21 Banking Theory Q & A

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epted within a reasonable time after its date and before its maturity. 5) The endorsements appearing upon a negotiable instru

in order in which they appear thereon.

Explain the features of Fixed Deposit Receipt.

ED DEPOSIT ACCOUNT. The main features of fixed deposit are as under:

is a certain sum of money kept with the banker for a specified period e.g. 15 days to five years or more. It is withdrawn able oer the maturity of the fixed periods or subject to so many days notice as the case may be. Often bankers permit the customerhdraw their money prior to expiry of the fixed period as a sort of convenience and in such cases interest is fore-gone or premaayment is allowed on a loan basis. 2) On the deposit being made, the banker issues deposit acknowledging the claim o f thetomer on the bank. 3) The general relationship between banker and customer in respect of fixed deposit is that of debtor or cr

e deposit cannot be deemed to be held in trust. 4) Not negotiable: Fixed deposit receipt is not a negotiable instrument. The bauld not pay the fixed deposit to any third party even if it bears the signature of the depositor for a mere endorsement of fixed

posit does not make it negotiable. The depositor has to execute assignment deed and notify to the bank in case he wants to trdeposit receipt to any one else. 5) Fixed deposit accounts may be opened in the name of minors and they can give valid discthe deposit amount repaid to them.5. Explain the different kinds of Cheque Crossing

OSSING OF CHEQUES - Crossing of cheques: meaning and object of crossing of cheques: Crossing of cheque meanswing two parallel transverse lines on the left hand top corner of a cheque. Crossing on a cheque is a direction to the paying bhe drawer that payment should not be made across the counter.

PES OF CROSSING - There are two types of crossing: (A) General crossing (B) Special crossing

neral Crossing: According to Section 123 of the Negotiable Instruments Act, 1881. Where a cheque bears across its face anition of the words and company or any abbreviation therefore, between two parallel transverse lines, or of two parallel transs simply, either with or without the words not negotiable, that addition shall be deemed a crossing and the cheque shall be

emed to be crossed generally(B) Special Crossing: Section 124 defines special crossing as follows: Where a cheque bearsoss its face an addition of the name of a banker with or without the words not negotiable, that addition shall be deemed a cro the cheque shall be deemed to be crossed specially and to be crossed to that banker.6. What are the essential requisites of a cheque?

e drafting of cheques includes the following: Dating of Cheques: A cheques should be properly dated if it is to be honoured. I

que having no date is presented to the bank, the cheque will be returned with the remark should bear the date. In case a ch

not been dated by a drawer, any holder can insert a date. If a cheque dated 1st

February 2002 bears at the foot the following

rds: Must be presented for payment on or before February 1the banker can dishonour such a cheque, if the cheque is presen

er 1st

February 2002. Payee:Where a cheque is not payable a bearer, the payees name must be written, or otherwise indicat

h certainty. A normal cheque is one in which there is a drawer, a drawer bank and a payee or no payee but bearer (Sir Jo hn

get). A cheque may be drawn payable to or to the order of the drawer. Amount of the Cheque: The amount to be paid to the

ee must be clearly stated, both in words and figures. No blank space should be left before and after the amount stated in wor

res. If the drawer leaves blank spaces carelessly before or after the words and figures, thus facilitating the alteration of the am

if the banker pays the amount as altered, the latter is entitled to debit the customers account with the amount actually paid.

nature: The cheque must be signed by the drawer himself or by the person authorized by him. If the drawer happens to be illques can be drawn by means of the thumb impression of the drawer duly witnessed by a person known to the banker, prefera

presence of the banker himself. Delivery: In order that the drawer of a cheque may be held liable thereon, he must have ha

r the instrument, complete in all respects, to the payee with the intention that the proceeds thereof shall be paid to him or his

o bearer. Unless the cheque is properly delivered, the drawer dos not become liable thereon.

What is Pass Book? Give its specimen.

SS BOOK The pass book is a replica of the customers account in the banks ledger. The pass book need not be presented a

h the cheque for payment. The pass book may be sent periodically to the bank and the bank enters all the transactions as fou

own book in the pass book. The customer may compare the entries in the pass book with those in his own cash book and intim

he bank any discrepancies so that they may be set right.The pass book is small handy book which contains the record of

nsactions in debits and credits between a banker and his customer. So, the bank pass book enables a client to check up his

ounts to his satisfaction and find out any discrepancy. It also contains rules and regulation governing current and saving acco

re is any discrepancy, the customer should bring it to the notice of the bank and get it corrected. Entries in the pass book will de only by the banker and the customer should not make any entry therein. When a pass book is lost, the banker will issue a

plicate. This will be marked duplicate. For issuing a duplicate pass book banker collects some charges from the customer. W

s book is complete with entries, the banker will issue a continuation pass book . In the first page of a specimen form of a pa

the following:

e Particulars WithdrawalsDr

DepositsCr

Balance Initials

Define the term Banker and Customer.



Definition of Banker. Dr. Herbert L. Hart, the author of the well knows treatise on Law of Baking says, A banker is one w

ordinary course of his business, honours cheques drawn upon him by persons from and for whom he receives money on cur

ounts. According to this definition, the essential function to enable a person or firm or institution to be regarded as a banker o

k, is that of receiving current deposits against which cheques may be drawn. (1) Take deposit accounts, (2) take current acco

issue and pay cheques, and (4) collect cheques crosses or uncrossed, for his customers. Customer: A customer is a perso

om the banker has some regular and formalized banking business. The important feature in this regard is the nature of the

nsactions and not the frequency of transactions. The dealing with the banker should be of a banking nature and regular in orde

ke a person a customer of the banker. Some casual services rendered by a banker to a person which are not of a banking na

ld not entitle that person to be treated as customer. In the case of new customer, bankers do take considerable care in order

fy the bona fides of the customer before they allow him to open an account.

9. Explain the different types of loans and advances provided by commercial banks.

CLASSIFICATION OF LOANS AND ADVANCES According to the Banking regulations Act, 1949, the loans and advanc

nted by banks can be broadly classified into (i) secured and (ii) unsecured advances. 1) Cash Credit 2) Overdraft 3)Loans 4

counting of Bill of Exchange. Cash Credit: under this system, the banker permits his customers to borrow money up to a par

t against the security of tangible assets or guarantees. The customer withdraws cash from this account as and when he need

ds and deposits any amount of money which he finds surplus with him. The cash credit account is thus an active and running

ount to which deposits and withdrawals may be made frequently. Overdraft: when a current account holder is permitted by t

ker to draw more than what stands to his credit, such an advance is called an overdraft. This arrangement of overdraft facility

extended to the current account holders either on giving some collateral security or on the personal security of the borrower.

ans: sanctioning of a specified lump sum amount by the banker to a customer is called a loan. Once a loan is sanctioned and

nsferred to the customers current account, the customer is required to pay interest on the full amount irrespective of the fact t

ount is used or not A loan once repaid in full or in part cannot be withdrawn again by the borrower unless the banker sanct ion

sh loan. This is the aspect which differentiates it from the cash credit. Discounting of bill of Exchange: advances are also gdiscounting of bills of exchange. Under the scheme of Bill of Exchange the holder of the bill will receive payment mentioned th

the maturity of the bill is not able to wait till the date of maturity and requires cash urgently, he can sell at a discount.

10. Explain the functions of Commercial BanksNCTIONS OF COMMERCIAL BANKSAccording to the Banking Regulation Act, 1949, Banking means the accepting for the

pose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdraw able by

que, draft, order or otherwise. The business of commercial bank is primarily to hold deposits and make loans and investmen

object of securing profits for its shareholders. Receiving deposits from the public. An important function of a commercial b

attract deposits from the public. Those who have cash balances but who want to keep them in a safe place, deposit the same

k. The commercial bank not only protects them but also provides the depositors with a convenient method for transferring fun

ough the use of cheques. It accepts deposits from every class and from every source and in all cases, without exception, it

ertakes to repay the money, either in part or in full, in legal tender money. Deposits are of various types-demand deposits, sa

posits and fixed deposits. Making loans and advances. The second major function of a commercial but is to make loans andances but of deposits of the public. Direct loans and advances are given to all types of persons, particularly to businessmen a

estors, against personal security, gold and silver and other movable and immovable assets. The most common way of lending

rdraft facilities i.e., allowing the borrower to overdraw his current account and also through discounting bills of exchange. On

e hand, the depositors are granted facilities not only to protect their surplus funds but also for safe investment and, on the othe

rchants and the manufacturers are enabled to obtain adequate funds for their operations. The bank is thus a middlemen or an

rmediary mobilising the savings of the people on the side, and using only those who should be allowed to borrow, the comme

k helps in the development of those industries and occupations which performs the most useful service to the community. U

Cheque system. Apart from these two major functions, a commercial bank performs a number of other useful functions to th

mmunity. For instance, it has developed the cheque system, under which the depositors are given the right to withdraw from th

posits any amount, at their convenience by means of cheques. While the currency note is legal tender money, the cheque serv

y a limited circle but is much more convenient and safe. The cheque system is the most developed credit instrument known tonTransfer of funds. Another function of a commercial bank is to provide facilities for transfer of funds from one part of the cou

another or from one country to another. This may be done either by the cheque itself or through a bank draft. Any amount of m

be transferred cheaply by these methods. Other functions. Other miscellaneous functions performed by a commercial bank

udes the provision of safety vaults or lockers to keep valuable articles of customers in safe custody, acting as agents for its

tomers to buy and sell gold and silver and securities on their behalf, making and receiving payments on behalf of its deposito

uing letters of credit and travellers cheques for the convenience of its customers and, in general pe rforming all functions whic

g in profits.

11. Explain the various Credit Control methods of Central Bankntrol of credit is an important function of all central banks. It is through the control of credit that a central bank hopes to carry o

netary policy. Various weapons or methods are available to a central bank to control credit creation and contraction by comme

ks. Bank Rate Policy Whenever a commercial bank needs additional cash, it can obtain the same from the Reserve Bank o



a. Either the scheduled bank rediscounts some of its securities with RBI or it may borrow from the latter against these securit

er case, RBI accommodates a scheduled bank. For this service rediscounting and giving advance-RBI charges interest at a r

ch is known as the Bank Rate at the Discount Rate. Open-market Operations Deliberate and direct buying and selling of

urities and bills in the money market by the central bank, on its own initiative, is called open-market operations. The theory of

rket operations is as follows: In periods of inflationary situation when bank credit should be contracted, RBI will sell in the mar

class bills in its possession. Buyers of these bills, whether they are scheduled banks themselves or others, make payments t

through scheduled banks. Since the latter hold certain reserves with RBI, payment by scheduled banks to RBI actually mean

uction in the size of the cash reserves held by scheduled banks with RBI. Reduction of cash reserves forces scheduled banks

uce their loans and advances and at the same time to refuse further loans. Thus, excessive demand for goods and services b

bank loans, and which is responsible for inflationary conditions, will be reduced. Accordingly, inflationary pressure will be chec

sh Reserve Ratio (CRR) Originally, the principle of requiring member-banks to maintain a minimum percentage of their time

mand liabilities with the central bank began in the United States of America. India adopted it in 1935 under the Reserve Bank

a Act, 1934. Minimum cash reserve requirements were fixed for three important reasons: to ensure the liquidity and solvency

vidual scheduled banks and of the banking system as whole; to provide the central bank with supply of deposits for local

erations; and To influence and ultimately restrict scheduled banks extension of credit. Margin Requirements A scheduled b

never lend up to the full amount of the value of a security but lends something lower. Suppose, a security is worth Rs. 1,000,

k may lend up to Rs. 700 and keep a margin of Rs. 300. The bank is said to keep a 30 per cent margin as a cushion against

line in the value of the security. Scheduled banks may be directed by RBI to fix higher or lower margins. Suppose, scheduled

ordered to keep 40 per cent margin while lending, then they can lend up to 60 per cent of the value of a security. If the margi

ed to 100 per cent they ca lend nothing. Regulation of Consumer Credit Originally used in the USA since the beginning of

r II, regulation of consumer credit is now used extensively in many countries. During World War II, an acute scarcity of goods

and the position was worsened in the USA by the system of bank credit to consumers to enable them to buy durable and sem

able consumer goods through instalment buying.12. What are the functions of Reserve Bank of India?

NCTIONS OF THE RESERVE BANK OF INDIA (RBI) As the central bank of the country, the Reserve Bank of India performs

traditional functions of a central bank and a variety of developmental and promotional functions. The Reserve Bank of India A

34, confers upon it the powers to act as note-issuing authority, baker to the government and bankers bank. The Banking Regu

t, 1949, confers vast powers on RBI to control the Indian banking system and the money market in India. Reserve Bank as N

uing Authority The Indian currency consists of one- rupee note and coins (including subsidiary coins) issued by the Govern

ndia and bank notes issued by RBI. As required by Section 38 of the RBI Act, 1934, the Government of India put into circulati

e-rupee coins and note through RBI only. RBI has the sole right to issue all currency notes in India. The note issued by RBI an

e-rupee notes and coins issued by the Government are unlimited legal tender. RBI also bears the responsibility of exchange

rency notes and coins into those of other denominations as required by the public. Reserve Bank as Banker to Governmen

cording to Section 20 of RBI Act, 1934 it is obligatory for RBI to transact government business including the management of th

blic dept of the Union. Section 21 requires the Central Government to entrust RBI all its money, remittances, exchange and bansactions in India and, in particular, deposit free of interest, all its cash balances with the Bank. In terms of Section 21-A, the

serve Bank performs similar functions on behalf of the State Governments. The Bank has entered into agreements with the Ce

State Governments for carrying on these functions. Reserve Bank as Bankers Bank Reserve Bank is the banker to the b

mmercial banks, co-operative banks and Regional Rural Banks (RRBs) This relationship is established once the name of a ba

uded in the Second Schedule to the Reserve Bank of India Act, 1934. Such banks are called the scheduled banks.A Schedu

nk is a bank included in the Second Schedule to the Reserve Bank of India Act, 1934. The Reserve Bank is empowered to inc

he Second Schedule the name of a bank which carries on the business of banking in India and which satisfies certain conditio

wn in Section 42(6). Reserve Banks as Lender of the Last Resort As the banker to the banks, RBI not only keeps the cas

ances of scheduled banks but also acts as the lender of last resort. Under Section 17 of RBI Act, 1934, scheduled banks can

ommodation from RBI in times of need or financial stringency. RBI provides this accommodation to scheduled banks in two w

a) rediscounting eligible bills offered by scheduled banks; and b) Loans and advances to scheduled banks against certainurities. Reserve Bank as Controller of Credit RBI is the controller of all bank credit in the country. As such it has the power

uence the volume of credit created by banks in India. It can do so by: a) changing the bank rate, b) through open market

erations, and c) Through changing the statutory cash reserve ratio and the statutory liquidity requirements.

13. Explain the different types of Endorsements.

FINITION OF ENDORSEMENT Endorsement is derived from the Latin term dorsum, meaning upon the back which indicat the usual place of an endorsement is on back of the instrument. KINDS OF ENDORSEMENTS According to the Negotiableruments Act, 1881, endorsement may take any of the following terms: 1.General or Blank Endorsement: if the endorser jussignature without specifying the name of the name of the endorsee, the endorsement is said to be blank.(Section 16) The effeh an endorsement makes the instrument payable to bearer even though originally payable to order and negotiation takes placre delivery. 2.Special or Full Endorsement: If the name of the endorsee is specified in whose favour it is being endorsed, ah the signature of the endorser, the endorsement is called endorsement in full (Section 16). If in the above illustration the wordA Kumaran ossr pay to A. Kumaran or order are made, such endorsement is called endorsement in full. If such an endorse



made, the banker should make payment either to the endorsee or to his order. The instrument having such endorsements shaotiated by means of endorsement and delivery. 3. Conditional Endorsement: It is an endorsement under which the endors

wn some condition to be fulfilled by the payee before making the payment. This type of endorsement involves a special probleause, according to the definition of a cheque, it is an unconditional order payable on demand. That is, cheque cannot be madable on the happening of certain conditions and therefore it ceases to be a cheque. For example, endorsement pays to X aft

ns the enclosed receipt. 4.Sans Recourse Endorsement: In this case, the endorser makes it clear to the endorsee that theorser would not be liable in case the instrument is dishonoured. This means that further recourse cannot be taken against theorser. For example: Pay to X without recourse to me. 5. Restrictive Endorsement: Restrictive endorsement, by written wordtricts the right of further negotiation. In this case, an endorser specifies that the banker should pay the amount to a particularorsee only. Example: Pay to X only. 6. Partial Endorsement: If endorsement is made for the part of the amount of the instrucalled partial endorsement. But such an endorsement is not valid.14. Who is a Collecting Banker? Explain his important functions

e term Collecting Banker refers to function of receiving cheques by a banker from customers for the purpose of collecting theceeds and crediting them to the respective customers account. In other words, the banker who is deputed to collect the am ou

cheque from another banker is called the collecting banker. Thus, collecting banker can be describes as a link between the p

a cheque and its drawee. Banker duty and agency Functions: While collecting a cheque for a customer, the relationship bet

baker and the customer is converted into the agent and customer. As an agent he has certain duties to be performed as state

ow: 1.Presentment of cheque without delay: It is the duty of the bank to present the cheques for payment without delay. It

presented to the drawee bank within a reasonable period of time. In case the collecting banker should present the cheque the

after receiving the same. In case of outstation cheques, he should mail them to the drawee banker on the day after it is rece

. Reasonable time depends upon the circumstances of each case Reasonable time is determined having regard to: a) The na

he credit instrument, b) Usage of trade and bankers, c) Facts of a particular case. 2.To serve notice of dishonour: In case

que is returned to the collecting banker without payment for one reason or the other, the banker must serve a notice of disho

his customer to enable the latter to claim the amount from previous parties including the drawer. If the banker fails to send suc

ce within reasonable time, he will; be liable to the customer for any loss suffered by him as a result of such omission on the p

banker. 3.Duty to make over the proceeds: In crediting the proceeds of a draft paid into the bank for collection, to the acco

customer there should not be any delay on the part of the collecting banker. The draft should be issued strictly in accordance

instructions of the customer. Of the banker is negligent in this behalf, he would be held liable. in Bank of Bihar Limited vs. Ta

ob Dealers, Calcutta Limited, it was held that the bank was negligent in having sent the draft by ordinary post. The drafts shou

refore be sent by registered post only or according to the instructions given to the collecting banker.

Briefly explain the Provision of Banking Regulation Act dealing with licensing of Banks.

ENSING OF BANKING COMPANIES Section 22 of the Banking Regulation Act, 1949 contains a comprehensive system of

nsing of banks by the Reserve Bank of India (RBI). This section makes it essential for every banking company to hold a licens

ued by RBI. The Reserve Bank is required to conduct an inspection of the books of the banking company issue a license, if it

sfied that the following conditions are fulfilled: a) that the company is or will be in a position to pay its present or future depos

as their claims accrue; b) that the affairs of the company are not being, or are not likely to be, conducted in a manner detrimeinterest of its present or future depositors; c) that the general character of the proposal management of the company will not

udicial to the public interest or the interests of its depositors; d) that the company has adequate capital structure and earning

spects; e) that the public interest will be served the grant of a license to the company to carry on banking business in India; f)

ing regard to the banking facilities available in the proposed principle area of operations of the company, the potential scope

ansion of banks already in existence in the area and other relevant factors, the grant of license would not be prejudicial to the

eration and consolidation of the banking system consistent with monetary stability and economic growth. G) Any other conditio

lment of which, in the opinion of the Reserve Bank, is necessary to ensure that the carrying on of banking business in India b

mpany will not be prejudicial to the public interest or the interests of the depositors. In case of granting a licence to a banking

mpany incorporated outside India, besides the above-mentioned conditions, the following additional conditions (sub-section 3A

o be fulfilled, viz. 1. the carrying on of banking company business by such company in India will be in the public interest; 2. tha

vernment or law of the country in which it is incorporated does not discriminate in any way against banking companies registe

a, and 3. That the company complies with all the provisions of the Act applicable to such companies Opening of Branches

ction 23 requires every banking company (Indian as well as foreign) to take RBIs prior permission for opening a new place of

iness in India or to change the location of an existing place of business in India. Similar permission is also necessary for India

ks for opening a new place of business outside India. But for (i) a change of location within the same city, town or village (bot

a and abroad), and (ii) opening of a temporary place of business for a maximum period of one month within a city, where the

king company already has a place of business, for the purpose of providing banking facilities to the public on the occasion of

ibition, a conference or a mela, etc. no permission is required. RBI takes into account the following factors in deciding the

plication of the bank for opening branches: 1. the financial condition and history of the company, 2. the general character of its

nagement, 3. the adequacy of its capital structure and earning prospects, and 4. Whether public interest will be served by the

ening/change of location of the place of business. If RBI is satisfied by an inspection or otherwise about the above-mentioned

ors, permission is granted by RBI.

16.What are the services offered by commercial banks to customers?



commercial bank" is what is commonly referred to as simply a "bank". The term "commercial" is used to distinguish it from anvestment bank," a type of financial services entity which, instead of lending money directly to a business, helps businesses rainey from other firms in the form of bonds (debt) or stock (equity). The primary operations of banks include:

Keeping money safe while also allowing withdrawals when needed 2.Issuance of checkbooks so that bills can be paid and othds of payments can be delivered by post 3.Provide personal loans, commercial loans, and mortgage loans (typically loans tochase a home, property or business) 4.Issuance of credit cards and processing of credit card transactions and bill ing 5.Issua

bit cards for use as a substitute for checks 6. Allow financial transactions at branches or by using Automatic Teller Machines (AProvide wire transfers of funds and Electronic fund transfers between banks 8.Facilitation of standing orders and direct debitsments for bills can be made automatically 9.Provide overdraft agreements for the temporary advancement of the Bank's ownney to meet monthly spending commitments of a customer in their current account. 10.Provide internet banking system to faccustomers to view and operate their respective accounts through internet. 11.Provide Charge card advances of the Bank's oney for customers wishing to settle credit advances monthly. 12.Provide a check guaranteed by the Bank itself and prepaid b

tomer, such as a cashier's check or certified check. 13.Notary service for financial and other documentsWhat are the functions of central banking?

e important functions of Central Banks are as follows:- 1- Sole right of note issue - The Central Bank in every country, now, hanopoly note issue. The issue of notes is governed by certain regulation which is enforced by the state. 2-Banker to the state - ntral Bank acts as a banker to the government. It holds cash balances of the government free of interest. 3-Banker's bank - Thtral bank acts as a banker to the commercial banks. 4-Banker's clearing house - The Central Bank acts as a clearing house folement of mutual obligations of different commercial banks. If a difference exists, it is paid by a cheque drawn on the banksounts carried at the Central Bank. 5-Lendor to the last resort - The Central Bank helps the member banks in times of crisis. 6ancial agent - The Central Banks act as financial agents for the government. It is an agent for the government in purchasing aing of gold and foreign exchange. 7-Effective monetary policy - The aim of the government is to create employment in the coust undue inflation and achieve a favorable balance of payment. 8-External functions - The Central Bank also performs a numernal functionsSupervision of the banking system: Central bank supervises the banking system of the country. Central may be responsible

king system. They collect information from commercial bank and take necessary decision by two ways- a) bank examine andk regulation 2. Advising the government on monetary policy: The decision on monetary policy may be taken by the centrk. Monetary policy refers to interest rates and money supply. The central bank will corporate with the government on economcy generally and will produce advice on monetary policy and economic matters, including all the statistics. 3. Issue of bankn

e central bank controls the issue of banknotes and coins. Most payment these day do not involve cash but cheques, standing ect debit, credit cards and so on. Nevertheless, cash is important as bank's cash holdings are a constraint on creation of credihave seen.

Acting as banker to other banks: The Central bank will act as banker to the other banks in the country. As well as holdingounts with international bodies like IMF World bank. It is a common habit for the central bank to insist that the other banks horest bearing reserves with in proportion to their deposit. 5. Acting as banker to government: Normally a central bank acts ernment's banker. It receives revenues for Taxes and other income and pay out money for t6he government's expenditure. Uill not lend to the government but will help the government to borrow money by the sales of its bill and bonds. 6. Raising mothe government: The government Treasury bill and bond markets are covered by the central bank. While sometimes the trea

ministry of finance handle

Narrate the advantages of unit banking.t banking system has the following advantages:Local Development: Unit banking is localized banking. The unit bank has the specialised knowledge of the local problemves the requirements of the local people in a better manner than branch banking. The funds of the locality are utilised for thelopment and are not transferred to other areas 2. Promotes Regional Balance: Under unit banking system, there is no tranources from rural and backward areas to the big industrial commercial centres. This tends to reduce regional in balance. 3nagement: The management and supervision of a unit bank is much easier and more effective than that under branch btem. There are less chances of fraud and irregularities in the financial management of the unit banks.nitiative in Banking Business: Unit banks have full knowledge of and greater involvement in the local problems. They aition to take initiative to tackle these problems through financial help. 5. No Monopolistic Tendencies: Unit banks are gene

all size. Thus, there is no possibility of generating monopolistic tendencies under unit banking system.No Inefficient Branches: Under unit banking system, weak and inefficient branches are automatically eliminated. No protecvided to such banks. 7. No diseconomies of Large Scale Operations: Unit banking is free from the diseconomies and pro

arge-scale operations which are generally experienced by the branch banks.Point out the defects and difficulties of commercial banks in India.

se nc e of pr op er re co rd s : I t be co m es di f f ic ul t to as ce rt ai n th e to ta l indebtness of some farmers becauseence of proper records of landrights, which creates problem of over financing or problem of recovery.2. Difficulty in verifyingsation of loans: There is often misuse of funds in case o f m edium term loans. Th is creates d iff icu lt y in veactual utilisation of funds. For e.g. in case of pump sets the dealer wouldsell an old set instead of new onch bank wou ld sancti on him the loan. Farmer would get additional cash to serve his short- term needs.3 . D i f f i c ug i n g t h e c r e d i t wo r t h i n e s s : D u e t o l a c k o f i n t i m a t e k n o w l e dg e o f t h e c h a r ac t e r o f t h e b o r r o w e ricult to judge their creditworthiness.4. Lack of suff icient supervision: There is no suff icient supervisorye bank as a result there is misuse of loans, which plugs in loopholes.

well-developed money market is a necessary pre-condition for the effective implementation of monetary policyntral bank controls and regulates the money supply in the country through the money market. However, unfortun
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Indian money market is inadequately developed, loosely organised and suffers from many weaknesses. Major ddiscussed below:

Dichotomy between Organised and Unorganised Sectors:The most important defect of the Indian money market is its divi two sectors: (a) the organised sector and (b) the unorganised sector. There is little contact, coordination and cooperation bettwo sectors. In such conditions it is difficult for the Reserve Bank to ensure uniform and effective implementations of monetarcy in both the sectors. 2. Predominance of Unorganised Sector: Another important defect of the Indian money market is itsdominance of unorganised sector. The indigenous bankers occupy a significant position in the money-lending business in theas. In this unorganised sector, no clear-cut distinction is made between short-term and long-term and between the purposes ons. These indigenous bankers, which constitute a large portion of the money market, remain outside the organised sector.erefore, they seriously restrict the Reserve Bank's control over the money market,Wasteful Competition: Wasteful competition exists not only between the organised and unorganised sectors, but also amombers of the two sectors. The relation between various segments of the money market are not cordial; they are loosely con

h each other and generally follow separatist tendencies. For example, even today, the State Bank of Indian and other commks look down upon each other as rivals. Similarly, competition exists between the Indian commercial banks and foreign ba

sence of All-India Money Market: Indian money market has not been organised into a single integrated all-Indian markeded into small segments mostly catering to the local financial needs. For example, there is little contact between the money mhe bigger cities, like, Bombay, Madras, and Calcutta and those in smaller towns.nadequate Banking Facilities: Indian money market is inadequate to meet the financial need of the economy. Although the

en rapid expansion of bank branches in recent years particularly after the nationalisation of banks, yet vast rural areas sthout banking facilities. As compared to the size and population of the country, the banking institutions are not enough.Shortage of Capital: Indian money market generally suffers from the shortage of capital funds. The availability of capitalney market is insufficient to meet the needs of industry and trade in the country. The main reasons for the shortage of capilow saving capacity of the people; (b) inadequate banking facilities, particularly in the rural areas; and (c) undeveloped b

bits among the people. 7. Seasonal Shortage of Funds: A Major drawback of the Indian money market is the seasonal striredit and higher interest rates during a part of the year. Such a shortage invariably appears during the busy months from Nov

une when there is excess demand for credit for carrying on the harvesting and marketing operations in agriculture. As a resrest rates rise in this period. On the contrary, during the slack season, from July to October, the demand for credit and the rest decline sharply. 8. Diversity of Interest Rates: Another defect of Indian money market is the multiplicity and disparest rates. In 1931, the Central Banking Enquiry Committee wrote: "The fact that a call rate of 3/4 per cent, a hundi rate oft, a bank rate of 4 per cent, a bazar rate of small traders of 6.25 per cent and a Calcutta bazar rate for bills of small trader oft can exist simultaneously indicates an extraordinary sluggishness of the movement of credit between various marketsrest rates also differ in various centres like Bombay, Calcutta, etc. Variations in the interest rate structure is largely due to the

mobility because of inadequate, costly and time-consuming means of transferring money. Disparities in the interest rates advect the smooth and effective functioning of the money market.Absence of Bill Market: The existence of a well-organised bill market is essential for the proper and efficient working of rket. Unfortunately, in spite of the serious efforts made by the Reserve Bank of India, the bill market in India has not yet beeeloped. The short-term bills form a much smaller proportion of the bank finance in India as compared to that in the advntries.Analyse the reasons for backwardness of the Indian Money market.

ere are many factors responsible for low agricultural productivity (backwardness of agriculture) which has been summarized bSmall Size of Holdings: The agricultural productivity is low due to small size of holdings. Indeed small size of the farm fails tovide profitable employment to the farmers. In our country average size of holdings is 1.8 hectares while in developed countrie

S.A. it is 122 hectares. Apart from this, subdivision and fragmentation of holdings is another obstacle in the way of low agricultductivity. In this small size of holdings the scientific cultivation with latest techniques is almost impossible.

Vicious Circle of Poverty: To a greater extent, the vicious circle of poverty is also responsible for the poor performance ofculture. The vicious circle of poverty takes the following form in agricultural sector: The crucial deficiencies in Indian agricultu

ate to land, capital and management, etc. which in turn hampers the agricultural productivity. 3. Indebtedness: Another reasoagricultural productivity is the indebtedness of the farmers. To perform the social ceremonies a farmer has to borrow from

neylender at a very high rate of interest. Unproductive borrowings do not add to his income and he always remains under debnsequently, the farmer fails to avail incentives to improve the agricultural production. 4. Inadequate Irrigation Facilities:an farmer is almost dependent on climatic conditions for irrigation. Monsoons are irregular. Only a few farmers avail the facilitation from various sources such as canals, tube wells, etc. Moreover these facilities are found in some areas and where thes

ilable, they are not fully utilized. The result is that the produce is of bad quality and results in low productivity.Lack of Adequate Finance: Availability of finance is the basis of every industry. The supply of finance is inadequate in case oan agriculture. Money is required for short period as well as for long period in order to improve the agricultural production.

cording to All India Rural Credit Survey Committee, in 1950-51 more than 90 per cent of the total agricultural credit was advanmoneylenders. The co-operative societies accounted for about 3 per cent respectively. 6. No Scientific Methods of Cultivat

e ignorance and conservation of Indian farmer also results in the poor performance of agriculture. They do not know the impormodern technology. Still, seeds are sown by wooden ploughs. Poor quality of seeds yields poor quantity of crops. 7. Lack ofrketing Facilities: The defective marketing system also poses difficulties to the farmers. The farmers do not get a due rewardsale of his produce. The middleman takes away portion of their profits. Unless farmers are guaranteed fair and remunerative re is little inducement for agricultural output to increase. Indian marketing has no facilities of godowns and warehousing whereivators may keep their produce for a better price. Moreover, they lack transportation facilities. This results in low price of theduce. 8. Agricultural Research: Undoubtedly, a huge amount of money is spent on agricultural research; still the fruits do noch to the poor cultivators. There is a lack of co-ordination between laboratory and the farm. 9. Lack of Productive Investmen



estment in jewelry, trade and money lending seems to be more attractive. Therefore, there is less investment in land improvemhe absence of productive investment in agriculture, there is little scope for expanding production. 10. Social Factors: In ourntry, poor performance of agriculture is also found due to the operation of various socio economic factors. Illiteracy, ignoranceerstition and conservative outlook stands in the way of the adoption of modern technology. As such, farmers are against the ue manure and chemical fertilizer. Besides, they are prejudiced against killing of monkeys and rats at the farm. 11. Naturalamities: Another reason of low productivity of Indian agriculture is that crops worth crores of rupees are destroyed every yeaoods and other natural calamities. The soil erosion has been regarded as creeping death of the farm. 12. Poor Livestock: T

ality of livestock is very inferior and they are thin and feeble. On account of their poor quality, they are needed in more quantitys unnecessary burden on the poor cultivators. Malnutrition is another cause for the degeneration of cattle in our country. As ault, they suffer from one disease or the other.LandPolicy and Legislation: The piece-meal character of land reform policy and its legislation is greatly, responsible for thkwardness of agriculture. Excessive reliance on the administrative machinery has adversely affected agricultural developmen

ecessary delay in implementation and uncertainty about the rights on land has tended to diminish land productivity.Explain the role of commercial banks in Economic Development

mmercial banks play an important and active role in the economic development of a country. If the banking system in a countrective, efficient and disciplined it brings about a rapid growth in the various sectors of the economy. 1. Banks promote capitalmation 2. Investment in new enterprises 3. Promotion of trade and industry 4. Development of agriculture 5. Balanced develoifferent regions 6. Influencing economy activity 7. Implementation of Monetary policy 8. Monetization of the economy 9. Exmotion cells 1. Banks promote capital formation: Commercial banks accept deposits from individuals and businesses, these

posits are then made available to the businesses which make use of them for productive purposes in the country. The banks arefore, not only the store houses of the countrys wealth, but also provide financial resources necessary for economic dev elopnvestment in new enterprises: Businessmen normally hesitate to invest their money in risky enterprises. The commercial banerally provide short and medium term loans to entrepreneurs to invest in new enterprises and adopt new methods of product

e provision of timely credit increases the productive capacity of the economy. 3. Promotion of trade and industry: With the growmmercial banking, there is vast expansion in trade and industry. The use of bank draft, check, bill of exchange, credit cards an

ers of credit etc has revolutionized both national and international trade. 4. Development of agriculture: The commercial banksticularly in developing countries are now providing credit for development of agriculture and small scale industries in rural areae provision of credit to agriculture sector has greatly helped in raising agriculture productivity and income of the farmers. 5. Baelopment of different regions: The commercial banks play an important role in achieving balanced development in different rehe country. They help in transferring surplus capital from developed regions to the less developed regions. The traders, indusof less developed regions are able to get adequate capital for meeting their business needs. This in turn increases investmen

de and production in the economy. 6. Influencing economic activity: The banks can also influence the economic activity of thentry through its influence on a. Availability of credit b. The rate of interest If the commercial banks are able to increase the am

money in circulation through credit creation or by lowering the rate of interest, it directly affects economic development. A low rrest can encourage investment. The credit creation activity can raise aggregate demand which leads to more production in thnomy. 7. Implementation of Monetary policy: The central bank of the country controls and regulates volume of credit through ve cooperation of the banking system in the country. It helps in bringing price stability and promotes economic growth with in rtest possible period of time. 8. Monetization of the economy: The commercial banks by opening branches in the rural andkward areas are reducing the exchange of goods through barter.The use of money has greatly increased the volume of produ

oods. The non monetized sector (barter economy) is now being converted into monetized sector with the help of commercial Export promotion cells: In order to increase the exports of the country, the commercial banks have established export promotios. They provide information about general trade and economic conditions both inside and outside the country to its customers

e banks are therefore, making positive contribution in the process of economic development.Describe how the Private Sector banks offer precious services rather than public sector banks.

vate And Public Banks Banks have been broadly divided into private and public.A private bank is that in which there are btners, and these attend personally to its management. A public bank is that in which there are numerous partners or shareh they elect from their own body a certain number, who are intrusted with its management.The business of banking consists eceiving deposits of money, upon which interest may or may not be allowed; in making advances of money, principally in the counting bills; and in affecting the transmission of money from one place to another. Banks in metropolitan cities are usuaents of the banks in smaller communities and charge a commission on their transactions.The disposable means of a bank conrst, the capital paid in by the partners, or shareholders. Second, the amount of money deposited by their customers. Thiount of notes they are able to keep out in circulation. Fourth, the amount of money in the course of transmission - that is,

y have received, and are to repay, in some distant place, at a future time.These disposable means are employed - Fcounting bills. Second, in advances of money in the form of cash credits, loans, or overdrawn accounts. Third, in the purchernment or other securities. Fourth, a part is kept in the banker's till, to meet the current demands. Of these four ways of empcapital of a bank, three are productive, and one is unproductive. The discounting of bills yields interest; the loans, and th

dits, and the overdrawn accounts, yield interest; the government securities yield interest; the money in the till yields no intereenses of a bank may be classified thus: Rent, taxes, and repairs of the building or premises in which the business is carri

aries of the officers;stationers' bills for books, paper, notes, stamps, etc.; incidental expenses, as postage, light, heat, etc.Thea bank are that portion of its total receipts - including discount, interest, dividends, and commission - which exceeds the amexpenses. Banks as Commercial Institutions. In commercial language a bank is a repository, or an establishment, for the p

receiving the money of individuals;either to keep it in security, or to improve it by trafficking in goods, bullion, or hange;and, as stated above, it may be either of a public or of a private nature. A public bank is generally regulated by certain

acted by the government of the nation or state, which constitute its charter, limit its capital, and establish the rules by which duct business. A private bank, on the other hand, is merely a contract among individuals, for carrying on a trade in money an



the responsibility of the partners is usually the only security of those who transact business with it.Banks then are pmmercial institutions which by affording credits, or issuing notes, as the representative of money, enable merchants, with glity, to buy and sell commodities, at home or abroad. The produce of one country is thus exchanged with that of another, by

a medium to which an ideal value is attached; hence the great utility of banking establishments in all commercial countries. A tor is an economy is made up af all businesses and firms owned by ordinary members of the general public.It also consist af ate households in which people live..,whereas, public sector is an economy is owned and controlled by a government . It conernment businesses and firms ,and goods and services provided by the government,such as the national health serviccation,jobs,roads,public parks nad law and order Public sector banks are now not anymre less than the private sector bankalso up to the mark and level of the private sector banks,no doubt it will take some more time to come compeletely up to tha

blic Sector bank means any Government Sector Bank/Institute that goes public... means that issues it share to general puo has a greater share of government(more than 50%) so that the main motto of social welfare other than Maximising

mains.Where as Private Sector Banks are those Banks where the management is controlled by Private individuals and Gove

es not have any say in the management of these banks.Maximising profit is the basic motto. public sector banks are those baner the control of government and their prime motive is the welfare of the general public . whereas private sector banks areks run by the private individuals and their prime motive is to earn profits a public sector bank also looks for funding developk in the country as the government has a majority share in it. the first objective would always be to make profit. every organ

ether private or public is here to make profits so that it could justify their existence.but public sector banks involves publicblic here means common people like us.Discuss the credit control methods by Central Bank

e various methods or instruments of credit control used by the central bank can be broadly classified into two categoriantitative or general methods, and (b) qualitative or selective methods.Quantitative or General Methods: The methods used by the central bank to influence the total volume of credit in the btem, without any regard for the use to which it is put, are called quantitative or general methods of credit control. These mulate the lending ability of the financial sector of the whole economy and do not discriminate among the various sectors nomy. The important quantitative methods of credit control are: (a) bank rate, (b) open market operations, and (c) cash-r

o.Qualitative or Selective Methods: The methods used by the central bank to regulate the flows of credit into particular directeconomy are called qualitative or selective methods of credit control. Unlike the quantitative methods, which affect the total v

credit, the qualitative methods affect the types of credit extended by the commercial banks; they affect the composition rathsize of credit in the economy. The important qualitative or selective methods of credit control are;marginal requirements, (b) regulation of consumer credit,(c) control through directives,(d) credit rationing,(e) moral suasio

blicity, and (f) direct action.Describe how the Private Sector banks offer precious services rather than public sector banks rivate cector is an economy is made up af all businesses and firms owned by ordinary members of the general public.It also c

all the private households inch people live..,whereas, public sector is an economy is owned and controlled by a government . It consist of governmentnesses and firms ,and goods and services

vided by the government,such as the national health service,state education,jobs,roads,public parks nad law and order Publictor banks are now not anymre less than the private sector banks.they are also up to the mark and level of the privctor banks,no doubt it will take some more time to come compeletely up to that level..Public Sector bank means anvernment Sector Bank/Institute that goes public... means that issues it share to general public.. It also has a greate

are of government(more than 50%) so that the main motto of social welfare other than Maximising Profit remains.ere as Private Sector Banks are those Banks where the management is controlled by Private individuals and Government doe any say in the management of these banks.Maximising profit is the basic motto.

blic sector banks are those banks run under the control of government and their prime motive is the welfare of the general pubereas private sector banks are thoseks run by the private individuals and their prime motive is to earn profits a public sector bank also looks for funding developmk in the country as the government has a majority share in it. the first objective would always be to make profit. every organiz

ether private or public is here toke profits so that it could justify their existence.but public sector banks involves public also. public here means common peopl

vate And Public Banks Banks have been broadly divided into private and public.A private bank is that in which there are but fetners, and these attend personally to its management. A public bank is that in which there are numerous partners or sharehol they elect from their own body a certain number, who are intrusted with its management.

e business of banking consists chiefly in receiving deposits of money, upon which interest may or may not be allowed; in makiances of money, principally in the

y of discounting bills; and in affecting the transmission of money from one place to another. Banks in metropolitan cities are usagents of the banks in smaller

mmunities and charge a commission on their transactions.The disposable means of a bank consist of - First, the capital paid inpartners, or shareholders. Second,amount of money deposited by their customers. Third, the amount of notes they are able to keep out in circulation. Fourth, thount of money in the course ofnsmission - that is, money they have received, and are to repay, in some distant place, at a future time.These disposable meaployed - First, in discounting


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s. Second, in advances of money in the form of cash credits, loans, or overdrawn accounts. Third, in the purchase of governmer securities. Fourth, a partept in the banker's till, to meet the current demands. Of these four ways of employing the capital of a bank, three are producti one is unproductive. The

counting of bills yields interest; the loans, and the cash credits, and the overdrawn accounts, yield interest; the governmenturities yield interest; the money in the

yields no interest. The expenses of a bank may be classified thus: Rent, taxes, and repairs of the building or premises in whiciness is carried on; salaries of the officers; stationers' bills for books, paper, notes, stamps, etc.; incidental expenses, as postt, heat, etc.

e profits of a bank are that portion of its total receipts - including discount, interest, dividends, and commission - which exceedount of the expenses.nks as Commercial Institutions. In commercial language a bank is a repository, or an establishment, for the purpose of receivi

ney of individuals;either to keep it inurity, or to improve it by trafficking in goods, bullion, or bills of exchange;and, as stated above, it may be either of a public or oate nature. A public bankenerally regulated by certain laws, enacted by the government of the nation or state, which constitute its charter, limit its capit establish the rules bych it is to conduct business. A private bank, on the other hand, is merely a contract among individuals, for carrying on a tradeney and bills; and theponsibility of the partners is usually the only security of those who transact business with it.Banks then are properly commercitutions which by

ording credits, or issuing notes, as the representative of money, enable merchants, with greater facility, to buy and sell commoome or abroad. The produce of onentry is thus exchanged with that of another, by means of a medium to which an ideal value is attached; hence the great utility king establishments in all commercial

ntries.25. What is the role of banks in export promotion?

ere are various functions of the Reserve Bank of India. Besides, other important functions the Reserve Bank of India plays theMonetary Authority and Manager of Foreign Exchange. As the Monetary Authority aims to maintain price stability and ensureequate flow of credit to productive sectors and being the Manager of Foreign Exchange, it seeks to facilitate external trade andment and promote orderly development and maintenance of foreign exchange market in India. In India exports have played a

e in accelerating the economic growth of the country. The initiatives taken by Reserve Bank of India and Government of India tributed to the impressive increase in our exports. Export Credit is an important factor which helps exporters in executing theiort orders efficiently. Export finance is granted in rupees as well as in foreign currency. The RBI has taken some measures to

able timely and hassle free flow of credit to the export sector which includes rationalization and liberalization of export credit ines, flexibility in repayment/prepayment of pre-shipment credit, special financial package for large value exporters, export financultural exports, Gold Card Scheme for exporters etc. The RBI has granted freedom to the Banks to get funds from abroad w limit for exclusively for the purpose of granting export credit in foreign currency. This has enabled banks to increase their lenacity under export credit in foreign currency.What are the instruments of monetary policy of a Central Bank?

netary policy is the process by which the government, central bank, or monetary authority of a country controls (i) the supply oney, (ii) availability of money, and (iii) cost of money or rate of interest to attain a set of objectives oriented towards the growthbility of the economy.[1] Monetary theory provides insight into how to craft optimal monetary policy. Monetary policy rests on ationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply ney. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflathange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is aulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alteney supply and thus influence the interest rate (to achieve policy goals). It is important for policymakers to make credibleouncements. To achieve this low level of inflation, policymakers must have credibleannouncements; that is, private agents meve that these announcements will reflect actual future policy.Distinguish between Unit banking and Branch banking.t banking refers to a single bank which renders services and operates without any branches anywhere. This kind of banking s

ommon in the USA. Restrictive branching laws encourage large numbers of small, independently owned state banks, and largtibank holding companies owning numerous unit banks. Branching laws in most states have been eased in the last several yemitting geographic expansion and branch banking .Unit banking operate one full banking services.nch banking center or financial center refers to a single bank which operates through various branches in a city or in diferent

ations or out of the cities. This kind of banking system is common in India. e.g. State Bank of India. It offers a wide array of face service to its customers Today, branches may also take the form of smaller offices within a larger complex, such as a shoppl.Services provided by a branch include cash withdrawals and deposits from a demand account with a bank teller, financial ad

ough a specialist, safe deposit box rentals, bureau de change, insurance sales (where it is allowed by law), etc.Other financialitutions reduce their costs by having no branches and are sometimes known as virtual banks.nch Banking -1. Efficient,trained and supervised. 2. Larger financial resources in each branch. 3. Delay in Decision-makingy have to depend on the head office. 4. Funds are transferred from one branch to another.Underutilisation of funds by a branuld lead to regional imbalances 5. Exists as improper use of power and authority exist 6. Division of labour is possible and hencialisation possible 7. High competiton with the branches 8. Shared by the bank with its branches 9. Not possible and hence


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bits are high 10. Proper distribution of capital and power. 11. Rate of interest is uniformed and specified by the head office or bnstructions from RBI. 12. Deposits and assets are diversified,scattered and hence risk is spead at various places. 13. Lesserational freedom. 14. Loans and advances are based on merit,irrespective of the status .t Banking 1. Less trained skilled and supervised. 2. Larger financial resources in one branch 3. Time is saved as Decision-m

n the same branch. 4. Funds are allocated in one branch and no support of other branches.During financial crisis,unit bank ha

se down.hence lead to regional imbalances or no balance growth 5. Proper checks are taken up.no misuse of Mismanagemen

ecialisation not possible due to lack of trained staff and knowledge 7. Less competition within the bank 8. Less competition wit

k 9. Possible and less risk of bad debts 10. No proper distribution of capital and power. 11. Rate of interest is not uniformed a

k has own policies and rates. 12. Deposits and assets are nt diversified and are at one place,hence risk is not spread. 13. Mo

erational freedom. 14. Loans and advances can be influenced by authority and power.

Define and mention the components of the money market.

nancial market that works as a conduit for demand and supply of debt and equity capital. It channels the money provided by sdepository institutions (banks, credit unions, insurance companies, etc.) to borrowers and investees through a variety of fina

ruments (bonds, notes, shares) called securities. A capital market is not a compact unit, but a highly decentralized system mahree major parts: (1) stock market, (2) bond market, and (3) money market. It also works as an exchange for trading existing ccapital in the form of shares. The money market is the market where highly liquid, low-risk, short-term debt is traded. It enablporations and other organizations to earn income on surplus cash by lending it to other institutions that need short-term fundsticipants Money market participants are large institutions such as domestic and foreign banks, the U.S. Treasury, federal agporations, insurance companies and pension funds. Securities Money market securities have maturities of one year or less aude Treasury bills, federal agency securities, negotiable bank certificates of deposit, bank deposit notices, bankers' acceptanrt-term participations in bank loans, municipal notes, commercial paper, federal funds, Eurodollars and repurchase agreemen

onomic Impact The money market provides a mechanism for the U.S. Treasury to fund large quantities of debt and for the Feserve Bank to carry out open market operations. Thus, activity in the money market influences interest rates, the growth in theney supply and the shape of the yield curve. Transactions Billions of dollars exchange hands each day in the money market,

ticipants typically trading in multimillion-dollar blocks. Individual Investors Individuals can participate in the money market inpurchasing mutual funds or certificates of deposit, which pool investors' funds and, in turn, invest them in the money market.29. What are the precautions given to a paying banker?

cautions to be Taken by a Paying Banker Meaning of a Paying Banker Precautions: Nature of the Cheque, Branch, ReferencAccount, Working Hours, Unmutilated, Dating, Amount of the Cheque, Material Alteration, Balance in the Account, Signaturewer, Printed Forms, Regularity of Endorsement . 3. Circumstances of Dishonour Countermanding Notice of Death Notice ofolvency Notice of Assignment Garnishee Order Prohibitive Order from Govt. Department Trust Account Signature Difference Onditions: condition,stale,post-dated,damaged,presentation after cash hours,forgery of signature, irregular endorsement . 4. Statection to the Paying Banker Sec 85 (1)- order cheques- payment in due course[Sec 10] Sec 85 (2)- bearer cheque-payment rse Payment in due course: apparent tenor,good faith, without negligence, person in possession . 5. Holder in Due Course (S

nsideration Possessor of bearer cheque or payee or endorsee of order cheque Before the amount became payable No reasonpect the title of the endorser Privilege : Good title, claim on parties, transfer good title . 6. Collecting Banker Meaning Holder fue Agent of the customer Rights of a collecting banker as a holder for value Liabilities of a banker as a holder for value . 7. Du

ollecting Banker Prompt presentation Prompt Credit to Customers Account Prompt Notice of Dishonour GENERAL DUTIES:per opening , collection for customer only, regularity of endorsement,title of the customer, multiple accounts, crossing, nopicious circumstances. 8. Conversion Lack of good faith Forged cheque Has full knowledge of a defective title of the custome

eque has not negotiable crossing An account payee cheque is collected to a third party. 9. Statutory Protection to Collec tingnker Sec 131: -Goodfaith & without negligence -Payment for a customer -Crossed cheques -agent for collection -Prior crossin

30. Mention the circumstances under which a banker is justified in refusing payment of a cheque drawn on him.

e banking operations of any business depend upon the nature of business. The business of banking consists in acceptance, e

the purpose of lending and/or investment, of the deposits payable on demand or otherwise on demand and withdrawable by

que, order or otherwise. The major functions of banks are (1) to mobilise the deposits from the public (2) to utilise activity, the

ke profits for themselves. Section 138 of the Negotiable Instruments Act, 1881: Dishonour of cheque for insufficiency etc.

ds in the account.Where any cheque drawn by a person on an account maintained by him with the banker for payment of an

ount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is

urned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honou

eque or that it exceeds the amount arranged to be paid from that account by an arrangement made with that bank, such person

deemed to have committed an offence and shall, be deemed to have committed an offence and shall, without prejudice to any

vision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to tw

amount of the cheque, or with both:

en a bank can refuse the payments on a Cheque:

When the cheque is undated

When the cheque is stale. A cheque is stale if it has not been presented for payment for six months from the date mentioned

When the instrument is unclear or not free from reasonable doubt

When the cheque is postdated and presented it for payment before the date

When the customers funds are not properly applicable to the payment of the cheque by the customer
http://www.businessdictionary.com/definition/financial.htmlhttp://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/work.htmlhttp://www.businessdictionary.com/definition/conduit.htmlhttp://www.businessdictionary.com/definition/demand-and-supply.htmlhttp://www.businessdictionary.com/definition/debt.htmlhttp://www.businessdictionary.com/definition/equity-capital.htmlhttp://www.businessdictionary.com/definition/channel.htmlhttp://www.businessdictionary.com/definition/money.htmlhttp://www.businessdictionary.com/definition/depository-institution.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/credit-union.htmlhttp://www.businessdictionary.com/definition/insurance-company.htmlhttp://www.businessdictionary.com/definition/borrower.htmlhttp://www.businessdictionary.com/definition/financial-instrument.htmlhttp://www.businessdictionary.com/definition/financial-instrument.htmlhttp://www.businessdictionary.com/definition/bond.htmlhttp://www.businessdictionary.com/definition/notes.htmlhttp://www.businessdictionary.com/definition/share.htmlhttp://www.businessdictionary.com/definition/securities.htmlhttp://www.businessdictionary.com/definition/capital.htmlhttp://www.businessdictionary.com/definition/compact.htmlhttp://www.businessdictionary.com/definition/unit.htmlhttp://www.businessdictionary.com/definition/system.htmlhttp://www.businessdictionary.com/definition/part.htmlhttp://www.businessdictionary.com/definition/stock-market.htmlhttp://www.businessdictionary.com/definition/bond-market.htmlhttp://www.businessdictionary.com/definition/money-market.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/trader.htmlhttp://www.businessdictionary.com/definition/claims.htmlhttp://www.businessdictionary.com/definition/form.htmlhttp://www.businessdictionary.com/definition/form.htmlhttp://www.businessdictionary.com/definition/claims.htmlhttp://www.businessdictionary.com/definition/trader.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/money-market.htmlhttp://www.businessdictionary.com/definition/bond-market.htmlhttp://www.businessdictionary.com/definition/stock-market.htmlhttp://www.businessdictionary.com/definition/part.htmlhttp://www.businessdictionary.com/definition/system.htmlhttp://www.businessdictionary.com/definition/unit.htmlhttp://www.businessdictionary.com/definition/compact.htmlhttp://www.businessdictionary.com/definition/capital.htmlhttp://www.businessdictionary.com/definition/securities.htmlhttp://www.businessdictionary.com/definition/share.htmlhttp://www.businessdictionary.com/definition/notes.htmlhttp://www.businessdictionary.com/definition/bond.htmlhttp://www.businessdictionary.com/definition/financial-instrument.htmlhttp://www.businessdictionary.com/definition/financial-instrument.htmlhttp://www.businessdictionary.com/definition/borrower.htmlhttp://www.businessdictionary.com/definition/insurance-company.htmlhttp://www.businessdictionary.com/definition/credit-union.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/depository-institution.htmlhttp://www.businessdictionary.com/definition/money.htmlhttp://www.businessdictionary.com/definition/channel.htmlhttp://www.businessdictionary.com/definition/equity-capital.htmlhttp://www.businessdictionary.com/definition/debt.htmlhttp://www.businessdictionary.com/definition/demand-and-supply.htmlhttp://www.businessdictionary.com/definition/conduit.htmlhttp://www.businessdictionary.com/definition/work.htmlhttp://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/financial.html


12/6121 BTL Page 12 of61

When the customers account is overdrawn

When a garnishee order or other legal order from the court attaching the customers account has been served on the bank

achment is on a single person then a joint account cannot be attached by the garnishee order. Credits to the account subsequ

arnishee order are not attachable. Trust accounts cannot be attached by a garnishee order whereas a partnership account c

anker with a prior right of set-off is not bound by a garnishee order. If the garnishee order is received after presentation and d

cheque to the account but before payment, the bank can technically pay the cheque, but it would be better to refuse paymen

que is received through clearing and the garnishee order is received before the time specific for return of cheques, the c

uld be returned. If the cheque has been credited to another persons account and then the garnishee order is received, the

be cancelled and the cheque returned unpaid provided that the account holder has not been advised of the credit. When the customer has died or been declared as insolvent or a lunatic

When the cheque contains material alterations or irregular signature

When the notice of closure of account has been served on the bank

When the customer has countermanded payment

When there is an ambiguity in the material part of the cheque

When there is a difference between the amount of the cheque in words and in figures

n case of Irregular endorsements

When the cheque is mutilated

When the signature of the drawer has been fake.

make a person liable for the offence as under the section, the following points required to be proved.

The cheque should have been dishonoured for the reason of insufficiency of funds lying in the account of the drawer or foson that it exceeded the arrangement. (2) The cheque so dishonoured was paid for the discharge, in whole or in part, of a

bt or other liability.(3) The cheque so dishonoured must have been presented to the banker within a period of six months fdate on which it is drawn or within the period of six months from the date on which it is drawn or within the period of its validitychever is earlier.(4) The payee or the holder in due course of the cheque should have issued the notice within fifteen dayseipt of information from the bank regarding the return of the cheque.(5) Such notice should specifically make the allegatiodishonouring of the cheque for the reason of insufficiency of funds and the notice should also specify that the notice so issue

ue of section 138 of the Act.(6) The notice should contain the date, the number the cheque is bearing, the name of the bacheque is drawn upon, the amount for which the same is drawn and the date of the issue of the cheque in case of the post-da

que or the anti-dated cheque.(7) The notice should also mention the consequences the accused may be held liable to facce should make specific demand of the amount of the cheque.(8) The drawer of the cheque so dishonoured should have make the payment within a period of fifteen days from the date of receipt of such notice by him.(9) The complaint should hen failed within a period of one month from the expiry of fifteen days after the receipt of the notice by the drawer.(10) Suchmplaint should have been made be the payee or the holdr in due course, only in writing.(11) The complaint should have beeore at least the Metropolitan Magistrate or a Judicial Magistrate of the First class.Elaborate the impact of Nationalisation of commercial banks in India.

nking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which starte

86, andBank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is theState Ba

ia, which originated in theBank of Calcuttain June 1806, which almost immediately became theBank of Bengal. This was on

three presidency banks, the other two being theBank of Bombayand theBank of Madras, all three of which were establish

der charters from the British East India Company. Nationalization Impact 1. The quality of credit assets fell because of liberal credit exte

cy. 2. Political interference has been as additional malady. 3. Poor appraisal involved during the loan meals conducted for credit disbursals. 4. The crties extended to the priority sector at concessional rates. 5. The high level of low yielding SLR investments adversely affected the profitabilityof the bank

rapid branch expansion has been the squeeze on profitability of banksemanating primarily due to the increase in the fixed costs. 7. There was downw

d in the quality of services and efficiency of the banks

Define cheque. Explain the different types of crossing of cheques.

cheque is a bill of exchange drawn on a specif ied banker and not expressed to be payable otherwise than on demand and it

tains the electronic image of a truncated cheque and a cheque in the electronic form.If you have a savings bank account or c

ount in a bank, you can issue a cheque in your own name or in favour of others, thus directing the bank to pay the specified a

he person named in the cheque. Definition The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange dra

pecified banker and not expressed to be payable otherwise than on demand. The four main items on a cheque are 1. Drawe

son or entity who makes the cheque 2. Payee, the recipient of the money 3. Drawee, the bank or other financial institution wh

cheque can be presented for payment 4. Amount, the currency amount Features of a cheque 1. A cheque should be in wr
http://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1http://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1


13/6121 BTL Page 13 of61

properly signed by the drawer. 2. A cheque contains an unconditional order. 3. A cheque issued on a specified banker only.

e amount specified is always certain and should be clearly mentioned both in figures and words. 5. The payee of a cheque is

ays certain. 6. A cheque is always payable on demand. 7. The cheque should bear a date otherwise it is invalid and shall no

ored by the bank. Types of Cheque Generally speaking, cheques are of four types, they are; 1. Open cheque 2. Crossed ch

Bearer cheque 4. Order cheque. Open cheque: A cheque is called Open Cheque when it is possible to get cash over the co

he bank. The holder of an open cheque can do the following: 1) Receive the payment over the counter at the bank 2) Deposit

que in his own account 3) ass it to someone else by signing on the back of a cheque. Crossed cheque: Open cheque is su

sk of theft so it is dangerous to issue such cheques. But this risk can be avoided by issuing other types of cheque called Cro

que. The payments of such cheques are not made over the counter at the bank. It is only credited to the bank account of the

ee. A cheque can be crossed by drawing two transverse parallel lines across the cheque, with or without writing Account pay

t Negotiable on it. Bearer cheque: A Bearer cheque is one which is payable to any person who presents it for payment at th

k counter. A bearer cheque can be transferred by mere delivery of it and it doesnt require endorsement. Order cheque: An eque is one which is payable to a particular person. In such a cheque instead of the word bearer the word order may be writ

e payee can transfer an order cheque to someone else by signing his or her name on the back of it. Marked cheques In som

es a cheque will be marked or certified by the banker on whom it is drawn as good for payment. This marking does not lead

eptance but is very similar and protects the person to whom the cheque is issued against the cheque being refused for paym

r. An open cheque is one that can be paid by a paying banker across its counter. Crossing of Cheques Crossing is an instru

order given to the paying banker that the cheque should not be paid across the counter but through a banker. Payment of a cr

que can only be collected through a banker. Crossing is done by drawing two parallel lines across the face of the cheque with

hout the addition of certain words such as Account payee or Not Negotiable. Who can cross a cheque Three parties can c

que, they are; Drawer the drawer can cross the cheque generally or specially. Holder If the drawer has not crossed the

que, the holder can cross it generally or specially. Banker Where a cheque is crossed specially, the collecting banker may

gain to another banker as it is an agent for collection, this is called double special crossing. Types of crossing there are two

rossing cheque. They are; 1)General 2) Special General Crossing Putting two traverse lines across the face of the cheque hout the words & co or the words non negotiable is called General Crossing. Where a cheque is crossed generally, the ban

ch it is drawn must pay it through a banker. Cheques that are crossed generally and payable to order must be collected only

per endorsement by the payee. Special crossing If the drawer writes specific instructions within the two traverse lines such a

ch bank it should be paid is called special crossing. The purpose of a special crossing is to pay it if it is presented though a sp

ker such as at XYZ Bank. Some cheques are crossed account payee. This is a restrictive crossing that the cheque must be

he account of a particular person. It is also a warning to the collecting banker to make sure that the cheque is to be deposited

ount of a specific depositor. The paying banker needs to ensure that it bears no other endorsement than that of the payee.

t Negotiable Cheques Inthis type of cheque the principle of nemo dat quod non habet (nobody can pass on a title bette

at he himself has) will be applicable. The title of the transferee would be vitiated by the defect in the title of the transfero

nsferee cannot claim the right of a holder in due course by proving that he purchased the instrument in good faith. Account

eques Account payee is an instruction to the collecting banker that he must collect the amount of the cheque for the benefiees account only and nobody else. This crossing does not limit the transferability but in practice these are not transferred

ecting banker had to credit the payees account. The Reserve Bank (RBI) has also stated that these should not be cred

one elses account. It has also stated that account payee cheques of third parties should not be collected. Double cr

eques. These kinds of cheques are to be collected by the banker specified. It cannot be crossed again as the purpose of the

strated by the second crossing. This is only allowed if the bank to which it is crossed does not have a branch at the payi ng b

ce. Crossing of Cheque Holder of a cheque can cross it or add to the existing crossing Banker to whom it is crossed can

ain. Cheque crossings can be opened by the drawer by cancelling the crossing with his signature Negotiable Instrume

ticularly states what amounts to a crossing. A cheque with the words not negotiable wi

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21 Banking Theory Q & A