Module 2: Introduction to Banking — Long & Short
Answer Questions with MCQs
SECTION 1: LONG ANSWER QUESTIONS & ANSWERS
Q1. Define Banking and explain its evolution in India.
Banking refers to the process of accepting deposits from the public for the purpose of lending or
investment. The word 'Bank' is derived from the Italian word 'Banco', which means a bench or a
money exchange counter. In India, banking evolved from ancient moneylenders and indigenous
bankers who provided basic financial services. The first organized bank in India was the Bank of
Hindustan, established in 1770. The Reserve Bank of India (RBI) was founded in 1935 as the
central bank to regulate the entire banking system. The Banking Regulation Act of 1949 later
provided a comprehensive framework for managing and supervising banks in India.
Q2. Explain the functions of banks.
Banks play a vital role in the economic development of a country by performing multiple functions.
The primary functions include accepting deposits from the public and providing loans and advances
for business and personal needs. They facilitate fund transfers through cheques, drafts, NEFT,
RTGS, and UPI systems. Banks also offer investment and insurance products, issue credit and
debit cards, and promote digital and mobile banking services. In addition, they act as agents by
collecting bills, making payments, and handling remittances and tax collections on behalf of
customers.
Q3. Describe the classification of banks in India.
The Indian banking system can be classified into several categories based on their functions and
ownership. The Reserve Bank of India (RBI) serves as the central bank that regulates and
supervises all other banks. Commercial banks provide services to individuals and businesses;
examples include SBI, HDFC, and ICICI. Cooperative banks primarily cater to rural and agricultural
sectors through cooperative societies. Development banks such as NABARD and SIDBI provide
long-term financing to industries and agriculture. Foreign banks operate in India with headquarters
located abroad, such as HSBC and Citi Bank.
Q4. What are the different types of bank accounts?
Banks offer various types of accounts to suit the needs of different customers. The Savings Account
allows individuals to deposit and withdraw money while earning moderate interest. The Current
Account is meant for business entities and allows unlimited transactions without interest. Fixed
Deposit Accounts involve deposits for a fixed period with higher interest rates, while Recurring
Deposit Accounts enable customers to deposit small amounts regularly and earn cumulative
interest over time.
Q5. Explain the importance and features of the CIBIL Score.
CIBIL stands for Credit Information Bureau (India) Limited, which maintains the credit history of
individuals and institutions. The CIBIL score, ranging from 300 to 900, indicates a person’s
creditworthiness. A score above 750 is considered excellent and increases the chances of loan
approval. Banks use this score to evaluate an applicant’s repayment history and financial discipline
before granting loans. A high CIBIL score helps borrowers access credit at lower interest rates,
promoting responsible borrowing and lending practices.
Q6. Discuss modern types of banking in India.
Modern banking in India has evolved with the advancement of technology and digital infrastructure.
Internet banking allows customers to access banking services online, while mobile banking enables
transactions via smartphones. UPI (Unified Payments Interface) provides instant fund transfers
using mobile numbers or virtual IDs. Micro ATMs are small devices that facilitate basic banking
services in rural areas. Agency banking involves agents delivering financial services in remote
areas, promoting financial inclusion and accessibility.
SECTION 2: SHORT ANSWER & MULTIPLE-CHOICE QUESTIONS
1. What is the full form of RBI?
RBI stands for Reserve Bank of India.
2. When was the Reserve Bank of India established?
The Reserve Bank of India was established in 1935.
3. What is the main function of the RBI?
The main function of the RBI is to regulate and control the credit and currency system of the
country.
4. What is the full form of CIBIL?
CIBIL stands for Credit Information Bureau (India) Limited.
5. What is the range of CIBIL score?
The CIBIL score ranges from 300 to 900.
6. What type of account is suitable for frequent transactions?
A Current Account is most suitable for business persons and firms requiring frequent transactions.
7. What does UPI stand for?
UPI stands for Unified Payments Interface, a system for instant fund transfers using mobile devices.
8. What is Internet Banking?
Internet Banking refers to banking services that customers can access online without visiting the
bank physically.
9. Name one Development Bank in India.
NABARD and SIDBI are examples of Development Banks in India.
10. Which Act regulates banking in India?
The Banking Regulation Act, 1949 regulates banking operations in India.
Multiple Choice Questions (MCQs)
1. The first bank in India was:
A) State Bank of India
B) Bank of Hindustan
C) Punjab National Bank
D) Imperial Bank of India
■ Correct Answer: B) Bank of Hindustan
2. The Reserve Bank of India was nationalized in:
A) 1935
B) 1949
C) 1955
D) 1969
■ Correct Answer: B) 1949
3. CIBIL score above which is considered good?
A) 600
B) 650
C) 750
D) 850
■ Correct Answer: C) 750
4. Which account provides the highest rate of interest?
A) Current Account
B) Savings Account
C) Fixed Deposit Account
D) Recurring Deposit Account
■ Correct Answer: C) Fixed Deposit Account
5. Which of the following is a Development Bank?
A) HDFC Bank
B) ICICI Bank
C) NABARD
D) Axis Bank
■ Correct Answer: C) NABARD