Types of Banks in India & their functions - Banking awareness questions on current affairs

Dear Readers, Welcome to Banking Awareness objective type questions (MCQ) with answers on Types of Banks in India & their functions. These questions on Types of Banks in India & their functions are useful for bank exams and interviews like IBPS, Bank PO, SBI PO, RRB, Specialist Officer, Clerk, SSC, UPSC etc.

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1)   Unit Banking system originated in which country?
- Published on 16 Feb 17

a. USA
b. France
c. India
d. England
Answer  Explanation 


Unit banking refers to a bank that is a single, usually small bank that provides financial services to its local community.

A unit bank is independent and does not have any connecting banks - branches - in other areas.

These types of banks are more prevalent in the US.

2)   Among the following, which type of banking system works on the principles of 'sharia'?
- Published on 16 Feb 17

a. Corporate Banking System
b. Shadow Banking
c. Islamic Banking
d. Payments Bank System
Answer  Explanation 

ANSWER: Islamic Banking

Islamic banking is banking or banking activity that is consistent with the principles of sharia (Islamic law) and it is practical application through the development of Islamic economics.

As such, a more correct term for Islamic banking is sharia compliant finance.

Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating.

Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam ("sinful and prohibited").

Although these prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices, only in the late 20th century were several Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

RBI has proposed the opening of an ‘Islamic window’ in banks to ‘gradually’ introduce Sharia-compliant banking in India.

3)   Referring to various types of banking, 'Mixed banking' is ________?
- Published on 16 Feb 17

a. Banking system that combines commercial and investment banking
b. Banking system that combines virtual and branch banking
c. Banking system that combines retail and wholesale banking
d. Banking system that combines offline and relationship banking
Answer  Explanation 

ANSWER: Banking system that combines commercial and investment banking

The banking system that combines deposit banking with investment banking is known as mixed banking.

The mixed bank receives deposits from public and provides short term, medium term and long term loan to industries.

Mixed banking system refers to that banking system under which the commercial banks make long term loans to industry.

In mixed banking, the commercial banks promote the industrialization of their country and come forward to provide the initial capital to the newly started industries.

Alongside the task of providing capital to industries, mixed banks also perform the functions of deposit banks.

4)   Which type of banking system focuses on expansion through branches?
- Published on 16 Feb 17

a. Internet Banking
b. Unit Banking
c. Branch Banking
d. Consumer Banking
Answer  Explanation 

ANSWER: Branch Banking

Branch banking is engaging in banking activities at facilities away from a bank's home office i.e. branches.

Branch banking allows a financial institution to expand services to areas outside of the home location.

This can be a more cost effective approach as not all locations are required to offer the same levels of services as the home location, allowing smaller branches to provide key services while larger locations can provide the additional services.

Financial innovation such as internet banking, ATM etc., will greatly influence the future of branch banking by reducing the need to maintain extensive branch networks to service consumers.

SBI is the leading bank in India when it comes to number of branches and ATMs.

The bank has over 17,000 branches with more than 27,000 ATMs.

5)   Which type of banking is most helpful in cross-selling?
- Published on 15 Feb 17

a. Virtual Banking
b. Relationship Banking
c. Wholesale Banking
d. Agricultural Banking
Answer  Explanation 

ANSWER: Relationship Banking

Relationship banking is a strategy used by banks to enhance their profitability.

They accomplish this by cross-selling financial products and services to strengthen their relationships with customers and increase customer loyalty.

Relationship banking involves offering customers a broad array of financial products and services that go beyond simple checking and savings accounts.

In addition to these two basic products, relationship-banking products may include certificates of deposit, safe deposit boxes, insurance, investments, credit cards, loans and business services (e.g., credit card processing).

They may also include specialized financial products designed for specific demographics, such as students, seniors or the wealthy.

6)   Of the following countries, which country has the largest shadow banking market in world?
- Published on 15 Feb 17

a. China
b. USA
c. UK
d. India
Answer  Explanation 


USA has the largest shadow banking market in the world.

Shadow banking system refers to the financial intermediaries involved in facilitating the creation of credit across the global financial system but whose members are not subject to regulatory oversight.

The shadow banking system also refers to unregulated activities by regulated institutions.

Examples of intermediaries not subject to regulation include hedge funds, unlisted derivatives and other unlisted instruments, while examples of unregulated activities by regulated institutions include credit default swaps.

The shadow banking system has escaped regulation primarily because it does not accept traditional bank deposits.

Thus, many of the institutions and instruments have been able to employ higher market, credit and liquidity risks, and do not have capital requirements commensurate with those risks.

7)   Which of the following is not a part of India's Money Market?
- Published on 13 Feb 17

a. Banks
b. Bill Markets
c. Call Money Market
d. Indian Gold Council
Answer  Explanation 

ANSWER: Indian Gold Council

The Money market in India is the money market for short-term and long-term funds with maturity ranging from overnight to one year in India.

The Indian money market consists of the unorganized sector : moneylenders, indigenous bankers and unregulated Non-Bank Financial Intermediaries (e.g. Finance Companies, Chit funds, Nidhi);

Organized sector : Reserve Bank of India, private banks, public sector banks, development banks and other Non-Banking Financial Companies (NBFCs) such as Life Insurance Corporation of India (LIC), the International Finance Corporation, IDBI, and the co-operative sector.

In our country, Money Markets are regulated by both RBI and SEBI.
SEBI – Securities and Exchange Board of India

Founded : 12 April, 1992
Headquarter : Mumbai, Maharashtra
Current Head : Upendra Kumar Sinha (Chairman)

8)   Which of the following focuses on the financial needs of the institutional clients and the industry?
- Published on 13 Feb 17

a. Universal Banking
b. Virtual Banking
c. Wholesale Banking
d. Retail Banking
Answer  Explanation 

ANSWER: Wholesale Banking

Wholesale banking is the provision of services by banks to organizations, such as mortgage brokers, large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, institutional customers (such as pension funds and government entities/agencies), and services offered to other banks or other financial institutions.

Wholesale banks mainly engage in:

  • Finance wholesaling
  • Underwriting
  • Market making
  • Consultancy
  • Mergers and acquisitions
  • Fund management
Retail banking is also known as Consumer Banking is the provision of services by a bank to individual consumers.

The term is generally used to distinguish these banking services from investment banking, commercial banking or wholesale banking.

It may also be used to refer to a division or department of a bank dealing with retail customers.

Typical products offered by a retail bank include:
  • Transactional accounts
  • Current accounts, Savings accounts
  • Debit cards, ATM cards, Credit cards
  • Traveler's cheque
  • Mortgages, personal loans
  • Home equity loans
  • Certificates of deposit/Term deposits

9)   Which one of the following is controlled by the World Wide Web?
- Published on 08 Feb 17

a. Universal Banking
b. Virtual Banking
c. Wholesale Banking
d. None of these
Answer  Explanation 

ANSWER: Virtual Banking

Virtual Banking is the provision of accessing the banking and related services online.

Any financial institution that offers the traditional banking services online is termed as a virtual bank.

Virtual banking enables a customer to pay bills online, check account details, secure loans, withdraw and deposit money anytime as per their convenience.

Some common forms of virtual banking are, ATMs, use of magnetic ink character recognition code (MICR), Electronic clearing service scheme, electronic fund transfer scheme, RTGS, computerized settlement of clearing transactions, centralized fund management schemes, etc.

ICICI Bank was the first Indian bank to provide internet banking facility.

10)   Which of the following defines 'Para Banking' services?
- Published on 08 Feb 17

a. Eligible financial services rendered by banks
b. Services provided through business correspondents
c. Services provided to armed forces personnel
d. Utility services provided by banks
Answer  Explanation 

ANSWER: Utility services provided by banks

Banks can undertake certain eligible financial services or activities either departmentally or by setting up subsidiaries is called Para Banking.

We could also define Para banking activities as the activities which are done by a Bank apart from its normal day-to-day activities (like deposit, withdrawal etc.).

Para Banking activities that a bank normally involves are Global Debit Card, Global Credit Card, Bancassurance, Life Insurance Products, Non-life Insurance Products, Cash Management.

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