Short notes:

MICR cheque

The short form for Magnetic Ink Character Recognition is MICR, which is a recognition
technology based on characters printed with magnetic ink or toner and processed by being
magnetized and sensed magnetically. MICR characters are printed information on documents so
that the code line information can be captured by magnetic recognition.
Features of MICR Cheque:

The MICR Cheque has to have the following measurement:

1.      Payor Institution Area

2.      Cheque Number and Date Area
3.      Payee and Legal Amount Area
4.      Convenience Amount
5.     Account Title
6.     Signature Area
7.      MICR Area

Payable to order
Payable to order means to be paid only to a specific payee. It is a statement on a negotiable
instrument indicating that the payee is able to endorse it to a third party. A promise or order that
is not payable to bearer is payable to order when the promise or order is payable: to
the order of an identified person
Money laundering
Money laundering is the process of making large amounts of money generated by a criminal
activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate
source. The money from the criminal activity is considered dirty, and the process "launders" it to
make it look clean. Money laundering is itself a crime.
Clearing house system
A clearing house acts as an intermediary between a buyer and seller and seeks to ensure that the
process from trade inception to settlement is smooth. Its main role is to make certain that the
buyer and seller honor their contract obligations. Responsibilities include settling trading
accounts, clearing trades, collecting and maintaining margin monies, regulating delivery of the
bought/sold instrument, and reporting trading data. Clearing houses act as third parties to all
futures and options contracts, as buyers to every clearing member seller, and as sellers to every
clearing member buyer.
Merchant bank
A merchant bank is a company that conducts underwriting, loan services, financial advising, and
fundraising services for large corporations and high net worth individuals. Unlike retail or
commercial banks, merchant banks do not provide services to the general public. They do not
provide regular banking services like checking accounts and do not take deposits.

These banks are experts in international trade, which makes them specialists in dealing with
multinational corporations. Some of the largest merchant banks in the world include J.P.
Morgan, Goldman Sachs, and Citigroup.

Banker`s lien
A lien is a legal right granted by the owner of property, by a law or otherwise acquired by a
creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If
the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the
subject of the lien.
Bank rate
A bank rate is the interest rate at which a nation's central bank lends money to domestic banks,
often in the form of very short-term loans. Managing the bank rate is a method by which central
banks affect economic activity. Lower bank rates can help to expand the economy by lowering
the cost of funds for borrowers, and higher bank rates help to reign in the economy when
inflation is higher than desired.
Deposit banking
Bank deposits consist of money placed into banking institutions for safekeeping. These deposits
are made to deposit accounts such as savings accounts, checking accounts and money market
accounts. The account holder has the right to withdraw deposited funds, as set forth in the terms
and conditions governing the account agreement 

Islamic banking
Islamic banking, also known as non-interest banking, is a system based on the principles
of Islamic or Sharia law and guided by Islamic economics. Islamic banksmake a profit through
equity participation which requires a borrower to give the bank a share in their profits rather
than paying interest.

Co-operative banks

Cooperative banking is retail and commercial banking organized on a cooperative basis.

Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carried out by credit
unions, mutual savings banks, building societies and cooperatives, as well as commercial
banking services provided by mutual organizations (such as cooperative federations) to
cooperative businesses.

What should a banker do on hearing of the death of a customer?

What steps should a banker take to open an account of a partnership firm?

A Partnership Firm is an association of persons for the purpose of undertaking a business for
profit. Partnership firms can be registered or unregistered. Unregistered partnership firms can be
established even through an oral contract or by entering into a written agreement. On the other
hand, a registered partnership must be established through a Partnership Deed that is registered
with the Registrar of Firms. 
The Reserve Bank of India sets Know Your Customer (KYC) norms based on which
documentation is collected by Banks for opening account. The RBI KYC norms lay out the
following standards for opening Partnership Firm bank account:

 Registration certificate, if registered

 Partnership deed
 Power of Attorney granted to a partner or an employee of the firm to transact business on
its behalf;
 Any officially valid document identifying the partners and the persons holding the Power
of Attorney and their addresses;
 Telephone bill in the name of firm/partners

What steps should a banker take to open an overdraft account of a public limited company?
Define the position of a banker with reference to a customer who is a minor, especially reference
to overdraft.
Describe the features of saving deposit account
When does a person become customer of a bank?
In what circumstances can a banker disclose the state of his customer`s account to third parties?
Explain the term Garnishee order
What steps should a banker take to close the account of an undesirable customer?
Explain why it is necessary to observe precautions before opening a current account?
What are negotiable instruments?
Characteristics of negotiable instruments
Which of the following is a negotiable instrument with reasons
What do you mean by commercial banks?
Explain in detail the services rendered by commercial banks
Credit creation mechanism used by commercial banks
What is branch banking?
Advantages of branch banking system?
How commercial banks differ from industrial banks?
Principles of sound commercial banking
What is payable to order?
Characteristics of promissory notes
What is investment banking?
Why investment banking established in Germany in 1853?
Different functions of an investment bank?
What is central bank?
Functions of a central bank?
Why central bank is called a banker of other banks?
How is bank rate determined?
What is crossing of a cheque?
Why is the cheque crossed? Who can cross it?
Objectives of crossing cheque
All cheque are bill of exchange but all bills are not cheques
Central bank is the banker and advisor of the state
What is foreign exchange?
Purchasing Power Parity theory in determining exchange rate
The factors causing fluctuation in exchange rates
Once a bearer cheque is always a bearer`s cheque
The rules regarding grant of advances against fixed deposit receipts
The effects of entries in the pass book made by mistake
Difference between current and fixed deposit account
 Savings
Features Fixed Deposits Recurring Deposit
Account

The rate of
Rate of interest is
interest is not Rate is fixed. It
Rate of fixed. Generally it
fixed. It varies varies from 5.25%
Interest is rate varies from
with the to 7.90% per year
6.96% to 8%
market.=

The money you A particular

deposit is fixed and amount is
Deposit No limit on the
you get interest on deposited monthly
Amount deposit amount
that particular for a particular
amount period of time

The tenor period is The tenor period is

Tenure No tenure.
always fixed fixed

No withdrawal Withdrawal on Withdrawal on

Withdrawal
limit. maturity maturity

You can not Tax exemption is Income tax will not

avail any tax available for FDs be deducted for
Tax Benefit
benefit for under the section 80 interest earned up
savings account. of income tax to INR 10,000

Loan against
Not available Available Not available
the Account

Difference between cheque and bill of exchange

BASIS FOR
CHEQUE BILL OF EXCHANGE
COMPARISON

Meaning A document used to make easy payments A written document that shows
on demand and can be transferred through the indebtedness of the debtor
hand delivery is known as cheque. towards the creditor.

Defined in Section 6 of The Negotiable Instrument Section 5 of The Negotiable

 BASIS FOR
CHEQUE BILL OF EXCHANGE
COMPARISON

Act, 1881 Instrument Act, 1881

Validity Period 3 months Not Applicable

Payable to bearer on Always Cannot be made payable on

demand demand as per RBI Act, 1934

Grace Days Not Applicable, as it is always payable at 3 days of grace are allowed.
the time of presentment.

Acceptance A cheque does not require acceptance. Bill of exchange needs to be

accepted.

Stamping No such requirement. Must be stamped.

Crossing Yes No

Drawee Bank Person or Bank

Noting or Protesting If the cheque is dishonoured it cannot be If a bill of exchange is

noted or protested dishonoured it can be noted or
protested.

Difference between branch banking and unit banking

BASIS FOR
UNIT BANKING BRANCH BANKING
COMPARISON

Meaning Unit banking is that system of Branch banking is a banking method

banking in which there is a single wherein a bank operates in more than
small banking company, that one place to provide banking services to
provides financial services to the
 BASIS FOR
UNIT BANKING BRANCH BANKING
COMPARISON

local community. customers, through its branches.

Local economy Affected by the ups and downs of the It is not affected by the ups and downs
local economy. of the local economy.

Independence of More Comparatively less

operations

Supervision Cost Low Comparatively high

Financial Limited financial resources Large pool of financial resources

Resources

Competition No or little within the bank Exist between the bank branches

Rate of interest Not fixed, as the bank has its own Fixed by the head office, and directed
policies and norms. by the central bank.

Decision making Quick Time Consuming

Difference between chain banking and group banking

1. Group Banking
A plan offered by banks designed to be used by groups rather than individuals. A common
example is a company plan offered to employees.
Usually, the bank will offer incentives such as discounts, lower fees, and interest rates, as well as
other benefits not available to individual customers.
Group banking members may have access to lower interest rates, lower fees, discounts and other
perks not available to regular account holders.
Group banking can also provide a more personalized banking relationship for the members if the
bank designates one representative, who is generally more knowledgeable about the group’s
needs, as the point of contact for all the members of the group.
Related: Bankers’ Advances Against Security of Goods
2. Chain Banking
Conceptually, chain banking refers to a form of bank governance that occurs when a small group
of people controls at least three banks that are independently chartered.
Usually, the controlling parties are majority shareholders or the heads of interlocking
directorates. Chain banking as an entity has declined with the surge in interstate banking.
Chain banking is a situation in which three or more banks that are independently chartered are
controlled by a small group of people.
The concept of chain banking is different from group banking, in that the entities involved in the
chain bank arrangement remain autonomous and are not owned by a single holding company.
By contrast, the group banking model requires a holding company to own all the banks involved,
effectively creating an umbrella under which all the banks operate.
Chain banking is also different from branch banking, a situation where all local branches of a
bank are owned by a single banking institution.

Difference between bank rate and interest rate

BASIS FOR
BANK RATE REPO RATE
COMPARISON

Meaning Bank Rate is the rate of interest, which is The rate at which the Central bank
charged by the Central bank on the loans, grants short term loans to
it advanced to commercial banks and commercial banks, against
other financial institutions. collateral are known as Repo Rate.

Repurchase No Yes
Agreement

Deals with Loans Securities

Time Frame Long Term Short Term

Collateral Not involved Involved

Which is higher? Higher Relatively lower

Difference between banker and customer

I. Bankers and customers act as debtor and creditor. When a customer deposits his surplus saving
with a bank, he acts as a creditor to the bank. Similarly when bank advances loans to customers,
it acts as a creditor before the customer.

II. Banker acts as a trustee because it acts as the custodian of customers money. A trustee is a
person who holds money for some other person called beneficiary. Banks act as a trustee of
customer’s money who act as the beneficiary.

III. A banker is regarded as agent of the customer and as such performs a great deal of agency
functions. As an agent of the customer, it makes collection of cheques, making payment of tax
on customer’s behalf.

Difference between loans and advances

BASIS FOR
LOANS ADVANCES
COMPARISON

Meaning Funds borrowed by an entity from Funds provided by the bank to an entity
another entity, repayable after a for a specific purpose, to be repayable
specific period carrying interest rate after a short duration is known as
is known as Loans. Advances.

What is it? Debt Credit Facility

Term Long Term Short Term

Legal formalities More Less

Security May or may not be secured Primary security, collateral security and
guarantees