BANKING QUESTION AND ANSWERS

Module 1
Section - A
2 mark questions ( Answers in a sentence each)
1. State any one importance of Banking system.
Banking system offers many facilities to the people like Core banking, Electronic Fund
Transfer, Tele-banking, Anywhere banking, Mobile banking etc.
2. State any one function of a Bank.
Bank accepts deposits from the public for the purpose of lending or investments.
3. Why are pay-in-slips used in Banks ?
Pay-in-slips are used to deposit cash or cheques into the Bank account of the account
holder.
4. Mention any one need of Bank.
Bank is needed to transfer funds from place to place by means of Bank drafts and
cheques.
5. Name any one type of Bank account.
Savings Bank account.
within no time.
6. Give a difference between Current account and Savings Bank account.
Bank provides no interest to Current account holders.
Bank provides 3% to 4% interest to Savings bank a/c holders.
7. State a difference between Current account and Fixed Deposit account.
Bank provides Overdraft facility to the Current account holders.
Bank does not provide such overdraft facility to the Fixed Deposit account holders.
8. Mention a difference between Savings Bank account and Fixed Deposit account
S.B account is suitable for low and middle income group of people.
F.D. account is suitable for wealthy people and small investors.
9. Expand ATM.
Automated Teller Machine.
Section - B
Two marks questions (Answer in not more than two sentences each)
1. Give the meaning of Banking.

1
 The Indian Banking Regulation Act of 1949 defines Banking as “Accepting for the
purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdrawable by cheque, draft, order or otherwise.”
Banking refers to performing several activities such as collection of cheques, drafts
and bills, remittance of funds, acceptance of safe custody deposits which are known as
subsidiary services.
2. What do you mean by Bank ?
“Bank is a financial institution which accepts deposits from public for the purpose of
lending or investments and provides various utility services to the customers as well as to
the public.”
3. State any two point of importance of bank.
1. Provides safety and Security :- Banks provides complete safety and security to the
amount deposited by the depositors. The depositors may be free from the fear of theft
and robbery of their money.
2. Provide interest and promote saving habits :-Banks provides higher and attractive rate
of interest on the deposits and there by promotes the saving habits of the people.
4. What is Overdraft ?
Overdraft is a type of facility offered by bank to the Current account holders. Under this
facility current a/c holder is allowed to withdraw over and above of his deposits in his
account. It is a temporary arrangement to the current account holders.
5. What do you mean by Mobile Banking ?
Mobile banking is a latest development in banking service. Mobile banking is a type of
banking facility under which a customer can conduct banking transactions with his bank by
using his mobile phone. Mobile banking works through SMS (Short Messaging Service)
technology. Mobile banking works through a set of text messages appears on the mobile
phone screen.

2
6. Write any two types of Bank account.
1. Savings Bank account
2. Current account
7. Give the meaning of Current account.
Current account is a type Demand Deposit Bank account opened with the object of operating
business Bank transactions continuously. Usually, this type of account is opened by
Business people so as to conduct their transactions smoothly.
8. Give the meaning of Savings bank account.
Savings Bank account is kind of demand deposit Bank account opened with the object of
saving the money out of the earnings of the people. Usually, this type of account is opened
by students, salaried people, agriculturists, lower and middle income groups.
9. Give the meaning of Fixed deposit account.
Fixed deposit account is a type of term deposit bank account opened with the object of
investing money on bank deposits at higher rate of interest. Usually, this type of account is
opened by wealthy people and small investors who want safety for their investments.
10. Give the meaning of Recurring deposit account.
Recurring deposit a/c is a type of term deposit bank account in which deposits are made
every month regularly and withdrawn at the end of some period. In this account, account
holder deposits fixed amount every month and withdrew entire amount in lump sum at the
end of certain period.
11. State any two features of Savings Bank account.
1. Low interest rate :- Banks provide lower interest rate on this type account. Usually, the
interest rate ranging from 3% to 4% and it may vary from Bank to Bank.
2. Deposits and withdrawals : Pay-in-slips are used to deposit money or cheques into the
bank. Similarly, cheques or debit card are used to withdraw money from the bank.
12. State any two features of Current account.
1. No interest : Bank do not provide any interest to this type of account. Instead of
providing interest, Bank collects some charges to these account holders for providing
various services.
2. Deposits and withdrawals : Pay-in-slips are used to deposit money or cheques into the
bank. Similarly, cheques or debit card are used to withdraw money from the bank.
13. State any two features of Fixed deposit account.
1. High interest rate : This type of account carries high rate of interest ranging from 4% to
10%. The longer the period of deposits, the higher the rate of interest is the basic
principle to provide interest.
2. Deposits and withdrawals : One time deposit and one time withdrawal is rule of this
type of a/c. Deposits are made into bank by using pay-in-slips and withdrawals are made
after certain period by producing fixed deposit receipts.
14. State any two features of Recurring deposit account.
1. Interest rate : RD account carry higher rate of interest than SB account but lower than
Fixed Deposit account
2. Deposits and withdrawals : Deposits are made regularly every monthly and a fixed
amount is given to the customers in lump sum at the end of certain period along with
interest.

3
 15. Write any two differences between S.B. account and Current account.
Point of
Current account Savings Bank account
Difference
Bank provide no interest to Bank provide interest to Savings
1. Interest rate
Current account Bank account
Current account is suitable Savings Bank a/c is suitable for
for business people who low and middle income group
2. Suitability
conducts large no. of bank who
transactions want to save money out of
their earnings.

16. State any two differences between Current a/c and F.D. a/c.
Point of
Current account Fixed Deposit account
Difference
Bank provide no interest to this Bank provide higher rate of
1. Interest rate
type of account interest to this type of account
Current account is suitable F.D. account is suitable for
for business people who wealthy people and small
2. Suitability
conduct large no. bank investors who want safety for
transactions their
investments.

17. State any two differences between S.B. account and F.D. account
Point of
S.B. account Fixed Deposit account
Difference
1. Interest rate Bank provide lower rate of Bank provide higher rate of
interest to Savings Bank account interest to Fixed deposit account
2. Suitability S.B. a/c is suitable for low and F.D. a/c is suitable for wealthy
middle income group who people and small investors who
want to save money out of want safety for their
their investments
earnings
18. Mention any two facilities under Anywhere banking.
Facilities offered under anywhere banking :
1. Account balance enquires .
2. Cash deposits.
3. Cash withdrawals
4. Enquires about debits and credits.
19. Give two services of Mobile banking.
1. National and International transfer of funds :- Mobile banking facilitates easy
transfer of funds from one branch to any other branches of the bank.
2. Request for cheque books :- A customer can send request to bank for obtaining cheque
book.

4
 Section – C
5 Marks questions ( Answer in not more than 15 lines each)
1. Write any five features of Savings Bank Account.
Features of Savings Bank account
1. Low interest rate :- Banks provide lower interest rate on this type a/c. Usually the interest
rate ranging from 3% to 4% and it may vary from Bank to Bank.
2. Deposits and withdrawals : Pay-in-slips are used to deposit money or cheques into the
bank. Similarly, cheques or debit card are used to withdraw money from the bank.
3. Who can open the a/c ?: Any person including minor can open this type of account by
depositing minimum amount. Nowadays, we can open this type of account with zero
balance so as to enjoy banking facility. As such, you students can also open this type of a/c
to get your scholarship amount.
4. Restrictions : Bank imposes no restriction on amount of deposits. But there are
restrictions on number of withdrawals on the amount to be withdrawn in a day.
5. Pay-in-slips, Cheque books & Pass book :- Bank gives pay-in-slips for deposit of money
into bank, cheque book for withdrawal and payments from banks and pass book which
gives details about deposits, withdrawals and available balance. Now a days Bank provide
ATM card for the withdrawal of money.

2. Write any five features of Current Account.

Features of Current account
1. No interest : Bank do not provide any interest to this type of account. Instead of providing
interest, Bank collects some charges to these account holders for providing various
services.
2. Deposits and withdrawals : Pay-in-slips are used to deposit money or cheques into the
bank. Similarly, cheques or debit card are used to withdraw money from the bank.
3. Who can open the a/c ? : Generally these type of account opened by such persons who
want to conduct transactions continuously. For ex: Business people, Companies,
Government etc.
4. Restrictions : Bank imposes no restriction on the number of deposits and number of
withdrawals in a day.
5. Overdraft facility : Bank provide overdraft facility to this type of account under which
account holder is allowed to withdraw over and above his deposit in the account.
6. Pay-in-slips, Cheque books & Pass sheets :- Bank gives pay-in-slips for deposit of
money into bank, cheque book for withdrawal and payments to third parties and pass
sheets which gives details about deposits, withdrawals and available balance.

3. Write any five features of Fixed Deposit Account.

1. High interest rate : This type of a/c carries high rate of interest ranging from 4% to 10%.
The longer the period of deposits, the higher the rate of interest is the basic principle to
provide interest.
2. Deposits and withdrawals : One time deposit and one time withdrawal is rule of this type
of a/c. Deposits are made into bank by using pay-in-slips and withdrawals are made after
certain period by producing fixed deposit receipts.
3. Who can open the account? : Generally this type of a/c opened by wealthy people and
small investors who have surplus of money and wishes to deposit for long period.
4. Restrictions : Bank do not allow frequent deposits and withdrawals for this type of a/c.
That means ‘one time deposit & one time withdrawal’ is the rule of this type of a/c.
5. Facilities : Bank provides loan facility on pledging the fixed deposit receipt in the same
bank.

5
 6. Pay-in-slips, Cheque books & Pass book : No pay-in-slip, Cheque books and Pass books
are issued to the a/c holder of this a/c. However FD receipts are issued which is used for
withdrawal in lump sum at the end of certain period.

4. Write any five features of Recurring Deposit Account.

1. Interest rate : This type of a/c carry higher rate of interest than SB a/c but lower than FD
account
2. Deposits and withdrawals : Deposits are made regularly every monthly and a fixed
amount is given to the customers in lump sum at the end of certain period along with
interest.
3. Who can open the a/c ?: Generally, this type of account is opened by such people who
have regular monthly income. For example salaried people.
4. Restrictions : In this type a/c deposits are made regularly every month and single
withdraw is allowed at the completion of certain periods. That means “Many time deposits
and one time withdrawal” is the basic principle of this type of account.
5. Facilities : Bank provides loan facilities on amount deposited by account holder.
6. Pay-in-slips, Cheque books & Pass book : No pay-in-slips and cheque book are issued
but pass book is issued to this a/c holder.

5. Write any five differences between Current account & Savings Bank account.
Differences between Current account & Savings Bank account.
Point of
Current account Savings Bank account
Difference
Bank provide no interest to Bank provide interest to Savings
1. Interest rate
Current Bank account.
account
Current a/c is suitable for S.B. account is suitable for
business people who conducts low and middle income group
2. Suitability
large number of bank who want to save money out
transactions of their
earnings.
Bank imposes no restrictions on Bank imposes some restrictions
3. Restrictions the no. of deposits and on the no. of deposits and
withdrawals in this type of withdrawals in this type of a/c
account
Current a/c holders enjoy overdraft Savings bank account holders
4. Facility
facility does
not enjoy such overdraft facility.
Withdrawals from Current Withdrawals from Savings Bank
5.Operation by account are allowed only by account are allowed not only by
cheques cheques and not by withdrawal cheques and even by using
forms. withdrawal forms.

6. Write any differences between Current account & Fixed deposit account.
Differences between Current a/c and F.D. a/c
Point of
Current account Fixed Deposit account
Difference
Bank provide no interest to Bank provide higher rate of
1. Interest rate
Current account interest to Fixed deposit account
Current account is suitable for F.D. account is suitable for
business people who conduct wealthy people and small
2. Suitability
large number bank transactions investors who want safety for

6
 their
investments.
Bank imposes no restrictions Bank allows single
3. Restrictions on the number of deposits & withdrawal only after certain
with- period.
drawls to the Current a/c holders

7
 Current account holder F.D account holders do not enjoy
4. Facility
enjoys overdraft such overdraft facility.
facility
Withdrawals from this type of a/c Withdrawals from this type of a/c
5.Operation by are allowed only by cheques and are allowed only by FD receipts
cheques not by any receipts. and not by using any withdrawal
forms.

7. Write any differences between Savings Bank Accounts.& Fixed Deposit Accounts.
Differences between S.B. a/c and F.D. a/c
Point of
S.B. account Fixed Deposit account
Difference
Bank provide lower rate of interest Bank provide higher rate of
1. Interest rate
to Savings Bank account interest to this type of a/c
S.B. Savings Bank account is F.D. a/c is suitable for wealthy
suitable for low and middle people and small investors who
2. Suitability
income group who want to want safety for their
save investments
money out of their earnings
Bank imposes some restrictions Bank allows single
on the no. of deposits and withdrawal only after certain
3. Restrictions
withdrawals to Savings Bank period.
account
Withdrawals are made by cheques Withdrawals are made not by
4.Withdrawals
and withdrawal forms. using cheques but by producing
by Cheque
FD receipts.
S.B a/c has to be opened by proper FD a/c can be opened even
5. Introduction
introduction by existing without
customers. any introduction.
8. Explain the procedure of opening a new Bank account
Procedure of opening Bank account
Following procedure is followed to open a new Bank account:
1. Filling up of account opening form : First of all the banker asks the applicant to fill up
the account opening form. The prospective customer should fill up all details such as
name, address, type of a/c he wants to open, nominee details, pan card no. etc. He should
also give address proof and pan card zerox copy and passport size photograph to open a
new bank a/c.
2. Obtaining introduction or reference : Secondly, the bank asks for proper introduction of
respectable person known to the banker. This introduction is necessary to open S.B. a/c
and Current a/c only and not for F.D. a/c and R.D. a/c. This introduction helps the banker
to open a/c in the name of genuine persons and prevents to open falls a/c.
3. Obtaining Specimen signature : If the banker is satisfied with introduction, he permits
the prospective customer to open an a/c by obtaining 3 specimen signature on a specimen
signature card. This specimen signature helps banker for cross verification of customer
signature at the time of withdrawal of cash by cheque.
4. Obtaining Mandate : If the customer wants to operate his a/c through his representative
(agent), the bank take written authority from the customer which is known as ‘Mandate.’
The banker should also obtain specimen signature of that agent.
5. Receiving initial Deposit and open a/c in the ledger : After observing all above
formalities the banker receives initial deposits from the customer and opens an a/c in the
name of customer by writing details in the ledger of the bank.

8
6. Supply of pay-in-slips, cheque book and pass book : Finally, the banks supplies pay- in-
slip book for deposit of cash or cheque into bank, cheque book for withdrawal of cash

9
 from the bank and pass book showing the details of deposits, withdrawals and available
balance. At the time opening a new bank a/c, the customer may request the bank for
supply of ATM card and online transaction facility.

9. Types of Banks
Banks are further segregated into four types.

● Commercial Bank- These banks are regulated by banking regulation act

1949. They accept the public deposit from the public for the purpose of lending or
investment.
● Cooperative Bank- Cooperative Banks are undertaken by the State Cooperative
Societies Act and gives cheap credit to their members. The rural population is
depended on the cooperative bank for financial backup.
● Specialized Bank- This bank provides financial help to special industries and
foreign trade etc. Few examples of specialized banks are foreign exchange banks,
export & import banks, development banks, and export-import banks, etc.
● Central Bank- This bank manages, checks and monitors all the activities of the
commercial banks of a country.

Functions of Commercial Banks

(1) Acceptance of Deposits

● Banks provide the loans only on the basis of the amount deposited by the public.
● Banks lend money and get interested in them.
● They get funds for lending through deposits in current, savings accounts.
● Banks pay interest on deposits according to the rates decided by RBI.
(2) Lending of Funds

● This is the important function of banks to provide loans to the public.

● Advances can be made in the form of overdrafts, cash credits, term loans, etc.
(3) Cheque Facilities

● Banks provide the cheques facilities to the owners of saving, current a/c to withdraw
their money.
● It is the most developed form of credit instrument.
● Banks also encash the cheques drawn on another bank.
● There 2 types of cheques
● Bearer cheques which are cashable immediately
● Crossed cheques which are to be credited in the payee’s account.
(4) Remittance of Funds

● Banks also provide the function of money transfer.

1
 ● It provides the transfer of money through drafts, pays orders, Net banking,
NEFT/RTGS etc. on nominal commission charges.
● A payee can present the cheques in the drawer bank to collect the funds.

Types of Commercial banks

(1) Public Sector Banks

● Public sector banks are those banks in which the major holding is of government.
● Example: SBI, PNB, OBC, etc.
(2) Private Sector Banks

● Private sector banks are those banks which are owned controlled and managed by
private promoters.
● They operate according to the market forces.
● Example: HDFC, ICICI, Kotak Mahindra, etc.

10 Functions of Banks

Primary Functions

Accepting deposits
Most important function of a bank is to mobilize public funds. Bank provides safe custody as
well as interest to the depositors. 
Saving deposit
Saving deposit account meant for those people who wants to save for future needs and
uncertainties. There is no restriction on number and amount of withdrawals. Bank provides
cheque book, ATM cum debit card and Internet banking facility. Depositors need to maintain
minimum balance which varies across different banks.
Fixed deposit or Term deposit
In fixed deposit account, money is deposited for a fixed tenure. Banks issues a deposit certificate
which contains name, address, deposit amount, withdrawal date, depositor signatures and other
important information. 
Depositor can't withdraw money during this period. In case depositor want to withdraw before
maturity, banks levy pre-mature withdrawal penalty. 
Current account
Current accounts are normally opened by businesses. Banks provide overdraft facility for these
accounts by which account holder can withdraw more money than available bank balance. This
act as a short term loan to meet urgent needs. Bank charges high rate on interest and charges for
overdraft facility because bank need to maintain a reserve for unknown demands for overdraft.  

1
Recurring deposit
In this type of account depositors deposits certain sum of money at regular period of time.
Benefit of recurring account is that it provides benefit of compounded rate of interest and enables
depositors to collect big sum of money. 

Granting Loans and advances

Cash credit
It is a short term loan facility under which banks allows its customers to take loan up to a certain
limit, normally bank grants this loan against mortgage of certain property.

Bank overdraft
Bank provides this facility to current account holders.Account holder can withdraw money
anytime up to the provided limit. He need to pay interest only on borrowed amount for the period
for which he took loan.
Loans
Banks providing loans for various kinds of short term as well as long term needs. Borrower pay
back the loan in installments.
Discounting bills
In normal day to day business, sellers sends bills to buyer whenever they sell their products and
it is mentioned in bill to make payment in stipulated time. Lets take it 30 days. In such conditions
seller may discount the bill from bank for some fees. In such situation bill discounting acts as
short term loan. In case the buyer or the drawer defaults, bank send the bill back to seller
to drawer so that he may take legal action against drawee or buyer.

1
 Secondary functions
Agency functions
o Funds transfer
o Cheques collection
o Periodic payments/collection
o Portfolio management
Utility functions
o Issue of draft, letter of credit etc :-Letter of credit acts as an assurance that in case the
borrower defaults in making the payment, bank will make the payment up to the amount
mentioned in letter of credit
o Locker facility
o Underwriting of shares
o Dealing in foreign exchanges
o Project reports
o Social welfare programs