Banking Operations Section A

Answer any ten of the following questions: (10 x 2 = 20)

1. Define the term “Bank” / what is Bank? **
Kinley‟s definition, “A bank is an establishment which makes to individuals such
advance of money as may be required and safely made and to which individuals entrust
money when not required by them for use”.

2. Define a “Customer”.*
Customer is a person who has an account either savings account, current account, term
deposit account or maintains any similar relationship with a banker such as deposit cash
to others account, makes DD, deposits cheques to others account etc.
3. What is over draft facility?
An overdraft facility is a credit agreement made with a bank that allows an account
holder to use or withdraw more money than what they have in their account up to the
approved limit.

4. What do you mean by “Garnishee Order”?

A garnishee order is a common form of enforcing a judgment debt against a creditor to
recover money. Put simply, the court directs a third party that owes money to the
judgement debtor to instead pay the judgment creditor. The third party is called a
„garnishee‟.

5. What is banker’s right of set-off? *

The banker can adjust a debit balance to a customer's account with any balance standing
to the customer's credit. While doing so, the banker gives due notice to the customer. To
exercise the right of set-off the following conditions should be fulfilled;
  The debts are certain and are due. The right cannot be exercised against future
debt / or contingent debts.
 The debit and credit balances are of the same person in the same capacity.
 There should not be any express or implied agreement to the contrary

6. Name the parties involved in a cheque. Give the meaning of drawer, drawee &
payee.
Drawer: Drawer is the party who draws the cheque upon a specified banker
Drawee: Drawee is the party upon whom the cheque is drawn.
Payee: Payee is the party who presents the cheque for payment.

7. What do you mean by mutilation of cheque? *

If a cheque is torn into two or more pieces, then such cheque is called Mutilated Cheque.
If it is presented for payment, the bank will not make payment against such a cheque
without getting confirmation of the drawer. In case, if a cheque is torn at the corners and
no material fact is erased or cancelled, the bank may make payment against such a
cheque.

8. What is Cash Reserve Ratio?

The amount specified as the CRR is held in cash and cash equivalents, is stored in bank
vaults or parked with the Reserve Bank of India. The aim here is to ensure that banks do
not run out of cash to meet the payment demands of their depositors. CRR is a crucial
monetary policy tool and is used for controlling money supply in an economy.

9. What is on-line banking? E-Banking?

Online banking, also known as internet banking, is an electronic payment system that
enables customers of a bank or other financial institution to conduct a range of financial
transactions through the financial institution's website.
The online banking system will typically connect to or be part of the core banking system
operated by a bank and is in contrast to branch banking which was the traditional way
customers accessed banking services.

10. What do you mean by secured loan?

Secured loans are defined as loans where the lender extends loans only against deposition
of some asset as security. Like land, building, property, machine etc. as collateral.
Examples of Secured loans
• Mortgage
• Home loans
• Auto loans
• Secured personal loans

11. What do you mean by teller system?*

Under Teller System, a separate counter is opened through which transactions involving
amounts not exceeding certain limit are settled. This counter is enclosed in a cubicle and
one officer of the bank, is called the teller is put in charge of it.
12. What is letter of credit?*
A letter of credit or "credit letter" is a letter from a bank guaranteeing that a buyer's
payment to a seller will be received on time and for the correct amount. In the event that
the buyer is unable to make a payment on the purchase, the bank will be required to cover
the full or remaining amount of the purchase.

13. What is banking?

Banking can be defined as the business activity of accepting and safeguarding money
owned by other individuals and entities, and then lending out this money in order to earn
a profit.
The banking services these days include issuance of debit and credit cards, providing safe
custody of valuable items, lockers, ATM services and online transfer of funds across the
country / world.
14. What is hypothecation?*
Hypothecation creates on equitable charge on movable property without
possession. However, the hypothecation deed provides that the banker will
have the right to take the goods hypothecated in its possession if the need
arises.
15. What is pledge? **
Section 172 of contract Act, 1872, defines a pledge as, the „bailment of goods
as security for payment of a debt or performance of a promise.” Only movable
goods can be pledged. From the above definition we observe that,
1. A pledge occurs when goods are delivered for getting advance,
2. The goods pledged will be returned to the owner on repayment of the debt,
3. The goods serve as security for the debt.
The person who transfers the goods is called pledger and to whom it is
transferred is called the pledgee.
16. What is ATM?
It is a machine that enables a bank‟s customer to deposit money in a bank, withdraw it,
transfer it and check the debit in one‟s account accurately without help of the bank
employees.
17. What is Travellers cheque?*
This service is meant for tourism traffic, which minimizes the risk of carrying heavy cash
while travelling. A person who intends to visit several places can purchase travelers
cheque issued by the banker
• It can be purchased by anyone, don‟t required to have account
• A person may Buy any number of Travelers cheques
• These are issued in a single name, not in joint
• One has to sign at the time of encashment
• There is no expiry period for travelers cheque
18. What is credit transfer system?
The transfer of money from one account to another, also called a wire transfer. The
procedure of granting credit to a student for studies completed at another school, also
called transfer credit or advanced standing.
19. What is passbook? **
Passbook or Bank Statement is a copy of the account of the customer as it appears in the
bank‟s books. When a customer deposits money and cheques into his bank account or
withdraws money, he records these transactions in the bank column of his cashbook
immediately.
20. What is a joint account?
A joint account is a bank account that is shared between two or more individuals. Joint
accounts are most likely to be used by relatives, couples, or business partners who have a
level of familiarity and trust with each other. It typically allows anyone named on the
account to access funds within it.
21. What is general lien?
A general lien is a right of one person to retain any property or goods which are in his
possession belonging to another person until the promise or liability is discharged.
It is a right to retain the property belonging to another for a general balance of the
account.

22. What is crossing of cheque?

The process referred to as Crossing of Cheques specifies a general instruction to a cheque
which is about to be deposited to a bank account.
A crossing is an instruction to the paying banker to pay the amount of cheque to a
particular banker and not over the counter. The crossing of the cheque secures the
payment to a banker.
23. What is credit syndication?
Credit syndication is the process of involving a group of lenders in funding various
portions of a loan for a single borrower. Credit syndication most often occurs when a
borrower requires an amount too large for a single lender to provide or when the loan is
outside the scope of a lender's risk-exposure levels. Thus, multiple lenders form
a syndicate to provide the borrower with the requested capital.
24. What is a mutual fund? **
A mutual fund is a professionally managed fund which pools money from various
investors to buy bonds, stocks and other securities
A mutual fund is a type of financial vehicle made up of a pool of money collected from
many investors to invest in securities like stocks, bonds, money market instruments, and
other assets.
25. Who is a banker? / Define Banker*
According to Dr. Herbert L. Hart, “A banker is one who in the ordinary course of his
business, honours cheques drawn upon him by persons from and for whom he receives
money on current accounts”.
26. What is particular lien?
Particular lien is one in which the person has a right to retain the possession of goods for
which the charges are due. Particular lien is available only to bailee against those goods
in respect of which he has rendered some service involving the exercise of labour or skill.
Example: A delivered some gold to B, a goldsmith for the purpose of making
ornaments. B made the ornaments. Here, B is entitled to retain the ornaments till he is
paid for the services he has rendered.
27. Mention different types of deposit a/c.
Savings Bank Account
Current Deposit Account
Fixed Deposit Account
Recurring Deposit Account
28. Who is a minor customer of a bank? *
A minor is a person who has not completed 18 years of age. In case a guardian of his
person or property is appointed by a court of law before he completes his 18 years, the
period of minority is extended to the completion of 21 years.
As per section 11 of the contract act a minor is incompetent to contract but section 26 of
the Negotiable Instrument Act allows a minor to draw, endorse, deliver and negotiate a
negotiable instrument.
29. What is endorsement?
The act of signing a cheque for the purpose of transferring it to somebody else is known
as “Endorsement”.

In simple words endorsement means transferring the instrument by the holder by signing
the instrument.
30. What is material alteration of a cheque? *
Any Changes made in the cheque is known as Material Alteration. When the changes are
made in Cheques, it loses its original character and affects the rights and liabilities of
parties to the cheque and such altered Cheques becomes invalid.
For instance, A drew a cheque of Rs 500 in favour of B, who altered the figure 500 into
5,000 without taking the consent of the maker. The instrument appeared to be drawn for
Rs 5,000 on the face of it.
31. Who is a 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.
32. Who is a pledger?
A pledge is a bailment that conveys possessory title to property owned by a debtor
(the pledgor) to a creditor (the pledgee) to secure repayment for some debt or obligation
and to the mutual benefit of both parties.
The debtor is a Pledger and the Creditor is a pledgee
33. What is mortgage?
A mortgage is a conveyance of an interest in property (land or any immovable property)
for securing a debt. A legal mortgage is created by a registered deed and gives the
mortgagee the right of sale in case of default of the borrower.
34. What is credit card?
Credit Card is a postpaid card. The credit card holder is empowered to spend wherever
and whenever he wants with his credit card within the limits fixed by his bank.
Credit card is plastic money that is used to pay for products and services around the
world.
35. What is internet banking? / Online Banking?
Internet banking is the system that provides the facility to the customer to conduct the
financial and non-financial transactions from his net banking account. The user
can transfer funds from his account to other accounts of the same bank/different bank
using a website or an online application.
36. Who can be called a bailor?
In the Bailment contract, the person delivering the goods is the Bailor and the person
receiving the goods is the Bailee.
37. What is Fixed Deposit?
In Fixed Deposit Account (also known as FD Account), a particular sum of money is
deposited in a bank for specific period of time. Its one time deposit and one time take
away (withdraw) account.
The money deposited in this account cannot be withdrawn before the expiry of period.
38. State any two types of special customers.
 Minor
 unatics
 Drunkard
 Pardanashin
39. What is a Cheque?*
Cheque is an instrument in writing containing unconditional order, drawn on a banker,
sign by the drawer, and payable on demand. It is used to withdraw money deposited in
the bank.
40. What is Partnership firm? *
A partnership business Is collectively called a firm, partnership persons individually are
called partners. A banker can open an account in the name of a partnership firm after
obtaining an application in writing from all the partners to open an account.
41. What do you mean by postdated cheque?
If a cheque issued by a holder to the payee for the upcoming withdrawn date, then that
type of cheques are called post-dated cheque.
For example - On 10 January 2019, Ram issued a cheque to Sham. Date written on the
cheque is 10 February 2019.
42. What do you mean by dishonour of cheque?*
If the bank refuses to pay the amount to the payee, the cheque is said to be dishonoured.
In other words, dishonour of cheque is a condition in which bank refuses to pay the
amount of cheque to the payee.
43. What is Pay in Slip Book
A pay-in slip sounds like another term for what is more commonly called a deposit slip.
The bundle of pay in slips is a called pay in slip book
When a person wants to deposit checks or cash in his bank account he customarily fills
out a slip to show the number of his account, the date, and the details of the deposit.
44. What is 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.
45. Expand ATM, KYC, MICR CBS RTGS NEFT
ATM: automated teller machine
KYC: Know Your Customer
MICR: Magnetic ink character recognition
CBS: Core Banking Solution
RTGS: Real Time Gross Settlement
NEFT: National Electronics Funds Transfer System
46. What do you mean by Lien?
Lien is the right of a creditor to retain the properties belonging to the debtor until debt
due to him is repaid. Lien gives a person only a right to retain the possession of the goods
and not the power to sell unless such a right is expressly conferred by statute or by
custom or by usage
47. State any 2 kinds of endorsements
 General endorsement
 Special endorsement
 Partial endorsement
 Restrictive endorsement
48. Write any 2 advantages of Clearing House
 Protection against Counterparty Risks
 Guarantee of Post-Trade Anonymity
 Efficient Calculation and Allocation of Collateral
 Reduction of Settlement Instructions
49. What is Order Absolute *
Order Absolute: If banker has any objection to pay the funds held in account of the
judgement debtor, he must appear in court and explain the reason why funds held in
account cannot be paid. Court issue the final order called order absolute after hearing the
explanation from the bank if any and direct the bank to pay the amount to the judgement
creditor or court.
50. What do you mean by order Nisi?
As per rule 46A, a notice is issued to a garnishee (a person sought to be warned) before a
garnishee order is passed. It is known as Order NISI. Court order the bankers to stop
operation, payment out of the funds of judgement debtor and for appearance in court on a
given date.
51. What is Allonge in endorsing a cheque
An allonge is a slip of paper affixed to a negotiable instrument, as a bill of exchange, for
the purpose of receiving additional endorsements for which there may not be sufficient
space on the bill itself. An endorsement written on the allonge is deemed to be written on
the bill itself
52. Who is a 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.
53. State the forms of advances.
 Cash credit,
 Overdraft,
 Loans,
 term loan,
 Secured and unsecured loan,
 Participation loan or consortium loan,
 Purchasing and discounting bills.
54. What is Bankers right of lien?
A banker‟s lien is a general lien which is tantamount to an implied pledge. It confers
upon the banker the right to sell the securities after serving reasonable notice to the
borrower
55. What is Savings Bank Account?
The 'saving account' is generally opened in bank by salaried persons or by the persons
who have a fixed regular income. This facility is also given to students, senior citizens,
pensioners, and so on.
Saving accounts are opened to encourage the people to save money and collect their
savings.
 Section B
Answer any four of the following questions: (4x5=20)

1. Briefly explain the different types of accounts can be opened in a bank.

a. Saving Account
b. Current Account
c. Recurring Deposit Account
d. Fixed Deposit Account
e. DEMAT Account

Saving Account:
The 'saving account' is generally opened in bank by salaried persons or by the persons
who have a fixed regular income. This facility is also given to students, senior citizens,
pensioners, and so on.
Saving accounts are opened to encourage the people to save money and collect their
savings.

Current Account:
Current bank account is opened by businessmen who have a higher number of regular
transactions with the bank. It includes deposits, withdrawals, and contra transactions. It is
also known as Demand Deposit Account.
 Any resident individual- single accounts, two or more individuals in joint
accounts, Associations, Limited companies, Religious Institutions, Educational
Institutions, Charitable Institutions, clubs etc., are eligible for this account.
 Payments can be done unlimited number of times.
 Funds can be remitted from any part of the country to the corresponding account.
 Overdraft facility will be available.
 Internet banking facility is available.
 Recurring Deposit Account:
Recurring deposit account is opened by those who want to save regularly for a certain
period of time and earn a higher interest rate.
In recurring deposit account certain fixed amount is accepted every month for a
specified period and the total amount is repaid with interest at the end of the
particular fixed period.
 Any resident individual- single accounts, two or more individuals in joint
accounts, Associations, clubs, Institutions/Agencies specifically permitted by the
RBI etc., are eligible to open this account in single/joint names.
 Periodic/Monthly installments can be for any amount starting from as low as
Rs.50/- onwards.
 Account can be opened for any period ranging from 6 months to 120 months, in
multiple of 1 month.
 The amount selected for installment at the start of the scheme will be payable
every month.

Fixed Deposit Account:

In Fixed Deposit Account (also known as FD Account), a particular sum of money is
deposited in a bank for specific period of time. Its one time deposit and one time take
away (withdraw) account.
The money deposited in this account cannot be withdrawn before the expiry of period.
 Banks accepts deposits from customers varying from 7 days to a maximum of 10
years.
 The period of 7 days & above but not exceeding 179 days deposits is classified as
„Short Deposits‟.
 The minimum amount that can be deposited under this scheme is Rs. 5 lakh for a
period of 7-14 days.

DEMAT Account:
 Used to conduct stress-free transactions on the shares.
 An individual, Non-Resident Indian, Foreign Institutional Investor, Foreign
National, Corporate, Trusts, Clearing Houses, Financial Institution, Clearing
Member, Mutual Funds, Banks and Other Depository Account.
 For opening this account, an individual has to fill a form, submit a photo of the
applicant along with a photocopy of Voter ID/ Passport/ Aadhar card/ Driving
License & Demat account number will be provided to the applicant immediately
after the completion of processing of the application.

2. Briefly explain the obligations to honour the cheques (Essentials)***

1. It must be in writing:
A cheque must be in writing. An oral order to pay does not constitute a cheque.
2. It should be drawn on banker:
It is always drawn on a specified banker. A cheque can be drawn on a bank where the
drawer has an account, saving bank, or current.
 3. It contains an unconditional order to pay:
A cheque cannot be drawn so as to be payable conditionally. The drawer‟s order to the
drawee bank must be unconditional and should not make the cheque payable dependent
on a contingency. A conditional cheque shall be invalid.
4. The check must have an order to pay a certain sum:
The cheque should contain an order to pay a certain sum of money only. If a cheque is
drawn to do something in addition to, or other than to pay money, it cannot be a cheque.
For example, if a cheque contains „Pay Rs 50000 and a TV worth Rs 50000 to A„ it is not
a cheque.
5. It should be signed by the drawer and should be dated:
A cheque does not carry any validity unless signed by the original drawer. It should be
dated as well.
6. It is payable on demand:
A cheque is always payable on demand.
7. Validity:
A cheque is normally valid for six months from the date it bears. Thereafter it is termed
as stale cheque. A post-dated or antedated cheque will not be invalid. In both cases, the
validity of the cheque is presumed to commence from the date mentioned on it.
8. It may be payable to the drawer himself:
Cheques may be payable to the drawer himself/herself. It may be drawn payable to bearer
on demand unlike a bill or a pro-note.
9. Banker is liable only to the drawer:
The banker on whom the cheque is drawn shall be liable only to the drawer. A holder or
bearer has no remedy against the banker if a cheque is dishonored.
10. It does not require acceptance and stamp:
Unlike a bill of exchange, a cheque does not require acceptance on part of the drawee.
There is, however, a custom among banks to mark cheques as „good‟ for the purpose of
clearance. But this marking is not an acceptance. Similarly, no revenue stamp is required
to be affixed on cheques.

3. What is crossing of cheque? Explain the types of crossing of a cheque.

CROSSING OF CHEQUE:
The process referred to as Crossing of Cheques specifies a general instruction to a cheque
which is about to be deposited to a bank account.

A crossing is an instruction to the paying banker to pay the amount of cheque to a

particular banker and not over the counter. The crossing of the cheque secures the
payment to a banker.
Methods / Types of Cross Cheque

1. General Crossing (Section 123)

As mentioned earlier, the general crossing of cheques means including some words in
between the two lines drawn which symbolizes a crossed cheque. This depicts that the
bank on which it is drawn shall not permit the amount of payment in any other banks.
Hence, the payment can be made only in the collecting bank.
2. Special or Restricted Crossing (Section 124)
In the case of special crossing, the cheque bears the name of the bank, either with or
without the words „not negotiable‟. This means that the payment can be made only to that
specific bank.

3. Not negotiable crossing (Section 130)

This type of cheque crossing means that the cheque can be transferred but cannot be
negotiated. In such cases, the „cheque holder‟ will bear the title of a transferor only.
 4. Differentiate between secured and unsecured advances *

BASIS SECURED LOAN UNSECURED LOAN

Meaning The loan which is secured by an Unsecured loan is the loan in which
asset is known as a Secured Loan. there is no asset mortgaged as security.

Basis Collateral Creditworthiness

Pledging of asset Yes No

Risk of Loss Very less High

Tenure Long period Short period

Expensive No, due to low interest rates Yes, because the interest rate is high

Borrowing limit High Comparatively less

Right of lender in case Forfeit the asset. Can sue him for the money.
borrower fails to pay

5. What are the responsibilities of paying banker while honouring the cheque? */
discuss the duties of Paying Banker.*
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.
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.

6. Explain the relationship of debtor and creditor between banker and customer. *
The Relationship between Banker and Customer is categorized as under
 General Relationship
 Specific Relationship

General Relationship between Banker and Customer

1. Debtor-Creditor Relationship:
  When Customer Deposits money in Bank, Customer is the Creditor, &
Banker is a Debtor (When you Deposit Customer –Deposit Customer
become Creditor DCC)
 When a Banker lends money to the customer, Customer is a debtor and
Banker is a Creditor (When you take loan from Bank –Loans Customer
becomes Debtor LCD)
2. Banker as an agent: Generally, bankers render agency services for their
customers. They pay insurance premium, electricity bills, taxes, etc. They collect
interest on investments, dividends on shares, collect cheques, etc
3. Banker as a bailee: Bailee is one who possesses goods or articles on behalf of
the owner (called bailor) of the goods.
In other words, when customer leaves with the banker some valuables for safe
custody in the safe deposit vaults or lockers, the banker performs the functions of
the Bailee and the Customer becomes bailor.
4. Banker as a Trustee : A trust is a relation between two persons by virtue of
which one of them (called trustee) holds property vested in him for the benefit of
the other (called beneficiary).
5. Bank as an executor: Where a customer appoints a banker as his executor and
leaves property through a will, the banker has to administer the property
according to the terms of the will after the death of such customer.
6. Banker as an Attorney: The customer may grant a special power of attorney to
his banker to transact certain dealings on his behalf. The banker is the attorney of
the customer in such cases.
Special relationships between banker and customer
1. Obligation to honor Cheques : According to Sec. 31 of the Negotiable
Instruments Act, 1881, every banker must honor the cheques drawn on it by
a customer,
2. Banker's Lien: A lien may be defined as the right to retain property belonging to
a debtor until he is discharged of his debt due to the retainer (creator) of the
property. The banker's lien refers to the right of banker over such of his
customer's securities as may come into his possession in the ordinary course of
business.
3. Secrecy of Customer's Accounts: It is an obligation on the part of a banker to
maintain secrecy about the customer's accounts. The banker must not disclose any
information pertaining to the customer to anyone.
4. Banker's Right to Combine Accounts: The Banker has a right to combine
several accounts kept by the customer at the same branch or different branches of
the bank (Garnet V. Mc Kervan). The banker however, cannot combine the
personal account of a customer with a joint account of a customer and some other
person. Customer has no right to treat two accounts as one.
5. Banker's Right to Set-Off: The banker can adjust a debit balance to a customer's
account with any balance standing to the customer's credit. While doing so, the
banker gives due notice to the customer.
 7. Explain the precautions to be taken by a banker while opening a Minor's account.*
A minor is a person who has not completed 18 years of age. In case a guardian of his
person or property is appointed by a court of law before he completes his 18 years, the
period of minority is extended to the completion of 21 years.
As per section 11 of the contract act a minor is incompetent to contract but section
26 of the Negotiable Instrument Act allows a minor to draw, endorse, deliver and
negotiate a negotiable instrument.
Precautions to be taken by the Banker while operating a Minors Account
 Banker may open savings account and not a current account
 In the name of minor, to be operated upon by the guardian or even a joint account can
be opened with 2 or more minors
 In the name of minor to be operated by him if he has attained 12 years of age.
 If the father of a Hindu minor dies his mother becomes a natural guardian
 The bank should record date of birth of the minor and keep some school record. On
majority the
 Banks should be cautious to issue cheque books to minors of say 16 or 17 years of
age  Accounts for illiterate minors are not opened in their single name
 Banks adopt a general rule not to accept deposit exceeding a particular sum
 In case the minor dies the balance can be withdrawn by the guardian
 A minor‟s account should never be allowed to be overdrawn If an advance is granted
to a minor on a 3rd Party guarantee such advance cannot be recovered from the
guarantor also
 A minor may draw, endorse or negotiate a cheque or a bill but he cannot be held
liable on such cheque or bill.
 A minor may be appointed as an agent to act on behalf of his principal but he cannot
be held responsible to his principal.
8. Explain different types of securities that can be offered by a customer, while
requesting for a loan.
Types of Security

Immovable Security:
Land, Building, Apartments, Factory Building, Heavy Machinery etc.

Movable security:
Goods (Inventory) e.g. Raw materials, Work-in-progress and finished goods, Machineries,
vehicles.

Financial obligations (Instruments):

FDR, ICB Unit Certificates, Wage earner development Bonds, Shares etc.

Actionable Claim:
Book Debt (Accounts Receivable), Supply Bill (Contract bill), Life Insurance Policy etc.

Title to Goods:
Shipping Documents, Commercial Invoice, Transport Documents (Bill of Lading, Truck Receipt,
Railway receipt), Insurance documents and Other documents.
9. Banker is a dignified debtor”. Explain.*
Banker is a dignified debtor is justified with below mentioned points. The banker is the
dignified debtor for the following reasons.

1. Banker is called a 'dignified debtor'. Virtually banker borrows money but it is given a
name called 'deposit'. No security need be given for the borrowing.
2. Customer is not the secured creditor of the bank, as he is not having any charge on
any asset of the bank. He is only an unsecured creditor.
3. Customer's balance at bank is not repayable until a demand for repayment was made
by the customer. There should be an express demand for it.
4. Banker should pay the deposit money on demand by the customer. The deposit should
be paid at the appropriate place.
5. The demand should be made by the customer on working days and during the
business hours and it should be made in proper form.

10. What is Credit card? What are the differences between a Credit card and Debit
card?
Credit Card is a postpaid card. The credit card holder is empowered to spend wherever
and whenever he wants with his credit card within the limits fixed by his bank.
Credit card is plastic money that is used to pay for products and services around the
world.

BASIS CREDIT CARD DEBIT CARD

Credit card is issued by a bank or Debit card is issued by a bank to

any financial institution to allow allow its customers to purchase
the holder of the card to purchase goods and services, whose
Meaning
goods and services on credit. The payment is made directly through
payment is made by the bank on the customer's account linked to
the customer's behalf. the card.

Implies Pay later Pay now

The bank account is not

prerequisite for issuing a credit The bank account is a must for
Bank Account card. issuing a debit card.

The maximum limit of The maximum limit of

withdrawing money is determined withdrawing money will be less
according to the credit rating of than the money lying in the saving
Limit the holder. bank account.

The holder of the card has to pay There is no such bill, the amount
the credit card bill within 30 days is directly deducted from the
Bill of every month. customer's account.
BASIS CREDIT CARD DEBIT CARD

Interest is charged when payment

is not made to the bank within a
Interest specified time period. No interest is charged.

11. What is endorsement? Explain types of endorsement.*

ENDORSEMENT:
In its literal sense, the term endorsement means writing on an instrument. In its technical
sense in the Act, it means the writing of a person's name on the face or back of a
negotiable instrument or on a slip of paper for the purpose of negotiation.

The act of signing a cheque for the purpose of transferring it to somebody else is known
as “Endorsement”.
TYPES OF ENDORSEMENTS:
1. Blank or general endorsement:
If the endorser signs his name only and does not specify the name of the endorsee, the
endorsement is said to be in blank Sec. 16(1).
The effect of a blank ndorsement is to convert the order instrument into bearer instrument
(Sec. 54), which may be transferred merely by delivery.
2. Endorsement in full or special endorsement:
If the endorser, in addition to his signature, also adds a direction to pay the amount
mentioned in the instrument to, or to the order of, a specified person the endorsement is
said to be in full [Sec. 16(1)].
If, for example, A, the holder of a bill of exchange, wants to make an endorsement in full
to B, he would write thus: “Pay to B or order, SdA4.” After such an endorsement it is
only the endorsee, i.e., B, who is entitled to receive the payment of the instrument and to
further negotiate the instrument by his endorsement.
3. Partial Endorsement:
Section 56 provides that a negotiable instrument cannot be endorsed for a part of the
amount appearing to be due on the instrument. In other words, a partial endorsement
which transfers the rights to receive only a part payment of the amount due on the
instrument is invalid.
4. Restrictive endorsement:
When an endorsement prohibits further negotiation of a negotiable instrument, it is said
to be restrictive. Section 50 of the NI Act 1881states, “The endorsement may, by express
words, restrict of exclude the right to negotiable or pay constitute the endorsee an agent
to endorse the instrument or to receive its contents for the endorser or for some other
specified person.”
5. Conditional endorsement:
If the endorser of a negotiable instrument, by express words in the endorsement, makes
his liability, dependent on the happening of a specified event, although such event may
never happen, such endorsement is called a „conditional‟ endorsement (Sec. 52).
 The law permits a conditional endorsement and therefore it does not in any way affect the
negotiability of the instrument. Thus, endorsements can validly be made in the following
terms:
(i) “Pay B or order on his marriage;”
(ii) “Pay B on the arrival of Pearless ship at Bombay.”
6. Sans recourse endorsement (Sec. 52):
When the endorser expressly excludes his own liability on the negotiable instrument to
the endorsee or any subsequent holder in case of dishonour of the instrument, the
endorsement is known as „sans recourse‟ endorsement.
Such an endorsement is generally made by adding the words „sans recourse‟ or „without
recourse.‟ Thus, “Pay X or order sans recourse” or “Pay X without recourse to me” or
“Pay X or order at his own risk” is examples of this type of endorsement.
7. Facultative endorsement:
When the endorser expressly gives up some of his rights under the negotiable instrument,
the endorsement is called a „facultative‟ endorsement. Thus, “Pay X or order, notice of
dishonour waived” is a facultative endorsement.
As a result of such an endorsement the endorsee is relieved of his duty to give notice of
dishonour to the endorser and the latter remains liable to the endorsee for the non-
payment of the instrument, even though no notice of dishonour has been given to him.

12. Explain the procedure for opening current account and operating the same.*
1. Application in the prescribed form
The person who intends to open the Savings deposit account has to approach the
Banker. The Banker supplies him with the account opening form and asks the
customer to fill in the account opening form. The depositor should state his name and
address, occupation, the amount of deposit and the period for which the deposit is to
be made. After filling in the various columns of the form, the depositor should put his
signature thereon.
2. Introduction of Applicant:
Before opening a savings account in the name of intending customer, the banker must
get true identity of the customer in order to ensure that he is a respectable person. The
applicant may be introduced to the banker in any of these three ways
 Customer of the Bank
 A respectable Person (famous & Familiar person)
 Employee of the Bank
3. Specimen signature
The Banker should obtain the specimen signatures of the depositor. Specimen
signatures are required for the verification of the identity of the depositor at the time
of repayment of the deposit.
4. Obtaining Mandate:
The Banker has to obtain the mandate in writing from the customer in case the
customer desires that his account is to be operated by an agent. It is an authorization
letter from customer to the Banker.
 5. Receiving Initial deposit
When all the formalities are completed the Banker should receive the deposit amount
from the customer. The deposit amount may be received in cash or cheque drawn in
favour of Banker
6. Opening the account of depositor in ledger
When the deposit is received from the customer, Banker should open the account in
the name of the depositor in the ledger of the Bank.
7. Handing over 3 Books: Cheque book, Pass book & Pay in Slip book.
Once the Account is opened the Bank will provide the following Books to their
customers
Cheque Book is used for withdrawals of amount as and when required
Pay-in-slip Book is used to deposit the amount into the Bank
Pass Book is record of customers‟ accounts.

13. Explain the duties of collecting banker.

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.
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.
14. Bring out the differences between lien and pledge.

Basis Pledge Lien

A pledge is something
A lien is merely a personal
Meaning between a simple lien and a
right
mortgage.
In a pledge, goods are It is only a creation of a
bailed as a security for right to possession in the
Creation of right:
payment of debt or for hands of the bailee. It is a
performance of a promise. mere right of retainer.
Right to sell: It gives a right to sell. It gives no right to sell
It creates a right of security
i.e. pledge of goods is not
Lien is host by loss of
Possession: lost by return of goods to
possession
the owner or by loss of
possession.
Pledge is created by Lien is created by law or by
Origin:
contract between the parties. express or implied contract.

15. What are the advantages of E-banking? / Online Banking?

Advantages of E-banking or Internet banking
 Convenience: Banks that offer internet banking are open for business transactions
anywhere a client might be as long as there is internet connection. Apart from periods
of website maintenance, services are available 24 hours a day and 365 days round the
year. In a scenario where internet connection is unavailable, customer services are
provided round the clock via telephone.
 Low cost banking service: E-banking helps in reducing the operational costs of
banking services. Better quality services can be ensured at low cost.
 Higher interest rate: Lower operating cost results in higher interest rates on savings
and lower rates on mortgages and loans offers from the banks. Some banks offer high
yield certificate of deposits and don‟t penalize withdrawals on certificate of deposits,
opening of accounts without minimum deposits and no minimum balance.
 Transfer services: Online banking allows automatic funding of accounts from long
established bank accounts via electronic funds transfers.
 Ease of monitoring: A client can monitor his/her spending via a virtual wallet
through certain banks and applications and enable payments.
 Ease of transaction: The speed of transaction is faster relative to use of ATM‟s or
customary banking.
 Discounts: The credit cards and debit cards enables the Customers to obtain
discounts from retail outlets.
 Quality service: E-Banking helps the bank to provide efficient, economic and quality
service to the customers. It helps the bank to create new customer and retaining the
old ones successfully.
 Any time cash facility: The customer can obtain funds at any time from ATM
machines.
16. Who is a customer? Explain the subsidiary relationship between banker and
customer.*
Customer is a person who has an account either savings account, current account, term
deposit account or maintains any similar relationship with a banker such as deposit cash
to others account, makes DD, deposits cheques to others account etc.

Subsidiary relationship:

Bailor and Bailee:

Bailee is one who possesses goods or articles on behalf of the owner (called bailor) of the
goods.
In other words, when customer leaves with the banker some valuables for safe custody in
the safe deposit vaults or lockers, the banker performs the functions of the Bailee and the
Customer becomes bailor
Trustee and Beneficiary
A trust is a relation between two persons by virtue of which one of them
(called trustee) holds property vested in him for the benefit of the other
(called beneficiary).
Principal and agent:
Generally, bankers render agency services for their customers. They pay insurance
premium, electricity bills, taxes, etc. They collect interest on investments, dividends on
shares, collect cheques, etc

17. Explain the procedure for opening Fixed deposit account*

Procedures to be followed by Banker while opening Fixed Deposit Account
1. Receiving the application in the prescribed form
The person who intends to open the fixed deposit account has to approach the Banker.
The Banker supplies him with the account opening form and asks the customer to fill
in the account opening form. The depositor should state his name and address,
occupation, the amount of deposit and the period for which the deposit is to be made.
After filling in the various columns of the form, the depositor should put his signature
thereon.
2. Obtaining specimen signature of depositor
The Banker should obtain the specimen signatures of the depositor. Specimen
signatures are required for the verification of the identity of the depositor at the time
of repayment of the deposit.
3. Receiving deposit
When all the formalities are completed the Banker should receive the deposit amount
from the customer. The deposit amount may be received in cash or cheque drawn in
favour of Banker
4. Opening the account of depositor in ledger
When the deposit is received from the customer, Banker should open the account in
the name of the depositor in the ledger of the Bank.
 5. Issuance of fixed deposit receipt.
It is an acknowledgement for receipt of deposit. Banker issues this receipt to customer
for receiving fixed deposit. It contains all the terms and conditions such as rate of
interest, amount of deposit, the period of the deposit is made and the instructions and
name and address of the depositor.
Fixed deposit is not „Negotiable‟. The transferrer of such receipt does not get better
title to it than transferrer himself and it does not entitle to transfer the right to use the
bank in his own name.

18. Explain the statutory protection available to collection Banker*

STATUTORY PROTECTION TO COLLECTING BANKS
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.

19. Explain the advantages of ATM *

1. 24 hours services
ATMs provide service round the clock. The customer can withdraw cash upto a certain a
limit during any time of the day or night.
2. It gives convenience to the 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. It is to be noted that ATMs are installed off-site. (away from bank
 premises) as well as on site (installed within bank's premises). ATMs provide mobility in
banking services for withdrawal.
3. It reduces workload of Bank staff
ATMs reduce the work pressure on bank's staff and avoids queues in bank premises
4. It provides 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 beneficial for travellers
ATMs are of great help to travellers. They need not carry large amount of cash with
them. They can withdraw cash from any city or state, across the country and even from
outside the country with the help of ATM.
6. It Provides privacy in Banking
Most of all, ATMs provide privacy in banking transactions of the customer.

20. Write a note on NRO and NRE Accounts.

NRE account:
A Non-Resident External (NRE) account is a bank account that‟s opened by depositing
foreign currency at the time of opening a bank account. This currency can be tendered in
the form of traveler‟s checks or notes.
NRO account:
A Non-Resident Ordinary (NRO) account is the normal bank account opened by an
Indian going abroad with the intention of becoming an NRI. An NRI can also open this
account by sending remittances from his home country or by transferring funds from his
other NRO account. It offers the same facilities as an NRE account, except that any
repatriation done through this account should be reported to RBI by filling up prescribed
forms.

21. Define Pledge. Explain its features

It is defined in the following words, "Bailment of goods as a security for the payment of a
debt or performance of a promise is called pledge."
Bailor is called pledgor or "Pawnor" and Bailee is called "Pawnee" or pledgee.
Example :- Mr. Shukla borrows Rs. Ten thousands from Mr. Pritam and keeps his motor
cycle as security for payment of the debt. The bailment of motor cycle is called pledge.

1. Moveable Property
The pledge is concerned with the moveable property. All types of goods and valuable
documents are included in it.
2. Transfer of Possession
In case of pledge only possession of goods transferred by the pawnor to the pawnee.
Example :- Mr. Nelson ledges car with Mr. Mcculan and gets Rs. 100,000. He gives the
possession of car to Mr Mcculan.
2. Ownership Right
In case of pledge, the ownership of the goods remains with the pawnor. It is not
transfered to pawnee.
 Example :- Mr. Wali pledges the plot with Mr. Raffel and gets 10 lac. The ownership of
the plot remains with Mr. Wali.
4. Case of Mere Custody
Those people who have only mere custody of the goods cannot pledge them.
Example :- A custodian cannot pledge his masters banglow. It will be invalid pledge.
5. Limited Interest
Pledge property cannot be used for unlimited interest. When a person pledges goods in
which he has only limited interest, the pledge is valid to the extent of that interest only.
Example :- Mr. Nelson gives car to Mr. Andre for repair, but does not pay Rs. 20,000
repair charges. Mr Andre pledges the car with Mr. Smith and borrows Rs. fifty thousands.
This pledge is valid only up to ten thousands.

22. What is Travellers Cheque? What are its characters

This service is meant for tourism traffic, which minimizes the risk of carrying heavy cash
while travelling. A person who intends to visit several places can purchase travelers
cheque issued by the banker
 Safety: In case lost or stolen, they can easily and freely replaced.
 Ease of use: It can be used globally at various large banks and exchange outlets.
It can be used for payment at international hotels, dinning halls, schools and
other consuming sites without any fee being charged.
 No expiring date: They are issued without any expiry date. In case they are not
used during the travel they can be saved for the next one or can be used at home.
 Multi-Currency: Traveler‟s can choose different currencies from different
countries.
 Cost-effective: They have a high exchange rate as compared to cash.
23. Explain the essentials of Cheques.
ESSENTIALS OF CHEQUES:
If one takes a close look at the definition of a cheque, it becomes clear that a cheque has
the following 10 essential elements or characteristics.
1. It must be in writing:
A cheque must be in writing. An oral order to pay does not constitute a cheque.
2. It should be drawn on banker:
It is always drawn on a specified banker. A cheque can be drawn on a bank where the
drawer has an account, saving bank, or current.
3. It contains an unconditional order to pay:
A cheque cannot be drawn so as to be payable conditionally. The drawer‟s order to the
drawee bank must be unconditional and should not make the cheque payable dependent
on a contingency. A conditional cheque shall be invalid.
4. The check must have an order to pay a certain sum:
The cheque should contain an order to pay a certain sum of money only. If a cheque is
drawn to do something in addition to, or other than to pay money, it cannot be a cheque.
For example, if a cheque contains „Pay Rs 50000 and a TV worth Rs 50000 to A„ it is not
a cheque.
 5. It should be signed by the drawer and should be dated:
A cheque does not carry any validity unless signed by the original drawer. It should be
dated as well.

6. It is payable on demand:
A cheque is always payable on demand.
7. Validity:
A cheque is normally valid for six months from the date it bears. Thereafter it is termed
as stale cheque. A post-dated or antedated cheque will not be invalid. In both cases, the
validity of the cheque is presumed to commence from the date mentioned on it.
8. It may be payable to the drawer himself:
Cheques may be payable to the drawer himself/herself. It may be drawn payable to bearer
on demand unlike a bill or a pro-note.
9. Banker is liable only to the drawer:
The banker on whom the cheque is drawn shall be liable only to the drawer. A holder or
bearer has no remedy against the banker if a cheque is dishonored.
10. It does not require acceptance and stamp:
Unlike a bill of exchange, a cheque does not require acceptance on part of the drawee.
There is, however, a custom among banks to mark cheques as „good‟ for the purpose of
clearance. But this marking is not an acceptance. Similarly, no revenue stamp is required
to be affixed on cheques.

24. Explain the Collecting Banker a. as a Holder for Value b. As an agent of the
Customer.

Holder Definition
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.

Holder for Value

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.

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.
 25. Write the differences between Pledge and Hypothecation

BASIS PLEDGE HYPOTHECATION

Meaning Bailment of goods as security against Hypothecation is the pledging of goods,

the debt for the performance of the against the debt without delivering them
obligation or the payment thereon, is to the lender.
known as the pledge.

Defined in Section172 of Indian Contract Act, Section 2 of Securitisation and

1872 Reconstruction of Financial Assets and
Enforcement of Security Interest Act,
2002

Legal Document Deed of Pledge Hypothecation Agreement

Possession of Remains with the creditor Remains with the debtor

property

Parties Pawnor (pledgor) and Hypothecator and Hypothecatee

Pawnee(Pledgee)

Rights of lender in To sale out the goods in his possession To take to possession of the asset first,
exceptional to adjust the debt. then it out to recover the debt.
circumstances

26. What are the reasons for dishonour of a customer’s Cheque?

REASONS FOR DISHONOR OF CHEQUE:
Bank can dishonor the cheque due to following reasons.
1. Irregular signature:
When the drawer signature does not match with the signature bank has in its record. The
bank will not accept the cheque for payment.
2. Insufficient Amount:
When the fund is not enough in drawer‟s account to meet the cheque for payment, the
cheque will be bounced. However, in case of overdraft facility, bank can accept the
cheque.
3. Insanity:
The bank will not accept the cheque, if the account holder gets insane and bank receives
notice of insanity.
4. Bankruptcy:
When the account holder is unable to pay of his debts in full, and this bankruptcy is
declared by the court of law, the bank will not honor a cheque presented on behalf of
such account holder.
5. Post-dated Cheque:
When a cheque is presented to the bank for payment before the date written on it is called
posted-dated cheque. This kind of cheque cannot be cashed till that date arrives.
 6. Stale Cheque:
The cheque which is older than six months is known as stale cheque. The bank does not
accept such a cheque.
7. Death:
When the account holder draws a cheque, and before it is presented to the bank, he dies,
and bank receives such information, the bank will dishonor the cheque.
8. Frozen Account:
If the customer account is frozen by the court of law, the bank will not honor the cheque
on behalf of that customer.
9. Drawer’s Revocation:
If the account holder draws a cheque and issues it, after he directs bank not to make
payment for such a cheque, the bank will not accept it.
10. Alteration:
If any alteration in the cheque is made and is not confirmed by the drawer by his
signature, the bank will dishonor it.

27. Differentiate between Pledge and Mortgage

Basis Pledge Mortgage

Nature Pledge is always of movable property. Mortgage is only for immovable property.

It involves physical transfer of goods, The ownership of property can be transferred under
Transfer
not the ownership of goods. certain conditions.

Written The contract is not essential to be in It is essential for the contract to be written, testified by
Contract written form. two witnesses and registered.

The pawnee cannot use the goods kept in The mortgagee has the right to use the property
Right To Use
pledge. mortgaged to him.

Number Of An item can be kept in pledge for only The mortgagor can take more than one loan not
Loans one loan. exceeding the value of the property mortgaged.

The pawnee cannot pledge the goods in

The mortgagee can transfer his interest in the mortgaged
Re- Loan his possession to another person against
property to another person by a sub-mortgage.
a loan.

The pawnee has the right, in the event of The mortgagee who has given the loan first, has the
Right a default on the part of pawnor, only to right to claim the amount of his loan first, in case the
sell the goods kept under pledge. property is mortgaged to more than one mortgagee.

The pawnor cannot impose any The mortgagee can, in some circumstances, impose
Restrictions
restrictions on the goods under pledge. restrictions on the property mortgaged.
 Section C
Answer any Two of the following questions: (2x10=20)

1. Explain the relationship between Banker and Customer.**

The Relationship between Banker and Customer is categorized as under
 General Relationship
 Specific Relationship

General Relationship between Banker and Customer

1. Debtor-Creditor Relationship:
 When Customer Deposits money in Bank, Customer is the Creditor, &
Banker is a Debtor (When you Deposit Customer –Deposit Customer
become Creditor DCC)
 When a Banker lends money to the customer, Customer is a debtor and
Banker is a Creditor (When you take loan from Bank –Loans Customer
becomes Debtor LCD)
2. Banker as an agent: Generally, bankers render agency services for their
customers. They pay insurance premium, electricity bills, taxes, etc. They collect
interest on investments, dividends on shares, collect cheques, etc
3. Banker as a bailee: Bailee is one who possesses goods or articles on behalf of
the owner (called bailor) of the goods.
In other words, when customer leaves with the banker some valuables for safe
custody in the safe deposit vaults or lockers, the banker performs the functions of
the bailee and the Customer becomes bailor.
4. Banker as a Trustee : A trust is a relation between two persons by virtue of
which one of them (called trustee) holds property vested in him for the benefit of
the other (called beneficiary).
 5. Bank as an executor: Where a customer appoints a banker as his executor and
leaves property through a will, the banker has to administer the property
according to the terms of the will after the death of such customer.
6. Banker as an Attorney: The customer may grant a special power of attorney to
his banker to transact certain dealings on his behalf. The banker is the attorney of
the customer in such cases.

Special relationships between banker and customer

1. Obligation to honor Cheques : According to Sec. 31 of the Negotiable
Instruments Act, 1881, every banker must honor the cheques drawn on it by
a customer,
2. Banker's Lien: A lien may be defined as the right to retain property belonging to
a debtor until he is discharged of his debt due to the retainer (creator) of the
property. The banker's lien refers to the right of banker over such of his
customer's securities as may come into his possession in the ordinary course of
business.
3. Secrecy of Customer's Accounts: It is an obligation on the part of a banker to
maintain secrecy about the customer's accounts. The banker must not disclose any
information pertaining to the customer to anyone.
4. Banker's Right to Combine Accounts: The Banker has a right to combine
several accounts kept by the customer at the same branch or different branches of
the bank (Garnet V. Mc Kervan). The banker however, cannot combine the
personal account of a customer with a joint account of a customer and some other
person. Customer has no right to treat two accounts as one.
5. Banker's Right to Set-Off: The banker can adjust a debit balance to a customer's
account with any balance standing to the customer's credit. While doing so, the
banker gives due notice to the customer.

2. What do you mean by endorsement? Explain the different types of endorsement. *

ENDORSEMENT:
In its literal sense, the term endorsement means writing on an instrument. In its technical
sense in the Act, it means the writing of a person's name on the face or back of a
negotiable instrument or on a slip of paper for the purpose of negotiation.
The act of signing a cheque for the purpose of transferring it to somebody else is known
as “Endorsement”.
TYPES OF ENDORSEMENTS:
1. Blank or general endorsement:
If the endorser signs his name only and does not specify the name of the endorsee, the
endorsement is said to be in blank Sec. 16(1).
The effect of a blank ndorsement is to convert the order instrument into bearer instrument
(Sec. 54), which may be transferred merely by delivery.
2. Endorsement in full or special endorsement:
If the endorser, in addition to his signature, also adds a direction to pay the amount
mentioned in the instrument to, or to the order of, a specified person the endorsement is
said to be in full [Sec. 16(1)].
 If, for example, A, the holder of a bill of exchange, wants to make an endorsement in full
to B, he would write thus: “Pay to B or order, SdA4.” After such an endorsement it is
only the endorsee, i.e., B, who is entitled to receive the payment of the instrument and to
further negotiate the instrument by his endorsement.
3. Partial Endorsement:
Section 56 provides that a negotiable instrument cannot be endorsed for a part of the
amount appearing to be due on the instrument. In other words, a partial endorsement
which transfers the rights to receive only a part payment of the amount due on the
instrument is invalid.
4. Restrictive endorsement:
When an endorsement prohibits further negotiation of a negotiable instrument, it is said
to be restrictive. Section 50 of the NI Act 1881states, “The endorsement may, by express
words, restrict of exclude the right to negotiable or pay constitute the endorsee an agent
to endorse the instrument or to receive its contents for the endorser or for some other
specified person.”
5. Conditional endorsement:
If the endorser of a negotiable instrument, by express words in the endorsement, makes
his liability, dependent on the happening of a specified event, although such event may
never happen, such endorsement is called a „conditional‟ endorsement (Sec. 52).
The law permits a conditional endorsement and therefore it does not in any way affect the
negotiability of the instrument. Thus, endorsements can validly be made in the following
terms:
(i) “Pay B or order on his marriage;”
(ii) “Pay B on the arrival of Pearless ship at Bombay.”
6. Sans recourse endorsement (Sec. 52):
When the endorser expressly excludes his own liability on the negotiable instrument to
the endorsee or any subsequent holder in case of dishonour of the instrument, the
endorsement is known as „sans recourse‟ endorsement.
Such an endorsement is generally made by adding the words „sans recourse‟ or „without
recourse.‟ Thus, “Pay X or order sans recourse” or “Pay X without recourse to me” or
“Pay X or order at his own risk” is examples of this type of endorsement.
7. Facultative endorsement:
When the endorser expressly gives up some of his rights under the negotiable instrument,
the endorsement is called a „facultative‟ endorsement. Thus, “Pay X or order, notice of
dishonour waived” is a facultative endorsement.
As a result of such an endorsement the endorsee is relieved of his duty to give notice of
dishonour to the endorser and the latter remains liable to the endorsee for the non-
payment of the instrument, even though no notice of dishonour has been given to him.

3. Explain different modes of creating charge on the assets.

Lien: Lien means the right to retain the goods of the borrower until the debts are repaid.
Pledge: Pledge is the bailment of goods as security for payment of a debt. Only movable
goods can be pledged.
Hypothecation: Hypothecation creates on equitable charge on movable property without
possession. However, the hypothecation deed provides that the banker will have the right
to take the goods hypothecated in its possession if the the need arises.
 Mortgage: A mortgage is a conveyance of an interest in property (land or any immovable
property) for securing a debt. A legal mortgage is created by a registered deed and gives
the mortgagee the right of sale in case of default of the borrower.
Assignment: Assignment is transfer of ownership from one person/authority to another
person/authority.
Set-off: Set-off means the total or partial merging of a claim of one person against
another in a counter claim by the latter against the former.

Types of Security Modes of Charging security

Immovable Security:
Land, Building, Apartments, Factory Building, Heavy Mortgages.
Machinery etc.

Movable security:
Hypothecation,
Goods (Inventory) e.g. Raw materials, Work-in-progress
Pledge.
and finished goods, Machineries, vehicles.

Financial obligations (Instruments):

FDR, ICB Unit Certificates, Wage earner development Lien, Set-off
Bonds, Shares etc.

Actionable Claim:
Book Debt (Accounts Receivable), Supply Bill (Contract Assignment
bill), Life Insurance Policy etc.

Title to Goods:
Shipping Documents, Commercial Invoice, Transport
Lien
Documents (Bill of Lading, Truck Receipt, Railway
receipt), Insurance documents and Other documents.

4. Explain different types of accounts that can be opened by a customer with a bank.
Saving account:
Saving account is used by general public; there are restrictions imposed by the bank on the
amount to be withdrawn by the depositor. To withdraw more money he should have to give
prior notice to the bank. Banks also pays interest on this account but the rate of interest is
lower than the interest payment on the fixed deposits
Current account:
This account is generally owned by businessmen. The person who has this account can
withdraw money any times from the bank. Generally no interest is paid by the bank on this
account and bank could impose charges from the customer if the amount in the account is
below a certain specified level.
Fixed Deposit or time deposit account:
Cash is deposited in this account for a fixed period of time and customer can also withdraw
the amount before the time in the case of any emergency, but they will receive lesser interest.
Longer the period of deposit higher is the rate of interest.
Recurring Deposit Account:
Under this account, a specified amount is deposited every month for a specified period, such
as 12, 24, 36 or 60 months. This amount cannot be withdrawn before the expiry of the given
 period except under exceptional circumstances. Interest on the amount deposited is also
credited to the account of the depositor. Interest given on this account is higher than other
accounts.
Demat Account:
Demat account refers to the dematerialized account for individual Indian citizens to trade in
listed stocks or debentures in electronic form rather than paper, as required for investors by
the Securities and Exchange Board of India (SEBI). In a demat account, shares and securities
are held electronically instead of the investor taking physical possession of certificates. A
demat account is opened by the investor while registering with an investment broker (or sub-
broker). The demat account number is quoted for all transactions to enable electronic
settlements of trades to take place.
NRE account:
A Non-Resident External (NRE) account is a bank account that‟s opened by depositing
foreign currency at the time of opening a bank account. This currency can be tendered in the
form of traveler‟s checks or notes.
NRO account:
A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian
going abroad with the intention of becoming an NRI. An NRI can also open this account by
sending remittances from his home country or by transferring funds from his other NRO
account. It offers the same facilities as an NRE account, except that any repatriation done
through this account should be reported to RBI by filling up prescribed forms.

5. Explain the special relationship obligation to maintain the secrecy of accounts

between banker and customer *
Special relationships between banker and customer
1. Obligation to honor Cheques : According to Sec. 31 of the Negotiable
Instruments Act, 1881, every banker must honor the cheques drawn on it by
a customer,
2. Banker's Lien: A lien may be defined as the right to retain property belonging to
a debtor until he is discharged of his debt due to the retainer (creator) of the
property. The banker's lien refers to the right of banker over such of his
customer's securities as may come into his possession in the ordinary course of
business.
3. Secrecy of Customer's Accounts: It is an obligation on the part of a banker to
maintain secrecy about the customer's accounts. The banker must not disclose any
information pertaining to the customer to anyone.
4. Banker's Right to Combine Accounts: The Banker has a right to combine
several accounts kept by the customer at the same branch or different branches of
the bank (Garnet V. Mc Kervan). The banker however, cannot combine the
personal account of a customer with a joint account of a customer and some other
person. Customer has no right to treat two accounts as one.
5. Banker's Right to Set-Off: The banker can adjust a debit balance to a customer's
account with any balance standing to the customer's credit. While doing so, the
banker gives due notice to the customer.
6. What is Banker‟s obligation to honour customer‟s cheque? Explain the conditions to
honour customer cheque
6. Explain any four special types of customer of a bank.
SPECIAL TYPES OF CUSTOMERS IN BANK
1. Minors
A minor is a person who has not completed 18 years of age. In case a guardian of his
person or property is appointed by a court of law before he completes his 18 years, the
period of minority is extended to the completion of 21 years. As per section 11 of the
contract act a minor is incompetent to contract but section 26 of the Negotiable
Instrument Act allows a minor to draw, endorse, deliver and negotiate a negotiable
instrument.
2. Lunatics
A person of unsound mind cannot make a valid contract. So, the bankers 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.
3. Illiterate persons
An illiterate person means a person who can‟t sign his name. While opening of an
account of such a person is unavoidable, the banker 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 on the
account opening form and specimen signature card (3) At least two copies of photograph
duly attested by any account holder/authorized bank official.
4. Married women
A married woman can enter into contract and bind her personal (separate) estate. A
banker may, therefore, open an account in the name of a married woman
5. Executors and administrators:
Executors and Administrators are allowed to open bank account. Formalities are to be
observed while opening the account in the name of executor/administrator:
7. Trustees
A banker must be cautions in opening/operating a trust account as the trustees are
responsible for public money.
8. Joint accounts
Joint account means account of two or more persons who are not partners.
9. Partnership firm
A firms 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.
10. Joint stock companies
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.
11. Societies and other non- trading institutions
The society, be it a club, school, hospital or any institution must be registered as a
corporate body. Societies, unless registered are not recognized by the law and have no
contracting powers
12. Customer’s attorneys
A person may by a written and stamped document appoint a person as his attorney to deal
on his behalf with third parties. This power may be general (to act in more than one
 transaction) or special (to act in a single transaction). The power of attorney can authorize
a person to sign cheques (i.e. operate the account) on behalf of the customer.

7. Procedures to be followed by Banker while opening Fixed Deposit Account

1. Receiving the application in the prescribed form
The person who intends to open the fixed deposit account has to approach the Banker.
The Banker supplies him with the account opening form and asks the customer to fill
in the account opening form. The depositor should state his name and address,
occupation, the amount of deposit and the period for which the deposit is to be made.
After filling in the various columns of the form, the depositor should put his signature
thereon.
2. Obtaining specimen signature of depositor
The Banker should obtain the specimen signatures of the depositor. Specimen
signatures are required for the verification of the identity of the depositor at the time
of repayment of the deposit.
3. Receiving deposit
When all the formalities are completed the Banker should receive the deposit amount
from the customer. The deposit amount may be received in cash or cheque drawn in
favour of Banker
4. Opening the account of depositor in ledger
When the deposit is received from the customer, Banker should open the account in
the name of the depositor in the ledger of the Bank.
5. Issuance of fixed deposit receipt.
It is an acknowledgement for receipt of deposit. Banker issues this receipt to customer
for receiving fixed deposit. It contains all the terms and conditions such as rate of
interest, amount of deposit, the period of the deposit is made and the instructions and
name and address of the depositor.
Fixed deposit is not „Negotiable‟. The transferrer of such receipt does not get better
title to it than transferrer himself and it does not entitle to transfer the right to use the
bank in his own name.

8. What is Hypothecation? explain the precautions to be taken by the banker in case of

hypothecation
Hypothecation creates on equitable charge on movable property without possession. The
mortgage of movable property for securing loan is called Hypothecation. In other words,
in case of hypothecation, a charge over movable properties like goods, raw materials,
goods in progress is created. Hypothecation is a charge against property for an amount of
debt where neither ownership nor possession is passed to the creditor.
Precaution and general guidelines for Hypothecation:
As goods under hypothecation remains in the possession of the borrower, extra care has
to be exercised to see that the bank‟s security is complete, adequate, safe and available at
times when required. The banker should take the following precautions:
 1. He must get stock statements periodically which contain a declaration by the
borrower regarding his title to goods and correctness of the quality, quantity etc.
2. On the basis of the statement, he should inspect the stock and books of accounts of
the borrower.
3. An undertaking from the debtor in writing, stating that he has not hypothecated the
same goods to any other bank must be obtained.
4. The banker should get a letter of hypothecation containing several clauses to protect
his interest under all circumstances.
5. The banker should insist on the borrower insuring the goods against the risks. He
should also get it endorsed and assigned in his favour.
6. A board reading “Stock Hypothecated to X Bank” should be displayed in the place
where the goods are stored.

9. Who is Paying Banker? Explain the precautions to be taken by the Banker while
honouring his customer’s cheque
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.
The banker has to take the following precautions while honouring the cheques of his
customers:
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.
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.
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.
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.
 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.
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‟.
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.
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.

10. Write a short note on a. Special service of Modern Banking b. Credit & Debit Cards

a. Special Services of Modern Banking:

 Teller System
This system is introduced to expedite payment of cheques for small amounts.
Teller system is an arrangement under which the teller ( i.e. the employee of the bank
at the teller counter) is authorized to make payments for cheque up to a limited
amount without reference to the ledger balance or the specimen signature.
 Automatic Teller Machine
It is a machine that enables a bank‟s customer to deposit money in a bank, withdraw
it, transfer it and check the debit in one‟s account accurately without help of the bank
employees.
 A machine with which we can do,
 Withdraw of cash
 Transfer of money
 Get mini statement and account balance
 Request for cheque book
 Recharge for cellphones
 Pay bills

 Online Banking
Online banking allows a user to conduct financial transactions via the Internet. Online
banking is also known as internet banking or web banking.
Online banking offers customers almost every service traditionally available through
a local branch including deposits, transfers, and online bill payments.
 Credit Card
Credit Card is a postpaid card. The credit card holder is empowered to spend
wherever and whenever he wants with his credit card within the limits fixed by his
bank.
Credit card is plastic money that is used to pay for products and services around the
world.
Most credit cards are the same shape and size as specified by the ISO 7810 standard
 Travelers Cheque
This service is meant for tourism traffic, which minimizes the risk of carrying heavy
cash while travelling. A person who intends to visit several places can purchase
travelers cheque issued by the banker
 It can be purchased by anyone, don‟t required to have account
 A person may Buy any number of Travelers cheques
 Each cheque should be signed by the purchaser in front of issuing official
 These are issued in a single name, not in joint
 Gift cheques
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
• It can be encashed at any branch.
• Interest will be applicable only if the instrument is encashed after 3 months
from the date of issue
• No service charge is applicable
• They are normally issued for Rs. 11, 21, 51, 101

 Seven Days Banking

Seven Days Banking Service is a service given to the customer for their extra comfort
and for who are busy entire week so they run on weekends also.
It is a differentiating point that a bank has over its competitors. This service is
provided by some banks not all banks.
• It provides convenience to the customers, as they can easily do their work on
Sundays
• This is the special value added service offered by the banks to their customers
 b. Credit cards & Debit Cards:

BASIS CREDIT CARD DEBIT CARD

Credit card is issued by a bank or any Debit card is issued by a bank to allow
financial institution to allow the holder of its customers to purchase goods and
Meaning the card to purchase goods and services on services, whose payment is made
credit. The payment is made by the bank directly through the customer's account
on the customer's behalf. linked to the card.

Implies Pay later Pay now

Bank The bank account is not prerequisite for The bank account is a must for issuing
Account issuing a credit card. a debit card.

The maximum limit of withdrawing The maximum limit of withdrawing

Limit money is determined according to the money will be less than the money
credit rating of the holder. lying in the saving bank account.

There is no such bill, the amount is

The holder of the card has to pay the credit
Bill directly deducted from the customer's
card bill within 30 days of every month.
account.

Interest is charged when payment is not

Interest made to the bank within a specified time No interest is charged.
period.

11. Explain the general principles of secured loans

Write the answer of Principles of lending

12. Explain the legal position of the banker in the following cases
a. B deposits gold ornaments worth Rs 10,000 with the Banker for safe custody
Banker is a Bailee in the above case
When customer leaves with the banker some valuables for safe custody in the safe
deposit vaults or lockers, the banker performs the functions of the bailee and the
Customer becomes bailor. The relationship between the banker and the customer
in such a case is that of a bailee and the bailor.

b. C hands over cash of Rs 1000 to the banker directing him (Banker) to buy some
securities for him (Customer)
Banker as an Attorney: The customer may grant a special power of attorney to his
banker to transact certain dealings on his behalf. The banker is the attorney of the
customer in such cases.
Note: Power of Attorney refers to the authority to act for another person in legal
or financial matters.
 c. D deposits Rs 20000 with the bank to be held for one year as a fixed deposit
When Customer Deposits money in Bank, Customer is the Creditor & Banker is a
Debtor.

d. P goes to bank & pays Rs 600 towards the payment of his electricity bill issued by
KEB
When a customer chose bank to pay his electricity bills and other bills, then the
relationship between the banker and customer is Principal and agent. Customer is
a Principal and Bank acts as customer‟s Agent.

e. T sends cheque to Bank for collection.

The relationship between the banker and customer is Principal and Agent, as the
banker collects the cheque on behalf of his customer. So the Customer is a
Principal and Banker is an Agent.

13. What is Mortgage? Explain different kind of Mortgages.

A mortgage is a type of home loan in which the lender provides a property loan against
the mortgage of the property itself. This gives them the right to acquire and sell the
property if the borrower defaults on the repayment or violates the set terms and
conditions otherwise.

There are five common types of mortgages in India:

1. Simple Mortgage
In this, the possession of the mortgaged property is not delivered to the mortgagee*.
However, the mortgagor^ legally binds themselves to repay the mortgage money, in
return of which the mortgagee agrees to have them the right to sell off the property to
earn their money back in case they fail to repay.
2. English Mortgage
In this, the mortgagor agrees to repay the mortgage money by a certain date and then
transfer the property to the mortgagee. The mortgagee, on the other hand, agrees to
retransfer the property back to the mortgagor once they have paid the mortgage money as
per the terms and conditions.
3. Usufructuary Mortgage
In this, the mortgagor grants the possession of the property to the mortgagee until the
repayment of mortgage money and allows them to receive the profits earned from it (in
the form of rent, etc.). In return, the mortgagee agrees to appropriate the same in lieu of
interest or in payment of the mortgage-money.
4. Mortgage by Deposit of Title Deeds
In this mortgage, the mortgagee provides their documents of title to the immovable
property to the mortgagor, with intent to create security on the same.
5. Mortgage by Conditional Sale
A mortgage by conditional sale is when the mortgagor sells the property to the mortgagee
on the condition that the sale will become absolute if there is a default of repayment.
Also, on the repayment of the money, the sale will become void and the mortgagee will
transfer the property back to the mortgagor.
14. Banker is a dignified Debtor – Explain the statement

Banker is a dignified debtor is justified with below mentioned points. The banker is the
dignified debtor for the following reasons.

1. Banker is called a 'dignified debtor'. Virtually banker borrows money but it is given a
name called 'deposit'. No security need be given for the borrowing.
2. Customer is not the secured creditor of the bank, as he is not having any charge on
any asset of the bank. He is only an unsecured creditor.
3. Customer's balance at bank is not repayable until a demand for repayment was made
by the customer. There should be an express demand for it.
4. Banker should pay the deposit money on demand by the customer. The deposit should
be paid at the appropriate place.
5. The demand should be made by the customer on working days and during the
business hours and it should be made in proper form.

15. Briefly explain the principles of good Lending

(a) Safety: When a loan or investment is made, the banker will have to ensure that the
money advanced is returned by the borrower along with interest within the stipulated
period. This is possible only when the borrower does not face any risk and strictly
adheres to the terms and conditions of the loan. For this purpose, the banker will have to
choose such type of borrowers who are prompt in repayment of the principal and interest
amount.
(b) Liquidity: An asset is said to be liquid when it can be converted into cash within a
short notice, without loss. As the bank is investing or lending the depositors‟ money, it
has to take more precaution while doing so. The depositor may demand his/her money at
any time and the bank must be in a position to repay the same.
(c) Purpose: A banker would not throw away money for any purpose for which the
borrower wants. The purpose should be productive so that the money not only remains
safe but also provides a definite source repayment.
(d) Profitability: When a bank is undertaking lending or investment, it has to earn a
good return. The bank has profit as its main business motive. So, while lending or
investing the depositor‟s money, the bank must earn higher interest or higher return. If
the bank is able to achieve this, it will be deploying its funds in such ventures which give
a higher return.
(e) Shift ability: As the bank is giving loan against the security, in case of bad debts, the
bank must be able to sell the security and realize the loan amount. In some cases, the
bank will not sell the security, but will shift the same to the Central bank which will grant
the commercial bank additional fund against the security. Mostly treasury bills can be
shifted to Central bank and the commercial bank can raise additional funds.

(f) National Interest: The bank must keep in mind national interest while lending or
investing depositor‟s money. When a country is facing unemployment, the bank must
give more loans to employment oriented industries, so that the problem of unemployment
 can be reduced. Similarly, when a country is faced with food problem, more loans should
be given for agriculture so that, food production can be increased.
(g) Safety Margin: While granting loan against security, the bank will have to keep
sufficient safety margin. This means that a bank will land only unto 50 or 60% of the
value of security as loan by keeping a safety margin of 4 or 50%. For example, when loan
is given against a jewel whose market value is Rest. 10,000/-. the loan amount will be
Rest. 6,000/- and the safety margin Rest. 4,000/- now even if the market value of the
jewel fluctuates to Rest.
9,000/- or Rs.8,000/- still the banker will be able to realize the loan amount in case the
borrower defaults.
(h) Diversification: As the banker lends or invests, he cannot invest all his resources in a
single industry or with a single borrower. The banker should not keep all the eggs in the
same basket. By choosing a single industry such as iron and steel or sugar, the banker is
inviting more risks. It is likely that these industries may face depression and the banker
will find it difficult to recover the loan or realize his investment.
(i) Law of Limitation Act:
A lending banker should also bear in mind the Law of Limitation Act. According to this
Act, a debt will become a bad one after the expiry of three years from the date of loan. It
is applicable to loans and advances granted by banks. Hence, each and every banker
should be very careful in renewing the loan, year after year. Otherwise, these loans would
become bad subsequently.

16. What is a Garnishee order? explain the conditions where garnishee order can be
applied
Garnishee means a judgment-debtor‟s debtor. He is a person who is liable either to pay
debt to a judgment-debtor or account for any movable property not in the possession of
the judgment-debtor.
 The debt must be one other than a debt secured by a mortgage, a charge, a negotiable
instrument, or a debt recovered only in a revenue court.
 A garnishee order is an order which a court is authorized to make against a garnishee-
judgment debtor‟s requiring him to pay or deliver in court the amount due from or the
property deliverable by him to the judgment-debtor or so much as may be sufficient
to satisfy the decree and the cost of execution.
 The court may in the case of debt (other than a debt secured by a mortgage or a
charge) which has been attached under R. 46 (attachment of a debt, share and other
property not in possession of the judgment-debtor), upon the application of the
attaching creditor, issue notice to the garnishee liable to pay such debt, calling upon
him either to pay into court the debt due from him to the judgment-debtor or so much
thereof as may be sufficient to satisfy the decree and costs of execution, or to appear
and show cause why he should not do so. The application shall be made on affidavit
 verifying the facts alleged and stating that in the belief of the deponent, the garnishee
is indebted to the judgment-debtor.
 Where the garnishee pays in the court the amount due from him to the judgment-
debtor or so much thereof as is sufficient to satisfy the decree and the costs of the
execution, the court may direct that the amount may be paid to the decree-holder
towards satisfaction of the decree and costs of the execution. (O. 21, R. 46-A).
 Where the garnishee does not forthwith pay into court the amount due from him to
the judgment-debtor or so much thereof as is sufficient to satisfy the decree and the
costs of execution, and does not appear and show cause in answer to the notice, the
court may order the garnishee to comply with the terms of such notice, and on such
order, execution may issue as though such order were a decree against him. (O. 21, R.
46-B).

17. What is a Cheque? Explain the different types of cheques

Cheque is an instrument in writing containing unconditional order, drawn on a banker,
sign by the drawer, and payable on demand. It is used to withdraw money deposited in
the bank.
According to Section 6 Negotiable Instrument Act:
"Cheque is an instrument drawn on specific banker, ordering to pay specific amount, to a
specific person, after the specific date."
Types of Cheque:
Cheques are of following types:
1. Bearer Cheque:
2. Order Cheque:
3. Cross Cheque:
4. Open Cheque:
5. Account Payee Cheque:
6. Stale Cheque:
7. Post Dated Cheque:
8. Ante Dated Cheque:

1. Bearer Cheque:
A cheque which is payable to any person who presents it at the counter of the bank is
known as bearer cheque. It can be transferred to another person by mere delivery.
However, it‟s a risky cheque because if it is lost, the finder of it can receive cash from the
bank.
2. Order Cheque:
A cheque which is payable to a person whose name is mentioned in it is called order
cheque. In order cheque the word “bearer” is cancelled. It can be transferred to a third
person by the order of the original payee.

3. Cross Cheque:
When a cheque is crossed by drawing two parallel lines on the face it becomes crossed
cheque. Such cheque cannot be cashed at the counter of the bank. It is only be credited to
the payee‟s account. It has the following kinds.
a. General crossing
b. Special crossing

General Crossing: When a cheque is crossed by drawing two parallel lines on the face of
it with additional words like “Payees A/c Only” or “Not Negotiable” or “& Co”.

Special Crossing: When a cheque is crossed by drawing two parallel lines on the face of
it with a particular bank name.

4. Open Cheque:
When a cheque is not crossed it is called an open cheque. Such a cheque can be cashed at
the counter of the bank. It may be a bearer or an order cheque.
5. Account Payee Cheque:
On the Account payee cheque, two lines are made with the word "account payee" on the
top right of the cheque. Amount mentioned on the cheque is only transferred to the bank
account of the payee whose name is mentioned on the cheque. No cash payment is made.
This cheque can not be endorsed to the third party.
6. Stale Cheque:
In India, if a cheque is not presented to the bank within 3 months from the date written on
the cheque is known as a stale cheque.
For example - On 10 January 2019, If the cheque is presented to the bank on 10 April
2019, the chque will be returned by bank stating that cheque is stale.

7. Post Dated Cheque:

If any cheque issued by a holder to the payee for the upcoming withdrawn date, then that
type of cheques are called post-dated cheque.
For example - On 10 January 2019, Ram issued a cheque to Sham. Date written on the
cheque is 10 February 2019.

8. Ante Dated Cheque:

If date entered on the cheque is prior to the current date, that type of cheque is known as
Ante-dated cheque.
For example - On 10 January 2019, Ram issued a cheque to Shyam. Date written on the
cheque is 10 December 2018.
 Section D
Answer the following question (compulsory). (1x15=15)

1. Answer the following (2012)

a). Mr. Shivu, a proprietor of Shiva Traders has been facing a problem of dishonoring of
Cheques issued to his customers. He approached the banker, in this regard, with all the
dishonored cheques. As a banker, advise him in detail in what circumstances cheques
becomes dishonour.
As a Bannker, I educate Mr. Shivu that there are Circumstances or reasons for
dishonor of Cheques. They are as follows
1. Irregular signature:
When the drawer signature does not match with the signature bank has in its record. The
bank will not accept the cheque for payment.
2. Insufficient Amount:
When the fund is not enough in drawer‟s account to meet the cheque for payment, the
cheque will be bounced. However, in case of overdraft facility, bank can accept the
cheque.
3. Insanity:
The bank will not accept the cheque, if the account holder gets insane and bank receives
notice of insanity.
4. Bankruptcy:
When the account holder is unable to pay of his debts in full, and this bankruptcy is
declared by the court of law, the bank will not honor a cheque presented on behalf of
such account holder.
5. Post-dated Cheque:
When a cheque is presented to the bank for payment before the date written on it is called
posted-dated cheque. This kind of cheque cannot be cashed till that date arrives.
6. Stale Cheque:
The cheque which is older than six months is known as stale cheque. The bank does not
accept such a cheque.
7. Death:
When the account holder draws a cheque, and before it is presented to the bank, he dies,
and bank receives such information, the bank will dishonor the cheque.
8. Frozen Account:
If the customer account is frozen by the court of law, the bank will not honor the cheque
on behalf of that customer.
9. Drawer’s Revocation:
If the account holder draws a cheque and issues it, after he directs bank not to make
payment for such a cheque, the bank will not accept it.
10. Alteration:
If any alteration in the cheque is made and is not confirmed by the drawer by his
signature, the bank will dishonor it.

b) As a Manager of a bank how do you act under following circumstances?

 When “Order Nisi” is issued against your customer?
 I being a banker immediately have to inform the customer, and the cheque
presented after receiving Order Nisi will be not accepted.
 As per rule 46A, a notice is issued to a garnishee (a person sought to be warned)
before a garnishee order is passed. It is known as Order NISI. Court order the
bankers to stop operation, payment out of the funds of judgement debtor and for
appearance in court on a given date.
 Bank also informs the concerned customer about the receipt of the order so that
dishonor of any Cheque issued by him may be avoided.
 If such Order is not passed and an opportunity of hearing is not given by the
court, the order shall be null and void.

 When a customer applies for the loan against his fixed deposit receipt?

Yes, Banker can sanction the loan against Fixed Deposit receipt.
You can avail loan against your Fixed Deposit (FD) if your credit score is low,
you do not meet the income eligibility criteria, or if you have no other assets to
pledge for a secured loan. The interest rate on such loans range between 1% and
2% above the FD rate and can be repaid in up to 60 months. These loans are
usually given in the form of an overdraft or demand loan.

 When your customer is declared as an insolvent?

For insolvency, Banker has to receive notice from the court. There after the
banker follows the court instructions. Until and unless you get the notice from the
court you cannot consider your customer as insolvent by mere words from your
customer.
2. Answer the following (2013)
a) A and B who have joint current Account (payable to either or survivor) have granted
a power of attorney in favour of C to operate on the account. C usually operates the
account. Yesterday a notice was received by you as a banker, about the death of B.
Today, a cheque for Rs. 2500 (drawn on the account and signed by C is presented for
payment). How would you deal?
As a Banker, First I have to inform A about the cheque of 2500 brought by C
presented for payment. We will tell him the guidelines as well as about the power of
attorney of C and as by the death of B now it is not a joint current account anymore.
So only by confirmation with A, I being a Banker can pay the amount to C

b) Mrs. Bharati Desai and her minor son Ajay aged 12 years have a joint Bank A/c in
State Bank of India. The account shows a credit Balance of Rs. 50,000 as on 1st
October 2013. The bank is informed of the death of Mrs. Desai on 3rd October 2013.
Her minor son who is the only child of the family approaches you the banker on 10th
October 2013 asking you to pay the balance of Rs. 50,000 lying in the account. (Ajay
does not have father). He wants to go out of India with his uncle? How will you as a
banker deal with the situation?
As a Banker, I would tell Ajay the rules and regulations made by the Bank on joint
account that only a person who is above the age of 18 can only withdraw the amount
from his account. I would only show him the documents and can give the copy of that
as a proof that he will get the amount of Rs. 50,000 when he will reach at the age of
18.
c) Mr. Mahesh a faithful secretary of a club, deposits a cheque for Rs. 25,000 favouring
the club in his personal A/c and states that he has to receive a sum of Rs. 25,000 from
the club and hence he is depositing this cheque in his personal account. As a banker,
would you accept the cheque for credit of his personal account?

As a Banker, I would not accept the cheque for the credit of the personal account.
Because as a banker, a cheque of Rs. 25,000 which is in favour of the club should not
be deposited to any personal account. According to the rules, the cheque is deposited
to only those accounts, whose name is mentioned o the face of the cheque. So, I will
not allow to deposit the cheque in the personal account belongs to Mr. Mahesh
irrespective of his position and faithfulness.

3. Answer the following (2014)

a) State the relationship between the banker and customer in regard to the following:
i) A current account
When Customer Deposits money in Bank, Customer is the Creditor, & Banker
is a Debtor (When you Deposit Customer –Deposit Customer become
Creditor DCC)
 ii) A loan account
When a Banker lends money to the customer, Customer is a debtor and
Banker is a Creditor (When you take loan from Bank –Loans Customer
becomes Debtor LCD)

iii) A fixed deposit account

When Customer Deposits money in Bank, Customer is the Creditor & Banker
is a Debtor

iv) Safe custody account

When customer leaves with the banker some valuables for safe custody in the
safe deposit vaults or lockers, the banker performs the functions of the bailee
and the Customer becomes bailor. The relationship between the banker and
the customer in such a case is that of a bailee and the bailor.

v) Purchase and sale of Securities on behalf of a customer.

Banker as an Attorney: The customer may grant a special power of attorney to
his banker to transact certain dealings on his behalf. The banker is the attorney
of the customer in such cases.
Note: Power of Attorney refers to the authority to act for another person in
legal or financial matters.

b. Ram and anand have a joint account payable to either or survivor. Ram dies and his
legal heirs claims half of the share in the balance. What would you do as a banker?
As a Banker I would educate about the mode of joint account they have
chosen, as per the mode they have chosen, I have to consider to the existing
account holder only, not the legal heir of the dead customer.
In this type of joint account either of them can operate the account. For
example, if the account was opened under either or Survivor mode, either Mr.
A or Mr. B could individually operate the account as if they are the sole owner
of the account.
However, in case of death of any of the account holders, the surviving account
holder can either continue to operate the account or take the proceeds into his
own bank account not the legal heir of the dead customer..

c. Indicate how the banker should deal in the following cases. Give reasons for your
answers.
i) Cheque dated August 2014 presented for payment on 1st October 2014.
As a Banker I will not accept the cheque, since date is incomplete on the face
of the cheque it is mentioned August 2014 (not mentioned the exact day, it‟s
just a month and year), and presented on October 1st 2014.

ii) Cheque containing the amount different in words and figures.

The cheque is subject to reject or dishonour. The situation may or may not
involve material alteration, since the words and figures are not matching, I
being a Banker I dishonour the cheque.
 iii. A crossed cheque was presented for payment by the payee by cancelling the
crossing and requesting the banker to pay cash at counter.
I being Banker, I would cross check with the Drawer (Account holder) if he is
cancelled the crossed cheque. If so I ask him to sign below then I can accept
the cheque for payment over a cash counter. If not done by drawer and don‟t
have his signature for the change made on the document I cannot accept and I
dishonour the cheque if ot is done by the payee alone.

iv) A cheque is written in pencil

No. If it is written with pencil it can be erased and re-written without any
smudge and nobody can detect it. Hence it is not legal.
Checks should never be written in pencil. Since pencil is erasable, a check
writer opens himself or herself up to being taken advantage of when they
choose to use pencil. As a rule of thumb, check writers should use a pen with
blue or black ink. This practice allows for better records and more legible
check writing practices.

v) A purchaser of DD reports that, he has lost the DD and request the banker to
issue the duplicate.
Yes, Bank can issue Duplicate DD, If the DD is lost or stolen, you can get a
duplicate DD issued at a charge of Rs. 200 + GST. You will need to submit a
copy of the DD, your ID, and a form to avail this service.

4. Answer the following (2015)

a. A banker has agreed to provide an overdraft of Rs. 10,000 to a customer who has a
current account with a credit balance of Rs. 100 on 15/04/2015. On 20/04/2015, the
customer‟s cheque of Rs. 3500 was dishonoured, what is the customer‟s remedy?
As per the essentials of a cheque to en-cash there has to be sufficient cash in the bank
account, since he has only Rs. 100, and the cheque demands Rs. 3500. Overdraft is a
form of a loan which he might have used for some other purpose, since no sufficient
balance on this ground cheque is entitled to dishonour.

b. A draws a bearer cheque and completes it and keeps it in his drawer. His servant
steals it and endorses it to X, who endorses it to Y, can Y get the Amount of the
cheque?
Yes, since it is a bearer cheque anybody can withdraw, there is no necessity of
making endorsement for the instrument, unless it is restrictive or conditional
endorsement Y can get the amount. it is not clearly mentioned the type of
endorsement.

c. Can a Banker Exercise lien on the following?

1. Articles of the customer kept with the bank for safe custody.
No, banker cannot exercise Lien, because in this case the banker acts as a bailee
and not as a banker.
2. Fixed deposit receipt jointly held with by A and B for the debt due by A to the
Bank.
 Yes, lien can be exercised as loan due by A, if it is self-acquired or the modes like
either or survivor. Otherwise has to take the consent of the other joint account
holder.
3. Life insurance policy left by the customer with the bank by mistake.
No, Banker cannot exercise lien, because he has legally not entered into
agreement. If it is left by mistake cannot be considered for lien.
4. Cash given by the customer to the banker for the purchase of shares of Tata Co. at
a particular price.
No, Banker cannot exercise lien, because cash is given by the customer for a
specific purpose, i.e. to purchase shares of Tata Co.
5. Bills, cheques, dividend warrants and pay orders sent to bank for collection.
Yes, banker can exercise lien. Because the banker receives them for collection as
a banker.

5. Answer the following (2016)

a. Mr.Venkat has current account in the Syndicate Bank. A cheque for Rs. 5000 issued
by him in favour of his minor son Ramesh was presented for payment at the counter
of Bank. Can the bank pay the amount to the minor son of the drawer?
In terms of Section 26 of NI Act, a minor can draw or endorse or negotiate
a cheque or a bill but he cannot be held liable on such cheque or bill.

b. A customer offers the following securities as a cover for a bank advance of Rs.
100,000:
1. Life insurance policy of Rs. 200,000
2. A three storied Building valued at Rs. 400,000
3. Wheat in a warehouse, estimated to cost about Rs. 3,50,000
Analyse and justify in each instance, which of these securities you prefer.

In the above case life insurance policy of Rs. 2,00,000 is sufficient to extend a loan of
Rs. 1,00,000 the remaining options can also be exercised and considered for
extension of loan since it is more than the worth not the right choice.
I being a banker I chose life insurance policy over other options.

6. Answer the following (2017)

a. Indicate what action you will take as a Banker under the following circumstances
 When Order Nishi is issued against your customer
 I being a banker immediately have to inform the customer, and the cheque
presented after receiving Order Nisi will be not accepted.
 As per rule 46A, a notice is issued to a garnishee (a person sought to be
warned) before a garnishee order is passed. It is known as Order NISI. Court
order the bankers to stop operation, payment out of the funds of judgement
debtor and for appearance in court on a given date.
 Bank also informs the concerned customer about the receipt of the order so
that dishonor of any Cheque issued by him may be avoided.
  If such Order is not passed and an opportunity of hearing is not given by the
court, the order shall be null and void.

 When a customer applies for a loan against his Fixed deposit receipt.
 Yes, Banker can sanction the loan against Fixed Deposit receipt.
 You can avail loan against your Fixed Deposit (FD) if your credit score is low, you
do not meet the income eligibility criteria, or if you have no other assets to pledge for
a secured loan. The interest rate on such loans range between 1% and 2% above the
FD rate and can be repaid in up to 60 months. These loans are usually given in the
form of an overdraft or demand loan

 When a cheque payable to “Kiran Limited” is presented by the Company‟s

secretary under his simple endorsement to be collected and credited to his
personal account.
 I Being Banker, I will not accept it to the payment, since the cheque is
addressed to pay Kiran Limited the amount has to transfer if it is a crossed
cheque else will be given over the cash counter.

 When your customer is declared as insolvent

 For insolvency, Banker has to receive notice from the court. There after the
banker follows the court instructions. Until and unless you get the notice from
the court you cannot consider your customer as insolvent by mere words from
your customer.

 A cheque dated 15th April 2017 is presented for payment on 25th July 2017
 It is a stale cheque; Banker cannot honour the cheque because it is more than
3 months back dated cheque. In India cheque is valid only for 3 months from
the date of issue.

b. You are a manager of State Bank of India. A person known to you comes to you
to collect and on realization to pay him in cash a crossed order cheque for Rs
2000 drawn in his favour on Canara Bank as he has no Account with any Bank,
would you collect and pay cash to him? If not, what procedure would you
suggest?
I being a banker would suggest him to open an account in state bank of India and
deposit the cheque into the bank to collect, since it is a crossed cheque has to pay
to the specified account only. Irrespective of the person you know or not bank
procedures has to follow.

7. Answer the following (2018)

a. Can a banker exercise Lien on the following cases? Give reasons
 Valuables kept for safe custody
 No, banker cannot exercise Lien, because in this case the banker acts as a
bailee and not as a banker.
 Cash given to banker for purchase of Satyam computer shares.
  No, Banker cannot exercise lien, because cash is given by the customer for a
specific purpose, i.e. to purchase shares of Satyam computer.

b. Indicate the answer you would give and state the reasons for your actions in the
following circumstances.
 A cheque dated March 2017 presented on 1st April 2017
 As a Banker I will not accept the cheque, since date is incomplete on the
face of the cheque it is mentioned March 2017 (not mentioned the exact day,
it‟s just a month and year), and presented on April 1st 2017.

 A cheque dated 11th June 2017 presented on 12th September 2017.

 It is a stale cheque; Banker cannot honour the cheque because it is more than
3 months back dated cheque. In India cheque is valid only for 3 months from
the date of issue.
c. Mr. Harish bought a mobile worth Rs 15000 from Shivani Traders, Hubli. For
payment he gave his debit card (ATM Card). When the cashier swiped the card, Mr.
Harish‟s account got debited and also he received a SMS for the same. But the
amount was not credited to the account of Shivani Traders. Hence the Cashier made
Mr. Harish to swipe the card once again. In such circumstances, what remedy is
available to Mr. Harish for having debited the account twice?
Mr. Harish will get his amount back, due to technical problem the seller has not
received money and swiped again if both the amount credited to seller account, you
can register your complaint to the bank within 7 working days.

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