Banking system

UNIT-I

1. Definition of bank?

Section 5(b) of the banking companies act 1949 define banking as accepting for the
purpose of lending or investment of deposits of money received from the public.
Repayable on demand and withdraw able by cheque draft order otherwise.

2. What is Unit bank?

This is a type of bank under which the banking operations are carried by a single branch
with a single office. The bank‘s operations confined to a limited area.As there were more
number of unit banks , a single central bank could not control them. 12 central banks
are called Federal reserve Banks.

3. What do mean by chain Bank?

When different banks are coming under a common control through common
shareholders or by the inter-locking of directors. Such bank is called chain banks.

4. What is commercial bank?

It is a kind of bank which promoter commercial activities bank . The cannot afford
to give long –term loan and can provide only working capital for businee
purpose. The commercial activities in the country such as trade, wharehousing,
transport, etc…. finaced by the commercial bank.

5. What is private bank sector?

Private sector bank are those which are owned by group of shareholders who elect their
director for managing the bank Example,(The Karur vysa bank).

6. What is public bank sector?

Bank in a country, if fully owned by the government, is public sector bank. This is
because their ownership rests with the government and the liability is unlimited.(e.g)In
India, Indian bank, Punjab national bank, Canara bank are some of the public sector
banks.

7. What is over draft?

This is a facility given to the current account holers wherin depending upon their
credit worthiness the banker grants overdraft facility by which the customer can draw over
and above his credit balance.
 8. What is fixed deposit?

When a customer deposit certain sum of money to be kept with the banker for a fixed
deposit account. The banker will issue a receipt which is called fixed deposit. This is non
transferable.

9. What is co-operative bank?

The co-operative banks. these banks helps by providing loans to the weaker sections But
they provide long term loan for agricultures which will enable the borrower .The interest
rate charged for the loans will be less and majority of borrowers belong to the
economically weaker section .It is called Tamil Nadu co-operative hand development
bank. For the benefits of economically weaker section, co-operative banking has been
encouraged. Here, the public contribute to the share capital.co-operative bank will have
more service motive as the interest rate charged for the loans will be less and majority of
borrowers belong to the economically weaker section.

10. What is correspondent bank?

When two banks of different stature or size are linked by anoten bank the bank
which is liking yhem is called a correspondent bank in india for many or the foreign
certain Indian banks act as correspondent bank.

UNIT-II

11.State Any Two difference of commercial bank & co-operative bank.

Commercial Bank Co-Operative Bank

Registration: Registration:
In Indian the commercial banks are In Indian the co-operative banks are
required to be registered banking regulation act required to the co-operative societies act have
1949. concerned state.

Availability: Availability:
Massive funds are available of the Limited funds are available of the
disposal of commercial bank. disposal of co-operative bank.
 12. What is banking system?

The banking system consists of central banks, commercial banks, co-operative

banks, etc. The financial system market and various sources for raising funds. Such as
credit cards which even persons in the rural areas can available.

13. What in correspondent banks?

When two banks of different structure or size are linked by another bank, the banks which
in linking them are called a correspondent bank. In India for many of the foreign banks
certain Indian banks act as correspondent banks.

14. What isSavings bank?

Though there is no separate bank as savings bank, we have savings bank in post
office. The purpose of this kind of a banks is to encourage people to save more. The bank
accepts even small amount for the purpose of savings.At the same time. It discourages
people from withdrawing.

15. State Any Two objectives of co-operative bank.

 Providing co-operative education and training throughinizorarn state co-operative union

district co –operative unions and publicity.
 Co-operatives farming in agriculture horticulture and allied activities like piggery, Dairy,
poultry, sericulture

16. What is unit banking?

This is a type of bank under which the banking operations are carried by a single branch
with a single offices. The unit bank normally may have any branch bankhas its roots in
USA .Hence we have 12 central banks ,which are called federal Reserve banks.

17. What is Branch banking ?

The bank can mobilise more deposits from urban, semi urban and rural areas.The loss
incurred by a single branch or a group of branch will be able to service as not all the
Industries will be facing the same Intensity of loss. With numerous translation which are
huge and large in size . The interest certain industries will be neglected.

18. State Any Two merits of branch bank.

[1] Branch banks can afford to employ efficient persons with attractive salaries this will
promote efficiency in operation.
 [2] Branch banks will give loans for all the three sectors of economy ,namely primary ,
secondary and tertiary sectors .

19. What is Urban co-operatives?

Urban co-operatives can be further divided in to scheduled and non-scheduled Both the
categories are further divided in to multi-state and single state. Majority of these banks fall
in the non schedule and single. Sate category.

20. What is Rural co-operatives?

The rural co-operatives are further divided in to short –term and long team structures .The
short –term co-operatives banks are three tiered operating in different states.

[1] They operate at the apex level different.

[2] They operate at the district levels.

UNIT-III
21. What is ATM?

ATM-(Automatic Teller Machine)under this system a customer can withdrawn

money by using his credit card. The customer who wants to avail ATM facility will be
given a code number which will be kept secured by the customer on the basic of credit
limit.

22. What is credit creation?

The commercial bank credits multiple expansions of their bank deposit and due to
this. These are called the factories of credit. The bank advance a major part of them
deposites to the borrowers and keep small part with them. The customer have full
confidence on the bank.

23. What is portfolio management?

The main aim of a commercial bank is to be seek profit like any other institution its
capacity to earn profit depend upon its investment policy. Its investment policy in turn
depend on the manner in which it manager portfolio
24. What is mean theories of portfolio management?

There are apparent conflicts between the objectives of liquidity,safety and

profitability relation ti a commercial bank. Economists have tried to resolve these conflicts
by laying down certain theories from time to time.

25. What is a reserve?

As per section 17 of the bank regulation act every bank must compulsorily allocate
20% of its profit towards reserve fund. A bank cannot declear any dividend until it has
built-up reserve fund.

26.What is surplus?

Surplus here represent the surplus earning left over after distribution dividend and
other statutory provisions share premiums will also come under surplus.

27. What is working capital?

Concerns are given working capital finance depending upon their earning capacity in
relation to the interest rate prevailing in the market.

28. what is over drafting?

By over drafting bank creates credit secondly bank purchase the securities and pays
them with its own cheques. The holders of this cheque deposit them in the same bank.
This creates deposit which is nothing other than creation of credit.

29. State Any Three limitation of credit?

(i)Restriction by the central bank

(ii)Habits of the customer

(iii)The cash ratio

(iv)The collateral security available

30. What is central bank?

The leader of all banks in a country its central bank.it not only control the banks but
also product by helping them.whenever they are in difficulty the central bank is also
responsible for controlling the price level. The central bank helps the government by
providing loans whenever they are in difficulty.
 UNIT-IV
31.What is financing of trade?

Trade finance has been reviewing the global trade market since 1983.the limit of
what we cover is somewhat broad and as the market evolves to meet the requirements of
financing global trade so our content has changed.

32.What is mean by securities?

Thought the stock exchange securities are paper documents, they are trade as
tangible assets because of their easy marketability. (government and semi-government
securities are rate high because utmost confidence of the people in the government and
institution sponsored by the government.

33.What is mean by loan?

The act of giving money property or the material goods to another party in exchange
for future repayment of the principal amount along with interest or other finance charges.
A loan may be for a specific one-time amount or can be available as open-end credit up to
a specified selling amount.

34.What is unsecured loan?

A loan that is issued and supported only by the borrower’s credit worthiness rather
than by a type of collateral.an unsecured loan is one that is obtained without the use of
property as collateral for the loan.

35.What is project financing?

The financing of loan-term infrastructure industrial project and public services based
upon a non-recourse a limit recourses financial structure where project debt and equity
used to finance the project are paid back from the cash flow generated by the project.

36.What is documentation?

The act or an instance of the supplying of documents or supporting reference or

records. The documents or reference so supplied the collation synopsizing and coding of
printed material for future reference.
 37.What is foreign bank?

A type of foreign bank that is obligated to follow the regulations of both the home
and host countries. because the foreign branch banks loan limit are based on the parent
banks capital, foreign bank can provide more loans than subsidiary banks.

38.What is domestic bank?

The term domestic bank shall mean any branch or office within the united status of
any of the following which is not a national of a designated foreign country.

39. Give any two functions of exam bank?

1. it refinances commercial banks in export finance

2. it provides line of credit to the foreign importer of India goods

40. What is capital market?

To enable commercial banks to take part in capital market, they were permitted to
operate mutual funds which are subject to regulations by SEBI some of the commercial
banks have even promoted subsidiary companies to operate in the capital market as
brokers. Example SBI capital market.

UNIT-V
41) What is a nationalized bank?

A nationalized bank is formed by taking a bank and its assets into the public
ownership .The government holds the majority shares of nationalized bank .There currently
more than 20 nationalized bank in India.

42) What is a privatization bank?

Privatization also spelled privatization may have several meaning primarily It is the
process of transferring ownership of a business enterprise, agency, public, service, or public
property from the public sector(A government) to the private sector either to a business that
operates for a profit or to a nonprofit organization. It is may also mean government out
sourcing of service of functions to private firms.
 43)What is a mean by development bank?

Development bank are specialized financial institutions they provide medium and long-term
finance to the industrial and agricultural sector They provide finance to both private and
public sector. Development banks are multipurpose financial institutions . They do term
lending , Investment in securities and other activities .They even promotes saving and
Investment habit in the public

44)What is land by developed bank?

A land developed bank (Bengali)abbreviated LDB,is a special kind of bank in

India, and is of quasi commercial types that provides services such as accepting deposits,
making business loans and offering basic investment products. The main objective of the
LDB is to promote the development of land agricultural production .The LDB provides long-
term finance to members. Directly its branches.

45)What is ruler bank?

The from ruler banking covers a lot of grown in The united states ruler banking is an
in formal Description of the activities of community bank in Ruler are a ruler banking
out side the united states Rulers to banking services in community that are Beyond
the reach of formal landing system Internationally ruler banking is part of
development Efforts that serve the poor

46) Give any two commercial bank development

1 . scheduled commercial bank

2 . non-scheduled commercial banks

We can define public sector bank(PSBS)IN India are banks where a majority stake
(i.e. more than 50%) is held by a government. Thus at present all the nationalized banks are
public sectors banks. In addition to these we can also say that IDBI Bank ltd and SBI are too
public sectors bank( though not nationalized bank) as go I has over 50% stake in these bank too

47) What is credit rating?

It is a method of judging the credit worthiness of a borrower or of a company in which

investments are made. Reserve bank of India has made it compulsory that all the non banking
financial companies accepting public deposits will have to undergo credit rating by any one of
the credit rating companies.
48)What are the objects of credit control?

1.The central bank exercises effective control over commercial banks

2.Its helps the government to achieve economic development with the higher per
capital income.

49)What is development bank?

As commercial banks are providing short-term funds requirements are met by

development bank. from the very name, its clear that the development banks main objective is to
promote industrial development in the country.

50)What is exchange bank?

Exchange banks are those which are incorporated outside in the country but doing
banking business in India. For example American express bank or grind lays bank. The exchange
banks help by opening branches in important port cities such as Bombay, Calcutta and madras
and there by promote foreign trade.