore in March 2019.

If the inflation in an economy is rising steadily, the Central Bank might _____

  1. decrease the repo rate
  2. increase the repo rate
  3. decrease the reverse repo rate
  4. keep the repo rate unchanged

Answer (Detailed Solution Below)

Option 2 : increase the repo rate

Basic Banking Concepts Question 11 Detailed Solution

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  • If the inflation in an economy is rising steadily, the Central Bank might increase the repo rate.
  • Repo Rate - It is the rate at which the Reserve Bank of India (RBI) lends short term money to banks.
  • Reverse Repo Rate-As the name suggests, it is the reverse of the Repo Rate. It is the rate at which the Bank lends short term money to the Reserve Bank of India.
  • In the event of inflation, the RBI increases the repo rate and this acts as a disincentive for banks to borrow from the RBI.
  • This ultimately reduces the money supply in the economy and hence helps in handling inflation.

Which of the following banks prints the currency notes in India?

  1. Reserve Bank of India 
  2. NABARD
  3. State Bank of India
  4. ICICI Bank 

Answer (Detailed Solution Below)

Option 1 : Reserve Bank of India 

Basic Banking Concepts Question 12 Detailed Solution

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The Correct Answer is the Reserve Bank of India.

Key Points

  • The Reserve Bank of India (RBI) prints and manages currency in India, whereas the Indian government regulates what denominations to circulate.
  • The Indian government is solely responsible for minting coins.
  • The RBI is permitted to print currency up to 10,000 rupee notes.
  • To deter counterfeiting and fraud, the Indian government withdrew the 500 and 1,000 rupee notes from circulation in 2016.
  • If the Reserve Bank wants to print anything higher, the government must amend the Reserve Bank of India Act.

Additional Information

NABARD:-

  • National Bank for Agriculture and Rural Development (NABARD) is an apex development finance institution fully owned by the Government of India.
  • The bank has been entrusted with "matters concerning policy, planning, and operations in the field of credit for agriculture and other economic activities in rural areas in India".
  • NABARD is active in developing the Financial Inclusion policy.

State Bank of India:-

  • State Bank of India (SBI) is an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai, Maharashtra.
  • SBI is the 43rd largest bank in the world.

ICICI Bank:-

  • ICICI Bank Limited is an Indian multinational banking and financial services company with its registered office in Vadodara, Gujarat, and corporate office in Mumbai, Maharashtra.

Which of the following is a monetary policy tool used by RBI to control inflation?

  1. Repo rate
  2. Fiscal Drag
  3. Fiscal Push
  4. Austerity measures

Answer (Detailed Solution Below)

Option 1 : Repo rate

Basic Banking Concepts Question 13 Detailed Solution

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Correct Answer Repo rate

Key Points:

  • Repo rate is the rate at which the central bank of a country lends money to commercial banks
  • Repo rate is used by monetary authorities to control inflation.
  • RBI, in its sixth bi-monthly monetary policy of FY 2019-20, has kept the repo rate unchanged at 5.15%.
Monetary Policy tool Description

Repo Rate

The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).

Reverse Repo Rate

The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.

Marginal Standing Facility

A facility under which scheduled commercial banks can borrow an additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest

Open Market Operation

 Open market operations are the sale and purchase of government securities and treasury bills by RBI 

Which of the following Notes of India is printed by the Government of India ?

  1. Rs. 100
  2. Rs. 500
  3. Rs. 2000
  4. Rs. 1

Answer (Detailed Solution Below)

Option 4 : Rs. 1

Basic Banking Concepts Question 14 Detailed Solution

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The correct answer is Rs. 1.

Key Points

  • The Government of India prints One Rupee currency notes.
  • The Reserve Bank of India does not issue one rupee like other Indian currency notes (Rs. 100, Rs. 500, Rs. 2000).
  • The size of this one rupee currency note will be rectangular 9.7 x 6.3 cms.
  • It will be 110 microns thick while its weight will be 90 GSM (Grams per Square Meter).
  • The observe side of the One Rupee Currency note will contain ‘Bharat Sarkar’ at the top in Hindi while ‘Government of India’ will be written in English below.
  • The language panel on Indian rupee banknotes display the denomination of the note in 15 of the 22 official languages of India .
  • An image of the oil exploration platform ‘Sagar Samrat’ will also be there.

 An economic condition when there is one buyer and many sellers is called ______. 

  1. Oligopoly
  2. Monopoly
  3. Perfect Competition
  4. Monopsony

Answer (Detailed Solution Below)

Option 4 : Monopsony

Basic Banking Concepts Question 15 Detailed Solution

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  • A monopsony is a market condition where there is a single buyer with many sellers
  • It is in fact a condition which is opposite to that of a monopoly
  • In a monopsony the single buyer has large control on the market as the major purchaser of goods and services provided by many sellers
  • An example would be a food retailer that buys supplies from many farmers growing the same crop

 

Type Description
Oligopoly A market dominated by only a small number of firms
Monopoly A market structure where a single firm controls the entire market
Perfect Competition Market where a large number of small firms compete against each other. In this scenario, a single firm does not have any significant market power

 

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