SET 5

1 mark questions

1.What is SLR?

Statutory Liquidity Ratio

2.What are the open market operations?

Open market operations of a central bank consist of purchase and sales of government securities in
the open market.

3.mention any 4 nationalised banks in India?

1.Canara bank

2.state Bank of India

3.Indian overseas Bank

3.Bank of Baroda

4.Panjab National Bank

4..What is the banking ombudsman scheme?

The banking ombudsman scheme has been formulated by the RBI to provide an expeditious
grievance redressal mechanism to customers of banks.

5.list 2 features of pledge?

1.delivery of goods is essential to complete the contract of pledge.

Ownership of the goods remains with the pledger.

6.What is an overdraft?

Overdraft is a temporary financial accommodation granted to a current account holder for a shorter
period of time.

7.Give a note on bridge loan?

Bridge loan are short term loans which are granted to industrial establishments to meet their urgent
needs while the processing of sanctioning a term loan is in progression.

8.What is direct benefit transfer?

DBT is an attempt to change the mechanism of transferring subsidies launched by Government of

India on1 January 2013.This program aims to transfer subsidies directly to the people through their
bank accounts.

3mark questions

9.Discuss the importance of co operative banks in Kerala?

The co operative sector in Kerala is a wide spread one.It plays its role in the traditional,
money lending, marketing, consumer, housing, women’s welfare , educational, health and
construction sectors. The functioning of these institutions help to provide the people,
service of various kinds at low cost..Co operative banks in Kerala enjoy a rich legacy; they
provided credit for farmers since the 1950s and 1960s, years before commercial banks found
a foothold in the state.

At present, there are about 14000 co operative Societies under the registrar of co operative
Societies. Of these,10503 societies functions satisfactorily.They include the apex institutions
like, the State Co operative banks ,the State Agricultural and rural development banks,14
district co operative banks,60 urban banks,48 Primary Agricultural and rural development
banks and 1602 primary lending societies.The total deposit in the co operative sector is
40,000 crores.About 75 % of this is distributed as loans.In addition to the 14 district co
operative banks, Kerala has a network of 1692, Primary Agricultural Credit Societies and 16
licensed Urban Co operative Banks all of which have become members of Kerala State co
operative banks.

10.what are the steps involved in opening a savings bank account?

The relationship between the banker and customer begins immediately on the opening of an
accounts in the name of a customer. Therefore a banker should be very cautious in opening
and accounts. He has to come play with all necessary formalities in this regard. The banker
has to take the following steps for opening a savings or current accounts in the name of
customers.

1. Application on the prescribed form

A prospective customer has to fill up the printed application form supplied by the banker
and submit it to the bank for opening an accounts. Separate forms are available to open
savings and current accounts. The applicant should mention his name, full address,
occupations, name of the referee etc in the application. The applicant is also required to
a fix his recent photograph in the application.
2. Introduction of the applicants
A banker has to satisfy himself The Identity of the customer before opening an accounts
in his name. For this purpose she should ask for proper introduction or a satisfactory
reference. Proper introduction means the prospective customer has to be introduced to
the bank by a respectable person or an existing customer of a bank. The banker has the
right not to open an accounts in the name of a and desirable person.
3. Obtaining specimen signature
After making proper enquiry and the banker is willing to open an accounts in the name
of the applicants, The applicant is required to give his specimen signature to the bank
and it is kept in the bank for future reference. Whenever a check is presented against his
accounts, the banker has the obligation to verify the correctness of the signature on its
by comparing with his specimen signature.
4. Receiving initial deposits
After all the formalities are over, the banker should obtain the initial deposit from the
customer and it should be credited in his accounts. The minimum deposit should be at
least equal to the minimum balance to be maintained the in savings or current accounts
5. Opening the accounts
After accepting the deposits, the banker can opened a fresh accounts in the name of the
customer in the ledger. The full details such as name, address, account number etc are
entered at the top of the ledger polio. Then the banker may issue a paying in slip book,
cheque book and passbook to the customer. Now the customer can operate his
accounts.
 11. Elaborate on the merits of Consortium adventures?
Commercial banks in India have started granting credit on a consolation basis to various
private and public companies. This type of advance is also known as participation
financing or joint financing. Under this type of advance the credit requirements of big
companies involving huge amount is met by two or more banks jointly in proportion to
their capacities. It’s Bank beats a part of the risk involved in a large advance.
Consortium adventures mean advancing launched to a borrower by two or more
banks jointly by forming a consolation. This will help the banks to consolidate to the
appraisal benefit of different banks and reduce the risk and also help the banks to keep
the exposure within the permissible limit.
Advantages
• Easy to established as there no formal procedures that must be followed. Most
Consortium are formed in writing by the execution of a consolation agreement.
In addition no capital is required to create the consortium
• Members of the consortium can change their contractual agreement at any time
to suit changed circumstances.
• The Consortium can be set to expire on a given date or on the occurrence of
certain events without any formal requirements.
• The Consortium is not directly subjected to taxation.
• Some of the members of a consortium may choose to be undisclosed in dealings
with third parties.
• The cost of running a consortium is usually lower to that of a joint venture.
12.What are the difference between mortgage and hypothecation?
• A mortgage is taken for a huge amount where us hypothecation is done for a
small amount.
• Moto g is done for removable properties like land building warehouse etc. On
the other hand hypothecation is done for movable property like car vehicles ,
stock etc.
• Under the mortgage the interest of the asset would be transferred to the lender
first and then once the amount is paid off it is re transferred. But if the borrower
cannot pay the amount then the immovable property is sold off. Under
hypothecation the interest of the asset is not transferred. Rather when the bore
over cannot pay the amount due the movable property is possessed and then
sold off to get back the proceeds.
• For a mortgage , a mortgage deed is required as a legal document.. For
hypothecation, the hypothecation deed is necessary as y legal documents.
13.Differenciate general lien and particular lien?

Lien is one of the important rights enjoyed by a banker. Lien means the right of the
predictor to retain the property belonging to the debtor until the debt is repaid .

Particular lien
A particular lien arises from the particular transaction connected with the properties subject
to the lien. Particular line maybe enjoyed by a craft man or a person who has spent his time,
labour, and money on the goods retained.

General lien

A general lien is the right enjoyed by a creditor to retain any property belonging to the
debtor until all the debts are repaid.
14.What is your understanding of Basel II norms?

Basel -II

Basel -II was issued in 2004.This framework is based on there parameters.

Minimum capital requirements:
Bank should continue to maintain capital adequacy requirements of 8%of risk
weighted asset.
Regulatory supervision:
Banks were required to develop and use better risk management techniques in
monitoring and managing all the 3 types of risk that a bank faces,viz.credit, market
and operational risks.
Market discipline:
It increased disclosure requirements. Banks nee to mandatorily disclose their CAR,
risk exposure etc to the central bank .
15.Bring out the factors responsible for the growth of Internet banking?
Internet banking
Net banking helps the customer to transact with the help of a mouse. So you can
avoid if his visit to the neighbourhood the bank. Net banking makes it easy to
transfer once money from one branch in a particular City to any other branch in an
another City. What can open FB accounts via the net. One needs to provide data
regarding the amount and term of the deposit and also the branch in which the
account is to be opened. One can order for an issue of a demand draft or a bankers
cheque. One can give instructions over the net for stopping payment on a cheque.
The customer can request for a cheque book via the internet which will take 3 days
to come. One can view all the transactions completed on an account for a specified
period and get a copy via email.
It allows customers to open accounts pay bills view account balance ,complete
loan applications, payments mortgages, and purchase of financial instruments and
certificate of deposit. Calculation of interest ,fund transfer, send and receive
message through internet. For this purpose the bank set their systems and it is
accessible to anyone using internet. Internet banking is sometimes called online
banking. It is an out growth of PC banking. Internet banks are also known as virtual
,cyber ,net, interactive or web banks. Internet banking uses the internet as the
 delivery channel by which banking activities are conducted. Internet banking enables
people to carry out most of their banking transactions using a safe website ,which is
operated by their respective banks. Many financial transactions can be carried out by
simply utilising a computer with an Internet connection. The following items are
required by a person who wishes to operate through online banking.
• An active bank account with the balance in it for transactions
• Debit or credit card number
• Customers user ID
• Bank account number
• The internet banking pin number
• A PC with access to the web.
16. Briefly explain the features of the RTGS system?
RTGS
It is a new system of transferring funds from one bank to another on immediate
basis. Real Time Gross Settlement is an online fund transfer mechanism provided by
the RBI.RTGS facilitate, fund transfer from one bank account to the other on real
time basis without any waiting time.Further Gross Settlement emphasis that the
transaction is settled on one to one basis. Its main objective is to enable online
clearing and Settlement of payment on a real time basis across banks in different
cities.
Benefits
1. RTGS electronic fund transfer facilitate fund transfer on real thing basis.
Indecisive holiday the amount to get skeletal on the next working day
2. RTGS could also be done offline by submission of the remittance form at the
bank branch of the remitter.
3. RTGS avoids the cost involved in other Instrument of fund transfer such as
demand draft.
4. Fund transfer through RTGS involves competitively lower remittance charges.
5. RTGS is a safe and secure fund transfer mechanism and avoid risk of loss
associated with cheques and demand draft that are used for fund transfer.
8 Mark questions
17. Describe the primary and secondary functions performed by commercial
banks in India?

Functions of commercial banks

Conventional functions
The functions of commercial bank can be classified into two broad categories
such as
Primary functions and secondary functions
I. Primary functions
It comprises
 1. Receiving deposit from the public
2. Making lawns and adventures
3. Credit
4. Use of Cheque the system and plastic card
5. Transfer of funds
1. Receiving deposit from the public
It is one of the important functions of the commercial bank. It accepted deposit from every
class and from every source. To attract savings from all source of individuals the bank
maintains different types of deposit accounts.

1. Fixed deposit account

It is also known as time deposits. Money is deposited in this accounts for a fixed
period of time. It cannot be withdrawn before the expiry of that period. However it
can be withdrawn before the maturity date by discarding the interest at least partly.
The rate of interest given to fixed deposit is higher than other types of deposits. Rate
of interest may be higher if the period of deposit is long.
2. Current deposits
This type of deposit is suitable for businessman. Current account holders should
keep a minimum balance of 500 to keep the account running. In a mechanised
branch, yah minimum balance 5000 has to be maintained. Any amount can be
deposited in this account and the deposit can be withdrawn by using cheques. They
can withdraw any amount from their current deposit at any time without a prior
notice. They are permitted to overdraw his account if he has entered into a special
arrangement with the bank in this respect. Ordinarly no interest is allowed in this
type of accounts.
3. Savings deposit account
Commercial Bank accept savings deposits. It is mainly done to encourage the savings
habit of the people. This accounts are meant for middle and low income groups. It
can be opened with a minimum amount of rupees 5. There is variations in the
minimum amount to be kept by different banks.
4. Recurring deposits
The purpose of this account is to encourage the public to serve regularly a fixed
some. The amount is paid in total after the stipulated period with interest. The rate
of interest paid maybe nearly the rate of interest on fixed deposits.
5. Home safe deposit
This is the other type of deposit account to encourage the savings habit of the
people. Under this game a small pot or Box with an opening is supplied to the
depositor. The depositor can save the amount in that box. Periodically this boxes
taken to the bank and the amount in its is credited with his deposit account.
2. Making loans and advances
 Lending of money is the other major important functions of the
commercial bank. After keeping certain percentage of deposit as gastro
serve the balance is given as loans and advances. Commercial banks give
loans and adventures to the needy persons attains the personal security
of the bore hours or the security of movable and immovable properties.
The following are the various types of loans and advances provided by the
banks.
Loans
A loan is granted by the banker in a separate accounts known as loan account. The amount
sanctioned is either paid or credit it in the accounts of the customer. The interest is charged
on the whole amount of loan. The lawn can be repaid in installment or in maturity
Overdrafts
Under this facility the depositors are allowed to withdraw more than there deposits. It is
granted against collateral security or on the personal security of the borrower. Interest is
charged on the amount which is over drawn by the depositor.
Cash credit
It is a type of loan granted to the bore hour against his current assets, such as shares ,stock,
bond etc. Under this arrangement, the borer allowed specific amount of advanced under a
separate account known as cash credit account. She can withdraw the hall amount at a time
or in installment. The industries charged on the amount withdrawn from the cash credit
account and not on the full amount put in the cash credit account.
Discounting of bill of exchange
The Holder can discount the bill of exchange with the banks. Through discounting ,she can
get money before the date of maturity. After detecting certain marginal money as discount
the bank a page the value of the bill to the holder. On the maturity date the banker gets full
value of the bill from the party who has accepted the bill.
Money at call and short notice
It is a long which is granted for a shorter period. It can be called back by the bank at a very
short notice. This launcher generally granted to other banks or Financial institutions.
Consumer credit
The banks allow learns to household to purchase consumer durable goods such as
television, vehicles etc. It is paid in lump sum to the consumer. It is repayable in instalments.
Miscellaneous advances
Apart from the above the commercial banks provide adventures to exporters for short
period, discount and purchase export bills, finance for self employment, credited to the
weaker sections of the society, credit to the cooperative sector etc
2. Credit creation
It is a unique function of a modern Bank. When the bank performs important
functions such as receiving and lending money, automatically performs another
function namely credit creation. When the bank advanced a loan to the customer it
is not a length a cash but opens and accounts in the name of bore hours and credit
 to the amount of loan in his accounts. So when a long is given it a creates and
equivalent deposit. It result in a net increase in money stock of the economy.
3. Use of the cheque system and the plastic card
Apart from the two major functions, the commercial banks perform a number of other
functions which are useful to the society. Under the check system, the depositors are
allowed to withdraw money from their deposits. Check can be used for large
transactions instead of money.
4. Transfer of funds
Under this function, the commercial bank provides facilities for transfering funds from
one part of the country to the another or from one country to another country. Money
is transferred by issuing Bank draft ,mail transfer ,telegraphic transfer or electronic fund
transfer.
II.secondary functions
In addition to the above functions, commercial bank performs various other non banking
services such as agency services and general utility services
Agency services
A Banker performs a number of functions on behalf of the customer. ETA se agent of its
customers. This type of services is called agency services. The bank perform the
following agency services
1. Collection of credit instruments
2. Collection of dividends
3. Act as a trustee or executor
4. Execution of standing orders
5. Purchase and sale of security
6. Acting as a representative or correspondence
7. Remittance of funds
8. Deals foreign exchange
9. Act as a administrator
General utility services
Modern commercial banks perform a number of other services which are useful to the
community. The following are some of the general utility services
1. Safe custody of valuables
2. Locker facility
3. Letter of credits
4. Fund transfer
5. Provides information
6. Act as referees.
7. Underwrite shares
8. Issue of gift cheque
9. Foreign exchange
10. Credit card
 11. Travellers cheque
12. Collection of statistics
18. What are the functions of RBI?
The reserve Bank of India is our central bank. It was established in 1935. Prayer to the
establishment of RBI there was no Central Bank. But some of the central banking functions
were performed by imperial Bank of India. Imperial Bank was established in 1921 by way of
amalgamating 3 presidency banks of Madras Bengal and Bombay. Imperial Bank performed
mainly two important functions of the central bank such as Banker to the government and
bankers Bank. Other important to Central banking functions were performed by central
government. But it was not a satisfactory arrangement. The Hilton young commission
recommended the establishment of a central bank in India. To give affected to the
recommendations of the committee the government introduced a bill in the legislative
assembly in 1927. But it was not passed. In 1931, the central banking enquiry committee
recommended to start a central bank. As per this a fresh bill was introduced in legislative
assembly in 1933.The assembly passed there is a Bank of India Act in 1934 and the reserve
Bank of India started its operation in 1935.
Functions of RBI
Monetary functions
1. Monopoly of note issue
According two section 22 of The reserve Bank of India Act, reserve Bank has given the solved
right to issue currency notes other than 1 rupee coins notes and subsidiary coins in our
country. Currency notes of rupee one and other subsidiary coins are issued by the minister
of finance of the Government of India through reserve Bank. No other banks are
empowered to issue currency notes in India. So the Reserve Bank of India enjoys the
Monopoly power of note issue.
2. Banker to the government

The Reserve Bank act as a banker, agent and advisor to the government as per
the obligations created under the section 20,21,and 21(a).of the Reserve Bank of
India Act.

As a banker

The Reserve Bank have statutory obligation of keeping money of the central and
state government and provider other services free of charge.

1.The bank collect money on behalf of the government.

2.It makes payments on behalf of the Central Government through it’s branches
and the branches of the State Bank of India.

3.It provides exchange and remittance facility and other banking operations of
the central government.
 4. Manages the public that of the union. It maintains currency chest at the places
prescribed by the central government.

5. It also act as the bank up to the state government and undertake the above
mentioned business. It is done on the basis of an agreement between State
governments and RBI .

6. It makes arrangements for foreign exchange to the government.

7.It provides “ways and means loans” to the government for the period not
exceeding 3 months.

As a financial advisor

The bank act as a financial advisor to the central and state Government.It assist th generally
to formulate financial and economic policies.

1.It give advises to central government on matters of international finance.

2.It advises on certain aspects of formulation of the five year plans such as the financing
pattern, mobilization of the result and institutional arrangements with regard to banking
and credit matters.

As financial agent

The bank is the representative of Government of India in the World Bank and international
monetary Fund.

1. It cells treasury bills on behalf of the central government

2. Cactus the agent of the central and state government in the matter of
floatation of loans
3. It manages the public that of the central and state government
4. Bankers bank and lender of The Last resort
RBI has the rights to control and supervise the activities of all banks in the
country by the way of issuing licence ,giving permissions etc. IT Act just the
bankers Bank in the following ways
1. Every scheduled bank is required to maintain a certain minimum of cash
Reserve with RBI
2.It holds a part of the cash balance of commercial banks. As per law every commercial bank
is required to maintain a cash balance not less than 10% of its demand and time liabilities.
3. It act as clearing house.
4. Scheduled banks are required to submit a number of returns every Friday.
5. It provides financial assistance to scheduled banks by discounting their eligible bills and
through loans and advances against approved security.
 6. It act as the lender of the Last resort.
7. Financial assistance is allowed only when the bank approaches the Reserve Bank as a last
resort
8. The RBI is empowered to purchase,sell or discount bill of exchange and promissory notes
drawn and payable in India .
9. The scheduled bank can borrow money on the basis of eligible securities or get financial
accommodation in times of need or stringency by red discounting their bills of exchange
subject to certain terms and conditions which constitute its discount rate policy.
4. Act as clearing house
Clearing house is an institution where mutual indebtedness between banks can be settled.
Bank of India Act as a clearing house of member banks. Since banks are keeping their
deposit and reserve with RBI settlement between them can be more easily effected in the
books of Reserve Bank. RBI manages clearing house in Mumbai, Chennai , Kolkata and in
other important cities.
5. Controller of credits
It is one of the most important functions of The Reserve Bank of India. RBI controls the
credits with the pin objectives of checking inflation and facilitating economic development
of the country. The authority to control credit has been given to preserve Bank by the
Reserve Bank of India Act 1934 and banking regulation Act 1949. The Reserve Bank
employees quantitative and qualitative weapons to control credit.
6.moral suasion and credit rationing
It involves persuasion of commercial banks to follow certain lines of policies, impressing
upon them the necessity to do so. There are no elements of compulsion. The success of this
muscle depends upon the active involvement and corporation of commercial banks. Under
this system, RBI arrange meetings and discussions with the representatives of the
commercial banks or frequently send the circulars to them for persuading a particular line of
action. The necessity of credit restraint, urgency of deposit mobilization and the large
employment of funds in priority sector et cetera are impressed upon commercial banks
through persuasion.

Rationing of credit is a system under which the central bank seeks to limit to the total
amount of loans advances of specific categories of loans and advances granted by
commercial banks. Both weapons are used by RBI several times. After the devaluation of
rupee in 1949 the banks are advised to restricted their advances to genuine trade
requirements and not a grand accommodation for speculative activities.

7.Direct action

RBI is not depending to this weapon very often. But it is adopted when all
other measures fail. It implies the refusal of the Reserve Bank to extend re
discounting facilities to banks which follows and sound the banking practices
 or to grand further accommodation to banks whose capital and the Reserve
our inadequate in relation to the amount already sanctioned.
1. Control of foreign exchange operations
It is one of the important the central banking functions performed by RBI. The
central government authorised RBI to deal in foreign exchange ,gold coin and
bullion. It has the responsibility to maintain the official rate of exchange. An
exchange control department was constituted by RBI to make effective
administration of exchange control in 1939. The entire business of sale of foreign
exchange is being conducted by the department. Reserve Bank buys and cells
foreign currencies in order to achieve the objective of exchanges stability.
Non Monetary functions
Non monetary functions are related with supervisory functions, promotional and
development and functions performed by RBI. It mainly consist of
a) Supervisory functions
RBI act 1934 and banking regulation Act 1949 have a given RBI why the powers of
supervision and control over all scheduled banks relating to licensing and establishment
,branch expansion, liquidity of their assets, management and methods of working
amalgamation , reconstruction and liquidation. RBI is empowered to conduct periodical
inspections of the bank and call returns and necessary informations from them. RBI has
set up a new department named department of supervision which has taken over the
work relating to supervision of commercial banks from the department of banking
operations and development.
b) Promotional functions
a. Granting of rural credit
b. Provision of industrial finance
c. Collection and a publication of statistics related with the financial economic
matters.
19.Discuss the rights of a Banker?
The rights enjoyed by a Banker include,
1. Bankers right of general lien
This is one of the important rights enjoyed by a Banker. Lien means the right of the
creditor to retain the property belonging to the debtor until the debt is repaid. It gives
the right to the creditor to retain the security of the debtor and not the right to sell it.
2. Bankers right of set off
Set of is the right of a debtor to adjust and amount due to him from the creditor against
the amount of payable to the creditor. In other words the mutual claims of debtor and
creditor or adjusted together and only the balance amount is payable by the debtor. A
bank is right of set of means the right of a Banker to adjust the amount to due to him
from the customer on one account against the amount due from him to the customer on
another accounts.
The right of set off can be exercised subject to the fulfilment of the following conditions.
a. The debt must be mutual Ie; is must be due from the same parties.
b. The right of set off can be exercised only if the customers account or opened in the same
capacity or right.
c. A Banker cannot to set off the credit balance of a joint account against the debit balance
of the private account of a joint holder.
d. There is no express or implied agreement or understanding to the contrary
e. The banker can exercise the right of set of before the garnishee order issued by the cots
is become effective.
3. Bankers right of appropriation
When there are several deaths due between the Predator and debtor the question arises as
to which of the debt is to be discharged when payment is made by the debtor and the
money is not sufficient to discharge all the debts. The general role in such a case is that the
debtor has the first choice and he can choose the payment of any debt he likes. If the
creditor accepted such a payment it must be applied accordingly. If the debtor make a no
appropriation, the right of appropriation is vested with the creditor. Ki main apply it at his
discretion or to any lawful debt actually due and payable to him from the debtor. If neither
the customer not the banker has applied his right of appropriation the decision given in the
clayton’s case a applied.The payment to shall be applied in discharging debt in order of
time.
4. Right to charge interest, incidental charges etc
A banker has the implied right to charge interest on that dances granted to their customers.
Yah customer need not pay the interest in cash to the banker. The usual practice followed
by banks is to debit to the amount of interest periodically in the customers account. Every
banker has an implied right to charge compound interest on the amount due from the
customer if there is an agreement to the effect. A Banker has also the right to charge
incidental charges on the customers for the cost involved in keeping their accounts.
Incidental charges are usually live with on un remunerative current accounts.
5. Bankers rights not to produce books of accounts under bankers books
evidence Act 1891
Before passing the bankers books evidence Act of 1891 bankers are required
to produce the original books of accounts before the court even in legal
proceedings in which the banker is not a party. This created a lot of
inconvenience to bankers. But as per the provisions of this act, institute of
producing the original books of accounts the bankers are allowed to produce
the certificate copies of the relevant pages of the book.
8. Right of a customer to charge a bank under consumer Protection Act 1986.
Yah customer of a bank is regarded as the consumer. The money deposited by customers is
length to needy persons at high rate of interest than allowed to customers. Does customers
deposits are the main source of revenue to the banks. Hence banks are supposed to deal
their customers with due respect and care and should avoid any inconvenience and loss to
their customers. If any loss or damage is included to customers there is an obligation to
make a good the loss by giving compensation. The recent trend is that the bank has been
authorised to recover such a common session or damages paid to customers from the salary
of employee responsible for such wrongful act. Therefore the banking service will also come
under the purview of the consumer Protection Act.