Questions for Banking principles and operations

Short answers questions

1. what is core banking

2. What is Slr

3. What is CRR

4. What is Bank rate

5. What is ripo rate

6. What is Bill of exchange

7. What is post dated check

8. What is scale check

9. What is marketing of check

10. What is open market operation

11. Who is a minor?

12. What is pledge?

13. What is mortgage

14. WhatIs online banking or e banking

15. What is EFT

16. What is RTGS

17. What is NEFT

18. What is hypothecation

19. What is cash credit

20. What is bang assurance?

21. What is guilt edged securities

Paragraph questions

1. What are the Types of Crossing of check

2. endorsement and it’s types

3. What is credit creation?Objectives of credit creation?limitation of credit creation ?

4. What are the functions of district cooperative banks?

5. What are the procedure of opening a new bank A/c

6. What are the procedure for closing a bank account?

 7. What are the methods of creating charge on securities

Essay qustions

1. what are the functions of RBI

2. What are functions of commercial Bank

3. Explain the qualitative and quantitative methods of credit control

4. Explain the relationship between Banker and Customer

*Genaral relationship

*special relationship

Short Answer Questions

1. Core Banking: A centralized system that allows banks to access and manage customer
information and transactions from multiple branches.

2. SLR (Statutory Liquidity Ratio): The minimum percentage of total deposits that banks must
invest in government securities.

3. CRR (Cash Reserve Ratio): The minimum percentage of total deposits that banks must
maintain with the central bank.

4. Bank Rate: The interest rate at which the central bank lends money to commercial banks.

5. REPO Rate: The interest rate at which the central bank lends money to commercial banks
against government securities.

6. Bill of Exchange: A written order from one person (drawer) to another (drawee) to pay a
specified sum of money to a third person (payee) on a specified date.

7. Post-Dated Check: A check that is dated for a future date.

8. Scale Check: A check with a scale printed on it to help prevent alteration.

9. Marketing of Checks: Promoting the use of checks as a convenient payment method.

10. Open Market Operation: The buying and selling of government securities by the central
bank to influence the money supply.

11. Minor: A person who has not reached the legal age of majority (usually 18).

12. Pledge: A security interest created by transferring possession of goods to a creditor as

collateral.

13. Mortgage: A security interest created by transferring ownership of real property to a

creditor as collateral.

14. Online Banking or E-Banking: The use of electronic channels to access and manage bank
accounts.
 15. EFT (Electronic Funds Transfer): The transfer of money electronically between bank
accounts.

16. RTGS (Real-Time Gross Settlement): A system for transferring funds between banks in real
time.

17. NEFT (National Electronic Funds Transfer): A system for transferring funds between banks in
batches.

18. Hypothecation: A security interest created by giving the creditor the right to sell the
collateral if the debtor defaults.

19. Cash Credit: A facility that allows a customer to overdraw their current account up to a pre-
approved limit.

20. Bank Assurance: The sale of insurance products by banks.

21. Gilt-Edged Securities: Government securities issued by a sovereign government.

Paragraph Answer Questions

1. Types of Crossing of Checks

There are three main types of crossing for checks:

• General Crossing: Indicated by two parallel lines drawn across the face of the check, making
it payable at any bank.

• Specific Crossing: Indicated by the name of a specific bank written between the two parallel
lines, making it payable only at that bank.

• Account Payee Crossing: Indicated by the words "Account Payee" written between the two
parallel lines, restricting payment to the named payee's account only.

2. Endorsement and Its Types

Endorsement is the signature of the payee on the back of the check, transferring ownership. There
are three main types of endorsement:

• Blank Endorsement: Only the payee's signature, making the check payable to anyone.

• Special Endorsement: The payee's signature followed by the name of the person to whom
the check is payable.

• Restrictive Endorsement: Specifies conditions for payment, such as "For Collection" or

"Payee Account Only."

3. Credit Creation, Objectives, and Limitations

Credit creation is the process by which banks create money by lending out deposits. The objectives
of credit creation include financing economic activity, promoting growth and development, and
facilitating trade and commerce. However, credit creation is subject to certain limitations, such as
reserve requirements set by the central bank, public confidence in the banking system, and
economic conditions.

4. Functions of District Cooperative Banks

District cooperative banks play a vital role in rural development. Their primary functions include:

• Providing financial services to rural areas.

• Promoting agricultural development.

• Supporting small-scale industries.

• Mobilizing savings from rural areas.

• Providing credit to farmers and rural households.

5. Procedure for Opening a New Bank Account

The procedure for opening a new bank account typically involves the following steps:

• Visit a bank branch.

• Fill out an account opening form.

• Provide necessary documents (ID proof, address proof, income proof).

• Deposit initial funds.

• Receive an account number and passbook.

6. Procedure for Closing a Bank Account

The procedure for closing a bank account typically involves the following steps:

• Submit a written request to the bank.

• Ensure all outstanding dues are cleared.

• Surrender the passbook and ATM card.

• Receive a closure certificate.

7. Methods of Creating Charge on Securities

There are several methods of creating a charge on securities, including:

• Pledge: Transferring possession of goods to the creditor as collateral.

• Mortgage: Transferring ownership of real property to the creditor as collateral.

• Hypothecation: Giving the creditor the right to sell the collateral if the debtor defaults.

Essay Questions

1. Functions of the Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) serves as the central bank of India, playing a crucial role in the
nation's economic stability and development. Its primary functions include:

• Currency Issuance: The RBI is solely responsible for issuing currency in India. It ensures the
supply of adequate and high-quality currency to meet the country's needs.
 • Lender of Last Resort: In times of financial crisis, the RBI acts as a lender of last resort,
providing liquidity to commercial banks to prevent a systemic collapse. This function helps
maintain stability in the banking system.

• Monetary Policy Implementation: The RBI formulates and implements monetary policy,
which involves regulating the money supply in the economy to achieve specific economic
objectives. These objectives typically include price stability, growth, and employment. By
controlling the money supply, the RBI can influence interest rates, credit availability, and
inflation.

• Foreign Exchange Management: The RBI oversees and manages India's foreign exchange
reserves, ensuring the country's financial stability in the global market. It intervenes in the
foreign exchange market to maintain the rupee's value and protect the country's balance of
payments.

• Banking Supervision: The RBI supervises and regulates banks operating in India, ensuring
their adherence to banking norms and practices. This helps protect depositors' interests and
maintain the stability of the banking system.

2. Functions of Commercial Banks

Commercial banks are financial institutions that provide a wide range of services to individuals and
businesses. Their key functions include:

• Deposit Acceptance: Banks accept deposits from customers in various forms, such as savings
accounts, current accounts, and fixed deposits. These deposits serve as a source of funds for
the bank to lend out.

• Loan Provision: Banks offer loans and advances to individuals and businesses for various
purposes, including personal loans, home loans, and business loans. These loans help
stimulate economic activity and provide financial support to individuals and businesses.

• Investment Services: Many commercial banks provide investment services, such as mutual
funds, insurance, and retirement planning. These services help customers grow their wealth
and secure their financial future.

• Remittance Services: Banks facilitate the transfer of funds domestically and internationally.
This service is essential for individuals and businesses to conduct transactions across
borders.

• Fund Management: Commercial banks manage their customers' funds by investing in

various financial instruments. This helps customers earn returns on their savings and
investments.

3. Qualitative and Quantitative Methods of Credit Control

The Reserve Bank of India employs both qualitative and quantitative methods to regulate the flow of
credit in the economy.

• Qualitative Methods:

o Moral Suasion: The RBI can persuade banks to follow certain lending practices
through moral suasion, without issuing formal instructions. This involves using
persuasion and influence to encourage banks to adopt responsible lending practices.
 o Selective Credit Control: The RBI can restrict credit to specific sectors or industries
to achieve specific economic objectives. For example, the RBI may restrict credit to
certain sectors that are deemed to be contributing to excessive inflation.

o Margin Requirements: The RBI can set minimum margin requirements for loans,
requiring borrowers to maintain a certain level of equity. This helps to reduce the
risk of default and ensure that borrowers have a stake in the success of the loan.

o Direct Action: In extreme cases, the RBI can take direct action against banks that
violate regulations or engage in risky practices. This can include imposing penalties,
revoking licenses, or appointing administrators.

• Quantitative Methods:

o Open Market Operations: The RBI can buy or sell government securities in the open
market to influence the money supply. By buying government securities, the RBI
injects money into the economy, increasing the availability of credit. Conversely, by
selling government securities, the RBI withdraws money from the economy,
tightening credit conditions.

o Bank Rate Policy: The RBI can change the interest rate at which it lends to banks,
affecting the cost of credit. A higher bank rate discourages borrowing and reduces
the money supply, while a lower bank rate encourages borrowing and increases the
money supply.

o Reserve Requirements: The RBI can set the minimum amount of deposits that banks
must hold with the RBI, affecting the amount of money banks can lend out. A higher
reserve requirement reduces the amount of money banks can lend, tightening credit
conditions. Conversely, a lower reserve requirement increases the amount of money
banks can lend, loosening credit conditions.

4. Relationship Between Banker and Customer

The relationship between a banker and customer is a contractual one, based on mutual trust and
confidence. There are two main types of relationships:

• General Relationship: This is a standard relationship where the bank acts as an agent for the
customer in certain transactions. For example, the bank may collect checks on behalf of the
customer or transfer funds as instructed.

• Special Relationship: This relationship is based on a higher level of trust and confidence,
often arising from long-standing relationships or special circumstances. In such cases, the
bank may have a duty of secrecy and may be held liable for certain actions. For example, if
the bank has knowledge of the customer's financial affairs and discloses this information
without authorization, it may be liable for breach of confidentiality.

The specific nature of the banker-customer relationship can vary depending on the type of account,
the services provided, and the applicable laws and regulations. However, the underlying principle is
that the bank has a fiduciary duty to act in the best interests of its customers and to maintain
confidentiality.