1. Functions of Commercial Bank in India.

Introduction:
Commercial banks are authorized to provide a variety of financial services
which includes loans, savings accounts, etc. In this article, we will talk
about various functions that a commercial bank performs.
the functions are of two categories – primary and secondary.

Primary Functions of Commercial Banks

The primary functions of a commercial bank are as follows:

1. Accepting Deposits

Commercial banks accept deposits from people, businesses, and other

entities in the form of:

 Savings deposits – The commercial bank accepts small

deposits, from households or persons, in order to encourage
savings in the economy.
 Time deposits – The bank accepts deposits for a fixed time
and carries a higher rate of interest as compared to savings
deposits.
 Current deposits – These accounts do not offer any interest.
Further, most current accounts offer overdrafts up to a
pre−specified limit. The bank, therefore, undertakes the
obligation of paying all cheques against deposits subject to the
availability of sufficient funds in the account.
2. Lending of Funds
Another important activity is lending funds to customers in the form of loans and
advances, cash credit, overdraft and discounting of bills, etc.

Loans are advances that a bank extends to his customers with or without
security for a specified time and at an agreed rate of interest. Further, the
bank credits the loan amount in the customers9 account which he
withdraws as per his needs.

Secondary Functions of Commercial Banks

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The secondary functions of a commercial bank are as follows:

Bank as an Agent

A bank acts as an agent to its customers for various services like:

 Collecting bills, draft, cheques, etc.

 Paying the insurance premium, rent, loan instalments, etc.
 Working as a representative of a customer for
purchasing or redeeming securities, etc. in the stock
exchange.
 Acting as an executor, administrator, or trustee of the estate
of a customer
 Also, preparing income tax returns, claiming tax refunds, etc.

General Utility Services

There are several general utility services that commercial banks offer like:

 Issuing traveller cheques

 Offering locker facilities for keeping valuables in safe custody
 Also, issuing debit cards and credit cards, etc.

Endorsement:
The act of a person who is a holder of a negotiable instrument in signing his
or her name on the back of that instrument, thereby transferring title or
ownership is an endorsement. An endorsement may be in favour of
another individual or legal entity. An endorsement provides a transfer of
the property to that other individual or legal entity. The person to whom
the instrument is endorsed is called the endorsee. The person making the
endorsement is the endorser.

Endorsement of Instruments

Types of Endorsement

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  Blank Endorsement – Where the endorser signs his name only,
and it becomes payable to bearer.
 Special Endorsement – Where the endorser puts his sign and
writes the name of the person who will receive the payment.
 Restrictive Endorsement – Which restricts further negotiation.
 Partial Endorsement – Which allows transferring to the
endorsee a part only of the amount payable on the
instrument.
 Conditional Endorsement – Where the fulfilment of some
conditions is required.
1. Blank Endorsement or General Endorsement
An endorsement is blank or general where the endorser signs his name
only, and it becomes payable to bearer. Thus, where a bill is payable to
<Ram or order=, and he writes on its back <Ram=, it is an endorsement in
blank by Ram and the property in the bill can pass by a mere
presentation.

We can convert a blank endorsement into an endorsement in full. We can

do so by writing above the endorser9s signature, a direction to pay the
instrument to another person or his order.

2. Special or Full Endorsement

An endorsement <in full= or a special endorsement is one where the
endorser puts his signature on the instrument as well as writes the
name of a person to whom order the payment is to be made.

A bill made payable to Ram or order, and endorsed <pay to the order of
Shyam= would be specially endorsed and Shyam endorses it further. We
can turn a blank endorsement into a special one by adding an order
making the bill payable to the transferee.

3. Restrictive Endorsement
An endorsement is restrictive which restricts the further negotiation of an
instrument.

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Example of restrictive endorsement: <Pay to Mrs. Geeta only= or <Pay
to Mrs Geeta for my use= or <Pay to Mrs Geeta on account of Reeta= or
<Pay to Mrs. Geeta or order for collection=.

4. Partial Endorsement
An endorsement partial is one which allows transferring to the endorsee
a part only of the amount payable on the instrument. This does not
operate as a negotiation of the instrument.

Example: Mr. Mohan holds a bill for Rs. 5,000 and endorses it as <Pay
Sohan or order Rs. 2500=. The endorsement is partial and invalid.

5. Conditional or Qualified Endorsement

Where the endorser puts his signature under such writing which makes
the transfer of title subject to fulfilment of some conditions of the
happening of some events, it is a conditional endorsement.

3. Explain the precaution to be taken by a banker while

lending on hypothecation.
A banker should take the following precautions:

(a) Loans to be given to Reputed Parties Only: A banker should

sanction loan only to such customers who have good reputation and
sound financial position. Such parties should have a clean record of past
dealings.

(b) Regular Inspection of Hypothecated Goods: The bank should

regularly inspect the stock of the hypothecated goods. It should also verify
the stocks with account books.

(c) Periodical Statement of Stocks: The banker should ask the borrower
to submit periodical statement of stock. It should verify those statements
with the stocks of the goods.

(d) Signboard of Hypothecation in Favour of the Banker: The banker

should ask the borrower to display a signboard on the gate of the godown
where the goods are stored indicating that the goods are hypothecated
with the banker. The banker should regularly check that such display is
being done. It will be a public

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notice and would avoid the chances of duplicate charge being created on
those goods.

(e) Insurance: The banker should ask the borrower to get the goods
insured against fire, theft, flood etc., and assign the policy in its favour.
The banker should inform the insurer that the goods are hypothecated
with him.

(f) Registration of Charge: If the borrower is a company, the banker

should get the charge registered under Section 125 of the Companies Act,
1956. The charge is to be registered with the Registrar of Companies
within 30 days of its creation. The banker should obtain a copy of
registration of the charge. The banker should also get declaration from the
company that it will not create a second charge over those goods. This
undertaking should also be registered with the Registrar of Companies
along with the registration of charge.

(g) Declaration from the Borrower that he is not Availing Similar

Facilities from other Banks: The banker should obtain a declaration
from the borrower to this effect. This undertaking should also be
obtained periodically along with periodical statement of stock of
hypothecated goods. This declaration should be cross−checked with the
information obtained from other banks of the area.

Conclusion:

From the above points, it is made clear that the banker should give the
facility of hypothecation to honest persons only because the goods
remain in the possession of the borrower. In case the loan is granted to
any unscrupulous person, he may sell the goods hypothecated and pay
off other creditors.

4. Narrate the rights of banker.

Rights of a Banker
1. Right to charge interest
Every bank in India has the right to charge interest on the loans and
advances sanctioned to customers. Interest is usually charged
monthly, quarterly, semi annually or annually.
2. Right to levy commission and service charges
Along with interest, banks also have the right to levy a commission and
service charges for the services rendered. The service rendered by the
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bank might be SMS notification service, retail banking and so on. Banks
can also debit these charges from the customer's bank account.
3. Right of Lien
Another important right enjoyed by banks is the Right of Lien. Banks
have the right to keep goods and securities belonging to the debtor as
a security, until the loan is repaid by the debtor. Banks have only the
right to maintain the security of the debtor and not to sell.
4. The Right of Set-off
The banker has the right to set off customer accounts. Banks can merge
a couple of accounts which are in the name of the customer and set off
the debit balance in one account with the credit balance in the other,
provided the funds belong to the customer.
5. Right of Appropriation
Let us consider that a customer has taken many loans from the bank and
he deposits some money in the bank without any instructions. If that
amount is not sufficient to discharge all loans, the bank has the right to
appropriate the amount deposited to any loan, even to a time−barred
debt. But the customer should be informed on the same.
6. Right to Close the Account
If the customer9s account is not properly maintained, banks have all
the right to close the account by sending a notice to the customer.
Bankers have no right to close the account, without sending a
written notice.

5. Who is holder in due course? Explain the privileges of a holder

in due course.

Section 8 of Negotiable Instruments Act 1881: "Holder"

The "holder" of a promissory note, bill of exchange or cheque means any

person entitled in his own name to from the parties the possession thereof

and to receive or recover the amount due thereon thereto.

Where the note, bill or cheque is lost or destroyed, its holder is the person

so entitled at the time of such loss or destruction.

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Section 9 of Negotiable Instruments Act 1881: "Holder in Due Course"

"Holder in due course" means any person who for consideration became

the possessor of a promissory note, bill of exchange or cheque if payable

to bearer, or the payee or endorsee thereof, if payable to order, before the

amount mentioned in it became payable, and without having sufficient

cause to believe that any defect existed in the title of the person from

whom he derived his title.

Section 9 of N.I. Act, define holder in due course as under.

<Holder in due course means any person who for consideration became

the possessor of a promissory note, bill of exchange or cheque, if payable

to bearer, or the payee or endorsee thereof, if payable to order, before the

amount mentioned in it became payable, and without having sufficient

cause to believe that any defect existed in the title of the person from

whom he derived his title.= Holder in due course is a person who takes a

negotiable instrument for the value receivable by him in good faith and

taken due care and caution while taking such instrument and he had no

suspicion or reason to believe any defect existed in the title of the person,

from whom he derived title possession of the instrument. Thus, a person

claim to be a 8holder in due course9 should satisfy the following

conditions.

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1. He must acquire the instrument for a consideration.

2. The instrument acquired should be before it is matured for payment.

An instrument payable on demand is treated as current, subject to it

has not been in circulation for the unreasonable length of time.

3. It is most important that the holder in the course had no cause to believe

that any defect existed in the title of a person from whom he has

acquired the instrument.

4. A person accepting an inchoate (incomplete) instrument cannot be a

holder in due course.

5. The instrument should be complete and regular while taking its possession.

6. Forged signature conveys no title; as such there cannot be a holder in

due course under forged endorsement.

PRIVILEGES GRANTED TO A HOLDER IN DUE COURSE UNDER THE

NEGOTIABLE

INSTRUMENTS

Privileges granted to a holder in due course under the Negotiable

Instruments are given below:

1. He gets a better title than that of the transferor:

One who is a holder only gets no better title than that of his transferor

but a holder in due course is in a privileged position in that he gets a

better title than that of the transferor and the defenses on the part of a

person liable that the instrument has been lost, or has been obtained by

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means of an offence or fraud or for an unlawful consideration cannot be

pleaded against a holder in due course (Sec. 58).

2. Privilege in case of inchoate stamped instruments (Sec. 20):

In the case of inchoate stamped instrument, if the holder or original

payee fills more amount than that was authorised, he cannot enforce the

instrument for the whole amount (only actual authorised amount can be

recovered).

If such an instrument is transferred to a holder in due course, he can

claim the whole of the amount so entered provided that the amount is

covered by the stamp affixed thereon. Thus, the defence that the amount

filled by the holder was in excess of the authority given cannot be taken

against a holder is due course.

3. Liability of prior parties:

All prior parties to a negotiable instrument (i.e., its maker or drawer,

acceptor and intervening endorsers) continue to remain liable to a holder

in due course both jointly and severally (i.e., he can hold any or all prior

parties liable) until the instrument is duly satisfied (Sec. 36). Whereas,

only preceding party is liable to a succeeding party, if the succeeding

party is only a holder.

4. Privilege in case of Fictitious bills (Sec. 42):

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When a bill of exchange is drawn in a fictitious name and is made payable

to the drawer9s order (i.e., where both drawer and payee of a bill are

fictitious persons), the bill is said to be a fictitious bill. Such a bill is not a

good bill and cannot be enforced at law.

But the acceptor of such a bill is liable to a holder in due course provided

the latter can show that the first indorsement on the bill and the

signature of the supposed drawer are in the same handwriting.

5. Privilege when an instrument delivered conditionally is negotiated:

When a negotiable instrument is endorsed or delivered conditionally or

for a special purpose only, e.g., as collateral security or for safe custody,

and not with the idea of transferring absolutely property therein, the

property in the instrument does not pass to the indorsee, and he is merely

a bailee with limited title and power of negotiating it.

This, however, does not affect the rights of a holder in due course, i.e., if

such an instrument is negotiated to a holder in due course, the parties

liable on the instrument cannot escape liability (Sections 46 and 47).

6. Estoppel against denying original validity of instrument (Sec. 120):

The plea of original invalidity of the instrument; e.g., that no

consideration actually passed between the maker and the payee of a

promissory note; cannot be put forth against the holder in due course by

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the drawer of a bill of exchange or cheque or by the maker of a

promissory note or by an acceptor of a bill for the honour of the drawer.

However, the afforested parties are not precluded from challenging the

validity of the instrument on the ground that at the time of making the

instrument he was a minor or his signature had been forged or the

instrument is otherwise void ab−initio, e.g., where a promissory note is

made 8payable to bearer9 it is void and illegal as per the Reserve Bank of

India Act.

7. Estoppel against denying capacity of payee to indorse:

<No maker of a note and no acceptor of a bill payable to order shall, in a

suit thereon by a holder in due course, be permitted to deny the payee9s

capacity, at the date of the note or the bill to indorse the same= (Sec.

121).

Thus, a holder in due course can claim payment in his own name despite

the payee9s incapacity to indorse the instrument. As per Section 51, only a

8holder9 or a person in lawful possession of the instrument is competent

to indorse. Accordingly, a person who got the instrument for a gambling

debt or for unlawful consideration cannot negotiate the same.

6. Explain the banker9s duty to honor the customers cheques.

Obligation to Honour Cheques
It is one of the implied terms of the contract between a banker and a
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customer to honour cheques drawn by the customer subject to fulfilment
of certain conditions under section 31 of the Negotiable Instruments Act,
1881. The Banker is under statutory obligation to honour his customer9s
cheques, provided the following conditions are satisfied :

1. There must be sufficient funds (credit balance) or

within the permissible limit of overdraft.
2. The funds must be properly applicable to the payment of
cheque. (Eg. The customer may have two accounts : one
showing more credit balance and the other showing less credit
balance. He cannot present a cheque for higher amount against
his account showing less credit balance, although his other
account shows sufficient credit balance).
3. The banker must be duly required to pay. This means the
cheque must be presented within a reasonable time i.e., within
6 months. After 6 months (3 months asper RBI Notification), it
becomes stale and cannot be honoured. Similarly post−dated
(i.e. cheque with future date) cheque cannot be honoured. The
customer shall present post dated che1ue on or after the date of
cheque and
4. The customer shall not be disqualified by law or order of the
court (Garnishee Order) to draw the amount from his bank
account).

Liability of Banker for Wrongful Dishonour

A banker has a statutory obligation to honour his customer9s cheques

provided, the conditions under Sec. 10 of the Negotiable Instruments
Act, are satisfied. According to Section 31 of the Negotiable Instruments
Act, 1881, the Banker is liable to compensate the drawer for loss or
damage caused by such wrongful dishonour. Section 31 funs as follows:
<The drawee of a cheque having sufficient funds of the drawer in his
hands, properly applicable to the payment of such cheque must pay the
cheque when duly required to do so and, in default of such payment,
must compensate the drawer for any loss or damage caused by such
default”.

If there are sufficient funds to meet the cheque and the same is
dishonoured by a bank, it can be held liable for the wrongful dishonour
of the cheque and required to pay compensation for the damage caused
thereby. It may be noted that the banker9s liability is towards the payee
or the holder of the cheque. The banker has a contractual relationship
with the customer only, having a duty to honour his cheques, and
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therefore, only a customer i.e. the drawer can bring an action against the
bank for the wrongful dishonour of the cheque.

Assessment of Damages

While assessing computing damages payable as a consequence of

wrongful dishonour, the following factors/points are to be taken into
consideration.

1. Monetary loss caused to the drawer, payee and

2. Loss of credit and reputation.
The expression wrongful dishonour of a cheque means failure to make
payment against the cheque by mistake or negligence on the part of the
Banker or its employee. Eg. An amount deposited and collected had not
been credited to customer9s account in time. Consequently cheques
issued by such customer have been dishonoured for lack of funds. Or
dishonour may take place, when the banker gives wrong debit to such
customer9s account instead of another by mistake.

The terms loss or damage under sec. 31 denotes :

1. monetary loss suffered by the customer: and

2. loss of credit or reputation.
In other words, the Banker is liable to compensate not only actual
monetary loss, but also the loss of reputation suffered by the customer as
a consequence of wrongful dishonour. Sometimes, the customer may
claim special damages also.

Justification of Dishonour

A banker is bound or justified in dishonouring the cheques of his

customer under the following circumstances:

1. Where the customer countermands the payment.

2. Where there are not sufficient funds in the customer9s account to
meet the cheque.
3. When the funds in the customer9s account are meant for
being utilized for some other purpose (for instance, the
banker has lien over such funds under Sec. 171 of the
Negotiable Instruments Act.)
4. If the cheque is not properly presented.
5. When the banker receives the notice of customer9s death,
bank9s authority to pay gets terminated since the funds of the
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 account vests in the legal representatives of the deceased
customer.
6. When the banker receives the notice of customer9s insanity.

7. When the Banker receives order from Court,

prohibiting the payment.
8. When the cheque is stale or post−dated and
9. When the cheque is of doubtful legality.

7. Explain the various trends of E banking

services. Introduction:
The banking system had had a dynamic structure. It has changed with
time and tide which has not only made the economy stronger but also
made the life of the customer much easier than before. You and I witness
these changes in our day to day life by using a number of new banking
facilities. The trend in banking has taken the biggest turn during the year
1969 when 14 major banks were nationalized. The aim was to make
banking facilities availed to all the sectors of the society and to transfer it
from a few hands, enjoying the monopoly, to the hands of the
government.

What is E-banking?

The simple way to define the E−banking is banking through the means
of internet. Through e−banking customer can access his account through
his mobile phone or computer. It includes fund transfer to another bank
or within the same, any investment, and account related details or to
avail any services all through the means of internet.

Previously, the customers had to stand in a long queue to avail of the

bank transaction. In fact, customers were ignorant about the services or
the products of the banks. But today, by just one click we can avail of the
easily transfer the funds and manage our accounts.

The e-banking services are offered by the means of:-

1. Automatic Teller Machine

2. Debit Cards

3. Credit Cards
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 RTGS

4. Mobile Banking

Automatic Teller Machine

It is also called ATM. An ATM is a computerized machine installed in
different places that helps the customer to make financial transactions
without going to the bank branches. To avail, this service customer has
to obtain the ATM card or debit card from the specified bank. The
services like depositing and withdrawing of cash, mini statement (which
shows the account activity), issue of passbooks, check the balance
inquires, etc. The system is recognized as <Any Time Money= or
<Anywhere Money=.

Importance:-

• It is very helpful in the metropolitan city.

• The major importance of ATM is customer can access their account from any
bank9s ATM machine and for foreign travellers.

• When the money is withdrawn in any foreign nation the currency

gets converted at the financial institution exchange rate and the
customer gets the money without any delay.

Disadvantage:-

• Loss of card or password so necessary care needs to be taken.

• Proper knowledge to access the machine.

• The chances of theft also increase in fact it has been increased. There
have been instances where the ATM machine has been stolen by the
thieves which make a great loss to the banks.

Debit Card
A debit card is a plastic card with encryption on its debit card number,
name of the bank and cardholder. A cardholder can just swipe his card
to make card payments at various shops. A debit card has reduced the
15
paper money transaction. People prefer more to carry just one card
instead of carrying
money and coins. But to access debit card one must have balance
in his account. The Debit cards are used in the ATM machine to
withdraw and deposit the cash.

Credit Card
It is the same as the debit card. The two differences are

First, there is no need to maintain balance in the account as there is a

balance or say credit provided by the bank to the customer to use
whenever necessary. Later, the bank debits the amount from the
customer account.

RTGS
It is defined as the continuous settlement of funds transfer separately on
an order by order basis. It is mainly for large value transactions (2 lakhs
be the minimum).

Mobile Banking
The customer uses mobile for banking transactions it includes Google
pay, Paytm, PayPal, etc. The customer needs to download the
application and then link it with the bank account. It is totally password
secured. Nowadays the most used is mobile banking either for
purchasing online or paying at shops or restaurants. The best part which
attracts the customer the most the 8cash back or reward or gift or
coupons receive9.

Importance of E-banking

1. The customer can easily get access to his accounts anywhere and anytime.

2. The transaction is safer and secure.

3. E−banking transaction is easier and quicker.

4. It saves the valuable time of the customer.

5. It has also reduced paperwork. It9s more eco−friendly.

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 Disadvantage of E-banking
1. E−banking has also leads to an increase in cyber−crime like spyware,
internet theft, etc.

2. Insufficient knowledge of using electronic banking.

3. The risk of maintaining the secrecy.

Popular services under e-banking in India

 ATMs (Automated Teller Machines)

 Telephone Banking
 Electronic Clearing Cards
 Smart Cards
 EFT (Electronic Funds Transfer) System
 ECS (Electronic Clearing Services)
 Mobile Banking
 Internet Banking
 Telebanking
 Door−step Banking

8. Deposit Insurance Corporation.

Introduction:
Deposit Insurance and Credit Guarantee Corporation (DICGC) is a
wholly− owned subsidiary of the Reserve Bank of India (RBI). It
provides
deposit insurance that works as a protection cover for bank deposit
holders when the bank fails to pay its depositors.

The agency insures all kinds of deposit accounts of a bank, such as

savings, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh
per account holder per bank. In case an individual's deposit amount
17
exceeds Rs.5 lakh in a

single bank, only Rs.5 lakh, including the principal and interest, will be
paid by DICGC if the bank becomes bankrupt.

How DICGC Works?

DICGC protects depositors' money kept in all commercial and foreign
banks located in India; central, state, and urban co−operative banks;
regional rural banks; and local banks, provided that the bank has
opted for DICGC cover.

The agency's operations are performed as per The Deposit Insurance

and Credit Guarantee Corporation Act, 1961 and The Deposit Insurance
and Credit Guarantee Corporation General Regulations, 1961, framed by
RBI under the provisions of sub−section (3) of Section 50 of the act. The
act states that the establishment of this corporation is with the aim of
insuring deposits, guaranteeing credit facilities, and other related
matters.

What DICGC Does Not Cover?

 Deposits of state or Central governments

 Deposits from foreign governments
 State land development banks depositing with the state
co−operative bank
 Inter−bank deposits
 Funds that are due on account of India and deposits received
outside India
 Funds exempted by the corporation with the previous approval from RBI

DICGC Accreditation
When banks register with DICGC, the agency grants a printed certificate
to the bank that displays information regarding the protection offered by
DICGC to depositors of the insured bank. If there is any doubt,
customers can enquire with the bank officials on the same.

9. Write a note on credit

card. Introduction:
Credit cards let borrow money from a bank under the agreement that
you9ll repay it by your bill9s due date or incur interest charges.

The ability to buy now and pay later outmatches other forms of
payment, such as debit cards or cash, which both require you to have the
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money available for payment at the time of purchase. In addition to
having more flexibility with payments, credit cards help you to establish
a credit score so you can qualify for other financial products, such as
loans and mortgages.

There also can be some monetary perks to having a credit card, where
cardholders can earn rewards on every purchase, which can be later
cashed in for travel, statement credits and more. Some credit cards also
offer intro interest−free periods.

How credit cards work

Credit cards are rectangular pieces of plastic or metal that can be used to
pay for new purchases by swiping, tapping or inserting your card into a
card reader at checkout. Plus many cards allow you to complete balance
transfers, which provide the opportunity to get out of debt.

When you open a credit card, you receive a credit limit that can range
from a couple hundred to thousands of dollars. You9ll be able to spend
up to that limit.

When you make a purchase with your card, it will show up as pending
on your account and post within a few days. Once the transaction is
posted to your account, your total balance will increase.

Expect to receive a bill from your card issuer every month that consists
of all the posted purchases you made during your billing cycle. In order
to keep your account in good standing, you9ll need to pay at least the
minimum amount by your due date (which is the same date every
month).

Thankfully most cards offer grace periods, which allow you to pay off
your balance interest free for a minimum of 21 days from the end of a
billing cycle. Any lingering balances after the grace period will incur
interest, so we recommend that you always pay in full.

Common credit card terms

Credit cards come with dozens of terms that determine what fees you
can incur from using your card. Here are the most common terms:

 Annual fee: The fee cardholders are charged every year for
holding a credit card.

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  Balance transfer APR: The interest rate for balance transfers,
which may be equal to or greater than the purchase APR.

 Balance transfer fee: Transferring debt from one card to another

may cost you 3% to 5% per transfer.

 Cash advance APR: The interest rate you incur if you take out
a cash advance, which is often one of the highest APRs you can
be charged.

 Cash advance fee: The fee you9re charged for each cash advance,
usually 5%.

 Foreign transaction fee: Purchases made outside the U.S. may

incur a fee per transaction, usually 3%.

 Late payment fee: When you pay your credit card bill late,
you may incur a fee up to $40.

 Minimum payment: The smallest amount of money you have

to pay each month to keep your account current. (Learn how
making only minimum payments on credit card debt could cost
you thousands and take over a decade to repay.)

 Penalty APR: When you pay late, card issuers may penalize you with
an interest rate that9s higher than your regular APR.

 Purchase APR: The interest rate you incur for new purchases that
aren9t paid in full every billing cycle.

10. Discuss origin and evolution of banking institutions

in India. Introduction:
Banking in India forms the base for the economic development of the
country. Major changes in the banking system and management have
been seen over the years with the advancement in technology,
considering the needs of people.
The banking sector development can be divided into three
phases: Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalisation Phase which lasted from 1969 to 1991
Phase III: The Liberalisation or the Banking Sector Reforms Phase which
began in 1991 and continues to flourish till date.

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Pre Independence Period (1786-1947)
The first bank of India was the <Bank of Hindustan=, established in 1770
and located in the then Indian capital, Calcutta. However, this bank
failed to work and ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the
country, but only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were
established in India. They were:

 The General Bank of India (1786−1791)

 Oudh Commercial Bank (1881−1958)
 Bank of Bengal (1809)
 Bank of Bombay (1840)
 Bank of Madras (1843)
During the British rule in India, The East India Company had established
three banks: Bank of Bengal, Bank of Bombay and Bank of Madras and
called them the Presidential Banks. These three banks were later merged
into one single bank in 1921, which was called the <lmperial Bank of
lndia.=
The Imperial Bank of India was later nationalised in 1955 and was named
The State Bank of India, which is currently the largest Public sector
Bank.

Post Independence Period (1947-1991)

At the time when India got independence, all the major banks of the
country were led privately which was a cause of concern as the people
belonging to rural areas were still dependent on money lenders for
financial assistance.
With an aim to solve this problem, the then Government decided to
nationalise the Banks. These banks were nationalised under the
Banking Regulation Act, 1949. Whereas, the Reserve Bank of India was
nationalised in 1949.
Following it was the formation of State Bank of India in 1955 and the
other 14 banks were nationalised between the time duration of 1969 to
1991. These were the banks whose national deposits were more than 50
crores.
Given below is the list of these 14 Banks nationalised in 1969:

1. Allahabad Bank
21
 2. Bank of India

3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10. Punjab National
Bank
11. 11.Syndicate Bank
12. Union Bank of India
13. United Bank
14. UCO Bank

In the year 1980, another 6 banks were nationalised, taking the number
to 20 banks. These banks included:

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank

Apart from the above mentioned 20 banks, there were seven

subsidiaries of SBI which were nationalised in 1959:

1. State Bank of Patiala

2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore

Liberalisation Period (1991-Till Date)

Once the banks were established in the country, regular monitoring and
regulations need to be followed to continue the profits provided by the
banking sector. The last phase or the ongoing phase of the banking sector
development plays a hugely significant role.

22
To provide stability and profitability to the Nationalised Public sector
Banks, the Government decided to set up a committee under the
leadership of Shri. M Narasimham to manage the various reforms in the
Indian banking industry.
The biggest development was the introduction of Private sector banks
in India. RBI gave license to 10 Private sector banks to establish
themselves in the country. These banks included:

1. Global Trust Bank

2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10.Development Credit
Bank

The other measures taken include:

 Setting up of branches of the various Foreign Banks in India

 No more nationalisation of Banks could be done
 The committee announced that RBI and Government would treat
both public and private sector banks equally
 Any Foreign Bank could start joint ventures with Indian Banks
 Payments banks were introduced with the development in the
field of banking and technology
 Small Finance Banks were allowed to set their branches across India
 A major part of Indian banking moved online with internet
banking and apps available for fund transfer
11. Examine the various controls of RBI over commercial
banks. Introduction:
One of the most important functions of RBI is to work as regulator and
supervisor of financial system. The financial system in India includes
Commercial Banks, Regional Rural Banks, Local Area Banks,
Cooperative Banks, Financial Institutions including Development
Financial Institutions (DFIs) and Non− Banking Financial Companies.

23
RBI derives its regulating powers for Indian Banking System from the
provisions of the Banking Regulation Act 1949. For other entities, it
derives power from the RBI act 1934. The objectives of this function are
to protect the interest of the depositors and maintain the safety and
soundness of the banking and Financial System of the country.
After the liberalization of the Indian Economy and Banking reforms in
1990s, the amplitude of the supervisory functions of RBI became has
grown enormously. To keep up with the added importance of this
function, the Board of Financial Supervision was constituted in 1994.
Since then, BFS is working as the main guiding force behind RBI9s
regulatory and supervisory initiatives.

Further, various departments have been created for effective

supervisory functions.
 Department of Banking Operations and Development (DBOD)
frames regulations for commercial banks.
 Department of Banking Supervision (DBS) undertakes supervision
of commercial banks, including the local area banks and all−India
financial institutions.
 Department of Non−Banking Supervision (DNBS) regulates and
supervises the Non−Banking Financial Companies (NBFCs)
 Urban Banks Department (UBD) regulates and supervises the
Urban Cooperative Banks (UCBs).
 Regulation of Regional Rural Banks (RRBs) and the Rural
Cooperative Banks is done by Rural Planning and Credit
Department (RPCD); while the supervision of these comes under
NABARD.

 Licensing Requirements
 Corporate Governance in Banks
 Statutory Pre−emptions
 Interest Rates
 Prudential Norms
 Disclosure Norms
 Anti−Money Laundering Norms
 Protection of Small Depositors
 Para – banking Activities
 Annual Onsite Inspection

24
Licensing Requirements
To do a business of commercial banking in India, whether it is India or
Foreign, a license from RBI is required. Opening of Branches is handled
by the Branch Authorization Policy. At present, Indian banks no longer
require a license from the Reserve Bank for opening a branch at a place
with population of below 50,000.
Corporate Governance in Banks
One of the policy objectives of RBI is to ensure high−quality corporate
governance in banks. RBI has issued guidelines for 8fit and proper9
criteria for director of banks. One of these guidelines is that the directors
of the banks should have special knowledge / experience in the various
banking related areas. RBI can also appoint additional directors to the
board of a banking company.
Statutory Pre-emptions
Each commercial bank is required to maintain certain portion of their
Net Demand and Time Liabilities (NDTL) in the form of cash with the
Reserve Bank, called Cash Reserve Ratio (CRR) and in the form of
investment in approved securities, called Statutory Liquidity Ratio
(SLR). These are called statutory Pre− emptions.
Interest Rates
The interest rates on most of the categories of deposits and lending
transactions have been deregulated and are largely determined by
banks. Reserve Bank regulates the interest rates on savings bank
accounts and deposits of non− resident Indians (NRI), small loans up to
rupees two lakh, export credits and a few other categories of advances.
Prudential Norms
Prudential Norms refers to ideal / responsible norms maintained by the
banks. RBI issues <Prudential Norms= to be followed by the commercial
banks to strengthen the balance sheets of banks. Some of them are
related to income recognition, asset classification and provisioning,
capital adequacy, investments portfolio and capital market exposures.
RBI has issued its guidelines under the Basel II for risk management.
Disclosure Norms
One of the important tools for marketing discipline is to maintain public
disclosure of relevant information. As per RBI9s directives, the banks are
required to make disclosures of their annual reports and some other
documents about their capital adequacy, asset quality, liquidity,
earnings aspects and penalties imposed on them by the regulator.

25
Anti-Money Laundering Norms
KYC norms ( Know Your Customer) Anti− Money Laundering (AML)
and Combating Financing of Terrorism (CFT) guidelines are some of the
major issues on which RBI keeps issuing its norms and guidelines.
Protection of Small Depositors
RBI has set up the Deposit Insurance and Credit Guarantee Corporation
(DICGC) to protect the interest of small depositors, in case of bank
failure. The DICGC provides insurance cover to all eligible bank
depositors up to Rs.1 lakh per depositor per bank.
Para – banking Activities
Parabanking activities are those activities which don9t come under the
traditional banking activities. Examples of such activities are asset
management, mutual funds business, insurance business, merchant
banking activities, factoring services, venture capital, card business,
equity participation in venture funds and leasing. The RBI has permitted
banks to under take these activities under the guidelines issued by it
from time to time.
Annual Onsite Inspection
RBI undertakes annual on−site inspection of banks to assess their financial
health and to evaluate their performance in terms of quality of
management, capital adequacy, asset quality, earnings, liquidity position
as well as internal control systems.
Based on the findings of the inspection, banks are assigned supervisory
ratings based on the CAMELS rating.

12. Explain the objectives and features secularization act

2002. Introduction:
SARFAESI Act 2002 was passed on seventeenth December 2002 to help
Indian lenders recover their outstanding dues as fast as possible.
SARFAESI Act 2002 (Securitization and Reconstruction of Financial
Assets and Enforcement of Securities Interest Act) empowers financial
institutions of India to distinguish and amend the problems related to
NPAs (Nonperforming assets). It also lets the banks and other financial
institutions of India sell residential or business properties with the end
goal of loan recovery.
The objectives of the SARFAESI Act are provided below :

 Specifies the legal framework identified with the scanning

activities in India.

26
  Mentions the procedures for Non – performing assets
transfer to the asset reconstruction companies for their
reconstruction purpose. This allows fast and effective
recovery of NPAs with respect to banks and FIs.
 Allows financial institutions and banks to sell properties
(business or residential), in case the borrower fails to
reimburse their loans.
 Confers powers to the financial institutions to take custody
of the immovable property that is hypothecated or charged
for debt recovery.
 Imposes the security interest with no interspecific legal
framework identified with the scanning activities in India.

Features of SARFAESI ACT

Securitization and Reconstruction of Financial Assets and Enforcement
of Securities Interest Act, 2002 aims to protect banks and financial
institutions from incurring losses. Its features are provided below :
1. Enforcement of security interests: The Act enforces security
interests by the secured creditors with no involvement of the
court. In case of a default by a borrower, the act authorizes the
bank or a financial institution to issue a demand notice to the
borrower and induces him/her to satisfy off the obligations
within sixty days from the date of the notification.
2. Reconstruction of financial assets: SARFAESI Act allows the
banker and financial institutions to take legitimate measures of
the management, sale, settlements, debt restriction, or take any
possession under SBI guidelines every now and then.
3. Securitization of financial assets and issue security receipts:
The primary point of the securitization act is to make
accessible the enforcement of security interest for example to
take possessions of the assets that were given security for the
loan.
4. Act as an agent of banks or financial institutions: The
SARFAESI Act 2002 acts as the manager of the secured assets
given by the financial institutions and ensures that the dues are
recovered at an ideal time.

13. Who is customer of a bank? Discuss the general relationship

between banker and customer.
Introduction:

27
The relationship between banker and customer is a legal relationship
that starts after the formation of a contract. When a person who opens a
bank account in the bank and banker gives his acceptance for the
account, it binds banker and costumer in the contractual relationship.
The person who holds the bank account in the bank and uses its services
is called a bank customer. The contractual relationship between bank
and customer creates more types of banker and customer relationships.
Meaning and Definition of a Customer:

There is no statutory definition of a customer, but banks appear to rely

upon to recognize a customer:
1. For a person a person to be known as a customer of the bank there
must be either a current account or any sort of deposit account like
saving, term deposit, recurring deposit, a loan account or some similar
relation.

2. The relationship of banker and customer begins as soon as money or

cheque is paid in and the bank accepts it and is prepared to open
account.

3. The word customer signifies a relationship in which duration is not of

essence. A person whose money has been accepted by the banker on the
footing that he undertakes to honour cheques unto the amount standing
to his credit is a customer of the bank irrespective of whether his
connection is short or long duration.

The question whether a person is a customer in the period between his

first contact with the bank and the receipt of the final letter (a letter
written to the introducer or at the address of the account opener to
ascertain his personal verification) authenticating the
reference/introduction is not free from doubt.

If the reference/introduction is satisfactory the person is a customer

and probably always has been, if it is not, and no other satisfactory
reference can be supplied, the banker will probably decide not to
proceed. In this case the person is not a customer and never has been.

The banker and customer relationship are based on trust. This

relationship is divided into two important parts.

28
  The general relationship between banker and customer
 The special relationship between banker and customer

The general relationship between banker and customer

The services provided by a banker to its customer comes under a general
relationship between banker and customer. The general relationships
between banker and customer are:

Relationship as Debtor and Creditor

The opening of a bank account in the bank of a banker by the person
who has the capacity to contract is the basis of the debtor and creditor
relationship between banker and customer. By filling the form for
opening a bank account bind the banker and customer in the written
contract. The customer when deposits his money into his bank account,
becomes a creditor because he is giving his money to the bank indirectly.
The money deposited by the customer in the bank account becomes the
bank9s property. The bank can use your money as it likes. By using your
money, the bank becomes a debtor because he will take that money into
his account to make further transactions with other bank customers. The
bank is not liable to inform the customer about the utilization of his
money.
Relationship as Trustee and Beneficiary
The bank performs the relationship as a trustee with his customer when
the bank customer deposited his property or other assets. In this case,
the bank holds the property of other documents of bank customers in
exchange for the loan provided by the bank. The person who is
depositing the property or other document is known as the beneficiary.

It can be done in two conditions:

 When a person deposited his important document in the

bank locker.
 The person took the loan and deposited his property
document as security.
Relationship as principal and Agent
The bankers provide agent services to their customers. The agent is
defined under section 182 of the Indian contract act as the agent is the
person who is employed by a person by giving him the power of
attorney to work or deal on his behalf. The banker pay taxes, electricity
bills, insurance premium etc. at the command of the bank customer who
acts as principal. The bank usually charges for these services provided by
the bank to its customer.
29
Relationship as Lesser and Lessee
Section 105 of the transfer of property act deals with the contract of lease.
It is a transfer of a right to enjoy the immovable property for a
certain time with consideration. This happens in the relationship
between banker and customer when the bank provides a safe deposit
locker to the customer of the bank to save his important property for a
certain period of time. The bank changes its customer who is taking the
benefit of the locker for a certain period of time.
Relationship as Pledger and Pledgee
The banker performs the relationship of Pledger and Pledgee when the
customer took the loan from the bank and deposits some security to the
banker. The customer becomes a pledger and the bank is pledgee. The
security of the customer will remain in the custody of the bank until the
person repays the money of loan taken by him from the bank.

Relationship as Bailor and Bailee

The banker can perform the relationship of bailor and bailee with its
customer. There are many types of bailment under which the person
delivers his goods to another party for a specific period of time and take
the goods back when the purpose of bailment has been done.
The relationship of bailor and bailee between banker and customer arises
when the customer gives his security document of any other goods to
the bank for a specific period of time for security. The customer is a
bailor and the bank becomes bailee.

Relationship as Advisor and Client

The relationship between banker and customer can be as advisor and
client in a case when the customer invests in securities. The bank gives
advice to his customer for investing. For example, if you are planning to
take any kind of loan, but you are not sure that which loan you should
take. Here, the bank can advise you officially or unofficially to take the
right decision. In that case, the banker will be your advisor and you will
be his client.

Relationship as Mortgagor and Mortgagee

Section 58(a) of the Transfer of Property Act, 1882 defines the mortgage
as <A mortgage is the transfer of an interest in specific immovable
property for the purpose of securing the payment of money advanced by
way of loan, etc.= When the banker provides the credit facility to his
customer against the security of immovable property, the customer
becomes a mortgagor and the bank is a mortgagee.

30
Relationship as Indemnity holder and Indemnifier
There are various types of indemnity given under the Indian contract
act. Indemnity is one of the types of contracts in which one person
promise to save another party by paying his loss occurred due to the
person who is making the contract or by the act of any other person.
In the relationship between banker and customer, the banker act as
indemnity holder if any wrong transaction is done while making the
payment by the customer.

Relationship as Hypothecator and Hypothecatee

The relationship between banker and customer converts into
Hypothecator and Hypothecatee when the bank customer hypothecates
some movable or immovable property or any other assets into the bank to
take the loan from the bank. In this case, the bank customer is a
hypothecator and the banker is Hypothecatee.

Special Relationship between Banker and Customer

The duties and instruction to the banker come under a special
Relationship between Banker and Customer.

Maintain records
It is the duty of the banker to maintain every record of the transaction,
loan and investment done by the bank customer. These records must be
clear, genuine and authorized. The bank customer has the right to check
his transaction details whenever he needs them. In a case where the
transaction details are needed, the banked has the duty to provide the
true details to its customer with the stamp and signature of the
authorized person. Any mistake in the records can bring the bank into
trouble.

Maintain confidentiality
A banker is responsible for the safety of the documents, records or any
other property which is deposited by the bank customer in the bank. The
information must remain confidential. Though there are some
conditions when the banker can disclose these confidential documents
saved in the bank account.

Obligation to honour cheques

The bank is responsible to accept the Cheque of the customer that is
equivalent to the amount present in the account. There are some
necessary conditions

31
which must be fulfilled by the Cheque. Lack of these conditions can
lead to the dishonour of cheques.

14. Define cheque? How is differ from bill of exchange and

promissory note. Introduction:

Cheque
A cheque is a negotiable instrument under Section 6 of the Negotiable
Instruments Act, 1881. By a cheque one individual/party orders the
bank to transfer the money to the bank account of another
individual/party in whose name the cheque has been issued. A cheque
ensures safe, secure, and stress− free payment because it is a convenient
option as there is no involvement of hard cash during the transfer
process. In other words, a cheque is a bill of exchange drawn on a bank
payable always on demand and the bank is always the drawee in the
case of a cheque. It is generally written in a specially printed form.
According to Section 6 of the Negotiable Instruments Act, 1881, a
cheque is a bill of exchange drawn on a specified banker payable only
on demand. In the case of cheques, the drawer and payee may be the
same person.

Features of a cheque

1. Written order: A cheque, just like a bill of exchange and the

promissory note has to be written and an oral order to pay
does not institute a cheque.
2. Drawn on a banker: A cheque has to be drawn on a bank
where the drawer has an account, be it a savings bank account
or a current account.
3. Unconditional: A cheque is not a request but an order to pay
and it must be unconditional. The order should be to pay a
definite amount of money and if the cheque is drawn to do
something other than pay money then it cannot be a cheque.
4. Signature and date: A cheque without the date and signature
of the issuer is invalid.
5. Payable to the drawer: Cheques may be payable to the drawer
and maybe drawn also payable to the bearer on demand unlike
a bill or a promissory note.

32
 6. Specific banker only: A cheque is drawn always by a specific
banker and these days the name, address of the banker and
the bank9s IFS (Indian Financial System) code are printed on
the cheque leaf itself.
7. Stamp: Unlike a bill of exchange and promissory note, no
revenue stamp is required to be affixed on cheques.

Difference between a cheque and bill of exchange

Aspect Cheque Bill of exchange

By a cheque one
A negotiable instrument is in
individual/party orders the
writing and holds an unconditional
bank to transfer the money
Meaning order by the bill9s maker to pay a
to the bank account of
certain amount of money either to a
another individual/party in
specific person or its bearer.
whose name the cheque has
been issued.
The definition of a bill of exchange is
given in Section 5 of the Negotiable
A cheque is a negotiable Instruments Act, 1881. Bill of
instrument under Section 6 exchange is also defined in Section
Provision
of the Negotiable 2(2) of the Indian Stamps Act, 1899
Instruments Act, 1881. and the bill of exchange payable on
demand has been explained in
Section 2(3) of the Indian Stamps
Act, 1899.
A bill of exchange can be drawn on
A cheque is always drawn on anyone, including a banker. It is
Drawn on
a particular banker. generally drawn by the creditor
upon his debtor.

A bill of exchange may be drawn

When can it A cheque can only be drawn
payable on demand, or the expiry of
be drawn payable on demand.
a certain period after date or sight.

33
 For a bill of exchange, a notice of
dishonour is mandatory and it should
Notice of For a cheque, a notice of
be served to all the concerned parties
Dishono dishonour is not compulsory.
involved in the transaction on
ur
dishonouring the bill of exchange.

Copies The cheque allows no copies. Bill of exchange can have copies.

A cheque does not need any

approval from the parties A bill of exchange needs approval
Approval
before being presented for from the drawee for the payment.
payment.

A cheque does not have a

A bill of exchange, however, has a
Grace period grace period once it is
three days grace period.
presented for its payment.

As regards a bill of exchange, the

Parties remain liable to pay parties who don9t get notice of
Liability and in case notice of dishonour are free from the liability
dishonour is not given. of paying and the liability of the
drawer is secondary and conditional.

The drawer of a cheque is

The drawer of a bill of exchange is
discharged only if he suffers
Discharge discharged, if it is not presented for
any damage by delay in
payment.
presentation for payment.

A cheque does not require

A bill of exchange must be accepted
Acceptance acceptance and its object is for
first before payment can be
immediate payment
demanded on it.

A cheque being a revocable This is not so in the case of a bill of

Revocability mandate, the authority can be exchange. A bill of exchange is not a
revoked by countermanding revocable mandate.
payment and is determined
by

34
 notice of the customer9s death
or insolvency.

A cheque may be crossed and

Crossing A bill of exchange may not be crossed.
it is safer if it is crossed.

A cheque does not require

Stamp A bill of exchange must be stamped.
any stamp except in certain
cases.

15. Explain indorsement. Explain the various types

respected Introduction:
The holder of a negotiable instrument may sign his or her name on the
back of that instrument, which replicates the transfer of title or
ownership of that negotiable instrument, this process is termed as an
endorsement. An endorsement can be done by keeping another
individual or an entity in a favorable position. Thus, we can say that an
endorsement helps in the transfer of the property to another individual
or a legal entity. In this context, we will know about the types of
endorsement of instruments done in the legal world.
Types of Endorsement
An endorsement is basically of two sorts:
1. The Endorsement in Blank
2. The Endorsement in full

As indicated by Section 16 of the Negotiable Instrument Act, 1881, if the

endorser signs his name just, the underwriting is supposed to be in the
clear, and on the off chance that he adds a heading to pay the sum
referenced in the instrument to, or to the request for, a predetermined
individual, the Endorsement is supposed to be in full, and the individual
so determined is known as the endorsee of the instrument. There are
some different sorts which are established, however, not well known,
which are given underneath.

There are six types of endorsement. These are applicable for

endorsement in banking and various types of endorsement cheques:

 Blank or General Endorsement.

35
  Full Endorsement or Special Endorsement.
 Conditional Endorsement.
 Restrictive Endorsement.
 Partial Endorsement.
 Facultative Endorsement.

In the following section, we are going to discuss each endorsement in detail.

Blank or General Endorsement

An endorsement is supposed to be blank or general endorsement when
the endorser puts his unmistakable just on the instrument and doesn't
compose the name of anybody to whom or to whose request the
instalment is to be made.

Full Endorsement or Special Endorsement

A special Endorsement or full Endorsement is when the endorser,
notwithstanding his mark, additionally notices the name of the
individual to whom or to whose request the instalment is to be made.
There is a heading added by Endorsement to the individual indicated
called the endorsee of the instrument who presently turns into its payee
qualified to sue for the cash due on the instrument.

Conditional Endorsement
The restrictive endorsement is an arrangement that produces results on
the occurrence of an expressed occasion, or not something else. Segment
52 of the Negotiable Instrument Act 1881 gives the endorser of a
debatable instrument may, by express words in the Endorsement, reject
his own risk subsequently, or make such obligation or the privilege of
the endorsee to get the sum due consequently rely on the occurrence of a
predetermined occasion, albeit such occasion may never occur. Where
an endorser so prohibits his risk and a short time later turns into the
holder of the instrument, all intermediates endorsers are obligated to
him.

Restrictive Endorsement
Restrictive Endorsement tries to end the chief qualities of a Negotiable
Instrument and seals its further dubitability. This may sound somewhat
unordinary, yet the endorsee is especially inside his privileges on the off
chance that he so signs that its resulting move is limited. This forestalls
the danger of unapproved individuals acquiring instalment through
misrepresentation or falsification and losing their cash.

36
Partial Endorsement
An endorsement is supposed to be a partial endorsement when the
endorser indicates to move to the endorsee, just an aspect of the sum
payable. In straightforward terms, support which permits moving to the
endorsee an aspect of the sum payable is known as halfway
underwriting.

Facultative Endorsement
Facultative Endorsement is an underwriting where the endorser defers
some privilege to which he is entitled. For instance, the endorsee is
subject to pull out of disrespect to the endorser, and typically inability to
pull out will vindicate the endorser from his risk.

16. Holder in due course.

Introduction:

In Banking or Commercial law, a holder in due course is a person who

accepts a negotiable instrument in a value−for−value exchange without
doubting its legitimacy so ultimately in a good faith. Now the person
who took it for value in good faith now becomes a real owner of the
instrument and is known as
<holder in due consideration=. According to Section 9, <Holder in due
course means any person who for consideration became the possessor of
a promissory note, bill of exchange or cheque is payable to bearer, or the
payee or endorsee thereof, if payable to order before the amount
mentioned in it became payable and without having sufficient cause to
believe that any defect existed in the title of the person from whom he
derived his title=.

The phrase <in good faith and for value= has split into 4 rudiments under sec
9-

• The instrument taken by the holder is should be for value.

• It9s necessary to obtain the instrument before its maturity.

• The instrument should be complete and regular on its face.

37
 • The instrument should have been received in a good faith without
noticing any defect or error neither in the instrument, title nor in the
person negotiating it to him.

Case- SukhanRajkhim Raja a Firm of Merchants, Bombay V. N. Raja

Gopalan-

The Hon9ble court held that the plaintiff was cognizant that the cheque
had been dishonoured and endorsement in his favour was only after it
was returned by the bank. Furthermore, it has lost its negotiability.
Hence, the plaintiff cannot beholder in due course.

17. Write a note on Banking ombudsman.

Introduction:
The Banking Ombudsman Scheme is an expeditious and inexpensive
forum for bank customers for resolution of complaints relating to certain
services rendered by banks. The Banking Ombudsman Scheme is
introduced under Section 35 A of the Banking Regulation Act, 1949 by
RBI with effect from 1995. Presently the Banking Ombudsman Scheme
2006 (As amended upto July 1, 2017) is in operation.
The Banking Ombudsman is a senior official appointed by the Reserve
Bank of India to redress customer complaints against deficiency in
certain banking services covered under the grounds of complaint
specified under Clause 8 of the Banking Ombudsman Scheme 2006 (As
amended upto July 1, 2017).
he Banking Ombudsman can receive and consider any complaint
relating to the following deficiency in banking services:
 non−payment or inordinate delay in the payment or collection of
cheques, drafts, bills etc.;
 non−acceptance, without sufficient cause, of small denomination
notes tendered for any purpose, and for charging of commission
in respect thereof;
 non−acceptance, without sufficient cause, of coins tendered and
for charging of commission in respect thereof;
 non−payment or delay in payment of inward remittances ;
 failure to issue or delay in issue of drafts, pay orders or bankers9 cheques;
 non−adherence to prescribed working hours ;

38
  failure to provide or delay in providing a banking facility (other
than loans and advances) promised in writing by a bank or its
direct selling agents;

When can one file a complaint?

One can file a complaint before the Banking Ombudsman if the reply is
not received from the bank within a period of one month after the bank
concerned has received one's complaint, or the bank rejects the
complaint, or if the complainant is not satisfied with the reply given by
the bank.
When will one's complaint not be considered by the Ombudsman?
One's complaint will not be considered if:
a. One has not approached his bank for redressal of his grievance first.
b. One has not made the complaint within one year from the date of
receipt of the reply of the bank or if no reply is received, and the
complaint to Banking Ombudsman is made after the lapse of more
than one year and one month from the date of complaint made to
the bank.
c. The subject matter of the complaint is pending for disposal / has
already been dealt with at any other forum like court of law,
consumer court etc.
d. Frivolous or vexatious complaints.
e. The institution complained against is not covered under the scheme.
f. The subject matter of the complaint is not pertaining to the
grounds of complaint specified under Clause 8 of the Banking
Ombudsman Scheme. If the complaint is for the same subject
matter that was settled through the office of the Banking
Ombudsman in any previous proceedings.
18. Consequences of dishonor of
cheques.

Introduction:
When a cheque is dishonoured, the drawee bank immediately issues a
8Cheque Return Memo9 to the banker of the payee mentioning the
reason for non− payment. The payee9s banker then gives the
dishonoured cheque and the memo to the payee. The holder or payee can
resubmit the cheque within three months of the date on it, if he believes

39
it will be honoured the second
time. However, if the cheque issuer fails to make a payment, then the
payee has the right to prosecute the drawer legally.

The payee may legally sue the defaulter / drawer for dishonour of cheque only

if the amount mentioned in the cheque is towards discharge of a debt or

any other liability of the defaulter towards payee.

If the cheque was issued as a gift, towards lending a loan or for unlawful
purposes, then the drawer cannot be prosecuted in such cases.

Legal action

The Negotiable Instruments Act, 1881 is applicable for the cases of

dishonour of cheque. This Act has been amended many times since
1881.

According to Section 138 of the Act, the dishonour of cheque is a

criminal offence and is punishable by imprisonment up to two years or
with monetary penalty or with both.

If payee decides to proceed legally, then the drawer should be given a

chance of repaying the cheque amount immediately. Such a chance has
to be given only in the form of notice in writing.

The payee has to sent the notice to the drawer with 30 days from the
date of receiving <Cheque Return Memo= from the bank. The notice
should mention that the cheque amount has to be paid to the payee
within 15 days from the date of receipt of the notice by the drawer. If the
cheque issuer fails to make a fresh payment within 30 days of receiving
the notice, the payee has the right to file a criminal complaint under
Section 138 of the Negotiable Instruments Act.

However, the complaint should be registered in a magistrate9s court

within a month of the expiry of the notice period. It is essential in this
case to consult an advocate who is well versed and experienced in this
area of practice to proceed further in the matter.

Fine points: Conditions for prosecution

40
Legally, certain conditions have to be fulfilled in order to use the
provisions of Section 138.

The cheque should have been drawn by the drawer on an account

maintained by him.

The cheque should have been returned or dishonoured because of

insufficient funds in the drawer's account.

The cheque is issued towards discharge of a debt or legal liability.

After receiving the notice, if the drawer doesn't make the payment within
30 days from the day of receiving the notice, then he commits an offence
punishable under Section 138 of the Negotiable Instruments Act.

Punishment & penalty

On receiving the complaint, along with an affidavit and relevant paper

trail, the court will issue summons and hear the matter. If found guilty,
the defaulter can be punished with monetary penalty which may be
twice the amount of the cheque or imprisonment for a term which may
be extended to two years or both. The bank also has the right to stop the
cheque book facility and close the account for repeat offences of bounced
cheques.

If the drawer makes payment of the cheque amount within 15 days from
the date of receipt of the notice, then drawer does not commit any
offence.
Otherwise, the payee may proceed to file a complaint in the court of the
jurisdictional magistrate within one month from the date of expiry of 15
days prescribed in the notice.
19. Explain the power and functions of Reserve bank of
India. Functions of Reserve Bank

1. Issue of Notes —The Reserve Bank has a monopoly for printing the
currency notes in the country. It has the sole right to issue currency
notes of various denominations except one rupee note.
The Reserve Bank has adopted the Minimum Reserve System for
issuing/printing the currency notes.
41
2. Banker to the Government–The second important function of the
Reserve Bank is to act as the Banker, Agent and Adviser to the
Government of India and

states. It performs all the banking functions of the State and Central
Government and it also tenders useful advice to the government on
matters related to economic and monetary policy. It also manages the
public debt of the government.

3. Banker9s Bank:- The Reserve Bank performs the same functions

for the other commercial banks as the other banks ordinarily
perform for their customers. RBI lends money to all the commercial
banks of the country. Structure of Banking Sector in India

4. Controller of the Credit:- The RBI undertakes the responsibility of

controlling credit created by commercial banks. RBI uses two methods to
control the extra flow of money in the economy. These methods are
quantitative and qualitative techniques to control and regulate the credit
flow in the country. When RBI observes that the economy has
sufficient money supply and it may cause an inflationary situation in
the country then it squeezes the money supply through its tight
monetary policy and vice versa.

5. Custodian of Foreign Reserves:-For the purpose of keeping the

foreign exchange rates stable, the Reserve Bank buys and sells foreign
currencies and also protects the country's foreign exchange funds. RBI
sells the foreign currency in the foreign exchange market when its
supply decreases in the economy and vice−versa.

6. Other Functions:-The Reserve Bank performs a number of other

developmental works. These works include the function of
clearinghouse arranging credit for agriculture (which has been
transferred to NABARD) collecting and publishing the economic data,
buying and selling of Government securities (gilt edge, treasury bills
etc)and trade bills, giving loans to the Government buying and selling of
valuable commodities etc. It also acts as the representative of the
Government in the International Monetary Fund
(I.M.F.) and represents the membership of lndia.

Powers of RBI
Election of New Directors
42
Section. 12A: The Reserve bank may, by order, require any banking
company to call a general meeting of the shareholders of the company
within such time, not less than 2 months from the Date of the order, as
may be specified in the order or within such further time as the Reserve
bank may allow in this behalf,

to elect, in accordance with the voting rights permissible under this Act,
fresh directors.

Cash Reserve

Section. 18: Under Section 42 of the Reserve Bank of India Act, every
scheduled bank has to maintain a sum equal to at least 3% of its time
and demand liabilities in India as cash reserve with the RBI. The Reserve
bank has the power to increase the percentage up to 20% by a
notification in the government Gazette.

Licensing of Banking companies

Section. 22: Prior to granting license to a banking company, the Reserve

bank may require to be satisfied by an inspection of the books of the
banking company or all or any of the following conditions should be
fulfilled, namely:

1. What the company is or will be in a position to pay its

present or future depositors in full as they become due
2. That the affairs of the company are not being, or are not likely
to be conducted in a manner detrimental to the interest of the
depositors.
3. In the case of a company incorporated outside India that the
carrying on of banking business by such company in India will
be in the public interest and that the government or law of the
country in which it is incorporated does not discriminate in
any way against banking companies registered in India.

Cancellation of the License: The license of any banking company may be

cancelled by the Reserve Bank due to the following reasons:

1. If the company ceases to carry on banking business in India; or

2. If any of the conditions imposed by the Reserve bank are not
fulfilled. Any banking company aggrieved by the decision of the Reserve
bank cancelling a license may, within thirty days from the date on which
such decision is communicated to it, appeal to the central government.

43
Opening of New and Transfer of Existing place of Business

Section. 23: Without obtaining prior approval of the Reserve Bank:

1. No banking company shall open a new place of business in

India or change otherwise than within the same city, town or
village, the location of an existing place of business situated
in India.
2. No banking company incorporated in India shall open a new
place of business outside India or change, otherwise than
within the same city, town or village in any country or area
outside India, location of an existing place of business situated
in that country or area.

Power to call for information relating to the business of any banking

company

Section. 27(2): Sec. 28 gives power to the Reserve Bank to publish such
information if it considers it proper to do so in the public interest.

The Reserve bank can at any time a banking company to furnish within
the specified time, with such statements and information relating to
business of the banking company as the Reserve bank may consider
necessary.

Power of Inspection

Section. 35: The Reserve Bank may at any time, and shall at the direction
of the central government inspect a banking company and its books and
accounts to find out whether or not the affairs of the banking company
are conducted in the interest of the depositors. The central government
may after giving reasonable notice to the banking company, publish the
report submitted by the Reserve Bank of such portion thereof as may
appear necessary

Power to give Directions

Section. 34: The Reserve Bank may from time to time issue directions to
banking companies generally or to any banking company particularly.
The Reserve Bank shall do so when it deems it necessary to issue such
directions :

1. in the public interest; or

2. to secure the proper management of any banking company generally.
44
 3. to prevent the affairs of any banking company being
conducted in a manner detrimental to the interest of the
depositors or in a manner prejudicial to the interests of the
banking company;

Reserve Bank's approval necessary for the amendment of provisions

relating to appointment of managing directors

Section. 35B: The appointment or reappointment of a managing or a

whole time director, manager or chief executive officer, by whatever
name called, shall not have any effect unless it is made with the
previous approval of the Reserve Bank.

Power of Reserve Bank to appoint additional directors

Section. 36AB: The Reserve Bank, if considers necessary for the

protection of the interest of depositors, from time to time may appoint
additional directors but the number should not exceed five or one third
of the maximum strength fixed for the Board by the articles whichever is
less. Additional directors shall hold office at the pleasure of the Reserve
bank not exceeding three years at a time.

Power of Reserve Bank to remove managerial and other persons from office

Section. 36AA: For preventing the affairs of the banking company, the
Reserve bank may remove any director, chief executive officer by
writing an order the order shall contain reasons for his removal and the
date from which it is effective. Reasonable opportunity should also be
given to such a person for explaining his position before such order is
actually passed against him. Such person, within 30 days, can appeal to
central government.

Further powers and functions of the Reserve Bank

Section. 36

1. It may on a request being made, assist in a proposal for

the amalgamation of banking companies concerned.
2. It may assist any banking company by means of the grant of a
loan or advance to it.
3. It shall make an annual report to the central government on
the trend and progress of the banking in the country. It shall
also include in such report its suggestions for the
strengthening of banking business throughout the country.
45
20. What are the activities permitted by the banking regulation act 1949
to be taken up by the banker and Explain?
Introduction:
Banking Company is a company which transacts the business of banking
in India. This company fulfils the state of affairs of being a company as
given in companies9 act 1956.

Business allowed for a banking company (Section 6)

Lending/Borrowing of money with/ without security, issuing travellers9
cheque, buying & selling foreign exchange notes, deposits vaults,
collecting & transmitting of money & securities, buying bonds and other
securities on the behalf of customers.
• Transacting and carrying on every kind of guarantee & indemnity business.
• Selling, managing & realizing any property which comes in possession of the
bank in procedure of settlements of claims.
• Executing and undertaking of trusts
• Other works which are advancements of main purpose of the company or
incidental
• A form of business that is defined by the Central Government in its
issued notification
Prohibition on trading (Section 8)
A banking company cannot get in directly or indirectly contracts in
buying or selling or exchange of goods.

Disposal of Non Banking assets (Section 9)

Banks cannot hold any property for more than 7 years for the purpose of
settlements of debts or obligations. Such time limit of 7 years can be
augmented by the Reserve Bank of India for another 5 years, if it thinks
appropriate.

Reserve fund (section 17)

Every banking company must generate a reserve fund out of its earnings
after tax and interest. Such reserve amount should be at any rate 20
percent of such profits. Exemption can be provided only if the
cumulative amount of reserve fund & securities premium is greater than
the paid up capital of the company.

Cash reserve (Section 18)

At least 3 percent of the total demand & time liabilities should be kept as
cash reserve or should be secured in current account with Reserve Bank
of India.
Liabilities will not comprise monies received from Reserve Bank of India/ EXIM

46
bank/ Development bank or any such other bank. Such amount should
be deposited/ kept on last Friday of every 2nd fortnight of every month.
The return should be deposited before twentieth day of every month
stating the particulars of amount deposited to Reserve Bank of India.

Accounts & balance sheet (Section 29)

Banking companies should plan balance sheet and profit & loss account
on last working day of every accounting year in the forms set out in
third schedule.
Accounts must be signed by at least three directors where number of
directors exceeds three. If number of directors9 fall short of three, then
all directors must sign the accounts. In case of banking company
incorporated outside the nation, accounts must be signed by principal
officer or manager of the company in India.

Auditing of Banking Company (section 30)

• Balance sheet and Profit & Loss made compliant with section 29 must be
audited by a person qualified under law to discharge his duties as an auditor
• The banking company must obtain the approval of Reserve Bank of India
before removing/ appointing and re − appointment of auditors.
• When Reserve Bank of India is not satisfied with financial statements
of the bank, it can give order for carrying out a special audit. And cost of
such special audit must be put up by the banking company itself.
• The liabilities, powers and scope of the auditor are same as given in section
227 of companies act 1956.
Additional disclosure requirements
• Whether the details given are correct & present fair and true view,
whether transactions done by the company comes under the purview
of companies powers.
• Safety of assets
• Any other matter which needs to be disclosed
• Such report of auditor must be submitted to Reserve Bank of India in
three copies in prescribed manner. Reserve Bank of India may extend
the period of three months for furnishing of such returns, if Reserve
Bank of India finds it justified to do so.

21. Explain the sound principles of banking and lending? what are the
general precautions of lending.
A banker must be extra careful while granting loans. A banker should
take the following precautions:

47
1. Safety

The most important golden rule for granting loans is the safety of funds.

The main reason for this that the very existence of the bank is dependent
upon the loans granted by him.

In case the bank does not get back the loans grated by it, it might fail.
A bank cannot and must not sacrifice the safety of its fund to get a higher
rate of interest.

Liquidity

The second important golden rule of the grant loan is liquidity. Liquidity
means the possibility of converting loans into cash without loss of time
and money.

Needless to say, the funds with the bank out of which he lends money
are payable on demand or short notice time.

Hence, the bank should lend only short term requirements like working capital.

The bank cannot and should not lend for long term requirements, like
fixed capital.
3. Return or eturn to its shareholders.
However, a bank should not sacrifice either safety or liquidity to earn a
high rate of interest.

Of course, if safety and liquidity in a particular case are equal, the

banker should lend its funds to aa person who offers a higher rate of
interest.

Diversification

One should not put all his eggs in one basket is a proverb which very
clearly explains this principle.

A bank should not invest all its funds in one industry. Incase that
industry fails, the banker will not be able to recover his loans.

48
Hence, the bank may also fail. According to the principle of
diversification, the bank should diversify its investments in different
industries and should give loans to different borrowers in one industry.

It is less probable that all the borrowers and industries will fail at one
and at the same time.

Object of Loan
lAo abnasn.k e r should thoroughly examine the object for which his client is taking
This will enable the bank to assess the safety and liquidity of its
investment. A banker should not grant loans for unproductive purposes
or to buy the fixed assets.

The bank may grant loans to meet working capital requirements.

However, after the nationalization of banks, the banks have started
granting loans to meet loan term requirements.
b
Aasnpkesr prudent banking policy, it is not desirable because of term lending by
Security

A banker should grant secured loans only. In case the borrower fails to
return the loan, the banker may recover his loan after realizing the
securing.

In the case of unsecured loans, the chances of bad debts will be very high.

However, the bank may have to relax the condition of security in order to
comply with the economic policy of the government.

Margin Money

In the case of secured loans, the bank should carefully examine and value
the security.

There should be a sufficient margin between the number of loans and

the value of the security.

If an adequate margin is not maintained, the loan might become

unsecured in case the borrower fails to pay the interest and return the
loan.

National Interest
49
Banks were nationalized in India to have social control over them.

As such, they are required to invest a cetin percentage of loans and

advances in priority sectors, viz, agriculture, small scale, and tiny
sector, and export− oriented industries, etc.

Again, the Reserve Bank also gives directives in this respect to the
scheduled banks from time to time.

The banks are under obligation to comply with those directives.

The Character of the Borrower

last but not the least, the bank should carefully examine the character of
the borrower.

Character implies honesty, integrity, creditworthiness, and capacity of

the borrower to return the loan.

In case a person fails to verify the character of the borrower, the loans and
advances might become bad debts for the bank.

Principles of Sound Lending Policy

It is a fundamental precept of banking everywhere that advances are

made to customers in reliance on his promise to repay, rather than the
security held by the banker. Although all lending involves some degree
of risks, it is necessary for any bank to develop sound and safe lending
policies and new lending techniques in order to keep the risk to a
minimum. As such, the banks are required to follow certain principles of
sound lending.

(a) Safety: Advances should be expected to come back in the normal

course. The repayment of the loan depends upon the borrower9s
capacity to pay and willingness to pay. The capacity depends upon the
tangible assets of the borrower. The willingness to pay depends upon
the honesty and character of the borrower.

(b) Liquidity: Liquidity is the availability of bank funds on short

notice. The borrower must be in a position to repay within a
reasonable time. Liquidity also signifies that the assets should be
scalable without any loss.

50
(c) Profitability: A banker has to see those major portions of the assets
owned by it are not only liquid but also aim at earning a good profit.
The difference between the interest received on advances and the
interest paid on deposits constitutes a major portion of bank9s income.
Besides, foreign exchange business is also highly remunerative.

(d) Purpose: A banker would not throw away money for any purpose for
which the borrower wants. The purpose should be productive so that
the money not only remains safe but also provides a definite source
repayment.

(e) Security: Security serves as a safety valve for an unexpected

emergency. The security offered for an advance is a cushion to fall back
upon in case of need. An element of risk is always present in every
advance however secured it might appear to be.

(f) Spread/ Diversity: The advances should be as much broad−based as

possible and must be in keeping with the deposit structure. The
advances must not be in one particular direction or to one particular
industry. Again, advances must not be granted in one area alone.

22. What are precautions to be taken by a banker while lending

against immovable property. Explain.

Precautions are required to be taken by a banker in case of advances

against the immovable property.

In granting advances, certain precautions are necessary.

1. The integrity of the borrower

The banker should ascertain that the borrower is trustworthy, honest,

and a man of sufficient experience in his business. Such a precaution is
necessary to avoid fraudulent dealings.

For example, when a customer offers 100 bags of paddy as security, it is

impossible to inspect every bag. He has to rely on the honesty of the
borrower.

Further, he should see whether the borrower has adequate practical

experience in his business.

An experienced businessman is conversant with risks and the profitable

areas of the business. An inexperienced one may incur a loss and be a

51
potential risk.

2. Purpose of the loan

The repayment mostly depends upon the purpose for which the loan is
obtained. To a borrower who is engaged in speculation, the chances of
loss are greater. As such, the loss will have to be shared by the banker.
So advances should not be allowed for speculative purposes.

3. Nature of the commodity

The banker should have a working knowledge of some of the special

features of the commodities offered as security. A banker should prefer
the commodities which could be disposed of easily, the quality of
goods that are not subject to deterioration, and the price of almost
steady goods as security.

4. Knowledge of different markets

A banker should be conversant with the markets for different

commodities. This is essential to regulate the margin for the goods
according to the price prevailing in the market. Failure to know the
market will put him at the mercy of the borrower, who may inflate the
value to get more advances.

5. Proper care in valuation

The banker should appoint experts to value the goods. Care should be
taken to provide sufficient sales margin to avoid loss resulting from
market fluctuation. In some cases, the price mentioned in the bill may be
an inflated one.

So it is advisable to compare the price which those prices are prevailing

in the market. If the goods are packed, the banker should insist on a
certificate from reliable packers.

6. Ascertain the title of the owner

Before accepting goods as security, the banker should ascertain the borrower9s
title to the goods by inspection of the original invoice or cash memos.

7. Proper storage

The banker should select a properly built and safe warehouse in every
way for the storage of goods. The roof and flooring should be situated
52
near the bank so that the bank9s representative can have direct and free
access to them at any time.

All goods stored in bags or bales should be arranged to facilitate

inspection easily. A careful selection should be made of godown
keeper & Watchmen. They should be honest & possess a high sense
of responsibility.

8. Rented godown

If the borrower uses a rented godown, the bank must obtain an

undertaking from the owner of the building, stating that the bank has a
prior lien.

This is necessary because, at times, the building owner may have a prior
claim for rent due & the position of the banker will be at stake.

9. Insurance up to the full market value

Goods should be insured against all known risks up to their full market
value. The bank should hold relative insurance policies.

10. Creation of charge by Pledge and Hypothecation

A banker may create a charge over the goods either by pledge or

hypothecation. In the pledge, the goods or title to that is delivered to the
banker. In hypothecation, neither possession nor goods are transferred to
the banker.

So a written undertaking from the borrower should be obtained that the

goods are not charged to any bank and will not be charged until the
agreement continues with the bank.

11. Handling of go down keys

Under no circumstances should the keys of godowns be allowed to pass

into the hands of the borrower.

The keys of the going down should be kept in a strong room under dual
control and taken out at the commencement of the business and received
back at the close of the business.

12. Inspection

Periodical inspection of the going down should be undertaken as to the

53
quantity and quality of the goods. The quantity of stock in go down
should be tallied with the record in the bank and with the borrower9s
books.
13. Supervision regarding the release of goods

When the borrower can repay the debt in instalments, the banker should
release the goods only in proportion to the amount repaid.

It is also possible that the customers may request the banker to release a
part of the goods when they get parties to sell.

14. Reserve bank directives

The Reserve Bank issues directives from time to time, prohibiting

advances against specific goods or stipulating minimum margin against
certain commodities.

The directives may also specify the level up to and conditions on which
the bank may grant credit. The bank should follow the conditions in the
directives while lending against goods.

23. Explain the ancillary services of a

bank. Introduction:
Ancillary services are other services that banks offer to common men
along with the necessary banking services. These ancillary services form
a very minuscule of the services offered by the banks. Some of the
ancillary services provided by the banks are:
a) Funds transfer service: Useful for sending and receiving money from
all over the world.
b) Forex service: You can buy the foreign exchange for any purpose
of expenditures like travel, buying merchandise, etc. and sell the
same to the bank when you earn or receive from abroad.
c) Custodial Service: You can keep your valuables like jewels,
documents, etc. Under this service, this is commonly known as Locker
facility (Safe Deposit Vaults).
d) Gold sale: only a few selected branches of banks or banks are
allowed to provide this.
e) e Banking: also known as Net banking or Internet banking is the
latest and most convenient facility of the banks .You can get id and
password to operate your account online : for transfer of funds to
54
another account in the same bank
or another bank. You can keep the surplus funds in fixed deposit by
using this facility.
Remittance of funds
Some default funds transfer limits are given to customers based on the
type of account. In case you wish to raise the limits per day), you may
give a written request to your branch.

 Beneficiary Maintenance: You can maintain a <Beneficiary= for

whom you normally wish to transfer funds. You have to give a
<Payee ID= for each of the beneficiary and should attach a valid
Account for each of the beneficiary maintained by you.
 Funds Transfer between your Accounts (Real-time): You can
transfer funds to the extent of <Net available balance= (from one
of your accounts – viz. Source Account) or up to the 8Per day
limit9 fixed by the Bank for you, whichever is less, to any one of
your other accounts.
 Third Party Funds Transfer (Real-time): You can transfer funds
to the extent of <Net available balance= (from one of your
accounts viz. Source account) or up to the <Per day limit= fixed
by the Bank for you, whichever is less, to any one of the
Beneficiary Accounts maintained by you. All the Beneficiary
Accounts maintained by you will be available in the pick list and
you can select any one of the accounts.
 NEFT online Transfer: You can transfer funds to the extent of
<Net available balance= (from one of your accounts viz. Source
account) or upto the <Per day limit= fixed by the Bank for you,
whichever is less, to an account with another Bank. The funds
will be transferred using the NEFT facility provided by RBI and
will be processed in the next available settlement cycle depending
on the time of request. The beneficiary gets the credit on the same
day or the next day depending on the time of settlement.

Term Deposit Options:

 Term Deposit Details: You can view the details of the selected
Term Deposit account such as principal, contracted interest
rate, maturity value, tenure, maturity date, lien (if any) etc.

Loan Options:

 Loan Account Details: You can view the details of the loan
account selected and print these details using <print= option.
55
 You can also go to
<Account Summary=, 8Early and Final Settlement= and <Loan
Repayment= options from here.
 Loan Account Activity: You can view the details of transactions
for the selected account for any specified period. The details of
transactions can be directly printed using 8print9 option or can
be downloaded and saved as a file using <download= option.

Safe custody and safe deposit

The facility of Safe Deposit Lockers is an ancillary service offered by the
Bank. The Bank's branches offering this facility will indicate/display
this information.
Allotment of locker
Allotment of lockers shall be based on the duly (properly) filled in
application of the prospective hirers on the printed format provided by
the bank. Lockers will be allotted by the branches on first come first
served basis.
Providing a copy of the agreement:
Branches will give a copy of the agreement to the locker−hirer at the
time of allotment of the locker, if preferred by the customer.
Recovery of rent from hirer(s)
Safe Deposit Locker rent will be payable in advance and in the event of
locker rent remaining unpaid, when due, the Bank will have the right to
refuse access to the locker hirer(s). Locker rent will be recovered on
annual basis. The lease period of one year will start from the date of
hiring the locker and will continue till the preceding day of the
corresponding date in the subsequent year.
Operations of Safe Deposit Vaults/Lockers:
Branches will exercise due care and necessary precaution for the protection
of the lockers provided to the customer. The Hirer/s can operate the Safe
Deposit Locker only on the Bank9s working days and during the business
hours of the Bank.
Before operating the locker, the hirer/s should sign the attendance
register which shall be kept at the bank.
24. Write a note on cooperative
bank. Introduction:
A co−operative bank is a small−sized, financial entity, where its
56
members are the owners and customers of the Bank. They are
regulated by the Reserve
Bank of India (RBI) and are registered under the States Cooperative
Societies Act.
The Co−operative Banks have recently been in news after RBI9s
restrictions on one of the leading banks, where they were denied any
kind of money withdrawal. This incident of the Punjab and Maharashtra
Co−operative Bank (PMC) has raised questions over the reliability of
such financial entities.
Co−operative Banking has proved to be an asset in terms of acting as a
financial intermediary to agricultural and allied activities, small scale
industries, and self employed workers.
The Co−operative Banks in India are governed as per the Banking
Regulations Act 1949 and Banking Laws (Co−operative Societies) Act,
1955.
These Banks have been opened with the motto of 8no−profit−no−loss9
and thus, do not seek for profitable ventures and customers only. As the
name suggests, the main objective of Co−operative Banks is mutual
help.
Given below are a few important features of Co-operative Banking in India:

 They work on the principle of 8one person, one vote9. Since these
banks are owned by the members, a Board of Directors is chosen
democratically and then they are responsible for controlling the
Organisation
 Farmers can avail agricultural loans on minimum interest rates
from the Co−operative Banks
 Providing easy and accessible loans and credit benefits in the rural
areas with scarce banking facilities
 The annual profit earned is spent on financial reserves and
required resources and a part of it is distributed among the
Co−operative members, as per the prescribed limitations

 Urban Co-operative Banks

o Non−Scheduled UCBs
o Scheduled UCBs
 Rural Co-operative Banks
o State Cooperative Banks

o District Central Cooperative Banks

57
 o Primary Agricultural Credit Societies

Advantages of Co-operative Banks

The Co−operative banks have acted as a boon to various sectors of
Indian society and also played an important role in the development of
the economy.
Given below are a few advantages of the Co-operative Banks in India:

 These banks have provided aid to the rural population by granting

loans and credits with interest rates, lower in comparison to that
asked by local money lenders
 They have their reach at every corner of the country and have
managed to maintain a personal rapport with the customers
 Since the bank is owned and governed by the members themselves,
they do not seek huge profits and believe in mutual help
 The interest rate on deposits is high and on loans is low
 They promote productive borrowing, in order to reduce the risk of loss
 Co−operative Banks have helped the farmers by providing
them agricultural credits to buy basic products like fertilizer,
seeds, etc.

25. Mobile banking

system. Introduction:
Mobile banking refers to the use of a mobile device to carry out financial
transactions. The service is provided by some financial institutions,
especially banks. Mobile banking enables clients and users to carry out
various transactions, which may vary depending on the institution.
Types of Mobile Banking Services

Mobile banking services can be categorized into the following:

1. Account information access

Account information access allows clients to view their account

balances and statements by requesting a mini account statement, review
transactional and account history, keep track of their term deposits,
review and view loan or card statements, access investment statements
(equity or mutual funds), and for some institutions, management of
insurance policies.
58
2. Transactions

Transactional services enable clients to transfer funds to accounts at the

same institution or other institutions, perform self−account transfers,
pay third parties (such as bill payments), and make purchases in
collaboration with other applications or prepaid service providers.

3. Investments

Investment management services enable clients to manage their

portfolios or get a real−time view of their investment portfolios
(term−deposits, etc.)

4. Support services

Support services enable clients to check on the status of their requests for
loan or credit facilities, follow up on their card requests, and locate
ATMs.

5. Content and news

Content services provide news related to finance and the latest offers by
the bank or institution.

Challenges Associated With Mobile Banking

Some of the challenges associated with mobile banking include (but are
not limited to):

 Accessibility based on the type of handset being used

 Security concerns
 Reliability and scalability
 Personalization ability
 Application distribution
 Upgrade synchronization abilities

26. Write a note on Notice & Protesting.

Section 99 of Negotiable Instruments Act 1881: "Noting"

When a promissory note or bill of exchange has been dishonoured by non−

acceptance or non−payment, the holder may cause such dishonour to be noted

59
by a notary public upon the instrument, or upon a paper attached
thereto, or partly upon each.

Such note must be made within a reasonable time after dishonour, and
must specify the date of dishonour, the reason, if any, assigned for such
dishonour, or, if the instrument has not been expressly dishonoured, the
reason why the holder treats it as dishonoured, and the notary's charges.

Section 100 of Negotiable Instruments Act 1881: "Protest"

When a promissory note or bill of exchange has been dishonoured by

non− acceptance or non−payment, the holder may, within a reasonable
time, cause such dishonour to be noted and certified by a notary public.
Such certificate is called a protest. Protest for better security.

When the acceptor of a bill of exchange has become insolvent, or his

credit has been publicly impeached, before the maturity of the bill, the
holder may, within a reasonable time, cause a notary public to demand
better security of the acceptor, and on its being refused may, with a
reasonable time, cause such facts to be noted and certified as aforesaid.
Such certificate is called a protest for better security.

27. Explain the main features of banking regulation act

1949. Salient features of the Act
1. A comprehensive definition of banking so as to bring within the scope
of the legislation all institutions which receive deposits,
repayable on demand or otherwise for lending or investment.
2. Prohibition of non−banking companies from accepting
deposits repayable on demand.
3. Prohibition of trading to eliminate non−banking risks.
4. Prescription of minimum capital standards.
5. Limiting the payments of dividends.
6. Inclusion the scope of legislation of banks registered
outside the provinces of India.
7. Introduction of comprehensive system of licensing of banks and
their branches.
8. Prescription of a special form of balance sheet and
conferring of powers on the Reserve Bank to call for
periodical returns.
9. Inspection of books and accounts of a bank by Reserve Bank.

60
 10. Empowering the central government to take action against
banks conducting their affairs in a manner detrimental to the
interests of the depositors.
11. Provision for bringing the Reserve Bank of India into closer
touch with banking companies.
12. Provision of an expeditious procedure for liquidation.
13. Bringing the imperial bank of India within the purview of some
of the provisions of the Bill.
14. Widening the powers of the Reserve Bank of India so as to
enable it to come to the aid of banking companies in times of
emergencies.
15. Provision for the extension of the Act to acceding states.

28. What are the precautions to be taken by a banker while lending

against the security of goods explain?
Refer question No.22
29. Define bill of exchange state the distinctions between bill of
exchange and promissory note.
Definition of Bill of Exchange

A Bill of Exchange is a written document which is duly stamped and

signed by the drawer carrying an unconditional order which directs (not
commands) a person to pay a specific amount to a particular person or
to the order of the particular person or the holder of the instrument. The
following conditions need to be fulfilled:

 The bill should be properly dated.

 It must contain an order, i.e. the drawer of the instrument
directs the drawee to pay a certain sum to the payee.
 Must be signed by the maker of the bill.
 The drawee must accept Bill.
 Order to pay money only as well as the amount should be definite.
 Delivering the bill to the payee is a must.

The following are the major differences between bill of exchange and
promissory note:

61
 BASIS FOR
BILL OF EXCHANGE PROMISSORY NOTE
COMPARISON

Meaning Bill of Exchange is an A promissory note is a written

instrument in writing promise made by the debtor
showing the to pay a certain sum of
indebtedness of a buyer money to the creditor at a
towards the seller of future specified date.
goods.
Defined in Section 5 of Negotiable Section 4 of Negotiable
Instrument Act, 1881. Instrument Act, 1881.

Parties Three parties, i.e. drawer, Two parties, i.e. drawer and
drawee and payee. payee.

Drawn by Creditor Debtor

Liability of Secondary and Primary and absolute

Maker conditional
Can maker Yes No
and payee be
the same
person?
Copies Bill can be drawn in Promissory Note cannot be
copies. drawn in copies.

Dishonor Notice is necessary to be Notice is not necessary to be

given to all the parties given to th
involved.

30. Write a note on state bank of

India. Introduction:
The State Bank of India is the biggest commercial bank and holds a
special position in the modern commercial banking system in India. It
came into

62
existence on July 1, 1955 after the nationalisation of Imperial Bank of
India. The Imperial Bank of India was established in 1921 by
amalgamating the three Presidency Banks of Madras, Bombay and
Bengal.

1. Objectives:
The State Bank of India has been established to operate on the normal
commercial principles, with the only difference that, unlike other
commercial banks in the country, it takes into consideration and
responds in a progressively liberal manner the financial requirements of
cooperative institutions and small scale industries, particularly in the
rural areas of the country.

The main objectives of the State Bank are:

(i) To act in accordance with the broad economic policies of the government;
(ii) To encourage and mobilise savings by opening branches in rural and
semi− urban areas and to promote rural credit;
(iii) To establish government partnership in the provision of cooperative credit;
(iv) To extend financial help for the establishment of licensed
warehouses and cooperative marketing societies;
(v) To provide financial help to the small scale and cottage industries;
(vi) To provide remittance facilities to the banking institutions.
The State Bank of India acts as an agent of the Reserve Bank in all those
places where the latter does not have its branches.

As an agent of the Reserve Bank, the State Bank performs the following
functions:

(i) It acts as the government9s bank, i.e., it collects money and makes
payments on behalf of the government and manages public debt.
(ii) It acts as the bankers9 bank. It receives deposits from and gives loans
to commercial banks. It also acts as the clearing house for the
commercial banks, rediscounts the bills of exchange of the commercial
banks and provides remittance facilities to the commercial banks.

3. Ordinary Banking Functions:

The State Bank of India performs all kinds of commercial banking functions:
(i) It receives deposits from the public.

63
(ii) It gives loans and advances against eligible securities including
goods, bills of exchange, promissory notes, fully paid shares of
companies, immovable property or documents of title, debentures, etc.
(iii) It invests its surplus funds in government securities, railway
securities and securities of corporations and treasury bills.

4. Other Functions:
The State Bank of India also performs the following other functions:
(i) It buys and sells gold and silver.
(ii) It acts as agent of cooperative banks.
(iii) It underwrites issues of stocks, shares, debentures, and other
securities in which it is authorised to invest funds.
(iv) It administers, singly or jointly, estates for any purpose as executor,
trustee or otherwise.
(v) It draws bills of exchange and grants letters of credit payable out of India.
(vi) It buys bills of exchange payable out of India with the approval of
the Reserve Bank; it subscribes buys, acquires, holds and sells shares in
the capital of banking companies.

31. Write a note on

crossing. Crossing of
Cheque
Definition: Crossing of a cheque is nothing but instructing the banker to
pay the specified sum through the banker only, i.e. the amount on the
cheque has to be deposited directly to the bank account of the payee.

Hence, it is not instantly encashed by the holder presenting the cheque

at the bank counter. If any cheque contains such an instruction, it is
called a crossed cheque.

The crossing of a cheque is done by making two transverse parallel lines

at the top left corner across the face of the cheque.

Types of Crossing

The way a cheque is crossed specified the banker on how the funds are to
be handled, to protect it from fraud and forgery. Primarily, it ensures
that the funds must be transferred to the bank account only and not to
encash it right away upon the receipt of the cheque. There are several
types of crossing
64
1. General Crossing: When across the face of a cheque two
transverse parallel lines are drawn at the top left corner, along
with the words & Co., between the two lines, with or without
using the words not negotiable. When a cheque is crossed in this
way, it is called a general crossing.

2. Restrictive Crossing: When in between the two transverse parallel

lines, the words 8A/c payee9 is written across the face of the
cheque, then such a crossing is called restrictive crossing or
account payee crossing. In this case, the cheque can be credited to
the account of the stated person only, making it a non−negotiable
instrument.

3. Special Crossing: A cheque in which the name of the banker is

written, across the face of the cheque in between the two
transverse parallel lines, with or without using the word 8not
negotiable9. This type of crossing is called a special crossing. In a
special crossing, the paying banker will pay the sum only to the
banker whose name is stated in the cheque or to his agent. Hence,
the cheque will be honoured only when

65
 the bank mentioned in the crossing orders the same.

4. Not Negotiable Crossing: When the words not negotiable is

mentioned in between the two transverse parallel lines, indicating
that the cheque can be transferred but the transferee will not be
able to have a better title to the cheque.

5. Double Crossing: Double crossing is when a bank to whom the

cheque crossed specially, further submits the same to another
bank, for the purpose of collection as its agent, in this situation
the second crossing should indicate that it is serving as an agent
of the prior banker, to whom the cheque was specially crossed.

66
The crossing of a cheque is done to ensure the safety of payment. It is a
well− known mechanism used to protect the parties to the cheque, by
making sure that the payment is made to the right payee. Hence, it
reduces fraud and wrong payments, as well as it protects the instrument
from getting stolen or encashed by any unscrupulous individual.

32. Discuss the ways which a banker can make profitable uses of
funds with him.
Introduction:

Diversified banks make money in a variety of different ways; however,

at the core, banks are considered lenders. Banks generally make money
by borrowing money from depositors and compensating them with a
certain interest rate.
The banks will lend the money out to borrowers, charging the borrowers
a higher interest rate and profiting off the interest rate spread.

Additionally, banks usually diversify their business mixes and generate

money through alternative financial services, including investment
banking and wealth management. However, broadly speaking, the
money−generating business of banks can be broken down into the
following:

1. Interest income
2. Capital markets income
3. Fee−based income
Interest Income

Interest income is the primary way that most commercial banks make
money. As mentioned earlier, it is completed by taking money from
depositors who do not need their money now. In return for depositing
their money, depositors are compensated with a certain interest rate and
security for their funds.

Importance of Interest Rates

Clearly, you can see that the interest rate is important to a bank as a
primary revenue driver. The interest rate is an amount owed as a
percentage of a principal amount (the amount borrowed or deposited). In
the short term, the interest rate is set by central banks that regulate the
level of interest rates to promote a healthy economy and control
inflation.

67
Banks benefit by paying depositors a low interest rate and being able to
charge lenders a higher interest rate. However, banks need to manage
credit risk, which the lenders may potentially default on loans.

Capital Markets-Related Income

Banks often provide capital markets services for corporations and

investors. The capital markets are essentially a marketplace that matches
businesses that need capital to fund growth or projects with investors
with the capital and require a return on their capital.

Banks facilitate capital markets activities with several services, such as:

 Sales and trading services

 Underwriting services
 M&A advisory

Banks will help execute trades with their own in−house brokerage
services. Furthermore, banks will employ dedicated investment banking
teams across sectors to assist with debt and equity underwriting. It is
essentially assisting with raising debt and equity for corporations or
other entities. The investment banking teams will also assist with
mergers & acquisitions (M&A) between companies. The services are
provided in exchange for fees from clients.

Fee-Based Income

Banks also charge non−interest fees for their services. For example, if a
depositor opens a bank account, the bank may charge monthly account
fees for keeping the account open. Banks also charge fees for various
other services and products that they provide. Some examples are:

 Credit card fees

 Checking accounts
 Savings accounts
 Mutual fund revenue
 Investment management fees
 Custodian fees

Since banks often provide wealth management services for their

customers, they are able to profit off of the fees for services provided, as
well as fees for certain investment products such as mutual funds. Banks
may offer in−house mutual fund services to direct their customers9
investments towards.

68
Fee−based income sources are very attractive for banks since they are
relatively stable over time and do not fluctuate. It is beneficial, especially
during economic downturns, where interest rates may be artificially low
and capital markets activity slows down.

33. What are the precautions should a banker take in opening a new
account? Introduction:

Guidelines for Opening Accounts− All banks follow a certain set of

guidelines before opening a new account or any new financial activity
such as loans, trading, etc. The precautions that banks take most of which
is dictated by the RBI are

 Due Diligence Process: Under <Know Your Customer= (KYC), a

bank has to carry out due diligence before opening any deposit
account. The 8due diligence9 process involves the bank having
adequate knowledge of the person9s identity, occupation, sources
of income, and location.
 Minimum Balance: For products like a savings bank account or a
current account, banks normally stipulate certain minimum
balances to be maintained. For people below the poverty line,
banks encourage the opening of 8No−frills Accounts9, typically a
special savings bank account where no minimum balance
requirement is required.
 Transparency: All such details regarding terms and conditions
for the operation of the accounts and schedule of charges for
various services provided should be communicated to the
prospective depositor while opening the account. The
transparency of charges levied include the charges attached to
issue of cheques books, additional statement of accounts,
duplicate passbook, folio charges and charges upon failure to
maintain minimum balance in the accounts.
 Eligibility: The criteria for a savings account and a current
account are similar, but while both the accounts can be opened by
individuals, the savings account cannot be opened by a firm. Term
Deposit Accounts can be opened by all categories of account
holders.
 Permanent Account Number: Banks are required to obtain a
Permanent Account Number (PAN) from the prospective account
holder or alternate declarations as specified under the Income Tax
Act.
 Operation of Joint Account: A joint account can be operated by a
single individual or by more than one individual jointly. The
69
 mandate for who can operate the account can be modified with the
consent of all account holders.
 Power of Attorney: At the request of the depositor, the bank can
register a mandate/power of attorney given by him authorizing
another person to operate the account on his/her behalf.
 Closure/renewal of deposits: In the absence of a mandate with
regard to the closure of deposit account or renewal of deposit for a
further period on the date of maturity, the bank will be at liberty to
roll over the deposit on the due date.
 Nomination: A depositor authorizes someone who would
receive the money from his/her account when the depositor
passes away. This is called the nomination process.

34. Explain the banker9s duty to honor the customers cheque.

Refer question No.06.
35. Examine ground under which the banking ombudsman may
reject the complaint.
One's complaint will not be considered if:
a. One has not approached his bank for redressal of his grievance first.
b. One has not made the complaint within one year from the date of
receipt of the reply of the bank or if no reply is received, and the
complaint to Banking Ombudsman is made after the lapse of more
than one year and one month from the date of complaint made to
the bank.
c. The subject matter of the complaint is pending for disposal / has
already been dealt with at any other forum like court of law,
consumer court etc.
d. Frivolous or vexatious complaints.
e. The institution complained against is not covered under the scheme.
f. The subject matter of the complaint is not pertaining to the
grounds of complaint specified under Clause 8 of the Banking
Ombudsman Scheme. If the complaint is for the same subject
matter that was settled through the office of the Banking
Ombudsman in any previous proceedings.

36. Write a note on priority sector

advances. Introduction:
Priority Sector refers to those sectors which the Government of India

70
and Reserve Bank of India consider as important for the development of
the basic needs of the country. They are assigned priority over other
sectors. The
banks are mandated to encourage the growth of such sectors with
adequate and timely credit.
The Priority Sector Lending classifications and guidelines released by the
RBI are intended to align with emerging national priorities and bring a
sharper focus on inclusive development, building a consensus among all
stakeholders.

What are the Different Categories of the Priority Sector?

 Agriculture
 Micro, Small and Medium Enterprises
 Export Credit
 Education
 Housing
 Social Infrastructure
 Renewable Energy
 Others
Priority sector loans to the following borrowers are treated under the
Weaker Sections category

 Small and Marginal Farmers.

 Artisans, village and cottage industries where individual credit
limits do not exceed Rs 1 lakh.
 Beneficiaries under Government Sponsored Schemes such as
National Rural Livelihoods Mission (NRLM), National Urban
Livelihood Mission (NULM) and Self Employment Scheme for
Rehabilitation of Manual Scavengers (SRMS)
 Scheduled Castes and Scheduled Tribes.
 Beneficiaries of the Differential Rate of Interest (DRI) scheme.
 Self Help Groups.
 Distressed farmers are indebted to non−institutional lenders.
 Distressed persons other than farmers, with loan amounts not
exceeding Rs 1 lakh per borrower to prepay their debt to
non−institutional lenders.
 Individual women beneficiaries up to Rs 1 lakh per borrower.
 Persons with disabilities.
71
  Minority communities may be notified by the Government of
India from time to time
37. Explain the general principles relating to secured loan.

Here explain the general principles that should guide a banker in making
loans and advances to a customer. Banks follow the following principles
of lending:

Liquidity:

Liquidity is an important principle of bank lending. Bank lend for short

periods only because they lend public money which can be withdrawn
at any time by depositors. They, therefore, advance loans on the security
of such assets which are easily marketable and convertible into cash at a
short notice.

Safety: The safety of funds lent is another principle of lending. Safety

means that the borrower should be able to repay the loan and interest in
time at regular intervals without default. The repayment of the loan
depends upon the nature of security, the character of the borrower, his
capacity to repay and his financial standing.

Diversity:

In choosing its investment portfolio, a commercial bank should follow

the principle of diversity. It should not invest its surplus funds in a
particular type of security but in different types of securities. It should
choose the shares and debentures of different types of industries
situated in different regions of the country. The same principle should
be followed in the case of state governments and local bodies.
Diversification aims at minimizing the risk of the investment portfolio of
a bank.

Stability:

Another important principle of a bank9s investment policy should be to

invest in those stocks and securities which possess a high degree of
stability in their prices. The bank cannot afford any loss on the value of
its securities. It should, therefore, invest its funds in the shares of
reputed companies where the possibility of the decline in their prices is
remote.

Profitability:

This is the cardinal principle for making an investment by a bank. It

72
must earn sufficient profits. It should, therefore, invest in such securities
which were sure a fair and stable return on the funds invested. The
earning capacity of securities and shares depends upon the interest rate
and the dividend rate and the tax benefits they carry.

38. Discuss the powers and functions of banking

ombudsman. Introduction:
The Banking Ombudsman Scheme was introduced under section 35A of
the Banking Regulation Act, 1949 by RBI.
The Scheme is introduced in the Year 1995.
The present Ombudsman Scheme was introduced in the year 2006.
Banking Ombudsman Scheme is a mechanism created by RBI to
address the complaints raised by bank customers.
It is run by the RBI directly to ensure customer protection in the banking
industry.
Banking Ombudsman is a quasi−judicial authority functioning under
the Banking Ombudsman Scheme, 2006.
According to RBI, <The Scheme enables an expeditious and inexpensive
forum to bank customers for resolution of complaints relating to certain
services rendered by banks.=
Powers and Functions of Ombudsman:
1. An important function of Ombudsman is to protect the rights and
freedoms of citizens and needless.
2. The ombudsman shall have the power to supervise the general civil
administration. On this point the duty of ombudsman is closely
connected with the public administration. Because the protection of
freedom, execution of policies and other fall within the jurisdiction of
public administration and whether these are properly performed or not
that requires to be examined− and ombudsman does this job.
A common experience is that people9s rights and freedoms are not
properly protected and public administration does not always take care
of it. In this regard the Ombudsman has a lot of duties to perform. In
many states the problems of common men are neglected and the general
administration does not always rise to the occasion.
3. In many states Ombudsman supervises the general administration. It
is also called general surveillance of the functioning of the
government.
4. In some countries the Ombudsman enjoys enormous power. For
examples in Sweden the Ombudsman has been empowered to
investigate the cases of corruption (in any form) not only against the
government officers but also against the judges of the highest court. But
the supervising power of Ombudsman over the judges does not erode
the independence of the
73
judiciary. The judges are prosecuted or fined for corruption, negligence
of duties, or delay in delivering judgment.
5. An important function of Ombudsman is the exercise of discretionary
powers. The discretionary powers are really vast and how to use these
powers depend upon the person concerned. Discretionary powers
include corruption, negligence, inefficiency, misbehaviour etc.
6. To receive complaints relating to the provision of banking services
to consider such complaints and facilitate their satisfaction or
settlement by agreement, by making a recommendation, or award in
accordance with this scheme.
7. The banking ombudsman's authority will include:−all complaints
concerning deficiency in service such as:− non−payment/inordinate
delay in the payment or collection of cheques, drafts/bills etc.;
non−acceptance, without sufficient cause, of small denomination notes
tendered for any purpose, and for charging of commission in respect
thereof; non−issue of drafts to customers and others; non−adherence to
prescribed working hours by branches; failure to honour
guarantee/letter of credit commitments by banks.

39. Write a note on agency

services. Introduction:
Agency banking is a type of branchless banking that allows the
traditional banks to extend their network of branches and services in a
cost−efficient manner through authorized agents. Agency banking is
gaining popularity due to various reasons like product availability, risk
management, improvement in financial inclusion, and many more.

Components of agency banking

To understand the working of the agency banking, it9s important to first

understand the participants of the agency bank ecosystem. Here we9ll
discuss each participant one by one.

Agent banking service provider

Agent banking service providers are responsible for managing various

banking agents. They are also responsible for operating service,
marketing, cash handling, branding, and many more.

74
Banks/Financial institutions

Banks and financial institutions are the hosts that comprise both
consumer and agent accounts. These are entities through which the
actual cash flow takes place.

Banking agents

These are the retailers that are authorized to perform various banking
services on behalf of the banks and financial institutions. They are
responsible for banking services such as:

 Cash−in

 Cash−out

 Balance inquiry

 Generate mini statements

 Collection of document

 Microloans

 Airtime purchase

 Bill payments

 P2P transfer

40. Write a note on protection to paying

banker. Introduction:
A customer is a person who buys services or goods from manufacturers
or service providers with due consideration of money. Thus, as a
customer opens an account, he becomes the client of the banker. The
banker provides different services to the customer by following the
specific duties and obligations he has. This develops a relationship
between the customer and the banker as payment and processing of
cheques is the fundamental feature of the modern banking system.

Protection of Paying Banker

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  Section 10

The paying banker can claim protection under the Negotiable

Instruments Act; the condition the banker has got to satisfy is that the
payment is in due course.

8Payment in due course9 means payment following the apparent tenor of

the instrument in straightness and without negligence to someone in
possession thereof under circumstances which doesn9t afford an
inexpensive ground for believing that he is not entitled to receive
payment of the quantity therein mentioned.

 Section 85

This acts as the statutory protection of the paying banker.

 Section 85(1)

In the case of an order cheque, this section implies that the payment
must be in due course; otherwise, the banker will be deprived of
statutory protection, and the banker must confirm the endorsements
are regular.

 Section 85(2)

This is the protection in the case of bearer cheque; this section implies
that even if any endorsements restrict further negotiation, the cheque
will retain the bearer character if it is originally issued as a bearer
cheque.

 Section 128

This is the protection in case of a crossed cheque. This section implies

that the banker has made the payment in due course with good faith
and without negligence, as per section 10. The banker can cross the
payment following the requirement (section 126), that is, any banker
through the general crossing and specified banker in case of special
crossing.

41. Discuss the various types of banks along with their functions.
Banks can be classified into various types. Given below are the bank
types in India:−

 Central Bank
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  Cooperative Banks
 Commercial Banks
 Regional Rural Banks (RRB)
 Local Area Banks (LAB)
 Specialized Banks
 Small Finance Banks
 Payments Banks

Functions of Banks
The major functions of banks are almost the same but the set of people
each sector or type deals with may differ. Given below the functions of
the banks in India:

1. Acceptance of deposits from the public

2. Provide demand withdrawal facility
3. Lending facility
4. Transfer of funds
5. Issue of drafts
6. Provide customers with locker facilities
7. Dealing with foreign exchange

Apart from the above−mentioned list, various utility functions also need to be
performed by the various banks.
42. Define cheque. Explain the different kinds of crossing of a
cheque along with their effects.
Refer Q. No. 31.
43. What precautions should a banker take in opening a new account
in the name of minor and a married woman.
Bank accounts are usually opened for children or minors by their
parents or guardians for multiple reasons, but the most prominent
among them is that it serves as a learning experience for them on how to
manage money and save it. Any person below the age of 18 years is
considered a minor. These days, many banks offer the facility of opening
accounts, often called 'minor' accounts, specifically designed for
children.
Documents required to open a bank account for a minor:
− Proof of a minor9s date of birth
− KYC documents of the parents/guardian.

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− Aadhaar card of a minor.
− Specimen signature of a guardian. The minor's specimen signature if
he/she is 10 years old or above.
Operation of bank account:
The operation of a bank account varies depending on the age of the
minor. For accounts of minors below 10 years of age, the guardian must
operate the account. However, minors over 10 years of age can operate
the account on their own.
How to open a bank account for minors?
While the specific steps may vary slightly from bank to bank, generally a
bank account can be opened following these steps:
Step 1: Decide the type of bank account you want to open. Different
banks offer different types of accounts for the customers to choose from,
depending on the requirement. The most common type of account is the
savings bank account.
Step 2: Based on the account type, start comparing your options among
the available banks based on interest rates, facilities, accessibility and so
on.
Step 3: Then, prepare to apply. Gather all the required documents ahead
of time.
Step 4: Fill in the application form. You can either apply online or by
visiting a bank's branch.
Step 5: In many cases, you9ll need to fund the account during the final
stage of the application process. You will be required to deposit funds
into your child's account.

Married Woman
A married woman (Hindu) has the contractual capacity (if about 18
years of age) and has the right to acquire or dispose of her personal
property called
<Stridhana= in Hindu Law. The manager should make the usual
essential enquiries in opening the account of a married woman. In the
application (account opening form), she should fill up in addition to her
name, address etc., the name of her husband,, his address (and the
address of the employer of the husband). Proper introduction is
necessary. As a competent person, she can draw and endorse cheques
and other documents and these can be debited to her account. As long as
credit balance is there in her account, there will be no risks, but, if loan
or overdraft is to be given the Bank should ascertain her credit
worthiness, her personal properties (Stridhana) the nature of the
properties held by her etc. The Husband is not liable for her debts,
except for those loans incurred for <necessaries of life= for her and her
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family.
Precautions in granting loans or overdraft are necessary as:

1. she may have no property as stridhana,

2. Her Husband's property is not liable except for necessaries,
3. she may plead undue influence or ignorance of the nature of
loan transaction,
4. she cannot be committed to civil prison.

44. Discuss the banker9s obligation to maintain the secrecy of the customer
account.

Obligation to maintain secrecy and disclosure of information required by law

Maintenance of Secrecy

The relationship of banker and customer is of confidential and secretive

nature. The banker should not disclose any financial information of the
customer without his consent to any person as it can likely affect his
reputation, creditworthiness, and business.

In Shankarlal v. State bank of India

It was held that the secretive and confidential relationship between the
banker and the customer is a legal one not the moral. Breach of it will
give a claim for nominal or substantial damage if the injury resulted
from such breach.

Such duty is subjected to certain exceptions

– The duty to obey the order under the Bankers Books Evidence Act.

– Bank issuing writs for the payment of overdraft

– Where the duty of state or public duty may supersede the private duty

Under the Criminal Procedure Code,1973

– Under Section 91 of CrPC wherever any officer in charge of Police

station considers that the production of any document is necessary or
desirable for the purpose of any investigation, inquiry, trial or other
proceedings, such
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officer with the written order can demand from the personal possession of any
document, record or thing.

– Under Section 94 of CrPC magistrate may by warrant authorize any

police officer to enter such place, to search, to take possession of
counterfeit cash, counterfeit currency notes, forge documents, etc.

– Section 100 of the CrPC, the person in charge of closed place to allow
search under Section 100(1), whenever any place liable to search or
inspection is closed, any person residing in or being in charge of, such
place shall allow him free ingress thereto, and afford all reasonable
facilities for a search therein.

– Under Section 122 of CrPC, the police officer has the power to seize
certain property which creates suspicion of the commission of any
offense.

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