JAIIB QUESTIONS AND MODEL QUESTION PAPER1) If number of partners in a firm is 22 in respect of trading activity the firm is 1) Limited company 2) Large partnership 3) Illegal association 4) None of these 2) Mandate given by the illiterate account holder should be 1) Attested by manager who confirms and certifies thee same. 2) Attested by Notary public or Magistrate. 3) It is enough if we ask for a Mandate letter with LTI which has to be attested an authorised official. 4) We cannot accept a mandate from an illiterate customer at all. 3) A joint account is operated by A and B as both or survivor. A dies and a cheque signed by A and B are presented for payment. The cheque 1) Can be paid. 2) Can be paid after getting confirmation from B. 3) Can be paid after getting the consent of the legal heirs of A. 4) None of the above. 4) IT authorities have seized a deposit receipt from a customer. The deposit has matured. Now the deposit receipt is presented by IT authorities for payment along with over due interest 1) Overdue interest can be paid if the deposit is renewed for a further period of 15 days. 2) Overdue interest can be paid because the receipt is IT authorities. 3) The branch can pay interest after getting permission from R.O. 4) None of the above. 5) The combination of two or Companies into a single Company where one survives with it’s name (or a combined new name) and others lose their corporate existence is known as 1) Merger or Amalgamation 2) Diversification. 3) Combination. 4) All the above 6) Mergers are of 4 types. 1) Vertical mergers 2) Conglomerate mergers 3) Concentric Merger What is the 4th type. 1) Practical mergers 2) Horizondal Mergers 3) Typical mergers 4) Foreign Merger 7) A formal and mutually agreed commercial collaboration between Companies is known as 1) Merger 2) Amalgamation 3) Strategic Alliance 4) Subsidiary 8) Combining of two existing Companies into a new Company in which the both the existing companies extinguish and a new Company is made or created is known as 1) Consolidation. 2) Merger 3) Strategic Alliance 4) Acquisition 9) In 1921 three Presidency Banks in India – The Bank of Bengal, The Bank of Bombay, and Bank of Madras were amalgamated into one Bank which is now called. 1) Reserve Bank of India 2) United Bank of India 3) State Bank of India. 4) UCO bank 10) The minimum period for which commercial papers can be issued is 1) 12 months 2) 1 month 3) 3 months 4) CP can be issued for maturity from 7 days to 1 year 11) According to Section 130 of Transfer of Property Act the transfer of an actionable claim can be effected only by the execution of an instrument in writing signed by transferor or by his duly authorized agent This mode of transfer of an actionable claim is known as -------- 1) Assignment 2) Lien 3) Mortgage 4) Hypothecation 12) A bill is drawn on 16th Feb, 2001 which is payable after 30 days. It will mature on 1) 13.3.2001 2) 15.3.2001 3) 20.3.2001 4) None of these. 13) Mr.Rao wants to give mandate to his minor son 1) It cannot be accepted since the mandate is to be given in favour of a minor 2) It can be accepted as the minor can act as an agent 3) Mandate can be accepted to operate only credit transactions and no debit should be allowed 4) None of the above. 14) Executors and administrators can delegate their powers to a third party to operate the account 1) By mandate 2) By power of attorney 3) By obtaining permission from RO. 4) None of the above 15) Registration of a society is required 1) To sue in it’s own name as a separate legal entity. 2) To open a bank account. 3) To facilitate receipt of donations/grants from foreign countries. 4) None of the above. 16) Coupon rate refers to 1) Bank rate 2) PLR 3) The annual interest rate specified on bonds 4) All the above. 17) Mr. Subramanian who is an Ordinary SB account holder of your branch wants to nominate Mr. Alfred Clinton, an U.S. national, who is his friend. Is that allowed? 1) Yes it is freely permitted 2) Yes it is freely permitted, but at the time of settlement of claim and repatriation to the nominee, branch has to take RBI permission 3) Yes it is freely permitted, subject to Regional office approval 4) Yes it is freely permitted, subject to CO approval 18) Section 171 of Indian Contract 1872, gives to a Banker an absolute right of general lien on all goods and securities received by the Banker. The Bankers Lien is ----------- 1) Set off 2) An Implied Pledge. 3) Mortgage 4) Hypothecation 19) Nomination rules for deposit accounts have been introduced under the following rules of Banking Regulation Act, 1949: 1) Sec. 45 2) Sec. 45ZA – F 3) Sec. 45ZA – B 4) None of the above 20) In one of the joint Savings Bank accounts, you as a Branch Manager received information that one of the depositors had been declared as Insolvent? The depositors other than the undischarged insolvent claim the balance lying in the SB account. Can you pay? 1) You can pay to the other deposit holders jointly 2) You can pay to the other deposit holders, dividing the balance proportionately 3) You can pay as per instruction jointly signed by the solvent depositors and the official receiver of the undischarged insolvent 4) You can pay to the other deposit holders, dividing the balance proportionately, after taking RO permission ANSWERS 1) 3 2) 2 3) 2 4) 4 5) 2 6) 4 7) 2 8) 3 9) 2 10) 1 11) 1 12) 1 13) 2 14) 3 15) 1 16) 3 17) 4 18) 4 19) 1 20) 4 MODEL QUESTIONS --- JAIIB principles of banking important questions 1) An account holder draws a cheque on a : a)Banker of the Payee b)Banker of the Drawee c)Banker of the Drawer d)Banker of the Endorsee (c) 2)Obligation of a Banker to maintain secrecy is applicable to a) Existing deposit accounts b) Existing safe deposit accounts c) Closed deposit accounts d) a,b and c (existing/closed) (d) 3)A holder for value is : a) A bank allows one of its clients to withdraw against clearing of a cheque. b) A bank which maintains high net worth customers accounts b) A bank which collects cheques for non customers c) A bank which handles high value clearing cheques (a) 4)State which of the following is/are incorrect: i) A Certificate of Deposit (CD) is issued by a banker ii) In a garnishee order the banker on whom the order is issued is judgement debtor’s debtor iii) A book debt advance is secured by a mortgage iv) CAMEL model is used by RBI inspectors a) i and ii b) ii c) ii and iv d) iii (d) 5) RTGS stands for : a)Real Time Settlement System b)Real Time Gross Settlement System c)Real Gross Settlement System d)Real Gross Time Settlement System (b) 6) Your bank receives a cheque in inward clearing which has not been signed by the account holder. Which one of the following reasons you will select to return the cheque? a) Cheque is not signed by the payee b) Refer to the drawer c) Cheque is not signed by the drawee d) Cheque is not signed by the endorsee (b) 7) A purchaser of a demand draft for Rs.500,000.00, lost the DD To obtain a duplicate draft he needs to furnish a)A Power of Attorney b)A letter c)An Indemnity d)Amandate (c ) 8) Which of the following is a material alteration? a) An open cheque is crossed with two lines across the cheque b) The purchaser of a DD changes the word “order” to “bearer” c) In a bearer cheque the holder of the cheque changes the word “bearer” to “order” by striking “bearer” with a line d) A blank endorsement on a cheque is converted into a full endorsement (b) 9) At a Big shopping mall,Hari withdraws cash from ATM of Central Bank of India. Central Bank of India is a: a) Paying Banker b) Collecting Banker c)Advising Banker d) Correspondent Banker (a) 10) )An order cheque is endorsed as “without recourse to me “ by the endorser. This endorsement is known as a)Blank endorsement b)Restrictive endorsement c)Endorsement in full (d) d)Sans recourse endorsement 11) Match the following: i)IRDA A) Insurance ii)Garnishee Order B) Judgement debtor iii)ATMs C) Assignment iv)Book debt D) E- Banking a) i-D,ii-C,iii-A,iv-B b) i-A,ii-B,iii-D iv-C c) i-B,ii-A,iii-D,iv-C d)i-D,ii-C,iii-B,iv-A (b) 12) Match the following: i)Classification of Assets A) Narasimham ii)Allonge B) Endorsement iii)Funds Transfer C) EFT iv)Crossed cheques D) Collecting banker a) i-A,ii-B,iii-C,iv-D b) i-D,ii-C,iii-A,iv-B c) i-A,ii-D,iii-B,iv-C d) i-B,ii-A,iii-C,iv-D (a) 13) Which one of the following is secured by a mortgage? a) A cash credit against inventory b) An overdraft against book debts c) A term loan against land and building d) An educational loan (c ) 14) In case of a Non Resident Indian which of the following is permitted? a)A SB account in joint names in Candian dollars b)A Fixed deposit account in Australian dollars c)A NRNR account in Indian rupees d)An EEFC account in Indian rupees (b) 15)Once a Bearer is always a bearer is applicable in respect of a) A bill of exchange payable after 90 days b) A cheque c) A demand promissory note d) A certificate of deposit (b) 16) State which of the following statement/s is/are correct? i) KYC norms is applicable only to deposit accounts ii) Either or survivor is applicable to all joint accounts iii) A cash credit facility is a fund based limit iv) An incomplete negotiable instrument is called as an inchoate instrument a) i and ii b)ii and iii c)iii and iv d)iv (c) 17) A stop payment instruction of a cheque can be issued by: a) The payee b) The endorsee c) The drawer d) The drawee (c) 18) A customer has the flexibility to select the number of instalments and also vary his monthly instalment amounts subject to certain conditions. Identify the account a) An EEFC account b) A variable recurring deposit account c) A flexi deposit account d) A roaming current account (b) MODEL QUESTIONS --- JAIIB+PRINCIPLES OF BANKING – MODULE A & B MODEL QUESTIONS --- JAIIB 1) Reserve Bank of India’s functions are classified into: a) Supervisory & Regulatory b) Promotional & Developmental c) Refinance Activities d) All of the above (d) 2) Minimum Bank Rate is: a) 3% b) 4% c) 5% d) None (d) 3) Sec ---- of RBI Act,1934 gives sole power to RBI to issue currency notes a) 10 b) 18 c) 22 d) 26 ( c ) 4) KYC means a) Know Your Customer very well b) Know Your existing Customer very well c) Know Your prospective Customer very well d) Satisfy yourselves about the customer’s identity and activities. (d) 5) In a Garnishee Order, the banker on whom garnishee order served is: a) Judgement Debtor’s Creditor b) Judgement Creditor’s Creditor c) Judgement Creditor’s Debtor d) Judgement Debtor’s Debtor (d) 6) Sec 131 of NI Act,1881 extends protection to the a) Paying Banker b) Collecting Banker c) Advising Banker d) Issuing Banker (b) 7) Hypothecation is applicable in the case of a) Movable goods b) Immovable property c) Book debts d) Corporate guarantee (a) 8) A cheque is dated 12/05/05.the due date is: a) 12/08/05 b) 14/09/05 c) 12/11/05 d) None (d) 9) Charge created on LIC Policy is: a) Hypothecation b) Pledge c) Assignment d) Mortgage ( c ) 10) Your bank grants a working capital finance to ABC & Co, a partnership firm, against hypothecation of inventory. The charge is to be registered with Registrar of Companies within a) 30 days from the date of advance b) 30 days from the date of hypothecation agreement c) 30 days from the date of sanction of loan d) None (d) 11) Which one of the following is not barred by law of limitation? a) Pledge b) Hypothecation c) Banker’s lien d) Guarantee ( c ) 12) The term “Credit Management” covers a) Capital adequacy norms b) Risk management including Asset/Liability management c) Credit appraisal – decision and review of loans & advances d) All of the above (d) 13) Bank’s Assets are classified in to standard assets, substandard assets doubtful assets and loss assets, based on the recommendations of -------------------- Committee a) Rangarajan b) Narasimham c) Ghosh d) Tandon (b) 14) The time taken to convert cash into raw materials, semi finished goods, finished goods and into cash , is known as a) Trade cycle b) Cash cycle c) Operating cycle d) Revolving cycle ( c ) 15) A company which pools money from investors and invests in stocks, bonds, shares is called a) A bank b) An insurance company c) Bancassurance d) Mutual Fund (d) 16) Bancassurance is a) An insurance scheme to insure bank deposits b) An insurance scheme to insure bank advances c) A composite financial service offering both bank and insurance products d) A bank deposit scheme exclusively for employees of insurance companies ( c ) 17) John & James are friends aged 14 & 15 respectively. They want to open a joint account in your bank. You will a) Allow them to open a joint account to be operated jointly b) Allow them to open a joint account with operating instructions Either or Survivor c) Allow them to open a joint account with operating instructions Former or Survivor d) Allow them to open a joint account with operating instructions Any one or Survivor (a) 18) Mr.Atmaram as director of a Ltd company expired. Bank received a cheque signed by Mr.Atmaram as director of the Ltd company. The bank a) Can honour the cheque only after obtaining confirmation from other directors b) Can honour the cheque c) Cannot hounour the cheque d) The company should issue a stop payment instructions to the bank (b) 19) Tele banking service is based on a) Virtual Banking b) Online Banking c) Voice processing d) Core Banking ( c ) 20) In a securitisation deal, the role of a Special Purpose Vehicle (SPV) is a) To acquire large Non Performing Loans (NPA) b) To acquire such loans from a bank or financial institution c) To acquire such loans for a transfer price, with or without recourse d) To manage the acquired loans for the purpose of realization or holds them as investment till maturity (d) 21)Securitisation is a process of acquiring the loans classified as a) Bookdebts b) Performing debts c) Bad debts d) Non performing debts (d) 22)The minimum percentage of Priority Sector advances to be maintained by foreign banks in India a) 40% b) 18% c) 32% d) 60% ( c ) 23) Loan for fish rearing is covered under Prirority Sector as ----------- advances a) Direct Agriculture b) Indirect Agriculture c) Self Employment Scheme d) Allied to indirect Agriculture (a) 24) Cash Budget is a statement of a) Cash-Non cash funds b) Cash receipt and Cash payments c) Another name for cash flow d) None (b) 25) In bank’s parlance credit risk in lending is a) Default of the banker to maintain CRR b) Default of the banker to maintain SLR c) Default of the banker to release credit to the customer d) Default of the customer to repay the loan (d) 26) The apex institution which handles refinance for agriculture and rural development is called: a) RBI b) SIDBI c) NABARD d) SEBI ( c ) 27) Long Form Audit Report (LFAR) is prepared and submitted by a) RBI inspectors b) Internal inspectors c) Statutory auditors ( c ) d) Concurrent auditors 28) As per FIMMDA’s guidelines, the Mid-Office is responsible for: a) Dealing activities b) Risk Management c) Reconciliation d) Confirmation of deals (b) 29) Interest is calculated on actual/365 days basis in respect of the following products, except one : a) Call Money b) Notice Money c) Term Money d) GOI dated securities (d) 30) Which was the first Mutual Fund started in India: a) SBI Mutual Fund b) Kotak Pioneer Mutual Fund c) Indian Bank Mutual Fund d) None of the above (d) 31) The regulator for Mutual Funds in India is: a) FIMMDA b) AMFI c) RBI d) SEBI (d) 32) FIMMDA’s general principles and procedures are applicable to: a) Fixed Income Markets b) Money Markets c) Derivatives Markets d) All of the above (d) 33) Your bank’s customer XYZ Ltd, enjoys a CC limit of Rs.1,00,000.00 The CC account shows a credit balance of Rs,10,205.00. The relationship between your bank and XYZ Ltd is: a) Debtor/Creditor b) Creditor/Debtor c) Bailor/Bailee d) Bailee/Bailor (a) 34) The right of set-off is: a) Customer’s Right b) Customer’s Obligation c) Banker’s Right d) Banker’s Discretion (d) 35)Which of the following forms of business are permissible under BR Act: a) Borrowing b) Issuance of Letters of Credit c) Buying and selling of bullion d) All of the above (d) 36) A Co-Operative Bank operating in different States are regulated by: a) State Co-Operative Societies Act b) Banking Regulation Act c) Multi Unit Co-Operative Societies Act d) Banking Laws (applicable to Co-Operative Societies) ( c ) 37) In respect of Regional Rural Banks, the share holding pattern is: a) Central Government 50%,State Government 35%,Sponsoring Bank 15% b) Central Government 50%,State Government 15%,Sponsoring Bank 35% b) Central Government 15%,State Government 35%,Sponsoring Bank 50% b) Central Government 35%,State Government 50%,Sponsoring Bank 15% (b) 38) Law of limitation is not applicable in respect of : a) Advance against pledge of shares b) CC granted against hypothecation of inventory c) Term loan secured by mortgage of Plant & Machinery d) Bank Term Deposit (d) 39) A bank in India, wants to undertake capital market activities, it should: a) Obtain special license from AMFI b) Obtain special license from FIMMDA c) Both a and b d) Register with SEBI (d) 40) FIMMDA stands for: a) Foreign Exchange Markets and Derivative Markets b) Fixed Income Markets Money Markets and Derivatives Markets c) Fixed Income Markets and Derivatives Markets d) None of the above (b) 41) The Capital Adequacy Ratio is : a) 6% b) 8% c) 9% d) 10% ( c ) 42) Except one of the following others are known as Non Fund based facilities: a) Letters of Credit b) Bank Guarantees c) Co-acceptance of Bills d) Trust Receipt (d) 43) FIMMDA’s guidelines cover the following products, except one: a) Call Money b) Cross Currency Interest Rate swaps c) Commercial Paper d) Certificate of Deposit (b) 44) Except one of the following others are part of Public Sector Banks: a) State Bank of Hyderabad b) Central Bank of India c) Regional Rural Bank, sponsored by a nationalized bank d) HDFC Bank (d) 45) A banker is expected to honour the cheques within the specified banking hours as per Section of NI Act,1881 a) 22 b) 25 c) 31 d) 65 (d) JAIIB – Principles and Practices of Banking 1. According to you what are the most important functions of Reserve Bank of India? Ans: a. RBI is the Central Bank of the Country b. Acts as a Note Issuing Authority c. Acts as a Banker's Bank d. Acts as Banker to Government e. Supervise and Control Banks and financial Institute f. RBI is controlling inflation through Monetary and Credit Policy g. Regulates transactions in foreign exchange 2. As per the Section 20 and Sec 21 of RBI Act RBI is obliged to transact banking business and mange the Public Debt of Central Government Can you elaborate the Role of RBI in the Public Debt Ans: Public Debt can be by way of long term bonds and or by way of Treasury Bills a. At present Treasury Bills are issued for periods of 91 days and 364 days. b. The Treasury Bills are issued for meeting the Short Term requirements where as the Long Term Bonds are issued for various periods for meeting long term investments. 3. What do you know by the Term Ways and Means Advances? Ans: As per Section 17 (5) of RBI Act, Bank can give the Central and State Government Advances which are repayable within 3 months. This is thus a short term finance and bridge the interval between expenditure of the Government and the flow of revenue planned in the budget. 4. Y.V.Reddy Committee has come out with a new concept of Monetary Aggregates and also Liquidity Aggregates. What are they? Ans: M0, M1, M2, M3 are called Monetary Aggregage and L 1, L2, L3 are called Liquidity Aggregates. 5. What is Broad Money? Ans: M3 is known as Broad Money. M1 - is known as Narrow Money and is M1 = Currency is circulation + Bankers Deposit with RBI + other deposits with RBI. M3 =M1 + Certificate of Deposit issued by Banks + Term Deposit (excluding FCNR (B) with maturity upto one year + Term Deposti excluding FCNR (B) of more than one year + call borrowing by Banks from Non Depository Financial Corporate. 6. What is L1, L2, L3 Liquidity Aggregates. L1 = M3 + all deposits (Excluding NSEs) L2 = L1 + Term Deposits/Term Borrowing/Certificate pf Deposits Issued by Term Lending Institution/Refinancing Institute. L3 = L2 + Public Deposit of NBFCs. 7. What is meant by Open Market Operation of RBI. Ans: The Buying and Selling of securities or other Assets like Foreign Exchange Gold by the Central Bank to alter the liquidity of the Banks is known as open Market Operation. When RBI buys Government Securities from Banks the liquidity portion of the Banks increases. Alternatively, when the Reserve Bank sells the securities to be Banks, the banks liquidity position is reduced. 8).What are the Quantitative Credit Control measures exercised by RBI. Ans: a. Bank Rate b. Reserve Requirement c. Open Market Operation d. Interest Rate Policy 9). What is the Qualitative Control measures used by RBI. Selective Credit Control is used by RBI to regulate cost and quantum of credit to select sectors. 10. As per Section 45 ( c ) RBI has powers to direct Banks to submit details of credit extended by them - Elaborate. Ans: RBI collects information on all the borrowers enjoying Secured Credit Limit of Rs.10 lacs and above and unsecured Credit Limit of Rs.5 lacs and above. RBI also collects the details of all doubts loss of suit filed account with aggregate outstanding of RS.1 Crores and above and circulate the details to all Banks. 11. What information is provided through BSR - I Return. Ans: BSR - I Part ( A ). Branches are required to resort particulars of all borrowal accounts enjoying credit limit above of Rs.2 lacs. BSR - I part B, details of limits of RS.2,00,000 and less are to be furnished. 12. What are the components of NDTL. Ans: The Time, Savings and Current Depends, Sundry Creditors, Interest Accrual, Interest Accrued and Payable, Net of Liability to Banking System. However, the same exclude the inside liability like, claim received from ECGC, amount received pending final adjustment towards the dues etc., 13. CRR is to be maintained as per RBI Act ------ Elaborate on this. Ans: a. Cash Reserve Ratio as per Sec 42 of RBI Act. b. As per the latest Monetary Policy CRR is to be maintained @ 6% of NDTL for Scheduled Commercial Banks c. The Required Amount under CRR is to be kept with RBI in their Current Account in the case of Schedulesd Banks 14. What is the mode of maintaining CRR a. CRR is to be maintained in the form of balance with CA of RBI. 15. What are the major recommendations of Narasimhan Committee. Ans: a. Introduction of Prudential Norms viz., Asset Classification, Income Recognition, Provisioning and Capital Adequacy norms b. Reduction of SLR to 25% and CRR to a low level. c. Privatisation of Public Sector Banks. Government Capital to be reduced to 51% in the first stage and then to 33% in the second stage. d. Introduction of new legal set up. Set up DRT. e. Entry for Foreign Banks and also setting up of New Private Sector Banks. f. Recommended for setting up. Board for Financial Supervision. 16. What are the functions of Board for Financial Supervision a. Integrated Supervision over Commercial Banks, Financial Institution, Non Banking Financial Intermediaries. etc., b. The Supervision will be both "on site" and "off site Supervision". c. For Off Site supervision RBI has introduced DSB Returns 17. How many DSB Returns are introduced by RBI and which all areas they cover. Ans: There are seven types of DSB Returns. Cover, Details of Assets and Liability of Banks, Capital Adequacy, NPA Assets, and Quality of Assets, Position of Unreconciled entries etc., etc., 18. What are the circumstances where disclosure of customers account is permitted Ans: Disclosure can be allowed as per order of court a. Order of Court b. As per sec 4S of Bankers Books Evidence Act 1891 c. As per Income Tax ACt 1961 Sec 131 and Sec 133. d. As per Criminal Procedure Code e. As per Directions from Police Department, CBI etc., f. FEMA and Money Laundering Act g. As per Companies Act 1956 as per Sec 251 h. As per Sec 45 ( C ) of RBI Act, where credit information has to be disclosed i. Disclosure to another bank j. Disclosure in Public Interest 19. What is the procedure to be followed when Garnishee Order Is received. Also explain what is Garnishee Order a. Order from Court called order Nishi. b. The order Nishi would instruct Bank to recover and Remit balance in the account of its creditors to court. c. Branch has to block the Account if it is not encumbered and then report to RO for further instruction. d. Branch has to intimate the customer also on the same. e. Branch has to then advise the details of Balance etc., to court. f. On receipt of final order from Court which is known as Order Absolute, branch has to remit the amount to court. 20. What is the Speciality of Income Tax attachment order compared to Garnishee Order. Ans: a. Garnishee order can be applied in the same capacity account b. Garnishee order does not attach account of Insolvent and Deceased customers account c. Only balance in account at the time of receipt attached. Income tax attachment order on the other hand attaches, d. Deceased and also insolvent customers e. Inrespect of Joint account the order attaches 50% of the due f. Attach the available and also pipe line credits. 21. What are the difference between Mandate and Power of Attorney. Ans: a. Mandate is a simple letter of authority given by an Account Holder to another person to operate his account on his behalf. To make, draw etc., of Bills or Negotiable Instruments. b. Power of Attorney is a general document used to convey powers for many other purposes besides the operation in the account. a. Mandate is given in Plain Paper b. Power of Attorney is given on a stamp paper c. Power of Attorney has to be executed in presence of a Notary Public. d. Power of Attorney can be Registered or Unregistered. 22. What are the salient features of Capital Gains Tax Account 1988. Ans: a. For persons, firms and others, who have capital gain and wish to invest the same in house property etc., within a period of 3 years the mount of gain can be kept in an account known as Capital Tax Account. b. The Account can be either SB or Term Deposit. c. Nomination facility is available. 23. What is a Probate. "A copy of will certified under the seal of court of competent jurisdiction confirming that the will has been duly executed and is the valid one". 24. What is the difference between Letter of Administration and Probate. Ans: Letter of Administration is issued where the party has not created a Will. Probate is the certified approved will and is issued when the party has left a will. 25. What is the present procedure for settlement of claim of deceased constituent. Ans: 1. Where ever Banks hold nominations in respect of deposit account holders, settlement should be done as per nominations. 2. Where the settlement is sought as per Legal representation the same can be settled as per Court decisions. 3. In other cases where Bank wish to settle without legal representations, Bank can call for a. Death Certificate b. Consent Letter c. Affidavit d. Enquiry forms e. Legal Heir Certificate f. Stamped Receipt g. Indemnity 26. What are the important section of Negotiable Instrument which has relevance to day to day banking transactions. Ans: a. Section 4,5,6 which define Promissory Note, Bill of Exchange and Cheque. b. Section 10 which defines payment in due course c. Section 31. Obligation of a banker to meet customers mandate d. Section 85, 85 D - Protection to a paying banker paying an order instrument e. Section 89 - giving protection to a banker paying instruments with material alterations which are not apparent. f. Sec 128, which gives protection to a banker paying a crossed cheque. g. Sec 131 gives protection to a banker collection a crossed cheque for a customer. h. Sec 138 - 142 Dishonour of cheque for want of Funds. 27. What are the new guidelines on the NI Act relating to Sec 138 - 142. Ans: a. The Amendment includes, imprisonment for 2 years and penalty twice amount of cheque. b. Time for initiating criminal action 30 days from the date of intimation of dishonour of cheque by the payee. 28. What are the salient features of latest decided cases in respect of Dishonour of cheques under Section 138 - 142 of NI Act. Ans: The section is applicable to return of cheques a) By repeated presentations at the request of drawer b) In case of closure of account 29. Which are committees constituted for improving Customer Services in Banks a. Talwar Committee b. Goiporia Committee c. Tarapore Committee 30. What do you know of COPRA - 1986. Ans: 1. Consumer Protection Act 1986, provide the Consumer, a simple speedy and inexpensive way of redressal of grievance in case of any deficiency/defect in goods and services bought/used by him for a consideration. 2. There are 3 types of agencies a. District Level Consumer Disputes redressal forum which can handle disputes upto Rs.20 lacs. b. State Consumer Disputes redressal commission which can handle disputes greater than20 lacs to Rs.100 lacs c. National Consumer Disputes Redressal Commission which can handle disputes exceeding RS.1 Crores d. The complaint has to be lodged within 2 years from the date of cause of action. e. No stamp duty is payable 31. What is meant by credit clearing under Electronic Clearing Service (ECS) Ans: a. This clearing service is introduced as per Saraf Committee Recommendations for handling repetitive or low value transactions like Interest dividend, pension etc., etc., For example - Dividend by UTI, its US 64 monthly interest on UTI schemes etc., 32. What is meant by ESC Debit clearing? Ans: This is for debit transactions like payment of electricity bills, telephone bills etc., 33. What is the importance of electronic funds transfer Ans: a. Saraf Committee recommended for the Introduction of EFT. b. Under EFT, funds can be transferred between branches of a bank and also between banks (via) electronic media c. RBI has recently developed a new EFT Special Electronic Funds transfer for transfer of Large Value Transaction. 34. Elaborate on the back-stop facility declared in the Monetary Policy 2003-04. Ans: a. Back stop interest rate will be at the reverse repo cut off rate at which funds were injected earlier. b. Where no reverse repo bid is accepted as per repo auction, the back stop interest will be 2% points over rep cut off rate of Pre-day under LAF. c. On days when no bids for repo or reverse repo auctions are received/accepted the back stop interest rate will be decidd by RBI on an ad-hoc basis. 35. What is the purpose of the Information Technology Bill 2000 Ans: a. The Bill provide the legal frame work necessary for electronic commerce. b. Facilitate electronic filing of documents with Government agencies and c. Amend the Indian Penal Code, The Evidence Act, The Banker's Book of Evidence Act and The Reserve Bank of India Act. 36. What all areas are covered by Information Technology Bill 2000 a. Recognises, Authentication of Electronic records by the use of Asymmetric Cryptosystem and hash functions. b. It allows for information to be submitted to Government Department in electronic form. c. The Act recognises an electronic record which has been signed with a digital signature. d. It lays down the broad authority structure for implementing Public Key Infrastructure. 37. What is RBS? Ans: a. Risk based Supervision, which is developed as per Basle Committee Recommendations to strengthen the Banking System. b. What are the three Pillars of Basle II Accord. Pillar I - Capital Adequacy Requirements Pillar II - Supervisory Review Pillar III - Market Discipline 38. What is the quantum of Economic Capital that is stipulated by RBI. Ans: 12% of the Regulatory Capital 39. Under Standadised approach what is the risk weight that is to be allowed for various Asset Ans: a. Sovereign Asset 0% to 150% b. Banks 20% to 150% c. Others (Corporates) 20% to 150% depending on the rating of the Asset 40. Under Internal Rating Based approach of rating the risk of various Assets, what are the types of credit risk considered. a. Corporates b. Banks c. Sovereign d. Retail e. Project Finance f. Equity 41. What is the Fiscal Deficit Fiscal Deficit = Revenue Deficit + Capital Expenditure - Disinvestment receipts and loan Recoveries 42. What is meant by Primary Fiscal Deficit Ans: Gross Fiscal Deficit - Interest Payment 43. What do you know about CDR. CDR is also known as Corporate Debt Restructuring 1. It is a non statutory voluntary mechanism 2. It is set up by Bank and Financial Institutional under advice to RBI 3. It is to provide timely support to viable entities facing financial problems 4. There is legal binding in this through debtor - creditor aggrements. 44. What are the categories of accounts covered under CDR. Ans: a. Accounts covered are those under Multiple Banking /Syndication/Consortium. c. Accounts with outstandings of Rs.10 Crores and above to Banks and Financial Institutions. d. The outstanding exposure may be fund based and non fund based e. Provides Restructuring to Standard and Substandard category and also for Doubtful category accounts including suitfiled and BIFR accounts f. Wilful defaulters not covered g. Atleast 75% of the lenders by value should agree for CDR package 45. What are the structural Tiers of CDR a. CDR Standing Forum This consist of CMD of IDBI, Chairman of SBI, ICICI Bank IBA and CMD's of all participating Banks/Financial Institutions 46. What are the most important categories of risks for Bankers Ans: 1. Credit Risk 2. Market Risk 3. Operational Risk 47. What are the important factors of Credit Risk Ans: Credit Risk is a combination of Portfolio Risk + Transaction Risk 48. What is Migration Risk ( a form of Credit Risk) Ans: The Risk associated with Migration of an Asset from Standard to Substandard. 49. What are the tools available for Mitigating Credit Risk Ans: a. Prudential Exposure Norms viz., Single Borrower exposure @ 15% etc., b. Delegation of Power c. Multilayer Sanction d. Portfolio Selection e. Sector Allocation of Credit 50. What are the major market Risk for a banker Ans: a. Liquidity Risk b. Interest Rate Risk c. Exchange Rate Risk 51. What are the hedging tools that are available for hedging Interest Rate Risk Ans: a. Forward Rate Agreement b. Interest Rate Swap 52. What are the hedging tools that are available for hedging exchange rate Ans: a. Swaps b. Option c. Forward Rate Contract d. Futures 53. What is the Periodicity of Inspection of "A" rated Branch Ans: a. 18 months duration is allowed. For B Rated or C Rated Branches it will be 12 months. 54. What is the Prudential exposure limit for a single borrower and group borrower. Ans: a. Single Borrower 15% b. Group Borrower 40% c. Single Borrower Infrastructure 20% d. Group Infrastructure 50% of the Tier I and Tier II Capital of the Bank. 55. What is the cut off limit for conducting Stock Audit Ans: a) For NPA accounts with outstanding of Rs 5 crores and above –once in a year in Dec. b) For new borrowal accounts of funds based working capital for 5 crores to 10 crores – once in a year in Dec . c) For new borrowal accounts with working capital facilities of rs 10 crores and above – two times a year in June and December . d) For existing borrowal accounts enjoing facilities of Rs 5 crores and above for a period exeeding Two years–once in a year in Dec 56. What is the credit limit for SSI units which no collateral security should be insisted Ans: For facilities under SSI upto Rs.5 lacs no Security to be insisted. For advances for SSI upto Rs.25 lacs. We need not insisted provided the party has got a good track record. Advance to MSE sector up to Rs1.00 Crore covered under CGTMSE List out few credit derivatives Ans: a. Credit Default Swap b. Credit Default Linked Notes c. Credit Forward Contract d. Credit Default Option 57. What do you know by Corporate Governance Ans: These are meant for a. Ensuring compliance with regulatory requirement and also for becoming responsive to the expectation of stake holders. b. Transparency of the system c. Audit and control of transaction in the organisation 58. Into how many Liquidity buckets Assets and Liability are classified Ans: Into 8 liquidity buckets with additional grouping of the first bucket into 1 day bucket, 2-7 day’s bucket and 8- 14 day’s bucket. 59. Into which liquidity bucket the doubtful assets are grouped Ans: In the greater 5 year Asset Bucket SOME OF THE IMPORTANT ASPECTS RELATING TO CRR AND SLR. 1. What is a Repo Rate? A: Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive. 2. What is Reverse Repo Rate? A: This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. 3. What is CRR ? A: Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep in Current Account with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. Present CRR is 6% (CRR for Scheduled Banks is As per section 42 of RBI Act ) 4. What is SLR Rate? A: SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently. Present SLR is 24% for Scheduled Commercial Banks. For Scheduled Co Operative Banks SLR is 25% (SLR for Scheduled Banks and also Non Scheduled Banks is as per Section 24 of Banking Regulation Act) 5. What is Bank Rate? A: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply. .Present Bank rate is 6% Functions of RBI? The Reserve Bank of India is the central bank of India, was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years. To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.” Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks. Supervises and controls Banks and Financial Institution. Regulates transactions in Foreign Exchange. RBI – Banker to Government. As per Sec 20 and 21 of the RBI Act Reserve Bank of India is obliged to transact Banking business and manage the public debts of the Central Government. As per Sec 21A RBI can perform similar functions for State Government. As per the provision of the Public Debt Act 1944 and also Reserve Bank of India Act , RBI manages the public Debt of Central and State Government. Public Debts can be by way of long term bonds or by way of short term Treasury bills. Treasury Bills. Treasury bills represent short term borrowings of Central Government. They are issued as Promissory Notes with different maturities say 91 days 182 days and 364 days. Treasury bills are issued by RBI by way of Auction basis. Treasury bills are Negotiable instrument. What is monetary policy? A Monetary policy is the process by which the government, central bank, of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. This has two objectives, To ensure price stability and to make available adequate credit to the productive sectors of the economy. This is achieved by regulating money supply in the market. Money Supply. Money supply in the economy is represented by four types of monetary aggregates viz M0, M1, M2 and M3 .and three types of liquidity aggregates viz L1 L2 and L3 These 7 types of aggregates are computed by RBI as per the recommendations of Dr Y V Reddy Committee. The monetary aggregate capture the data only with respect to Banking system. The Liquidity aggregate taking into consideration the money supply due to Post Office deposits of Financial Institutions and also Non Banking Financial Institution. Monetary aggregate Nature Components M0 Monetary base. This is computed by RBI once in a week. M0 = Currency in circulation + Bankers deposits with RBI + other deposits with RBI. M1 Narrow Money. M1 = Currency with Public + Demand Deposits with Banks + other deposits with RBI. Demand deposits with Banking system includes Current Deposits and only demand liability portion of Savings Bank,. M2 It can be computed in the following two ways M2= M1 + Certificate of Deposits issued by Banks + Term Deposits (Excluding FCNR (B) with the contractual maturity up to 1 year with the Banking systems.) Or M2 = Currency with Public+ current Deposit with Banking system.+ SB with Banking system. + Certificate deposits issued by Banks+ Term Deposits with maturity up to 1 year. (FCNR (B) excluded) . M3 Broad Money. M3 = M2 + Term Deposit (Excluding FCNR (B) deposits) more than 1 year + call borrowing by Banking system from non depository financial corporation. Liquidity Aggregates. L1 L1 = M3 + All deposits (Excepting NSC’s), with post office Savings Bank. L2 L 1 + Term Deposit /Term Borrowings /Certificate of deposit issued by Term lending institution/Refinancing institution. L3 L2 + Public deposit of NBFCs L1, L2 and L3 are compiled by RBI once in a quarter. What is Fiscal Policy? Fiscal policy is the use of government spending and revenue collection to influence the economy. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Fiscal policy is an additional method to determine public revenue and public expenditure. Credit Policy and Credit control. General Credit Control. General or quantitative Credit control is exercised by changing 1) Bank rate 2) Reserve Requirements 3) Open Market operations 4) Interest rate Policy. By regulating these RBI influences the quantum of lendable resources of the commercial Banks and thereby the total volume of credit which is an important source of money supply. This in turn helps control inflation. Bank rate. This is the rate at which the Central Bank of the country makes advances against approved securities. Purchases or rediscounts eligible Bills of Exchange and other commercial paper to provide financial accommodation to Banks or other specified group of Institutions. Sec 49 of RBI act defines Bank rate as the standard rate at which it is prepared to buy or discount bills of exchange or other commercial paper eligible for purchase under this act. Bank rate affect both cost and the availability of credit. The effectiveness of Bank rate as a credit control measure is very limited in India, as Banks are now allowed to a great extent. Freedom to change rate of interest as per their discretion. Open Market operation. The buying and selling of securities or other assets like Foreign Exchange, gold by Central Bank with an objective Selective Credit control. While general Credit control is used to regulate the cost and total volume of Credit, the selective Credit control also known as quantitative control is used to regulate cost and quantum of credit in selective sectors. RBI is empowered to exercise selective Credit control by virtue of section 21 and 35A of Banking Regulation Act. Selective Credit control is exercised by stipulating 1) Minimum margin, for lending against selected commodities. 2) Ceiling on the level of credit 3) Minimum interest to be charged on advances against particular commodities. What is NABARD? NABARD was established by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premiere agency to provide credit in rural areas. NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. What are non-performing assets? Non-performing assets, also called non-performing loans, are loans, made by a bank or finance company, on which repayments or interest payments are not being made on time. A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments. Latest CRR , SLR etc as per RBI latest Policy announcement. RBI Credit Policy Hikes Repo Rate Jan 2011, RBI Policy January 2011, Repo Rate Reverse Repo Rate, RBI Hikes Repo Rate, Reserve Bank Credit Policy 2011: RBI released the credit policy on January 25 2011 (Tuesday) - Repo rate increased by 0.25 % (0.25 per cent) to 6.5% - Reverse repo rate increased by 0.25% to 5.5% - FY11 Growth target at 8.5% with upward bias - FY11 credit growth target 20% - Cash reserve ratio (CRR) unchanged at 6% - Statutory liquidity ratio (SLR) unchanged. At 24% - March Inflation forecast at 7% from the current 5.5%. - Fiscal deficit poses a challenge, food inflation widespread across many items, bank cash shortage outside comfort zone Rate of Interest on Savings Bank deposit -3.5% Interest rate for balance in Current deposit --- Nil.
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