Banking Awareness

1. Which bank is appointed to take care of refunding excess income tax paid to tax payers?
a) AXIS Bank
b) PNB
c) ICICI Bank
d) SBI
e) None of these


2. What is nomination?
a) A facility given to depositors by the Government
b) It confers a right to the nominee to receive payment of a deposit after death of depositor
c) It is a process of appointing legal heir by the depositors
d) It is a part of will on behalf of a depositor
e) It is a direction to the bank to pay to nominee only if legal heirs do not claim the balance deposit amount

3. Relation between banker & customer in respect of amounts in transit is:
a) Agr & Principle
b) Debtor & Creditor
c) Trustee & Beneficiary
d) None of these
e) All of these

4. The charge created by a bank to sanction a loan against Insurance Policy is:
a) Assignment
b) Arbitrage
c) Amortization
d) Acquisition
e) None of these

5. Which public sector bank is the leader in mobile banking business in India?
a) ICICI
b) HDFC
c) SBI
d) Axis Bank
e) UBI

6. The Reserve Bank of India (RBI) has decided to withdraw its nominee directors from the boards of which of the following types of banks?
a) Co-operative Banks
b) Nationalized Banks
c) Private Sector Banks
d) Foreign Banks
e) None of these

7. The National Agricultural Insurance Scheme was started by the Govt. of India in ___
a) 1990-91 Kharif season
b) 1995-96 Kharif-season
c) 1997-98 Rabi Season
d) 1998-99 Kharif season
e) 1999-2000 Rabi season

8. Which of the following nations is considered the originator of the concept of Micro Finance?
a) India
b) Bangladesh
c) South Africa
d) USA
e) Canada

9. Which of the following is NOT a foreign bank functioning in India?
a) BNP Paribas
b) Bank of Nova Scotia
c) Standard Chartered Bank
d) HSBC
e) YES BANK

10. As per the current year taxation policy the maximum amount of housing loan rebate under section 80C is allowed up to ___
a) Rs. 1.00 lakh
b) Rs. 1.50 lakh
c) Rs. 2.00 lakh
d) Rs. 2.50 lakh
e) Rs. 3.00 lakh

11. 84th annual general meeting of BIS held in ___
a) Hyderabad
b) Tokyo
c) Frankfurt
d) Paris
e) Basel

12. Which among the following is correct full form of CAS in context with banking market in India?
a) Cash Authorization Scheme
b) Credit Authorization Scheme
c) Credit Access System
d) Credit Arrangement System
e) Cash Accreditation Scheme

13. Which of the following term is NOT related with Banking/ Finance?
a) Annuity
b) Line of Credit
c) Legal heir
d) Fore Closure
e) None of the above

14. What will be the impact on the cash reserves of commercial banks if RBI conducts a sale of securities?
a) Increase
b) Decrease
c) Remain constant
d) Increase or Decrease
e) Increase if the securities are sold in open market operations

15. Banks in India are permitted to have fixed deposit for a period of maximum ____
a) 60 months
b) 72 months
c) 84 months
d) 96 months
e) 120 months

Money Market in India

Open Market Operations: 

                    Open market operations consist of buying and selling of government securities by the Reserve 

Bank. Open market operations have a direct effect on the availability and cost of credit. When the central 

bank purchases securities from the banks, it increases their cash reserve position and hence, their 

credit creation capacity. On the other hand, when the central bank sells securities to the banks, it 

reduces their cash  reserves and the credit creation capacity. The Reserve Bank of India did not 

rely much on open market operations to control credit. It was not used for influencing the availability 

of credit. Due to under-developed security market, the open market operations of the Reserve Bank 

are restricted to Government securities. These operations have also been used as a tool of public

 debt management. They assist the Indian government to raise borrowings. 

The open market operations of the Reserve Bank has not been so effective because of the following 

reasons: 

(a) Open market operations are restricted to government securities. 

(b) Gift-edged market is narrow. 

(c) Most of the open market operations are in the nature of “switch operations”  (i.e., purchasing one loan 

against the other).

Objectives of Open Market Operations The main objectives of open market operations are:

(a) To eliminate the effects of exports and imports to gold under the gold standard. 

(b) To impose a check on the export of capital. 

(c) To remove the shortage of money in the money market. 

(d) To make bank rate more effective. 

(e) To prevent a ‘run on the bank’.

Repurchase Agreements (Repo):

                      Repurchase Agreements which are also called as Repo or Reverse Repo are short term loans 

that buyers and sellers agree upon for selling and repurchasing. Repo or Reverse Repo transactions can be 

done only  between the parties approved by RBI and allowed only between RBI-approved securities such as 

state and central government securities, T-Bills, PSU bonds and corporate bonds. They are usually used 

for overnight borrowing.

                      Repurchase agreements are sold by sellers with a promise of purchasing them back at a given

price and on a given date in future.

Money Market Instruments:

                      Money Market Instruments provide the tools by which one can operate in the money market. 

Money market instrument meets short term requirements of the borrowers and provides liquidity to the

 lenders. The most common money market instruments are Treasury Bills, Certificate of Deposits, 

Commercial Papers, Repurchase Agreements 

Treasury Bills (T-Bills):

                           Treasury Bills are one of the safest money market instruments as they are issued by 

Central Government. They are zero-risk instruments, and hence returns are not that attractive. T-Bills

 are circulated by both primary as well as the secondary markets. They come with the maturities of

 3-month, 6-month and 1-year. The Central Government issues T-Bills at a price less than their face value

 and the difference between the buy price and the maturity value is the interest earned by the buyer of

 the instrument. The buy value of the T-Bill is determined by the bidding process through auctions.

At present,  the Government of India issues three types of treasury bills through auctions, namely, 

91-day, 182-day and 364-day.

Certificate of Deposits (CDs):

                              Certificate of Deposit is like a promissory note issued by a bank in form of a certificate 

entitling the bearer to receive interest. It is similar to bank term deposit account. The certificate bears the

maturity date, fixed rate of interest and the value. These certificates are available in the tenure of 3 months

to  5 years. The returns on certificate of deposits are higher than T-Bills because they carry higher level 

of risk.

Commercial Papers (CPs):

                                  Commercial Paper is the short term unsecured promissory note issued by corporates 

and financial institutions at a discounted value on face value. They come with fixed maturity period ranging 

from 1 day to 270 days. These are issued for the purpose of financing of accounts receivables, inventories

and meeting short term liabilities.

The return on commercial papers is is higher as compared to T-Bills so as the risk as they are less 

secure in comparison to these bills. It is easy to find buyers for the firms with high credit ratings. These

 securities are actively traded in secondary market.

Cheque & It's Type

"Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the
person who has deposited money with the banker, requiring him to pay on demand a certain sum of
money only to or to the order of certain person or to the bearer of instrument." 

Types of Cheques 

1. Bearer Cheque
                  When the words "or bearer" appearing on the face of the cheque are not cancelled, the
cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any
other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect
payment from the bank. 

2. Order Cheque
                When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred). 

3. Uncrossed / Open Cheque
                 When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer
cheque or an order one. 

4. Crossed Cheque
                 Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at
the cash counter of a bank but it can only be credited to the payee's account. 

5. Anti-Dated Cheque
              If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto three months from the date of the cheque. 

6. Post-Dated Cheque
              If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post
dated cheque cannot be honoured earlier than the date on the cheque. 

7. Stale Cheque 
               If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque. A stale cheque is not honoured by the bank. 

Functions of the Reserve Bank of India (RBI)

1. Monopoly of Note Issue: 

          Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to 
issue bank notes of all denomination. The distribution of one rupee notes and 
coins and small coins all over the country is undertaken by the Reserve Bank 
as agent of the Government. The Reserve Bank has a separate Issue Department 
which is entrusted with the issue of currency notes. The Reserve Bank of India is 
required to maintain gold and foreign exchange reserves of Rs. 200 crores, of 
which at least Rs. 115 crores should be in gold. The system as it exists today 
is known as the Minimum Reserve System.

 2. Banker to the Government: 

          The Reserve Bank of India serves as a banker to the Central Government 
and the State Governments. It is its obligatory function as a central bank. It 
provides a full range of banking services to these Governments, such as:

       (a) Maintaining and operating of deposit accounts of the Central and State 
Government.

       (b) Receipts and collection of payments to the Central and State Government.

       (c) Making payments on behalf of the Central and State Government.

       (d) Transfer of funds and remittance facilities of the Central and State 
Governments.

       (e) Managing the public debt and issue of new loans and Treasury Bills of 
the Central Government.

       (f) Providing ways and means advances to the Central and State governments 
to bridge the interval between expenditure and flow of receipts of revenue.

       (g) Advising the Central/State governments on financial matters, such as the 
quantum, timing and terms of issue of new loans. For ensuring the success of 
government loan operations, the RBI plays an active role in the gilt-edged market. 

       (h) The bank also tenders advice to the government on policies concerning 
banking and financial issues, planning as resource mobilisation. The Government 
of India consults the Reserve Bank on certain aspects of formulation of the 
country’s Five Year Plans.

             (i) The Reserve Bank represents the Government of India as member of the 
International Monetary Fund and World Bank.

 3. Banker’s Bank: 

          The Reserve Bank has the right of controlling the activities of the banks in 
the country. All the commercial banks, co-operative banks and foreign banks in 
the country have to open accounts with the bank and are required to keep a certain 
portion of their deposits as reserves with the Reserve Bank.

 4. Lender of the Last Resort: 

          The scheduled banks can borrow from the Reserve Bank on the basis of 
eligible securities. They can also get the bills of exchange rediscounted. The 
Reserve Bank acts as the clearing house of all the banks. It adjusts the debits and 
credits of various banks by merely passing the book entries.

5. Credit Control: 

          the Reserve Bank of India is the controller of credit, i.e., it has the power 
to influence the volume of credit created by bank in India. It can do so through 
changing the bank rate or through open market operation. The Reserve Bank of 
India is armed with many more powers to control the Indian money market.

          Every bank has to get a licence from the Reserve Bank of India to do 
banking business within India. The licence can be cancelled by the Reserve Bank
 if certain stipulated conditions are not fulfilled. Every bank will have to get the 
permission of the Reserve Bank before it can open a new branch. Each scheduled 
bank must send a weekly return to the Reserve Bank showing, in detail, its 
assets and liabilities. This power of the bank to call for information is also intended
 to give it effective control of the credit system. The Reserve Bank has also the 
power to inspect the accounts of any commercial bank.

          As supreme banking authority in the country, the Reserve Bank of India, 
therefore, has the following powers:

 (a) It holds the cash reserves of all the scheduled bank.

(b) It controls the credit operation of banks through quantitative and qualitative 
controls. 

(c) It controls the banking system through the system of licensing, inspection 
and calling for information.

(d) It acts as the lender of the last resort by providing rediscount facilities to 
scheduled banks.

6. Custodian of  Foreign Exchange Reserves: 

          The Reserve Bank has the responsibility of maintaining the external value 
of the rupee. There is centralisation of the entire foreign exchange reserves of the 
country with the Reserve Bank to avoid fluctuations in the exchange rate.The RBI 
has the authority to enter into foreign exchange transactions both on its own 
account and on behalf of government. The bank is also empowered to buy and sell 
foreign exchange from and to scheduled banks in amounts of not less than the
 equivalent of Rs. 1 lakh.

CTS – Cheque Truncation System

Ø  CTS System speed up the process of collection of cheque resulting in better service to customer.  

Ø  CTS reduces the scope for clearing related frauds or loss of instrument in transmit

Ø  CTS lowers the cost of collection of cheque

Ø  It removes reconciliation related logistics related problem and thus benefiting the system