What Are the Functions and Types of Commercial Banks?
MCQs on commercial banks are essential for students preparing for commerce-related school exams and competitive tests like banking, UPSC, and SSC. Understanding how commercial banks operate, their relationship with the Reserve Bank of India (RBI), and key banking functions also helps students and aspiring professionals in real-world business situations.
| Type of Commercial Bank | Example | Main Features |
|---|---|---|
| Public Sector Bank | State Bank of India (SBI) | Government-owned, largest reach, trusted for savings and loans |
| Private Sector Bank | HDFC Bank | Privately owned, efficient services, modern technology |
| Foreign Bank | Citibank | Headquartered abroad, operates branches in India |
| Regional Rural Bank (RRB) | Prathama Gramin Bank | Focuses on rural and agricultural lending |
What are Commercial Banks?
Commercial banks are financial institutions that accept deposits from the public and provide loans to individuals, businesses, and governments. They operate under RBI regulation in India and play a central role in financial stability. Students often encounter MCQs on commercial banks in exam papers, highlighting their relevance for academic and professional preparation.
Functions of Commercial Banks
The primary functions of commercial banks include accepting various types of deposits (current, savings, fixed), granting loans and advances, and facilitating payment and settlement services. Secondary functions cover investment, agency services, and other financial products. Understanding these functions is crucial for exams and for practical financial knowledge.
- Accepting deposits: savings, current, and fixed deposits
- Lending: offering loans, overdrafts, and cash credits
- Payment services: issuing and collecting cheques
- Investment: buying government and corporate securities
- Agency services: utility bill payments, fund transfers
MCQs on Commercial Banks
Practicing MCQs on commercial banks helps students identify key concepts and prepare for exam questions on RBI regulations, repo rates, types of deposits, and more. See some sample questions below:
| # | Question | Options | Answer |
|---|---|---|---|
| 1 | Current account deposits are: |
a) Non repayable b) Non repayable on demand c) Repayable on demand d) None of these |
c |
| 2 | What is Repo Rate? |
a) Rate at which RBI lends to commercial banks against government securities b) Rate offered by banks to prime customers c) When a bank has excess cash d) Bill discounting by RBI |
a |
| 3 | Which was the first commercial bank in India incorporated by Indians (1881)? |
a) Imperial Bank of India b) Oudh (Awadh) Commercial Bank c) Reserve Bank of India d) State Bank of India |
b |
| 4 | When RBI undertakes open market operations, it aims to regulate: |
a) Borrowing power of banks b) Inflation c) Money supply d) Both b and c |
d |
| 5 | When RBI increases the Cash Reserve Ratio (CRR), it will: |
a) Decrease money supply b) Increase money supply c) No impact d) Increase supply, then decrease later |
a |
| 6 | Canara Bank is an example of: |
a) Private Bank b) Public Bank c) Foreign Bank d) Cooperative Bank |
b |
| 7 | Banking sector falls under which of the following sectors? |
a) Industrial sector b) Service sector c) Manufacturing sector d) Agricultural sector |
b |
| 8 | In banking, 'Lender of Last Resort' refers to: |
a) Government debt relief b) RBI lending to those denied by banks c) State governments approach RBI d) RBI helping commercial bank in crisis |
d |
| 9 | NBFC stands for: |
a) New banking finance company b) National banking and Finance Corporation c) Non banking financial company d) Non business financing committee |
c |
| 10 | Which is the primary activity of a commercial bank? |
a) Maintaining deposit accounts b) Issue and pay cheques c) Collect cheques for customers d) All of these |
d |
For more practice, download additional MCQ sets as PDFs and visit pages like Banking Multiple Choice Questions and Answers for a wider variety.
Types of Deposits and Banking Operations
Commercial banks offer several types of deposit accounts, such as savings, current, and term deposits, each serving different customer needs. They facilitate lending operations, investments in securities, and services like e-banking. Learning about operations helps in exams and while dealing with banks in real life.
| Type of Deposit | Key Features |
|---|---|
| Savings Account | For individuals, limited withdrawals, earns interest |
| Current Account | For businesses, unlimited transactions, usually no interest |
| Fixed/Term Deposit | Money locked for set time, higher interest |
| Recurring Deposit | Monthly deposits, fixed tenure, earns interest |
Role of RBI in Regulating Commercial Banks
The Reserve Bank of India (RBI) supervises commercial banks by setting the repo rate, CRR (Cash Reserve Ratio), and conducting open market operations. These tools help control money supply, interest rates, and ensure the stability of the financial system. Understanding the RBI’s authority is important for scoring full marks in banking MCQs.
Learn more about the RBI’s actions at Reserve Bank of India and the difference between central and commercial banks at Difference Between Central Bank and Commercial Bank.
Recent Trends in Commercial Banking
Commercial banks are now providing digital services, mobile banking, and e-banking. The emergence of Non-Banking Financial Companies (NBFCs) and regional rural banks have changed the landscape, making banking services more accessible to all. These trends often feature in modern exam MCQs.
Explore topics like Banking and E-Banking and Commercial Banks and Financial Institutions for updated knowledge.
How MCQs on Commercial Banks Help Students
Solving MCQs on commercial banks improves exam readiness by testing understanding of functions, RBI policies, and the latest banking trends. It also helps avoid common mistakes in tricky multiple choice options and builds a strong base for commerce and business careers. Vedantu provides simple explanations and extra resources for self-study.
For in-depth study, read about the Functions of Commercial Banks and understand Credit Creation by Commercial Bank to master all types of competitive and school exam questions.
In summary, MCQs on commercial banks provide a comprehensive way to revise concepts like deposit types, regulatory roles, and new banking practices. Reviewing these questions is vital for exams, business confidence, and smart financial decision-making in daily life.
FAQs on MCQs on Commercial Banks: Practice with Answers and Explanations
1. What is a commercial bank?
A commercial bank is a financial institution that accepts deposits from individuals and businesses, provides various loan products, and facilitates payment services. They play a crucial role in the financial system and the economy.
2. Which was the first commercial bank in India?
Determining the very first commercial bank in India is complex due to historical record variations. However, some sources cite the Bank of Hindustan, established in 1770, as a significant early player in the development of commercial banking in India. The evolution of banking in India involved many subsequent organizations.
3. What is the repo rate in banking MCQs?
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks. It's a crucial monetary policy tool used to manage liquidity and inflation in the economy. A lower repo rate encourages borrowing and stimulates economic growth, while a higher rate has the opposite effect.
4. What are the primary functions of commercial banks?
The primary functions of commercial banks include accepting deposits, giving out loans, and facilitating payments. This includes various services like checking accounts, savings accounts, mortgages, and business loans. They also manage customer funds and facilitate transactions.
5. How does RBI regulate commercial banks through open market operations?
The Reserve Bank of India (RBI) uses open market operations (OMO) to influence liquidity in the banking system. Through the buying and selling of government securities, the RBI injects or withdraws money from circulation, impacting interest rates and the overall credit environment. This is a key tool for managing inflation and economic growth.
6. Which of the following is a commercial bank MCQ?
To answer this MCQ, you'd need the provided options. However, a commercial bank is a financial institution that provides services like accepting deposits, offering loans, and facilitating transactions for individuals and businesses. Examples include State Bank of India (SBI), HDFC Bank, and ICICI Bank.
7. Which of the RBI guidelines hamper banks’ profitability?
Several RBI guidelines can affect bank profitability. Regulations like CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio), which mandate banks to maintain a certain percentage of their deposits in liquid assets, reduce the amount available for lending and profit generation. Similarly, other regulatory norms aimed at risk management and financial stability can impact profits.
8. Which is the central bank of India MCQ?
The central bank of India is the Reserve Bank of India (RBI). It's responsible for managing monetary policy, regulating commercial banks, and maintaining financial stability.
9. What are the differences between scheduled and non-scheduled commercial banks?
Scheduled commercial banks are those included in the Second Schedule of the Reserve Bank of India Act, 1934. They are subject to greater regulation and supervision by the RBI. Non-scheduled commercial banks are not included in the Second Schedule and face less strict oversight.
10. How can students differentiate between central and commercial bank MCQs in exams?
Focus on the core functions. Central banks (like the RBI) regulate the monetary system and oversee other banks, while commercial banks primarily deal directly with the public, providing services such as accepting deposits and giving loans. Understanding the differences in their roles is key to answering MCQs.
