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INDIAN INSTITUTE OF BANKING & FINANCE JAIIB MODULE (A & B) LEGAL ASPECTS OF BANKING OPERATIONS Thursday 17 A PowerPoint Presentation
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INDIAN INSTITUTE OF BANKING & FINANCE JAIIB MODULE (A & B) LEGAL ASPECTS OF BANKING OPERATIONS Thursday 17 APRIL 08 T M C VASUDEVAN. 01..Identify which one is treated as the secondary business of a bank a.. Accepting Deposit b.. Lending Money c.. Issuing Demand Draft d.. Making Investments.

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INDIAN INSTITUTE OF BANKING & FINANCE JAIIB MODULE (A & B) LEGAL ASPECTS OF BANKING OPERATIONS Thursday 17 A


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  1. INDIAN INSTITUTE OF BANKING & FINANCEJAIIBMODULE (A & B) LEGAL ASPECTS OF BANKING OPERATIONSThursday 17 APRIL 08T M C VASUDEVAN

  2. 01..Identify which one is treated as the secondary business of a banka.. Accepting Depositb.. Lending Moneyc.. Issuing Demand Draftd.. Making Investments

  3. 02..Banking is defined in the Banking Regulation Act. • Primary function to accept deposit, lend and invest. • Secondary functions include opening of Letters of credit , Issuing Bank guarantees, Demand Drafts • Mail Transfers, Telegraphic Transfers, Collection of instruments • Executor Trustee services, Dealing in Forex related transactions

  4. 03..G has approached the drawee bank to handover the original cheque issued by him and since paid to the debit of his account. A.. Bank to take permission of the Head Office B.. Bank to refuse C.. At the most they can provide a Xerox Copy only D.. Bank to comply with the request.

  5. 04..Safe Deposit Locker facilities, accepting Safe custody articles and so on • Now bankers offer other services like • ATM, Debit, Credit and other plastic cards • Accepting Electricity, Telephone bills , and extending services on behalf of the Service providers

  6. 05.. As per the provisions of the Banking Regulation Act, a banking company to file within 30days of the close of each financial year a return of unclaimed deposits. A.. The above statement is not incorrect B.. The above statement is incorrect. C.. It is Reserve Bank of India Act D.. Even the answer C is only partially correct

  7. 06..Latest provisions of KYC and other procedures to be adopted while making a person as their customer, the banker has to take due care . • Any lapse on the part of the bank may cause the bank at a later stage. • A banker should be able to justify beyond doubt that his customer has become his customer after following all the procedures, norms and he has acted as a prudent banker.

  8. 07..Reserve Bank of India Act,1934 was enacted to constitute the Reserve Bank of India • a.. To regularize the issue of Bank notes • b.. To Regulate the issue of Bank notes • c.. For directing the banks when they err • d.. To Act as the banker of the Central Government

  9. 08 ..Reserve Bank of India act was introduced in 1934 and since then amended from time to time to include the latest requirements. • A provision was inserted by the Information Technology Act,2000 to enable RBI to make regulations for regulating payment systems of banks and financial institutions

  10. 09.. RBI’s whole capital is held by the Central Government. .. The board has one Governor and not more than 4 Deputy Governors appointed by the Central Govt .. RBI alone can issue and mange currency in India as per the provisions of RBI act.

  11. 10.. RBI as regulator of banking sector is mainly by virtue of the provisions of the Banking Regulation Act • RBI inspects banks and exercise supervisory powers and may issue directions in public interest • RBI also collects credit information and make available the same • RBI also imposes penalties wherever applicable

  12. 11.. Reserve Bank of India has so far not issued currency notes of the denomination of a.. Rs.2/- b.. Rs.200/- c.. Rs.5000/- d.. Rs.10000/-

  13. 12..In case of winding up of the banking company, each depositor will have to make the claim within 20 days of the winding up order. A.. True B.. False C.. The claims of every depositor deemed to have been filed for the amount as shown in the books of the banking company standing to his credit.. D.. It is not within 20 days but within a period of 15 days.

  14. 13.. Other than the Governor, Deputy Governors of RBI, the other directors are a.. Appointed b.. Nominated c.. Selected d.. Elected

  15. 14..C has appointed M has the nominee for his safe deposit locker and for savings bank P. Both nominations got registered with the bank. Nomination form for locker not signed by C. Both facilities are joint and operation several. a.. Operations in the locker will be affected b.. Operations in the locker will not be affected c.. On the death of C, P will be entitled to operate the locker d.. The question of P does arise as he is part of the contract

  16. 15.. Making any false statement in any return, balance sheet or other documents or information given under the BR act (sec46) punishable. A.. The above is incorrect B.. The above is not incorrect. C.. Punishment is not for any as stated above. D.. Punishment is applicable only when there is willfully any false statement and so on.

  17. 16.. A is the nominee of the Safe deposit articles, deposited by R with bank L. In the event of death of R a.. The legal heirs of A will receive the safe deposit articles b.. A will not be entitled to receive the same c.. According to the Will the same will be given to the person mentioned therein otherwise to legal heirs of R. d.. L will have to hand over to A after completing the related formalities.

  18. 17.. A & B has kept a joint Reinvestment plan deposit with bank J. U was nominated. Both the depositors unfortunately died along with U nominee while traveling in a car due to accident. a.. Money will be retained by the bank. b.. Legal heirs of A, B & C would get. c.. Legal heirs of C alone would get d.. All the above are wrong.

  19. 18.. The co-operative banks are under the regulatory purview of the Reserve Bank of India. This is due to the amendment to • a . Reserve Bank of India Act • b . Cooperative Act • C . Banking Regulation Act • d . Both a & b

  20. 19..The State Bank of Hyderabad has been established as per the provisions of A.. Hyderabad State Bank Act B.. State Bank of Hyderabad Act C.. State Bank Of India Act D.. Reserve Bank of India Act

  21. 20..The State Bank of Saurashtra was constituted under the a.. State Bank of India (Amalgamation) Ordinance,1955 b.. State Bank of Saurashtra Act,1955 c.. Saurashtra State Bank Act,1950 d.. Saurashtra State Banks(Amalgamation) Ordinance, 1950

  22. 21.. For State Bank Of India Audit who can be eligible to conduct Audit. A.. Director of the Bank B.. Not a member of Local Board C.. Member of a Local Committee D.. An Office of the State Bank of India

  23. 22..For conducting audit of the State Bank of India, the appointment of auditors done A.. By Reserve Bank of India independently b.. By RBI after taking into confidence SBI c.. By Central Government d.. By RBI in consultation with Central Government

  24. 23..State Bank of Mysore was established as per the provisions of A.. State Bank of Mysore Act B.. State Bank of India Act C.. Reserve Bank of India Act D.. State Bank of India (Subsidiary Banks) Act

  25. 24.. RBI’s refusal of licence will make the company ineligible to undertake banking business, but still the company can carry on other business like money lending . . RBI can stipulate a higher requirements of capital for the purpose of licensing a banking company, the RBI has to be satisfied that the company has adequate capital structure and earning prospects

  26. 25..The Commercial Banks were Nationalised as per ..The Bank Nationalistion Act (Banking Companies (Acquisition and Transfer of Undertakings)Act,1970 .. The Banking Companies (Acquisition and Transfer of Undertakings) Act,1980. .. The First nationalisation took place in 1969 and the Second in 1980. .. In the first nationalisation 14 Scheduled commercial banks were nationalised followed by 6 in the next stage.

  27. 26.. Presently the number of Nationalised banks are a.. 14 b.. 06 c.. 19 d.. 20

  28. 27.. In addition to the conditions applicable to domestic banks, for foreign banks RBI will look into • a. Whether the carrying on of banking business by the company in India will be in public interest. • b. Whether the government of the law of the country in which the company is incorporated discriminates in any way against banking companies • C.. Whether the company complies with the provisions of the BR Act as applicable to foreign companies

  29. 28.. As per the BR act, a foreign bank (banking company incorporated outside India) operating in India has to deposit and keep deposited with RBI an amount of Rs.15 lacs (for such banks having places of business in Mumbai or Kolkata or both Rs.20 lacs) .. In addition to above, 20% of profit to be remitted with RBI

  30. 29..The amount of deposit with RBI by foreign banks to be kept in a.. Cash b.. Unencumbered approved securities c.. Partly in both d.. Only in encumbered approved securities

  31. 30.... The State Bank of India is empowered under Section 47 to inspect the subsidiary banks. A.. The above statement is not false. B.. The above statement is incorrect C.. Only RBI can inspect and not State Bank D.. One subsidiary bank to inspect another and so on.

  32. 31..At least 51% of the total number of directors shall be persons who have special knowledge or practical experience in respect of accountancy, agriculture and rural economy, banking, co-operation and so on ..The directors of a banking company not to hold office for more than 8 years continuously ..The whole –time Chairman and a Managing Director shall hold office for a period not exceeding 5 years

  33. 32.. The Whole-time Chairman or the Managing Director of a banking company should have special knowledge or practical experience of the working of a banking company or State Bank of India or a subsidiary bank or a financial institution or financial, economical or business administration.

  34. 33.. As per the provisions of the Reserve Bank of India Act, the Whole time Chairman or the Managing Director of a banking company to hold qualification shares of minimum 50. • It is not 50 but 200 • They need not hold any qualification shares • They need to have minimum qualification shares of 10 as per the provisions of Banking Regulation act and not RBI act • They need to hold qualification shares but no restriction with regard to the numbers.

  35. 34.. Banks have to file a return on their unclaimed deposit within 30 days of the end of each calendar year. .. All deposits not operated in 10 years .. For term deposits, the period of 10 years starts from the expiry of the period of the deposit

  36. 35.. RBI issues directions from time to time regulating the lending operations of banking companies ..The tools employed for exercising Selective Credit Control are ..Minimum margins for lending against selected commodities .. ceilings on the levels of credit and .. charging of minimum rate of interest on advances against specified commodities

  37. 36.. RBI is authorized to regulate interest rates on loans and advances as well as deposits. • The Usurious Loans Act. 1918 prohibits lending at exorbitant rates. The law has been made to protect the weaker borrowers from the powerful moneylenders • ..RBI has issued guidelines in respect of internet banking. These cover a.. Technology and Security issues b.. Legal issue and c . Regulatory and supervisory issues

  38. 37..Banking Ombudsman is an authority established under the Banking Ombudsman Scheme, 1995 by the RBI. The purpose is to resolve and settle the complaints of banking public against the commercial banks and the scheduled primary cooperative banks without resorting to courts.

  39. 38.. ** Banking Ombudsman scheme applicable to all commercial banks, RRBs and schedules primary co-operative banks. .. Disputes between two banks can also be taken up with the Banking Ombudsman .. Even the Credit card related issues can be taken up with the Banking Ombudsman ..A banking ombudsman may act as an arbitrator

  40. 39.. identify the odd one (Banking ombudsman) a.. Observance of Reserve Bank directives on interest rates • Non-acceptance of application for loans without assigning valid reasons to the applicant • Non-issuance of Demand Drafts to non-customers • Non-adherence to prescribed working hours by branches

  41. 40.. Appropriation of any amount from the reserve fund or the share premium account has to be reported to RBI within 21 days of such appropriation. .. Every scheduled bank has to submit a return to RBI showing the demand and time liabilities and borrowings from banks in India

  42. 41..A bank has to submit a Friday statement to RBI . The said Friday(15th of a particular month) has not been declared as holiday under the Negotiable Instruments Act, but the previous and subsequent working days were declared . Then the statement to be prepared as on a.. 16th of that month b.. 14th of that month c.. 15th of that month d.. 17th of that month

  43. 42.. Every banking company has to maintain in India certain amount of assets as per the provisions of BR act. .. At the close of business on the last Friday of every quarter, such assets shall not be less than 75% of the demand and time liabilities of the banking company in India.

  44. 43..As per the provisions of the BR Act, a return regarding the liquid assets maintained in India to be submitted to RBI, within 14 days from the end of every quarter. a.. Not 14 days b.. It is 20 days c.. It is 15 days not 20 days d.. Three months

  45. 44...A banking company need not submit copies of balance sheet and auditor’s report to the Registrar of Companies. • a. True b.. Incorrect • C. The banking company has to submit to Registrar of Companies as well. • D.. Since they are submitting to RBI there is no need to submit to Registrar Companies separately

  46. 45.. Foreign banks (banking companies incorporated outside India) operating in India have to display in a conspicuous place in their principal office a copy of the last audited balance sheet and profit and loss account. This has to be done not later than a.. The First of July of the year in which it carries on business b.. The First Monday in August c.. The First Friday in September d.. The Last Friday in November

  47. 46..It is not mandatory to give a copy of the report to the banking company. a.. Inspection report b.. Scrutiny report c.. Search report d.. All these reports

  48. 47.. To order amalgamation of two banking companies under the provisions of Companies Act rests with a.. Reserve Bank of India b.. Reserve Bank of India & Company Law Board c.. Central Government with the consultation of Reserve Bank of India d.. Company Law Board

  49. 48.. State Bank of India was established under sec 3 of the State Bank of India Act,1955 to take over the undertaking of the then Imperial Bank and to carry on the business of banking and other business in accordance with that act. .. The Central Government can give directions to SBI on matters of policy involving public interest in consultation with the Governor of RBI and the Chairman of the State Bank.

  50. 49..State Bank of India Chairman and Managing Director are appointed for a period of 7 years. • A.. For Chairman it is 7 years, but for MD it is 5 years • B.. For both it is not to exceed 5 years • C. For both it is not to exceed 6 years • D.. For Managing Director it is 7 years but for Chairman it is only 5 years