MOCK TTEST PAPER – I

PART – A – OJECTIVE TYPE QUESTIONS

1. The minimum CRR to be maintained by a bank as per RBI Act.

a) 3% of DTL b) 5% of DTL c) 6.5% of DTL d) 10% of DTL

2. Loans can be sanctioned against shares in dematerialized form with a margin of:
a) 20% b) 30% c) 40% d) 25%

3. Mr. A is the Guarantor to the loan sanctioned to Mr.B. He wants to know the position of borrower’s
account. Bank should:
a) provide him with all the required information
b) refuse to provide with any information
c) indicate to the guarantor the extent of his liability only
d) none of the above

4. For filing a case in DRT, the amount of the suit should be :

a) Rs. 25 lacs and above b) Rs. 10 lacs and above
c) Rs. 5 lacs and above d) any amount of subject to SRESI guidelines

5. A court decree is valid for a period of:

a) 3 years b) 5 years c) 7 years d) 12 years

6. The right of guarantor to sept into the shoes of the creditor upon full payment of debt is called the
right of:
a) Redemption b) foreclosure c) subrogation
d) appropriation

7. If a bill of lading is submitted to the Bank of ___ days from the date of shipment , the bill of lading
is regarded as stale.
a) 14 b) 21 c) 28 d) none

08. A,B and C are trustees to a trust. After A’ death

a) Trust Property vests with B and C b) not vested with B and C
c) Trust property vest to B,C and legal heirs of A d) None

09.what is the maximum amount of bank dues that can be referred to Lok Adalat for settlement.
a) Rs. 5 lacs b) Rs.10 lacs c) Rs.15 lacs d)Rs.20 lacs

10.Which one of the following is not considered as document of title to goods.

a) Bill of Lading b) Railway Receipt c) Lorry Receipt d) None

11. Stamp duty on promissory note depends on:

a) Tenor and the amount b) Amount c) Tenord) none

12. An executor of the will has expressed his inability to accept the responsibility. On reference to the
competent court, a person is appointed to look after the affairs. The person is called as:
a) Additional Executor b) Receiver c) Administrator
d) Attorney holder

13. A resident Indian can remit upto US $ ____ for miscellaneous purpose to abroad without any prior
permission from RBI.
a) US $ 5000 b) US $ 2500 c) US $ 7500 d) US $ 10,000

14. The borrowing powers of the directors of the company is contained in

a) Certificate of incorporation b) Memorandum of Association
c) Resolution by the Board d) ROC certificate
15. A and B are having a Term deposit Receipt of Rs.50,000/- for a period of 3 years. After one year,
both of them approached the bank and requested for replacement of their names with the names of their
wifes respectively, who are hitherto the nominees.
a) Bank would not accept the request b) Bank should agree to request
c) Bank should seek opinion of controlling authority d) None

16. Mr. X had an amount of rs.50,000/- as fixed deposit for five years. Mr.A is the nominee. After two
years from the date of deposit, Mr. X expired. Now, Mr.A claims the payment, with out waiting till
maturity. Mrs. X and Mr. Y, the legal heirs objecting such claim.
a) The bank should accept the request of legal heirs
b) The Bank should accept the request of the nominee and pay
c) Once nomination obtained, legal heirs have no rights
d) The Bank should not pay money to nominee as the deposit is not matured.

17. Mr. A has availed a loan of Rs.5,000/- in 1991. As he was not repaying the loan and absconding, the
bank has written off the debt during 1996. Recently, he has opened a savings account with you and the
balance in the account is Rs.15,000/- on date. One of your retired staff member has recognized him as a
defaulter and informs you the same. Can you exercise you right of set-off?
a) A banker’s right of set-off is not available since the debt was written off and time barred.
b) After obtaining due permission from the competent court, the bank can appropriate the amount.
c) Bank can appropriate if the debt as well as deposit are in the same name, capacity and rights.
d) obtain consent from the depositor and confirmation from controlling authority.

18. B ( minor) got a cheque from A. He endorses the same in favour of Mr.C. The cheque was dishonoured
on presentation at the Bank.
a) Minor has no contractual capacity, hence not liable.
b) Minor is liable, if the endorsee is a holder-in-due course.
c) As per NI Act , minor can make all parties liable except himself.
d) None of the above.

19. What is the insurance coverage is available for accidental death in case of Kisan Credit Card Holder?
a) Rs.60,000/- b) Rs.25,000/- C) rs.75,000/- D) Rs. 1.00 lac

20.Mr. Ramnaresh is having a locker with you. Today, he has sent his son – Laxman ( age 16 years) with an
authority letter to operate the locker ( with key also) as he was sick and hospitalized. He requests you to
allow the operation, as he has kept some of the FDRs maturing on date in the locker.
a) Operation can be allowed in presence of Branch Manager, and one of the valued customer as witnesses.
b) Since, the authority letter is given by the locker holder and person is at the age of 16, he can be
allowed to operate the locker.
c) Operation can be allowed only by locker holder.
d) Minor son may be advised to approach competent court for directions.

21. What is the type of crossing, which does not confer a better title to the receiver than the giver.
a) Account payee crossing b) Special crossing
c) Not negotiable crossing d) conditional crossing

22. Mr. A having a current account with you. Today, he has sent a letter that a cheque No. 123456 has
been stolen from him and hence, it should not be honoured. The cheque was presented for payment
through clearing.
a) Return the cheque with the reason – Refer to drawer.
b) Return the cheque with the remark – Payment Stopped by the drawer
c) Return the cheque with the remark – Drawer’s confirmation required
d) Pass the cheque if the cheque is payable to any statutory payment.

23. Recently bank have introduced a system called OLTAS. It means,

a) On Line Trading Account Scheme b) On line tax accounting scheme
c) On line tax advising services d) On line tax authorizing system
24.Mr. A deposited a cheque of Rs.10,000/- for collection and bank has allowed withdrawal of Rs.7500/-
against the same. The position of the banker is :
a) Holder in Due Course b) Collecting Agent
c) Holder for Value d) Creditor

25. You have financed an amount of Rs.2.00 lacs Mr. A. Today, you came to know that the security
hypothecated tor the loan is being disposal by the borrower. What action you will take?
a) Lodge a police complaint b) Take possession of the goods
c) Seek controlling authority advise d) None of the above.

26. Rajesh is a current account holder with you for a decade. Today, he has introduced Mr. Prakash to
the bank, knowing fully well that he is not the same person. You, having no knowledge of the same, have
opened the current accunt. You have allowed withdrawal against clearing effects and the cheques were
returned unpaid. You want to approach Mr.Prakash, who is now missing. What is recourse available to
you?
a) Claim the money from Rajesh, the introducer
b) Both are responsible jointly.
c) Mr. Prakash is responsible.
d) Mr. Rajesh is not responsible because he is only an introducer.

27. Strong Room Fitness certificate will be issued by:

a) Bank’s civil Engineer b) PWD Engineer
c) Any local architect, who is on the panel of the Bank d) None

28. You have issued a Bank Guarantee for Rs.5.00 lacs for a period of 12 months. The department is
having a right to claim within 6 months after expiry of the Bank Guarantee. What is the validity
period in this case.
a) 12 months b) 6 months c) 18 months d) None

29. Twenty one persons joined together to start an activity and share the profits equally. This is a
a) Partnership Firm b) Private Ltd Company c) SHG d) None

30. The insurance cover of deposits with a Bank is undertaken by DICGC and the amount covered is
a) Rs.1.00 lac per account b) Rs. One lac per depositor
c) Rs. 1.00 lac per scheme d) None

31. The limitation period for enforcement of a demand promissory note is

a) three years from date of DP note b) three years from the date of claim
c) three years from the date of first debit d) none

32. Account payee crossing secured legal status because:

a) it is recognized by Negotiable Instruments Act
b) it is recognized by Banking Regulation Act
c) it is recognized by Indian Contract Act
d) it is upheld by courts

33. In respect of corporate concerns, where advances secured by hypothecation of goods, the charge is
to be registered with the ROC within
a) 30 days of creation b) 60 days of creation
c) 90 days of creation d) Hypothecation need not be registered.

34. As per the recent guidelines of Reserve Bank of India, the currency transactions in a chest should be
:
a) minimum transaction of Rs. 1.00 lacs and multiples of Rs.50,000/-
b) minimum transaction of Rs. 1.00 lacs and multiples of Rs.25,000/-
c) minimum transaction of Rs. 1.00 lacs and multiples of Rs.10,000/-
d) minimum transaction of Rs. 0.50 lacs and multiples of Rs.50,000/-
 35. N.L. Mitra committee recommendations relate to
a) customer service in banks b) credit delivery to agriculture
c) Credit delivery to SSI d) Prevention of bank frauds

36. KYC norms applicable to

a) savings accounts b) current accounts c) term deposits d) all

37. A demand draft was issued on your branch. The name of the branch was written correctly however,
the branch code for computer sorting mentioned wrongly. In case the draft was returned unpaid:
a) it will be wrongful dishonour and attract penalties under Sec.138 of NI act
b) Bank will not be liable as it is drawing branch mistake
c) Drafts are promissory notes. Hence, it cannot be returned.
d) It will be discretion of the bank to honour depending on the case.

38. A and B are joint holders of a locker. The nomination should be:
a) jointly in favour of one person b) no need for separate nomination
c) each can give their own nomination d) none

39. In respect of Scale of Finance of Crop loans, one of the following is not relevant:
a) it is for crop loans b) it is decided by DTC
c) it differs from crop to crop d) it is directed by NABARD.

40. An applicant can avail the PMRY loan if his annual income does not exceed:
a) Rs.18,000/- b) Rs.25,000/- c) RS.30,000/- d) Rs.40,000/-

Q.No. Answer Q.No. Answer Q.No. Answer Q.No. Answer

1 a 11 b 21 c 31 a
2 c 12 c 22 b 32 d
3 c 13 a 23 b 33 a
4 b 14 b 24 c 34 a
5 d 15 a 25 b 35 d
6 c 16 b 26 a 36 d
7 b 17 c 27 a 37 c
8 a 18 c 28 c 38 c
9 d 19 b 29 d 39 d
10 d 20 c 30 b 40 d

Rationales:

1. Periodical verification of staff accounts must be made by the branch manager.

To check whether any staff member is having assets disproportionate to the known income.

And also to know whether staff members are using their accounts for any business / speculative

business purpose.

2. The legend ‘nomination registered’ will be affixed / written on the face of the pass book / term

deposit.

In order top help legal heirs to settle the funds in the customer’s account easily in case of the

death of the depositor without any delay.

3. A bank cannot issue a demand draft payable to bearer.

A demand draft is a demand promissory note and is drawn by the bank on itself. Sec.31 of

RBI prohibits issue of promissory notes payable on demand, by individuals.

4. Debit balance confirmation slips must be stamped.

In order to ensure that the liability of the borrower is accepted and in case of need this can

be used as evidence as debt.

5. While opening the accounts of partnership firm, banks will obtain a partnership letter duly signed by

all the partners, in addition to partnership deed.

Because the partnership deed may not contain the guidelines required for binding all the

partners and opening of bank account is not within the implied authority as per sec. 19 (2) of

partnership act.

6. While financing agricultural advances, normally bank prefers the schemes, which are approved by

NABARD.

In order to avail the eligible refinance at cheaper rate from NABARD

7. Compromise proposal for recoveries are encouraged by the Bank.

To recycle the already blocked funds in an effective manner as recovery of NPAs attains top

most priority while litigation process are lengthy.

8. The cash balance at the branch should be kept minimum.

As a tool of effective cash management, since cash balance happens to be idle asset and not

contributing any income

9. Reserve Bank has introduced KYC norms for all accounts.

To implement the guidelines of Basel Committee on effective supervision and also to ensure that

banks are opening the accounts by ascertaining the antecedents of prospect customer. This is

aimed at effecting the banking channels for money laundering.

10. Bank is encouraging the SBI Life products.

In order to retain the customers by providing him all the products as desired by him. In order

to earn substantial agency commission and also retain the customers for utilising State Bank

group products.

11. Transit voucher book is used to send instruments to paying cashier.

To ensure that only vouchers duly passed by the passing official for cash payment are sent to

cash department as well as the paid instruments are returned to them in the same order. This

is a preventive vigilance measure.

12. Two signatures are obtained – one on revenue stamp and & another on a D.P. note.

The signature on the revenue stamp as a receipt for and whereas the other one is obtained to

prove the execution of documents in case the revenue stamp was lost.

13. While rephrasing the loans, bank must obtain consent of the guarantor.

As per ICA Sec. 133, the guarantor will be discharged from liability if there is any material

change in the original agreement without his consent.

14. Bank not allows it branches to draw drafts on branches of SBI at Chennai.

To avoid delay in reconciliation and settlement of funds, the bank has instructed to avoid cross

drawings.

15. Demand promissory notes are obtained while sanctioning gold loans.

To have a legal recourse against the borrower in case where any short-fall even after sale of

ornaments - in case of default by the borrower.

16. Importance is attached to Risk Management in the Banks.

In the present environment of thinner margins and high competition, banks are instructed to

identify the business risks and initiate suitable measures for mitigation to nullify the adverse

effect on balance sheet.

17. Credit information Bureau (CIBIL) has been set up by the SBI.

In order to provide the latest credit information about the prospective borrowers while

sanctioning high value advances whereby minimising the credit risk.

18. Credit exposure norms were further tightened.

In order to reduce the concentration on a particularly borrower / group. It is a credit risk

management tool.

19. The account number of the customers will be shown in the chequebook issue register.

In order to ensure the cheque books are issued correctly to account holders. In case of any

difficult it will useful to banker as a reference.

20. Advances cannot be granted against the security of shares of private limited companies.

Transferability of the share of private limited companies is restricted among the shareholders.

Further, they are not listed in a stock exchange. Hence it is impossible to ascertain market

value of the shares.

21. When a partner in a partnership firm die, the operations in the cash credit account is stopped.

In order to avoid application of rule in Clayton’s case and to arrive and fix the liability of the

deceased borrower.

22. In the absence of original title deeds, it is preferred to create an English mortgage.

Because in English Mortgage, the mortgager will be transferred the title in the name of the

mortgagee and enforcement of mortgage can be done without legal intervention.

23. Term deposit receipts are not paid in clearing.

Clearing house is meant for settlement of funds on account of negotiable instruments like

cheques / demand drafts. A FDR receipt is not a negotiable instruments.

24. Paying banker is protected, if the payment is made in due course.

As per sec. 85 (1) of NI act, the paying banker is protected in respect of order instruments,

if the payment is made in due course.

25. Crystallisation of export / import bills is done if they are not paid within a stipulated period.

To avoid loss on account of exchange risk, due to rate fluctuations in the market.

26. RTGS is introduced by RBI.

In order to have an effective and quick settlement of funds on part with international markets.
27. RBI has drawn up gold card scheme for the exporters of good track record.

In order to encourage the exporters who contribute inflow of foreign exchange through exports.

28. Micro Finance has vast business potential in the country.

Because it ensures low credit risk with better margins.

29. Geologist Certificate is essential while financing minor irrigation scheme.

Because it indicate availability of ground water and the levels, to enable the bank to take a

proper decision.

30. FCNR deposits are accepted for a period of one year to three years.

In order to avoid having exposure in foreign exchange for very long periods that may pose an

exchange risks. In case, if it’s a shorter period effective redeployment is not possible.

MODEL PAPER – II
PART – A - OBJECTIVE QUESTIONS:

1. The maximum amount that can be deposited in PPF account

a) Rs.50,000/- b) Rs.60,000/- c) Rs.75,000/- d) Rs.1.00 lac

2. The credit guarantee fund scheme of SIDBI covers SSI units with sanctioned limits of
a) Rs.15 lac b) Rs.20 lac c) Rs.25 lac d) None

3. The rule in Clayton’s case applies in the case of

a) term loans b) cash credits d) savings bank e) None

4. Mr. Kartar Singh, to day executed a demand Promissory note in Hyderabad by using the revenue
stamps he has purchased in Amritsar. The document can be:
a) used as evidence in Hyderabad b) can be used evidence at Amritsar
c) can not be used as evidence d) None

5. The number of partners in a firm engaged in non-banking business should not be more than 20. This
stipulation made in:
a) Indian Partnership Act b) Indian Companies Act
c) Banking Regulation Act d) None

6. In order to avail remedy under Sec.138 of NI Act, the holder has to give a notice to the drawer:
a) within a week from return of the cheque b) within a fortnight from return of the cheque.
c) within a month from return of the cheque d) None.

07.No partnership firm should conduct a banking business. This stipulation made in
a) Indian Companies Act b) Indian Partnership Act
c) Reserve Bank of India act d) None

8. The maximum amount that can be financed to a retail trader under Small Business Finance:
a) Rs. 4.00 lacs b) Rs.5.00 lacs c) Rs.7.50 lacs d) Rs.10 lacs

9. A bill drawn in Paris drawn in favour Mr. Juneja of Delhi, and payable in Bangalore.
a) Foreign Bill b) Inland Bill c) both d) None

10.You have received a cheque on the counter payable to Mr.Jayaram or bearer. There are three
endorsements on the reverse of the cheque, which are not in regular order. The name of the person,
who has presented the cheque is not appearing on the instrument.
a) return the cheque b) payment will not be considered as made in due course
c) payment can be made on identification d) None
11.A packing credit advance should be repaid within a period of
a) 90 days b) 120 days c) 180 days d) None

12. Mr. Nirakshar, an illiterate customer of your branch having savings account with you, requested you to
allow Mr. Mayaraj to operate the account, as he is going on a piligrimage for four months.
a) the request should not be considered b) advise him to give in writing
c) advise him to give power of attorney duly notarized d) None.

13. Mr. A and B are having a joint account with you. A cheque was presented by Mr.A under his signature
as Mr.B is out of station for one week.
a) Honour if otherwise in order b) Honour, if the customer is regular
c) Honour the cheque and obtain signature later d) Return the cheque

14.One of the following instrument can not be made payable to any person on demand
a) Bill of Exchange b) Promissory Note c) Debenture d) None

15. Mr.K.S.Narayana JHF account with you maintaining huge current account balance. Today, you have
received a cheque for Rs.10,000/- through clearing singed by the karta. Mr. Prakash, co-parcener has
send a letter to you not to honour the cheque.
a) Co-parcener cannot instruct the bank b) Bank should honour the cheque
c) Co-parcener can give instructions under authority from karta d) None

16. The basic nature of a C.D. / C. P. is

a) Demand Promissory Note b) Usance Promissory Note
c) Bill of Exchange d) None

17. The maximum amount that can be transferred under Electronic Fund Transfer facility of RBI
a) Rs.50 lac b) Rs.100 lac c) Rs.150 lac d) Rs.200 lac

18. Deposits under FCNR scheme can be accepted for a period of:
a) 60 months b) 48 months c) 36 months d) 24 months

19.The relationship between the customer and the banker in respect of safe custody articles:
a) Principal and Agent b) Bailor and Bailee
c) Holder and Tenant d) None

20. M/s Reliance co. Ltd. Maintaining a current account with you. The account is operated by the company
secretary alongwith two directors. Today, you have received instructions from the Company Secretary
not to honour a cheque , which is said to have been issued as wages to one of the directors.
a) Bank should not comply the instructions b) Bank should comply
c) needs authorization of all the three signatories d) None

21. A and B are the joint account holders of a savings account with you. They have nominated C to
receive the money. Today, you came to know the death of Mr.B. Mr. C approached the bank and
requested you to allow him to operate the account alongwith Mr.A as he is the nominee.
a) A only to be permitted b) C has no locus-standi
c) Nomination effective only on death of both the depositors d) none

22. The current ratio of the company is at 2.25:1 all the time in the last three years. However, the quick
ratio was at 1 (2000) ; 1.30 ( 2001) and 1.60 (2002). Analyse?
a) decline of inventory to the total current assets
b) decline in movement of goods
c) recovery of dues effectively
d) decline is turnover.
23. Stamp duty on one of the following will not vary from state to state.
a) Mortgage agreement b) Guarantee Agreement
c) Hypothecation agreement d) None
 24. Debt service Coverage Ratio indicates:
a) effectiveness of unit to utilize the machinery
b) effectiveness of unit to generate income
c) effectiveness of unit in repaying the debt
d) effectiveness of unit in building up turnover

25. Banks are directed to effect immediate credit upto Rs._____ on account of outstation cheques.
a) 5,000/- b) 7500/- c) Rs.10,000/- d) Rs.15,000/-

26.One of the presumption is not correct in respect of Negotiable Instrument.

a) The holder is holder in due course b) Endorsement made for consideration
c) It was drawn on the date mentioned on it d) None

27.Collateral security required under SGSY is:

a) No collateral for any amount
b) No collateral upto Rs.50,000 for individuals
c) No collateral for agro based activity
d) None

28. Bank’s insist audited balances in respect of credit facilities of Rs.

a) 10 lacs b) 25 lacs c) 50 lacs d) Rs.100 lacs.

29.Margin on Safety Means:

a) Operating efficiency at Break-even b) Operating efficiency with low current ratio
c) Operating profit over Breakeven d) Operating efficiency at cash losses

30. You have received a parcel (with little damage) today for collection, on behalf of customer.
a) The parcel should not be accepted. b) The parcel can be accepted
c) The parcel can be accepted on open delivery basis d) None

31. A made a deposit of Rs. 1.00 lac with you on 10.08.2004 for a period of 12 months. On 15.09.04, he
has approached you for cancellation of the same. The interest payable on the deposit amount will be:
a) 1 % less than the applicable rate b) Savings Bank rate
c) 1 % less than the contracted rate d) None

32.A loan sanctioned a minor is guaranteed by his elder brother, who is major. Minor failed to repay the
debt.
a) recover from guarantor b) recover from borrower
c) forego recovery d) None

33. RBI has issued clean note policy guidelines as per Sec. 35 of _________.
a) Indian Currency Act b) Banking Regulation act c) RBI Act d) None

34. Mr. Razak, an NRI customer wants premature payment of FCNR deposit. The deposit receipt was for
USD 10,000 and issued on 25.12.2003. To day he has approached for premature payment.
a) No interest will be paid b) contracted rate – 1% c) contracted rate
d) seek permission from RBI

35. The original draft as well as duplicate were presented simultaneously through clearing for payment.
a) Pay original and return duplicate b) Pay duplicate return original
c) Pay both and invoke indemnity d) return both the drafts

36.A negotiable instrument can not be enforced against a minor when he signs it as:
a) endorsee b) holder c) Maker d) None

37. The limitation period for filing a complaint before Ombudsman

a) one year from the date of cause b) six months from the date of cause
c) one year after bank rejected the plea d) No limitation
38. Special Mention account category of assets are monitored by
a) Statutory Auditors b) Reserve bank of India c) Bank’s Board d) None

39.RBI permitted authorised dealers to release foreign exchange on BTQ upto an amount of
a) USD 5000 b) USD 10000 c) USD 12500 d) None

40. A farmer can be sanctioned with an produce marketing loan for a period of
a) 3 months b) 6 months c) 9 months d) 12 months

Q.No. Answer Q.No. Answer Q.No. Answer Q.No. Answer

1 d 11 c 21 c 31 d
2 c 12 c 22 a 32 c
3 b 13 d 23 d 33 b
4 a 14 b 24 c 34 a
5 b 15 b 25 d 35 b
6 d 16 b 26 d 36 c
7 d 17 d 27 b 37 c
8 d 18 c 28 a 38 c
9 b 19 b 29 c 39 b
10 d 20 b 30 a 40 d

RATIONALES:

1. Mr. A has approached for a loan from your Bank and Mr. B, a partner in a firm wants give guarantee of

the firm.

Sec. 19 (2) of Partnership Act, signature of the B is not acceptable, because he has not have

implied authority to execute as a guarantor to the firm.

2. While opening a locker, the customer has to execute a stamped agreement.

As the banker entering into a separate agreement while hiring a locker.

3. Bank sanctioned a loan of Rs. 10 crores to a limited company and obtained Registered Mortgage of the

company’s property. Company says no need for further registration with ROC.

Sec. 125 of Companies Act, a charge of mortgage must be registered with ROC within 30 days

from date of execution.

4. Mr. A approached for demand loan against LIC Policy, however, bank sanctioned him an overdraft.

Because LIC policies are not classified as approved securities but can be treated as authorized

securities.

5. Adjusting account is opened in the general ledger at the time of annual closing of accounts.

In order to reflect correct position of income & expenditure as well as the bottom lines.

6. New Weekly statement of affairs in the general ledger has been introduced apart from normal MCB.
 Because SBI has introduced uniform balance sheet among group members to enable them to

draw consolidated financial statements.

7. Reserve Bank prescribed a norm of 60% of their SSI lendigns to tiny sector.

As recommended by the Kapoor Committee to extend liberalized finance and strengthen the tiny

sector.

8. One rupee notes are issued by government of India where as other notes are issued by Reserve Bank

of India.

As per the Coinage Act, Re. 1 notes are treated as coins and no reserve required to be

maintained to issue to coins. Hence government of India is issuing Re. 1 notes.

9. Term deposits are not delivered by endorsement of delivery.

TDR is not transferable receipt and not a negotiable instrument, whereas NIs are require

endorsement and delivery.

10. Nominee signatures are not obtained on the nomination form.

In order to maintain secrecy of the nomination given by the customer and also to facilitate him

to change the nomination if he so desired to do.

11. Articles in Safe deposit locker are not delivered against succession certificate.

Succession Certificate covers only debt and securities.

12. Banks are instructed to pay interest to customers on delayed credit on remittances.

Based on the Goiporia committee recommendations and in order to improve the operational

efficiency and compensate the loss to the customers on account of delay.

13. All depositors are unsecured creditors.

While accepting the deposits, banks are not creating any change on its assets.

14. Gold loans should not be sanctioned to every person.

To ensure that the gold ornaments are accepted only from the genuine persons to avoid risk at

a later stage.

15. A deposit was matured on 15.05.04. On 14.08.04, the customer approached the bank and arguing that

it is the duty of the bank to pay him maturity value on 15.05.04 itself and hence seeking payment of

damages and compensation.

As per the definition given in BR Act, the depositors are required to make a demand on the

bank for payment. Hence no compensation required to be paid.

16. Endorsement by an illiterate person under his thumb impression is not valid.

As per Sec. 15of NI Act, when a holder of the NI signs the same for the purpose of

negotiation is said to have endorsed the same. Hence signature is must to constitute a valid

endorsement.

17. Garnishee order is not applicable to articles / packets in safe custody.

Garnishee orders attaches only debts and accruing debts. Articles in safe deposit custody not

a debt.

18. While retuning dishonoured cheques, bank must cancel all the stamps.
 To avoid any liability as an against for collections of the cheques and also as a proof of

returning the cheques to the customers.

19. M/s. ABC Limited has approached for opening of a current account which was permitted by you.

However, your Accounts Officer refuses to open the account because there is no introduction.

Company is a artificial person with perpetual succession created under the provisions of Indian

Companies Act. The Certificate of Incorporation issued by ROC acts as a introduction.

20. Banks are now insisting PAN number, while accepting any term deposit of Rs.50,000/- and above.

As instructed by RBI under KYC norms.

21. Cash transactions exceeding certain amounts are required reporting to higher authorities.

As instructed RBI under KYC norms, in order to prevent money laundering activities.

22. While calculating DSCR, banks are adding depreciation to net profit.

Depreciation is a non-cash expenditure. In order to arrive at the cash accruals as a unit all

non-cash expenditure to be added to net profit.

23. Banks are now releasing currency notes only in unstapled condition against to the wishes of customers.

As instructed by RBI under clean note policy to increase the life of the notes in circulation.

24. A customer has approached for a loan against his term deposit receipt. Along with other documents,

you have requested him to deliver the TDR duly discharged over the stamp affixed on the TDR.

In order to facilitate the banker to use it for payment of deposits on maturity and adjust the

same to outstanding in the loan accounts.

25. Bank has introduced single window operations.

As a step towards improving the efficiency in disposing customer needs. It is a measure

implementing under business reengineering process.

26. Though Bank is obtaining DP notes, it is not crossing the same to have effective rights.

As per provisions of NI Act, only cheques and drafts can be crossed. All other instruments

(BOE / PN) need not be crossed.

27. Every branchy has to maintain a suit filed register.

In order to have the complete information on suit filed accounts for periodical scrutiny and

timely monitoring.

28. Though, the term loan is repayable over a period of time, banks prefer to obtain revival letter from

time to time.

As per the term loan documents, the entire outstandings becomes immediately payable on

default of certain amount of installments / interest by the customer. In order to ensure that

the debt not time barred though default of installments, it is preferred by the banks to obtain

revival letters for term loans.

29. Banks are not obtaining signatures of the mortgagor on the title deeds register, though they are

obtaining memorandum of delivery.

 If the register signed by the mortgagor, there is a possibility that the may claim having singed

the register and created registered mortgage. Since no stamp duty has not been paid for the

mortgage, our change may be dis-allowed.

30. A stale bank draft is now revalidated only once.

As per the instructions of RBI and avoiding misuse of such drafts and piling of un-reconciled

entries.

MOCK TEST PAPER – III

PART – A: OBJECTIVE QUESTIONS:

1. A person who has obtained a cheque by way of gift is:

a) Holder b) Holder in due course c) Holder for value d) None

2. Under Bankers books evidence Act, 1891:

a) certified copies of banks books are acceptable as evidence in the court
b) bank’s books are required to be submitted in original
c) branch manager’s oral evidence based on the books required
d) None

3. You have received a cheque issued by a customer for credit card payment in clearing. The account
was garnished by the court.
a) cheque will be returned b) cheque will be paid by informing to court
c) customer will be advised not to issue cheques d) None

4. When insolvency proceedings are in force, the assets of the insolvent person will be in the hands of
a) Liquidator b) Executor c) Receiver d) None

05.Mr. A is a minor, happens to be the claimant of the assets of Mr.B. Payment should be made to:
a) Minor b) legal guardian c) Natural Guardian d) None

6. Without consent of the legal heirs, a muslim can not dispose off by will, more than
a) ¼ of his property b) 1/3 of his property c) ½ of his property d) none

07.Succession Certificate is not applicable to:

a) Christians b) Hindus c) Parsies d) None

8. At the time of opening of bank account in the name of JHF, the karta and other co-parceners have to
make to a declaration that:
a. there is no insolvent person among them
b. they are carrying only family business
c. there is no outsider in the business
d. None

9. When two firms have some common partners, the firm is called:
a) Identical b) Associate c) Sister d) None

10. Certificate of commencement of business is not required in the case of:

a) Joint stock Company b) Public Company c) Private Company d) None

11. If a person died testate the affairs will be looked after by:

a) Administrator b) Executor c) Receiver d) None

12. A married woman can act as an executor or administrator

a) with the help of her husband b) with the consent of her husband
c) without the help of her husband d) None
13.Banks insist succession certificate for settlement of claims of legal heirs for amounts exceeding
a) Rs.25,000/- b) Rs.1.00 lac c) Rs.2.00 lac d) None

14.If one of the legal heirs does not attend personally to take delivery of assets of the deceased from the
bank, he can execute
a) Letter of Indemnity b) Letter of authority c) Letter of disclaimer d) None

15. When a minor decides to continue in the partnership on attaining majority one of the following is not
necessary for the bank:
a) obtain fresh partnership letter duly signed by all the partners
b) continue the operations in the old account
c) obtain signatures on the old partnership letter
d) None

16.As per Sec.293 (1) of Indian Companies Act, a Company can raise loan upto an extent of
a) its authorized capital b) its paid up capital
c) Paid up capital + free reserves d) None

17.Guardian of a Muslim minor whose father died intestate shall be:

a) his grand father b) his uncle c) his mother d) court appointed guardian

18.A minor wants make a fixed deposit with the bank. The maximum term that a bank can accept:
a) 10 years b) 14 years c) till he attains majority d)None

19. A and B have joint account with the bank, operated by A only. A applies for an overdraft facility of
Rs.50,000/-.
a) Bank can grant overdraft b) bank can grant facility after verifying genuineness
c) bank can grant jointly with B d) None

20.Banker has accepted standing instructions from a saving bank customer to debit the account every month
and remit the amount to LIC. His status was:
a) debtor b) Trustee c) Agentd) None

21.A cheque was crossed specially to Indian Bank was again crossed special to State Bank of India.
a) for negotiation b) for ultimate payment c) for collection d) None

22.The banker has paid a cheque with crossing in cash as the crossing is not clearly visible.
a) He is protected under Sec.85 of NI Act b) He is protected under Sec.89 of NI Act
c) He is Protected under Sec.131 of NI Act d) None

23.A collecting banker collected a cheque for his customer with forged signature of the drawer
a) He protected b) not Protected c) liable to true owner d) None

24.Ram draws an incomplete cheque and keeps it in his brief case. Shyam obtains the cheque by unlawful
means and negotiated it to Mohan for valid consideration. Mohan takes it in good without the knowledge of
defective title of shyam.
a) Ram is not liable b) Ram is liable c) Ram is liable if delivery is valid d) None

25.While preparing the Demand Promissory note, it was forgotten by the bank to fill the interest rate column.
The interest that can be claimed will be:
a) 6% as per usurious loan act b) Bench Mark PLR c) 18% d) None

26.Under the ABSOT scheme, until a claim is made by the drawee bank, the funds are treated with the:
a) drawing Bank b) Drawee Bank c) ABSOT Pipe Line d) None

27.Treasury Officer’s Pay order is valid for a period of:

a) 3 working days b) 7 working days c) 5 working days d) None
28.Commission on State Government business is paid on:
a) Monthly basis b) quarterly Basis c) Half-yearly Basis d) Annual Basis

29.Non-employment certificate is required obtained within two years from the date of retirement from:
a) Retired Class – I officer of Cerntral Service b) Retired Class – II officer of any service
d) Retired officers of state services d) None

30. Branch Managers are empowered to allot lockers as per their discretion upto:
a) 10% b) 20% c) 30% d) No discretion

31. Every Bank has to issue a loan policy indicating the credit deployment discipline of the bank as
recommended by:
a) Jilani b) Shetty c) Kannan d) Kapoor

32.CRA rating is introduced by the banks for the purpose of:

a) determining the margin requirements b) determining the repayment system
c) determining the interest rate c) None

33.You have sanctioned a loan against pledge of stocks. There are other creditors also who are claiming their
rights over pledge.
a) The property shall be liable to their dues also b) Bank’s right is priority
c) the charge will become paripassu d) None

34. Partnership deed empowered any partner to mortgage the property. However, Bank obtained mortgage
deed signed by all the partners.
a) because one partner will not have authority though it is specified in the deed
b) It is required under Partnership Act
c) It is required under Transfer of Property Act d) None

35. You have sanctioned a loan against the security of LIC Policy. On death of the borrower, the claim has to
be submitted to the corporation by:
a) Bank b) Nominee c) legal heirs d) None

36. The unit is completing more time to complete one operating cycle. It means:
a) the unit requires working capital b) working capital needs are low
c) working capital needs are high d) None

37.In order to avail refinance from NABARD, the tractor loan should have a repayment schedule for a period
of:
a) 7 years b) 9 years c) 10 Years d) 12 years

38.Financing for floriculture for commercial activities is treated as:

a) Direct agriculture b) Indirect Agriculture c) Social Forestry d) None

39. One of the following is not covered under LUCC scheme

a) SSI b) Retail Trader c) Transport Operator d) None

40.A confirmed letter of credit is always:

a) Revolving credit b) Revocable Credit c) Redclause d) None

Q.No. Answer Q.No. Answer Q.No. Answer Q.No. Answer

1 a 11 b 21 c 31 c
2 a 12 c 22 b 32 c
3 a 13 d 23 a 33 b
4 c 14 c 24 a 34 a
5 c 15 d 25 c 35 c
 6 b 16 c 26 a 36 c
7 c 17 a 27 d 37 b
8 c 18 a 28 b 38 a
9 b 19 c 29 a 39 d
10 c 20 c 30 b 40 d

PART : B – RATIONALES:

1. A current account is not opened in the name of a Minor.

Current account for business transactions and SB for savings purpose. To inculcate savings
habit among minors, the bank can open a SB account. More over, as per Contract Act a minor
cannot enter into an agreement. Due to negligence or by oversight, if the current accounts
turns into overdraft, the Bank cannot recover the amount from the minor, because any contract
with a minor is void abinitio.

2. Once bearer always bearer.

As per Sect. 85 (2) of NI act, a cheque originally issued as a bearer retains its bearer
character irrespective of any type of endorsements made for further negotiation. In case the
banker pays the amount to bearer he will be discharged from the liability.

3. Bill purchase is preferred than book-debt finance.

Advances against bill purchase or normally short term in nature and self liquidating. Where as
the book-debt finance, it is not a self liquidating one and assessing the realization of book-debt
is difficult.

4. Banks do not advance against partly paid shares.

Partly paid shares will carry risk of payment of call in arrears which is share holders
responsibility. If he fails to pay, the share may be forfeited by the Company. If the shares
are transferred in the name of the bank, the bank has to pay the arrears when the company
went into liquidation.

5. Forex transactions involving large amounts are not put through on Saturdays.

International markets are closed on Saturday. Hence, the Bank cannot cover the transactions.
If the transactions are not covered, the banks position vulnerable due to exchange fluctuations.

6. letter of thanks are now sent even to the newly opened account holders.
In order to ascertain, the correctness and genuineness of the address of the account holder as
per KYC norms. Further, it will facilitates expressing our gratitude for extending patronage by
the customer to the Bank.

7. Branch Manager must scrutinse all vouchers.

In order to ensure that all the vouchers are duly passed by the authorized officials within the
powers delegated to them. This will also help into detect any extraneous transactions that may
leads to frauds and manipulation.

8. Banks are not permitted to grant loans against their own shares.

As per sec. 20 of BR Act, granting of such advances prohibited. It tantamount to funding

against its own shares.
9. Opening of Letter Credit is considered as a credit decision.

Opening of a LC is a non-fund transaction. However, the liability may be devolved due to

default by the borrower by non-payment when the documents presented for payment. Then the
transaction becomes fund-based and hence it is considered as Credit Decision.

10. While assessing working capital, banks are not sanctioning loans where the current ratio is less than 1.

Current ratio indicates the liquidity position of the borrower. If the current ratio is less than
1, it means that the borrower position is unstable and he is not able to fulfill his short term
obligations. This is may be due to diversion of short term assets to other activities.

11. Job rotation is must in the Bank.

The staff members are expected to attain working knowledge all the functional aspects of the
Bank. As a measure of internal control and preventive vigilance measure, rotation of duties is
recommended.

12. Bank must honour the cheques of account holders.

As per Sect. 31 of NI Act, it is compulsory on the part of the Bank as a drawee to honour the
cheque provided there is sufficient balance in the account.

13. Account payee crossing is mandatory

It has been held in many cases that the account payee cross is a direction to the banker. He
should not ignore such directions which may leads to negligence on his part and render him liable
for conversion and not eligible for statutory protection.

14. Banks are now publishing their quarterly results.

As per the directions of the SEBI, all the corporates who are doing business with share
holders money must publish the balance sheets quarterly within the succeeding month period.

15. D.P. Note delivery letter is obtained along with D.P. Note.
As pec Sec. 46 of NI Act, the making, acceptance, endorsement of NI is completed by
delivery (actual or contractual). Hence without delivery the execution of DP note not
completed.

16. Banks normally insist on complete set of bill of lading.

Bill of Lading is in ¾ original copies. Any of the copies is sufficient to obtain goods from the
shipping companies. In order to protect the interest of the Bank, complete set of BOL is
demanded from the exporters.

17. Kisan Gold Credit Card is introduced.

IN order to give flexibility to the farmers and choice for purchase of agricultural inputs,
equipment as well as consumption purposes and to withdraw money

18. A time barred debt can be revived.

As per Sec. 25 (3) of ICA, by obtaining a fresh letter admitting the existing debt and also
making a fresh promise to pay the debit without supported by any consideration is a valid
contract.

19. NABARD introduced Swarojgar Credit card Scheme.

To provide flexible, hassle-free, cost effective, timely and adequate credit to small artisans,
handloom weaver, service sector, self employed persons and other micro entrepreneurs.

20. SME Credit Plus scheme is introduced by State Bank Group.

 As per the recommendations of Kapoor committee in order to facilitate the small units to avail
additional short term requirements over and above the working capital limits, without following the
cumbersome procedures of the banks.

21. Break Even analysis is important while processing term loan proposal.

As the unit will make profit, it works above the break even level and the term loan can be
_______________. Because if the margin on safety is comfortable, the repayment of term
loan is assured.
22. While opening an account of a Company, both Memorandum and Articles of Association are verified.

In order to ascertain the purpose of the company have established and about their internal
control, borrowing power, management of the financial institutions.

23. Infrastructure Financing is now encouraged.

As the infrastructure sector was opened to the private investments, the need for investment is
increased, giving a potential business for the banks. Development of infrastructure leads
developing of nation.

24. RBI has set up CDR.

To enable corporates facing problems to work out rescheduling / restructuring of their debts of
banks / financial institutions through negotiations. Which is applicable to standard and sub-
standard accounts only.

25. Bank Guarantees are not issued for an unduly long period.

These are contingent liabilities which may crystailising into fund-based one. The borrower
finance position may undergo change from time to time resulting into the commitments are not
honoured thus devolved on the bank.

26. RBI advised banks to introduce Single PLR.

In order to be transparent and easy understandable to the customers on the basis of interest
rates changed by the banks which is not possible in case of multiple PLR.

27. While financing Limited Companies, Hypothecation advances are preferred to a pledge advance.
As per Sec. 125 of Companies act, charge of Hypothecation required to be registered with ROC
which would serve as a notice to other parties. There is no such provision for pledge.

28. The assignment of the Insurance Policy is done on the same.

If the assignment is obtained on a separate paper, it attract advalaram stamp duty.

29. Banks do not sanction advances against TDRs of other Banks.

Normally, the bank which has issued the TDR will have a paramount lien on the FDR. Hence,
they may refuse to accept our Bank’s charge.

30. Pass Book Overnight Register is maintained at the Branches.

Whenever customers are submitted for updation, it should be done immediately. However, due
to unavoidable circumstances, if the pass book has to be retained at the bank for overnight, it
should be entered in the pass book retained overnight register and kept in the safe custody.
While returing the pass book, the signature should be obtained in the register. This is a
preventive vigilance measure.
 MOCK TEST PAPER – IV

PART – A: OBJECTIVE QUESTIONS

1. Introduction is insisted while opening new account because:

a) In the event of fraud, loss can be recovered from the introducer.
b) To establish identity and genuineness of the prospective customer
c) For interrogation when fraud takes place
d) None

2. To be classified as a Sick Industrial Company, the company should be in existence for at least
a) 5 years b) 7 years c) 10 years d) none

3. The debt recovery Tribunals take up the cases of:

a) recovery of loans and advances b) takeover of sick units
c) amalgamation of weak units d) None

4. The underlying difference between approaching Banking Ombudsman and filing a complaint under the
Consumer Protection Act is
a) In both cases bank should be given an opportunity first to redress.
b) Customer/complainant can approach under Consumer Protection act directly
Without prior notice to the bank
c) Customer can approach ombudsman without prior notice to the bank
d) None of these

5. The consumer is aggrieved with the verdict of the National Commission under COPRA, then
a) No further remedy b) He can appeal to concern High Court
c) He can appeal to Supreme Court d) None

6. Regulations relating to EFT system are framed under RBI act,1934 :

a) Sec.58 b) Sec.35 C) Sec.38 d) Sec.15

7. The authority vested in the Reserve Bank of India empowering it to issue directions to the banking
companies to control their advances is contained in:
a) Reserve Bank of India Act b) Banking Regulation act
c) Negotiable Instruments Act d) None

8. The right of a creditor to retain the goods or the property of the debtor till the time the debt is
discharged known as:
a) Right of Set-Off b) Pledge c) Lien d) None

9. A guarantee issued by a bank assuring payment of instalments and interest on future due dates is
known as:
a) Financial b) Deferred Payment c) Performance d) None

10. The best option of charge to finance a car for personal use by a doctor, by a bank would be:
a) Pledge b) Mortgage c) Hypothecationd) None

11. A bill of exchange drawn in Delhi and payable in London is an example of

a) Inland Bill b) Foreign Bill c) clean Bill d) None

12. The object for which a company has been formed is found in :
a) Articles of Association b) certificate of Incorporation
c) certificate of commencement of business d) none

13. In a L/C backed mechanism, the advising bank’s responsibility is

a) inform issuing bank as to whom to issue the L/C
b) Advise the buyer the dispatch of the documents by the seller
c) Inform beneficiary about the L/C d) None
14. The tenure of Ombudsman, as per Banking ombudsman scheme,1995 is
a) Three years with a provision of extension by two years
b) Three years with a provision of extension by three years
c) Five years with a provision of extension by five years
d) Five years with a provision of extension by three years

15. A partners liability is:

a) Limited to the extent of his capital b) Limited to the extent of debts raised by him
c) Limited to the proportion of his share in the firm d) None

16. In terms of UCPDC, in the absence of any indication in the L/C, it will be treated as:
a) Revocable b) Irrevocable c) Not an L/C d) none

17. Garnishee order is an order issued by competent court or authority ordering the debtor
a) to pay the debt to a specific creditor only b) to pay only to the court
c) not to pay the debt to any body d) None

18. Accumulated losses are shown in the financial statements of a unit:

a) liability b) asset c) expenditure d) negative reserve

19. Insurance contracts are:

a) guarantee b) bailment c) indemnity d) None

20. In respect of Banks, the term liquidity refers to:

a) Excess of current assets over current liabilities b) Excess of deposits over advances c)
Ability to meet the demand for cash d) Balances held with RBI

21. Formation of a consortium for lending to a borrower is:

a) done at the directions of RBI b) restricted to industrial advances
c) as decided by Registrar of companies d) None

22. The purpose served by the Documents execution Register is:

a) it is an undisputable evidence about the execution of documents
b) it is a prima facie evidence of the execution of documents
c) it is a check on the bank officials that all formalities are completed
d) None

23. For documents executed by Illiterate / blind persons, attestation should be obtained:
a) from a third party, on documents themselves
b) from the third party, on a separate letter
c) for a notary public, on the documents itself d)None

24. The following documents should not be witnessed:

a) Mortgage deed b) Assignment of Life policy
c) Indemnity Bond d) Pledge agreement

25. As per the stamp act, documents requiring stamping should be stamped:
a) before execution b) at the time of execution
c) before or at the time of execution d) None

26. A legal mortgage is one:

a) mortgage executed according to legal procedure
b) equitable mortgage executed according to law
c) simple mortgage registered d) any mortgage specified in TP Act.

27. The bank has advances to Mr. Batiala Rs.1.00 lac against pledge of stocks. Mr. Batiala is declared
insolvent. It is estimate by the bank that stock would realized Rs.1,30,000/-. The Bank can:
a) Sell the stocks without court permission
 b) Sell the stock with out court permission and handover the surplus to receiver
c) Sell the stocks with court order
d) Sell the stock only with the consent of the official receiver.
28. Mr. A’s current has become an undesirable account due to unsatisfactory operations. He does not
agree to close the account. The bank has right to:
a) close the account once the cheque book issued gets exhausted
b) close the account after giving due notice and after expiry of the notice period
c) close the account after giving public notice
d) None.

29. Return on unclaimed deposits to RBI should contain deposits which have remained unclaimed for a
period over:
a) 5 years b) 7 years c) 10 years d) 12 years

30. As per SEC.131 of Income Tax Act, the Assessing Officer has right to ask a bank to :
a) produce original vouchers and books of accounts
b) produce only copy of the vouchers and books of accounts
c) attach the balance in customers account d) None

31. You have received a notice from Public Prosecutor that the money deposited by X in his account is the
proceeds of funds looted by him from a bank and he is under arrest and therefore, the bank should
not part with the balance. You receive of Cheque of Rs.50,000/- in X’s account.
a) Return the cheque b) Pay the cheque
c) Pay the cheque and handover the recipient to Police d) None

32. A cheque issued by Mr. A, the M.D. of a company, is presented to you for payment on date. He is the
sole authorized person to sign the cheques. He was retired from the service a month ago. The cheque
should be returned as:
a) Cheque signed by M.D. who has already retired.
b) Cheque needs signature of present M.D.
c) Pay the cheque d) None

33. The guardian of a widow minor girl is :

a) father b) father-in-law c) Guardian appointed by husband will d) None

34. Mr. A , karta of a HUF is staying in London. Who will operate the account in the name of HUF:
a) Senior most co-parcener b) all co-parceners jointly
c) Mandate Holder of Karta d) None

35. A & B have a joint account with you with instructions Both or survivor. You understand that B was
died in the morning. At 12.00 noon, you have received a cheque for payment, signed by both person,
through clearing.
a) Refer to drawer b) Survivor’s confirmation required
c) one of the drawer deceased d) Pay the cheque

36. The liability of a minor admitted to the benefit of the firm is:
a) unlimited b) 50% c) his share d) None

37. Every Tax deducting authority must obtain TAN. It is applied to IT dept. in the form
a) 493 b) 49 B c) 203 d) 203 A

38. Mr. Basha, a muslim depositor requested you not to pay interest on his savings account as it was
forbidden by their personal law:
a) accept the request and don’t pay interest b) decline the request
c) buy gifts equal to interest, by debit to his account d)None

39. A succession certificate issued by High Court of Andhra Pradesh is valid within:
a) the district where legal heirs live b) Andhra Pradesh c) India
d) None
 40. A note carrying a message of political character ceased to be a legal tender as per the provisions of:
a) RBI Act b) B.R. act c) Legal tender Act d) None

Q.No. Answer Q.No. Answer Q.No. Answer Q.No. Answer

1 B 11 B 21 D 31 b
2 b 12 D 22 B 32 c
3 a 13 C 23 B 33 a
4 b 14 C 24 D 34 c
5 c 15 D 25 C 35 d
6 c 16 B 26 D 36 c
7 b 17 B 27 b 37 b
8 c 18 B 28 b 38 b
9 b 19 C 29 c 39 c
10 c 20 D 30 a 40 c

PART – B : RATIONALES:

1. Asset Liability Management in Banks Introduced.

In order to measure / monitor and manage the market risks to improve the profitability and
liquidity.

2. Banks are advised to introduce Best Practices Code.

As per the Mithra Committee Recommendations – With a objective to document the procedures
compared with national / international best practices especially those in all fraud areas as a
step towards preventing the frauds.

3. RBI has introduced Floating Interest System in Deposits.

In India, the deposits are issued at fixed rates whereas the advances are with floating rate
resulting in an interest rate risk. In order to mitigate interest rate risk, RBI has introduced
floating rate deposits.

4. Basle Committee is proposing to replace the existing Capital adequacy Norms.

In order to strengthen the financial soundness and stability of the banking system by
considering proper change on the capital for credit risk / market risk / operational risk.

5. Universal Banking concept is introduced.

In order provides banking opportunities to all the players in the markets to provide all customer
needs at a roof with improved efficiency and low cost.

6. Indian Government is planning to issue plastic currency notes.

In order to keep a long life with cost effective in the long run as the paper currency is not
carefully handled resulting into heavy expenditure on printing.

7. Asset Reconstruction Company started its operations.

In order to help the bankers through purchase of NPAs at the pre-ascertained realizable value
to clean up their balance sheets.

8. A term deposit is not required to be stamped whereas it required for a CD.

TDR is not transferable receipt issued by bank whereas CD are usance Promissory Notes and
have attracts stamp duty.

9. The credit balance in a partnership account is not attachable when a garnishee order is issued on a
partner.
 A partnership is not liable to partner’s individual debts.

10. Nomination facility is available to Proprietary business forms.

Proprietary firms are treated on par with individuals. Hence in order to settle the claims of
the legal heirs easily, RBI has allowed the nomination.

11. Payee cannot stop the payment of a cheque.

There is no privity contract in between the bankers and customers.

12. When a bank draft is cancelled , discharge over revenue stamp is taken from the applicant.
When the draft is cancelled, the amount will be paid to the purchaser and as per stamp act,
any amount of Rs.500/- and above required a stamped receipt for valid discharge to the bank.

13. Scale of finance is not uniform throughout the country.

Scale of finance is decided by Dist. Technical Committee. Taking into account, the cropping
conditions, cost of inputs & labour which are not uniform through out the country.

14. RKBY replaced CCI.

In order to cover all the farmers, and all the crops, with an improved amount without linking to
the crop loan availed. (which is not available in the earlier CCI).

15. Interest on loans is being charged at monthly intervals instead of quarterly.

In order to timely recovery of the interest and in the wake of introduction of 90 days norm for
classification of an assets. This is a RBI direction.

16. Non-submission of stock statements makes an account NPA.

Stock statements are the documents indicating availability of stocks and thereby drawing power.
In case stock statement is not submitted, it is deemed that there is no drawing power and
entire outstanding amount will become irregular. If irregularity continues for more than 90
days, it will be treated as NPA.

17. Back end subsidy scheme introduced by the Government.

In order to ensure success of the activities selected by the target group beneficiaries and also
to avoid mis-utilization of the subsidy. This is as per the recommendations of the BR Mehta
committee.

18. Banks are entering into Insurance Sector.

As a avenue for new business opportunities and tap the untapped finance business by utilizing
the net work as well as the staff.

19. Banks are laying special emphasis on retail banking.

In order to retail the existing customers and provide value added services to increase the
profitability. This will also spread the risk of business thereby losses can be minimized.

20. A frauds register is maintained at the branch.

In order to verify and find out the procedural lapses and check against recurrence of such
incidents. This is a RBI directive.

21. RBI renamed Credit Policy as Annual Policy statement.

Because due to the shift of the RBI fovus from money measures to economic development with
long term policies. This is issued in a year with a review and modifications at half-year.

22. Duplicate set of branch keys were kept at another branch.

In case of emergencies like non-availability of original keys due to any reasons, to withdraw the
duplicate keys and continue the operations of the bank without any difficulty.

23. RBI increase the ceiling of EFT to Rs.200 lacs.

To encourage the remittances through EFT as the system provides convenience and speed with
low cost.
24. Pass word security is most important in computerized branches.
It is a security system to avoid misuse of computer system there by minimize the chances of
frauds and consequential losses.

25. RBI discontinued FIRPS system.

In view of rapid improvement in technology leading to electronic credits and on-line transfer of
funds, it was observed by RBI that the FIRPS system is no longer useful.

26. FEMA replaced FERA.

It an attempt to liberlize the forex environment and facilitate growth and free flow of foreign
exchange in tune with the liberalization process followed by the government.

27. As per the Limitation Act, the limitation period for mortgage is 12 years, but Bank obtains balance
confirmation slip signed every year.
The Bank obtained Balance confirmation every year so as to create charge over other assets of
the borrower and to make him personally liable, in case of shortfall in recovery of mortgage
amount, bank can recovery the balance amount from other assets.

28. No advances are granted against policies issued under Marriage Women Property Act.
Such policies are in the nature of trust for the benefit of wife of the policy holder. By
availing loan, the end use of the loan cannot be determined. Further the policy holder cannot
give assignment on such policies.

29. RBI amended prudential norms for Agriculture.

In order to align the repayment of debts with harvesting of crops like short duration and long
duration.

30. Time norms will be observed by banks for disposal of loan applications.
As directed by RBI to dispose of the loan applications early thereby providing need based
support to the borrowers without any hurdles.
 MODEL PAPER - V
OBJECTIVE QUESTIONS:
1) What is the percentage of provision on secured & unsecured portions of an advance classified as
Doubtful-3 on 31.3.2006?
A) 50% & 100% B) 30% & 100 C)75% & 100% D) 100%

2) For the purpose of classification as small scale industry (SSI) –

A) Original investment in plant and machinery should not exceed Rs. 3 crore.
B) Original investment in fixed assets should not exceed Rs. 1 crore.
C) Original investment in plant & machinery should not exceed Rs. 1 crore.
D) Total debt exposure (existing/proposed) from banking sector should not exceed Rs. 3
crore

3) Provision relating to CRR is contained in

A) Sec 42 of RBI Act B) Sec 49 of RBI Act
B) Sec 42 of Banking Regulation Act D) None

4) An award of a Banking Ombudsman is not binding on the bank against which it is passed unless the
complainant furnished to it within a period of __________ from the date of the award, a letter of
acceptance of the award in full and final settlement.
A) Two weeks B) One week C) 10 days D) 30 Days

5) The maximum period a foreign tourist visiting India can maintain a Bank account in India to enable him to
repatriate without reference to RBI is
A) 3 months B) 6 months C) 9 months D) 12 months

6) Section 13 of the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act’ , provides for a ________ days notice to a borrower to discharge in full his liabilities
before such action is initiated
A) 15 days B) 30 days C) 60 days D) 90 days

7) In India RBI prescribed a minimum capital level equivalent to 8% of each bank’s risk weighted assets,
which has later been hiked to ___________%.
A) 9% B) 10% C) 12% D) has not been hiked

8) Pledge Means
A) A loan against goods B) A limit for working Capital c) Bailment of goods with an
intention to create security for a debt d) Keeping goods inside godown

9) RBI has decided that branches of banks will provide immediate credit to customers’ accounts in respect
of outstation/local cheques upto
A) Rs.7500 B) Rs.10000 C) Rs.12500 D) Rs.15000

10) When a debt is offered as security, which charge should be created

A) Assignment B) Pledge C) Hypothecation D) None

11) In case of non-banking partnership firm, the maximum number of members is

A) 50 B) 10 C) 20 D) None

12) Articles of association of a company contains details regarding:

A) Authorised capital of the company b) Matter related to the conduct of day to day business
of the company. C) Registered Office of the company d) Objectives of the company

13) As per revised RBI guidelines, in respect of all NPA accounts with out standing of Rs.-----and above, stock
audit at annual intervals and valuation of collateral securities wherever applicable, once in three years,
has to be arranged.
A) Rs.1 Crore B) Rs. 5 Crore C) Rs 2 Crore D) Rs. 10 Crore
14) The maximum amount of Guarantee Cover available under ‘Credit Guarantee Fund Trust Scheme for Small
Industries’, is:
A) 75% of outstanding maximum Rs. 18.75 lakh b) 60% of outstanding maximum Rs. 7.50 lakh.
c)75% of outstanding maximum Rs. 10.00 lakh. D) 60% of outstanding maximum Rs. 10.00 lakh

15) What is the present Bank rate

A) 5 % B) 6 % C) 5.5 % D) 6.5 %

16) What is the present Cash Reserve Ratio

A) 4.5 % B) 5.5 % C) 5.0 % D) 5.75 %

17) What is the maximum investment limit in plant and machinery in case of tiny units
A) 5.00 lacs B) 10.00 lacs C) 20.00 lacs D) 25.00 lacs

18) Noting and protesting is not applicable to

A) Promissory notes B) Bills of Exchange C) Cheques D) Foreign bills

19) The basic difference in Pledge and Hypothecation relates to

A)ownership of stocks B) valuation of stocks C) possession of stocks d)margin requirements

20) Out of total finance available to SSI sector, what % is to be given to the units with investment in plant
and machinery up to Rs. 5.00 lac
A) 40 % B) 20 % C) 25 % D)50 %

21) What is the bench mark for RRBs in respect of priority sector advances
A) 40 % B) 25 % C) 50 % D) 60 %

22) Under which of the following categories, housing loan up to Rs. 15.00 lac has been placed.
A) Traditional Loan B) Personal Loan C) Priority sector Loan d) Non-priority sector loan

23) Working capital for traders falls under the purview of priority Sector up to a limit
A) Rs. 2 lacs B) Rs. 5 lacs c) Rs.10 lacs d) Rs.20 lacs

24) Current Ratio indicates

A) profitability of the unit b) activity level of the unit c) solvency of the
unit d) liquidity of the uni

25) Nomination in respect of Jointly held lockers

A) Has to be made jointly by the hirers in favour of one nominee only
B) Nominations are not accepted for jointly held lockers
C) Each hirer can nominate his nominee separately
D) Nomination is applicable to deposits / moneys and not articles / lockers

26) Repatriation of NRE or FCNR deposits is permitted to the extent of

A) Principal amount of Deposit only b) Principal & Interest are freely repatriable
B) Not repatriable d) Repatriable with the Permission of FD (Mumbai).

27) Which of the following reserves is not reckoned for TNW

A) General Reserve b) Credit Balance in P&L appropriation
c)Statutory Reserve d) Revaluation Capital Reserve

28) Under FCNR (B) Loans the Foreign Exchange Rate Fluctuation Risk is
a)With the Banker b) With the Borrower c) With the Market d)With RBI

29) Under the Provisions of UCPDC, the maximum time available to the Opening Bank / Confirming Bank /
Reimbursing Bank for verification of Documents under credit is
A) 21 days b) 15 Banking days c) 10 days d) 7 Banking days

30) Minimum & Maximum Period of accepting NRE Rupee Term Deposits
 A) 6 months & 120 months B) 6 months & 60 months C) 12 months & 60 months
D) 12 months & 120 months

31) BEF Statement is to be submitted to RBI

A) In respect of defaulters for submission of Bill of entry at half yearly rests
B) In respect of defaulters for submission of Bill of entry at yearly rests
C) In respect of defaulters for submission of Bill of entry at monthly rests
D) In respect of Bills of Exchange Financed by Banks

32) A person of Indian Origin, gone abroad for an indefinite period for the following purposes can be given an
Non Resident Indian status
A) Business or profession b) Employment c) Education d) All the above

33) FOB means

A) Free on Board and the freight charges are paid by Seller
B) Free on Board and the freight charges are to be paid by Buyer
C) Firm Order Business d) Federation Of Banks

34) Overseas Corporate bodies are

A) Companies registered outside India
B) Companies / Firms / Trusts incorporated outside India& 60% of share capital is held by NRIs
/ PIO
C) Shipping Companies d) Corporate Bodies having overseas business

35) In the case of joint financing of a financial asset, exercise of rights under SARFAESI Act 2002 for
recovery shall be agreed upon by creditors representing at least ___% of the amount outstanding is
necessary.
A) 75% b) 80% c) More than 50% d) 20%

36) The respective periods of Kharif and Rabi seasons are

A) Jan., to Jun., & Mar., to Sept., b)May-Sept., & Sept., to Feb.,
c)Oct., to Jan., & May to Sept., d) Sept., to Feb., & May to Sept.,

37) Which one of the following statements is true, in respect of the NAIS
A) Crop losses are to be reported by the farmer b) Uniform premium rates for all the crops
c)Notification of season-wise continuation of the scheme
d)crop loan borrowers only are to be covered.

38) The maximum amount of risk coverage available under Personal Accident Insurance Scheme for KCC
Holders
A) Rs.25000/- B) Rs.75000/- C) Rs.50000/ D) Rs.100000/-

39) The advantage of Drip system is,

A) Saving in labour & energy B) Suitability to poor soils C) Efficient & economic weed control
D) all the above

40) Mixed farming refers to

A) Taking up allied activities along with crop cultivation
B) Raising different crops simultaneously on the same piece of land
C) Allowing the crop to grow without sowing the seeds afresh
D) None of the above

KEY

Sl No. Answer Sl No. Answer Sl No. Answer Sl No. Answer

1 D 11 C 21 D 31 A
2 C 12 B 22 C 32 D
3 A 13 B 23 C 33 B
4 D 14 A 24 D 34 B
5 B 15 B 25 C 35 A
6 C 16 C 26 B 36 B
7 A 17 D 27 D 37 C
8 C 18 C 28 B 38 C
9 D 19 C 29 D 39 D
10 A 20 A 30 C 40 A

RATIONALS

1) Know Your Customer norms have been made compulsory.

This is a best practice followed internationally. It helps in checking using banking channels for money
laundering and flow of funds for anti social activities including terrorism.

41) Pledged security is not covered for recovery under SARFAESI Act 2002.
Under Pledge the possession of security is with the secured creditor and he can sell the same for
realization of the dues without intervention of the court.

42) As per Prudential norms, Asset classification is borrower-wise and not account-wise.
It is difficult to envisage a situation when only one facility to a borrower/one investment in any of the
securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all
the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower
will have to be treated as NPA/NPI and not the particular facility/investment or part thereof which has
become irregular.

43) RBI introduced prudential norms for income recognition, asset classification & provisioning.
In line with the international practices and as per the recommendations made by the Committee on the
Financial System (Chairman Shri M. Narasimham), the Reserve Bank of India has introduced, in a phased
manner, prudential norms for income recognition, asset classification and provisioning for the advances
portfolio of the banks so as to move towards greater consistency and transparency in the published
accounts.

44) Realistic repayment schedules to be fixed.

Banks to ensure that while granting loans and advances, realistic repayment schedules are fixed on the
basis of cash flows with borrowers. This would go a long way to facilitate prompt repayment by the
borrowers and thus improve the record of recovery in advances

45) Drawing power is required to be arrived at based on the stock statement which is current.
Banks should ensure that drawings in the working capital accounts are covered by the adequacy of current
assets, since current assets are first appropriated in times of distress.. The outstanding in the account
based on drawing power calculated from stock statements older than three months, would be deemed as
irregular and the a/c will become NPA if such irregular drawings are permitted for a continuous period of
90 days even though the unit may be working or the borrower's financial position is satisfactory.

46) Corporate Debt Restructuring System was evolved

The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely and transparent
mechanism for restructuring the corporate debts of viable entities facing problems, outside the purview
of BIFR, DRT and other legal proceedings, for the benefit of all concerned..

47) Asset Liability Management

The increasing liberalisation, deregulation and internationalization of banking operations has increased the
risk exposure of the banks due to the possibility of significant mismatch between assets and liability
which has adverse implications for liquidity and solvency of the banking sector.

48) Mergers and Amalgamations in the banking sector have become inevitable.
Indian Banks are small in size, balance sheet and assets base. In the wake of globalisation, deregulation
and liberalisation ,to compete with foreign banks with global exposure and financial muscle power,
 Mergers and Amalgamation will increase the market share, geographic radar and capacity to invest in
technological Upgradation.

49) CAMELS Rating system has been introduced for Banks.

A working group chaired by Sri S. Padmanabhan suggested that the banks be placed in two categories – (a)
those that need to be examined on an annual cycle, and (2) those that may be examined on a wider time
scale say within two years from the date of last examination – depending on six parameters viz., Capital
Adequacy, Asset Quality, Management, Earnings Performance, Liquidity, Systems & Controls.

11) ‘ I owe you ‘ is not a promissory note .

Ans. The definition of promissory note clearly states that either word ‘promise’ or acknowledgement must be

written on the promissory note. The illustrations given under sec. 4 of NI Act states that the word ‘I

owe you’ do not contain any promise and as such it is not a promissory note. Even though no specific

form of words is necessary to constitute a promissory note but in order to fulfill the definition given,

the document must conform to the following requirements:

a) it must be in writing and signed by the maker

b) it must contain an unconditional promise/undertaking to pay a sum certain in money.
c) It must be payable on demand or at a fixed or determinable future time.
d) It must be payable to, or to the order of a specified person or to the bearer.

12) Banks need not produce original books in a court of law.

Ans. Banks are exempted from producing the original books in the court of law under the Bankers Book

Evidence Act. The certified copies produced in the court of law will be considered as original

documents and they will be accepted for the purpose of documentary evidence in the court of law

under the Evidence Act. This law has been enacted to facilitate the banks to perform their functions

smoothly, so that day to day transactions can be done without any obstacles. If the original books

are to be submitted to the court, banks will not be able to discharge its functions and the customer

service will be adversely affected.

13) Equitable Mortgage can be created at notified towns only.

Ans. As per Sec. 58 (f) of Transfer of Property Act, equitable mortgage can be created in the towns of

Kokata, Chennai and Mumbai and in any other towns, which the state government may notify in the

official gazette. This is on account of the fact that the stamp duty earned from mortgage is

credited to the consolidated fund of the state. Therefore the powers are left with the state

government as to how much burden they can bear by exempting stamp duty to creation of equitable

mortgage.

14) Pledge created by the company is not required to be registered with ROC.
The registration of charge in case of pledge is exempted under Sec. 125 of Companies Act. In case of pledge,

possession of goods remains with the Bank and in case of the default, bank has the right to sell these

goods through private sale as per Sec. 176 of Contract Act. However, bank is required to make a

search in the office of Registrar of Companies to verify that goods are free from any charge or

encumbrance so that other institutions will not have any priority over the banks charge.

15) No advance is to be given against Insurance policy of married women.

Ans. These types of policies are treated as ‘streedan’(women’s property) and they cannot be attached for any

purpose. Bank cannot create any charge on these policies. Even if the borrower assigns this policy in

favour of bank, the insurance company will refuse to register the bank’s assignment, and in case of
 default bank will not be able to sue the insurance company in the capacity of assignee. Accordingly,

loan will become unsecured and unrecoverable.

16) Non profit making organizations cannot make a partnership firm.

Ans.The definition of partnership firm ( Sec. 4 of Partnership Act) states that ‘partnership’ is the relation

between persons who have agreed to share the profits of a business carried on by all or any one of

them acting for all. Accordingly, non-profit organizations have been specifically excluded from the

definition of partnership firms. To constitute a partnership firm there must be a business and

purpose should be the sharing of profits. To start the non-profit organizations one may make the

registered society under Society Registered Act, Trust under the Charitable Trust Act or non-

trading company under Sec. 25 of Companies Act.

17) Why commencement of business certificate is required in case of public limited companies?
Ans. As per the provisions of the Companies Act this certificate is required in case of public limited company.

This provision has been enacted because in case of public limited company, public money is involved

and before issuing this certificate, registrar ensures that public money will remain safe and will not

be misutilised.

18) What is RTGS and why it is necessary.

REAL TIME GROSS SETTLEMENT SYSTEM is a centralized payment system in which, inter-bank
payment instructions are processed and settled, transaction by transaction (one by one) and continuously
(online) through out the day, as and when the instructions as received and finally accepted by the system.
World over it is used for high- value clearing involving inter-bank fund transfers and treasury related
transactions, helping in reducing settlement and systemic risk, in India

19) Risk Management has assumed great significance in banking scenario

Risk can be defined as potential loss from a banking transaction( in the form of a loan, or investment in

securities or any other kind of transaction undertaken by the bank for itself or for customers), which a

bank can suffer due to variety of reasons. The basic objective of risk management is to stake holders’

value by maximizing the profit and optimizing the capital funds for ensuring long term solvency of the

banking organization. As a part of payment system reforms, RBI had initiated several measures to reduce

risks especially settlement and systemic risk.

50) The employees of public sector banks holding the designation of Chief Manager and below to exclude from
the purview of Central Vigilance Commission.
This makes the CVC moving away from micro management to off-site surveillance through periodical
vigilance audits. It will also reduce the fear psychosis and lending operations specially will improve

21) OCBs are no longer provided NRI Status

a) The Reserve Bank is holding more than adequate forex reserves
b) The US Dollar is the main component of forex reserves, the rate for which is falling
c) FCNR & NRE Deposits are part of Forex reserves. OCBs bring in huge deposits and the shoot up the
forex reserves
d) To mitigate the risk of high reserves the RBI has withdrawn the NRI status for OCBs

22) Remittances are liberalised for residents

a) Remittances by residents means selling of Foreign exchange to residents
b) The Reserve Bank is holding more than adequate forex reserves
c) The US Dollar is the main component of forex reserves, the rate for which is falling
d) RBI has introduced various remittance facilities for residents including Resident Foreign Currency
A/c to mitigate and spread the risk
23) Capital account convertibility is permitted up to USD 25,000 or equivalent
a) India is a member country of World Trade Organisation
b) The GATT agreement necessaites full convertibility
c) Hence RBI has liberalised current account convertibility be reducing the import duty, export subsidy
d) In its first step towards capital account convertibility, the RBI has introduced Liberalised
Remittance facility for residents upto USD 25,000 or equivalent

24) Only specified Branches are authorised to handle foreign transactions

a) Dealing in foreign exchange is risk prone business
b) Consolidation has to take place on an ongoing basis and without delay
c) The authorised Branches require license from Reserve Bank of India
d) All the Branches do not have Forex transactions, hence wherever business potential is available the
bank has authorised the Branches

25) Banks should maintain a Square position in all foreign currency accounts
a) Forex is a commodity, the price of which is highly fluctuating
b) Over bought or oversold positions will always place the bank at high risk position
c) Holding this commodity at the minimum level (squaring up) is to mitigate the exchange rate
fluctuation risk

PRACTICAL PROBLEMS:

1. A Public Ltd. Co. applied for cash credit limit from the bank. Director of the company told the bank
that company was having immovable property situated in Mumbai and the registered office was in
Chennai. They wanted to take the loan from the Kolkata branch of a commercial bank. How would the
bank sanction the limit.
The company will have to fulfill the following requirements:
Passing of Board resolution in the meeting of the board for a) raising the loan. (b) authorizing the
particular directors to deposit the title deeds (c) delegating the authority for signing the execution
of documents on behalf of the company (d) affixing the seal of the company on the documents and
name of the authorized official will sign under the seal. (e) registration of mortgage charge with the
registrar of the company in whose jurisdiction the registered office of the company is situated.

2. Your branch has given a cash credit limit of Rs. 1.50 lac to Mr. X for SSI. The undrawn balance in the limit

is Rs. 30,000/- Mr. X is also having Rs. 25,000/- in the FD, which is under lien of the bank. You

receive an attachment order from the IT authorities for attaching the account of MR. X, Would you

attach the amount held in FD account, first attach the undrawn balance in Cash Credit limit or act

otherwise ?

The amount held by the customer in FD account is under bank’s lien as collateral security against the

borrowings raised by him. If the bank parts with the money, loan will become unsecured . This amount is

bank’s sole security and will not be attached. As regards undrawn balance in the Cash Credit account limit

money belongs to the bank and given for specific purpose and the same is not attachable.

3. Mr. G has given guarantee to the overdraft account of X. The guarantee is invoked. G seeks to avoid

liability on the reasons that Bank has to proceed against borrower first, and once all remedies are

exhausted, only then can bank proceed against guarantor.

Guarantor contention is wrong, as the liability of the guarantor is co-extensive as per Sec. 128 of
Contract Act. Once the guarantee is invoked, guarantor is bound to make the payment without any demur
and protest. Before making the payment, guarantor cannot sit on the seat of judgement, what the
creditor should do and what it should not do.
 The guarantor will have to make the payment, as in guarantee documents of banks always contain the
clause that guarantor will be liable to pay on account of overdrawing, interest and other expenses apart
from the guarantee amount which is normally the principal amount. Legal position is very clear on this
point that after the default of the borrower, it is the primary liability of both guarantor and borrower
and bank can recover the money from any one of them. The legal effect of borrowers default is that
promise of borrower and guarantor is equal to joint promise and wherever there is joint promise, there is
always, joint and several liability and bank can recover the money from any one.

4. Mr. Harikrishna has nominated Smt. Mumtaz for one of his high value deposit accounts. On his death, his

son Mr. Ramakrishna advised the Bank, that the nomination registered with the Bank is illegal and he is in

the process of bringing order from the competent court for cancellation of the nomination. Meanwhile

Smt.Mumtaz has produced the relevant claim forms as nominee and advised the banker that the proceeds of

the Deposit may be paid to her as she is the registered nominee in the account.

Nomination though recognized under the Banking Regulation act, is only an approved mode of payment of
the assets of deceased as per his desire expressed through nomination. Banker is least concerned about
the legal heir ship or successors. The BR act relieves the Banker if he has acted upon the mandate of
the depositor registered as Nomination. However, a Court Order can overrule the Bank's compliance to
nominations, as the court is the competent authority to decide on the legal heir ship. Wherever, court
orders are received the banker should act accordingly. If the banker has already acted upon the
nomination before receipt of the Court order, he is well discharged by doing so under BR Act.

5. Banking cash Transaction Tax ( BCTT):

As a step towards unearthing the black money and bringing it to the main stream of economy through
reformation, the finance minister has introduced to the Banking Cash Transaction Tax. The tax is
leviable on banking transactions like withdrawals of cash by whatever mode on a single day from an
account ( other than savings bank account) maintained with any scheduled bank, exceeding:
a) Rs.25,000/- in respect of individuals and HUF
b) Rs.1.00 lac in case of other than individual and HUF.
c) Encashment of Term deposits aggregating to Rs. 25,000/- in respect of individuals and HUF
and Rs.1.00 lac in respect of others.

The rate of tax is 0.10% of the value of every such taxable banking transaction. The tax is leviable in
whole India except in Jammu & Kashmir with effect from 01.06.2005. The tax so collected during a
calendar month should be remitted to the Central Government account before 15 th of the succeeding
month.

6. Documents are produced on 15/01/2004 by an exporter for negotiation of the Bill under Letter of

Credit issued by Your Correspondent Bank. You have advised the L.C. The LC stipulates last date of

Shipment 31/12/2003 and last date for presentation of documents for negotiation as 15/01/2004. The

Bill of lading bears the shipment date as 22/12/2003. Will you accept the documents for negotiation?

Quote your answer with specific reference to UCPDC 500 as mentioned in LC.

Under the LC though shipment has been made within the stipulated last date of shipment and

presentation for negotiation is also made within the stipulated date, the Bill of lading will become

stale after 21 days of issue. The provisions of UCPDC 500 specifically stipulate that unless otherwise

mentioned in the credit, the bankers do not accept a Bill of lading issued 21 days prior to the

negotiation date.

7. M/s ABC & Co., is having three partners namely A,B,and C. While opening the current account, the firm

gave the operational instructions that only A & B are authorized to operate the account. Today, you

have received a letter from Mr. C stating that there are disputes among the partners and hence, no
 operations should be allowed in the account. Meanwhile a cheque issued in favour of “Dy.Commercial Tax

Officer” for Rs.12,000/- was presented for payment through clearing. What is the course of action

available to you ?

Partnership is an agreement among the partners joined together to do a business for profits. The law
has not given any legal entity to the firm. The partnership will be continued till such time there is good
faith among the partners. In this case, one of the partners have written a letter to the bank not to allow
operations. The bank has to stop operations in the account and can allow operations with all the partners
signing jointly.

Hence, the cheque presented through clearing should be returned. However, courtesy warrants that the
bank should inform the position to the partners before returning the cheque.

MOCK TEST PAPER – VI

OBJECTIVE QUESTIONS:

1) An advance is classified as NPA on 30.9.1999 . At what rate provision is to be made as on 31.3.2006?

a) 100% on the outstanding b) 50% on secured portion & 100% on unsecured portion
c) 50% on the outstanding d) 75% on secured portion & 100% on unsecured portion

2) No banking company shall hold non banking assets (e.g. immovable property) except such as is required for
its own use, for any period exceeding ________ years from the date of acquisition of the asset.
a) 3 years b) 10 years c) 5 years d) 7 years

3) Committee on Institutional Credit to SSI Sector and Related Aspects (Annual Projected Turnover method)
was headed by :
a) S.M. Kelkar b)P.R. Nayak c) R.K. Talwar d) C. Rangarajan

4)[Section 24 of the Consumer Protection Act ,1986 provides that the District Forum, the State Commission
or the National Commission shall not admit a complaint unless it is filed within ________from the date on
which the cause of action has arisen.
a) Two years b)One year c)Six months d) Three years

5)Which of the following statement(s) is true regarding SEBI

a) It is a regulatory organisation b) It is an autonomous organisation
c) It is a statutory organisation d) All of the above.
6) Factoring means:
a)Financing against bills receivables. b) Financing invoices without recourse only.
c) Purchasing and /or administering the receivables of a concern.
d)Collecting the receivables and remitting to the seller.

7)Under law of limitation, the limitation period as regards the liability of a guarantor is :
a)3 years from the date of document b) 3 years from the date of advance
c)3 years from the date of invocation of guarantee d) None of the above

8)A cheque dated 31st November 2002 is payable

a)Any day after 30th November 2002. b)Any day after 1st December 2002
c)Cannot be paid d) On 30th November 2002.
9)Guarantees are defined in
a) Negotiable Instrument Act 1881 b) Banking Regulation Act 1949
c)RBI Act 1934 d) None

10) The charge assignment is governed by the provisions of

A) Indian Contract Act b)Negotiable Instrument Act
c)Transfer of Property Act D) None of the above

11) ]When a company does any act beyond its memorandum of association or any act, which has not been
mentioned in its memorandum, it is considered to be
a) With in the powers of the company b) Ultra Vires the company
c)With in the powers of the board d) None

12) The term ‘Merchant Banking’ connotes:-

a)Catering to the needs of corporate customers raising finance.
B) Services rendered by banks for merchants and traders.
C) A special scheme for granting term-loan for working capital requirements to merchants
d) None

13) Name the document which cannot be rectified by paying the penalty when it was Unstamped or Under
stamped
a) Hypothecation Agreement b) Mortgage Deed c) Bank Guarantee d) Demand Promissory note

14) What is the minimum maturity period of corporate deposits ( for CDs)
a) 15 days b) 30 days c) 7 days d) 45 days

15) Transfer of an interest in specific immovable property for the purpose of securing repayment of money
advanced by way of loan is known as:
a) Pledge b) hypothecation c) Lien d) None
16) Documents of title to goods are transferable by
a) delivery b) endorsement and delivery c) endorsement d) None

17) Out of total finance available to SSI sector, what % is to be given to the units with investment in plant
and machinery between Rs. 5.00 lac to Rs. 25.00 lac

a) 40 % b) 20 % c) 25 % d) 50 %

18) What is the RBI bench mark for allocation of credit for foreign banks in respect of priority sector
advances
a) 25 % of NBC b) 32 % of NBC c) 37 % of NBC d) 40 % of NBC

19) What is the investment limit for classification as SSI in respect of Hosiery, Hand tools, Drugs &
Pharmaceuticals, Food and Agro processing ?
a) Rs. 1.00 crore b) Rs. 2.00 crores c)Rs. 3.00 crores d) Rs. 5.00 crores

20) Total of balance sheet is Rs.500 lacs; Debt equity ratio is 2:1; current liability is Rs.200.00 lacs. What is
the amount of equity?
a) Rs.300 Lacs b) Rs.200 lacs c) Rs. 100.00 lacs d) Rs.400.00 lacs

51) A company had selling price per unit of Rs.200/-.Its break even point units are 4000. If variable cost is
Rs 120/-, what is the fixed cost?

A) Rs.180000/- b) Rs.200000/- c) Rs.300000/- d) Rs.320000/-

52) Debt equity ratio indicates ?

A) Liquidity of the unit b)Solvency of the unit c)Profitability of the unit
B) Repayment capacity of the unit
53) The ECGC supports Export trade by offering
A) Guarantees to the Bank b) Policies to the Exporters
c)Refinance to the Banks d)(a) and (b)

54) Banking Ombudsman

A) Is one of the courts in High Court of the State
B) Is Administered by Reserve Bank of India
C) Is Administered by Chamber of Commerce
D) Is a Department under the ministry of Finance & Banking

55) Through a Letter of Credit

A) Importer is assured of the quality of goods he has ordered
B) Exporter is assured of the Payment by complying to terms
C) (a) and (b) d) None of the above

56) The following advances cannot be covered under SRESI Act 2002
A) Advances to Farmers & Agriculturists
B) Where the security is agricultural land
C) Where the security is movable property d) None of the above

57) Under a Letter of Credit governed by UCPDC 500

A) The Opening Bank deals with goods & negotiating Bank with documents
B) The Advising Bank Deals with documents & Reimbursing Bank with goods
C) The Negotiating Bank deals with documents & other Bank with goods
D) All the parties deal with documents and not in goods

58) In case of exports through Sea voyage, the Exporter has to present ________ Form along with the all
documents stipulated in Letter of Credit.
A) Bill of Entry Form signed by the Customs
B) Exchange Control Copy of GR- Form certified Customs
C) Export License d) Firm Order

59) Minimum & Maximum Period of accepting NRI FCNR Term Deposits
A) 12 months & 36 months b) 6 months & 60 months
c) 12 months & 60 months d) 12 months & 120 months

60) Red Clause in a Letter of Credit instructs the advising Bank / Confirming Bank
A) To take up negotiation of Drawings drawn under the credit
B) To finance the beneficiary of the LC to procure/manufacture the goods covered under the
credit
C) Not to negotiate the Bills under the credit
D) Red is used to warn the Bank that the beneficiary is not trustworthy

61) Uniform Customs & Practices in Documentary Credits is drafted by

A) Reserve Bank of India b) Indian Banks Association
c) FEDAI d)International Chamber of Commerce

62) A transferable Letter of Credit is

A) Freely Transferable any number of times b) Transferable only once
c)Transferable with the approval of the applicant d)Bearer Letter of Credit

63) Direct Rates means

A) Home currency unit will be kept as a standard unit and variations are quoted in foreign
currency
B) Foreign currency unit will be kept as a standard unit and variations are quoted in home
currency
C) Rates quoted directly between two dealers
 D) Rates offered to the Direct Exporters

64) A suit has been filed for Rs.9.50 lacs & and suit was decreed with interest & costs. The decreed amount
comes to Rs.10.25 lacs. In this case EP should be filed in__
A) DRT b) District Court c) High Court d) Same Court which gave the decree

65) AEZ stands for

A) Agri, Economic Zone b) Agri., Environmental Zone
c) Agri., exclusive Zone d) Agri Export Zones

66) The Maximum amount of loan that can be sanctioned to individual farmer against Ware-house receipt is
A) Rs.10.00 lacs b) Rs.5.00 lacs c) Rs.1.00 lac d) Rs.4.00 lacs

67) In respect of PAIS, the nominee of the injured has to report to the concerned Bank within
A) 45 days b) 60 days c) 30 days d) No time limit

68) A semi- arid zone receives an annual rain fall of

A) 500 - 750 mm b) below 500 mm c) above 750 mm d) 750 – 1000 mm

69) Green manuring means,

A) Applying organic manure / farm yard manure b) Fertilizer application
c) Inter cultural operations d) Incorporating or ploughing back the green manure crop into the
soil

70) The minimum land holding for financing tractors (up to 35 HP) is
A) 4 acres b) 6 acres c) 8 acres d) 5 acres

KEY

Sl No. Answer Sl No. Answer Sl No. Answer Sl No. Answer

1 D 11 B 21 D 31 D
2 D 12 A 22 B 32 B
3 B 13 D 23 D 33 B
4 A 14 C 24 B 34 A
5 D 15 D 25 B 35 D
6 C 16 B 26 B 36 A
7 C 17 B 27 D 37 C
8 A 18 B 28 B 38 A
9 C 19 D 29 A 39 D
10 C 20 C 30 B 40 A

RATIONALS 2
1) Know Your Customer norms have been made compulsory.
This is a best practice followed internationally. It helps in checking using banking channels for money
laundering and flow of funds for anti social activities including terrorism.

2)Pledged security is not covered for recovery under SARFAESI Act 2002.
Under Pledge the possession of security is with the secured creditor and he can sell the same for
realization of the dues without intervention of the court.

3) As per Prudential norms, Asset classification is borrower-wise and not account-wise.

It is difficult to envisage a situation when only one facility to a borrower/one investment in any of the
securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all
the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower
will have to be treated as NPA/NPI and not the particular facility/investment or part thereof which has
become irregular.

4)RBI introduced prudential norms for income recognition, asset classification & provisioning.
 In line with the international practices and as per the recommendations made by the Committee on the
Financial System (Chairman Shri M. Narasimham), the Reserve Bank of India has introduced, in a phased
manner, prudential norms for income recognition, asset classification and provisioning for the advances
portfolio of the banks so as to move towards greater consistency and transparency in the published
accounts.

5) Realistic repayment schedules to be fixed.

Banks to ensure that while granting loans and advances, realistic repayment schedules are fixed on the
basis of cash flows with borrowers. This would go a long way to facilitate prompt repayment by the
borrowers and thus improve the record of recovery in advances

6)Drawing power is required to be arrived at based on the stock statement which is current.
Banks should ensure that drawings in the working capital accounts are covered by the adequacy of current
assets, since current assets are first appropriated in times of distress.. The outstanding in the account
based on drawing power calculated from stock statements older than three months, would be deemed as
irregular and the a/c will become NPA if such irregular drawings are permitted for a continuous period of
90 days even though the unit may be working or the borrower's financial position is satisfactory.

7)Corporate Debt Restructuring System was evolved

The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely and transparent
mechanism for restructuring the corporate debts of viable entities facing problems, outside the purview
of BIFR, DRT and other legal proceedings, for the benefit of all concerned..

8)Asset Liability Management

The increasing liberalisation, deregulation and internationalization of banking operations has increased the
risk exposure of the banks due to the possibility of significant mismatch between assets and liability
which has adverse implications for liquidity and solvency of the banking sector.

9)Mergers and Amalgamations in the banking sector have become inevitable.

Indian Banks are small in size, balance sheet and assets base. In the wake of globalisation, deregulation
and liberalisation ,to compete with foreign banks with global exposure and financial muscle power,
Mergers and Amalgamation will increase the market share, geographic radar and capacity to invest in
technological Upgradation.

10) CAMELS Rating system has been introduced for Banks.

A working group chaired by Sri S. Padmanabhan suggested that the banks be placed in two categories – (a)
those that need to be examined on an annual cycle, and (2) those that may be examined on a wider time
scale say within two years from the date of last examination – depending on six parameters viz., Capital
Adequacy, Asset Quality, Management, Earnings Performance, Liquidity, Systems & Controls.

11) ‘ I owe you ‘ is not a promissory note .

Ans. The definition of promissory note clearly states that either word ‘promise’ or acknowledgement must be

written on the promissory note. The illustrations given under sec. 4 of NI Act states that the word ‘I

owe you’ do not contain any promise and as such it is not a promissory note. Even though no specific

form of words is necessary to constitute a promissory note but in order to fulfill the definition given,

the document must conform to the following requirements:

e) it must be in writing and signed by the maker

f) it must contain an unconditional promise/undertaking to pay a sum certain in money.
g) It must be payable on demand or at a fixed or determinable future time.
h) It must be payable to, or to the order of a specified person or to the bearer.

12) Banks need not produce original books in a court of law.

Ans. Banks are exempted from producing the original books in the court of law under the Bankers Book

Evidence Act. The certified copies produced in the court of law will be considered as original

documents and they will be accepted for the purpose of documentary evidence in the court of law
 under the Evidence Act. This law has been enacted to facilitate the banks to perform their functions

smoothly, so that day to day transactions can be done without any obstacles. If the original books

are to be submitted to the court, banks will not be able to discharge its functions and the customer

service will be adversely affected.

13) Equitable Mortgage can be created at notified towns only.

Ans. As per Sec. 58 (f) of Transfer of Property Act, equitable mortgage can be created in the towns of

Kokata, Chennai and Mumbai and in any other towns, which the state government may notify in the

official gazette. This is on account of the fact that the stamp duty earned from mortgage is

credited to the consolidated fund of the state. Therefore the powers are left with the state

government as to how much burden they can bear by exempting stamp duty to creation of equitable

mortgage.

14) Pledge created by the company is not required to be registered with ROC.
The registration of charge in case of pledge is exempted under Sec. 125 of Companies Act. In case of pledge,

possession of goods remains with the Bank and in case of the default, bank has the right to sell these

goods through private sale as per Sec. 176 of Contract Act. However, bank is required to make a

search in the office of Registrar of Companies to verify that goods are free from any charge or

encumbrance so that other institutions will not have any priority over the banks charge.

15) No advance is to be given against Insurance policy of married women.

Ans. These types of policies are treated as ‘streedan’(women’s property) and they cannot be attached for any

purpose. Bank cannot create any charge on these policies. Even if the borrower assigns this policy in

favour of bank, the insurance company will refuse to register the bank’s assignment, and in case of

default bank will not be able to sue the insurance company in the capacity of assignee. Accordingly,

loan will become unsecured and unrecoverable.

16) Non profit making organizations cannot make a partnership firm.

Ans.The definition of partnership firm ( Sec. 4 of Partnership Act) states that ‘partnership’ is the relation

between persons who have agreed to share the profits of a business carried on by all or any one of

them acting for all. Accordingly, non-profit organizations have been specifically excluded from the

definition of partnership firms. To constitute a partnership firm there must be a business and

purpose should be the sharing of profits. To start the non-profit organizations one may make the

registered society under Society Registered Act, Trust under the Charitable Trust Act or non-

trading company under Sec. 25 of Companies Act.

17) Why commencement of business certificate is required in case of public limited companies?
Ans. As per the provisions of the Companies Act this certificate is required in case of public limited company.

This provision has been enacted because in case of public limited company, public money is involved

and before issuing this certificate, registrar ensures that public money will remain safe and will not

be misutilised.

18) What is RTGS and why it is necessary.

REAL TIME GROSS SETTLEMENT SYSTEM is a centralized payment system in which, inter-bank
payment instructions are processed and settled, transaction by transaction (one by one) and continuously
(online) through out the day, as and when the instructions as received and finally accepted by the system.
 World over it is used for high- value clearing involving inter-bank fund transfers and treasury related
transactions, helping in reducing settlement and systemic risk, in India

19) Risk Management has assumed great significance in banking scenario

Risk can be defined as potential loss from a banking transaction( in the form of a loan, or investment in

securities or any other kind of transaction undertaken by the bank for itself or for customers), which a

bank can suffer due to variety of reasons. The basic objective of risk management is to stake holders’

value by maximizing the profit and optimizing the capital funds for ensuring long term solvency of the

banking organization. As a part of payment system reforms, RBI had initiated several measures to reduce

risks especially settlement and systemic risk.

20) The employees of public sector banks holding the designation of Chief Manager and below to exclude from

the purview of Central Vigilance Commission.

This makes the CVC moving away from micro management to off-site surveillance through periodical
vigilance audits. It will also reduce the fear psychosis and lending operations specially will improve

21) OCBs are no longer provided NRI Status

a)The Reserve Bank is holding more than adequate forex reserves

b) The US Dollar is the main component of forex reserves, the rate for which is falling
c) FCNR & NRE Deposits are part of Forex reserves. OCBs bring in huge deposits and the shoot up the
forex reserves
d) To mitigate the risk of high reserves the RBI has withdrawn the NRI status for OCBs

22) Remittances are liberalised for residents

a) Remittances by residents means selling of Foreign exchange to residents

b) The Reserve Bank is holding more than adequate forex reserves
c) The US Dollar is the main component of forex reserves, the rate for which is falling
d) RBI has introduced various remittance facilities for residents including Resident Foreign Currency
A/c to mitigate and spread the risk

23) Capital account convertibility is permitted up to USD 25,000 or equivalent

a) India is a member country of World Trade Organisation

b) The GATT agreement necessaites full convertibility
c) Hence RBI has liberalised current account convertibility be reducing the import duty, export subsidy
d) In its first step towards capital account convertibility, the RBI has introduced Liberalised
Remittance facility for residents upto USD 25,000 or equivalent

24) Only specified Branches are authorised to handle foreign transactions

a) Dealing in foreign exchange is risk prone business

b) Consolidation has to take place on an ongoing basis and without delay
c) The authorised Branches require license from Reserve Bank of India
d) All the Branches do not have Forex transactions, hence wherever business potential is available the
bank has authorised the Branches

25) Banks should maintain a Square position in all foreign currency accounts

a) Forex is a commodity, the price of which is highly fluctuating

b) Over bought or oversold positions will always place the bank at high risk position
c) Holding this commodity at the minimum level (squaring up) is to mitigate the exchange rate
fluctuation risk
Practical Problems:

1)Bank has financed a borrower against equitable mortgage of Property pertaining to the guarantor. The limit

is Rs.10,00,000/-. The guarantor has issued a notice to the Bank withdrawing his guarantee with immediate

effect. The balance in the account at the time of receipt of notice was Rs. 4,62,500/- (Debit). However,

subsequently credits were posted in the account for Rs. 4,82,500/- towards the cheques realized in clearing

and at the request of borrower a cheque of Rs 4,50,000/- (received in clearing) was passed by debit to

account against the clearing credits. The account turned irregular and the banker has issued notice to the

borrower & guarantor under SARFESI Act for attachment of the mortgaged property for recovery of

outstanding balance of Rs 4,30,000/-(+interest). The guarantor contested that he is discharged of the

liability and asked the bank through a legal notice for delivery of the original title deeds of his property.

Discuss the consequences.

In terms of the Indian Contract Act (Sec. 126 to 136) the liability of the Guarantor is co-extensive with that

of the Debtor. In the present case by serving a notice for revoking the guarantee, the guarantor has

crystallized his liability in respect of the Guarantee. The Guarantee in a running account is a continuing

guarantee and the Guarantor is liable to the extent of Rs. 4,62,000/-. The contention of the Guarantor, for

application of rule in Clayton’s case is not tenable as the rule is applicable for jointly borrowed accounts and in

case of death of the one of the joint borrowers. Even in case of revocation of guarantee, it is advisable on

the part of the Bank to suspend transactions in the account to avoid legal complications.

02. On 08/06/05 the opening Bank has received documents under its letter of credit due at 60 days from the

date of dispatch (05/06/05). On due date i.e., 05/08/05, the opening Bank noticed that the documents are

discrepant. On the very next day, it has informed the negotiating Bank the fact of discrepancy and denied

payment. The Negotiating Bank argued that the opening should have returned the documents within seven days

from receipt of the document. Opening Bank, however, maintained its stand that the seven days period starts

from the due date, hence refused to reimburse. Discuss the case under UCPDC provisions.

Article no.13 of UCPDC - The Issuing bank, the Confirming Bank, if any or a reimbursing Bank acting on their
behalf will have a reasonable time of seven Banking Days following the day of receipt of the documents to
examine and determine to take up the documents or refuse the same and inform the beneficiary or
negotiating Bank without delay. The reasonable time of seven days commences from the day or receipt of
documents and not from the due date of payment. In the present case the opening Bank is bound to pay
the drawings under the credit though the documents are noticed discrepant for not having refused
payment within the reasonable time of seven days.

03. Lena Bhai, a depositor has given a cheque for collection to Deposit Bank. The cheque is for Rs.

6,50,000/- and was issued favouring Sri. Dena Bhai, who has endorsed in favour of Lena Bhai. Lena Bhai is

dealing with the Bank for the last 2 years and his account is properly introduced and well conducted. The

cheque was collected and Lena Bhai drew the money. The endorser of the cheque, Dena Bhai claims that his

endorsement is forged and the bank has acted negligently for which the Deposit Bank has to make good
Rs.6,50,000/- along with interest. Dena Bhai has lodged a police complaint against Lena Bhai and the Deposit

Bank. Meanwhile, Dwarakadas, drawer of the cheque has issued a legal notice on the Deposit Bank for

collection of a cheque of forged endorsement. Discuss the position of the Deposit Bank.

The Deposit Bank has collected the cheque for the customer whose account is properly introduced

and well conducted. Sec 131 of Negotiable Instruments Act protects the collecting bank, if it has collected

the cheque

a) a crossed cheque

b) for the properly introduced account of a customer

c) in good faith

d) and without negligence

e) when the endorsement apparently regular

The collecting Bankers are protected if the endorsements appear on their face regular. They are not

liable for forged endorsements. The Deposit Bank has acted bonafide and gets protection even if the

endorsements are forged.

04. A Cash Credit limit of Rs.50 lacs was sanctioned to Khareedimal. Initially, the limit was proposed to be
guaranteed by four brothers of the proprietor Khareedimal. The Joint guarantee agreement contained
the names of all four brothers. Amongst the four guarantors mentioned in the guarantee agreement, one
of the guarantors had not signed the agreement due to a dispute with his brother. The account has
become irregular and the Bank has sued the borrower and the three guarantors, who have signed the
guarantee agreement. The guarantors claimed that the guarantee agreement is incomplete and the bank’s
action in invoking the guarantee is not justifiable. Discuss the consequences and Bank’s rights.

As per the provisions of Indian Contract Act (Sec.144) when the guarantee agreement expresses the
names of the intended guarantors, all the guarantors should sign the agreement. If any one of the
intended guarantor does not sign the agreement, the guarantee agreement will not be enforceable even
against the signed guarantors. The Bank looses the enforceability of the guarantee agreement.

05. Rajkumar has borrowed a Car loan from the Bank. The car is hypothecated to the Bank. He is also having a
RD account. The car loan is irregular by Rs. 32,000/- for non-payment of 10 equated monthly installments
of Rs.3200 each. The RD account is having a balance of Rs.48,000/- and due for maturity after nine
months. The Car is damaged in an accident and lying in a car garage for repairs. The insurance Company is
yet to settle the claim. Both the Car loan & RD account are in the similar capacity. The Bank has set-off
the RD balance and credited to the car loan account. Rajkumar claims that the Bank is not justified in
setting-off the RD Balance to the loan account. Is the Bank within its rights to set-off?

Banker has exercised the Right of Set-Off Originated from the Indian Contract Act Sec-60
Appropriation of credits/ proceeds by a Creditor. The Banker is entitled to Set-Off the Receivable and
Payable balances of the customer’s account subject to ensuring three conditions
 Both the accounts are maintained with out any specific purpose for maintaining separately.
Both the accounts are held in the same capacity of the customer
 The loan balance should be due and payable on demand
 The Balance in the Deposit account is also due & payable on demand

In the present case the Car loan account balance is due for Rs.32,000/- and the RD account balance is not
due. The Banker cannot exercise the Right of Set-off. Only recourse is to mark lien and wait up to the
due date of RD account.
06. A courier company has stolen a Draft bearing a “Not negotiable” crossing and then forged the
endorsement in favour of itself and thereafter it genuinely endorsed it to a printing press who has
acquired the instrument
a) In the ordinary course of business
b) in good faith
c) without negligence
d) for consideration of having supplied the courier slips
e) without suspicion of the defective title of the endorser

The cheque was encashed by the printing press. The original owner of the cheque has claimed the amount
from the paying banker, printing press and the courier agent. Will he recover the amount? If so, from
whom?

Sec 130 of Negotiable instruments Act, defines the Not negotiable crossing a powerful weapon which kills
the negotiable character of the instrument. The instrument bearing such a crossing will cease to be a
negotiable instrument and the general rule of transfer “No one can give a title better than what he has”
applies. The effect being the transferee will not get a better title than that of the transferor. There will
not be any holder in due course for such instruments, even if they have acquired the instrument bonafide.
In the present case, the original owner can recover the cheque amount from all the parties to the cheque
(the courier agent as well as the Printing press).