Bharathidasan Institute of Management

Tiruchirapalli 620014
Managing Banks and Financial Institutions
Pre- Mid Term Quiz
Total Marks:
Number : Time : 1 hour

Sl no Question Marks Score

1 Which is the last bank to go off the list of Scheduled commercial 1
banks ?
Centurion Bank of Punjab – which merged into HDFC bank.
Viziyanagar Bank is not a commercial bank ( it does however appear
in the Second Schedule of The RBI Act).
Bank of Rajasthan is yet to merge with ICICI bank. It hence
continues to be on the list. If the merger is approved by RBI, and it
goes through completely, BOR will go off from the list.
2 Messrs. Raj & Sons, your customer, pay in a cheque drawn on 1
another bank, payable to and purporting to be endorsed by Mr.
Khanna. The cheque is crossed bearing the words ‘Not Negotiable’.
Will you accept the above cheque for collection?
Non negotiability does not mean non- transferability. Yes. The
instrument can be sent for collection, if it is found to be
otherwise in order
3 Ram and Shyam open a fixed deposit for Rs 5 lakhs for a 90 day 1
period. On the 60th day Ram comes to the bank and requests the
manager to close the deposit. Can the branch manager close the
deposit ?
No. The issue is not about whether an FD can be closed or not. If
both Ram and Shyam come, request and sign in the FD receipt
seeking forclosure the FD can be closed
4 Who is the Chairman of Indian Bank’s Association ?
O.P Bhat. He recently took over from MV Nair
5 Mr. Pandey draws a cheque for Rs. 13,000 favoring Mr. Tiwari. The 1
cheque is dishonored by the drawee bank for the want of funds.
Subsequently it transpires that a cheque for Rs. 17,000, which was
deposited for collection by Mr. Pandey was wrongly credited to some
other account by the bank, which resulted in dishonor of the cheque
issued to Mr. Tiwari. Mr. Pandey, in the meantime, has been
adjudged insolvent. Mr. Tiwari serves a notice on the bank for
wrongful dishonour of the cheque and claims damages. Discuss the
position of the bank.
Safe! Mr Tiwari is not a customer of the bank . The person
who can sue the bank is Pandey.
6 Which bank lead by Amitabh Chaturvedi as its MD and CEO raised 1
Rs 380 Crores of equity through a QIP to raise its overall capital
adequacy to over 20 % ?
Dhanalakshmi Bank. This is a bank to watch ! ( I remember
mentioning this in class a couple of times. Surprised to see many miss
this one)
7 Under NI Act, days of grace is allowed only for 1
a. Sight bills
b. Demand bills
c. Usance bills
 d. All bills of exchange
c. Obviously only a usance bill.
8 When the riskiness of a bond, relative to other assets decreases, the 1
demand curve shifts to
a. The left
b. The right
c. No change
b) The right. If the riskiness reduces, the demand increases – so the
curve shifts to the right
9 Which bank does Ramesh Sobti, who was the EVP and Country Head 1
of ABN Amro Bank , India currently head ?
IndusInd Bank, promoted by the (in?)famous Hindujas. He took
over from Bhaskar Ghose.
10 The protection for a collecting banker under NI Act is available 1
a. Only when cheque is a bearer instrument
b. Only when cheque is a on order instrument
c. Only when cheque is an order instrument and is
crossed
d. In any of the above cases.
c.
It is important that the instrument that a bank collects needs to be
crossed
11 Who is the IIM A pass-out ex-citibanker , formerly heading the 1
Centurion Bank as its MD and CEO who currently heads ING Vysya
Bank ?
Sailendra Bhandari. An interesting case of an ‘old generation
private sector bank – owned largely by an European bank.
12 The Union cabinet has in July 2010 approved the merger of which of 1
the associates of State Bank with SBI
a. State Bank of Patiala
b. State Bank of Saurashtra
c. State Bank of Indore
d. State Bank of Bikaner and Jaipur
State Bank of Indore – which is currently 98% owned by SBI.
SBS has already been merged.
13 Which bank signed a joint venture agreement with the State General 1
Reserve Fund of Oman to form a sector agnostic Joint Investment
Fund of USD 100 Mio ?
SBI . Surprised that many did not even venture a guess !
14 Raj consultants Ltd informs that their Director, who has powers to 1
operate the account, has become insane. A five month old cheque is
presented , which the same Director had signed. Bank returns the
cheque stating that the drawer has become insane.
a. Bank is not liable , as it has acted in the interest of
the company
b. Bank is not liable, as it has on record the notice given
by the company
c. Bank has acted negligently as the director has signed
the cheque as an agent only
d. None of the above
The bank ought to have paid.
The Director has signed the capacity – not in his personal capacity –
but in a fiduciary capacity as an Agent. If the company wants to
 change it signatories – it should pass necessary resolutions in the
Board to that effect and intimate the list of changed signatories to the
Bank. Unless the cheques had been stopped by the company
specifically, there is no reason why the bank should stop payment.
15 Which large bank has hived off its 1.5 lakh point of sales terminals 1
into a new merchant acquiring business and recently sold a majority
stake to First Data , a global company which specializes in
ecommerce and payment systems ?
ICICI bank.
16 A cheque favoring M/s John Associates is endorsed by the Proprietor 1
Mr John for credit to his personal account. Can it be paid ?
Yes. They are not legally separate !
17 In “Sans recourse” endorsement: 1
a. The holder of a bill does not incur the liability of an endorser to
the endorse
b. The liability of the holder depends upon the happening of a
specified event
c. The endorser increases his liability on the instrument
d. The endorser purports to transfer only a part of the instrument
e. The endorser prohibits further negotiability on the instrument
a.
18 Who among the following is not a Deputy Governor of RBI 1
a. Dr V Leeladhar
b. Dr Subir Gokarn
c. Smt Shyamala Gopinath
d. Dr K.C Chakarbarty
e. Smt Usha Thorat
f. All of the above are Deputy Governors
a.
The RBI team has One Governor and 4 Deputy Governors. Dr
Leeladhar WAS a DG. Not anymore. These are the people to watch
for policy pronouncements.
19 The prohibition against banks in the US underwriting corporate 1
securities and engaging in brokerage, real estate, and insurance
activities was repealed by the
a. Gramm-Leach-Bliley Financial Services Modernization
Act
b. Competitive Equality in Banking Act
c. Depositary Institution Deregulation and Monetary
Control Act
d. Glass—Steagall Act
e. National Currency Act
Gramm-Leach-Bliley Financial Services Modernization Act.
( I remember discussing this in class). Several Economists credit this
Act ( and the Senator Gramm ) to have caused the recent global
financial crisis.
20 The Capital funds of ABC Bank Ltd as on March 2010 is Rs 2000 1
Crores. It was Rs 1500 Crores as on March 2009. What is the
maximum per party and per group exposure that ABC Bank Ltd can
assume if the exposure is for infrastructure units ?
45% per group and 20% per party – of the current capital funds.
Hence 900 Cr per group and 400 Cr per party
21 An instrument where the last endorsement is in blank is: 1
a. Order instrument
 b. Open instrument
c. Foreign instrument
d. Bearer instrument
e. Time instrument
Bearer
22 NCL Sugars Ltd, a listed company, has approached your bank for a 1
cash credit facility of Rs 15 Crores. The financials of the company are
satisfactory and the company appears to be credit worthy. It comes to
your attention that Mr Raghavan, who is a Director on the Board of
your bank is a minority share holder of NCL Sugars Ltd. What will
you do ?
Sanction the loan if otherwise in order . Minority stake is of no
material significance unless he happens to be a director.
23 A customer deposits certain shares and jewellery in the safe deposit 1
vaults of a bank for the purpose of safety. For this service he pays a
specific amount monthly to the bank. What is the role of the bank in
this case?
a. Lessee
b. Depository
c. Bailee
d. Lessor
e. Bailor
Lessor
24 What is the current inflation rate ? 1
10.55%. This means that most deposits that you place with
banks are currently giving you negative real returns !
And also, this high rate will push RBI to jack up interest rates.
25 Which of the following is true in the case of the right of the lien 1
enjoyed by the bank?
i. A banker can exercise the right of lien only when he is acting
as a creditor
ii. In the case of general lien the banker has the right to retain all
the properties in his custody until the debt is repaid.
iii. Lien can be exercised if the debtor forgets the goods in the
bank.
a. (i) only
b. (ii) only
c. (iii) only
d. All (i) and (iii) above
e. Both (i) and (ii) above
e.
26 The payments system refers to 1
a. The means of clearing and settling transactions
b. The type of medium of exchange used in the economy
c. The means by which the government collects taxes
d. The system that credit card companies use to collect their
payments
e. All of the above
a.
27 Credila Financial Services is the education loan arm of which 1
organization ?
HDFC. ( Not HDFC bank ) This is a one of a kind company
28 An invalid promissory note consists of a note, which is: 1
 a. Made payable to maker himself
b. Endorsed in blank
c. Having the place of making
d. Both (a) and (b) above
e. None of the above.
d.
A pronote payable to the maker cannot be an instrument of
commercial nature. And endorsing in blank – is forbidden as it will
make the instrument a currency note.
29 ABC bank has Rs 2500 Crores of Tier 1 capital and Rs 1500 Crores 1
of Tier 2 Capital. The bank has surplus funds which it wants to
deploy in the money market. How much can it lend in the call money
market on a fortnightly average basis ?
25% of capital funds ( i.e Tier 1 and Tier 2), i.e., 1000 Crores
30 Which Chinese bank established by Mao ZeDong for Chinese rural 1
peasants went public and raised USD 19.2 Billion by selling stock at
Hong Kong and Shanghai – in what is considered the largest IPO in
history ?
Agricultural Bank of China ( How can we miss out the largest
IPO and that too from a bank – and more so from China ! )
31 Under which of the following circumstances can a bank use the right 1
of set-off?
a. Unmatured or contingent liabilities
b. Express or implied agreement
c. Account containing trust funds
d. The balance is saving account to set-off the overdraft
e. All of the above.
d
32 Who is the current President of the European Central Bank 1
Jean Claude Trichet ( after the recent Euro Crisis, how can we
miss this one !! ) . Trichet is probably next only in importance to
Bernanke( who heads the US Fed) and Zhou Xiaochun ( who heads
the People’s Bank of China) in the role of Central banker – and their
words and deeds move markets across the globe. How the Eurozone
and the Euro tide over this crisis is watched across the world to see if
Euro will reassert itself as an alternate to the USD.
33 What is the minimum level of NRI holding required for an entity to 1
be considered a OCB ?
60%
34 Which of the payment systems have been identified as SIPS in India ? 1
RTGS, Interbank clearing and HV clearing
35 The Government of India has introduced the Financial Stability and 2
Development Council. This body will act as a coordinator body for
various regulators. As per the current proposal under discussion, who
will be Chairperson and Vice Chairperson for this body
The Finance Minister is proposed to be Chairperson
The Gov of RBI is to be the Vice Chairperson

This is a very important piece of proposed legislation determining the

structure of the regulatory system in India for the following reasons
a. It brings the regulators formally under the control of the
Parliament – and thereby the political system (which is
important in a Parliamentary democracy).
 b. It serves a forum for coordination of regulatory activities
c.
d. How independent this structure will be will be watched.
36 Who is the Chairman of US President Barack Obama’s Economic 1
Recovery Advisory Board created on February 6, 2009 ( and former
Chairman of the Federal Reserve), who has made a proposal that
specifically prohibits a bank or institution that owns a bank from
engaging in proprietary trading that isn’t at the behest of its clients,
and from owning or investing in a hedge fund or private equity fund,
as well as limiting the liabilities that the largest banks could hold
Paul Volcker. ( this is a resurrected version – albeit with some
modifications – of the Glass Steagall Act )
37 What is the negotiable form or time deposit raised by banks called ? 1
Certificate of Deposits
38 Which company supported by Sequoia Capital , George Soros’s 1
Quantum M Ltd and Narayana Murthy’s Catamaran Management
Services promoted by an McKinsey alumnus is the first company of
its ilk proposing to tap the capital markets to raise USD 347 Million ?
SKS Microfinance
39 Following is the position of ANBC and OBE for a bank 5

Rs in Crores
31.3.2009 31.3.2010
Net Bank Credit 50000 60000
Investments
SLR investments 40000 55000
Non SLR 10000 12000
investments
Off balance sheet 35000 43000
exposure
For the sake of simplicity, assume that all investments are held in
HTM category. For the financial year ending 31.3.11
a. What will be the total priority sector advance target for the bank
if the bank is a domestic scheduled commercial bank ?
b. What will be the target for direct agriculture lending, if the bank
is a domestic scheduled commercial bank ?
c. What will be the total priority sector advance target, if the bank is
a foreign bank ?
d. What will be the export credit target if the bank is a domestic
scheduled commercial bank
e. What will be the direct agriculture target, if the bank is a foreign
bank ?
As ANBC is higher than OBE , it is considered. The previous year’s
numbers are considered ( again, logically coming year numbers
cannot be considered). Here hence numbers for FY 2010 are
considered.
ANBC = 60000 + 12000 ( the non SLR investments )= 72000
a. Domestic priority target is 40% ( 28800)
b. Domestic direct agri is 13.5% ( 9720)
c. Foreign priority is 32% ( 23040)
d. Export domestic = nil
e. Agri foreign = nil
40 Following are the details of bank on the reporting Friday 6
 Liabilities Rs in Assets Rs in Crores
Crores
Liabilities to the 1000 Current 500
banking system account
balances
with other
banks
Current account 2000 Interbank 1000
balances deposits of
maturity
more than 30
days
Current portion of 2000
savings account
balances
Time portion of 6000
savings account
balances
Term deposits 10000
Provisions 500
Contingent 1250
liabilities

What is the CRR and the SLR that the bank has to maintain?
Current CRR is 6% and SLR is 25%

When one needs to calculate NDTL, the following are excluded

a. Provisions
b. Contingent liabilities

For CRR, Interbank term deposits more than 15 days is not

considered under the Assets with the banking system. It is however
considered.

When you net off , you net off assets and liabilities from and to the
banking system. Logically, it cannot be netted off against liabilities to
others.

Hence CRR , it is
6% X [( 1000 – 500) + 2000 + 2000 + 6000 + 10000] or 1230

For SLR , it is

25% X [ (1000 – 1500 ) , hence 0, as it cannot be netted off

against liabilities to other + 2000+2000+6000+10000 ] =
5000.