Q.1 What does the Capital Adequacy Ratio (CAR) measure in a bank?
Liquidity of the bank
Bank's profitability
Bank's capital in relation to its risk-weighted assets
Efficiency of bank operations
Explanation - CAR measures the bank's capital strength relative to its risk-weighted assets to ensure stability and absorb potential losses.
Correct answer is: Bank's capital in relation to its risk-weighted assets
Q.2 Which ratio indicates a bank's ability to meet short-term obligations?
Liquidity Ratio
Debt-Equity Ratio
Return on Assets
Net Interest Margin
Explanation - Liquidity ratios assess a bank's capacity to cover short-term liabilities with liquid assets.
Correct answer is: Liquidity Ratio
Q.3 The Statutory Liquidity Ratio (SLR) is the minimum percentage of deposits a bank must maintain in:
Cash only
Gold and approved government securities
Real estate
Foreign currency reserves
Explanation - SLR is mandated by the RBI and represents the minimum portion of net demand and time liabilities to be maintained in specified liquid assets.
Correct answer is: Gold and approved government securities
Q.4 Which ratio helps assess the profitability of a bank relative to its total assets?
Return on Assets (ROA)
Debt-Equity Ratio
Current Ratio
Cash Reserve Ratio (CRR)
Explanation - ROA indicates how efficiently a bank is using its assets to generate profits.
Correct answer is: Return on Assets (ROA)
Q.5 A high Non-Performing Asset (NPA) ratio indicates:
Good asset quality
Poor asset quality
High profitability
High liquidity
Explanation - NPA ratio shows the percentage of loans not generating income; a high ratio reflects weak credit quality.
Correct answer is: Poor asset quality
Q.6 Which ratio is used to analyze the level of debt compared to equity in a bank?
Debt-Equity Ratio
Liquidity Ratio
Capital Adequacy Ratio
Return on Equity
Explanation - The debt-equity ratio indicates the proportion of debt financing relative to shareholders' equity, showing financial leverage.
Correct answer is: Debt-Equity Ratio
Q.7 Net Interest Margin (NIM) measures:
Difference between interest income and interest expense as a percentage of earning assets
Liquidity of the bank
Capital adequacy
Asset turnover
Explanation - NIM reflects how effectively a bank earns on its interest-earning assets relative to interest costs.
Correct answer is: Difference between interest income and interest expense as a percentage of earning assets
Q.8 Which ratio evaluates the bank's ability to cover its deposits with cash and cash equivalents?
Cash Reserve Ratio (CRR)
Current Ratio
Debt-Equity Ratio
Net Profit Ratio
Explanation - CRR is the portion of deposits banks are required to keep with the RBI in the form of cash to ensure liquidity.
Correct answer is: Cash Reserve Ratio (CRR)
Q.9 Operating Profit Margin indicates:
Bank's operational efficiency
Bank's capital adequacy
Loan repayment capacity
Liquidity position
Explanation - Operating profit margin shows the percentage of profit generated from operations before tax and interest, reflecting efficiency.
Correct answer is: Bank's operational efficiency
Q.10 Which ratio is used to assess how effectively a bank is using its shareholders’ equity to generate profit?
Return on Equity (ROE)
Return on Assets (ROA)
Debt-Equity Ratio
Liquidity Ratio
Explanation - ROE measures profitability relative to shareholders' equity, showing the return generated for investors.
Correct answer is: Return on Equity (ROE)
Q.11 The Credit-Deposit Ratio (CD ratio) reflects:
Liquidity position of a bank
Proportion of loans granted to deposits received
Capital adequacy
Profitability of bank assets
Explanation - CD ratio shows how much of the bank's deposits are being lent; it indicates credit deployment efficiency.
Correct answer is: Proportion of loans granted to deposits received
Q.12 A current ratio of less than 1 indicates:
High liquidity
Potential liquidity problem
High profitability
Low debt
Explanation - Current ratio = Current Assets / Current Liabilities; below 1 means the bank may not cover short-term obligations.
Correct answer is: Potential liquidity problem
Q.13 The Loan to Value (LTV) ratio is used to determine:
Liquidity of a bank
Borrowing capacity against collateral
Interest rate on deposits
Bank's operational efficiency
Explanation - LTV ratio measures the loan amount relative to the value of the collateral to limit risk exposure.
Correct answer is: Borrowing capacity against collateral
Q.14 Which ratio indicates the proportion of a bank’s advances that are likely to default?
Non-Performing Asset (NPA) Ratio
Current Ratio
Debt-Equity Ratio
Capital Adequacy Ratio
Explanation - NPA ratio measures the percentage of loans and advances that are not earning income and may default.
Correct answer is: Non-Performing Asset (NPA) Ratio
Q.15 Operating Efficiency Ratio of a bank is calculated as:
Operating Expenses / Operating Income
Net Profit / Total Assets
Loans / Deposits
Cash / Total Deposits
Explanation - Operating efficiency ratio shows the proportion of income consumed by expenses; lower ratio indicates better efficiency.
Correct answer is: Operating Expenses / Operating Income
Q.16 A high Credit-Deposit ratio indicates:
Aggressive lending
Low lending
High liquidity
Strong capital adequacy
Explanation - A high CD ratio means the bank is lending a large portion of deposits, which can be risky if not managed properly.
Correct answer is: Aggressive lending
Q.17 What does a low Net Interest Margin (NIM) indicate?
Low interest income relative to interest expenses
High liquidity
High profitability
Strong asset quality
Explanation - Low NIM indicates the bank is earning less from its assets after paying interest, affecting profitability.
Correct answer is: Low interest income relative to interest expenses
Q.18 Provision Coverage Ratio (PCR) measures:
Provisions made for NPAs against total NPAs
Liquidity of the bank
Loan-to-deposit ratio
Return on equity
Explanation - PCR shows the proportion of funds set aside to cover potential losses from NPAs; higher PCR indicates better risk coverage.
Correct answer is: Provisions made for NPAs against total NPAs
Q.19 Which ratio is considered a key indicator of a bank's solvency?
Capital Adequacy Ratio (CAR)
Current Ratio
Debt-Equity Ratio
Net Interest Margin
Explanation - CAR indicates whether a bank has enough capital to absorb potential losses and remain solvent.
Correct answer is: Capital Adequacy Ratio (CAR)
Q.20 Liquidity Coverage Ratio (LCR) is intended to ensure that banks have enough:
High-quality liquid assets to meet short-term obligations
Capital to absorb losses
Loans for business expansion
Profitability over assets
Explanation - LCR is a regulatory requirement to maintain sufficient liquid assets to survive a 30-day stress scenario.
Correct answer is: High-quality liquid assets to meet short-term obligations
Q.21 The leverage ratio in banking is primarily used to monitor:
Excessive debt relative to capital
Liquidity position
Credit-deposit ratio
Operational efficiency
Explanation - Leverage ratio limits the amount of total assets financed with debt to ensure banks are not over-leveraged.
Correct answer is: Excessive debt relative to capital
Q.22 A bank's Asset-Quality Ratio reflects:
Proportion of non-performing assets to total advances
Liquidity of the bank
Return on equity
Cash reserves
Explanation - Asset quality ratio indicates the percentage of loans that are not performing and helps assess credit risk.
Correct answer is: Proportion of non-performing assets to total advances
Q.23 Which ratio indicates the efficiency of a bank in converting deposits into loans?
Credit-Deposit Ratio
Cash Reserve Ratio
Debt-Equity Ratio
Net Interest Margin
Explanation - CD ratio measures the percentage of deposits lent out; higher ratio shows more funds deployed in credit.
Correct answer is: Credit-Deposit Ratio
Q.24 Which ratio helps evaluate the bank's cost management relative to its income?
Operating Efficiency Ratio
Return on Assets
Capital Adequacy Ratio
Debt-Equity Ratio
Explanation - Operating efficiency ratio compares operating expenses to income, showing how effectively the bank manages costs.
Correct answer is: Operating Efficiency Ratio
Q.25 The Total Capital to Risk Weighted Assets Ratio (CRAR) is mandated by:
Basel Norms
SEBI
Ministry of Finance
RBI only
Explanation - CRAR is guided by Basel guidelines to ensure banks maintain adequate capital to cover risks.
Correct answer is: Basel Norms