S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).

,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.

BANKING THEORY LAW AND PRACTICE

( 16CCCCM4 )
B.COM II SEMESTER
SECTION – A (2 MARKS)
1.What are the meaning of Banking?
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 with
drawable 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.Definition of Banker:
Let us discuss the term banker‘ first. In general, bank or banker means a financial institution that
accepts deposits and lends money to the needy people. It deals in money.
The Banking Regulations Act (B R Act) 1949 does not define the term banker‘ but defines the banking is:
As per Sec.5 (b) of the B R Act Banking' means 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."
4.Definition of Customer.
The term customer of a bank is not defined by law. Ordinarily, a person who has an account in a
bank is considered its customer. Banking experts and legal judgment in the past, however, used to qualify
this statement by laying emphasis on the period for which such account had actually been maintained with
the bank.
According to Sir John Paget‘s79 view to constitute a customer there must be some recognizable
course or habit of dealing in the nature of regular banking business.”
5.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.
6.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.
7.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.
8.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.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
9.Give the meaning of Current account.
An account which can be operated any number of times on a working day without any restriction on
the number and amount of withdrawals is known as a current account. As the banker is under a
responsibility to repay these deposits on demand, they are called deemed deposits.
Current accounts suit the requirements of joint stock companies, public authorities, corporations, etc.
whose banking transactions happen to be numerous per day. Cheque facility is available for the investor.
10.Write a short note on Cash Credit.
In this type of credit scheme, banks advance loans to its customers on the basis of bonds, inventories
and other approved securities. Under this scheme, banks enter into an agreement with its customers to which
money can be withdrawn many times during a year. Under this set up banks open accounts of their
customers and deposit the loan money. With this type of loan, credit is created.
11.What is Discounting of Bills of Exchange?
This is the most prevalent and important method of advancing loans to the traders for short-term
purposes. Under this system, banks advance loans to the traders and business firms by discounting their
bills. While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or Promissory Note) before it is
due and credits the value of the bill after a discount charge to the customer's account. get loans on the basis
of their bills of exchange before the time of their maturity.
12.Definition of Negotiable Instrument:
The term "negotiable instrument" means a document transferable from one person to another.
However the Act has not defined the term. It merely says that "A .negotiable instrument" means a
promissory note, bill of exchange or cheque payab1e either to order or to bearer. [Section 13(1)]
13.What is Bank Draft / Demand Draft?
A bill of exchange is also sometimes spoken of as a draft. It is called as a bank draft when a bill of
exchange drawn by one bank on another bank, or by itself on its own branch, and is a negotiable instrument.
It is very much like the cheque with three points of distinction between the two. A bank draft can be drawn
only by a bank on another bank, usually its own branch. It cannot so easily be countermanded.
It cannot be made payable to bearer.
14.What is Exchange Banks?
Exchange banks deal in foreign exchange and specialise in financing foreign trade. They facilitate
international payments through the sale, purchase of bills of exchange, and thus play an important role in
promoting foreign trade.
15.What is Public Sector Banks?
These arc owned and controlled by the government. In India, the nationalized banks and the regional
rural banks come under these categories,
16.What is Private Sector Banks?
These banks are owned by the private individuals or corporations and not by the government or co-
operative societies,
17.What is Cooperative Banks?
Cooperative banks are operated on the cooperative lines. In India, cooperative credit institutions are
organized under the cooperative societies law and play an important role in meeting financial needs in the
rural areas.
18.What is mean by Endorsement?
Endorsement means the signature of the maker/ drawer or a holder of a negotiable instrument, either
with or without any writing, for the purpose of negotiation. The endorsement is done by the payee or
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
endorsee, as the case may be by signing on the instrument customarily on its back & where the space is
insufficient on a slip of paper annexed thereto called “Allonge”.
19.What is mean by Joint Accounts?
Two or more individuals may open a joint account. Various options exist for operating the account:
 Jointly by A and B – Both A and B will have to sign for withdrawals and other operations. For
example, high value transactions in a partnership firm may require the joint signature of two or more
partners.
 Either or Survivor – Either of them can operate the account individually. After the demise of one, the
other can operate it as survivor. This is the normal option selected by families.
 Former or Survivor – The first person mentioned as account-holder will operate it during his / her
lifetime. Thereafter, the other can operate. This option is often selected by a parent while opening an
account with the son / daughter.
 Latter or Survivor - The second person mentioned as account-holder will operate it during his / her
lifetime. Thereafter, the other can operate. While opening the account, the operating option needs to
be clearly specified.
20.Write a short note on Destruction of credit:
Banks create credit by advancing loans. Similarly banks can destroy credit by reducing loans. Extend
of destruction depends on CRR. Higher the CRR greater will be the destruction of credit.
21.What are the Various ways of creating money?
 By advancing loans
 By allowing Overdrafts
 By providing Cash Credits
 By discounting bill of exchange
 By purchasing securities
22.Write a short note on Restriction on withdrawals:
In the interest of the objective of savings bank accounts, the banks levy certain limitations on the
right of depositor to withdraw money within a given period. The number of withdrawals over a period of 6
months is limited to 50. Minimum amount to withdraw by a withdrawal form is ` 1 and that from a cheque
is’5.
23.What are the Payment of interest?
The rate of interest payable by the banks on deposits maintained in savings accounts is prescribed by
the RBI. Interest is computed at quarterly or longer rests of period.
24.What are the Rate of interest?
Higher rates of interest are offered on fixed deposits as the depositor parts with liquidity for a certain
period. The longer the period, the higher will be the rate of interest.
25.What is Overdue deposits:
If the receipt is not encashed on the date of maturity, the interest ceases to run from that date. The
banks allow interest as per RBI directives, if it is renewed.
26.Who is Minor?
Minors are considered one type of customer in a bank. A person who is not 18 years of age is
considered a minor and therefore is a special type of banking customer.
A minor has to have a parent or guardian to help them open a bank account. A minor can borrow
money, but most often need a co-signer such as a guardian or parent. A minor is most banks cannot be
appointed as trustee of any account.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
27.Give the note on Drunkard:
A drunkard is a person who is so toxicities to be incapable of understanding the nature and effect of a
contract upon his interest. A contract enter to a drunkard person is void. It is advisable for banker do not
allow a drunkard to start a account in his name.
28.Give the note on Lunatics
A person of unsound mind cannot make a valid contract. So, the bakers should not open an account
in the name of a person of unsound mind. But a customer may become lunatic after opening an account with
the bank.
29.Give the note on Illiterate person.
An illiterate person means a person who cannot sign his name. While opening of an account of such
a person is unavoidable, the baker should obtain.
1. Left thumb impression on the account opening form and specimen signature card in the presence of an
authorized bank official.
2. Details of identification marks should be noted in the account opening form and specimen signature card.
3. At least two copies of photograph duly attested by any account holder/authorized bank official.
30.What are the Insolvents?
When a person is unable to pay his debts in full, his property in certain circumstances is taken
possession of by official receiver or official assignee, under orders of the court. He realises the debtor’s
property and rate ably distributes the proceeds amongst his creditors. Such a proceeding is called
‘insolvency’ and the debtor is known as an ‘insolvent’. If an account holder becomes insolvent, his authority
to the bank to pay cheques drawn by him is revoked and the balance in the account vests in the official
receiver or official assignee.
31.Who is Agents?
A banker may open an account in the name of a person who is acting as an agent of another person.
The account should be considered as the personal account of an agent, and the banker has no authority to
question his power to deal with the funds in the account unless it becomes obvious that he is being guilty of
breach of trust. However, if a person is authorised to only act on behalf of the principal, the banker should
see that he is properly authorised to do the acts which he claims to do. If he has been appointed by a power
of attorney, the banker should carefully pursue the letter-ofattorney to confirm the powers conferred by the
document on the agent. In receiving notice of the principal’s death, insanity or bankruptcy, the banker must
suspend all operations on the account.
32.What is Meaning of Paying Banker?
Paying banker refers to the banker who holds the account of the drawer of the cheque and is obliged
to make payment, if the funds of the customer are sufficient to cover the amount of his cheque drawn.
33.What are the meaning of Cheques?
A cheque is a special type of bill of exchange. A 'cheque, is a bill of exchange drawn on a specified
banker, expressed to be payable only on demand (Sec.6). Although a cheque is a bill of exchange, yet is
have two additional characteristics, namely:
(i) A cheque is always drawn on a specified banker with whom the drawer has deposited the money;
(ii) It is always payable on demand.
Thus all cheques are bills of exchange but all bills of exchange are not cheques.
34.What is Crossed Cheque?
You might have observed, two transverse parallel lines at the top left corner of some cheques, which
may or may not have the words – & Co., A/c payee or Non-Negotiable. Such cheques are regarded as
crossed cheques. The amount on such cheques is credited to the account of the payee.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
35.What is Stale Cheque?
A cheque bears a date and is valid up to three months of the stated date. If a cheque is presented
before the bank, after the expiry of the reasonable period, i.e. three months after the date, then it is called
stale cheque.
36.What is Post-Dated Cheque?
When a cheque is drawn containing a future date, it is called post-dated cheque. In such cases,
money will not be payable by the bank before that date.
37.What is Ante-dated Cheque?
A cheque containing a prior date, is called an ante-dated cheque. Bank honours cheques until three
months to the date mentioned.
38.Write a short note on Dishonour of Cheque.
A cheque is said to be dishonoured when it is refused to accept or pay when presented to the bank. It
is a condition in which the paying banker does not pay the amount of the cheque to the payee.
39.What is Meaning of Collecting Banker?
A Collecting banker is one who undertakes to collect cheques, drafts, bill, pay order, traveller
cheque, letter of credit, dividend, debenture interest, etc., on behalf of the customer. For undertaking this
collection, the collecting banker will be charging commission.
Examples: ICICI Bank, HDFC Bank, SBI Bank etc.
40.Definition of Holder.
Holder is an individual who has lawfully received possession of a Commercial Paper, such as a
cheque and who is entitled for payment on such instrument.
41.What are the Value of Holder?
Holder for value is a holder to whom an instrument is issued or transferred in exchange for
something of value as a promise of performance or a negotiable instrument.
Example: A banker becomes a holder for value when: The value of cheque is paid before collection
of the cheque.
42.What is Holder in Due Course?
A holder in due course is the holder of negotiable instruments who has given value in good faith
without notice of any previous dishonour in taking the bill, which appears to be complete and regular.
43.What is Bank rate policy?
Bank rate is the lending rate of central bank. It is the official minimum rate at which central bank of
a country rediscounts the eligible bills of exchange of the commercial banks and other financial institutions
or grants short term loans to them. By increasing bank rate, RBI can make bank credit costlier
44.Who is Liquidator?
Person appointed by the shareholders or unsecured creditors, or on a court order., to manage the
winding up of a firm by selling off its assets.
45.What is Pass book?
A passbook or bankbook is a paper book used to record bank, or building society transactions on a
deposit account.
The Post Office Savings Bank introduced passbooks to rural 19th century Britain Traditionally, a
passbook is used for accounts with a low transaction volume, such as a savings account. A bank teller or
postmaster would write by hand, the date and amount of the transaction and the updated balance and enter
his or her initials.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
46.What is MICR?
MICR code is a code printed on cheques using MICR (Magnetic Ink Character Recognition
technology). This enables identification of the cheques and which in turns means faster processing.
47.What is Tele Banking ?
Tele banking is one of the popular technological developments in banking system. Tele banking
refers to telephone banking under which a number of banking services or facilities offered by bank to the
customers by using telephone.
48.What is Internet Banking?
Online banking (or Internet banking or E-banking) is a facility that allows customers of a financial
institution to conduct financial transactions on a secured website operated by the institution. To access a
financial institution's online banking facility, a customer must register with the institution for the service,
and set up some password for customer verification. Online banking can be used to check balances, transfer
money, shop onlline, pay bills etc.
49.What is Mobile Banking?
Mobile banking is a system that allows customers of a financial institution to conduct a number of
financial transactions through a mobile device such as a mobile phone or personal digital assistant. It allows
the customers to bank anytime anywhere through their mobile phone. Customers can access their banking
information and make transactions on Savings Accounts, Demat Accounts, Loan Accounts and Credit Cards
at absolutely no cost.
50.What is Narrow Banking?
The committee has defined the working those banks as Narrow Banking, which invest their money in
risk involving assets and the balance of its demand deposits is in safe liquid assets. The committee has
recommended those banks to adopt the concept of narrow banking whose non-performing assets have
increased greatly, so that they can re-establish themselves.
51.Write the short note on Electronic Fund Transfer:- (EFT):
EFT is a scheme introduce by RBI as per the recommendations of SHARE Committee. EFT is a
system by which money can be transfer from one a/c to another a/c at any time from any where
electronically.
52.What is Real Time Gross Settlement System(RTGS):
It can be defined as the continuous (real-time) settlement of funds transfers individually on an order
by order basis . 'Real Time' means the processing of instructions at the time they are received rather than at
some later time. It is the fastest possible money transfer system in the country.
53.What is ATM services?
Automated Teller Machine (ATM) is an electronic telecommunications device that enables the
clients of banks to perform financial transactions by using a plastic card. Automated Teller Machines are
established by banks to enable its customers to have anytime money. It is used to withdraw money, check
balance, transfer funds, get mini statement, make payments etc. It is available at 24 hours a day and 7 days a
week.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
SECTION – B (5 MARKS)
54.List out the Banking Regulation Act, 1949.
1. Act to have overriding effect (Section 5A)
2. Restriction on use of word „Bank‟, Banker or Banking (Section 7)
3. Not engage in trading activities (Section 8)
4. Holding an immovable Property (Section 9)
5. Payment of Brokerage or commission (Section 13)
6. Charge on Floating Assets (Section 14)
7. Payment of Dividend (Section 15)
8. Appointment & Voting rights of Directors (Section 16)
9. Creation of Reserve (Section 17)
10. Maintenance of Cash Reserve (Section 18)
11. Business activities of Subsidiary (Section 19)
12. Regulation of loans & Advances by RBI (Section 20)
13. Power of RBI to Regulate advances (Section 21)
14. Removal of Managerial Personnel by RBI (Section 36)
55.State the Characteristics of Banker/Banking:
1. Banker deals with others’ money
2. Banks repay deposits either on demand or after the expiry of specified period
3. They utilize deposits for lending/investment
4. They perform subsidiary services and innovative functions
5. Banking should be dominant part of business of bank
6. A bank should hold itself out as a bank
56.What are the Importance of banks?
Bankers play very important role in the economic development of the nation. The health of the
economy is closely related to the growth and soundness of its banking system. Although banks create no
new wealth but their fund collection, lending and related activities facilitate the process of production,
distribution, exchange and consumption of wealth. In this way, they become very effective partners in the
process of economic development.
1. Banks mobilize small, scattered and idle savings of the people, and make them available for
productive purposes
2. By offering attractive interests, Banks promote the habit of thrift and savings
3. By accepting savings, Banks provide safety and security to the surplus money
4. Banks provide convenient and economical means of payments
5. Banks provide convenient and economical means of transfer of funds
6. Banks facilitate the movement of funds from unused regions to useful regions
7. Banking help trade, commerce, industry and agriculture by meeting their financial requirements
8. Banking connect saving people and investing people.
9. Through their control over the supply of money, Banks influence the economic activities,
employment, income level and price level in the economy.
57.Describe the General Utility Services of Commercial Banks.
In addition to agency services, modern banks performs many general utility services for the
community. Following are the important general utility services offered by Commercial Banks
Locker facility: Bank provide locker facility to their customers. The customers can keep their valuables
such as gold, silver, important documents, securities etc. in these lockers for safe custody.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
Issue travellers’ cheques: Banks issue traveller’s cheques to help their customers to travel without the fear
of theft or loss of money. It enable tourists to get fund in all places they visit without carrying actual cash
with them.
Issue Letter of Credits: Banks issue letter of credit for importers certifying their credit worthiness. It is a
letter issued by importer’s banker in favour of exporter informing him that issuing banker undertakes to
accept the bills drawn in respect of exports made to the importer specified therein. Act as referee: Banks act
as referees and supply information about the financial standing of their customers on enquiries made by
other businessmen.
Collect information: Banks collect information about other businessmen through the fellow bankers and
supply information to their customers.
Collection of statistics: Banks collect statistics for giving important information about industry, trade and
commerce, money and banking. They also publish journals and bulletins containing research articles on
economic and financial matters.
Underwriting securities: Banks underwrite securities issued by government, public or private bodies.
Merchant banking: Some bank provide merchant banking services such as capital to companies,
advice on corporate matters, underwriting etc.
58.Give the Important Characteristics of Negotiable Instruments.
Following are the important characteristics of negotiable instruments:
(1) The holder of the instrument is presumed to be the owner of the property contained in it.
(2) They are freely transferable.
(3) A holder in due course gets the instrument free from all defects of title of any previous holder.
(4) The holder in due course is entitled to sue on the instrument in his own name.
(5) The instrument is transferable till maturity and in case of cheques till it becomes stale (on the
expiry of 6 months from the date of issue).
(6) Certain equal presumptions are applicable to all negotiable instruments unless the contrary is
proved.
59.Explain the Credit Creation:
Banks, unlike other financial institutions, have a peculiar ability to create credit i.e., to expand their
demand deposits as a multiple of their cash reserves. This is because of the fact that demand deposits of the
banks serve as the principal medium of exchange, and in this way, the banks manage the payment system of
the country. In short multiple expansion of deposits is called credit creation.
When a bank extends loans it is not directly paid to the borrower, but is only credited to his account
and a cheque book is given. Thus every bank loan creates an equivalent amount of derivative deposit. By
using this deposit, banker can again extend loan to some other parties after keeping a specified amount as
reserve. Thus with a little cash in hand the banks can create additional purchasing power to a considerable
degree. Credit can be created by a single bank or by more than one banker. When it is created by more than
one banker, it is called multiple credit creation.
60.Find out the Limitations of Credit Creation.
Bank cannot expand deposits to an unlimited extent by granting loans and advances even though this
process of granting loans and advances is profitable to them. Their power to create credit is subject to the
following limitations:
 Amount of Cash available with the Bank: Credit creation depends on the amount of cash available
with bank. Larger the amount of cash with the banking system, greater will be the credit creation and
vice versa.
 Cash Reserve Ratio: CRR is the minimum cash required to be maintained by a bank with RBI. CRR
sets the limit for the creation of credit. Higher the CRR smaller will be the credit creation and vice
versa.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
 Security for loans: The securities acceptable to bank places a limit on credit creation by the banks.
While lending, the banks insist upon the securities from the customers. All type of assets are not
acceptable to banks as securities. If borrower is not able to provide sufficient security, credit creation
is not possible.
 Credit policy of banks: If banks want to create excess reserves, the credit creation will be limited to
that extent.
 Monetary Policy of the Central Bank: The capacity of credit creation by banks is largely depends
upon the policies followed by the Central Bank from time to time. The total supply of cash depends
upon the policy of the Central Bank.
61.Discuss about the Garnishi Order.
The obligation of a banker to honour his customer‘s cheque is extinguished on receipts of an order of
the court known as garnishee order issued under order 21 Rule 46 of civil procedure code. Such an order
attaches the debts not secured by a negotiable instrument by prohibiting from recovering the debt and the
debtor from making payment thereof. The creditor at whose request the order is issued is called the
judgment creditor the debtor whose money is frozen is called the judgment debtor. And the banker who is
the debtor of the judgment debtor is called the garnishee. This order is issued in two parts. First the court
directs the banker to stop payment out of the account of the called as ORDER NISI. On receipt of the
confirmation of the banker court issued another order known as order absolute whereby the entire balance in
the account or a specified amount is attached.
Garnishi Order is Applicable:
a. Where there is a credit balance
b. Attaches the amount drawn by a cheque but payment not yet effected.
c. All bank branches of a bank are treated as one entity.
d. Attaches future maturing term deposits also.
e. attaches joint account if issued so
f. Attaches personal account of partners if an order is served on a partnership account.
Garnishi Order is not Applicable:
a. Where a cheque has been marked for good payment.
b. Attaches the amount specified only
c. Not applicable to sanctioned limit.
d. Where any assignment of balance has been made and acknowledged
e. Not applicable to deceased and insolvents
f. Salary is not attached.
g. Bank can exercise the right of set off before complying with Garnishee Order.
62.What are the Type of Letter of Credit?
Letter of Credit are of Two Types.
1.Traveller’s Letter of Credit.
2.Letters of Commercial Credit.
i. Documentary Letter of Credit and Clean Letter of Credit.
ii. Fixed Letter of Credit and Revolving Letter of Credit.
iii. Revocable and Irrevocable Letter of Credit.
iv. Confirmed and Unconfirmed Letter of Credit.
v. With and Without Recourse Credits.
vi. Transferable and Non – Transferable Letter of Credit.
vii. Back to Back Letter of Credit.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
63.What are the salient features of Indian Banking System?
1. Laws governing establishment of banks: Companies Act, 1956; Banking Regulation Act, 1949;
Reserve Bank of India Act, 1934; Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970; Central or State Co-operative Acts.
2. Ownership: Public Sector Banks and Private Sector Banks.
3. Capital Requirement: Scheduled Bank: Rs. 5.00 Lakhs; Nationalized Banks: Rs. 1500 Crore.
4. Capital Adequacy Norms: 8%
5. Mixed Banking.
6. Increased credit to private sector.
7. Control over the banks.
8. Maintenance of CRR.
9. Maintenance of SLR.
10. Reserve Bank’s Monopoly of Note Issue.
64.What is Nomination? Explain.
The bank account opening form provides for the account holder to select a nominee. In the event of
demise of the account holder, the bank will pay the deposit amount to the nominee, without any legal
formalities. The salient provisions regarding nomination facility in bank accounts are as follows:
• Nomination facility is available for all kinds of bank accounts – savings, current and fixed deposit.
• Nomination can be made only in respect of a deposit which is held in the individual capacity of the
depositor and not in any representative capacity such as the holder of an office like Director of a Company,
Secretary of an Association, partner of a firm and Karta of an HUF.
• In the case of a deposit made in the name of a minor, nomination shall be made by a person
lawfully entitled to act on behalf of the minor.
• Nomination can be made in favour of one person only.
• Nomination favouring the minor is permitted on the condition that the account holder, while
making the nomination, appoints another individual not being a minor, to receive the amount of the deposit
on behalf of the nominee in the event of the death of the depositor during the minority of the nominee.
• Cancellation of, or variation in, the nomination can be made at any time as long as the account is in
force. While making nomination, cancellation or variation, witness is required and the request should be
signed by all account holders.
• When the nominee makes a claim to the bank account, two documents are normally asked for:
 Proof of death of depositer.
 Identity proof of nominee.
• Payment to nominee only releases the bank from its obligation on the account. The nominee would
receive the money, in trust, for the benefit of the heirs. The legal heirs of the deceased person can claim their
share of the deposit proceeds from the nominee.
65.Write note on Bank Draft or Demand Draft:
A bank draft or a demand draft, is a bill of exchange drawn by one bank on its own branch or any
other bank.
The essential features of a bank draft are:
1. It is always drawn by a bank upon its own branch or another bank.
2. It is always payable on demand and it cannot be made payable to bearer.
3. Ordinarily, payment of demand draft cannot be stopped or countermanded. It is because of this
reason that payment is demanded through a bank draft.
66.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 Xerox
copy and passport size photograph to open a new bank a/c.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
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.
6. Supply of pay-in-slips, cheque book and pass book : Finally, the banks supplies payin- slip
book for deposit of cash or cheque into bank, cheque book for withdrawal of cash 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.
67.What are the procedure on Closure of Deposit Accounts?
This might occur in different ways:
• Account-holder can request closure of the account, and give instructions on how the balance in the
deposit should be settled.
• On death of the sole account holder, the account would be closed and balance paid to the nominee.
If nominee is not appointed, then bank would pay the legal representative of the account holder.
• On receipt of notice of insanity or insolvency of the sole account holder, the bank will stop
operations in the account.
• On receipt of notice of assignment of the bank account, the bank would pay the amount lying in the
account to the assignee.
• On receipt of a court order or garnishee order from Income Tax authorities, the bank would stop the
transactions in the bank account during the pendency of the order.
68.What are the features of Current Account?
 It is generally opened by trading & industrial concerns.
 It is opened not for profit or savings but for convenience in payments
 Introduction is necessary to open the account.
 Any number of transactions permitted in the account.
 Withdrawals are generally allowed by cheque
 Deposit is repayable on demand
 No interest is allowed but incidental charges claimed.
 Minimum balance requirement varies from bank to bank.
69.What are the features of Saving Bank (SB) account?
 It is generally opened by middle/low income group who save a part of their income for future needs
 Introduction is necessary to open the account if cheque facility is allowed.
 There are some restrictions on number of withdrawals.
 Fair interest (less than FD) is offered on the deposits of this account.
70.What are the features of Fixed Deposit account?
 It is generally Opened by small investors who do not want to invest money in risky industrial
 securities like shares.
 No introduction is necessary to open the account.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
 No maximum limit for investing.
 Minimum period of investment is 15 days
 Withdrawal is allowed only after the expiry of a fixed period.
 Withdrawal is generally allowed by surrendering FD Receipt
 Higher rate of interest is offered on the deposits of this account,
71.What are the features of Recurring Deposit accounts / Cumulative Deposit account?
 This account is meant for fixed income group, who can deposit a fixed sum regularly.
 The amount is paid back along with interest after a specified period.
 High rate of interest is offered on recurring deposits.
 Passbook is the means through which deposits and withdrawals are made.
72.Write any five differences between Current account & Savings Bank account.

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

Point of
Current account Fixed Deposit account
Difference
Interest rate Bank provide no interest to Bank provide higher rate of interest
Current account. to Fixed deposit account.
Suitability Current account is suitable for F.D. account is suitable for wealthy
business people who conduct people and small investors
large number bank who want safety for their
transactions. investments.
Restrictions Bank imposes no restrictions Bank allows single withdrawal only
on the number of deposits & after certain period.
withdrawls to the Current a/c
holders.
Facility Current account holder enjoys F.D account holders do not enjoy
overdraft facility. such overdraft facility.
Operation by Withdrawals from this type of Withdrawals from this type of a/c
Cheques a/c are allowed only by are allowed only by FD receipts
cheques and not by any and not by using any withdrawal
receipts. forms.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
74.Write any differences between Savings Bank Accounts.& Fixed Deposit Accounts.

Point of
S.B. account Fixed Deposit account
Difference
Interest rate Bank provide lower rate of Bank provide higher rate of
interest to Savings Bank interest to this type of a/c.
account.
Suitability S.B. Savings Bank account is F.D. a/c is suitable for wealthy
suitable for low and middle people and small investors who
income group who want to want safety for their investments.
save money out of their
earnings.
Restrictions Bank imposes some Bank allows single withdrawal
restrictions on the no. of only after certain period.
deposits and withdrawals to
Savings Bank account.
Withdrawals Withdrawals are made by Withdrawals are made not by using
by Cheque cheques and withdrawal forms. cheques but by producing FD
receipts.
Introduction S.B a/c has to be opened by FD a/c can be opened even without
proper introduction by existing any introduction.
customers.

75.Bring out the kinds of Endorsement.

There are five kinds of Endorsement:
1. Blank endorsement:
If the endorser signs his name only, the endorsement is said to be in blank and it
becomes payable to bearer,
2. Special or Full endorsement: An endorsement “in full” or a special endorsement is one where
the endorser not only puts his signature on the instrument but also writes the name of a person to whom or to
whose order the payment is to be made.
3. Conditional endorsement: In conditional endorsement the endorser puts his signature under such
a writing which makes the transfer of title subject to fulfillment of some conditions of the happening of
some events.
4. Restrictive endorsement: An endorsement is called restrictive when the endorser restricts or
prohibits further negotiation.
5. Partial endorsement: In Partial endorsement only a part of the amount of the bill is transferred or
the amount of the bill is transferred to two or more endorsees severally. This does not separate as a
negotiation of the instrument. The law lays down that an endorsement must relate to the whole instrument.
However, where the amount has been partly paid, a note to that affect may be endorsed on the instrument
which may then be negotiated for the balance. This is not done in case of cheques or banker’s drafts.
76.What are the Duties and Responsibilities of a Collecting Banker?
The duties and responsibilities of a collecting banker are discussed below:
1. Due care and carefulness in the collection of cheque.
2. Serving notice of dishonour.
3. Agent for collection.
4. Payment of interest to the customer.
5. Collection of bills of exchange.
1. Due Care and carefulness in the Collection of Cheques: The collecting banker is bound to show
due care and carefulness in the collection of cheques presented to him. In case a cheque is entrusted with the
banker for collection, he is expected to show it to the drawee banker within a reasonable time.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
2. Serving Notice of Dishonour: When the cheque is dishonoured, the collecting banker is bound to
give notice of the same to his customer within a reasonable time. It may be noted here, when a cheque is
returned for confirmation of endorsement, notice must be sent to his customer.
3. Agent for Collection: In case a cheque is drawn on a place where the banker is not a member of
the ‘clearing-house’, he may employ another banker who is a member of the clearing-house for the purpose
of collecting the cheque. In such a case the banker becomes a substituted agent.
4. Payment of Interest to the Customer: In case a collecting banker has realised the cheque, he
should pay the interest to the customer as per his (customer’s) direction.
5. Collection of Bills of Exchange: There is no legal obligation for a banker to collect the bills of
exchange for its customer. But, generally, bank gives such facility to its customers.
77.Explain the Crossing of Cheques:
 Cheques are of two types, open cheques and crossed cheques. Open cheques are those which are
paid over the counter of the bank. In other words, they need not be put through a bank account.
Open cheques are liable to great risk in the course of circulation.
 They may be either lost or stolen and the finder or thief can get it encased at the bank unless the
drawer has in the meantime countermanded payment. With a view to avoiding such risks, and
protect the owner of cheque, a system of crossing was introduced.
 Crossing is a direction to the banker not to pay the cheque across the counter but to pay to a bank
only or to particular bank in an account with the bank.
 Thus crossing provides a protection and safeguard to the owner of the cheque as by securing
payment through a banker; it can easily be detected to whose use the money is received.
 Crossing does not, however, affect the negotiability or transferability of a cheque. But where the
words ‘not negotiable’ are added, the cheque is not negotiable. The practice of crossing is
confined to cheques only and cannot be extended to any other instrument.
78.Explain the Circumstances Dishonour of Cheque.
A cheque is said to be dishonoured when it is refused to accept or pay when presented to the bank. It
is a condition in which the paying banker does not pay the amount of the cheque to the payee.
Circumstances or reasons for dishonour of Cheques
A paying banker must refuse payment on cheques, issued by his customers, in the following
circumstances:
1. Insufficiency of funds: When adequate funds are not available in the account of a customer, then
the cheque can be dishonoured. If the banker pays a countermanded cheque, he will not only be required to
reverse the entry but also be held liable to pay damages for dishonouring the cheques presented subsequently
which would have been honoured otherwise.
2. Notice of the Customer’s Death: The banker should not make payments on cheques presented
after the death of the customer. He should return the cheque with the remark ‘Drawer Deceased’.
3. Notice of the Customer’s Insolvency: A banker should refuse payment on the cheques soon after
the customer is adjudicated as insolvent.
4. Receipt of the Garnishee Order: Where Garnishee order is received attaching the whole amount,
the banker should stop payment on cheques received after the receipt of such an order. But if the order is for
a specific amount, leaving the specified amount, cheques should be honoured if the remaining amount is
sufficient to meet them.
5. Presentation of a post dated cheque: The banker may refuse the cheque when the cheque is
presented before the valid date.
6. Stale Cheques: When the cheque is presented after a period of three months from the date it
bears, the banker may refuse to make payment.
7. Material Alterations: When there is material alteration in the cheque, the banker may refuse
payment.
8. Drawer’s Signature: If the signature of the drawer on the cheque does not tally with the specimen
signature, the banker may refuse to make payment.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
79.What are the Types of Dishonour of Cheque?
Dishonour of cheque can be divided into two categories :
1. Rightful Dishonour
Dishonour of cheque by the drawee banker for any of the reasons specified above or for any other
rightful reason. In this case there is no remedy available against the banker but the holder in due course has
remedy both civil and criminal against the drawer.
2. Wrongful Dishonour
Dishonour of cheque by the banker due to negligence or carelessness by its employees. The drawer
may bring an action against the bank for losses suffered by him. The payee has no action against the banker
in this case.
Consequences of wrongful dishonour of Cheque
(i) Wrongful dishonour of the customer's cheque makes the Bank liable to compensate the customer
on contractual obligations as well as for injury to his creditworthiness. A return of a cheque would cause
injury to the drawer’s reputation.
(ii) Quantum of Damages is not limited to the actual pecuniary loss sustained by reason of such
dishonour. When the customer is a trader he is entitled to claim substantial damages even if he had suffered
no actual pecuniary loss sustained by such dishonour, if he can show that his creditworthiness had suffered
by the dishonour of the cheque.
(iii) A non-trader is not entitled to recover substantial damages unless the damage he has suffered is
alleged and proved as special damages, otherwise he would be entitled to nominal damages.
(iv) The Plaintiff's evidence on the transaction was vague, ill-defined and indeterminate and further
he had not proved any actual or special damages, unless special damages are claimed and proved nominal
damages will be awarded.
80.Mention the Statutory protection to Collecting Banks under the negotiable instruments Act.
The protection provided by Section 131 is not absolute but qualified. A collecting banker can claim
protection against conversion if the following conditions are fulfilled:
1. Good Faith and Without Negligence
Statutory protection is available to a collecting banker when he receives payment in good faith and
without negligence. The phrase in “good faith” means honestly and without notice or interest of dishonesty
or fraud and does necessarily require carefulness. Negligence means failure to exercise reasonable care. The
banker should have exercised reasonable care and deligence.
2. Collection for a Customer
Statutory protection is available to a collecting banker if he collects on behalf of his customer only. If
he collects for a stranger or noncustomer, he does not get such protection. A bank cannot get protection
when he collects a cheque as holder for value
3. Acts as an Agent
A collecting banker must act as an agent of the customer in order to get protection. He must receive
the payment as an agent of the customer and not as a holder under independent title. The banker as a holder
for value is not competent to claim protection from liability in conversion. In case of forgery, the holder for
value is liable to the true owner of the cheque.
4. Crossed Cheques
Statutory protection is available only in case of crossed cheques. It is not available in case uncrossed
or open cheques because there is no need to collect them through a banker. Cheques, therefore, must be
crossed prior to their presentment to the collecting banker for clearance.
81.Explain the Bills of Exchange.
A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the
maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person or
to the bearer of the instrument. (Section 5) The definition of a bill of exchange is very similar to that of a
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
promissory note and for most of the cases the rules which apply10 promissory notes are in general
applicable to bills.
82.Details about the Parties to Bills of Exchange.
The following are parties to a bill of exchange:
(a) The Drawer: the person who draws the bill.
(b) The Drawee: the person on whom the bill is drawn.
(c)The Acceptor: one who accepts the bill. Generally, the drawee is the acceptor but a stranger may
accept it on behalf of the drawee.
(d) The payee: one to whom the sum stated in the bill is payable, either the draweror any other
person may be the payee.
(e) The holder: is either the original payee or any other person to whom, the payee has endorsed the
bill. In case of a bearer bill, the bearer is the holder.
(f) The endorser: when the holder endorses the bill to anyone else he becomes the endorser.
(g) The endorsee: is the person to whom the bill is endorsed.
(h) Drawee in case of need: Besides the above parties. another person called the "drawee in case of
need", may be introduced at the option of the drawer.
83.What are the Essentials of a Bill of Exchange?
(1) It must be in writing.
(2) It must contain an unconditional order to pay money only and not merely a request
(3) It must be signed by the drawer.
(4) The parties must be certain.
(5) The sum payable must also be certain.
(6) It must comply with other formalities e.g. stamps, date,etc.
84.Distinction between Cheques and Bills of Exchange.
As a general rule, the provisions applicable to bills payable on demand apply to cheques, yet there
are few points of distinction between the two, namely:
(a) A cheque is a bill of exchange and always drawn on a banker, while a bill may be drawn on
anyone, including banker.
(b) A cheque can only be drawn payable on demand, a bill may be drawn payable on demand, or on
the expiry of a specified' period after sight or date.
(c) A bill payable after sight must be accepted before payment can be demanded, a cheque does not
require acceptance and is intended for immediate payment.
(d) A grace of 3 days is allowed in the case of time bills, while no grace is given. in the case of a
cheque, for payment.
(e) The drawer of a bill is discharged, if it is not presented for payment, but the drawer of a cheque is
discharged only if he suffers any damage by delay in presentment for payment.
(f) Notice of the dishonour of a bill is necessary, but not in the case of a cheque.
(g) The cheque being a revocable mandate, the authority may be revoked by countermanding
payment, and is determined by notice of the customer's death or insolvency.
(h) A cheque may be crossed, but not a bill.
A cheque is a bill of exchange drawn on a specified banker and always payable on demand. A
cheque is always drawn on a particular banker and is always payable on demand. Consequently, all
cheques are bills of exchange but all bills are not cheques.
85.Details about the Automated Teller Machine:
An ATM is a computerized Tele-communication device which provides the customers the access to
financial transactions in public places without human inter-mention. It enables the customers to perform
several banking operations such as withdrawals of cash, request of mini statement etc. The advantages of
ATM are:
1. ATM provides 24 hours service: ATMs provide service round the clock. The customer can
withdraw cash up to a certain a limit during any time of the day or night.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
2. ATM gives convenience to bank's customers : ATMs provide convenience to the customers. Now
a- days, ATMs are located at convenient places, such as at the air ports, railway stations, etc. and not
necessarily at the Bank's premises.
3. ATM reduces the workload of bank's staff.: ATMs reduce the work pressure on bank's staff and
avoids queues in bank premises.
4. ATM provide service without any error: ATMs provide service without error. The customer can
obtain exact amount. There is no human error as far as ATMs are concerned.
5. ATM is very beneficial for travellers: ATMs are of great help to travellers. They need not carry
large amount of cash with them.
6. ATM may give customers new currency notes: The customer also gets brand new currency notes
from ATMs. In other words, customers do not get soiled notes from ATMs.
7. ATM provides privacy in banking transactions: Most of all, ATMs provide privacy in banking
transactions of the customer.

SECTION – C (10 MARKS)

86.Describe the Evolution and Growth of Banking in India.
 India has a long history of financial intermediation. The first bank in India to be set up on modern
lines was in 1770 by a British Agency House.
 The earliest but short-lived attempt to establish a central bank was in 1773. India was also a
forerunner in terms of development of financial markets. In the beginning of 18th century, British
East India Company launched a few commercial banks. Bank of Hindustan(1770) was the first
Indian bank established in India.
 Later on, the East India Company started three presidency banks, Bank of Bengal(1806), Bank of
Bombay(1840) and Bank of Madras(1843) These bank were given the right to issue notes in their
respective regions.
 Allahabad bank was established in 1865 and Alliance Bank in 1875. The first bank of limited
liability managed by Indians was Oudh Commercial Bank founded in 1881.
 Subsequently, the Punjab National Bank was established in 1894. In the Beginning of the 20 th
century, Swadeshi movement encouraged Indian entrepreneurs to start many new banks in India.
 Another landmark in the history of Indian banking was the formation of Imperial bank of India in
1921 by amalgamating 3 presidency banks It is the Imperial Bank which performed some central
banking functions in India. A number of banks failed during the first half of the 20th Century.
 Itaffected the people’s belief and faith in Banks.

87.Comment on the Functions of Commercial Banks – Explain.

Functions of a Commercial Bank can be classified into three.
1. Principal/ Primary/ Fundamental functions
2. Subsidiary/ Secondary/ Supplementary functions
3. Innovative functions.
Principal functions
Commercial banks perform many functions. They satisfy the financial needs of the sectors such as
agriculture, industry, trade, communication, so they play very significant role in a process of economic
social needs. The functions performed by banks, since recently, are becoming customer-centred and are
widening their functions. Generally, the functions of commercial banks are divided into two categories;
primary functions and the secondary functions. Two ‘acid test’ functions of commercial banks are Accepting
deposits and Lending loans. These functions along with credit creation, promotion of cheque system and
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
investment in Government securities form basic functions of commercial banks. The secondary functions of
commercial banks include agency services, general utility services and innovative services.
1. Receiving deposits
Most important function of a commercial bank is to accept deposit from those who can save but
cannot profitably utilise this savings themselves. By making deposits in bank, savers can earn something in
the form of interest and avoid the danger of theft. To attract savings from all sorts of customers, banks
maintain different types of accounts such as current account, Savings bank account, Fixed Deposit account,
Recurring deposit account and Derivative Deposit account.
2. Lending of funds
The second important function of commercial banks is to advance loans to its customers. Banks
charge interest from the borrowers and this is the main source of their income. Modern banks give mostly
secured loans for productive purposes. Commercial banks lend money to the needy people in the form of
Cash credits, Term loans, Overdrafts (OD), Discounting of bills, Money at call or short notice etc.
(i) Cash Credit (ii) Term loans (iii) Over-Drafts
(iv) Discounting of Bills of Exchange (v) Money at Call and Short notice
3. Investment of funds in securities
Banks invest a considerable amount of their funds in government and industrial securities. In India,
commercial banks are required by statute to invest a good portion of their funds in government and other
approved securities. The banks invest their funds in three types of securities Government securities, other
approved securities and other securities. Government securities include both, central and state governments,
such as treasury bills, national savings certificate etc. Other securities include securities of state associated
bodies like electricity boards, housing boards, debentures of Land Development Banks, units of UTI, shares
of Regional Rural banks etc.
4. Credit Creation
When a bank advances a loan, it does not lend cash but opens an account in the borrower’s name and
credits the amount of loan to this account. Thus a loan creates an equal amount of deposit. Creation of such
deposit is called credit creation. Banks have the ability to create credit many times more than their actual
deposit. (The process of credit creation is explained in the last part of the module in detail)
5. Promoting cheque system
Banks also render a very useful medium of exchange in the form of cheques. Through a cheque, the
depositor directs the banker to make payment to the payee. In the modern business transactions by cheques
have become much more convenient method of settling debts than the use of cash. Through promoting
cheque system, the banks ensure the exchange of accounted cash. At present, CTS (Cheque Truncation
System) cheques are used by Indian Banks to ensure speedy settlement of transactions in between banks. In
contrast to the declining importance of cheques, the use of electronic payment instruments at the retail level
has been growing rapidly.
Subsidiary functions
1.Agency services :
Banks act as an agent on behalf of the individual or organisations. Banks, as an agent can work for
people, businesses, and other banks, providing a variety of services depending on the nature of the
agreement they make with their clients
2. General Utility Services : In addition to agency services, modern banks performs many general
utility services for the community. Following are the important general utility services offered by
Commercial Banks:
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
 Locker facility
 Issue travellers’ cheques
 Issue Letter of Credits
 Collect information
 Collection of statistics
 Underwriting securities
 Merchant banking
Innovative Functions
The adoption of Information and Communication technology enable banks to provide many
innovative services to the customers such as;
1. ATM services
2. Debit card and credit card facility
3. Tele-banking
4. Internet Banking
5. Bancassurance
6. Mobile Banking
7. Electronic Clearing Services
8. Electronic Fund Transfer/National Electronic Fund Transfer(NEFT)
9. Real Time Gross Settlement System(RTGS)

88.What are the Role of commercial banks in a developing Economy?

A well developed banking system is necessary pre-condition for economic development of any
economy. Apart from providing resources for growth of industrialisation, banks also influence direction in
which these resources are utilised. In underdeveloped and developing nations banking facilities are limited
to few developed cities and their activities are focussed on trade & commerce paying little attention to
industry & agriculture.
Commercial banks contribute to a country’s economic development in the following ways.
1.Capital formation
Most important determinant of economic development is capital formation. It has 3
distinctive stages
 Generation of savings
 Mobilisation of savings
 Canalisation of saving
Banks promote capital formation in all these stages. They promote habit of savings by offering
attractive rate of return for savers. Banks are maintaining different types of accounts to mobilise savings
aiming different types of customers. They make widespread arrangements to collect savings by opening
branches even in remote villages. Moreover, banks offer their resources for productive activities only.
2. Encouragement to entrepreneurial innovations
Entrepreneurs in developing economies, generally hesitate to invest & undertake innovations due to
lack of fund. Bank loan facilities enable them to introduce innovative ideas and increase productive capacity
of the economy.
3. Monetisation of economy
Monetisation means allow money to play an active role in the economy. Banks, which are creators
and distributors of money, help the monetisation in two ways;
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
 They monetise debt i.e., buy debts (securities) which are not as acceptable as money and
convert them to demand deposits which are acceptable as money.
 By spreading branches in rural areas they convert non-monetised sectors of the economy to
monetised sectors.
4. Influencing economic activity
They can directly influence the economic activity & pace of economic development through its
influence on
 The rate of interest (reduction in rates make investment more profitable and stimulates
economic activity)
 Availability of credit. (Through Credit creation banks helps in increasing supply of
purchasing power)
5. Implementation of monetary policy
Well developed banking system is necessary for effective implementation of monetary policy.
Control and regulation of credit is not possible without active co-operation of banks.
6. Promotion of trade and industry
Economic progress of industrialised countries in last 2 centuries is mainly due to expansion in trade
& industrialisation which could not have been made possible without development of a good banking
system. Use of cheques, drafts and BoE as a medium of exchange has revolutionalised the internal and
international trade which in turn accelerated the pace of industrialisation.
7. Encouraging right type of industries
In a planned economy it is necessary that banks should formulate their loan policies in
accordance with the broad objectives and strategy of industrialisation as adopted in the plan.
8. Regional development
Banks can play role in achieving balanced development in different regions of the economy. They
can transfer surplus funds from developed region to less developed regions, where there is shortage of funds.
9. Development of agricultural & other neglected sectors
Under developed economies primarily agricultural economies and majority of the population live in
rural areas. So far banks were paying more attention to trade and commerce and have almost neglected
agriculture and industry. Banks must diversify their activities not only to extend credit to trade, but also to
provide medium and long term loans to industry and agriculture.

89.Explain the Relationship between Banker and Customer.

1. Relationship of Debtor and Creditor
When a customer opens an account with a bank and if the account has a credit balance, then the
relationship is that of debtor (banker / bank) and creditor (customer).
In case of savings / fixed deposit / current account (with credit balance), the banker is the debtor, and
the customer is the creditor. This is because the banker owes money to the customer. The customer has the
right to demand back his money whenever he wants it from the banker, and the banker must repay the
balance to the customer.
In case of loan / advance accounts, banker is the creditor, and the customer is the debtor because the
customer owes money to the banker. The banker can demand the repayment of loan / advance on the due
date, and the customer has to repay the debt.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
A customer remains a creditor until there is credit balance in his account with the banker. A customer
(creditor) does not get any charge over the assets of the banker (debtor). The customer's status is that of an
unsecured creditor of the banker.
2. Relationship of Pledger and Pledgee
The relationship between customer and banker can be that of Pledger and Pledgee. This happens
when customer pledges (promises) certain assets or security with the bank in order to get a loan. In this case,
the customer becomes the Pledger, and the bank becomes the Pledgee. Under this agreement, the assets or
security will remain with the bank until a customer repays the loan.
3. Relationship of Licensor and Licensee
The relationship between banker and customer can be that of a Licensor and Licensee. This happens
when the banker gives a sale deposit locker to the customer. So, the banker will become the Licensor, and
the customer will become the Licensee.
4. Relationship of Bailor and Bailee
The relationship between banker and customer can be that of Bailor and Bailee.
1. Bailment is a contract for delivering goods by one party to another to be held in trust for a specific
period and returned when the purpose is ended.
2. Bailor is the party that delivers property to another.
3. Bailee is the party to whom the property is delivered.
So, when a customer gives a sealed box to the bank for safe keeping, the customer became the bailor, and
the bank became the bailee.
5. Relationship of Hypothecator and Hypothecatee
The relationship between customer and banker can be that of Hypothecator and Hypothecatee. This
happens when the customer hypothecates (pledges) certain movable or non-movable property or assets with
the banker in order to get a loan. In this case, the customer became the Hypothecator, and the Banker
became the Hypothecatee.
6. Relationship of Trustee and Beneficiary
A trustee holds property for the beneficiary, and the profit earned from this property belongs to the
beneficiary. If the customer deposits securities or valuables with the banker for safe custody, banker
becomes a trustee of his customer. The customer is the beneficiary so the ownership remains with the
customer.
7. Relationship of Agent and Principal
The banker acts as an agent of the customer (principal) by providing the following agency services:
 Buying and selling securities on his behalf,
 Collection of cheques, dividends, bills or promissory notes on his behalf, and
Acting as a trustee, attorney, executor, correspondent or representative of a customer. Banker as an
agent performs many other functions such as payment of insurance premium, electricity and gas bills,
handling tax problems, etc.
8. Relationship of Advisor and Client
When a customer invests in securities, the banker acts as an advisor. The advice can be given
officially or unofficially. While giving advice the banker has to take maximum care and caution. Here, the
banker is an Advisor, and the customer is a Client.
9. Other Relationships
Other miscellaneous banker-customer relationships are as follows:
 Obligation to honour cheques,
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
 Secrecy of customer's account,
 Banker's right to claim incidental charges,
 Law of limitation on bank deposits.

90.What are the termination of relationship between Banker and Customer?

Generally, the relationship of banker and customer is commenced by the customer signing the
banker's standard form of contract as it relates to the operating of the client's account. This agreement should
set out the provisions which govern the operation as well as the termination of the contract and which, when
signed by the customer, becomes a contractually binding agreement.
Even if there is no express term in relation to termination in the contract, it is accepted that there is
an implied term in every banking contract that the contract can be terminated. A customer bank relationship
can be terminated in the following ways:
1. Notice by a banker
A banker may like to close the account of his customer for the number of valid reasons; but this
cannot be done without giving reasonable notice to the customer so that he may make such arrangements as
are necessary to protect his reputation The length of such notice will defend largely on the character of the
account and the circumstances of the case. In prosperity limited V Lloyds Bank Limited (1923).
2. Obstinacy of the Customer
When the customer does not close his account even after the expiry of reasonable notice giving to
him, the banker may close his account by returning to him the entire credit balance in his account and asking
him to return the unused cheques held by him.
3. Winding up
A winding up order terminates the bank-customer relationship and any ancillary agreement
dependent on that relationship. In the case of National Westminster Bank Ltd Vs Halesowen Presswork and
assemblies Ltd (1972) A.C 785. It was held that the banker- customer relationship terminated with the
ending of the agreement and the company winding up. It confirmed that the banker has, in absence of
agreement express or implied to the contrary, a long established common law right to combine accounts of a
customer that this right is not strictly lien and that it can be exercised without notice to the customer, again
unless the contract provides otherwise. Therefore the decision reached established that an agreement
ancillary to the bank –customer relationship is terminated when the relationship is ended by a winding up
order
4. Mental disorder
The principle established in Young V. Toynbee (1910) states that the mental disorder and Insanity of
a customer automatically terminates the banker‘s authority to act as the customer‘s agent. Since the banker-
customer relationship comes to its end, in such a situation it is usually considered that the banker‘s authority
to pay his customer‘s cheques is revoked by notice of insanity.
5. Insolvency
Insolvency is civil death‘ Therefore, the insolvent customer loses his rights; and his affairs are
transferred to Official Assignee, Receiver or Liquidator. As soon as the banker receive the notice of
insolvency of his customer or a petition field for adjudging a customer insolvent, his authority to pay
cheques or to accept or honor bills or to take any other action on behalf of his insolvent customer comes to
an ends.
6. Order of court
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
A court of law may serve a banker with the order in garnishee proceeding in execution of a decree,
prohibiting him from the honouring a customer‘s cheques. The order may be absolute when it refers to the
entire amount of the customer in the banker‘s, hand or it may be partial as relating to a specific sum only.
The must act accordance to the terms of the order served on him, and his relationship with customer
automatically comes to an end accordingly.

91.State the general procedure for opening of New Account.

Savings Account :
The main purpose of savings accounts is encouraging savings of households. The main features of
savings account are:
1. Restriction on withdrawals: In the interest of the objective of savings bank accounts, the banks levy
certain limitations on the right of depositor to withdraw money within a given period.
2. Restriction on deposits: The banks do not accept cheques or other official documents payable to a third
party for the purpose of deposit in the savings account.
3. Minimum balance: There is a minimum balance that needs to be maintained in the SB accounts as
prescribed by the banks and specific charges are levied if the minimum balance is not maintained.
4. Payment of interest: The rate of interest payable by the banks on deposits maintained in savings
accounts is prescribed by the RBI. Interest is computed at quarterly or longer rests of period.
5. Cheques: Cheque facility is provided to the deposit only when they keep a minimum balance with the
bank according to its rules. Only cheques payable to the customer having SB accounts are collected.
6. Prohibition on savings account: The RBI has forbade the banks to open a savings account in the name
of
(a) Trading or business concern.
(b) A company or an association.
(c) Government departments.
(d) Bodies depending upon budgetary allocations for performance of their functions.
(e) Municipal corporations.
Current Account:
An account which can be operated any number of times on a working day without any restriction on
the number and amount of withdrawals is known as a current account. As the banker is under a
responsibility to repay these deposits on demand, they are called deemed deposits.
Current accounts suit the requirements of joint stock companies, public authorities, corporations, etc.
whose banking transactions happen to be numerous per day. Cheque facility is available for the investor.
A current account carries certain privileges which are not available to other account holder.
1. Third party cheques and cheques with endorsements may be deposited in the current account for
collection and credit.
2. Overdraft facilities are given in case of current accounts only.
3. The loans allowed by banks to their customer are not given in the form of cash but via the current
accounts. Thus current accounts earn interest on all types of advances allowed by the banker.
Recurring Account :
In order to inculcate the habit of savings on a regular or recurring basis, the banks have started
various daily, weekly, or monthly deposit schemes in recent yea. In these accounts, the money is generally
deposited in monthly installments for a fixed period and is repaid to the depositor along with interest on
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
maturity. These are referred to as recurring deposits. The period of recurring deposit varies from bank to
bank. Generally banks open such accounts ranging from one to ten year.
1. Opening and functioning of account: The RD account can be opened by any peon, by a guardian in
the name of a minor and even by a minor, more than one peon jointly or individually. While opening the
account, a pass book is provided to the depositor which is to be presented to the bank at the time of deposits
and repayment of amount. Installments for each month should be paid before the last working day of that
month.
2. Rate of interest: According to the directive of the RBI, the interest provided by banks on RD must
be in accordance with the rates prescribed for various term deposits. The rate of interest is therefore almost
equal to that of fixed deposits.
Fixed Deposits:
Fixed deposits refer to the deposits repayable after the expiry of a certain period, which generally
varies from 3 months to 5 year. The fixing of the period enables the banker to invest money without having
to keep a reserve and hence is very popular with the banker.
1. Rate of interest: Higher rates of interest are offered on fixed deposits as the depositor parts with liquidity
for a certain period. The longer the period, the higher will be the rate of interest.
2. FD for senior citizens: Special FD schemes have been formulated by RBI for senior citizens in whom
they are offered higher and fixed rates of interest.
3. FD in joint names: FDs can also be opened in joint names of two or more peons, which are payable to
either or survivor in accordance with the terms of the acknowledgement. The problems faced by the banker
before date of maturity are
(a) Request for untimely refund by one of the depositor
(b) Loan against FDR by one of the depositor
(c) Request for duplicate receipt by one of the depositor
In all these cases the banker should obtain consent of other depositors.
4. Payment before due date: Even though a FD is payable after expiry of defined period, banks allowing
encashment even before maturity. In such a case, certain interest will be charged for the same. According to
the RBI directive, banks should not charge the penalty in case of premature withdrawal for immediate
reinvestment in another FD for a longer term than the remaining period of the original contract.
5. Overdue deposits: If the receipt is not encashed on the date of maturity, the interest ceases to run from
that date. The banks allow interest as per RBI directives, if it is renewed.

92.Examine the special types of Customer.

The special types of customers of a bank are;
1. Minor
2. Married women
3. Drunkard
4. Lunatics
5. Partnership firm
6. Joint stock companies
7. Illiterate person
1. Minor
Minors are considered one type of customer in a bank. A person who is not 18 years of age is
considered a minor and therefore is a special type of banking customer. A minor has to have a parent or
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
guardian to help them open a bank account. A minor can borrow money, but most often need a co-signer
such as a guardian or parent. A minor is most banks cannot be appointed as trustee of any account.
2. Married Women
Married women can enter into contract and bind her personal (separate) estate. A banker may
therefore, open an account in the name of a married women.
3. Drunkard
A drunkard is a person who is so toxicities to be incapable of understanding the nature and effect of a
contract upon his interest. A contract enter to a drunkard person is void. It is advisable for banker do not
allow a drunkard to start a account in his name.
4. Lunatics
A person of unsound mind cannot make a valid contract. So, the bakers should not open an account
in the name of a person of unsound mind. But a customer may become lunatic after opening an account with
the bank.
5. Partnership firm
A firm‘s account should always be opened in the name of the firm and not in the name(s) of the
individual partner(s) because a partner does not have (implied) authority to open a bank account on behalf of
the firm in his own name.
6. Joint stock company
A joint stock company is an artificial person and it has a separate legal entity. So a bank account may
be opened on its own name. A joint stock company may either be a private limited company or a public
limited company.
7. Illiterate person
An illiterate person means a person who cannot sign his name. While opening of an account of such
a person is unavoidable, the baker should obtain.
1. Left thumb impression on the account opening form and specimen signature card in the presence
of an authorized bank official.
2. Details of identification marks should be noted in the account opening form and specimen
signature card.
3. At least two copies of photograph duly attested by any account holder/authorized bank official.

93.Describe the various Kinds of Deposits.

1. Time Deposits:
When money is deposited with tenure it cannot be withdrawn from the deposit before its tenure ends.
This is known as “Time Deposits” or “Term Deposits”. The interest rate is generally higher for time deposits
of longer tenure. On the basis of their nature, time deposits may be of three types as follows:
Fixed deposits: In this type of time deposit, a fixed rate of interest is paid. These are deposits that
are maintained for a fixed term. The time period can be anything from 7 days to 10 years. This is not like a
normal operating bank account.
Re-investment deposits: Interest is compounded quarterly and paid on maturity, along with the
principal amount of the deposit. In the Flexi Deposits amount in savings deposit accounts beyond a fixed
limit is automatically converted into term-deposits.
Recurring deposits: Fixed amount is deposited at regular intervals for a fixed term and the
repayment of principal and accumulated interest is made at the end of the term. These deposits are usually
targeted at persons who are salaried or receive other regular income. A Recurring Deposit can usually be
opened for any period from 6 months to 120 months.
2. Demand deposits:
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
When the funds deposited can be withdrawn by the customer (depositor / account holder) at any time
without any advanced notice to banks; it is called demand deposit. One can withdraw the funds from these
accounts any time by issuing cheque, using ATM or withdrawal forms at the bank branches.
Current Accounts: In this type of deposit, bank has to pay the money on demand to the depositor.
The cost to maintain the accounts is high and banks ask the customers to keep a minimum balance. This is
maintained by businesses for their banking needs.
Saving Accounts: Savings deposits are subject to restrictions on the number of withdrawals as well
as on the amounts of withdrawals during any specified period. Further, minimum balances may be
prescribed in order to offset the cost of maintaining and servicing such deposits.
3. CASA Deposit:
CASA Deposits refers to Current Account Saving Account Deposits. As an aggregate the CASA
deposits are low interest deposits for the Banks compared to other types of the deposits. So banks tend to
increase the CASA deposits and for this they offer various services such as salary accounts to companies,
and encouraging merchants to open current accounts, and use their cash-management facilities
4. NRO, NE(E)RA and FCNA(A) Account:
There are several kinds of accounts available for non resident Indians , Persons of Indian Origin and
Overseas Citizens of India.
5. Deposit Insurance in India:
In India, the bank deposits are covered under the insurance scheme provided by DICGC. When a
bank covered by DICGC fails, or undergoes liquidation or is merged with another bank; the DICGC pays the
amount due to depositors via the officially appointed liquidator in a time bound manner. Deposit Insurance
and Credit Guarantee Corporation (DICGC) was set up by RBI with the intention of insuring the deposits of
individuals. The deposit insurance scheme covers:
• All commercial banks, including branches of foreign banks operating in India, and Regional Rural
Banks
• Eligible co-operative banks.
The insurance scheme covers savings account, current account, term deposits and recurring accounts.
However, the following deposits are not covered by the scheme:
• Deposit of Central / State Government
• Deposit of foreign governments

94.Explain the Types of banks.

1. Commercial banks/Deposit banks
Banks accept deposits from public and lend them mainly for commercial purposes for comparatively
shorter periods are called Commercial Banks. They provide services to the general public, organisations and
to the corporate community. They are oldest banking institution in the organised sector. Commercial banks
make their profits by taking small, short-term, relatively liquid deposits and transforming these into larger,
longer maturity loans. This process of asset transformation generates net income for the commercial bank.
Many commercial banks do investment banking business although the latter is not considered the main
business area. The commercial banking system consists of scheduled banks (registered in the second
schedule of RBI) and non scheduled banks.
2. Industrial banks/Investment banks
Industrial banks are those banks which provide fixed capital to industries. They are also called
investment banks, as they invest their funds in subscribing to the shares and debentures of industrial
concerns. They are seen in countries like US, Canada, Japan, Finland, and Germany. In India industrial
banks are not found. Instead, special industrial finance corporations like IFC and SFC have been set up to
cater to the needs of industries.
3. Agricultural banks
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
Agricultural banks are banks which provide finance to agriculture and allied sectors. It is found in
almost all the countries. They are organised generally on co-operative basis. In India, Cooperative banks are
registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers,
salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban
areas. Agricultural banks are of two types;
Agricultural co-operative banks: They provide short term finance to farmers for purchasing
fertilizers, pesticides and seeds and for the payment of wages.
Land Development Banks: They provide long term finance for making permanent improvement on
land. They assist to purchase machinery, equipments, installation of pump sets, construction of irrigation
works etc.
4. Exchange banks
Exchange banks finances foreign exchange business (export, import business) of a country. Special
exchange banks are found only in some countries. The main functions of exchange banks are remitting
money from one country to another country, discounting of foreign bills, buying and selling gold and silver,
helping import and export trade etc.
5. Savings bank
Savings banks are those banks which specialise in the mobilisation of small savings of the middle
and low income group. In India, saving bank activities are done by commercial banks and post offices.
6. Central / National banks
It is the highest banking & monetary institution in a country. It is the leader of all other banks. Since
it is occupying a central position, it’s known as Central Bank. It is operating under state’s control and is not
a profit motive organisation. Reserve Bank of India (India), Bank of Canada (Canada), Federal Reserve
System(USA) etc are the examples of Central Banks.

95.Briefly Classification of Negotiable Instruments.

The negotiable instruments may be classified as under:
(1)Bearer Instruments
A promissory note, bill of exchange or cheque is payable to bearer when (i) it is expressed to be so
payable, or (ii) the only or last endorsement on the instrument is an endorsement in blank, A person who
is a holder of a bearer instrument can obtain the payment of the instrument.
(2)Order Instruments
A promissory note, bill of exchange or cheque is payable to order (i) which is expressed to be so
payable; or (ii) which is expressed to be payable to a particular person, and does not contain any words
prohibiting transfer or indicating an intention that it shall not be transferable.
(3) Inland Instruments (Section 11)
A promissory note, bill of exchange or cheque drawn or made in India, and made payable, or drawn
upon any person, resident in India shall be deemed to be an inland instrument. Since a promissory note is not
drawn on any person, an inland promissory note is one which is made payable in India. Subject to this
exception, an inland instrument is one which is either:
a. drawn and made payable in India, or
b. drawn in India upon some persons resident therein, even though it is made payable in a foreign
country.
(4) Foreign Instruments
An instrument which is not an inland instrument, is deemed to be a foreign instrument. The essentials
of a foreign instrument include that:
(i) it must be drawn outside India and made payable outside or inside India; or
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
(ii) it must be drawn in India and made payable outside India and drawn on a person resident outside
India.
(5) Demand Instruments (Section 19)
A promissory note or a bill of exchange in which no time for payment is specified is an instrument
payable on demand.
(6) Time Instruments
Time instruments are those which are payable at sometime in the future. Therefore, a promissory
note or a bill of exchange payable after a fixed period, or after sight, or on specified day, or on the
happening of an event which is certain to happen, is known as a time instrument.

96.Enumerate the Obligation of a Banker.

OBLIGATION Though the primary relationship between a banker and his customer is that of a debtor and
creditor or vice versa,
the special features of this relationship, impose the following additional obligations on the banker:
Obligation to honour the Cheques
The deposits accepted by a banker are his liabilities repayable on demand or otherwise. The banker
is, therefore, under a statutory obligation to honour his customer’s cheques in the usual course. Section 31 of
the Negotiable Instruments Act, 1881, lays down that: “The drawee of a cheque having sufficient funds of
the drawer in his hands, properly applicable to the payment must compensate the drawer for any loss or
damage caused by such default.”
Obligation to maintain the secrecy Account
A banker will be justified in disclosing information about his customer’s account on reasonable and
proper occasions
only as stated below:
(a) Disclosure of Information required by Law.
A banker is under statutory obligation to disclose the information relating to his customer’s account
when the law specially requires him to do so. The banker would, therefore, be justified in disclosing
information to meet statutory requirements:
 Under the Reserve Bank of IndiaAct,1934. The Reserve Bank of India collects credit information
from the banking companies and also furnishes consolidated credit information from the banking
company. Every banking company is under a statutory obligation under Section 45-B of the Reserve
Bank. The Act, however, provides that the Credit information supplied by the Reserve Bank to the
banking companies shall be kept confidential. After the enactment of the Reserve Bank of India
(Amendment) Act, 1974, the banks are granted statutory protection to exchange freely credit
information mutually among themselves.
 Under the Banking Regulation Act, 1949. Under Section 26, every banking company is requires to
submit a return annually of all such accounts in India which have not been operated upon for 10
years. Banks are required to give particulars of the deposits standing to the credit of each such
account.
 Under the Gift Tax Act, 1958. Section 36 of the Gifts Tax Act, 1958, confers on the Gift Tax
authorities powers similar to those conferred on Income- Tax authorities under Section 131 of the
Income Tax Act [discussed above (i).]
 Disclosure to Police. Under Section 94 (3) of the Criminal Procedure Code, the banker is not
exempted from producing the account books before the police. The police officers conducting an
investigation may also inspect the banker’s books for the purpose of such investigations (section 5.
Banker’s Books Evidence Act).
(b) Disclosure permitted by the Banker’s Practices and Usages.
The practices and usages customary amongst bankers permit the disclosure of certain information
under the following circumstances:
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
 With Express or Implied Consent of the Customer. The banker will be will be justified in disclosing
any information relating to his customer’s account with the latter’s consent. In fact the implied term
of the contract between the banker and his customer is that the former enters into a qualified
obligation with the latter to abstain from disclosing information as to his affairs without his consent
(Tourniers vs. National Provincial and Union Bank of India).
 The banker may disclose the state of his customer’s account in order to legally protect his own
interest. For example, if the banker has to recover the dues from the customer or the guarantor,
disclosure of necessary facts to the guarantor or the solicitor becomes necessary and is quite justified.
Banker’s Reference. Banker follows the practice of making necessary enquires about the customers,
their sureties or the acceptors of the bills from other bankers. This is an established practice amongst
the bankers and is justified on the ground that an implied consent of the customer is presumed to
exist.
(c) Duty to the public to disclose :
Banker may justifiably disclose any information relating to his customer’s account when it is his
duty to the public to disclose such information. In practice this qualification has remained vague and
placed the banks in difficult situations. The Banking Commission, therefore, recommended a
statutory provision clarifying the circumstances when banks should disclose in public interest
information specific cases cited below:
 When a bank asked for information by a government official concerning the commission of a crime
and the bank has reasonable cause to believe that a crime has been committed and that the
information in the bank’s possession may lead to the apprehension of the culprit,
 Where the bank considers that the customer’s is involved in activities prejudicial to the interests of
the country.
 Where the bank’s books reveal that the customer is contravening the provisions of any law, and
 Where sizable funds are received from foreign countries by a constituent.
Risks of Unwarranted and Unjustifiable Disclosure.
The obligation of the banker to keep secrecy of his customer’s accounts – except in circumstances
noted above – continue even after the account is closed. If a banker discloses information unjustifiably, he
shall be liable to his customer and the third party as follows:
(a) Liabilities to the customer.
The customer may sue the banker for the damages suffered by him as a result of such disclosure.
Substantial amount may be claimed if the customer has suffered material damages.
Such damages may be suffered as a result of unjustifiable disclosure of any information or extremely
unfavourable opinion about the customer being expressed by the banker.
(b) Liabilities to third parties.
The banker is responsible to the third parties also to whom such information is given, if –
(i) the banker furnishes such information with the knowledge that it is false, and
(ii) Such party relies on the information and suffers losses.

97.Explain the various types of Cheque.

Types of Cheque
1. Open Cheque:
Otherwise called as uncrossed cheque, it is one on which cash is payable at the counter of the bank
or it is transferred to the bank account of the person whose name is written on the cheque. It is
negotiable, i.e. it is transferable in nature.
2. Bearer Cheque:
Bearer cheque refers to the cheque which can be encashed by the person whose name is written on
the cheque or anyone who presents the cheque before the bank for payment. It is negotiable in
nature, which can be transferred by simply delivering it and so endorsement is not needed. No
identification of the presenter or holder is required in case of a bearer cheque.
3. Order Cheque:
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
As the name suggests, it is the cheque which becomes payable to the person or organization whose
name is specified on the cheque or to his order. To convert a bearer cheque into an order cheque, the
word ‘or bearer’ is stricken off from the cheque. Endorsement of the cheque to the third party is done
by simply signing on the cheque.
4. Crossed Cheque:
You might have observed, two transverse parallel lines at the top left corner of some cheques, which
may or may not have the words – & Co., A/c payee or Non-Negotiable. Such cheques are regarded
as crossed cheques. The amount on such cheques is credited to the account of the payee.
5. Self Cheque:
When a person wants to withdraw money from his own account, by writing ‘self’ at the name of the
payee, is called self-cheque. Do not cross the cheque or cancel the words ‘or bearer’ from the
cheque. These cheques should not be crossed, as well as the words ‘or bearer’ should not be stricken
off from the cheque, so that any person as your representative can receive the amount on your behalf.
6. Blank Cheque:
A cheque which is only signed, but the name of the payee and date is not indicated, is called a blank
cheque. Such cheques can be made account payee, and the maximum limit of withdrawal can be
mentioned.
7. Stale Cheque:
A cheque bears a date and is valid up to three months of the stated date. If a cheque is presented
before the bank, after the expiry of the reasonable period, i.e. three months after the date, then it is
called stale cheque.
8. Post-Dated Cheque:
When a cheque is drawn containing a future date, it is called post-dated cheque. In such cases,
money will not be payable by the bank before that date.
9. Ante-dated Cheque:
A cheque containing a prior date, is called an ante-dated cheque. Bank honours cheques until three
months to the date mentioned.
10. Banker’s Cheque:
Otherwise called a pay order, it is a non-negotiable instrument, which is issued by the bank on behalf
of the customer, which is payable in the same city.
11. Cancelled Cheque:
Due to any kind of mistakes while writing the cheque, it is cancelled, and so it is called cancelled
cheque.
12. Mutilated Cheque:
A cheque which is torn, damaged, crushed or washed, is called a mutilated cheque. Such cheques are
honoured only when certain details are visible, after confirming with the drawer.
13. Traveler’s Cheque:
A cheque issued by a bank for a fee, containing a fixed amount. These cheques are enchased or used
to make payment in a foreign country, after endorsement by the signature of the holder.
14. Gift Cheque:
Cheques that are used for the purpose of gifts and prizes, usually very large in size, are called Gift
Cheques. Banks charge a fee for issuing such cheques.

98.Describe the various types of Crossing Cheques.

1. General Crossing:
In a general crossing, simply two parallel transverse lines, with or without the words 'not negotiable'
in between, may be drawn. Such a cheque is crossed generally. The effect of general crossing is that the
payment of the cheque will not be made at the counter, it can be collected only through a banker.
2. Special Crossing:
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
In a special crossing, the name of a banker with or without the words 'not negotiable' is written on
the cheque. Such a cheque is crossed specially to that banker. It should be noted that two transverse parallel
lines are necessary for a general crossing, whereas for a special crossing, no such lines are necessary.
The effect to special crossing is that the paying banker will be the amount of the cheque only through the
bank named in the cheque.
3. Restrictive crossing:
Besides the two statutory types of crossing discussed above, there is one more type of crossing
namely, restrictive crossing. This type of crossing has been recognised by usage and custom of the trade. In
a restrictive crossing the words 'Account Payee' or Account Payee Only' are added to the general or special
crossing. The effect of restrictive crossing is that the payment of the cheque will be made by the bank to the
collecting banker only for the account payee named. If the collecting banker collects the amount for any
other person, he will be liable for wrongful conversion of funds. It should be noted that the duty of the
paying banker is only to ensure that the payment is made through the named bank, if there is any. He is not
liable, in case the collecting banker collects the cheque for any other person than the account payee. In that
case collecting banker will be liable to the true owner.
4. Not negotiable Crossing (Sec. 130):
A person taking is cheque crossed generally or specially, bearing in either case the words 'not
negotiable' shall not be able to give a better title to the holder than that of the transferor. The effect of a not
negotiable crossing is that the cheque can be transferred but the transferee will not acquire a better title to
the cheque. Thus a cheque is deprived of its essential feature of negotiability. The objects of "not negotiable"
crossing is to protect the drawer against loss or theft in the course of transit.

99.What are the Precautions to be taken by paying banker while making payment of Cheques?
The banker has to take the following precautions while honouring the cheques of his customers:
1. Crossed Cheque:
The most important precaution that a banker should take is about crossed cheques. A banker has to
verify whether the cheque is open or crossed. He should not pay cash across the counter in respect of crossed
cheques. If the cheque is a crossed one, he should see whether it is general crossed or special crossed. If it is
general crossing, the holder must be asked to present the cheque through some banker and should be paid to
a banker. If the cheque bears a special crossing, the banker should pay only the bank whose name is
mentioned in the crossing.
2. Open Cheque:
If it is an open cheque, a banker can pay cash to the payee or the holder across the counter. If the
banker pays against the instructions as indicated above, he is liable to pay the amount to the true owner for
any loss sustained. Further, a banker loses statutory protection in case of forged endorsement.
3. Proper Form:
A banker should see whether the cheque is in the proper form. That means the cheque should be in
the manner prescribed under the provisions of the Negotiable Instruments Act. It should not contain any
condition.
4. Presentment of Cheque:
Presentation of the cheque should be in right format and right place. A banker can honour the
cheques provided it is presented with that branch of the bank where the drawer has an account or another
branch if it is multi-city cheque.
5. Date of the Cheque:
The paying banker has to see the date of the cheque. It must be properly dated. It should not be either
a post-dated cheque or a stale-cheque. If a cheque carries a future date, it becomes a post-dated cheque. If
the cheque is presented on the date mentioned in the cheque, the banker need not have any objection to
honour it. If the banker honours a cheque before the date mentioned in the cheque, he loses statutory
protection. If the drawer dies or becomes insolvent or countermands payment before the date of the cheque,
he will lose the amount. The undated cheques are usually not honoured.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
6. Words and Figures:
The amount of the cheque should be expressed in words, or in words and figures, which should agree
with each other. When the amount in words and figures differ, the banker should refuse payment. However,
Section 18 of the Negotiable Instruments Act provides that, where there is difference between the amount in
words and figures, the amount in words is the amount payable. If the banker returns the cheque, he should
make a remark ‘amount in words and figures differ’.
7. Alterations and Overwriting:
The banker should see whether there is any alteration or over-writing on the cheque. If there is any
alteration, it should be confirmed by the drawer by putting his full signature. The banker should not pay a
cheque containing material alteration without confirmation by the drawer. The banker is expected to
exercise reasonable care for the detection of such alterations. Otherwise, he has to take risk. Material
alterations make a cheque void.
8. Proper Endorsements:
Cheques must be properly endorsed. In the case of bearer cheque, endorsement is not necessary
legally. In the case of an order cheque, endorsement is necessary. A bearer cheque always remains a bearer
cheque. The paying banker should examine all the endorsements on the cheque before making payment.

100.What are the Statutory Protection for Paying Banker?

The paying banker should take the following protection, in order to protect himself and customer’s
interest, while making the payment of his customer’s cheques:
(i) Protection regarding the order cheque
In case of an order cheque, Section 85(1) of the NI Act provides statutory protection to the paying
banker as follows, where a cheque payable to order purports to be endorsed by or on behalf of the payee, the
drawee is discharged by payment in due course.
(ii) Protection in case of bearer cheques
Section 85 (2) of the Negotiable Instruments Act, 1881 states, “Whereas a cheque is originally
expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof,
notwithstanding any endorsement whether in full or in blank appearing thereon, notwithstanding that any
such endorsement purports to restrict or exclude further negotiation.”
(iii) Protection in case of crossed cheques
Regarding payment of crossed cheque, the paying banker gets the protection under Section 128 of
the Negotiable Instruments Act, 1881: “Whereas the banker on whom a crossed cheque is drawn has paid
the same in due course, the banker paying the cheque and the drawer thereof (in case such cheque has come
to the hands of the payee) shall be entitled respectively to the same rights and placed in the same position if
the amount of the cheque had been paid to and received by the true owner thereof.”
(v) Protection in case of draft
Section 85A of the NI Act states that, Drafts drawn by one branch of a bank on another payable to
order where any draft, that is an order to pay money, drawn by one office of a bank upon another office of
the same bank for a sum of money payable to order on demand, purports to be endorsed by or on behalf of
the payee, the bank is discharged by payment in due course.

101.Describe the emerging trends in Banking.

In 1990’s Indian banking sector saw a great emphasis on the replacement of technolog y with
the new innovations. Banks began to use these new technologies to provide better and quick services to the
customers at a great speed. Some of the innovations techniques introduced in Indian banking sector in post
reform era are as follows:
E-Banking
E-banking involves information technology based banking. Under this I.T system, the banking
services are delivered by way of a Computer-Controlled System. This system does involve direct interface
with the customers. The customers do not have to visit the bank's premises.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.
Advantages of E-Banking
 The operating cost per unit services is lower for the banks.
 It offers convenience to customers as they are not required to go to the bank's premises. There is very
low incidence of errors.
 The customer can obtain funds at any time from ATM machines.
 The credit cards and debit cards enables the Customers to obtain discounts from retail outlets.
 The customer can easily transfer the funds from one place to another place electronically.
Popular services covered under E-Banking
1. Automated Teller Machine
2. Electronic Transfer of Funds
3. Tele-Banking
4. Mobile Banking
5. Home Banking
6. Internet Banking
7. Demate Banking
8. Credit Cards
9. Debit Card
10. Smart Card
12. Social Banking
13. No frills Account
14. Off-shore Banking
102.Briefly explain recent developments in Banking.
Recent developments in Banking (Technological development)
a) Core Banking b) Electronic Fund Transfer c) Tele Banking
d) Anywhere Banking e) Mobile Banking.
a) Core Banking :-
Core banking is one of the technological developments in banking system. Core banking is type of
banking in which a person, who opens a bank a/c in a branch of a bank, will become a customer not only of
that branch, but he becomes a customer of all branches of that bank and can conduct banking transactions
anywhere and at anytime. Thus he can deposit and withdraw cash from any where with the branches of same
bank.
b) Electronic Fund Transfer:- (EFT):
EFT is a scheme introduce by RBI as per the recommendations of SHARE Committee. EFT is a
system by which money can be transfer from one a/c to another a/c at any time from any where
electronically. The use of pay-in-slips, cheques and drafts are converted into electronic form and there by
amount can easily be either debited or credited to the customer a/c within no time.
c) Tele Banking:
Tele banking is one of the popular technological developments in banking systems. Tele-banking
refers to telephone banking under which a number of banking services or facilities offered by bank to the
customers by using telephone.
d) Anywhere Banking :
It is one of the banking facilities extended under core banking system. Under this facility, a
bank customer can operate his a/c from any branches of the bank at any place and at any time. It is
considered as 24x7 services. In this system customer can operate his a/c from any branches of the bank
in one city (inter-city) between different cities (intra-city). It includes Tele-banking, Mobile banking,
ATM, etc.
e) 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.
 S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
Assistant Professor in Commerce ,
Pavendar Bharathidasan College of Arts and Science.