PRINCIPLES OF BANKING

Model Questions & Answers

(Solutions given at the end)

1) A bank accepts a deposit from a Corporate house.

The features of the deposit are:
i) accepted at a discounted value
ii) stamp duty is borne by the bank
iii)issued as usance promissory note
iv)TDS is not applicable
Identify the deposit
a) commercial paper
b) certificate of deposit
c) flexi deposit
d) caution deposit
2) A bank finances an agriculturist to buy a tractor. The
loan is secured by:
a) Hypothecation of the tractor

b)Mortgage of the tractor

c)Pledge of the tractor
d)Assignment of the tractor
3)Which of the following statement/s is/are True?
i) Commercial Paper is issued by a Corporate
ii) Certificate of Deposit is issued by a Bank
iii)Letter of Credit is non fund based line of credit
a) i and iii
b) i
c) i,ii and iii
d) ii and iii

4) Banks evaluate a credit proposal based on which of the

parameters?
i) character, capital, condition
ii) capacity, collateral, compliance
iii) capital, collateral
iv) capacity, compliance
a) i
b) ii
c) i,iv
d) i,ii
5) Banks cannot accept FCNR B deposits in --------a) Canadian dollar
b) Singapore dollar
c) US dollar
d) Australian dollar
6) Which of the following statement is True:
a) A Non resident Indian (NRI) can open a FCNR (B)
account in Indian Rupees
b) A Non resident Indian (NRI) can open a NRE a/c
in Canadian Dollar
c) A Non resident Indian (NRI) can open a NRE a/c
in Indian Rupees
d) A Non resident Indian (NRI) can open a FCNR (B)
recurring deposit account in Euro

7) Match the following:

i) Narashimam Committee
ii) Short term solvency
iii) ECGC
iv) Stand by l/c

A - Current Ratio
B - Export Finance
C Standard Assets
D - Trade Finance

a) i) D ii) A iii) B iv) C

b) i) C ii) A iii) B iv) D
c) i) A ii) B iii) C iv) D
d) i) B ii) D iii) C iv) A
e) i) B ii) A iii) D iv) C
8) An account holder draws a cheque on a :
a) banker of the payee
b) banker of the drawee
c) banker of the drawer
d) banker of the endorsee
9) As per prudential norms bank assets are not
classified as:
a) Standard assets
b) Quality assets
c) Dobutful assets
d) Loss assets
10) As regards co-operative banks , RBI does not:
a) issue licence
b) permit forex business
c) appoint/approve stautory auditors
d) conduct inspection

11) Central Bank of India, is a nationalized bank. It is

classified as:
a) Co-operative Society registered under the Cooperative Societies Act
b) Body corporate constituted under special statute/s
c) Company registered under the Indian Companies
Act,1956
d) either b or c
12) The maximum Bank Rate is:
a) 3%
b) 6%
c) 7.5%
d) None of the above
13) The Reserve Bank of India Act,1934 does not deal
with:
a) financial supervision of banks/financial institutions
b) policy planning of cooperative banks
c) management of forex/forex reserves
d) capital management and business of banks
14) CRR and SLR are not applicable to
a) a certificate of deposit
b) credit balance in a cc account
c) a flexi deposit
d) a commercial paper

15) Bancassurance is
a) an insurance scheme to insure bank deposits
b) an insurance scheme exclusively for the employees
of banks
c) a composite financial service offering both bank and
insurance products
d) a bank deposit scheme exclusively for employees of
insurance companies
16) A bank installed an ATM at a Railway Station.Identify
the marketing mix:
a) promotion
b) place
c) package
d) product
17) Tele banking is based on

a) virtual banking
b) online banking
c) voice processing
d) core banking
18) Banking Regulation Act,1949 was enacted to regulate:
a) Reserve Bank of India
b) banking companies
c) cooperative land development banks
d) primary agricultural credit socities

19) Bank A grants an overdraft to ABC Ltd against book

debts. This is secured by:
a) hypothecation
b) pledge
c) mortgage
d) assignment

20) PIN in a ATM card is :

a) Permanent Information Number
b) Personal Identification Number
c) Professional Identification Number
d) Permanent Identification Number
21) Buy Now Pay Now is commonly used for --a) credit cards
b) ATM Cards
c) charge Cards
d) none of the above
22) Long Form Audit Report (LFAR) is prepared/
sumitted by:
a) banks concurrent auditor/s
b) RBI inspector/s
c) statutory auditors
d) all of the above
23) Which of the following asset/s is/are not NPAs:

a) fixed assets
b) standard assets
c) both a and b
d) neither a nor b
24) Onsite inspections of banks is based on -------methodology.
a) CRISIL
b) CAMELS
c) CCIL
d) LFAR
25) A cheque is received for payment with amount
mentioned only in words. The banker would:
a) as per NI Act,honour the cheque for the amount in
words
b) dishonour the cheque because no amount is
mentioned in figures
c) to safe guard the banks interest return the
cheque with reason:words and figure differs
d) none of the above
26) Identify the document of title to goods:
a) Bill of exchange
b) Bill of lading
c) Bill of entry
d) any one of the above

27) In a Garnishee Order, the banker on whom a

garnishee order served is the
a) judgement debtors creditor
b) judgement creditors creditor
c) judgement creditors debtor
d) judgement debtors debtor
28) Sec 85 of NI Act,1881 extends protection to the
a) paying banker
b) collecting banker
c) advising banker
d) issuing banker
29) -------------- pools money from investors and invests
in stocks,bonds, shares
a) a bank
b) a merchant banker
c) a factor
d) a mutual fund
30) Ram and Shyam twin brothers aged 15 years.
They want to open a joint account in your bank. You
will allow them, to open a joint account
a) to be operated jointly
b) with operating instructions either or survivor
c) with operating instructions former or survivor
d) with operating instructions any one or survivor

31) credit risk is:

a) default of the banker to maintain CRR
b) default of the banker to issue credit card
c) default of the banker to release credit to the
borrower on time
d) default of the customer to repay the loan
32) In respect of Regional Rural Banks, the share
holding pattern is:
a) Central Government 50%,State Government
35%,Sponsoring Bank 15%
b) Central Government 50%,State Government
15%,Sponsoring Bank 35%
b) Central Government 15%,State Government
35%,Sponsoring Bank 50%
b) Central Government 35%,State Government
50%,Sponsoring Bank 15%
33) A holder for value is a bank, which :
a) allows one of its clients to withdraw against
clearance of a cheque.
b) collects cheques for non customers
c) handles high value clearing
d) high net worth customers accounts
accounts
34) One of your customers lost the fixed deposit
receipt issued by the bank. To obtain a duplicate

fixed deposit receipt he needs to furnish

a) a power of attorney
b) a guarantee
c) a letter of credit
d) an indemnity bond
35) Mr. Jayaraman maintains a SB account with your bank.
He has given a POA to his son , to operate his SB account.
The relationship between the bank and Mr.Jayaraman is:
a) debtor and creditor
b) principal and agent
c) donor and donee
d) none of the above

36) A bank grants a CC of Rs.10 crores line

of credit to a client, against hypothecation of stocks.
The is margin of 25%. If the client wants to avail of the
full limit of Rs.10 crores, the minimum stocks required is:
a) Rs 10.00 crores
b) Rs 7.50 crores
c) Rs.12.50 crores
d) Rs.13.5 crores

37) Which is not the function of RBI?

a) regulates forex activities with the help of FEMA,1999
b) decides Bank rate,CRR and SLR from time to time
c) opens and maintains SB accounts
d) prescribes the capital adequacy ratio
38) Under ---------- act, a copy of an entry in a bankers
records,certified by an officer of a bank may be treated as
prima facie evidence of a corresponding transaction in any
legal proceedings.
a) Reserve Bank of India Act,1934
b) Banking Regulation Act,1949
c) Bankers Book Evidence Act,1891
d) Right of Information Act,2005
39) As regards deposit insurance which of the following
statement/s is/are True?
i) insurance cover for deposits (demand and term) upto
Rs.1,00,000.00 is available
ii) insurance cover is provided by general insurance
companies
iii) insurance premium is to be paid semi annually by the
bank and not customer/s
a) i and iii
b) ii
c) ii and iii
d) iii

40) State which of the following statement/s is/are True?

i) open ended schemes are offered by mutual funds
ii) banks cannot setup mutual funds, without RBIs
permission
iii) bank branches are used as a distribution channel for
insurance products is called bancassurance
a) i,ii
b) ii,iii
c) i,iii
d) i,ii,iii

41) What are the features of a bankers lien?

a) called as implied pledge
b) banker can retain the security
c) banker right to sell in case of default
d) a,b and c
42) Rule in claytons case is an example of:
a) right of lien
b) right of setoff
c) right of transfer
d) right of appropriation

43)Section 6 of NI Act,1881 defines a cheque as

a bill of exchange.State which statement/s is/are

false?
a) a cheque and the bill of exchange is one and the
same
b) a cheque is always payable on demand,whereas
a bill of exchange can be payable after a particular
time
c) a cheque can be crossed, but not a bill of exchange
d) a cheque is drawn on a banker, a bill of exchange
can also be drawn on a client
44)What is a personal deposit account?
a) a current account opened and maintained by an
individual
b) a high net worth client opens a special account
offered by the bank personal banking division
c) an account opened with bank/s, by certain
government departments, authorized by the
Accountant General
d) any one of the above

45)One of the key area of Asset Liability

Mangement of banks is the interest management.
Banks analyse interest trends based on:
a) gap analysis
b) value at risk
c) duration analysis
d) all of the above
46) Provisions of SRFAESI Act,2002 is not
applicable to
a) a pledge of movables as per Sec 172 of Indian
Contract Act
b) any interest for repayment (upto Rs one lakh
for secured loans and upto Rs ten lakhs for
unsecured loans
c) any one of a or b
d) both a and b
47) Securitisation is the process of acquisition of
loans classified as :
a) standard assets
b) book debts
c) non performing assets
d) any one of the above

48) If, in a companys government share holding is

more than 51% , it is classified as:
a) Public Ltd
b) Quasi government
c) Private Ltd
d) Government
49) What is a Demat a/c:
a) acronym for Demat is dematerialization of shares
b) dematerialization is a paperless book entry form
of shares
c) demat accounts can be opened by banks
d) all of the above
50) NEFT is:
a) National Electronic Funds Transfer system offers
an efficient,secured,economical facility
b)NEFT is available for retail customers
c) NEFT is an end to end and covers only the
networked branches
d) all of the above

Solutions:

1) b 11) b
2) a 12) d
3) c 13) b
4) d 14) d
5) b 15) c
6) c 16) b
7) b 17) c
8) c 18) b
9) b 19) d
10) c 20) b

21) d
22) c
23) c
24) b
25) c
26) b
27) d
28) a
29) d
30) a

31) d
32) b
33) a
34) a
35) a
36) d
37) c
38) c
39) a
40) d

41) d
42) d
43) a
44) c
45) d
46) d
47) c
48) d
49) d
50) d

1. AGRI / RURAL LOAN PRODUCTS

TOPIC
PURCHASE OF
AGRICULTURE
LAND

AGRI CLINICS

CROP LOANS

COLD STORAGE

ANSWER
3 to 5 km.
9 to 12 years
20%
Weaker sections
Rs. 5 lakhs
Rs.10 lakhs
25%
33.33 %
2%
Rs.3 lakhs
Harvest day
Every 6 months
2 crop seasons
1 crop season
Any area
Agriculture direct
Agriculture indirect
SSI
Non priority

EXPLANATION
Near the rural area
Repayment of agri loan
Margin
Small, marginal farmer
Agricultural & landless labourers
Agri Graduates
Project cost
Subsidy NABARD
Subsidy SC/ST
Interest subsidy
Maximum subsidy
Basis for calculation of interest for
short crop loans
Basis for normal crop loan
Short duration crops NPA
Long duration crop NPA
It can be opened.
Storage for Agri products
Leasing(running) of storage areas
Storage for Non agri products
Leasing of storage of non agri
products

Rural & semi urban area

Agriculture direct
Agriculture indirect
GODOWN

POULTRY

HORTICULTURE

KVIC LOAN

SGSY

Leasing(running) of storage areas

SSI
Non priority
15%
25%
33.33%
4%

Storage for Non agri products

Leasing of storage of non agri prod
Subsidy for individuals
Subsidy for partnership
Cooperative Societies
Interest subsidy

Bird flu affected units

25% Rs. Maximum 20

Classified as standard

lakhs
Within 1 year fro date of

Interest subsidy
Letter of indent must go to the

sanction.
25%
10%
PMEGP IN RURAL
Within 15 days from the

horticulture board.
Subsidy for Rs. 10lakhs
Subsidy for above Rs. 10 lakhs
BY KVIC
Subsidy statement should

first disbursement
5 years
Rs. 10 Lakhs
< Rs. 10 Lakhs up to Rs.

submitted
Minimum repayment period
Micro service

2 crore
Rs. 25 Lakhs
< Rs. 25 Lakhs up to Rs.
5 Crore
< Rs. 5 Crore up to Rs.
10 Crore
< Rs. 2 Crore up to Rs.
SME

It can be opened
Storage for Agri products

5 crore
Up to Rs. 7.50 crore
Rs. 50 lakhs
Rs. 37.50 Lakhs.
Micro ent ,Rs. 5 lacs
Women N E states
SC / ST
Within 4 weeks
40% of total SME
0%

be

Small service
Micro Mfg
Small Mfg
Medium Mfg
Medium service
Turnover method to be applied to
CGTMSE loan coverage
Amount covered (75%)
Increased coverage of 80%
Only 75% Coverage
Loan application to be disbursed
Target for Micro services
Risk weight for coverage under

50%
1.5%
0.75%
Both fund and non fund
based facilities
SIDBI
Rs. 10 lakhs
25%
33.33%

CGTMSE
Risk weight for coverage under
ECGC
Guarantee fee (one time)
Annual fee
Covered under CGTMSE
Monitors SME
Maximum under TUFS
Handloom subsidy (general)
For SC/ ST

TEST

1.KYC stands for

Know Your City
Know Your Customer
Knowledge for Your Customer service
None of the above
2.IRDA is the abbreviation of
Insurance rules for development and authority
Insurance regulator and developer of India
Insurance Regulatory and Development authority
None of the above
3.ATM stands for
anytime money
automatic teller machine
Automated teller machine
None of the above
4.Valuation of inventory is done using various methods. One such is FILO. The full form of this is
first in lost out
first in last out
firm in lest out
none of the above
5.CAR is capital required to be brought in by a bank
in relation to its total assets
In relation to its risk weighted assets
In relation to its deposits
None of the above
6.Which one of the following type of assets cannot be taken by banks under pledge
agricultural produce
gold jewellery
stocks of industrial products
perishable goods
7.Consumer protection Act is created by GOI to address to the grievances of various consumers.
This mechanism operates from
Central, state and district levels
Only from district and state levels
Only from state and central levels
From central, state, district and taluka levels
8.ATMs are typically deployed by banks for

wholesale banking
merchant banking
retail banking
all the above
9.A banks Fixed Deposits is characterized by
Fixed/Floating interest rate as agreed with the customer at the time of the deposit
Fixed period of the deposit
Periodical Repayment of interest
10.Fixed deposits cannot be
Renewed for a further period on maturity date
Transferred to third parties
Pre-paid before the maturity date
All the above
11. Know Your Customer (KYC) guidelines are intended to
Establish identity with residence proof of the customers
Prevent fictitious or Benami transactions
Protect the bank from the risk of not acting in good faith
All the above
12.Mr.A is not maintaining the minimum balance in his account and is in the habit of issuing
cheques without maintaining sufficient balance.,His account has become an undesireable
account due to unsatisfactory operations.He does not agree to close the account even after
repeated oral requests .In this case,the bank has
right to close the account once cheque book gets exhausted
b. right to close the account after serving notice and can close the account on expiry of
the notice period
c. right to close the account after giving public notice in the notice board of the bank
no right to close the account under the Banking Ombudsman scheme
13. An actionable claim is assigned in favour of more than one assignee at different points of
time.The priority of charge is determined with reference to the date of
execution of notice of assignment
execution of the written instrument for assignment
receipt of notice of assignment
receipt of written instrument for assignment
14.The document to be verified to ascertain the borrowing powers of directors is
Memorandum of Association
Articles of Association
Certificate of incorporation
Board Resolution
15. The following are security issues relating to internet banking 1.Confidentiality of transactions
2.Integrity of transactions 3.Non-repudiation of transactions by customers 4.Privacy of transaction
Choose the most appropriate answer from the following
All the above 4 statements are concerned with security issues
Statement 1,2 and 3 only are concerned with security issues
Statement 1 and 2 only are concerned with security issues
Statement 1 only is concerned with security issues
16. MICR Cheques are used for clearing in India. The Centre Code in MICR contains
9 digits

8 digits
7 digits
6 digits
All the above
17. The following is not a feature of RTGS[Real Time Gross Settlement System]
Instruction Processing
Settlement Processing
Liquidity Management
Profitability Management
18. The following is not a operational risk
Failure of ATM Card
Fraud through Smart Card
Money laundering through Credit Card
Failure to issue a replacement card
19.PIN in Smart Card is called --Permanent Index Number
Personal Identification Number
Personal Index Number
Permanent Identification Number
20.Smart Card is
Special purpose Cards
Microprocessor Cards
Processing unit contains memory for storing data
Processing unit for software handling
21.The word FTP stands for ----File Translate Protocol
File Transit Protocol
File Typing Protocol
File Transfer Protocol
22 The term HTML connotes
Hyper Text Markup Language
Hyper Transcription Markup Language
High Text Markup Language
High Terminal Markup Language
23 Which one of the following is an example of Non-fund based credit facility?
Cash Credit
Guarantee
Term Loan
Demand Loan
24 Cash Credit facility is granted by a bank to finance the borrowers
Inventories or stocks of goods
Fixed assets
Temporary liquidity needs
Both (a) and (c) above
25 LC is a popular product of banks. This is
a funding facility called letter of credit

it is funded facility called line of credit

it is a non-fund facility called line of credit
none of the above
26 CIBIL is an organization which is engaged in
collecting and distributing information to banks
collecting application details and submitting applications to banks
collecting and recommending loans to banks and guaranteeing the same
collecting and maintaining credit record of both individual and business customers for the
benefit of banks
27 EMI stands for
Electronic media interface
Equated monthly instalment
Equal monthly interest
None of the above
28 Banks are generally engaged in which of the following leasing activity
operational lease
service lease
financial lease
leveraged lease
29 CAR is capital required to be brought in by a bank
in relation to its total assets
In relation to its risk weighted assets
In relation to its deposits
None of the above
30 Banks have to obtain licence for opening branches from
Central Government
RBI
State Government in which they want branches
None of the above
31 A bank accepts deposits of money from members of
All classes of the society irrespective of income levels
middle class people who are salary earners
rich class people who have high disposable income
poor class of people with meagre income
32 A banks Fixed Deposits is characterized by
Fixed/Floating interest rate as agreed with the customer at the time of the deposit
Fixed period of the deposit
Periodical Repayment of interest
All the above
33 Telebanking does not provide the following banking facilities to customers
Request for Air Ticket
Request for Cheque Book
Request for Cash Withdrawal
Request for Loan against Deposit
34 The Utility Service Providers like telephone companies, electricity boards, gas companies,

insurance companies obtains an authorization from the customer to debit his specified bank
account with the amount of the bills at regular intervals. This is known as
Debit Clearing System
Credit Clearing System
Standing Instructions System
Authorization System
35 The following is/are computer hardware 1)Modem 2)Ethernet Card 3)Operating System
4)Ports Choose the most appropriate answer from the following
1 only is correct
1 and 2 are correct
1,2 and 3 are correct
1,2,3 and 4 are correct
36 "Buy Now Pay Now" is commonly used for --Debit Cards
Vault Cards
Credit Cards
E-purse
37 A Recurring Deposit account requires the customer to
Deposit any amount at specified intervals for a specified period
Deposit a fixed amount at will for a specified period
Deposit a fixed amount at specified intervals for any period
Deposit a fixed amount at specified intervals for a specified period
38 Nomination is not applicable in the case of
Account of an individual
Joint account of two or more individuals
Account of Hindu Undivided Family (HUF)
Account of a company
39 Working capital credit facilities are intended to meet the borrowers:
Short-term credit requirements
Medium-term credit requirements
Long-term credit requirements
All the above
40 For Internet Banking a customer requires
Personal Computer and telephone link
Personal Computer, telephone line, modem and Internet Service Provider
Personal Computer, telephone link and modem
Personal Computer, telephone link and Internet Service Provider
41 The distinction between FII and FDI is
While FIIs invest in industries FDIs invest in capital markets
While FIIs invest in Capital markets FDIs invest in industries
Both can invest in Capital markets
None of the above
42 NPAs are critical for the health of a bank. These are -New Performing Assets
Non-Performing Assets
New Promising Advances
None of the above

43 EMI stands for

Electronic media interface
Equated monthly instalment
Equal monthly interest
None of the above
44 The core functions of a bank comprise
deposit-taking from the public
lending of money and investment in Government Securities
funds transfer/ remittances in the form of MT/TT/DD
all the above
45 Bank deposits are preferred by customers over other types of savings instruments because
of
Safety and liquidity of capital
High returns
Tax-free returns
All the above
46 ABC Bank Ltd filed a suit exclusively against the guarantor and did not opt to proceed against
the borrower.In this case,which of the following is correct?
Guarantor is a favoured debtor and the banks action is legally not tenable
the bank has no right to proceed against the guarantor without concurrently proceeding
against the borrower
the bank can not proceed against the surety as surety stands discharged by such action
of the bank
the bank can proceed against the quarantor and the banks action is certainly tenable
is the process in which the physical movement of cheques within or between
banks and clearing house is curtailed/eliminated and replaced by electronic records of their
content for further processing/transmission .
Cheque truncation
Digital imaging
Automated Clearing
Micro filming
47 The Utility Service Providers like telephone companies, electricity boards, gas companies,
insurance companies obtains an authorization from the customer to debit his specified bank
account with the amount of the bills at regular intervals. This is known as
Debit Clearing System
Credit Clearing System
Standing Instructions System
Authorization System
48 In Overdraft account with a bank, overdraft refers to the drawings
Over and above the credit balance in the account
Within the credit balance in the account
Over the sanctioned limit
Both (a) and (b) above

PRINCIPLES OF BANKING
IV.

LETTER OF CREDIT

01.
02.
03.
04.
05.
06.
07.
08.

9.

A documentary credit is a link between _________ and _______ facilitating international

trade.
(1) Buyer (2) Sellers (3) 1 + 2 (4) None
It is an undertaking by the opening bank to pay subject to conditions laid therein. True /
False
The buyer of the goods, opening an LC is also called Applicant. True / False
International Chambers of Commerce has issued guidelines practices for LC transactions,
known as
(1) UCPDC (2) In co terms (3) URC (4) All
The LC which facilitates financing to the supplier prior to shipment is known as
(1) Red (2) Green (3) Sight (4) None
An LC can be transferred in favour of another beneficiary is called Transferable LC. True /
False
When an LC is opened for procurement of goods, on the backing of an export LC, it is called
(1) Back to back
(2) Standby (3) Advised (4) Confirmed.
State whether the following statements are True or False.
(a)
The issuing bank generally advises LC through advising Bank.
(b)
The reimbursing bank negotiates the documents and pays to the beneficiary.
(c)
The applicant has not obligation to indemnity banks against any obligations
imposed by foreign laws.
(d)
Advising Bank unable to inform contact immediately issuing bank.
(e)
Applicant is liable for acts due to foreign law.
(f)
Bill of Exchange is drawn by the beneficiary of the LC on the opening bank.
(g)
Invoice is a Commercial document.
(h)
Bill of Lading is a document evidencing shipment of goods.
(i)
The Currency of issuance of the insurance policy must be same as the currency of
LC.
(j)
In case of usance the foreign currency liability would be crystallized on the due date,
into Indian Rupees.
(k)
The importer is required to submit Bill of Entry, evidencing import of goods into
India.
(l)
Banks should open Letter of Credit on Behalf of their Regular Customers only.
(m)
Stand by Letters of Credit are a substitute of Guarantee.
(n)
Standby LCs are issued by banks as a document of promise in respect of Non
Performance
(o)
Uniform rules framed by ICC for bank-to-bank Reimbursement are set out in
publication VRR -525.
(p)
The reimbursing bank is in no way concerned or bound by the provisions
incorporated in the Letter of Credit.
(q)
The reimbursement authority must not have an Expiry date.
(r)
Reimbursement claim must not be presented 10 days pior to due date for claiming
reimbursement.
(s)
The reimbursing bank charges are normally on account of Issuing bank.
(t)
UCPDC LC, Incoterms Includes what cost, URR Reimbursement URC
collection
Fill in the blanks.
(i)
It is the responsibility of the ___________ bank to examine the documents, before
making payment.
(ii)
The advising bank must ensure ______________ of LC before advising the same to
the beneficiary.
(iii)
In case the reimbursement bank does not pay to the negotiating bank, the ultimate
liability lies with the _______________ bank.
(1)
Opening Bank (2)
Confirming
(3)
Genuiness
(4)
None

VIII.
01.
02.
03.
04.
05.
06.
07.
08.
09.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

NRI (True / False)

A person must be of Indian origin or an Indian passport holder, staying abroad for
Indefinite period, to qualify for status of an NRI.
The minimum period for NRE term deposit is 1 Year..
NRE savings account is a Rupee account.
FCNRB Accounts are necessarily Term deposit accounts maintained in designated 6 foreign
currencies.
Interest earned on bonds, invested before getting NRI status, can be credited to NRO
account.
An amount up to USD 1 Million can be repatriated out of balances held in NRO account, for
permissible transactions.
The maximum period for FCNRB deposits is 5 years.
In FCNRB deposits the depositor does not bear Exchange risk.
NRNR and NRSR schemes have since been discontinued.
The maturity proceeds of the NRNR account can be credited to NRE account.
NRIs cannot cannot acquire shares or property by way of inheritance from a person resident
outside India.
NRI can acquire shares both on repatriable and non-repatriable basis.
NRIs cannot invest in any partnership firm as owners/partners.
NRIs can acquire property by purchase out of balances held in NRE accounts.
Banks can permit repatriation of sale proceeds of a house property, held in NRO account up
to USD 1.00 million per year.
Loan/Overdraft can be granted to a resident Indian against security of an FCNRB deposit.
There is no need to get the documents of loan signed by the NRI depositor in the presence of
the bank officials.
The housing loan granted to an NRI can be credited to his NRE account.
No taxes are payable by an NRI on the sale proceeds of shares or house property, even if the
sale proceeds are higher than the acquisition price.
NRI Defined in FEMA.

LEGAL & REGULATORY ASPECTS OF BANKING

MODULES A & B
01..Day to day banking involves a number of aspects. Utilizing the various provisions of
various Acts assumes greater significance in the Banking field. Knowledge about the
same is very important.
03..Under the provisions of the Banking Regulation Act, no organization other than a
bank is authorized to accept deposits withdrawable by cheque. The Savings Bank Scheme
run by the government, a Primary credit society and any other person or firm notified by
the government are exempted from this prohibition.
13. The Reserve Bank of India is the primary regulator of banks. But the Central
Government has also been conferred extensive powers under the RBI Act and BR Act
either directly or indirectly over the banks.
29.. The Central Government can exempt any foreign bank from the requirements on the
recommendations of RBI for a specific period if the amounts deposited
already by it
are considered adequate. On the cessation of business by any foreign bank for any reason,

these deposits shall from part of the assets of the company on which the creditors in India
shall have the first charge.
34.. Declaration of dividend by banks require a minimum 9% of CAR and Net NPAs not
exceeding 7%. The quantum of dividend that can be declared is based on the levels of net
NPAs and in a graded level (Maximum 40%pay out ratio) and can be paid only from
current years profits
39.. On the Reserve Bank of India passing a removal order, the concerned person ceases
to hold office which he/she was holding till then. Further he/she is prohibited, from
directly or indirectly taking part in the management of any banking company for a period
not exceeding 5 years as may be specified in the order. Contraventions of the order is
punishable with a find of Rs.250 for each day during which the contravention continues.
47.. RBI issues directions from time to time regulating the lending operations of banking
companies
* The tools employed for exercising Selective Credit Control are
Minimum margins for lending against selected commodities
ceilings on the levels of credit and
* charging of minimum rate of interest on advances against specified commodities
48.. RBI is authorized to regulate interest rates on loans and advances as well as deposits.
The Usurious Loans Act. 1918 prohibits lending at exorbitant rates. The law has
been made to protect the weaker borrowers from the powerful moneylenders
RBI has issued guidelines in respect of internet banking. These cover a..
Technology
and Security issues b.. Legal issue and c . Regulatory and
supervisory issues
55..The guidance (Basel committee) entitled Enhancing Corporate Governance for
Banking Organizations highlights the importance of the roles of boards of directors (with
a focus on the role of independent directors) and senior management.
. effective management of conflicts of interest
. the roles of internal and external auditors, as well as internal control functions
. governing in a transparent manner, especially where a bank operates in jurisdictions,
or through structures, that may impede transparency and
.
the role of supervisors in promoting and assessing sound corporate governance
practices
61..Banks have to file a return on their unclaimed deposit within 30 days of the end of
each calendar year.
.. All deposits not operated in 10 years
.. For term deposits, the period of 10 years starts from the expiry of the period of the
deposit
67..Selective Credit Control seeks to influence the demand for credit by

(i). making borrowing more costly for certain purposes which are considered relatively
inessential or
(ii). by imposing stringent conditions on lending for such purposes. Or
(iii). by giving concessions for certain desired types of activities
68..The tools employed for exercising SCC are
(i) .. minimum margins for lending against selected commodities
(ii) .. ceilings on the levels of credit
(iii).. charging of minimum rate of interest on advances against specified commodities.
72..The Reserve Bank of India (Amendment) Act,2006(Section 45W) empowers the
Bank, in public interest or to regulate the financial system of the country to its advantage,
to determine the policy relating to interest rates or interest rate products and give
directions in that behalf to all agencies or any of them, dealing in securities, money
market instruments, foreign exchange , derivatives, or other instruments of like nature as
the Bank may specify from time to time.
73..Banking Ombudsman is an authority established under the Banking Ombudsman
Scheme, 1995 by the RBI. The purpose is to resolve and settle the complaints of banking
public against the commercial banks and the scheduled primary cooperative banks
without resorting to courts.
74..Banking Ombudsman scheme applicable to all commercial banks, RRBs and
schedules primary co-operative banks.
.. Disputes between two banks can also be taken up with the Banking Ombudsman
..A banking ombudsman may act as an arbitrator
82..Appropriation of any amount from the reserve fund or the share premium account has
to be reported to RBI within 21 days of such appropriation.
.. Every scheduled bank has to submit a return to RBI showing the demand and time
liabilities and borrowings from banks in India
85..In the case of banking companies which are not scheduled banks, as per the
provisions of BR act, the cash reserve need not be maintained with RBI. It may be with
the bank itself, or in a current account with RBI or byway of net balance in current
accounts or in one or more of these ways
87..Every banking company has to maintain in India certain amount of assets as per the
provisions of BR act.
.. At the close of business on the last Friday of every quarter, such assets shall not be less
than 75% of the demand and time liabilities of the banking company in India.

89..Every banking company has to submit 3 copies of its balance sheet and profit and loss
account to RBI within 3 months from the end of the period to which it relate. The period
may be extended by the RBI by a further period not exceeding 3 months.
94..RBI is empowered to order special audit of the accounts of any banking company.
The expenses relating to the special audit to be borne by the concerned banking
company.
.. Every month, a banking company has to submit to the RBI a return showing its assets
and liabilities in India as at the close of business on the last Friday of the previous month
102..Within 15 days of the winding up order, the liquidator has to give notice calling for
claims for preferential payment and other claims form every secured and unsecured
creditor. The depositors need not make claims. The claims of every depositor of a
banking company is deemed to have filed for the amount as shown in the books of the
banking company standing to his credit.
104..State Bank of India was established under sec 3 of the State Bank of India Act,1955
to take over the undertaking of the then Imperial Bank and to carry on the business of
banking and other business in accordance with that act.
.. The Central Government can give directions to SBI on matters of policy involving
public interest in consultation with the Governor of RBI and the Chairman of the State
Bank.
106..The State Bank will act as an agent of RBI at the places where it has a branch and
where RBI has no branch.
.. To handle government and other business as required by RBI.
.. The terms and conditions shall be as agreed between them.
107.. The Central Government may after consultation with the SBI and RBI by order in
writing authorize a subsidiary bank to undertake other form of business.
..The State Bank is empowered to inspect the subsidiary banks
..The auditors are appointed by State Bank of India in consultation with RBI
109.. Regional Rural Banks have the holding pattern such as Central Government 50% ,
Sponsor Bank 35% and State Government 15%
Two or more RRBs may be amalgamated by the Central Government by
notification in the Official Gazette

113.. In respect of Nationalized Banks, the shares other than those held by the Central
Government are freely transferable. No shareholder other than the Central Government
can exercise voting rights in excess of 1 % of the total voting rights of all the
shareholders
114..The directors of Nationalized banks are nominated by the Central Government or
elected from shareholders.

.. Among others one Chartered Accountant with not less than 15 years of experience
nominated in consultation with RBI.
.. Not more than 6 directors to be nominated by Central Government
117.. State Bank of India act was amended to divide capital into shares of Rs.10 each
instead of Rs.100/ The Banking Companies (Acquisition and Transfer of Undertakings) Act
amended to facilitate public holdings of shares.
Authorized capital could be up to Rs.1500/- crore divided into shares of Rs.10/each and also to increase or reduce the authorized capital between Rs.1500 crore
and Rs.3000 crore
119..The minimum paid up capital and reserves to start banking business by a cooperative
bank is not less than Rs.1.00 lac
.. A co-operative bank not to lend on its own shares/ unsecured loans or advances to its
directors/ any company or associates wherein the director has interest
120.. Restrictions not applicable for unsecured loans/ advances made by a co-operative
bank against bills for supplies or services made to government or bills of exchange
arising out of bona fide, commercial or trade transactions.
.. A co-operative bank to get permission of RBI to open a branch in a new place.
144.. When the customers signature on the cheque is forged there is no mandate to the
bank to pay. As such a banker is not entitled to debit the customers account on such
forged cheque.
.. The drawee of a cheque having sufficient funds of the drawer in his hands properly
applicable to the payment of such cheque must pay the cheque when duly required to do
so, and, in default of such payment, must compensate the drawer for any loss or damage
caused by such default.
145..Payment in due course means payment in accordance with the apparent tenor of
the instrument in good faith and without negligence to any person in possession thereof
under circumstances which does not afford a reasonable ground for believing that he is
not entitled to receive payment of the amount therein mentioned.
Interest free equity loan
National equity loan

mahila udayam scheme

1. project cost 50 lakhs

2. Margin 10%
3. Bank loan 65%
4. Equity loan 25%
5. Max. 10 lakhs

10 lakhs
10%
65%
25%
2.5 lakhs

6. Both gents and women

7. refinanace from SIDBI
8. Repayment period 7 years

women only
reimbursement from SIDBI
7 years.

PRODUCTS FROM ECGC

POLICY
1. to exporters
2. importer risk
3. contract, shipment,standard,
Specific, commercial, political,
Exchange rate fluctuations,small
Exporter policy

GUARANTEE
to banks
exporter risk
pre, post shipment guarantee,
production finance, finance,
performance, transfer guarantee

Educational loan
local studies 10 lakhs, foreign studies 20 lakhs, nil margin upto 4 lakhs, no collateral
upto 7.5 lakhs, simple interest, interest subsidy, holiday period.
Housing loan to rural poor
Project cost 50000, loan 32500, subsidy 10000 , margin 7500
Financial inclusion
Poor people, no minimum balance, no frill account, no KYC, loan, atm card, cheque book
facility, concession in service charges.
Micro
1.
2.
3.
4.
5.

Service. Investment in plant and machinery not to exceed 10 lakhs

Manufacturing.Investment in plant and machinery not exceed 25 lakhs
CGFT cover from SIDBI from 75% to 85%
Included in Priority sector advances
Minimum 40% target on total SME advances upto loan Rs.5 lakhs

Q1. The debt equity ratio

1] compares the investment of owners to long term
borrowings;
2] is used to determine the mix of term borrowings and stake
of owners and in making up the capital structure of the
organization satisfactory;
3] indicates the soundness of the long term financial policy of
the unit;
4] all the three above;
5] none of these.
ANS D

Q2. Statutory Liquidity Ratio [SLR] for scheduled bank is

regulated by the Reserve Bank of India under the powers
conferred upon it by
1] RBI Act, 1934;
2] BR Act, 1949;
3] Companies Act, 1956;
4] Union Ministry of Finance;
5] none of these.
ANS B
Q3. One of the important means of bridging the gap between
the working capital required and the permissible bank finance
finance is the net working capital or the liquid surplus
available as per the last balance sheet of the unit. Net
working capital is
1]
2]
3]
4]
5]

The equity of the owerns stake in the business;

the amount of current assets ;
the excess of current assets over current liabilities;
only [1] and [2] above;
none of these.
AND C

Q4. A bill discounted by the Bank is returned unpaid as

dishonoured. The bank will
1] debit the party account without prior notice;
2] debit the party account with prior arrangement;
3] take a fresh bill and adjust the amount with the dishonoured
bill and the proceeds thereof ;
4] keep the dishonoured bill pending for some time;
5] none of these.
ANS B
Q5. The Government securities are called gilt edged securities
because
1] the carry fixed rate of interest;
2] they are easily realizable and title thereto is not difficult to
ascertain;
3] their prices do not fluctuate adversely;
4] all of the above;
5] none of these.
ANS D
Q6. In partnership firm, one of the partners is a sleeping
partner and has no authority to operate the account as per
operational instructions; one day he writes to the Bank to stop
payment of a particular cheque. In such a case

1] refuse to accept such stop payment instructions;

2] we will have to honour his request;
3] the matter will be referred to other partners for their
confirmation;
4] payment of the cheque should be postponed till the
confirmation in writing from other partners;
5] none of these.
Ans b
Q7. The shorter the length of the operating cycle
1]
2]
3]
4]
5]

the higher is the need for the working capital;

the higher is the need for the term loans;
the lesser is the need for working capital;
both [1] and [2] above.
none of these.
Ans c

Q8. The prime lending rate of a Bank is required to be

approved by
1]
2]
3]
4]
5]

its chairman
its Board of directors;
Reserve Bank of India
Indian Banks Association;
The Ministry of Finance.

Ans b.