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LEGAL ASPECTS OF BANKING OPERATIONS INDIAN INSTITUTE OF BANKING & FINANCE MODULE A & B 10.10.07 **.. Banking is defined in the Banking Regulation Act. Primary function to accept deposit, lend and invest.
a.. To regularize issue of Bank notes
b.. To Regulate the issue of Bank notes
c.. For directing the banks when they err
d.. To consolidate and amend the law relating to banking
.. 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.
d.. All the above
. . 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
on account of
a.. The company ceases to carry on banking business in India
b.. The company at any time fails to comply with any of the conditions imposed or the company does not fulfill at anytime any of the conditions referred in the act.
.. In addition to above, 20% of profit to be remitted with RBI
b.. Unencumbered approved securities
c.. Partly in both
d.. None of the above
.. No shareholder can exercise voting rights in respect of the shares held by him in excess of 10% of the total voting rights of all the shareholders of the banking company.
a.. Banking companies are permitted to have only ordinary shares
a.. No dividend is payable until all capitalized expenses are completely written off.
b.. This also includes preliminary expenses and share selling commission
c.. Both a & b are correct
d.. Both a & b are incorrect
..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
person as the head of their institution
a.. Managing Director
c.. Managing Agent
d.. Whole Time Chairman
.. 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
a.. As long as Rajkumar is alive
b.. If Rajkumar is closing the said account.
c.. If Rajkumar has changed the nomination in some one’s favour
d.. In all the above cases
..The tools employed for exercising Selective Credit Control are
.. Disputes between two banks can also be taken up with the Banking Ombudsman
..A banking ombudsman may act as an arbitrator
a.. Observance of Reserve Bank directives on interest rates
a.. Yes b.. No
c.. Partly true d.. Fully in correct
.. Every scheduled bank has to submit a return to RBI showing the demand and time liabilities and borrowings from banks in India
a.. True b.. False
c.. It is not 20% but 30%
d.. These banks need not have any cash reserve
a.. 16th of that month b.. 17th of that month
c.. 18th of that month d.. 20th of that month
.. 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.
a.. Not 14 days b.. It is 20 days
c.. It is 15 days not 20 days
d.. One month
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 October
d.. The Last Friday in November
The expenses relating to the special audit to be borne by the concerned banking company.
.. Every month, a banking company has to submit to the RBI a return showing its assets and liabilities in India as at the close of business on the last Friday of the previous month
.. The inspecting officer is authorized to examine any director or officer of a banking company on oath.
a.. Inspection report b.. Scrutiny report
c.. Search report d.. All these reports
a.. Central Government
b.. Reserve Bank of India
c.. Central Government with the consultation
of Reserve Bank of India
d.. Company Law Board
a.. Holiday period b. Gestation period
c.. Moratorium d.. None of these
.. 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.
.. To handle government and other business as required by RBI.
.. The terms and conditions shall be as agreed between them.
..The State Bank is empowered to inspect the subsidiary banks
..The auditors are appointed by State Bank of India in consultation with RBI
a.. Open deposit accounts
b.. Lend to Agriculturalists
c.. Extend Credit to an Artisan
d.. None of the above
.. Among others one Chartered Accountant with not less than 15 years of experience nominated in consultation with RBI.
.. Not more than 6 directors to be nominated by Central Government
.. A co-operative bank not to lend on its own shares/ unsecured loans or advances to its directors/ any company or associates wherein the director has interest
.. A co-operative bank to get permission of RBI to open a branch in a new place.
a.. 6 weeks b.. 3 months
c.. 6 months d.. 9 months
.. 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.
a. Make the payment
b. Return the instrument
c.. Make payment for only Rs22222/- as per words
d.. Act as a prudent banker
a. Stale Cheque
b.. Ante Dated Cheque
c.. Should not be returned
d.. Post Dated
a. It is the responsibility of the collecting banker to verify the regularity of endorsements
b. It is not the responsibility of the paying bank to verify the regularity of endorsements
c.. The Collecting bank as well as the paying bank are responsible to verify the regularity of endorsements
d.. None of the above
a.. The drawee bank to make payment.
b.. The paying banker will be in order to return the same
with a reason Material alteration requires drawer’s
c.. The above is not a material alteration.
d.. The responsibility lies with the collecting banker and not
the paying banker.
He should collect cheques only for his customer
Cheques should have been crossed (Generally or specially)
Without negligence he should act.
The proper identification and opening of account with due care assumes lot of importance.
A collecting banker cannot avoid his responsibility, even at a later date, when it is proved that the account opened was not properly opened.
He has to make necessary enquiries before any third party cheques are collected on behalf of its customer.
a.. The paying bank can make the payment since it has been collected by a bank.
b.. The drawee bank not to honour
c.. The Collecting bank is not in order in collecting such a crossed cheque
d.. Both b & c
a.. Surety b.. Guarantor
c.. Indemnified d.. None of these
.. The indemnifier has to make good the loss as soon as it occurs.
.. There are only two parties to a contract of indemnity and hence only one contract.
.. An indemnity is for the reimbursement of loss
a.. The above is correct
b.. The above is incorrect
c.. For indemnity the risk is contingent and for
guarantee the liability is subsisting
d.. For both risk contingent and liability subsisting
It is a Non fund based finance extended
The bank to secure the bank guarantee in addition to necessary securities will have to obtain a Counter guarantee or Counter indemnity to safe guard their interest
If the claim is made by the beneficiary within the guarantee period and as per the terms and conditions of the bank guarantee, then the bank should make the payment without fail and also without any delay.
The Courts will not prevent the bank from making the claim amount on the bank guarantee.
The Courts will interfere only when there is a mala fide intention or fraud or forgery takes place.
a.. Can debit L’s current account with the claim amount and make a demand draft in favour of R and send.
a.. The bank will close Fixed deposit and make payment
b.. For the balance amount the bank can request the beneficiary for some more time
c.. The bank need not honour, since the balance of the collateral security will not be sufficient to meet the claim amount
d.. None of these
Advance payment , Deferred payment and Statutory guarantees are also being issued by banks
Before issuing a bank guarantee, the bank will go through the draft copy and after satisfying with the contents they agree to issue.
Besides the documents for various types of securities, appropriate counter guarantee also to be taken.
.. If claim has come from the beneficiary utmost importance to be given and due action to be taken.
.. Banks under a LC deal in documents
.. LC terms and conditions should not be vague .
.. A confirming banker has to undertake on its part the liabilities of the credit vis-à-vis the beneficiary or the Negotiating bank.
.. Reimbursing bank is appointed by the issuing bank to make reimbursement to the Negotiating, Paying or Confirming bank
a.. Notifying bank b.. Nominated bank
c.. Paying bank d.. Notified bank
.. The other types include Red clause and Green Clause LCs.
a.. Red Clause LC
b.. Blue Clause LC
c.. Green Clause LC
d.. Both a or c
.. Exceptional cases the Court would interfere with the machinery of irrevocable obligations assumed by the banks, such as, clear cases of fraud of which the banks have notice.
.. Demand bills are always purchased whereas time bills are discounted.
.. Bills can also be accepted by banks on collection basis
a.. At sight bill b.. On demand bill
c.. After sight bill d.. None of these
a.. Agent – Principal b.. Creditor – Debtor
c.. Debtor – Creditor d.. Principal - Agent
a.. Recover the finance from the drawer
b.. Recover the finance from the drawee
c.. Recover the finance from the payee
d.. Forego the advance lent
.. If proper / adequate precautions are not taken bank not only loose the security but also the chances of recovery.
d.. Both a & c
a.. Letter of Pledge
b.. Third Part Letter of Pledge
c.. Demand Promissory Note
d.. Duly discharged Fixed deposit receipt
a.. The Charge need not be registered with the
Registrar of Companies since Supply Bills is
treated as an unsecured finance
b.. The Charge has to be registered
c.. The Charge has to be registered since Book debts
are considered as Collateral security
d.. No connection with the Registrar of Companies
since the bank only gives the finance
a.. Not possible since it is already printed on the deposit receipt as Not transferable
b.. Possible by way of proper endorsement
c.. Possible by closing the deposit before maturity and with that open a new account in the name of the depositor’s uncle
d.. None of the above
a.. Life Policy Loan b.. Fixed Deposit Loan
c.. Clean OD d.. Supply Bills Finance
The Transfer of Property Act discusses about the Mortgages.
The basic requirements include
An intention to create mortgage by the owner of the property (mortgagor) in favour of the Mortgagee (Creditor) to secure a debt
a.. Simple Mortgage/ English Mortgage/ Equitable Mortgage/ Anomalous Mortgage
b.. Mortgage by way of Conditional Sale/ Usufructuary Mortgage / Mortgage by way of Deposit of Title deeds / English Mortgage
c.. Registered Mortgage / English Mortgage / Equitable Mortgage / Simple Mortgage
d.. Mortgage by way of Conditional Sale / Equitable Mortgage / Usufructuary Mortgage / English Mortgage
a.. Pledge / Hypothecation / Hypothecation/ Mortgage
b.. Hypothecation / Assignment / Pledge / Mortgage
c.. Pledge / Mortgage / Hypothecation / Hypothecation
d.. None of the above
.. The limitation period for filing suit for foreclosure is 30 years form the date the money secured by mortgage becomes due..
.. Foreclosure means the loss of the right possessed by the mortgagor to redeem the mortgaged property.
.. Under the Mortgage by way of conditional sale, the mortgagee can sue for foreclosure, but not sale of the property.
a.. Will be two types of Registrations
b.. One with the Registrar of Companies
c.. Another with the Sub Registrar of
Assurances in whose jurisdiction the
mortgaged property is situated
d.. All of these
a.. Suit has to be filed in the district headquarters of the bank branch
b.. Suit to be filed with the Mortgage court
c.. Such loan not possible (Property in a different area and the lending bank in another area)
d.. None of these
a.. A hypothecation can become pledge
b.. Pledge and third party pledge there is no difference
c.. A mortgage is applicable to Vehicle as security
d.. For transfer of goods assignment is used
While lending to the HUF business banker has to be very careful in protecting the interest of the bank
.. The appropriate documents, such as deed, agreements, bye laws, resolutions to be carefully gone through and then proceed.
a.. A charge on any book debts of the company
b.. A charge on called capital of the company
c.. A floating charge on the undertaking or any property of the company including stock-in-trade
d.. A charge on a copy right
a.. Registrar of Companies
b.. Lending Bank
d.. Debtor Company
a.. The Registration is in order
b.. The Registration is not in order
c.. The Charge should have been filed within 1 month from the date of sanction
d.. Since the finance has been taken only on 3rd of September, time to be calculated from that date to file the charge