Attempt CAIIB Central Banking PYP Quiz and Download Free PDF

1. Statement 1: The Base Layer includes non-deposit-taking NBFCs with an asset size below ₹1,000 crore, subject to the specified activity-based categories and exceptions under RBI’s Scale-Based Regulation framework.
Statement 2: The Middle Layer includes non-deposit-taking NBFCs with an asset size of ₹1,000 crore or above; it also includes all deposit-taking NBFCs and certain specified categories such as SPDs, CICs, HFCs and IFCs.
Statement 3: The Top Layer is currently highly populated by systemically important NBFCs.
Which of the following is correct?

2. Consider the following statements regarding the Liquidity Adjustment Facility (LAF) Corridor:
Statement 1: The Marginal Standing Facility (MSF) forms the upper ceiling of the LAF corridor.
Statement 2: The Repo Rate is situated in the exact middle of the corridor.
Statement 3: The Standing Deposit Facility (SDF) forms the lower floor and is placed 0.25% above the Repo rate.
Which of the following is correct?

3. Statement 1: The Bank of England is commonly referred to as the “Old Lady of Threadneedle Street”.
Statement 2: The Bank of England operates directly under the European system of central banks.
Statement 3: The dual mandate of the Federal Reserve encompasses maximum employment and stable prices.
Which of the following is correct?

4. Assertion (A): The Financial Stability Board (FSB) was established in the year 2009.
Reasoning (R): The 2008 global financial crisis exposed regulatory vulnerabilities, necessitating the creation of a dedicated international body to monitor and make recommendations about the global financial system.

5. Assertion (A): The Liquidity Coverage Ratio (LCR) is primarily focused on the long-term stable funding of a financial institution.
Reasoning (R): LCR mandates banks to hold High Quality Liquid Assets (HQLA) sufficient to cover expected cash withdrawals over an immediate 30-day stress period.

6. Consider the following statements regarding Financial Stability in Banks:
1. It ensures that banks can continue lending even during economic shocks.
2. It prevents panic and bank failures, thereby protecting depositors’ money.
3. It is achieved only through RBI’s monetary policy and not through regulatory supervision.
Which of the above statements are correct?

7. Consider the following statements regarding the evolution of central banking:
Statement 1: Early central banks were often established to finance governments and manage public debt; note-issue and lender-of-last-resort functions developed as central banking evolved.
Statement 2: After World War II, most central banks shifted focus towards economic development and inflation control.
Statement 3: Modern central banks directly finance government deficits to support growth.
Which of the above statements is/are correct?

8. Skill development becomes a bottleneck in Basel III implementation primarily because:

9. Statements based question
1. The LOLR lender of last resort function is activated primarily when banks face solvency problems rather than temporary liquidity mismatches.
2. The classical LOLR doctrine emphasizes lending freely at a penalty rate against good collateral to solvent institutions.
3. Frequent and unconditional use of LOLR facilities may encourage excessive risk-taking by banks, leading to moral hazard.
Which of the statements given above is/are correct?

10. Currency with public – ₹345000 crore
Demand deposit with banking system – ₹380000 crore
Time deposits with banking system – ₹425000 crore
Other deposit with RBI – ₹465000 crore
Savings deposit of post office savings banks – ₹160000 crore
All deposit with post office savings bank excluding NSCs – ₹110000 crore
Calculate M1.

11. The banking sector liquidity is measured as follows:

12. Liquidity Position of the Banking System
The following data relate to the banking system (₹crore):
Repo borrowings = 90,000
MSF borrowings = 25,000
SLFMF borrowings = 5,000
Reverse Repo Deposits = 40,000
Actual Reserves (AR) = 1,50,000
Required Reserves (RR) = 1,20,000
What is the Banking Sector Liquidity (BSL) and the liquidity position?

13. Which of the following correctly reflects the weightage distribution used in the Financial Inclusion Index (FI-Index) developed by the RBI?

14. A country is combating a sudden surge in inflation. The Monetary Policy Committee (MPC), comprising six members – three from the RBI and three appointed by the Central Government – decides to change the policy rate. The weighted average call rate (WACR) is the operating target of monetary policy, while the MPC determines which benchmark policy rate?

15. Assertion (A): The Reserve Bank of India has actively moved its supervisory framework from the traditional CAMELS/CALCS models to Risk-Based Supervision (RBS).
Reasoning (R): The traditional CAMELS/CALCS approach was predominantly compliance- and transaction-oriented, whereas Risk-Based Supervision through SPARC is more forward-looking and assesses inherent risks, controls, governance and capital on an ongoing basis.

16. Bank X is analyzing the total cost of ownership for establishing a new regulatory compliance software. To do this, the bank’s finance team categorizes expenses related to discovering the right vendor, negotiating contract terms, and ensuring the vendor consistently meets policy enforcement guidelines. Under the IITc framework, what type of costs are being analyzed here?

17. Alpha Financial Services wishes to operate as a Standalone Primary Dealer (SPD) in India and proposes to undertake only the core Primary Dealer activities. Under the RBI’s Standalone Primary Dealer framework, what minimum Net Owned Fund (NOF) must it maintain?

Case Study Context (Q18-Q20): The RBI historically used the CAMELS framework for Indian commercial banks and the CALCS framework for foreign banks operating in India. An auditor is reviewing the supervisory parameters used under these older frameworks before comparing them with the present risk-based supervisory approach.

18. Under the RBI’s historical CAMELS formulation for Indian banks, which letter and parameter captured the assessment of internal systems and controls?

19. Under the historical CALCS framework used for foreign banks operating in India, what do the second “C” and “S” stand for?

20. As the regulatory environment evolved, the RBI instructed the auditor to transition away from these older frameworks toward a newer, specialized program focused strictly on forward-looking risk and capital assessment. What is the acronym for this current supervisory program?

21. The 16th Finance Commission of India, chaired by Dr. Arvind Panagariya, will be applicable for the five-year operational period extending from the year ________ to ________.

22. In the RBI’s Liquidity Adjustment Facility (LAF) corridor, the Marginal Standing Facility (MSF) is structurally set ________% above the central Repo rate, while the Standing Deposit Facility (SDF) is symmetrically set ________% below the Repo rate.

23. Under which Article of the Indian Constitution is the Finance Commission established?

24. Who is the Chairperson of the 16th Finance Commission, which will be effective from April 1, 2026?

25. Consider the following statements with reference to the concept of Financial Stability –
Mishkin emphasizes that financial stability exists when the financial system is capable of efficiently channeling savings into productive investments on a continuous basis. Dr. Y. V. Reddy views financial stability as the maintenance of confidence and smooth functioning of financial transactions, while also focusing on the early identification of vulnerabilities that could cause disruptive fluctuations in the economy.
Dr. Vasudevan highlights that financial stability in emerging economies depends largely on prudent and cautious policy frameworks, along with balanced growth and diversification of financial institutions and markets.
In the light of the above views, which of the following options best captures the integrated approach adopted by central banks in ensuring financial stability?

26. Statement 1:
Financial inclusion strives to ensure that all individuals and businesses, regardless of income, gender, or geography, have access to affordable and responsible financial services such as payments, savings, credit, and insurance.
Statement 2:
One of the main goals of financial inclusion is to empower marginalized groups by enabling them to use formal financial services, which can help them build resilience against economic shocks and improve their quality of life.

27. The Special Liquidity Scheme (SLS) was introduced by the Government of India in response to growing liquidity stress in the NBFC and HFC sectors. Which of the following correctly outlines the purpose, structure, and funding of the scheme?

28. Primary Dealers (PDs), introduced by the Reserve Bank of India in 1995, play a vital role in deepening the Government Securities (G-Sec) market. Which of the following best explains their primary function and the rationale behind their introduction?

29. Statement Based
Statement 1: Under the CAMELS framework, Asset Quality primarily focuses on the quantum of Net NPAs and the credit risk associated with the bank’s loan portfolio.
Statement 2: The CAMELS rating system assigns a rating from 1 to 5, where 5 represents the strongest performance and lowest risk.
Statement 3: Management quality in the CAMELS framework evaluates the ability of the board of directors and senior management to identify, measure, monitor, and control risks.
Which of the above statements is/are correct?

30. Statement 1: Pillar 1 of Basel II deals with Minimum Capital Requirements for Credit, Market, and Operational risks.
Statement 2: Pillar 2 (Supervisory Review Process) empowers regulators to require banks to hold capital above the minimum Pillar 1 requirements.
Statement 3: Pillar 3 focuses on Market Discipline by establishing disclosure requirements to allow market participants to assess the bank’s risk profile.
Which of the above statements is/are correct?

31. The Basel III norms necessitate maintaining four crucial regulatory ratios. The ________ is fundamentally used to secure 30-day short-term liquidity survivability, whereas the ________ is calculated to guarantee required stable funding over a longer-term horizon of one year.

32. Under the RBI’s Scale-Based Regulation framework for NBFCs, the Top Layer is generally expected to remain ________, while a non-deposit-taking NBFC ordinarily enters the Middle Layer when its asset size is ₹________ crore or above.

33. Scenario: Delta Bank recently altered its risk profile by investing heavily in complex derivative instruments. To comply with central banking regulations under Basel II, Delta Bank publishes a detailed quarterly report outlining its capital structure, risk exposures, and risk assessment processes on its official website.
Question: Delta Bank’s action of publishing these detailed reports is primarily in compliance with which aspect of Basel II?

34. Consider the following statements regarding the Scale-Based Regulatory (SBR) framework for NBFCs:
Statement 1: The scale-based regulatory framework for NBFCs came into effect on October 1, 2022.
Statement 2: The Base Layer comprises non-deposit taking NBFCs with an asset size of less than ₹1,000 crore.
Statement 3: The Middle Layer exclusively contains non-deposit taking NBFCs with an asset size of ₹1,000 crore or above, and excludes all deposit-taking NBFCs.
Which of the above statements is/are correct?

35. A major stimulus behind the establishment of some of the earliest central banks was:

36. The first central bank in the world, the Riksbank, was established in which country?

37. The Prompt Corrective Action (PCA) framework for NBFCs is triggered based on two key parameters: _________ and _________.

38. Assertion (A): Central bank credibility is of utmost importance, especially during times of financial crisis and uncertainty.
Reasoning (R): High credibility ensures that the public and financial markets trust the central bank’s policy announcements, which anchors inflation expectations and stabilizes the markets without the need for extreme monetary interventions.

39. Consider the following statements regarding the regulatory requirements for NBFCs:
Statement 1: The Prompt Corrective Action (PCA) framework for NBFCs is triggered based on three criteria: Capital, Asset Quality, and Liquidity.
Statement 2: For an NBFC-ICC in the Middle Layer, the minimum Capital to Risk-Weighted Assets Ratio (CRAR) is 15% of aggregate risk-weighted assets and off-balance-sheet exposures.
Statement 3: The Upper Layer of the NBFC framework consists of entities specifically identified by the Reserve Bank of India based on systemic risk parameters.
Which of the above statements is/are correct?

40. Consider the following statements regarding Primary Dealers (PDs):
Statement 1: Primary Dealers are broadly categorized into Standalone Primary Dealers (SPDs) and Bank Primary Dealers.
Statement 2: The minimum Net Owned Fund (NOF) requirement for Standalone Primary Dealers (SPDs) operating solely in the core sector is ₹150 crore.
Statement 3: Bank Primary Dealers are not regulated by the RBI and function strictly under SEBI guidelines.
Which of the above statements is/are correct?