MEMORY BASED QUESTIONS ON LOANS AND

ADVANCES
1. Charged created by Bailment of goods to secure payment of a debt is called: Pledge.
2. Guarantee is defined in: Indian Contract Act.
3. If on a letter of credit it is not mentioned whether it is revocable or irrevocable, then as UCPDC 600, it
will be treated as: Irrevocable LC Under UCP 600 – all LCs are irrevocable LCs only.
4. A director of a bank wants to raise loan of Rs. 10 lakh from his bank against Life Insurance Policy with
surrender value of more than Rs. 15 lakh. What will be done? Bank can sanction.
5. In which of the following cases, the document is required to be attested by two witnesses: Simple
Mortgage.
6. A document was executed by three partners in different dates. When shall the limitation period start?
The limitation period will start from the last date i.e. when the document was executed by the last
partner.
7. Loan to a company engaged in construction of projects, seasonal industries which method of
financing is to be used: Cash Budget method.
8. What is the meaning of Group in Exposure Norms: Commonality of management
9. The procedure used for ascertaining Customers Credit worth is called: Credit Rating
10. Green field project is related to : setting up new projects
11. What is Real Rate of Interest?: Prevailing interest rate minus inflation rate
12. The main distinction between Hypothecation and Pledge is on account of: Possession of goods. In
pledge possession with the bank and in Hypothecation possession with the borrower.
13. In Letter Of Credit importer is called: Opener of Letter of Credit
14. Cash Budget method is used for sanctioning working capital limits to : Seasonal Industries
15. Bank's charge over LIC Policy is created by : Assignment
16. Guarantee issued by a bank which is still outstanding is shown in the Balance Sheet as: Contingent
Liability.
17. Why loan against Partly Paid Shares are not preferred by banks?: Because partly paid shares
represent contingent liability. In case company makes demand and the borrower does not pay the
amount then the bank will have to pay the amount otherwise share may be forfeited. Moreover it is
prohibited by RBI
18. Return on Investment is calculated to ascertain of the Unit.: Profitability
19. For ascertaining that a firm will be able to generate sufficient profit to repay installments of term
loan, which ratio is computed?: Debt Service Coverage Ratio
20. In the Balance Sheet of a bank, Contingent Liabilities are shown as: footnote to the Balance Sheet.
21. Finance for construction of road and port is classified as: Infrastructure Finance.
22. Banks are required to declare their financial results quarterly as per provisions of: SEBI listing
agreement.
23. Loan was raised from the bank against NSC by Mr. X and noting to this effect was recorded in the
issuing Post Office. X dies. The nominee approaches post office for payment of NSC. Who will have
priority i.e. bank or nominee? Bank will have prior claim against NSC.
24. Hypothecation can be converted to pledge by: taking possession with the consent of the borrower.
25. What charge to be created for Demat shares with bank as security: Pledge
26. Perpetual bonds and perpetual non cumulative preference shares as part of tier I capital can be up
to% of tier I capital: 40%.
27. Provisions on standard Assets are shown under which head in the balance sheet of the Bank: Other
Liabilities and Provisions on Liabilities side - Schedule no 5. (provision on standard loan accounts;
Agriculture, MSME, Home laons-0.25%, others 0.40%, commercial real estate 1%)

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28. For classification of assets in consortium accounts, which of the following is to be considered: In
consortium accounts, each bank will classify the account as per its record of recovery.
29. Who is bound to file particulars of charge with the Registrar of Companies under MCA 21, when a
company creates charge of somebody on its movable or immovable property except by way of
pledge?: officials of the company.
30. Credit of Rs.20,000/- was taken as Rs.2000/- and as a result a cheque was returned in the account for
want of funds. Bank has already sent statement of account to the depositor who has acknowledged
receipt of the statement of account. Whether bank is liable?: Yes. Liable to drawer of cheque.
31. Advance to a company against Trust receipt where document of title goods transferred to bank and
goods to be released against payment by the company. Whether a charge is to be registered with the
Registrar of Companies under MCA 21 : Not Required
32. Under multiple banking system, exchange of information between the banks is to be done for the
limits of crores and above and periodicity is : Rs.5 crores and Quarterly duly signed by CA,CS,CMA
33. If a LC contains a clause "about" regarding the amount and quantity of goods, how much tolerance is
permitted?: 10%
34. What is the type of liability for the bank on account of issue of Bank Guarantee?: Contingent Liability.
35. To arrive at group concern, factors to be looked into are : commonality of management + effective
control.
36. The limitations of financial statements are : only quantitative not qualitative.
37. Hypothecation described under: SARFEASI Act.
38. Off Balance sheet / On Balance sheet exposure- if altered the risk will be Credit Risk.
39. Guarantors Liability: Recall the a/c and cause demand against the borrower and guarantor. Balance
in guarantor's SB a/c cannot be appropriated directly.
40. Excess of current liability over current assets means the firm may face difficulties in meeting its
financial obligations in short term.
41. If documents are to be presented in about July month: these can be presented within 5 days before or
5 days after.
42. Pledge is defined in: Indian Contract Act
43. When limitation will not extend: Balance Confirmation signed after expiry of limitation period
44. On maturity of bank guarantee, an intimation is send to customer and if no response received in 30
days, vouchers are reversed. This is done for following reason? Bank has to maintain capital on Bank
Guarantee for the purpose of capital adequacy norms.
45. Which of the following is not a disadvantage of CC account? Issuance of cheque book
46. In case of revaluation of fixed assets, what percentage of revaluation reserve will be added to Tier I
capital of the bank: 45%
47. When a loan is recovered from guarantor for dues payable by the Principal Debtor, debtor becomes
entitled to all rights and remedies which the creditor had against the Principal Debtor. This right of
guarantor is called: Right of subrogation.
48. In case of loan against bank deposit charge is created by: Lien
49. In case of loan against NSC, charge is created by: pledge
50. What is cash loss : net loss before depreciation (Net loss minus depreciation)
51. Why fund flow statement is taken from the borrower?: To know sources from where funds have been
raised and how funds have been utilized and to know changes in net working capital position.
52. Stand by LC is just like : Financial guarantee (A guarantee of payment issued by a bank on behalf of a
client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment
with a third party. Standby letters of credit are created as a sign of good faith in business transactions,
and are proof of a buyer's credit quality and repayment abilities)
53. Banks provide term loans and deferred payment guarantee to finance capital assets like plant and
machinery. What is the difference between these two: Outlay of funds.
54. For the purpose of creation of equitable mortgage, the place for deposit of the title deed is notified by
: Sate government

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55. Number of days allowed to opening bank and negotiating bank to verify that documents are as per
terms of LC is: 5 bank working days
56. In the case of hypothecation: both possession &ownership is with borrower
57. If stock statement is not submitted for 3 months from its due date and DP is allowed on the basis of
old stock report, then the account will be considered NPA after: 90 days
58. Limitation period for mortgage: 12 years
59. Loan is in the name of A&B. Both have signed documents. A signs the Balance Confirmation but B
does not. In this case limitation will extend against: both
60. What is negative Lien?: A declaration by borrower that he will not sell or create charge of anybody on
a particular asset without consent of the bank
61. Why banks do not grant loan to a minor? A minor is not competent to contract Therefore, Ioan given
to a minor cannot be recovered.
62. Normally bank cannot grant advance to its directors. However, there are certain exemptions to this
rule. Thus a bank can grant a loan to its director against the security of: Government securities, life
insurance policies or fixed deposit;
63. If on a Letter of Credit, date is mentioned as "end of the month", then as per UCPDC 600, it will mean:
21st to last day of the month.
64. A minor was given loan. On attaining majority he acknowledges having taken loan and promises to
pay. Whether the loan can be recovered? : He cannot ratify the contract. Hence recovery not possible.
65. A loan was sanctioned against a vacant land. Subsequently a house was constructed at the site. What
security is available now to the bank? : Both
66. Preoperative expenses forms part of the following: Intangible assets
67. A & B raised a loan jointly and both are liable jointly and severally. When the limitation period is
approaching, A acknowledges the debt while B was away from India. Limitation expires before B
comes to India and after coming, he denies acknowledging the debt. Bank can proceed for recovery of
the loan as per limitation act from: Both
68. An L/C is expiring on 10.05.2008. A commotion takes place in the area and bank could not open.
Under these circumstances can the LC be negotiated? The L/C cannot be negotiated because expiry
date of LC cannot be extended if banks are closed for reasons beyond their control.
69. A loan is given by the bank on hypothecation of stock to Mr. A. Bank receives seizure order from State
Govt. What should bank do?: Bank will first adjust its dues and surplus if any wilt be shared with the
Govt.
70. 3 partners signed a document on 3 different dates. Limitation period starts from: Date of last
signatures.
71. Acknowledgement of Debt can be obtained for how many number of times : No limit
72. In the case of advance to a limited company for purchase of vehicle, the charge is registered with
Regional Transport Authority in addition to registration of charge with. Registrar of Companies. Why
this is done?: So that borrower cannot sell the vehicle without intimation to the bank
73. Why banks prefer financing of bills: because the advance is self liquidating
74. Formation of consortium, when essential: When bank touches its exposure ceiling
75. A letter of credit which is issued on request of the beneficiary in favour of his supplier: Back to Back
LC
76. As per internal policy of certain banks, the net worth of a firm does not include: a. Paid up capital b.
Free Reserve c. Share Premium d. Equity received from Foreign Investor : Revaluation Reserves
77. A lady who has taken a demand loan against FD come to the branch and wants to add name of her
minor son, as joint a/c holder. What you will do?: Name can be added only after adjustment of the
loan.
78. Guarantee issued by a bank in favour of Custom department that party will fulfill export obligation for
availing exemption from custom duty regarding tax. Such guarantee is called: Financial Guarantee.
79. Particulars of satisfaction of charge by a company are to be filed within: 30 days from date of
adjustment of loan.

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80. In a company, the registration of charges is required for: a) loan against FD b)lien on Govt Securities
c) assignment of Book Debts d) lien on Shares : assignment of Book Debts
81. Loan Delivery System is not applicable to: a) Loan to Soft ware industry b) export credit:
82. Property equitably mortgaged on 08/03/08. A registered mortgaged created on this property, on
05/03/2008 which was got registered on 08/03/2008. Which will have priority: registered mortgage
as it was created earlier.
83. The Bank did not disclose all material facts regarding loan to the guarantor while obtaining
guarantee. Can guarantor escape liability: Guarantor cannot escape from his liability as it is not
necessary to disclose all the materials facts with regards to the loan.
84. Banks are required to obtain audited financial papers from non corporate borrowers for granting
working capital limit of: Rs.25 lakh &above
85. In the case of Hypothecation: neither possession nor ownership comes to Bank.
86. Negative lien means: Undertaking by the borrower not to sell or create charge on a particular
property without consent of the Bank.
87. Recently RBI warned banks against charging: excessive interest to small borrowers.
88. Which of the following is correct regarding reverse mortgage: The scheme is available to senior
citizens only; the property should be self occupied by the owner.
89. What are the rules relating to advance against Kisan Vikas Patra: It can be granted provided KVP is
assigned to the bank.
90. Bailment of goods to secure a debt is called: pledge.
91. Deferred payment guarantee issued by a bank is a : Contingent Liability.
92. When mortgage is created by a person by deposit of title deed orally, it is called mortgage: Equitable
93. For the purpose of creation of equitable mortgage, the place for deposit of the title deed is notified by
: State Govt.
94. Under SARFAESI Act 2002 the banks give demand notice for payment of due amount to the borrower
/ owner of charged assets
95. Action under SARFAESI Act can be taken simultaneously in DRT/Suit filed cases without taking
permission from the Competent Court
96. For enforcing right under SARFESAI Act, in the case of consortium advances, consent of which
bankers is required? Consent of 60% bankers by value is required.
97. Supervisory Review according to which Central Bank of the country is to ensure that proper capital
has been provided for risk exposure and maintain proper system for the same is provided under?
Pillar II of Basel II – supervisory review (BASEL II three pillars: pillar I - capital adequacy ratio or
capital requirement for credit risk, market risk, operational risk. Pillar II supervisory review . Pillar
III- market discipline (disclosures)
98. Charge where SARFAESI action can not taken: Pledge
99. For taking action under SARFAESI, the outstanding should be: More than Rs.1.00 lac secured advance
(other than agriculture securities)
100. Limit for filing suit in DRT: Rs.10 lacs (secured/ unsecured including agricultural advances) and
above
101. For acquiring securities charged to the bank under SARFAESI, notice of days is required to be given to
the borrower and for sale of securities so acquired notice of days is: 13(2) demand notice 60 days
singed by not less than chief manager & 13(4) possession notice -30 days.
102. As per a recent judgment of the Supreme Court, while initiating action under SARFAESI, the position
in case of suit filed in DRT would be: that no permission is required from DRT and action under
SARFAESI can be initiated as both the cases can run together.
103. For taking action under SARFAESI, the outstanding should be: More than Rs.1.00 lac secured loans
only (other than agricultural securities).
104. In case of SARFAESI Act, before preferring appeal to DRAT, how much amount is to be deposited by
the borrower with DRAT?: 50% of the claim amount which can be reduced to 25% by the DRAT. For
making application to DRT, no amount is to be deposited.

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