ITTA LLB

EI
BANKING LAW
3 AND 5 YEARS LLB UNDER KARNATAKA STATE LAW
UNIVERSITY AS PER NEW SYTLABUS

MOST IMPORTANT PREVIOUS YEAR QUESTIONS UNIT

WISE ALONG WITH ANSWERS

EDIflON-l (YEAR 2023 & 2024)

BY

ANIL KUMAR K T, BA, LLB, MSW & LLM.

Mob:9584416446
 Karnataka State law University 3 and 5 years LLB.
ANII KUMAR K T LLB COACH
Banking Law
Most important prevlous year questions Unit wise

UNIT.I

1. Discuss the functions of commercial bank in lndia.

2. Discuss origin and evolution of banking institutions in lndia.
3. Write a note on cooperative bank.
4, Write a note on state bank of lndia.
5. Discuss the various types of banks along with their functions.
6. Explain the main features of Banking Regulation Act,1949.
7. Write a note on Regional Rural Banks.
8, Write a note on commercial banks.
UNIT.II
9. Deposit insurance corporation,

l0.Examine the various controls of RBI over commercial banks.

ll.Exolain the power and functions of Reserve bank of lndia.

12.What are the activities permitted by the banking regulation act 1949 to
be taken up by the banker and Explain.

l3.Explain the objectives and features secularization act 2002.

14.Write a note on priority sector advances,
15.Explain the important principles of banking and lending.

16.Explain the precaution to be taken by a banker while landing on

hypothecation,

uNtT-flr
lT.Explain the banker's duty to honour the customers cheques.

lS,Narrate the rights of baker.

19.Who is customer of a bank ? Discuss the Beneral relationship between

banker and customer.
20.Consequenes of dishonour of cheques .
21,What are the precautions should a banker take in opening a new
account?,

22.Explain the banker's duty to honour the customers cheque

23.Define cheque . Explain the different kinds of crossing of a cheques along

with their effects.
24.What precautions should a bankers take in opening a new account in the
name of minor and married woman
UNIT-IV

25.What is endorsement ? Explain the different types of endorsement?'

26.Who is holder in due course? Explain the privileges of a holder

in due
course,

27.Write a note on savings and Current account

28.Write a note on Holder in due course.
29.Write a note on Notice and Protesting.
30. State the statutdry protection available to a paying banker'

31,Write a note on credit card.

32, Discuss the special relationship between a banker and

customer'

UNIT-V

33,Explaln the various trends of E Banking services'

34, wrlte a note on Travellers cteque,

3S,Explain the sound principles of banking and lending ? what are

the general
precautions of lending

36.What are precautions to be taken bY a banker while lending

againsl
immovable ProPerty . ExPlain.
37.Mobile banking sYstem

38.What are the precautions to be taken by a baker

while lending against the
security of goods exPlain?
may reject the
3g.Examine ground under which the banking ombudsman
complaint.
40.Discuss the powers and functions of $anking ombudsman'
 UNIT.I

lntroduction:
Commercial banks are authorized to provide a variety of financial services which
includes loans, savings accounts, etc, ln this article, we will talk about various
functions that a commercial bank performs.
The functions are of two categories - primary and secondary.

The primary functions of a commercial bank are as follows:

1. Acceptins Deoosits

Commercial banks accept deposit; from people, businesses, and other

entities in
the form of:

. Savings deposlts - The

Fommercial bank accepts small deposits, from
households or persons, in order to encourage savings in the
economy,

. Tlmc deposlB - The bafk accepts deposits for a fixed time and
carrles a hlgher rate of lnterest as compared to savlngs deposlts.

. Current deposits - These accounts do not offer any interest. Further,

most current accounts dffer overdrafts up to a pre_specified limit.
The bank, therefore, unlertakes the obligation of paying all cheques
against deposits subject to the availability of sufficient tinUs in
tne
account,
2. Lendins of Funds
Another important activity is rendirig funds to customers in the form
of loans and
advances, cash credit, overdraft and discounting of bills, etc.

Loans are advances that a bank extinds to hls customers

with or without securtty
for a speclfled tlme and at an agreed rate of lnterest. Further,
the bank ciedtts
the loan amount in the customers, Eccount which he withdraws
as per his needs.
secondary Functions of Commerciil Banks

The secondary functions of a commercial bank are as follows:

Bank as an Alent

A bank acts as an agent to lts customers for varlous servlces llke:

. Collecting bills, draft, cheques, etc

. Paying the insurance premium, rent, loan instalments' etc'

. Working as a representative of a customer for purchasing or

redeeming securities, etc. in the stock exchange'

. Acting as an executor, administrator, or trustee of the estate

of a

cu sto mer

. Al5o, preparint income tax returns, claiming tax refunds' etc'

General Utilitv Services

like:
There are several general utilitv services that commercial banks offer

lssuing traveller cheques

Offering locker facilities for keeping valuables in safe custody

Also, issuing debit cards and credit cards, etc'

fba
lntroductlon:
of thc-country'
Banklnt In lndla formi the base for the ecorlomlc developm!nt
have.been seen.over
tvtalor ihanges in the banklng system and (anagement
the needs ol
thsyears with the advancement in technoldgy, considering
people.

Phase l: The Early Phase which lasted from to 1969

[770
1959 to 1991
Phase ll: The Nationalisation Phase which l+sted from
 Phase lll: The Liberalisation or the Banking Sector Reforms phase which
began
in 1991 and continues to flourish till date.

The first bank of lndia was the,,Bfnk of Hindustan,,, established in

1770 and
located ln the then lndlan capltal, balcutta. However, thls bank falled
to work
and ceased operations in 1832.

During the Pre lndependence perihd over 600 banks had been registered
in the
country, but only a few managed tb survive.

Following the path of Bank of Hin(ustan, various other banks

were established
in lndia. They were:

. The Generat Bank of tndia (l]786_1791)

. Oudh Commerciat Bank (18q1-1958)
. Bank of Bengat (1809)
. BEnk of Bombay (1840)
. Bank of Madras {1843)
During the British rule in tndia, The East lndia Company
had established three
banks: Bank of Bengal, Bank of Borfbay and Bank of Madras
and called them
the Presidential Banks, These thre( banks were later merged
into one single
bank in 1921, which was called the,,lmperial Bank of tndia.,,

The lmperial Bank of lndia was latefnationalised in

1955 and was named The
State Bank of tndia, which is curren[ly the largest public
sector Bank.

At the time when tndia got independence, all the major

banks of the country
were led privately which was a cause of concern as t;e peopfe
U"ionging to
rural areas were still dependent on money lenders for fin"naiat
arrirt'an...
With an aim to solve this problem, the then Government
deciied to
nationalise the Banks. These banks were nationalised
under the Bankint
Regulation Act, 1949. Whereas, the Reserve Bank
of lndia was nationalised in
7949.

Following it was the formation of State Bank of lndia

in 1955 and the other 14
banks were nationalised between the time duration
were the banks whose national deposits were more
of 196S to fg9f. ii"r.
than 5O cfores.
Given below is the list of these 14 Banks nationalised
in 1969:
 1. Allahabad Bank
2. Bank of lndia
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of lndia
6. Canara Bank
7. Dena Bank
8. lndian Overseas Bank
9. lndian Bank
l.0.Punjab National Bank
ll.Syndicate Bank
12. U nion Bank of lndia
13. Unlted Bank
14.UCO Bank

banks, These banks included:

1. Andhra Bank
2. Corporation Bank
3. New Bank of lndia
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
5, Vijaya Bank

sBl whlch wer€ natlonallsed ln 1959:

1. State Bank of Patiala

2. State Bank of HYderabad
3, State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5, State Bank of Travancore
6. state Bank of saurashtra
7. State Bank of lndore

Liberalisation Period (1991-Till Date

and
Once the banks were established in the cou ry, regular monitoring
provided bY the
regulations need to be followed to continu the profits
phase of the banking sector
banking sector, The last phase or the ongoi g
development plgys a hugely significant role
 To provide stability and profitability to the Nationalised public sector Banks,
the Government decided to set L]p a committee under the leadership of Shri.
M Narasimham to manage the v{rious reforms in the lndian banking industry.

fhg bisgest develooment was the introduction of private sector banks in

the countrv. These banks ihcluddd:

1. Global Trust Bank

2. lclcl Bank
3. HDFC Bank
4. Axls Bank
5. Bank of Punjab
5. lnduslnd Bank
7. Centurion Bank
8. lDBl Bank
9. Times Bank
lO.Development Credit Bank

Setting up of branches of the various Foreign Banks jn lndia

No more nationalisation of Banks could be done
The committee announced that RBI and Government would
treat both
public and private sector banks equally
Any Foreign Bank could start joint ventures with lndian Banks
Payments banks were introduced with the development in the
field of
banking and technology
Small Finance Banks were allowed to set their branches across
lndia
A major part of lndian banklng moved online with internet
banking and
apps available for fund transfer
3. Write a note on cooperative bank.

lntroduction:
A co-operative bank is a small-sized, financial entity,
where its members are
the owners and customers of the Eank. They are reguf"t"a
UV tf," n"r"rr"
Bank of lndia (RBr) and are registered under the staies
cooperative solieties
Act. The Co-operative Banks have recently been in news
after RBl,s restrictions
on one of the leading banks, where they were denied any kind
of money
withdrawal. This incident of the Punjab and lvlaharashtra co-operative Bank
(PMC) has raised questbns over the reliability of such financial entities'

Co-operative Banking has proved to be an asset in terms of acting as a financial

intermediarv to agricultural and allied activities, small scale industrles, and self
employed workers.
The Co-operatlve Banks in lndla are Soverned as per the Banklng Regulatlons
Act 1949 and Banklng Laws (Co-operatlve Socletles) Act, 1955,
These Banks have been opened with the motto of 'no-profit-no-loss' and thus,
do not seeklor profitable ventures;nd customers only. As the name suggests,
the main objective of Co-operative Banks is mutual help.
lndia:

They work on the principle of'one person, one vote', Since these banks
are owned by the members, a Board of Directors is chosen
democratically and then they are responsible for controlling the
Organisatlon
Farmers can avail a8ricultural loans on minimum interest rates from the
Co-operatlve Banks
Providing easy and accessible loans and credit benefits in the rural areas
wjth scarce banking facilities
The annual profit earned is spent on financial reserves and required
resources and a part of it is distributed among the Co-operative
members, as per the prescribed limitations

Urban Co-operative Banks

- Non-Scheduled UCBs
. Scheduled UCBs
Rural Co-operative Banks
, State Cooperative Banks
- Distrlct Central Cooperative Banks
Primary Agricultural Credit Societies
"
Advantases of C!:9Pge!!Yg-E?-E.E
of lndian
The Co-operative banks have acted as a boon to various sectors
of the economy
society and also played an important role in the development
Banks in lndia:
Given below are a few advantases of the co-operative
 . These banks have provided aid to the rural population by granting loans
and credits with interest r+tes, lower in comparison to that asked by
local money lenders
. They have their reich at eyery corner of th6 country and have managed
to maintaln a p!rsonal rapport with the customers
. Slnce the bank ls owned ar{d governed by the members themselves, they
do not seek huge profits arhd believe in mutual help
. The interest rate on deposlts is high and on loans is low
. r hey promote productive
+orrowing, in order to reduce the risk of loss
. Co-operative Eanks have helped the farmers by providing them
agricultural credits to buy basic products Iike fertilizer, seeds, etc.
4. Write a note on state bank of lndia.

lntroduction:
The.State Bank of lndia ls the biggest commercial bank and holds a
special
position in the modern commercial banking system In lndia.
lt came into
existence on July 1, 1955 after the nationalisation of lmperial Bank
of lndia.
The lmperial Bank of lndia was established in 1921 by amalgamating
the three
Presidency Banks of Madras, Bombay and Bengal.

The State Bank of lndia has been established to operate on the normal
commercial principles, with the only difference that, unlike other commercial
banks in the country, it takes into consideration and responds in
a
progressively liberal manner the financial requirements
of cooperative
institutions and small scale industries, particularly in the rural areas of the
country.

The maln oblectlv€s of the State Bank arei

(i) To act in accordance with the broad economic pollcies
of the government;
(ii) To encourage and mobilise savings by opening
branches in ruial and semi-
urban areas and to promote rural credit;
(iii) To establish government partnership,in the provision
of cooperative credit;
(iv) To extend financial help for the establi;hment
of licensed wiiehouses and
cooperative marketing societies;
(v) To provide financial help to the small
scale and cottage industries;
(vi) To provide remittance facilities to the banking
instit;tions.
The State Bank of lndia acts as an agent of the Reserve Bank
in all those places
where the latter does not have its branches.
functlons:

(i) lt acts as the Sovernment's bank, i.e., it collects money and makes payments
on behalf of the Bovernment and manages pqblic debt.
(ii) lt acts as the bankers' bank lt receives deposits from and gives loans to
commercial banks. lt also acts as the clearing house for the commercial banks,
rediscounts the bills of exchange of the commercial banks and provides
remittance facilities to the commercial banks.

The State Bank of lndl. pcrform3 .ll klnd3 of commerclal banklng functions:
(l) lt recelves deposlts from the publlc.
goods, bllls
itil tt glves loans and advances against eliSlble securltles lncludlng
of erihange, promissory notes, fully paid shares of companies, immovable
property or documents of title, debentures, etc'
(iii) lt invests its surplus funds in government securities, railway securities and
securities of corporations and treasury bills'

The state Bank of lndia also performs the following other functions:
(i) lt buys and sells gold and silver.
(ii) lt acts as agent of cooperative banks
and other securities in
iiiil tt ,nd"r*it"t issues of stocks, shares, dfbentures,
which it is authorlsed to lnvest funds.
(iv) lt administers, slngly orjointly, estates ftr anv Purpose as executor'
trustee
or otherwise.
(v) lt draws bills of exchange and grants lettfrs of credit payable out of
lndia'
with the approval of the
ivi) tt Uuys Uilts of exchange payable out of lhdia
in the capital
Reserve gank; it subscribes buys, acQuires, liolds and sells shares
of banking comPanies

E hi..,,G. rho v.riors tvoes of banks along with their functions'

are the bank tvpes in
Banks can be classitied into various tv9es' Given below
lndiar

Central Bank
Cooperative Banks
Commercial Banks
 Regional Rural Banks (RRB)
Local Area Banks (LAB)
Specialized Banks
Small Finance Banks
Payments Banks

Functions of Banks
The major functions of banks are almost the same bul the set
of people each
sector or type deals with may differ. Given below the functions
of the banks in
lndia:

1. Acceptance of deposits from the public

2. Provide demand withdrawal facility
3. Lending facility
4. Transfer of funds
5. lssue of drafts
6. Provide customers with locker facilities
7. Oealing with foreign exchange
Apart from the above-mentioned ljst, various utility functions
also need to be
performed by the various banks.

Salient features of the Act

1. A.comprehensive definitfon of banking so as to bring within the scope

of the legislation all institutions which receive depoiits, repayable
on
demand or otherwise forf iending or investment.
2. Prohibition of non-bankiirB companies from acceptinB deposits
repayable on demand.
3. Prohibition of trading to
tliminate non_bankinB risks.
4. Prescription of minimum capital standards.
5. Limiting the payments oi dividends.
6. lnclusion the scope of le{tslation of banks registered outside the
provlnces of lndta.
7, lntroductlon of comprehfnslve system of llcenslng of banks
and their
branches.
8. Prescription of a specialfprm of balance sheet and conferring of
powers on the Reserve Bfnk to call for periodical
returns,
 9. lnspection of books and accounts of a bank by Reserve Bank'
lO,Empowering the central government to take action atainst banks
conducting their affairs in a manner detrimental to the interests of
the depositors.
ll.Provision for bringinB the Reserve Bbnk of lndia into closer touch with
banking companies.
l2.Provision of an expeditious procedure for liquidation'
13.Brlnging the imperial bank of lndia wlthin the purvlew of some of the
provlslons of the Blll.
L4.Widening the powers of the Reserve Bank of lndia so as to enable it
to come to the aid of banking compranies in times of emergencies'
l5.Provision for the extension of the Act to acceding states'

T.write a note on regional rural banks.

What are Regional Rural Banks?

Regional Rural Banks were established in accordance with the

provisions of an Ordinance prpmulgated on September 26, 1975, and
th" nnS l.t, 1975, wlth the Soal of ensurlng adequate lnstltutlonal
crddlt for agrlculture and other rural sectors'
. The Re8ional Rural Banks were created with the lntentlon of comblnlng
the strengths of cooperative and commercial banks'
It was hoped that these would provide cheap and adequate
credit while
also bein{ operationally efficient and easy to access
The primiry goal of Regional Rural Banks was to end the rural
debt
culture ani close the credit gap that existed between geographical
regions.
RR-Bs are operationally sponsored by rcheduled
bank5, which are
typically public sector commercial barrks'
lnstead of burdening commercial banks by extending their
operations
thought to be
over large areas and spreading resoulces thin, RRBs were
able to iunction intensively and confine their operations
to a single
reglon consisting of one or two contlguousdistricts ..
Th-us, RRBs operate similarty to commercial banks'
albeit with a smaller
geographical reach for each of them'
Government, state Governments, the Reserve Bank of
lndia
it
"-c"n,rrt RRBs and
(RBl), and smaller banks all work together to establish new
assist them in their oPerations.
Since 1978, the RBI has primarily carried out
promotional functions'
while state governments carry out statutory functions'
 . RRBS are jointly owned by Gol, the relevant State Government, and
Sponsor Banks; the issued tapital of an RRB is divided among the owners
in the proportions ol5O%, t),5%, and 3S%, respectively.
. Currently, there are 43 RRBS in lndia serving 14494 branches in 525
dlstricts across the country,

Regional Rural Banks - Significarice

Every RRB operates as a commercial bank, and in addition to directly

granting short-term and long-term loans, it has the authority to mobilise
savings.
They give loans for agriculture, allied activities, retail trade, ahd
small
rural industries.
They also specifically target the group of small and marginal farmers,
landless labourers, rural artisans, and others through th; lntegrated
Rural Development programme by extending credit to the po;rest
of
the poor ln rural areas.
The Regional Rural Banks has a priorlty Sector Lending (pst) tartet
of
75% where loans are lent to agricultural activities and vulnerible
Sectors,
These banks are also providing financial assistance to
iegional
cooperative institutions in low-income strengthen their financial bases
and enable them to play a more positive role as viable financial
institutions engaged in rural development.

Commercial Bank
As per the commercial bank definition, it is a financial
institution whose
purpose is to accept deposlts from people and provide
loans and other
facllltles, Commerclal banks provide baslc services of banking
to tf,"ii
customers and small to medlum_slEed businesses.

What is Commercial bank?

A commercial bank js a financial inltitution that proviles
services like loans,
certlficates of deposits, savings bahk accounts bank overdrafts,
etc. to its
customers. These institutions makd money by lending
loans to individuals and
earning interest on loans. Various {ypes of loans given by
a commercial bank
are business loans, car loans, house loans, personal
loans, ana toans.
"Ouc"tion
They give out these loans from the money deposited
by their customers in
dI iff er( pe:sof accounts, They use the deposits as capital for providing
rrernt 1type
lcoa 5. Coihmt
arn5. mee( ]lal banks are essentlal for the economy of a country because
)rCl€
'h,elprinrcr
tt;hee\yh rting capital, credit as well as liquidity in the market' These
reat
cr;re
blar (s arer 8en
inrks rera
len1et
I lly physically located in cities but these days there are online
lnrks areI gro ng in numbers.
bcar

Cornmetcial banks offer basic services of banking to the public including

individual customers as well as small and medium-slzed businesses Money
is

made by banks by charging for services and fees. The fees depend on the
products given such as overdraft fees, fees for safe deposit boxes, late fees,
etc, Various loans also consist of fees other than interest on loans'

Banks earn money by tlvlnt out loans and foi that purpose they use funds
glve
from customer deposlts. They charge hlgher lnterest rates on loans they
out and comparatively less rate of interest oli the amount they 8et as deposits
from their customers, For e g,, a bank may prtovide a O 30 per cent rate
of
per cent rate of
interest on savings account to its customers but charges a 4'8
interest annuallY for home loans.

Generally, commercial banks are situated in buildings where

their customers
come for uslng ATM machines and other barfker window
faclllties As lnternet
technology has risen in recent years, most b+nks allow customers
to do most
services online. People can now make mone]y transfers, deposits
or make
payments for bills online.

lmoortance of commerclal banks

Lffi;"i-|b""k-"* .t*rtl"l because they create llquldlty
f"r the ecoiomy
in the market and create capital besides pro[iding their customers
with
essentialservices.Banksmakesureliquidityinthemarketbylendingoutloans
from the deposits of their customers'

public sector banks, private sector banks, and regional rural banks are the
types of commercial banks.

at is commercla! bilB
The basic functions are accepting deposits, lending
out loans, transfer of
money, and discounting bills of exchange'

UNIT-II
 lntroduction:
Deposit lnsurance and Credit Guarantee Corporation (DICGC) is a wholly_
owned subsidiary of the Reserve Bank of lndia (RBl). lt provides
deposit insurance that works as a protection cover for bank deposit holders
when the bank fails to pay its depositors.

The agency insures all kinds of deposit accounts of a bank, such as

savjnts,
current, recurring/ and fixed deposits up to a limit of Rs. 5 lakh per account
holder per bank. ln case an indlvidual,s deposlt amount exceeds Rs.5 lakh
ln a
single bank, only Rs.5 lakh, includirtg the principal and interest, witt
be paiA Uy
DICGC if the bank becomes bankrupt.

How DICGC Works?

DICGC protects depositors, money kept in all commercial and foreign

banks
located in lndia; central, state, and urban co-operative banks; regio-nal
rural
banks; and local banks, provided that the bank has opted for
DIC-GC cover.

Ihe agency's operations are perfoimed as per The Deposit lnsurance and
Credit Guarantee Corporation Act, .961 and The Deposit lnsurance
and Credit
Guarantee Corporation General ReFulations, 1961, framed by RBI
under the
provlsions of sub-section (3) of Section 50 of the
act. The act states that the
cstabllshment of thls corporation is with the aim of insurlng deposits,
gueranteelng credit facllities, and other related matters.

What DICGC Does Not Cover?

Deposits of state or Central governments

Deposits from foreign governments
State land development banks depositing with the state
co-operative
ba nk
lnter-bank deposits
Funds that are due on accourlt of lndia and deposits
received outside
lnd la
Funds exempted by the corporation with the previous
approval from RBt

When banks register with DICGC, the agency grants a printed

certificate to the
bank that displays information regarding the protection
offered by DICGC to
depositors of the insuied bank. lf there is any doubt, customers can enquire
with the bank officials on the same.

vanous

lntroduction:
One of the most important functions of RBI is to work as regulator and
supervisor of financial system. The financial system in lndia includes Commercial
Banks, Reelonal Rural Banks, Local Area Banks, cooperative Banks, Financial
lnstltutlons lncludlng Development Flnancial lnstltutlons (DFls) and Non-
Banking Financial ComPanies.
provisions
RBI derives its regulating powers for lndian Banking SYstem from the
of the Banking Regulation Act 1949' For other entities, it derives power from
the RBI act 1934. The obiectives of this function are to protect the interest of
the depositors and maintain the safety and soundness of the banking and
tinancial System of the countrY.
After the liberalization of the lndian Economy and Banking reforms in 1990s'
the
amplitude of the supervisory functions of RBI became has grown enormously
To keep up with the added importance of this function, the Board
of Financial
suoervision was constituted in 1994 since then, BFS is working as the main
gulding force behind Rdl's regulatorY and supervisory lnltiatlves'

functions.
frames
D"p"rt."nt of Banking operations and Development (DBoD)
regulations for commercial banks
of
-. . Department of Banking Supervision (DBS) undertakes supervision
financial
commercial banks, including the local area banks and all-lndia
institutions.
. Department of Non-Banking Supervision (DN85) regulates and
supervises

the Non-Banking Financial Companies (NBFCs)

Urban Bdnks Department (UBD) regulates and supervises the
Urban
.
Cooperatlve Banks (UCBs).
. Regulation of Regional Rural Banks (RRBs) and the Rural
Cooperative
(RPCD); while the
Balks is done by Rural PlanninB and Credit Department
supervision of these comes under NABARD'

. LicensingRequirements
. Corporate Governance in Banks
 Statutory Pre-emptions
lnterest Rates
Prudential Norms
Disclosure Norms
Anti-Money Laundering Nlrms
Protection of Small Deposi{ors
Para - banking Activities
Annual Onsite lnspection

Licensins Reouirements
To do a business of commercial banking in lndia, whether
it il lndia or Foreign, a
license from RBI is required. Opening of Branches is handled bv the Eranch
led by Bran.h
Authorization Policy, At present, lndian banks no longer require a license
from
the Reserve Bank for openjng a branch at a place with population of below
50,000,

One of the policy objectives of .is to ensure

RBI high_quility corporate
governance in banks. RBI has issued guidelines for,flt and proper; criteria for
director of banks. One of these guidelines is that the directois of the
banks
should have special knowledge / experience in the various banking
related
areas. RBI can also appoint additional directors to the board
of a banking
company,

Each commercial bank is required to maintain certain portion

of their Net
Demand and Time Liabjlities (NDTL) in the form of cjsh
with the Reserve Bank,
called Cash Reserve Ratio (CRR) End in the form of investment
in ,ppror"a
securities, called Statutory Liquidity Ratio (SLR). These are
called statutory pre-
emptlons,
Intcrest Ratcs
The interest rates on most of the cAtegories of deposits
and lendlng transactions
have been deregulated and are largely determined by banks.
ieserve Bank
regulates the jnterest rates on spvings bank accounts
and deposits of non-
resident lndians (NRl), small loans up to rupees two lakh,
expori credits and a
few other categories of advances.
Prudential Norms
Prudential Norms refers to ideal / responsible norms
maintained by the banks.
RBI issues "prudential Norms,, to be followed
by th" commercl"l Uant<s to
strengthen the balance sheets of banks. Some of ihem
,r" ,"l"t"J to in.or"
recognition, asset classification and provisioning, capital adequacy,
investments portfolio and capital market exposures. RBI has issued its
guldellnes under the Basel llfor rlsk manaterhent,
Dlsclosure Norms
61" ot tt -portant tools for marketing dlsclpllne ls to malntaln publlc
"
disclosure of relevant information. As per RBI's directives, the banks are
required to make disclosures oftheir annual reports and some other documents
about their capital adequacy, asset qualitY, liquidity, earnings aspects and
penalties imposad on them by the regulator.
Anti-Monev Laqnderins Norms
fVC norr* (linow Your Customer) Anti- Money Launderint (AML) and
Combating Financing of Terrorism (cFT) guidellnes are some of the major
issues

on which RBI keeps lssuing its norms and guidelines

Protection of Small DePositors
net tut ,p tt1" oeposit lnsurance and credit Guarantee Corporation (DlcGC)
t.t
to protect the ihtereit of small deposltors, in case of bank failure The DICGC
provldes insurahce cover to all eliSible baftk deposltors up to Rs'1 lakh per
depositor per bink,
Para - bankins Activities
Fi[ U"nting i"tirities are those activiti+s which don't come under the
traditional banking activities. Examples of suth activities are asset management'
mutual funds business, insurance busin{ss, merchant banking activities'
venture
factoring services, venture capital, card busirfess, equity participation in
funds aid leasing. The RBI has permitted bbnks to under take these activities
under the guidelines issued by it from time tP time'
Annual Onsite lnsPection
iEiiio".t.t .nnual on-site inspection of {anks to assess their financial health
".t quallty of management' capltal
and to evaluate thelr performance ln term! of
adequacy, ass€t quallty, earnlngs, llquldlty !osltlon as well as
internal control
systems.
ratings
Based on the findings of the inspection, bariks are assigned supervisory
based on the CAMELS rating.

Functions of Reserve Bank

printing the currency

,.lssue of Notes -The Reserve Bank has a monopoly for
notes of various
notes in the country. lt has the sole right to issue currencY
denominations except one rupee note'
 The Reserve Bank has adopted the Minimum Reserve System for
issuing/printing the currency notes.

2. Banker to the Government-The second important function of the Reserve

Bank is to act as the Banker, Agent and Adviser to the Government of lndia and
states. lt performs all the banking functions of the State and Central
Government and it also tenders useful advice to the government on matters
related to economic and monetary policy, lt also manages the public debt
of
the government.

3. Banke/s Bankl The Reserve B!nk performs the same functions for
the
other commercial banks as the other banks ordinarily perform for their
customers. RBI lends money to all the commercial banks of the country.
Structure of Banking Sector in lndia

4. Controller of the Credit:- The flBl undertakes the responsibility

of controlling
credit created by commercial banks. RBI uses two methods to controlthe
extra
flow of money in the economy. These methods are quantitative and qualitative
techniques to control and regulatp the credit flow in the country. When
RBI
observes that the economy has sufficient money supply and it
may cause an
inflationary situation in the country then it squeezes the money supply
through lts tlght monetary policy and vlce versa,

5, Custodlan of Forelgn Rrsarvas:.For the purpose of keeplng

the forelgn
exchange rates stable, the Reserve Bank buys and sells foreign
currenci-es and
also protects the country's foreigrl exchange funds. RBt sellsihe
foreign
currency in the foreign exchange market when its supply decreases
in the
economy and vice-versa.

6, Other Functions:-The Reserve Bank performs a number

of other
developmental works. These works include the function of clearinghouse
arranging credit for agriculture (which has been transferred
to NAiARD)
collecting and publishing the economic data, buying and
selling ot Cor"rn."nt
securitles (gilt edge, treasury bills etc)and trade bills, glving
l9a-ns to the
Government buytng and selling of vatuaute commoolites
representative of the Government in the lnternational
eic.ilt ..ti tt
"lro
Monrtarv Fund ", "
(l.M.F.) and represents the membership of lndi., i

Powers of RBI
Election of New Directors

Section. 12A:The Reserve bank may, by order, require any banking company
to call a general meeting of the shareholders of the company withln such tlme,
not less than 2 months from the Date of the order, as may be specified in the
order or within such further time as the Reserve bank may allow in this behalf,
to elect, in accordance with the voting riShts permissible under this Act, fresh
directors.

Cash Reserv€

Section. 18: Under Section 42 of the Reserve Bank of lndia Act, every
scheduled bank has to maintain a sum equalto at least 3% of its time and
demand liabilities in lndia as cash reserve with the RBl The Reserve bank has
the power to increase the percentage up to 20% bY a notification in the
government Gazette.

Licensing of BankinP comPanies

bank
Section.22: Prior to granting license to a banking company, the Reserve
may require to be satisfied by an inspection of the books of the bankint
company or all or any of the followinB conditions should be fulfilled'
namely:

1, What the company ls or wlll be ln a posltlon to pay lts present or

future depositors in full as they become due
2. That the affairs of the company are not being, or are not likely to be

conducted in a manner detrimental to the interest of the depositors

3. ln the case of a company incorporated outside tndia that the carryinB
public
on of banking business by such company in lndia will be ln the
interest and that the government or law of the country in which
it is
incorporated does not discriminate in any way against banking
comPanies reBistered in lndia

cancellatlon ot the Llcense;

Reserve Bank due
The llcense of any banking company may be cancelled by the
to the following reasons:

1. lf the company ceases to'cbrry on banking business in lndia; or - .

are not fulfilled
2, .lf any of the conditions imposed by the Reserve bank
 Any banking company aggrieved hy the decision of the Reserve bank cancelling
a license may, within thirty days from the date on which such
decision is
communicatedtoit,appealtothecentralgoVernment,

Openins of New and Transfer of Existing place of Buslness

Section. 23: Without obtaining prior approval of the Reserve Bink:

1. No banking company shall open a new place of business in lndia or

change otherwise than within the same city, town or vlllage, the
location of an existing place of business situated in lndia,
2. No banking company incorporated in lndia shall open
a new place of
business outside lndia or change, otherwise than within the iame
city, town or village in ahy country or area outside lndia, location
of
an existing place of business situated in that country or area,

compa nv

Section. 27(21: Sec, 28 gives power to the Reserve Eank to publish

such
information if it considers it proper to do so in the public interest,

The R€serve bank can at any time a banking company to furnish

within the
specified time, with such statements and information relating
to business of
the banking company as the Reserve bank may consider necelsary.

Power of lnspection

Srctlon. 35: The Reserve gank may at any time, and shall at the
dlrection of
the- central government Inspect a banking company
and its books and accounts
to find out whether or not the affairs of the banking company
.r,. .iiAr.t"a in
the interest of the depositors. The central government may after giving
reasonable notice to the banking company, publish
the report sub-mittlO Uy
the Reserve Bank of such portion thereof as may appear necessary

Power to pive Directions

Section.34:The Reserve Bank may from time to tjme issue

directions to
banking companies generally or to any banking
company parti.rl;;t.;"
Reserve Bank shall do so when it deems it necessary
to issue such dlrections :

1. in the public lnterest; or

 2. to secure the proper management of any banking company generally
3, to prevent the affairs of any banking company beint conducted in a
manner detrimental to the interest of the depositors or in a manner
prejudicial to !he interests of the banking companyi
Reserve Bank's approvil necessary for the amendment of provisions relating
to appointment of managing directors
Section,35B:The appointment or reappointment of a managing or a whole
time director, manager or chief executive offlcer, by whatever name called'
of the
shall not have any effect unless it is made with the previous approval
Reserve Bank.

Power of Reserve Bank to appoint ddditional diredors

protection of
section. 3648: The Reserve Bank, if considers necessary for the
the interest of depositors, from time to tlme may appoint additional directors
strength
but the number should not exceed five or one thifd of the maximum
shall
flxed for the Boird by the articles whichever is less Additional directors
years at a
hold office at th! pleasure of the Reserve bank not exceeding three
time,

the Reserve
section. 36AA: For preventing the affairs of the banking company'
bank may remoVe any director, chief executive otficer by
writing an order the
which it is
order shall contain reasons for his removal and the date from
a person for
effective. Reasonable opportunity should al$o be Siven to such
passed atainst him Such
explainint his position before such order is 4ctually
p"iron, *lthtn gO aays, can appealto centrdl government'

Further powers and functions of the Reserve Bank

Section.36
the
L. It may on a request beinB made, atsist in a proposal for
amalsamation of banking companies concerned'
of the grant of a loan or
2. It ma-y assist any banking compan{ by means
advance to it.
on the
3. It shall make an annual report to lhe central Sovernment
include
tr.na ,nO progress of the bankind in the country lt shall also
in such report-its suggestions for ihe strengthening
of banking
business throughout the countrY'
 be taken up bv the banker and ED(plain?

lntroduction:
Banking Company is a company which transacts the business of
banking in
lndia. This company fulfils the state of affairs of being a company
as gir,Ln in
companies' act 1956.

Lendlng/Borrowlng of money with/ without securitil issuing travellers,

cheque,
buying & selling foreign exchange notes, deposits vaults, co'ilecting
&
transmitting of money & securltiqs, buying bonds and other securities on
the
behalf of customers.
. Transacting and carrying on every kind of guarantee
& indemnity business.
. Selling, managing & realizing any property which comes in possession
of the
bank in procedure of settlements of claims.
. Executing and undertaking of trttsts
. Other works which are advancelnents of main purpose of
the company or
incidental
. A form of business that is defindd by the Central Government
in its issued
notification

A banking company cannot get in directly or indirectly

contracts in buying or
selling or exchange of goods.

Disposalof Non Bankins assets (Section 9)

Banks cannot hold any property fdr more than 7 years
for thl purpose of
settlements of debts or obligations. Such time limit of 7 years
can be
augmented by the Reserve Bank of tndia for another years,
5 if it thinks
appropriate.

Reserve fund (section 171

Every banklng company must gen!rate a rLserve
fund out of its earnings after
tax end lnterest, such res!rve amdunt should
be at any rate zo p"r.lii ot ,r.f,
profl$, Exempflon can be provldeq only lf the
cumulative amount of reserve
runo & securifles premlum ls greatbr than
the pald up capital of the company.

Cash reserve (section 1g)

At least 3 percent of the total demand & time liabilities
should be kept as cash
reserve or should be secured in current account
witlLReserve Bank of lndia.
 ExlM
Liabilities will not comprise monies received from Reserve Bank of lndia/
bank/ Development bank or any such other bank. Such amount should be
deposited/ kept on last Friday of every 2nd fortniSht of every month The
reiurn should be deposited before twentieth day of every month stating the
particulars of amount deposited to Reserve Bank of lndia.

Accounts & balance sheet (Section 29)

B-kng.orprni.t should plan balance sheet and profit & loss account on last
working day of every accountlnS year in the forms set out in third schedule'
Accounts must be slSned bY at least three directors where number of dlrectors
exceeds three. lf number of directors' fall short of three, then all directors
must sign the accounts, ln case of banking companY incorporated outside
the
nation, accounts must be signed by principal officer or manager of the
company in lndia.

Auditins of Bankins Companv (section 30)

. Balance sheet and Profit & Loss made compliant with section 29 must be
audited by a person qualified under law to dlscharge his duties as an auditor
. The banking company must obtain the approval of Reserve Bank of lndia
before removing/ appointing and re - appointment of auditors'
. When Reserve Bank of lndia is not satisfied with financial statements of the
bank, it can give order for carrying out a special audit' And cost
of such special
audlt must be put up by the banklng compalfy ltself'
. The llabllltle;, powers and scope of the au{ltor are same as glven ln sectlon
227 of companies ad 1956.

Additional disclosure reouirementq

. Whether the details given are correct & piesent fair and true view, whether
of comPanies
transactions done by the company comes uhder the Purview
p0wers.
. Safety of assets
. Any other matter which needs to be disclosed
. Suih report of auditor must be submitted to Reserve Bank of lndia in three
may extend the period of
copies in prescribed manner' Reserve Bank of India
ihi"" months fo, frrnishlng of such returns, lf Reserve Bank of lndla flnds It
justified to do so

13. Explain the obiectives and features secularization ad

2002'

lntroduction:
SARFAESI Act 2002 was passed on seventeenth December 2OO2 to help tndian
lenders recover their outstanding dues as fast as possible. SARFAESI Act 2OO2
(Securitization and Reconstructiori of Financial Assets and Enforcement of
Securities lnterest Act) empowers financial institutions of lndia to distinguish
and amend the problems related to NpAs (Nonperforming assets). lt also lets
the banks and other financial institutions of tndia sell rFsidentjal or business
properties with the end goal of loqn recovery.

The obiectives of the SARFAESI Act are provided below :

. Specifies the legal framevrfork identified with the scanning activities

in lndia.
. Mentions the procedures for Non - performing assets transfer to
the asset reconstruction fompanies for their reconstruction
purpose. This allows fast {nd effective recovery of NpAs with
respect to banks and Fls.
. Allows financlal institutloris and banks to sell properties (business or
residential), in case the b{rrower fails to reimburse theirloans.
. Confers powers to the fin+ncial institutions to take custody of the
immovable property that ls hypothecated or charged for debt
recovery.
. lmposes the security interbst with no interspecific legal framework
identified with the scannirig activities in lndia.
Features of SARFAEST ACT
Securitization and Reconstruction Of Financial Assets and Enforcement
of
Securities lnterest Act, 2OO2 aims to protect banks and financial institutions
trom tncurrlng losses. lts f€aturs3 Cre provldad balow ;
l,Enforcemcnt of sccurlty lntlrcsts: Ihe Act enforces security interests
by the secured creditors wi{h no involvement of the court. ln
case of a
default by a borrower, the
ict authorizes the bank or a fjnancial
institution to issue a demand notice to the borrower and induces
him/her to satisfy off the odligations within sixty days from the date of
the notification.
Reconstructlon of financial lssets: SARFAESI Act allows the banker
2.
and
financial institutions to take legitimate measures of the management,
sale, settlements, debt restiiction, or take any possession
und-er SBI
guidelines every now and tden.
3.Securitization of financial aTets and issue security receipts:
The
primary point of the securitihation act is to make accessible
the
 enforcement of security interest for example to take possessions
of
the assets that were given security for the loan'
4,Act as an agent of banks or financial institutions: The SARFAESI Act
2Oo2 acts ;s the manager of the secured assets glven by the financial
institutlons and ensures that the dues are recovered at an ideal time'

14. Write a note Q! rioritv sector advlMg

lnfuoduction:
Priority Sector refers to those sectors which !he Government of lndia
of the
and Reserve Bank of lndia consider as imporlant for the development
basic needs of the country. They are assigne{
priority over other sectors The
banks are mandated to€ncourage the growth of such sectors
with adequate
and timely credit.
released.by the
The Prlority Sector Lendlng classiflcations anf tuldellnes
RBi are intended to align with emerging natlFnal
prlorltles and brlng a sharper
iocus on inctusive deveiopment, building a c{nsensus among all stakeholders'

Agriculture
Micro, Small and Medium Enterprises
Export Credit
Education
Housing
Social lnfrastructure
Renewable Energy
Others

Small and Marginal Farmers,

credit limits do
Artisans, village and cottage ndustries where individual
not exceed Rs t lakh.
such as National
. Beneficiaries under Government spofisored Schemes
Rural Livelihoods Mission (NRLM), N{tional Urban
Livelihood Mission
(NULM) and Self Employment Schemp for Rehabilitation
of Manual
Scavengers (SRMS)
 Scheduled Castes and Schdduled Tribes.
Beneficiaries of the Differehtial Rate of lnterest (DRl) scheme.
Self Help Groups.
Distressed farmers are ind{bted to non-anstitutional lenders.
Distressed persons other than farmers, with loan amounts not exceeding
Rs L lakh per borrower to drepay their debt to non-institutional
lenders.
lndividual women benefici4ries up to Rs l lakh per borrower.
Persons with disabillties. I

lvlinority communities may be notif ed by the Government of lndia from

time to time
lain th

Princiole of Liouiditv
Banks grant advance loans on securities tl,at can be converted
and marketed
into cash easily within short notice. This is referred to as liquidity in
terms of
bank lending, Banks only put thosp securities in the investment portfolio
that
can provtde an adequate amount pf liquidity to them.
:

Solvency means flnanclal sufflclency or capabllity in the capital.

Banks maintain
sufficlent capital to help run thelr business smoothly. The ,rin
,oui." of irna,
ofthe commercial bank is the deposited.money bythe customers thro;gh
a
variety of accounts.

Principle of Profitabilitv
Earning a profit is one of the main objectives of commercial
banks. To earn a
profit, commercial banks are required to irvest by
offering short-term loans,

As mentioned before, granting loafrs to any organization

and individual is the
main source.of profit for banks. ln{estment is a soung
and profitable source of
rncome, so the banks invest in the investment
and business sectors,

Prlnclple of Savlnis
banks collect savings
-C-olmerclal
to tenerate profit. So, more savin${om society surplus and invest these savings
means more investment, which means
more protit.

Prlnclrl. of Servlc€s
 provide to their
The success of commercial banks depends on the services they
customers becaiise customers choose those banks that offer improved
services. So, banks ensure they provide the best services to their customers'

Princiole of seciecv
Customers prefdr to keep secrets about their money and valuable
assets So
banks are requiied to keep secrets about the accounts of their
customer,

Principle of Efficiencv
Since the markel is competitive, there isn't any other way without
management efliciency so commercial banks are required to traln thelr
employees to improve management efficiency.

The principle of location.

The principle of goodwill.

The principle of PublicitY

The principle of technologY.

The principle of the economY.

SafetY
Wh-Ggiuing ort lo"ns, the lender, i e, banks look at the capacity of the
them to
borroui", to,"p"y the loan. Hence, they do a thorough check on
in time at
determine whether they will be abl-'to repay loan and interest
health' it becomes
regular intervals or not lf homebuyers have thin financial
difficult for them to secure loans.
LiquiditY
EE[l-roulding toans to the borrowers, banks ensure that they have
securities that can be
sutticient tiquiaiunds available Thr:refore, theY choose
sold off without impacting their market price to
meet urgent needs of their
arrior"rr. Tha ,".urities usually b slonB to government' state and local
government bonds.
oiversification
ga*t fof or, *" principle of diversitY when Siving out loans As far as
f

provide loan facilities to

commercial real estate goes, the banks prefer to
the country
different types of builders, projectli and developers across
 Stability
Along with providing its customefs with safety and security, the banks have
to
ensure stability into its system. Hpnce they prefer investing in government
bonds and debentures to minimi+e risks and maintain a stable stance
when
there is a need for cash in the mifdle of a financial crisis. The government
debentures provide stability for the market rate and interest rates are less
likely to change in them.
Profits
Just like real estate investment is based on profit making principle,
similarly
banks look after profitability. The interest income is one of the major
sources
of banks' income.

llo-Explain the precaution to be taken bv a banker while lendine on

hvoothecation,

(a) loans to be given to Reputea parties Only: A banker

should sanction toan
only to such customers who have good reputation and sound financial position.
Such parties should have a clean record of past dealings.

(b) Regular tnspection of Hypothecated Goods:The bank

should regularly
inspect the stock of the hypothecated goods. lt should also
verify the stocks with
accoUnt books.

(c) Periodlcal Statement of Stoc]ks: The banker should

ask the borrower to
submlt periodical statement of stock, lt should verify those
statemeits witn tle
stocks of the goods.

(d) Signboard of Hypothecation in Favour of the

Banker: The banker should ask
the borrower to display a signboard on the gate of the godown
where the goods
are stored indicating that the goods are hypothecated with the
banker. The
banker should regularly check that such display is being
done. tt will be a public
notice and would avoid the chances of duplicate charge
being created on those
goods.
(e) lnsurance: The banker should ask the borrower
to get the goods lnsured
against fire, theft, flood etc., and assign the poljcy in
its favoui. The- banker
should inform the insurer that the
Boods are hypothecated with iim.
(f) Registration of Charge: lf the borrowe|s a company,
the banker should get
ll:.1::1"_,:::lr]:r,"d,under
section 12-s of the companres A", isi6. ii"
ls to be retlstered wtth the Regtstrar of Compantes
wlthtn 3O r;;;;;il;;;"..
"r,r.r,s"
The banker should obtain a copy of registratiopt of the charge Thebankershould
charge
also get declaration from the company that it will not create a second
over those goods. This undertaking should alfo be reSistered with the
Registrar
of Companles alont wlth the reglstratlon of charge

(g) Declaratlon from the Borrower that he ls hot Avalllng Slmllar Facllltles from
oiier aant<s: rne Uanker should obtain a dellaration from the borrower to this
effect. This undertaking should also be Pbtained periodically along with
periodical statement of stock of hypothecatef goods lhis declaration should be
cross-checked with the information obtained from other banks of the area

Conclusion:

give the facility

From the above points, it is made clear that the banker should
of hypothecation to honest persons only fecause the goods remain in the
possession of the borrower, ln case the lo{n is granted to any unscrupulous
person, he mav sell the goods hypothecated and pay off other creditors'

uNrT-il1

oblisation to Honour
customer
It is one of the implied terms of the contrac! between a banker and a
to honour cheques drawn by the customer !ubject to fulfilment of certain
conditions under section 31of the llegotiabfe lnstruments Act'
1881 The
cheques'
Banker is under statutory obligatiorr to honqur his customer's
provided the followinB conditions are satisfiFd :

1. There must be sufflclent fJnds (cr+dlt balance) or wlthln thc

permlssible limlt of overd"aft
(Eg'
2. Thefunds must be properly applic[bletothe paymentofcheque
The customer may have t',vo acco+nts : one showing more credit
present
balance and the other showing leis credit balance' He cannot
less credit.
a cheque for hiSher amoLnt againFt his account showing
balan(i, although his other accouirt shows sufficient credit balance)'
ue
3. The banker must be duly'equired to pay This means the cheq
months'
must be presented withir a reasohable time i e', within 6
'After it becomesstale
6 months (3 month:i asper RBI Notification)'
(i cheque with
and cannot be honoured. Similarlf post-dated e
 future date) cheque catnot be honoured. The customer shall present
post dated cheLue on qr after the date of cheque and
4. The customer sha ll not be d isqua lif ied by law or order of the court
(Garnishee Order)to dr]aw the amount from his bank
account).

A banker has a statutory obligation to honour his customer,s cheques

provided, the conditions under Stc. 10 of the Negotiable
lnsiruments Act, are
..]i.aiar According to "---i-
satisfied, -. .,, .,
l.t,
I
^-^^-.J!--.- Section 31 of the Negotiabl. f n.tru..lnt, fgif, tn"
Banker is liable to compensate the drawer for loss or damage caused
by such
wrongful dishonour. Section 31 funs as follows: ,,The drawee of a cheque
having sufficient funds of the drawer in his hands, properly applicable
to the
payment of such cheque must pay the cheque when duly required
to do so
and, in default of such payment, must cor4pensate the drawer for
any loss or
damage caused by such default,,.

lf there are sufficient funds to mget the cheque and the same
is dishonoured
by a bank, it can be held liable foi the wrongful dishonour of
the cheque and
required to pay compensation fo/ the damage caused thereby.
tt may Le noted
that the banker's liabiltty Is towarhs the payee or the hotder ot tt e iieqr".
fne
banker has a contractual relationghip with the customer onty,
having a iuty to
honour his cheques, and thereforE, only a customer i:e. the Jrawer
Ian bring
an action against the bank for the wrongful dishonour of the
cheque.

Assessment of Damages

While assessing-computing damages payable as a consequence

of wrongful
dishonour, the following factors/Coints are to be taken into
considerati;n.

1. Monetary loss caused to the drawer, payee and

2. Loss of credit and reputdtion.
The expression wrongful dlshonor]rr of a cheque means
failure to make
payment a€alnst the cheque by mfstake or negligence
on the part of the
Banker or its employee. Eg. An amlunt deposltei
credited to customer,s account in
and colle*"J r.,"1 ili
u""n
time. Consequently cheques issued by such
customer have been dishonoured for lack of funds. Or
dishonour may take
place, when the banker gives wrorig debit
to such customer,, ...orni inrt..d
ot another by mistake.

The terms loss or damage under s{c. 3L denotes :

 1, monetary loss suffered by the customer: and
2. loss of credit or reputation.
ln other words, the Banker is liable to compeilsate not only adual monetary
loss, but also the loss of reputation suffered $Y the customer as a consequence
of wrongful dishonour. Sometimes/ the customer may claim special damages
also.

Justification of Dishonour

A banker is bound or justified in dishonourinf the chegues of his customer

under the followlnt clrcumstances:

1. Where the customer countermandJ the payment'

2. Wherd there are not sufficient funqs in the customer's account to
meet the cheque
3. When the funds in the customer's {ccount are meant for being
utilized for some other purpose (fofinstance, the banker has lien
over such funds under Sec, 171 of NeSotiable lnstruments Act
)
lhe
4. lf the cheque is not properlY presefted
5. When the banker receives the notite of customer's death, bank's
authority to pay Sets terminated siilce the funds of the account vests
in the legal representatives of the {eceased customer'
6. When the banker receives the notite of customer's insanity'
7. When the Banker receives order frpm Court, prohlbltinS the
payment.
8, When the cheque is stale or post-4ated and
9. when the cheque is of doubtful le8ality'

Rishts of a Banker

1. Riqht to charse interest

loans and
Every bank in lndia has the right to charge interest on the
advances sanctioned to customers, lnterest is usually charged
monthly,
quarterly, seml annually or annually.

and
Along with interest, banks also have the right to levy a commission
service charges for the services rendered. The service
rendered by the bank
 might be SMS notification service, retail banking and so on. Banks can also
debit these charges from the customer,s bank account.

3, Risht of Lien
Another important right enjoyed by banks is the Right of Lien. Ban ks have
the right to keep goods and securities belonging to the debtor as a security,
until the loan is repaid by the ddbtor. Banks have only the right to maintain
the security of the debtor and nbt to sell.

4. The Risht of Set-off

The banker has the right to set off customer accounts. Banks can merge
a
couple of accounts which are in the name of the customer and set off the
debit balance in one account with the credit balance in the other, provided
the funds belong to the custom€r.

5. RiEht of Aopropriatlon
Let us consider that a customer has taken many loans from the bank
and he
deposits some money in the bank without any instructions. lf that amount
is not sufficient to discharge all loans, the bank has the right to appropriate
the amount deposited to any loan, even to a time-barred debt. But the
customer should be informed on the same.

lf the customer's account is not properly maintained, banks have all

the
right to close the account by sending a notice to the customer. Ba.nkers
have no right to close the account, without sending a written notice.

banker and customer.

lntroduction:
The relationship between banker and customer is a legal relationship
that
starts after the formation of a contract. When a person who
opens a bank
account in the bank and banker gives his acceptance for the
Account, it binds
banker and costumer in the contractual relationship. The person
who holds the
bank account in the bank and uses its services is called
a bank customer. The
contractual relationship between bank and customer creates
more types of
banker and customer relationships.

eeninr and Definltlon of a Cus

There is no statutory definition of a customqr, but banks appear to rely
upon
to recognize a customer:
L. For a person a person to be known as a cugtomer of the bank there must
be

either a current account or anY sort of deposlt account like savinS, term
deposlt, recurrlnB deposit, a loan account or Fome slmilar relatlon'

2. The relationship of banker and customer bEglns as soon as money or cheque

is paid in and the bank accepts it and is prepared to open account'

3. The word customer signifies a relationship in which duration is not of

essence, A person whose money has been aqcepted by the banker on
the
footing thai he undertakes to honour chequqs unto the amount standing to
his

creditis a customer oi the bank irrespective pf whether his connection is short

or long duration.

his first
The question whether a person is a customet in the period between
cont;ct wlth the bank and the recelpt of the flnal letter (a letter wrltten to the
personal
lntroducer or at the address of the account 4pener to ascertaln his
verlflcatlon) authentlcatlng the reference/lniroductlon ls not free from doubt'
and
lf the reference/introduction is satisfactory !he person is a customer
probably always has been, if it is not, and nf other satisfactory reference can
Le ,uppiied, the b"nker will probably decide not to
proceed ln this case the
person is not a customer and never has beef

The banker and customer relationship are bfsed on trust

This relationship is

divided into two imPortant Parts.

The general relationship between banker a4d customer

'ri" ?r"i""t provided by a banker to lts customer comes under a. general
between
relationship between blnker and customerl The Seneral relationships
banker and customer are:

R€lationshio as Debtor and Creditor

bank of a banker by the.person who has
@e
ifl"..pr.iry to contract is the basis of tt]e debtor and creditor relationship
a bank account
between binker and customer. By filling tlre form for opening
The customer when
Uina th" Uant", and customer in the wriltten contract
Oeposits nis money lnto his bank'accountf becomes
a creditor because he is
 giving his money to the bank indlrectly. The money deposited
by the customer
in the bank account becomes the benk's property. The bank can use your
money
as it likes. By using your money, the bank becomes a debtor because
he willtake
that money into his account to make further transactions with.other bank
customers, The bank is not liable to infornl the customer about the utilization
of
his money.

The bank performs the relationship as a trustee with his customer

when the
bank customer deposited his prdperty or other assets. ln this case,
the bank
holds the property of other doculnents of bank customers in
exchange for the
loan provided by the bank. The pbrson who is depositing the property
or other
document is known as the benefitiary.

It can be done in twq conditions:

When a person depofited his important document in the bank

locker.
The person took the loan and deposited his property document
as
security.
Relatlonshlp as princlpal and Atent
The bankers provide agent services to their customers. The
agent is defined
under section 182 of the lndian contract act as the agent is the person
who is
gmglove! by a person by giving him the power of attorney to work or deal on
his behalf. The banker pay taxes, electricity bills, insurance premium
etc. at the
command ofthe bank customer who acts as principal. The
bank usually charges
for these services provided by the bank to its customer.

Relationship as Lesser and Lessee

Section 105 of the transfer of property act deals with
the contract of lease. It is
a.transfer of a right to enjoy the immovable property for a
certain time
wlth conslderatlon. This happens in the relationship O"t*""i
O.nt"r. ,na
customer when the bank provldes a safe deposit locker
to the cust;;er of the
b€nk to save his important property for a certain peri;d
changes its customer who is taking the benefit of the
oi iir.. ri" U.nl
locker for a certain period
of time.

Relationship as pledeer and pledeee

The banker performs the relationship of pledger and pledgee
when the
customer took the loan from the bank and deposits
some security to the banker,
The customer becomes a pledger and the bank is pledgee The security of the
customer will remain in the custody of the bank until the person repays the
money of loan taken by him from the bank,

Relationship as Bailor and Bailee

The banker can perforri the relationship of bailor and bailee with its customer'
his goods to
There are many types of bailment under which the person delivers
another party for a specific period of time and take the goods back when the
purpose of bailment has been done.
The relatlonshlp of ballor and ballee between banker and customer arlses
when
the customer Sives his securlty document of any oth€r Eoods to the bank for a
specific perioJ of tlme for securlty. The customer is a bailor and the
bank
becomes bailee.

Relationship as Advisor and Client

in a
Th" *bti""thtr b"tween banker and customer can be as advisor and client
gives advice to his
case when the customer invests in securities' The bank
any kind of loan'
customer for investing. For example, if you are planning to take
bank can advise
but you are not lure that which loan you should take' Here, the
you officially or unofficially to take the right decision ln that case' the banker
will be your advisor and you will be his client'

Relationshlp as Mortsasor and Mortsare€

ilffis8(r)ofll* Ttr"tf"t Property Act, 1882 defines the mortgage as "A
,onC.C" t ih. tr"nsfer of an"f interest in specific immovable property for the
purpJsJ of securing the payment of money advanced by way of loan' etc "
against the securitv
When the banker piovides the credit facility to his customer
of immovable property, the customer becomes a mortgagor and the
bank is a

mortgagee.

contract act'
rf"[_.t" *rio* types of indemnity given under the lndianpromise to save
person
lndemnity is one of the types of contracts in which one
person who is making the
another party by paying his loss occurred due to the
contract or by the act of any other person'
banker act as indemnity
ln the relationship between banker and customer, the
payment by the
holder if any wrong transaction is done while making the
customer.
 The relationship between banker and customer converts into Hypothecator and
Hypothecatee when the bank customer hypothecates some movable or
immovable property or any other assets into the bank to take the loan from the
bank. ln this case, the bank customer is a hypothecator and the banker is
Hypothecatee.

Special Relationshi between Banker and Customer

The duties and instruction to the banker come under a special Relationship
between Banker and Customer.

Maintain records
It ls the duty of the banker to maintain every record of the transaction, loan and
lnvestment done by the bank customer. These records must be clear, genuine
and authorized. The bank customer has the right to check his transaction
detalls
whenever he needs them. ln a case where the transaction details are needed,
the banked has the duty to provide the true details to its customer with the
stamp and signature of the authorized person. Any mistake in the records can
bring the bank into trouble.

Maintain confidentialitv
A banker is responsible for the safety of the documents, records or any other
property which is deposited by the bank customer in the bank. The
information
must remain confidential. Though there are some conditions when the
banker
can dlsclose these confidential documents saved in the bank account.

Oblhatlon to honour cheoues

The bank is responsible to accept !he Cheque of the customer that
is equivalent
to the amount present in the account. There are some necessary conditions
which must be fulfilled by the Cheque. Lack of these conditiohs can lead
to
the dishonour of cheques.

20. Consequences of dishonor of cheques.

lntroduction:
When a cheque is dishonoured, the drawee bank immediately
issues a .cheque
Return Memo'to the banker of the payee mentioning
the reason for non-
payment, The payee's banker then gives the
dishonoJred cheque and the
memo to the payee. The holder or payee can resubmit the cheque
within three
 :

months of the date on it, if he believes it will be honoured the second

payee
tlme. Howevei lf the cheque issuer fails to make a payment, then the
has the riSht to Prosecute the drawer legally.

The payee may iegally sue the defaulter / dra[er for dlshonour of cheque only
lf the amount mentioned In the cheque ls to+ards dlscharSe of a debt or any
other llabillty of the defaulter towards payeel

lf the cheque was issued as a gift, towards lefding a loan or for unlawful
purposes, then the drawer cannot be prosecr]rted in such cases'

LeEal action

The Negotiable lnstruments Act, 1881 is applicable for the cases

of dishonour
of cheque. This Act has been amended many times since 1881'

Accordlng to Sectlon 138 of the Act, the dlshonour of cheque is a criminal

offence and Is punishable by imprlsonment up to two years or with monetary
penalty or with both,

given a chance
lf payee decides to prgceed legally, then the drawer should be
given
ofrepaying the cheque amount immediately such a chance has to be
only in the form of notice in writing.

The payee has to sent the notice to the drawer with 30 days
from the date of
receiving "Cheque Return l\4emo" from the bank The notice
should mention
,h.,,h.ih"qru.rount has to be paid to the payee within 15 days from the
fails to make a
date of receipt of the notice by the drawer' lf the cheque issuer
payee has the right
fresh payment within 30 days of receiving the notice, the
lnstruments
to file a criminal complaint under Section 138 of the Ne8otiable
Act,

However, the complaint should be registered in a magistrate's

court within a
to consult
month oi the expiry of the notice period lt is essential in this case
area of practice to
an advocate who is well versed and experienced in this
proceed further in the matter.

tine points: conditions for prosecution

Legally, certain conditions have to be fulfilled in order

to use the provisions of
 Section 138,

The cheque should have been drawn by the drawer on an account maintained
by him.

The cheque should have been returned or dishonoured because of insufficient

funds in the drawer's account.

The cheque is issued towards discharge of a debt or legal liability.

After receiving the notice, if the drawer doesn't make the payment within 30
days from the day of receiving the notice, then he commits an offence
punishable under Section 138 of thb Negotiable lnstruments
Act.

Punishment & oenaltv

On receiving the complaint, along \,lith an affidavit and relevant paper

trail, the
court will issue summons and hear the matter. tf found guilty, the jefaulter
can be punished wlth monetary pehalty whlch may be twi.. ih"
.rnount of th"
cheque or imprisonment for a term whlch may be extended
to two years or
both. The bank also has the rlght tq stop the cheque book facility
and close the
account for repeat offences of bouhced cheques.

lf the drawer makes payment of the cheque amount within

15 days from the
date of receipt of the notice, then drawer does not commit .ny
oifan.".
otherwise, the payee may proceed [o file a complaint in the court
of the
jurisdictional magistrate within one month from
the date of expiry of j.5 days
prescribed in the notice.
21. Wha-t are the precautions should a banker take
in oDenina a new
account?
lntroduction:

Guidelines for Opening Accounts- All banks follow a

certaln set of guidellnes
betore opening a new account or arly new financial activity
such as loans,
tradinB, etc. The precautions that b{nks take most
of which is dictated by the
RBI are

Due Diligence Process: Under,,Know your Customer,, (KYC),

a bank has
to carry out due diligence before openjng any deposit account,
The'due
 diligence' process involves the bank having adequate knowledge of the
person's identity, occupation, sources of income, and location
Minimum Balance: For products like a savings bank account or a current
account, banks normally stipulate certain minimum balances to be
maintained. For people below the povertY line, banks encourage the
opening of 'No-frills Accounts', typically a special savints bank account
where no minimum balance requirement is required.
Transparency: All such details regarding terms and conditions for the
operation of the accounts and schedule of charges for various services
provided should be communicated to the prospective depositor while
opening the account, The transparency of charges levied include the
charges attached to lssue of cheques books, addltional statement of
accounts, dupllcate passbook, follo charges and charges upon failure to
maintain minimum balance in the accounts.
Eligibility: The criteria for a savings account and a current account are
similar, but whiloboth the accounts can be opened by individuals, the
savings account cannot be opened by a firm. Term Deposit Accounts can
be opened by all categories of account holders'
Permanent Account Number: Banks are required to obtain a Permanent
Account Number (PAN)from the prospective account holder or alternate
declarations as specified under the lncome Tax Act'
Operation of Joint Account: A joint account can be operated by a single
Indlvldual or by more than one individualjointly' The mandate for who
can operate the account cad be modified with the consent of all account
holders.
Power of Attorney: At the request ofthe depositor, the bank can
re8ister a mandate/power of attorney given by him authorizing
another
person to operate the account on his/her behalf
Closure/renewal of deposits: ln the absence of a mandate with
regard
to the cloiure of deposit account or renewal of deposit for a further
period on the date of maturity, the bank will be at tiberty to roll over the
deposit on the due date
the
Nomination: A depositor authorizes Someone who would receive
This is
mone,f from his/her account when the depositor passes away
..lt.o lt n" nomination Process.

oblisation tb Honour cheques

 It is one ofthe implied terms ofthe contract between a banker and a customer
to honour cheques drawn by the customer subject to fulfilment of certain
conditions under section 31 of the Negotiable lnstruments Act, 1gg1. The
Banker is under statutory obligation to honour his customer,s cheques,
provided the following conditions are satisfied :

1. There must be sufficient funds {credit balance) or within the permissible

limit of overdraft.
2. The funds must be properly applicable to the payment of cheque. (Eg. The
customer may have two accounts ; one showing more credit balance
and
the other showing less credit balance, He cannot present a cheque for
higher amount against his account showing less credit balance,
althougtr his
other account shows sufflcient credit balance).
,
3. The banker must be duly required to pay. This means the Jheque must be
presented within a reasonable time i.e,, within 6 months.
After O months (3
months asper RBI Notification), it becomes stale and cann6t be honoured.
Similarly post-dated {i.e. chequd with future date) cheque cannot be
honoured. The customer shall pfesent post dated chelue on or after
the
date of cheque and
4. The customer shall not be disqublified by law or order of the court
(Garnishee Order) to draw the amount from his
bank account).
Liability of Banker for Wrongful Dishonour

A banker has a statutory obligation to honour his customer,s

cheques
provided, the conditions under Sec. 1O of the Negotiable
tnstruments Act, are
satlsfied. (P,S : This topic,Banker,s obligation to aonour customer,,s
.heqres
also appears in Negotiable lnstrum4nts Act). According
to Section
Negotiable lnstruments Act, 1891, the Banker is liable to compensateihe
ii
of the

drawer for loss or damage caused by such wrongful dishonour.

Section 31 funs
as follows: "The drawee of a cheque having sufficient
Iunds of the drawer in
his hands, properly applicable to the payment of such
cheque must pay the
cheque when duly required to do so and, in default
of such payment, must
compensate the drawer for any loss or damage caused
by such defauh".

lf there are sufficient funds to meet the cheque

and the same is dishonoured
by a bank, it can be held liabte for the wrongiut aisnonour
otitre .i"qr" ,"a
required to pay compensation for $ie damage caused
thereby. tt may ie noted
that the banker's liabitity is towards the payle or tne
banker has a contractual relationship wiih ih"
notaerlf ,i"
.i"qr". ffl"
oniy, i,r"i* . or,r r"
"rrtorn"r.
honour his cheques, and therefore, only a customer i.e. the arawer Ian oring
an action against the bank for the wrongful dishonour
of the cheque.
Assessment of DamaEes

While assessing computing damages payable as a consequence of wrongful

dishonour, the lollowing factors/points are tq be taken into consideration'

1. Monetary lo$s caused to the drawer, payge and

2. Loss of credl{ and rePutatlon.
The expression irrrongful dlshonour of a chegue means fallure to make
payment againsi the cheque by mistake or n{gligence on the part of the
Banker or its erlployee. Eg, An amount depo$ited and collected had not been
credited to customer's account in time. Constquently cheques issued by such
customer have been dlshonoured for lack of funds' Or dishonour may take
place, when the banker gives wrong debit to such customer's account instead
of another bV mistake.

The terms loss or damage under sec 31 denotes:

1. monetary loss suffered by the customer: and

2. loss of credit or rePutation,
ln other words, the Banker is liable to compehsate not only actual monetary
loss, but also the loss of reputation suffered by the customer as a consequence
of wrongful dishonour. Sometimes, the customer may claim special damages
a lso.

Justification of Dishonour

A banker is bound or justified in dishonouring the cheques of his

customer
under the following circumstances:

1. Where the customer countermands the payment'

2. Where there are not sufficient funds in the customer's account
to meet the
cheque.
utlllzed for
S. wi;n the funas in the customer's accoufrt are meant for belng
such funds
some other purpose (for lnstance, the b{nker has llen over
under Sec. 171 of the Negotiable lnstru+ents Act )
4. lf the cheque is not properly presented'
5. when the banker receives the notice of fustomer's death' bank's authority
-
to pay gets terminated since the funds o[ the account vests in the
legal

representatives of the deceased customEr'

insanity'
O. When the banker receives the notice of tustomer's
payment'
7. When the Banker receives order from Churt, prohibiting the
 8. When the cheque is stale or post-dated and
9. When the cheque is of doubtful legality.

The word 'Vicar' means the person, who performs the functions of another,
a
substitute, Vicarlous liablllty m€anr,,Liability, whlch ls incurred for or instead
of another". For instance, liability of a master for the wrong/tort committed
by
his servant. Section 238, lndian Contract Act, provides that misrepresentation
made, or frauds committed, by agents acting in the course of their business
for
their principals, have the same effect on agreement made by such agents as if
such misrepresentations or frauds had been made or committed by ihe
principals, but misrepresentations made, or frauds committed
by agents in
matters which do not fall within their authority, do not affect their principals.
lt
means that when an agent makes a misrepresentation or commits
a fraud,
acting_in the course of the principal,s business, the principal will
be vicariously
liable for the same. This provision relates to the liability of every principal,
including a banker.

fhe posltion may be explained by referring to the case of: Lloyd vs, Grace
Smlth & Co : ln this case it was held that the master is also heid liable
for
fraudulent acts done by servant for his (Servant,s) own benefit. The defendants
were a firm of solicitors. The plaintiff, a widow requested the defendant
to
prepare documents for sale of her property. But the defendant,s
servant
prepared the documents to transfer the property
in his own name, ln an action
by the plaintiff, the defendant was held liable for the fraudulent
act of their
servant.

with their effects.

Crosslns of Cheoue
D.flnltlon: CrossinS of a cheque is nothing but instructing
thelbanker to pay
the specified sum through the banker only, i.e, the.rorit orj ti..i.qu. t,.,
to be deposited directly to the bank account of the payee.

Hence, it is not instantly encashed by the holder presenting

tlie cheque at the
bank counter. lf any cheque contains such an instruction,
iiis called a crossed
cheque. The crossing of a cheque is done by making
two tranrr"ri" p.rrtt"t
linesatthetopleftcorneracros5thefaceofthechique.
Tvpes of Crosslng

The way a cheque is crossed specified the banker on how the funds are to be
handled, to protect it from fraud and forgery. Primarily, it ensures that the
funds must be transferred to the bank account only ?nd not to encash it right
away upon the receipt of the cheque. Therd are several types of crossing

1. General Crossing: When across the face of a cheque two transverse

parallel lines are drawn at the top left corner, along with the words &
Co., between the two lines, with or wilhout using the words not
netotiable. When a cheque is crossed in this way, it is called a general
crosslnE.

. rO'
b"/
2. Restrictive Crossing:When in between the two transverse parallel lines,
the words 'A/c paYee' is written acrosr the face of the cheque, then such
a crossing is called restrictive crossing or account payee crossinE
ln this
person
case, the cheque can be credited to the account of the stated
only, making it a non-negotiable instrument.

#
Spicial Crossing: A cheque in which the name of the banker is written'
parallel
across the face of the cheque in between the two transverse
lines, with or without using the word 'not neSotiable' This type
of
payin8
crossing is called a special crossinE. ln a special crossing, the
lanter-witt paY the sum only to the banker whose name is stated in the
cheque or to his agent. Hence, the cheque will be honoured
only when
 the bank mentioned in the crossing orders the same.

<",$y
.BP
4. Not Netotlable Crossing: When the words not negotiable
is mentioned
in between the two transverse parallel lines, indicating that the cheque
can be transferred but the transferee will not be able to have a better
title to the cheque.

5.
@
Double Crossing: Double crossing is when a bank to whom the cheque
crossed specially, further submits the same to another bank, for
the
purpose of collection as its agent, in this situation
the second crossing
should indicate that it is serving as an agent of the prior banker,
to
whom the cheque was specially crossed.
The crossing of a cheque is done to ensure the safety of payment lt is a
well-
known mechanism used to protect the partleF to the cheque, by maklnB sure
that the payment is made to the riSht payee. Hence, it reduces fraud and
wrong payments, as well as it protects the in$trument from SettinE stolen or
encashed by any unscrupulous individual.

24, utl lda

na@
Bank accounts are usually opened for children or minors by their parents or
guardians for multiple reasons, but the most prominent among them is that it
,"ru", learning experience for them on how to manage money and save it'
", "
Any person below the age of 18 years is considered a minor' These days, many
banks offer the iacility of opening accounts, often called 'minor' accounts,
specifically desiSned for children.

Documents required to ooen a bank account for a m

- Proof of a minor's date of birth
- KYC documents of the parents/guardian.
- Aadhaar card of a mlnor,
- Specimen signature of a guardian. The minor's speclmen slSnature if he/she ls

10 years old or above.

operation of bank account:

ff" op".tionof bank account varies depending on the age of the minor' For
" operate the
accounts of minors below 10 years of age, the Suardian must
account. However, minors over 10 years of age can operate the account on
their own.

How to open a bank account for minors?

generally a bank
\ /t d."h" rp*fk *ps may vary slightly from bank to bank,
account can be opened following these steps:
Step 1: Decide the type of bank account you want to open
Different banks
oifer Aifterent types of accounts for the customers to choose from' depending
is the savin8s bank
on the requirement, The most common type of account
account.
Step 2: Based on the account type, start comparing
your options among the
and so on'
available banks based on interest rates, facilities, accessibility
siep a' ft prepare to apply. Gather all the required documents ahead of
"n,
time.
 Step 4: Fill in the application forrtr. you can either apply online or by visiting a
bank's branch.
Step 5: ln many cases, you,ll need to fund the account during the final stage of
the application process. you will be required to deposit funds into your child,s
account.

Marrled Woman
A married woman (Hindu) has the contractual capacity (if about 18 years
of
age) and has the right to acquire or dispose of her personal property called
"Stridhana" in Hindu Law. The manager should make the usual essential
enquiries in opening the account of a married woman. ln the application
(account opening form), she should fill up in addition to her name,
address
etc., the name of her husband,, his address (and the address of the employer
of the husband). Proper introductlon is necessary. As a competent person, she
can draw and endorse cheques arld other documents and these can be debited
to her account. As long as credit balance is there in her account, there will be
no risks, but, if loan or overdraft i$ to be given the Bank should ascertain
her
credit worthiness, her personal properties (Stridhana) the nature of the
properties held by her etc. The Husband is not liable for her
debts, except for
those loans incurred for "necessaries of life,, for her and her family,

1. she may have no property as stridhana,

2. Her Husband's property ls not liable except
for necessaries,
3. she may plead undue influence or ignorance of the
nature of loan
transaction,
4. she cannot be committed to civil prison.

UNIT.IV

lntroduction:
The act of a person who is a holder Of a negotiable instrument
in signing his or her
name on the back of that instrument, thereby transferring
title or owne;ship is an
endorsement. An endorsement may be in fivour of anothlr
individual or legal
entity. An endorsement provides a transfer ofthe property
to that other
individual or legal entity. The person to whom the insirument
is endorsed is cafled
the endorsee. The person making the endorsement is the
endorser.
Endorsement of lnstruments

Tvpes of Endorsement

. Blank Endorsement - Where the endorser signs his name only, and it
becomes payable to bearer.

. Special Endorsement - Where theendorser puts his sign and writes

the name of the person who will receive the payment

. Restrictive Endorsement - Which restricts further neSotiation

. Partial Endorsement - Which allows transferring to the endorsee a

part only of the amount payable on the lnstrument.

. Conditional. Endorsement - Where the fulfllment of some condltlons

is required.
1. Blank Endorsement or General Endorsement

An endorsement is blank or general where the endorser siSns his name only, and
it becomes payable to bearer. Thus, where a bill is paYable to "Ram or order",
and he writes on its back "Ram", it is an endorsement in blank by Ram and
the
property in the bill can pass by a mere presentation.

We can convert a blank endorsement into an endorsement in full We can

do so
pay the instrument to
by writing above the endorser's signature, a direction to
another person or his order.

2. Specialor Full Endorsement

An endorsement "in full" or a special endorsement is one where the endorser

puts his signature on the instrument as well as writes the name of a person to
whom order the payment is to be made.

A bill made payable to Ram or order, and endorsed "paY to the order
of Shyam"
would be specially endo'rsed and Shyam endorses it further' We can turn
a blank
payable to the
endorsement into a special one by adding an order making the bill
transferee.

3. Restrictive Endorsement
 An endorsement is restrictive whiqh restricts the further negotiation of an
instrument.

Example of restrictive endorsemellt: 'l/pay to Mrs. Geeta only,, or ,,pay to Mrs

Geeta for my use" or "Pay to Mrs ,,pay
$eeta on account of Reeta,, or to Mrs.
Geeta or order for collection".

4. Partial Endorsement
An endorsement partial is one whith allows transferring to the endorsee a part
only ofthe amount payable on theJ instrument. This dols not operate as a
negotiation of the lnstrument,

Example: Mr. Mohan holds a bill fqr Rs. 5,OOO and endorses it as ,,pay Sohan or
order Rs.2500". The endorsement is partial and invalid.

Where the endorser puts his signature under such writing which makes
the transfer of title subject to fulfilrnent of some conditions of the happening of
some events, it is a conditional endorsement.

course.

iable

The "holder" of a promissory note, bill of exchange or cheque means any

person entitled in his own name to from the parties the possession thereof
and
to receive or recover the amount due thereon thereto.
Where the note, bill or cheque is ioit or destroyed, its holder is the person so
entitled at the time of such loss or destruction.

Section 9 of Nesotiable lnstruments Act lggl: ,,Holder

in Due Course,,

"Holder in due course" means any person who for consideration became the
possessor of a promissory note, bill of exchange or
cheque if payable to bearer,
or the payee or endorsee thereol if payable to order, before the amount
mentioned in it became payable, and without having sufficient cause to believe
that any defect existed in the title of the person from whom he derived his title.
 the
"Holder in due course means any person w]ho for conslderation became
possessor of a promissory note, bill of exchanpe or cheQue, if payable to bearer,
or the payee or endorsee thereof, if payaple to order, before the amount
mentioned in it became payable, and withoui havint sufficient cause to believe
that any defect dxisted ln the tltle of the pers{n from whom he derived hls tltle "
Holder ln due course ls a person who takes a rfegotlable lnstrument for the value
receivable by him in Sood faith and taken due care and caution whlle taking such
instrument and he had'no suspicion or reas{n to believe any defect existed in
the title of the person, from whom he deriveC title possession of the instrument'
Thus, a person claim to be a'holder in due satisfy the following
lourse'should
conditions,
1. He must acquire the instrument for a conqideration'
2. The instrument acquired should be beffre it is matured for payment An
instrument payable on demand is treatef as current, subject to it has not
been in circulation for the unreasonable l+n$h of time.
3. lt is most important that the holder in the fourse had no cause to believe that
any defect exlsted ln th€ tltle of a Persofr from whom he has acqulred the
lnstrument,
4. A person acceptlng an lnchoate (lncomplfte) lnstrument cannot be a holder
ln due course.
5. The instrument should be complete and rFgular while taking its possession'
6. Forged signature conveys no title; as suc]h there cannot be a holder in due
course under forged endorsement'

PRTVILEGES GRANTEDTO A'HOtDER lN DUd COURSE'UNDERTHE NEGOTIABTE

INSTRUMENTS'
lnstruments
Privileges granted to a 'holder in due cours!' under the Negotiable
are given belowi

o* *lr" b il;H;r' ,"ly s.tt no better title than that of hls transferor but a
holder ln due course is in a privileged positibn in that he Sets a better
title than
ttrtottt"transferorandthedefensesonthepartofapersonliablethatthe
or fraud
instrument has been lost, or has been obtaihed by means of an offence
in due
or for an unlawful consideration cannot !e pleaded against a holder
course (Sec.58).

2. Privilese in case of inchoate stamDed instruments lSec'

20I:
 ln the case of inchoate stamped ifrstrument, if the holder or original payee fills
more amount than that was autliorised, he cannot enforce the instrument for
the whole amount (only actual aulthorised amount can be recovered).

lf such an instrument ls transferr4d to a holder ln due course, he can claim the

whole of the amount so entered provided that the amount is covered by the
stamp affixed thereon, Thus, the defence that the amount filled by the holder
was in excess of the authority gi[en cannot be taken against a holder is due
course-

3. Llabilitv of prior parties:

All prior parties to a negotiable instrument (i.e., its maker or drawer, acceptor
and intervening endorsers) continue to remain liable to a holder in due course
both jointly and severally (i.e., he can hold any or all prior parties liable) until the
instrument is duly satisfied (Sec.36). Whereas, only preceding party is liable to
a succeeding party, if the succeeding party is only a holder,

When a bill of exchan8e is drawn in a fictitious name and is made payable to the
drawer's order (i.e,, where both drawer and payee of a bill aie flctitious
persons), the bill is said to be a fiEtitious bill. Such a bill is not a good
bill and
cannot be enforced at law.

But the acceptor of such a bill is lfable to a holder in due course provided
the
latter can show that the first indfrsement on the bill and the signature of the
supposed drawer are in the same
handwriting.

an tns nt del d con iat

When a negotiable instrument is endorsed or delivered .onditio*for
for.
and not with"
special purpose only, e,t., as collateral security or for safe custody,
the rdea of t,""'f ;';i;; ;b*i;;i; ;;il;irH;:i;: il:'"r?;#:; -,il
instrument does not pass to the indorsee, and he is merely a bailee witi limited
title and power of negotiating it.

This, however, does not affect the rights of a holder in due

course, i.e., if such
an instrument is negotiated to a holder in due course, the parties
liable on the
instrument cannot escape liability (Sections 46 and 4t).

Esto inal v of instrume ec. 1

"!, t
The plea of original invalidity of th" inrtrrr"r,q fiiloilid"ration
actually passed between the maker and the payee of a promissory
note; cannot
be put forth against the holder In due course by the drawer of a bill of exchante
or cheque or b, the maker of a promlssory note or by an acceptor of a blll for
the honour of the drawer.

However, the afforested parties are not precluded from challenging the validity
of the instrumeht on the ground that at the time of making the instrument he
was a minor or his sitnature had been forged or the instrument is otherwise void
ab-initio, e,g., where a promissory note is maCe 'payable to bearer' it is void and
illegal as per the Reserve Bank of lndia Act.

7. Estoppel against denvins capacitv of pavee to indorse:

"No maker of a note and no acceptor of a bill payable to order shall, in a suit
thereon by a holder in due course, be permitted to deny the payee's capacity,
at the date of the note or the bill to indorse the same" (sec 121).

Thus, a holder in due course can claim payment in his own name despite the
payee's incapacity to indorse the instrument As per Section 51, only a 'holder'
or a person in lawful possession of the instrument is competent to indorse
Accordingly, a person who 8ot the instrument for a gambling debt or for
unlawful consideration cannot negotiate the same.

27. Write a note on savings and Current account.

lntroduction:
There may be times when you need to make multiple payments, receipts and
other transactions, similar to traders and entrepreneurs They need to access
thelr accounts frequently prefer uslng a Current Account for this But what ls a
Current Account and how does lt differ from a savlngs Account? Here ls a llst
to help you understand the difference between Current Account and saving
account:
Meanins
A *ir,Bs r..ornt i, a deposit account which allows limited transactions'
while
a Current Account is meant for daily transadions'
SuitabilitY
or
A savings account is most suitable for people who are salaried employees
have a monthly income, whereas, Current Accounts work best for traders
and

entrepreneurs who need to access their accounts frequently'

lnterest
is no such
Savings accounts earn interest at a rate of around 4%, while there
no interest-
earning from a Current Account A Current Account is actually a
bearing deposit account.
Overdrawing
When you withdraw more mone+ from the account, ihan is actually there,
then your account is said to be o\,ierdrawn. ln the case of a savings account,
banks neither offer nor allow oveidraft facilities, whereas, this facility is
provided with a Current Account,
Minimum balance
The minimum balance required tq maintain a savings account is usually low,
but for a Current Account it is muhh higher in comparison,,
This should clarify the differences] in the purpose and function of Current
Account and Savings Account,

lntroduction:

ln Banking or Commercial law, a holder in due course ls a person who accepts a

negotiable instrument in a value-for-value exchange without doubting its
legitimacy so ultimately in a good faith. Now the person who took it for value
in good faith now becomes a real owner of the instrument and is known as
"holder in due consideration", According to Section 9, ,,Holder in due course
means any person who for consideration became the possessor of a
promissory note, bill of exchange or cheque ls payable to bearer, or
the payee
or endorsee thereof, lf payable to order before the amount mentioned in it
bacame payable and wlthout havlng sufflclent cause to belleve that any defect
existed in the title of the person from whom he derived his title,,,

The phrase "in iood faith and for value,,has spllt into 4 rudiments under
sec
9-

. The instrument taken by the holder is should be for value.

. lt's necessary to obtain the instrument before its maturity.

. The instrument should be complete and regular on its face,

.The instrument should have been received in a good faith without

noticing
any defect or error neither in the ihstrument, title nor in the person
negotiating it to him.
Case- SukhanRajkhim Raia a Firm of Merchants, Bombay V' N' Raia Gopalan-

The Hon'ble court held that the plaintiff was cognizant that the cheque had
been dishonoured and endorsement in his favour was only after it was
returned by the bank. Furthermore, it has lost its negotiability. Hence, the
plaintiff cannot beholder in due course.

29. Write a note on Notlnq & Protestlns.

Section 99 of Neeotiable lnstruments Act 1881: "Notins"

When a promissory note or bill of exchange has been dishonoured by non-

acceptance or non-payment, the holder may cause such dishonour to be noted
by a notary public upon the instrument, or upon a paper attached thereto, or
partly upon each.

must
Such note must be made within a reasonable time after dishonour, and
specify the date of dishonour, the reason, ii any, assigned for such dishonour,
or, if the instrument hds not been expressly dishonoured, the reason why the
holder treats it as dishonoured, and the notqry's chartes'

otiabl

When a promissory note or bill of exchanfe has been dishonoured by non-

acceptance or non-payment, the holder mfv, within a reasonable time,
cause
such dishonour to be noted and certified b\i a notary public Such certificate
is

called a protest. Protest for betters€curity.

When thiacceptor of a bill of exchange has become insolvent, or his credit has
may, within
been publicly impeached, before the maturiiv of the bitl, the holder
a reasonable time, cause a notary public to demand better security of the
cause such facts
acceptor, and on its being refused may, with a reasonable time,
protest for
to be noied anl certlfled as aforesaid. su4h certificate ls called a
better securlty.

Section 10
 The paying banker can claim protection under the Negotiable lnstruments Act;
the condition the banker has got to satisfy is that the payment is in due
course.

'Payment in due course' means payment following the apparent tendr of the
instrument in straightness and without negligence to someone in possession
thereof under circumstances which doesn,t afford an inexpensive ground for
believing that he is not entitled to receive payment of the quantity therein
m e nt io ned.

. Section 85

This acts as the statutory protectipn of the payinB banker,

Section 85(1)

ln the case of an order cheque, this section implies that the payment
must be
in due coursei otherwlse, the banker will be deprived of statutory protection,
andthebankermustconfIrmtheendorsementsareregular'

This is the protection in the case of bearer cheque;this section implies

that
even if any endorsements restrict further negotiation, the cheque will
retain
the bearer character if it is originaily issued as a bearer cheque.

Section 128

This is the protection in case of a drossed cheque. thil section

implies that the
banker has made the payment in due course with good faith
and without
negligence, as per section 10. The banker can crosi the payment
following the
requirement (section 12G), that is, any banker through the general
crossing
and specified banker in case of spdcial crossing.

Pavins and Collecting Banker: Difference

1. Ihe main difference between the collecting and paying banker is a person who
holds the cheque and is obliged to make the payment
on behalf of ihe
customer. The collecting banker is the one who undertakes
the collection of
the drafts, bills, pay orders, transfer cheques, etc., on behalf
of the customer.
2. The paying banker gets protection under the
Negotiable lnstrument Act
section 85, and the collecting banker gets protection under section
131.
3, lf a banker plays both roles at the same time, then the banker can be called
collectlng banker but not llable as a paylng banker'

The Lesal oblieations of PaYins Banker

The obligatory role of the paying banker while honourinB cheques is-

crossed cheque and open cheque- lf a cheque is crossed, the banker must
check whether it is generally crossed or special crossed. ln Seneral crossinS,
the owner needs to bring the cheque to the banker, and during the special
crossing, the banker will pay for the bank.

ln an open cheque, the cash will be paid by the banker across the counter'

1. Proper form- A banker should check whether the cheque is ln the proper
form.
2. Cheque presentation and date of cheque'The cheque should consist of the
correct format and location The banker must also check for the correct
cheque date; it should not be a post-dated or stale-dated cheque'
3. words and figures- The sum of the amount needed must be written correctly,
and if it varies, the banker needs to deny the cheque,
4. Alterations and overwriting- The banker should take care of extra
modifications or changes made on the cheque.
5. Endorsements- The bearer cheque is not legally endorsed; thus, while making
payment, the banker should check all endorsements on the cheque

Conclusion

ln modern banking, the aspects of the payment and processint of cheques

are
still the central an; fundamentalfeatures A paylng banker has a responslbillty
given
for the customer's cheque if it is valid and issued by the holder in a
period. The sufficient fund is available to the customer's account' and when
that balance is available to the paying banker'

The banking system is desiEned in such a way that it generates moneY

through
of
different bJsiness transactions and domestic and foreign trade This type
and the
banking system develops a special relationship between the banker
customers. This relation can be formed with specific duties and obliSations
that a banker has.

31. Write a note on credit card.

 lntroduction:
Credit cards let borrow money from a bank under the agreement that you,ll
repay it by your bill's due date or incur interest charges.

The ability to buy now and pay later outmatches other forms of payment, such
as debit cards or cash, which both require you to have the money available
for
payment at the time of purchase. ln addition to having more flexibility
with
payments, credit cards help you tp establish a credit score
so you can qualify
for other financial products, such as loans and mortgages.

There also can be some monetary perks to havlng a credlt card, where
cardholders can earn rewards on bvery purchase, whlcl can be later cashed in
for travel, statement credits and inore. Some credit caids also offer intro
interest-free periods.

How credit cards work

Credit cards are rectangular pieceE of plastic or metalthat can be used to pay
tor new purchases by swiping, tapping or inserting your card into a card reader
at checkout. Plus many cards alloir you to complete balance transfers,
which
provide the opportunity to get oui of debt.

When you open a credit card, you receive a credit limit that can range
from a
couple hundred to thousands of dbllars. you,ll be able to spend up t'o
that
limit. When you make a purchase With your card, it will show up as pendint
on
your account and post within a few days. Once the transaction posted
is to
your account, your total balance will increase,

Expect ct to rece tve9atbi

cetv rill fr 0mtyo
ill ITOI /our ca Irdirssuer e very morn1thIth 3ttc0
ss er eve ( all
:0nssi stssof
the po rstec pu 'ch
oste d )urc lasses ;yo
)sl /ouJ mi r ad, 19l
rde d UT iing lrbbillir
illing cyc Ite..lrln(
lyour I ro -.r t(o kee
:rdler eep your
'rt
accou.r nt irin ngoooddsstaanr dinl
1di nE,yo r'll n ee dtr
ou'l Itoo pay )y at lea: tth erY
a't lE
your due c te (!
ue dat (wih irichhiisl hessan
s thr tme da ter
d at(eeevery mot 'rontl
lr,
mnin nl, un rmaa mou 0un ttby
rthr).
-har
Thankftklufully mrost
kfull, ;tccatrrdrJssofcffe'er ggri
gra
race perrio ,ds, w lich
;tffreee lor)raamirini
iod whi ch aIoall
al lp
yo(ut( tolpaay)y olrff rour
ur
balanc
)ala ncecee in'
ir te rest lUfMCof
rinn imu tl221da fr omnth eernddrof:
ys; fror
dayr of a bililtiinlgc!
cy cle.
Any ling rgerirng;baal;anr
li nger ,n( sal afte t he gri
ler th gr aceep
)p( rdvwill
)eriod vill in nccur int(er€
inct st, :sov e
'esrst,
r eco mm merndtthal
nme at yoou a lvr lwa,avs;poav/ iinrfuurll.
ll.

Common credlt card terms

Credit cards come with dozens of terms that determine whai fees you
can
incur from using your card, Here are the most common term
s:
 . Annual fee: The fee cardholders are charged every Year for holding a

credit card,

. Balance transfer APR: The interest rate for balance transfers, which
may be equalto or Sreater than the purchase APR.

. Balance transfer fee: Transferring debt from one card to another may
cost you 3% to 5% Per transfer,

. Cash advance APR: The interest rate you Incur lf you take out a cash
advance, which is often one of the hiShest APRS you can be charBed.

. Cash advance fee:The fee you're charged for each cash advance,
usually 5%.

. Foreign transaction fee: Purchases made outside the U.S. may incur a

fee per transactlon, usuallY 3%

. Late payment fee: When you pay your credit card bill late, you may
incur a fee up to S40

. Minimum payment: The smallest amount of money you have to pay

each month to keep your account current. (Learn how making only
minimum payments on credit card debt could cost you thousands and
take over a decade to rePav.)

. Penalty APR: When you pay late, card issuers may penalize you with
an interest rate that's higher than your regular APR

. Purchase APR:The interest rate you incur for new purchases that
aren't paid in full every billing cycle,

32. Discuss the special relationship between a banker and customer'

The relationship between the banker and the customer varies according
to the
type of customer and the service he/she demand There are two main
relatlonships between the banker and customer, they are:
General Relatlonship between Banker and Customer

The general relationship between a banker and customer is:

1. Debtor and Creditor relationship

 When a customer fills and signs the account opening form he/she enters into a
contract with the bank. And when the customer deposits money in their
account, the customer becomes a creditor and the bank becomes a debtor.
The bank can utilise the amount in the way they want. They
aren,t bound to
inform the creditor about the utlllze on and aren,t bound to give any security
to the depositor. The banks are liable to give the amount back when the
depositor demands.

Lending money by providing loans is one.oI the major aspects of banks. They
provide loans by charging a particular amount of interest by utilizing the
resources mobilized by them. ln this case, the bank becomes a creditor and the
customer becomes a debtor, But here, the bank requires security and
documents for providing Ioans.

2. frustee and Beneflclarv relatlonshlo

Sectlon 3 ofthe lndian Trust Act, 1882 descrlbes trusfas: ,,an obliEatjon
annexed to the ownership of property, and arising out of a confidence reposed
in and accepted by the owner, or declared and accepted by him, for the benefit
of another, or of another and the owner,.

Here the relationship between the bank and the customer is based on
trust.
When the bank receives a valuable asset or document for security
in exchange
for the loan provided by the bank, the bank is considered to be a irustee and
the customer is considered to be a beneficiary.

3. Princioal and Asent

An agent is a person who acts as the one who is employed to do

any act for
another or to represent another in dealings with the third person. The person
for whom the work is done or to whom it is represented is called the principal.

Bank carry payments to various authorities by collecting cheques,

bills on the
behalf of the customers. Here bank acts according to the guidelines
of the
customer and charges for the services rendered to them,

4. Lesser and lessee

Section 105 of the Transfer of Property Act 1882 had defined the term lease as:
"a lease of immovable eroperty ls a transfer of a rlght to enjoy such property,
made for a certain time, express or implied, or in perpetuity, in consideration
of a price paid or promised, or of money, a share of crops, service or any other
thing of value, to be rendered periodically or on specific occasions to the
transferor by the transferee, who accepts the transfer on such terms". The
important term that comes under Section 105 is:

t. Lessor: the person who transfers the immovable property,

ll, Lessee: the person to whorn the property is transferred.
l . Premium: to obtain a lease of an immovable property a price called
"premium" is Paid.
Rent: the servlce or money that is rendered ls known as rent.

A bailment is a contract where the customer provides a valuable asset or any

specific good for a specific period of time to the banker. The customer who
entrusts the asset to the banker is a bailer. And the banker to whom the asset
is entrusted for a specific time is called a bailee Bankers also charge a
particular amount for bailment.

6. Advisor and Client

The banker acts as an advisor when a customer invests in securities Here the
customer is the client. The banker should be cautious while giving advice
officially or unofficially.

The special relationship that exists between banker and customer is:

and
The banker should maintain the records of !ransactions, deposits, loans
investments done by a customer' The recorps should be clear and genuine Any
irregularity in records miSht leads to Iegal t/ouble for the banker and
customer,
 2. The oblisation of banker to maintain confidentialitv

The bank is responsible to keep all the information and details of the
customers safe and secure, Even though the information is confidential, the
information can be disclosed to government officials in terms of any legal
issues.

3. The oblisation ofthe bankertd honour checks

The banker ls rcsponslble to provlde the cheque of the customer equlvalent to

the sum of money present in thelt account. The condi ons that needed to be
fulfilled while honouring the cheque of the customer under Section 31 of the
Negotiable lnstruments Act, 1881:

t. Proper design of the cheque.

[, The check should be properly presented.
It. The cheque should be collected only on banking hours.
The correctness of the cheque should be noticed.
Availability of sufficient funds of the customer.

Termination of Relationshio between the Banker and the Customer

The relationship between the banker and the customer terminates on:

1. Liquidation of the company.

2. The death, lunacy or insolvency of the customer.

3. The completion of the term of contract or specific transaction.

4. Voluntary termination of the relationship by the customer

by closing the
account.

5. Closing of the account by the bank after the issue of notice.

Conclusion
As time evolves major changes occur in different sectors of society
One such
in
sector which has got evolved with time is bankinS. The historY of banking
tndia shows that with time and according to the necessities of
people, major
developments had occurred in the field of banklng. And also due to the
invasion ofthe internet, the opportunities for easy and convenient banking
day in
have got widened. As in the future, we can witness new changes each
the banking sector for the betterment of the economic growth of the country'

33. Explain the various trends of E bankins servlces'

lntroductionl
qhanged with time and
The banking system had had a dynamic stru4ture lt has
tide which has not only made the economy {tronger but Plso made
the life of
in our
the customer much easier than before You fnd I witnesq these changes
day to day life by using a number of new ba+kinC facilitieP
Thetrendin
14 major banks
banking has taken the biggest turn during tfe year 1969 irhen
were nationalized. The aim was to make ba4king facilitieF availed to all the
sectors of the society and to transfer it fron! a few hands, enjoyint
the
monopoly, to the hands of the Sovernment,

What is E-bankins?
means of
The simple way to define the E-banking is Ufntine throufh the
internet. Through e-banking customer can fccess his acfount through
his
bank or within
mobile phone o-r computer. lt includes fund transfer to fnother
the same, any investment, and account relalted details ofto avail
any services

all through the means of internet,

queue avail of the bank

Previously, the customers had to stand in a long !o
or the
transaction. ln fact, customers were ignoraft about the Fervices
products of the banks' But today, bv just orje click we can avail of the easily
transfer the funds and manage our accounls'

1. Automatic Teller Machine

2. Debit Cards
5. lt has also reduced paperwork. lt's more eco-friendly.

Disadvantase of E-bankins

1. E-bankinB has also leads to an increase in cyber-crime like spyware, internet

theft, etc,

2, lnsufficient knowledge of using electronic banking.

3, The rlsk of malntainlng the secrecy.

Popular services under e-bankinq in lndia

. ATMs (Automated Teller Machines)

. Telephone Banking

. Electronic Clearing Cards

. Smart Cards

. EFT (Electronic Funds Transfer) System

. ECS (Electronic Clearlng Services)

. lvlobile Banking

. lnternet Banking

. Telebanking

. Door-step Banking

34. Write a note on Travellers cheoue.

lntroduction

Traveler's cheque is a fixed denomination note issueJ by non-banking financial

lnstltutlons (generally called traveler's cheque issuer) for facilitatint
international travelers to carry and pay traveling costs safely in their travel. lt
can be widely used around the world and is the best choice for safely carrying
and paying daily costs and tuition and incidental expenses by travelers who
travel abroad privately and on business.
Features

Safety- safer than cash: if the traveler's cheque is lost or stolen accidentally,
report of loss, sittlement of claim and emergency compensatlon can be
transacted; if there is something unexpected happen, you may apply for the
emergency rescle service provided by the issuer of the traveler's cheque,

Ease of use- applicable globally: it can be exchanged into cash at various large
banks and exchange outlets worldwidei it can be paid at international hotels,
dinning halls, schools and other consumlng sltes without any fee belng
charged.

No expiring date- permanently valid; the tra[eler's cheque is permanently

valid without expiring date. lf once purchasi4g is not used up, the remaining
can be used when departing the country ne+ time.

Multi-currency-- for option:travelers can ch{ose different currencies according

to dlfferent countrles and reglons of destlnatlons.

Cost-effective- foreign exchange rate is mor]e favourable than cash: foreign

exchan8e rate of exchanging traveler's cheqr]re is generally more favourable
than the rate of exchantlng cash.

optional brands of traveler's cheque

American Express traveler's cheque issued by American Express International

lnc. Main currency includes USD, JPY, CAD, AUD, GBP, EUR and CHF.

Target Customers

Entities or individuals who have needs oftraveling abroad,

Process

lndividual customers can purchase traveler's cheque of a certain amount of

foreign currencies at the outlets designated by Bank of China with personal
valid identity documents, passport with visa from the destination country or
HK and Macao laissez-passer and relevant proof materials using individual
foreign exchange account/foreign currency cash and RMB account/RMB cash'

Charses
The charge on the traveler's cheq!e purchased at Bank of China is usually j.%
to 0.5% of the purchased amountf lf it is bought with foreign currency cash, the
price difference of the foreign culrencies should be paid.

There are many outlets. tn almosizOO0 domestic branches and most overseas
branches, the cashing service of t{aveler's cheque can be transacted. The
domestic foreign currency cashin$ institutions of the Bank of China also
provide cashing RMB service for tfaveler's cheque.

There are many accepted brands. Bank of China can accept 149 types of
traveler's cheque issued by 17 trai/eler's cheque issuance institutions, among
which traveler's cheque of Ameri(an Express, Travelex, Visa and Mastercard,
can be cashed at Bank of China.

Acceptance method ls fl€xlble. Generally, the traveler,s cheque holder should

carry valid identity documents an{ complete and non-damaged
documentation with the same inilial and second signatures, and Bank of China
will transact purchasing foreign e{change business of traveler's cheque of
under a certain amount at designlted outlets; if the specified quota is
exceeded, Bank of China will tranCact clean collection for you.

The acceptance fee is low and the cashing handling fee is 0.75% of the cash
amount (deducting in the original Iurrency). Collection fee is 0.1% of the
collection amount, with the lowes[of RMB 5O/collection and the highest RMB
250/collection and the postage is fharged separately. The returned draft fee is
RMB 10/time.

Klnd Remlndr?

1. Carrying traveler', .heqre *itn

Iurrency type of the destination
2. fraveler's cheque purchasing atreement and the traveler,s cheque should
be kept separately.

3. When purchasing a traveler's cfeque, the customer shoutd initially sign the
traveler's cheque face to face witf the bank teller right away.

4. When traveling abroad, please do remember to bring the purchasing

agreement with you so that in emergent occasion the report of loss and
satlsfactlon of claim can be transacted. l
5. Report of loss and compensation of traveler's cheque

lf your traveler's cheque is lost of stolen, please call the lssuance institutlons of
the traveler's cheque or Eo to the local bank to report the loss as soon as
possible in order to obtain corresponding compensation,

35. Explain the sound principles of bankins and lendins? what are the seneral
precautions of lendinE.

A banker must be extra careful while srantinE loans. A banker should take
the following precautions:

1. Safetv

The most important golden rule for granting loans is the safety of funds

The main reason for this that the very exlstence of the bank is dependent upon
the loans granted by him,

ln case the bank does not 8et back the loans grated by it, it might fail.
A bank cannot and must not sacrifice the safety of its fund to get a hiSher rate
of interest.

2.LiquiditY

The second important golden rule ofthe grant loan is liquidity. Liquidity means
the possibility of converting loans into cash without loss of time and money.

Needless to.say, the funds with the bank out of which he lends money are
payable 9n demand or short notlce time.

Hence, the bank should lend only short term requirements like working capital'

The bank cannot and should not lend for long term requirements, like fixed
capital.

3. Return or eturn to its shareholders.

However, a bank should not sacrifice either safety or liquidity to earn a high
rate of interest.
Of course, if safety and liquidity in a particular case are equal, the banker
should lend its funds to aa person who offers a higher rate of interest.

Diversification

One should not put all his eggs in one basket is a proverb which very clearly
explains this principle.

A bank should not lnvest ell Its funds in one industry, lncase that lndustry falls,
the banker will not be able to recover his loans,

Hence, the bank may also fail. According to the principle of diversification, the
bank should diversify its investments in different industrles and should give
loans to different borrowers in one industry.

It is less probable that allthe boriowers;dd industries will fail at one and at
the same time.

Obiect of Loan

A banker should thoroughly examine the object for which his client is taking
loa ns.

This will enable the bank to assess the safety and liqLridity of its investment. A
banker should not grant loans for unproductive purposes or to buy the fixed
assets.

The bank may grant loans to meet working capital requjrements.

However, after the nationalization of banks, the banks have started granting
loans to meet loan term requirements.

As per prudent banking policy, it is not desirable because of term lending by

banks

Securltv

A banker should grant secured loans only. ln case the borrower fails to return
the loan, the banker may recover his loan after realizing the securing.

ln the case of unsecured loans, the chances of bad debts will be very high.
However, the bank may have to relax the condition of security in order to
comply with the economic policy of the government,

Margin Monev

ln the case of secured loans, the bank should carefully examine and value the
security.

There should bd a sufficient marBin between the number of loans and the
value of the security,

lf an adequate rirargin ls not maintalned, the loan ml8ht become unsecured ln

case the borrower fails to pay the interest and return the loan,

National lnterest
Banks were nationalized in lndia to have social control over them,

As such, they are required to invest a cetin percentage of loans and advances
in priority sectors, viz, agriculture, small scale, and tiny sector, and export-
oriented industries, etc.

Agaln, the Reserve Bank also glves dlrectlves ln thls respect to the scheduled
banks from time to tlme.

The banks are under obligation to comply with those directives

The character of the Borrower

last but not the least, the bank should carefully examine the character of the
borrower.

Character implies honesty, integrity, creditworthiness, and capacity of the

borrower to return the loan. ln case a person fails to verify the character of the
borrower, the loans and advances might become bad debts for the bank.

Principles of Sound Lending PolicY

It is a fundamental precept of banking everywhere that advances are made to

customers in reliance on his promise to repay, rather than the security held by
the banker. Although all lending involves some degree of risks, it is necessarY
for any bank to develop sound and safe lending policies and new lending
technlques in order to keep the risk to a minimum. As such, the banks are
required to follow certain principles of sound lending.

(a)Safety: Advances should be eXpected to come back in the normal course.

The repayment of the loan depends upon the borrower's capacity to pay and
willingness to pay. The capacity depends upon the tangible assets of the
borrower. The willingness to pay depends upon the honesty and character of
the borrower.

(b) tiquidity: Liquidity is the avail0bility of bank funds on short notice. The
borrower must be in a position to repay within a reasonable time. Liqujdity
also signifies that the assets should be scalable without any loss,

(cl Profitablllty: A banker has to see those major portions of the assets owned
by it are not only liquld but also alm at earning a good profit. The difference
between the interest recelved on advances and the interest pald on deposlts
constitutes a major portion of bank's income, Besides, foreign exchange
business is also highly remunerative.

(d) 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.

(e) Security: Security serves as a safety valve for an unexpected emergency.

The security offered for an advance is a cushion to fall back upon in case of
need. An element of risk is always present in every advance however secured it
might appear to be.

(flSpread/ Dlverslty: The advances should be as much broad-based as possible

and must be in keeping with the deposit structure. The advances must not be
in one particular direction or to one particular industry. Again, advances must
not be granted in one area alone.

36. What are utlons to a ban inst

immovable Drooertv. Exolain-

Precautions are required to be talGn by a banker in case of advances against

the immovable property.

ln granting advances/ certain precautions are necessary,

1. The intesritv of the borrower

The banker should ascertain that the borrower is trustworthy, honest, and a
man of sufflclent experience in his buslness. Such a precautlon ls necessary to
avoid fraudulent dealings,

For example, when a customer offers 100 bags of paddy as security, it is

impossible to inspect every bag. He has to rely on the honesty of the borrower,

Further, he should see whether the borrower has adequate practical

experience in his business.

An experienced businessman is conversant with risks and the profitable areas

of the business, An inexperienced one may incur a loss and be a potential risk,

The repayment mostly depends upon the purposc for whlch the loan ls
obtained. To a borrower who is engaged in speculatlon, the chances of loss are
greater. As such, the loss will have to be shared by the banker, So advances
should not be allowed for speculative purposes.

3, Nature of the commoditv

The banker should have a working knowled{e of some of the special features
of the commodities offered as security. A banker should prefer the
commodities which could be disposed of ealily, the quality of goods that are
not subject to deterioration, and the price o]f almost steady goods as security.

4. Knowledre of dlffer€nt markets

A banker should be conversant with the malkets for different commodltles.

This is essential to regulate the margin for tl|e Soods according to the price
prevailing in the market. Failure to know thE market will put him at the mercy
of the borrower, who may inflate the value to get more advances.

5. Proper care in valuation

The banker should appoint expertq to value lthe goods. Care should be taken to
provide sufficient sales margin to avoid loss resulting from market fluctuation
ln some cases, the price mentioned in the blll may be an inflated one.
So it is advisable to compare the prlce which those prices are prevailing in the
market, lf the goods are packed, the banker should insist on alcertificate from
reliable packers.

6. Ascertain the title of the owner

Before accepting goods as security, the banker should ascertain the borrower's
title to the goods by inspection of the origidal invoice or cash memos,

7. Proper storaEe

The banker should select a properh,| built and safe warehouse in every way for
the storage of goods. The roof and flooring should be situated near the bank so
that the bank's representative can have direct and free access to them at any
time.

All goods stored in bags or bales shbuld be arranged to facilitate inspection

easily. A careful selection should bd made of godown keeper & Watchmen.
They should be honest & possess a high sense of responsibiliw.

8. Rented rodown

lf the borrower uses a rented godo\lvn, the bank must obtain an undertakint
from the owner ofthe building, staiing that the bank has a prior lien.

This is necessary because, at times, the building owner may have a prior claim
for rent due & the position of the bbnker will be at stake.

9, lnsurance up to the full market Value

Goods should be insured against all known risks up to their full market value.
The bank should hold relative insurence policies.

tion of charse bv Pledre and H

A banker may create a charge over the goods either by pledge or

hypothecation. ln the pledge, the goods or title to.that is dellvered to the
banker. ln hypothecation, neither possession nor goods are transferred to the
banker. 5o a written undertaking from the borrower should be obtained that
the goods are not charged to any bank and will not be charged until the
agreement continues with the bank,
11. Handlins of so down kevs

Under no circumstances should the keys of gbdowns be allowed to pass into

the hands of the borrower.

The keys of the going down should be kept i4 a strong room under dual control
and taken out at the commencement of the pusiness and received back at the
close of the business.

12, lnsoectlon

Periodlcal lnspection of the Solng down should be undertaken as to the

quantity and quality of the goods. [he quantity of stock in 80 down should be
tallied with the record in the bank and with the borrower's books.

13. Supervision resarding the reiease of goods

When the borrower can repay the debt in instalments, the banker should
release the goods only in proportion to the amount repaid.

It is also possible that the customers may request the banker to release a part
of the goods when they get parties to sell,

The Reserve Bank issues directives from time to time, prohlbiting advances
against specific goods or stipulating minimum margin against certain
commodities.

The directives may also specify the level up to and conditions on which the
bank may grant credit. The bank should follow the conditions in the directives
while lendinB against goods.

37. Mobile bankins sYstem.

lntroduction:
Mobile bankinS refers to the use of a mobile device to carry out financial
transactions. The service is provided by some financial institutions, especially
banks. Mobile banking enables clients and users to carry out various
transactions, which maV vary depending on the institution.
Tvpes of Mobile Bankins services
Mobile banking services can be categorized into the followinB:

Account information access allows clients to view their account balances and
statements by requesting a mini account statement, review transactional and
account history, keep track of their term deposits, review and view loan or
card statements, access investment statements (equity or mutualfunds), and
for some institutions, management of insurance policies.

2. Transactions

Transactional services enable clients to transfer funds to accounts at the same

institution or other institutions, perform self-account transfers, pay third
partles (such as blll payments), and make purchases in collabora on with other
applications or prepaid service providers.

3. lnvestments

lnvestment management services enable clients to manage their portfolios or

Bet a real-time view of their investment portfolios (term-deposits, etc.)

4, Support services

Support services enable clients to check on the status of their requests for loan
or credit facilities, follow up on their card requests, and locate ATM5.

5. Contant and hews

Content servlces provlde news relfted to flnance and the latest offe rs by the
bank or institution

Challenses Associated With Mobile BankinE

Some of the challenges associated with m6bile banking include (but are not
limited to):

Accessibility based on the trpe of handset belng used

Security concerns
Reliability and scalability
Personalizatlon ability
Appllcation distribution
Upgrade synchronization abllities
38, Whdt are the precautions to be taken bv a baker while lending aqainst
the securitv of Eoods explain?
A banker should take the followlns orecautlons:

(a) Loans to be given to Reputed Parties Only: A banker should sanction loan
only to such customers who have good reputation and sound financial position'
Such parties should have a clean record of pait dealings

(b) Regular lnspection of Hypothecated Goods:The bank should regularly

inspect the sto€k of the hypothecated goods. lt should also verify the stocks with
account books.

(c) Periodical Statement of Stocks:The banker should ask the borrower to

submit periodical statement of stock. lt should verify those statements with the
stocks of the 8oods.

(d) Slgnboard of Hypothecatlon ln Favour of th€ Bankcr; The banker should ask
the borrower to dlsplay a slgnboard on the gate of the godown where the goods
are stored indicating that the goods are hypothecated with the banker' The
banker should regularly check that such display is beinB done lt will be a
public
notice and would avoid the chances of duplicate charge being created on those
goods.

(e) lnsurance: The banker should ask the borrower to get the goods insured
against fire, theft, flood etc., and assign the policy in its favour' The banker
should inform the insurer that the Soods are hypothecated with him'

(f) Retlstratlon of Charge: lf the borrower is a company, the banker should get
ihe chlrge registered under section 125 ofthe companies Act, 1956 The charge
is to be registered with the ReBlstrar of Companies withln 30 days
of its creation'
should
The banker should obtain a copy of registration of the charge The banker
also get declaration from the company that it will not create a second charge
over those goods, This undertaking should also be registered with
the Registrar
of Companies along with the registration of charge'

(g) Declaration from the Borrower that he is not Availing Similar Facilities from
to thls
o-ther ganks: rhe banker should obtain a declaration from the borrower
effect. This undertaking should also be obtained periodically alonB with
 periodical statement of stock of hypothecated goods. This declaration should be
cross-checked with the informatiOn obtained from other banks of the area.

Conclusioni

From the above points, it is mad4 clear that the banier should give the facility
of hypothecation to honest perlons only because the goods remain in the
possesslon of the borrower. ln chse the loan is granted to any unscrupulous
person, he may sell the toods hypothecated and pay off other creditors.

39. Examine sround under which the bankinp ombudsman mav reiect the
complaint.

a. One has not approached his bank for redressal of his grievance first.
b. One has not made the complaint within one year from the date of receipt
of the reply of the bank or if no reply is recejved, and the complaint to
Banking Ombudsman is made after the lapse of more than one year and
one month from the date of complaint made to the bank.
c. The subject matter of the complaint is pending for disposal / has already
b€en dealt with at any other forum like court of law, consumer court etc.
d, Frivolous or vexatious complaints,
e. The institution complained against is not covered under the scheme.
f. The subject matter of the complaint is not pertaining to the grounds of
complaint specified under Clause 8 of the Bankidg Ombudsman Scheme.
lf the complaint is for the same subject matter that was settled through
the office of the Banking Ombudsman in any previous proceedings.

dsman.
lntroductlon:
The ganking Ombudsmah Scheme was introduced under sec
on 3SA of the
BanklnS Regulation Act, 1949 by Rbt.
The Scheme is introduced in the ydar 1995.
The present Ombudsman Scheme li{as introduced in the year 2006.
Banking Ombudsman jcheme is a lnechanism created by RBI to
address the
complaints raised by bank custom{rs,
It is run by the RBI directly to ensuie customer protectlon in the banking
industry.
Eankint Ombudsman is a quasi-judicial authority functioning under the
Banking Ombudsman Scheme, 2006.
According to RBl, "The Scheme enables an elpeditious and inexpensive forum
to bank customers for resolution of complaints relating to certain services
rendered by banks."

Powers and Functions of ombudsman:

1.An important function of Ombudsman is to protect the rights and freedoms
of citlzens and needless.

2.The ombudsmEn shall have the power to supervlse the general clvll
admlnistratlon. On thls polnt the dutY of ombudsman ls closely connected wlth
the public adminisfiation. Because the protection of freedom, execution of
policies and other fall within the jurisdiction of public administration and
whether these are properly performed or nqt that requires to be examined-
and ombudsman does this job.
A common experience is that people's rights and freedoms are not properly
protected and public administration does not always take care of it. ln this
regard the ombudsman has a lot of duties to perform. ln many states the
problems of common men are neglected and the Seneral administration does
not always rise to the occasion.

3.ln many states Ombudsman supervises th+ genrral admlnlstration, lt ls also

called general survelllance of the functlonlnC of the Sovernmant.

4.ln some countries the Ombudsman enioys enoriT|ous power, For examples In
Sweden the Ompudsman has been empowfred to investigate the cases of
corruption (in ahy form) not only against thE government officers but also
against the judges of the highest court. But fhe supervising power of
Ombudsman over the judges does not erodd the independence of the
judiciary. The judges are prosecuted or fine$ for corruption, negliSence of
duties, or delay in delivering judgment.

5.An important function of Ombudsman is tfre exercise of discretionary

powers. The discretionary powers are really vast and how to use these powers
depend.upon the person concerned. Discre{ionary powers include corruption,
negli8ence, lnefficiency, mlsbehavlour etc

6,To receive complaints relating to the provision of banking services to

consider such complaints and facilitate their satisfaction or settlement bY
agreement, by making a recommeitdation, or award in accordance with this
scheme.

7.The banking ombudsman's authority will include:-all complaints concerning

deficiency in service such as:- non-payment/inordinate delay in the payment or
collection of cheques, drafts/bills etc.; non-acceptance, without sufficient
cause, of small denomination notes tendered for any purpose, and for charging
of commission in respect thereof; non-issue of drafts to customers and others;
non-adherence to prescribed working hours by branches; failure to honour
guarantee/letter of credit commitments by banks,

BY

ANIL KUMAR K T LLB COACH