14 batch - 2021

1st mid
1.Banker's lien is an implied pledge, discuss?
Answer : A banker's lien is indeed an implied pledge, and it arises as a legal
right that allows a bank to retain possession of a customer's property, usually
valuable assets or documents, as security for an existing debt or obligation.
Here's a discussion on the concept:
1.Implied Nature: A banker's lien is considered an implied pledge because it is
not explicitly agreed upon in a contract but is assumed to exist as a customary
practice in banking relationships. It is recognized by common law and is
typically not explicitly mentioned in banking agreements.
2.Security for Debt: The primary purpose of a banker's lien is to provide
security for an outstanding debt or liability owed by the customer to the bank.
The bank can exercise this lien to recover its dues in case the customer defaults
on their obligations.
3.Assets Held: The assets subject to a banker's lien can include cash deposits,
securities, valuable documents, or any other property held in custody by the
bank. The bank retains possession of these assets until the debt is settled or
the customer fulfills their obligations.
4.Right of Setoff: In addition to retaining possession of assets, a bank with a
lien may also have a right of setoff. This means that the bank can use the
customer's deposits in one account to offset or pay off debts in another
account held by the same customer. This can be especially relevant for
accounts held by the same customer within the same banking institution.
5.Legal Basis: The legal basis for a banker's lien varies by jurisdiction, and the
specifics of how it can be exercised may differ accordingly. Generally, it is
grounded in common law principles and is recognized as a part of the banking
industry's customary practices.
6.Exercise of Lien: To exercise a banker's lien, the bank typically needs to notify
the customer of the intent to use the lien and the reasons for doing so. The
process may also involve legal procedures to ensure fairness and transparency.
7.Limitations and Regulations: While a banker's lien is a valuable tool for banks
to secure their interests, there are usually legal limitations and regulations in
place to protect the rights of customers. These limitations vary by jurisdiction
and are designed to prevent abuse of the lien by the bank.
In summary, a banker's lien is an implied pledge that allows a bank to retain
and use a customer's assets as security for an outstanding debt or obligation. It
is a fundamental concept in banking law and practice, ensuring that banks can
protect their interests while adhering to established legal standards and
regulations.
2. Can a Banker encash a fixed deposit receipt before its due data? Explain
Answer : Typically, a banker cannot encash a fixed deposit receipt before its
due date without the account holder's consent. Fixed deposits are financial
instruments with a predetermined maturity date, and the funds are locked in
for a specified period, often with higher interest rates than regular savings
accounts.
However, in some cases, early withdrawal or encashment may be allowed, but
it often comes with penalties or a reduction in the interest rate earned. The
specific terms and conditions for early encashment would be outlined in the
fixed deposit agreement signed by the account holder.
In summary, bankers usually require the account holder's permission to encash
a fixed deposit before its due date, and any premature withdrawal is subject to
terms and penalties defined in the agreement.
3. What is payment in due course? give three examples of payments not
made in due course.
Answer : Payment in due course refers to the legal and proper payment of a
financial instrument like a check, promissory note, or bill of exchange. When a
payment is made in due course, it is made in accordance with the prescribed
legal requirements and is typically considered valid and dischargeable.
Here are three examples of payments not made in due course:
1. Post-dated check cashed before the specified date: If someone cashes a
post-dated check before the date written on the check, it would be
considered a payment not made in due course, as it doesn't adhere to
the agreed-upon terms.
2. Payment on a dishonored check: If a check is issued, but there are
insufficient funds in the account to cover it, and the check is
 subsequently dishonored, any payment made using this check would not
be considered in due course because it's not legally valid.
3. Payment without proper endorsement: For certain financial instruments
like promissory notes or bills of exchange, they may require specific
endorsements or signatures for proper transfer and payment. If such
endorsements are missing or not done correctly, the payment would not
be in due course.
In all these examples, the payments do not meet the legal requirements or
agreements specified for the respective financial instruments, making them
not in due course
4.describe the essentials of a valid endorsement with example?
Answer : The essentials of a valid endorsement on a negotiable instrument
(like a check or promissory note) include:
1.It must be written on the instrument.
2. The endorser's signature must be present.
3. It must be an unconditional order or promise.
4. It must be made by the holder of the instrument.
Example: Let's say John holds a $1,000 check payable to him and wants to
endorse it to Mary. To create a valid endorsement, John should sign the back of
the check and write "Pay to the order of Mary." This meets the essential
requirements, making it a valid endorsement.

5.A cheque for Tk 50000 which had been crossed originally carries below the
crossing the words crossing cancelled and signed by the drawer and is
presented for cash payment on the counter, how would you deal with this
solution?
Answer :In this situation, where a crossed cheque originally carrying crossing is
presented with the words "crossing cancelled" and signed by the drawer, you
should handle it as follows:

1. Examine the Cheque: Carefully examine the cheque to ensure that the
words "crossing cancelled" and the drawer's signature appear below the
original crossing.
 2. Verify Drawer's Signature: Verify that the signature of the drawer
matches the authorized signature on the cheque.
3. Verify Identity: If you have any doubts about the presenter's identity, ask
for identification to confirm that they are the rightful payee.
4. Payment: If all the above checks are satisfactory, and the cheque appears
to be genuine, you can process it for cash payment.
However, it's important to note that the cancellation of crossing usually means
that the cheque can be paid at the counter and is no longer restricted to the
payee's bank account. Always exercise caution and follow your institution's
procedures to prevent any potential fraud or unauthorized payments.
Final
1. a) Define the term "banker" and "customer". What are the relationship
between banker and customer?
Answer : A "banker" is a financial institution or person authorized to provide
banking services, such as accepting deposits, lending money, and facilitating
financial transactions. A "customer" is an individual or entity that utilizes the
services offered by a bank, including opening accounts, making deposits, taking
loans, or engaging in other financial activities. The relationship between a banker
and a customer is primarily a contractual one, where the banker provides
financial services, and the customer entrusts their funds or seeks financial
solutions from the banker. This relationship is governed by various legal and
ethical responsibilities, including confidentiality and fiduciary duties.
b) What are the risks that a banker runs in opening a current account without
obtaining a suitable introductory reference?
Answer : The risks a banker runs in opening a current account without obtaining
a suitable introductory reference primarily revolve around the potential for
fraudulent or illegal activities. Without a reference, the banker may not have
enough information about the customer's financial history, reputation, or
trustworthiness, which can lead to the following risks:
Money laundering: The account may be used for illicit activities, such as money
laundering, without the banker's knowledge.
Fraud: The customer may engage in fraudulent activities, resulting in financial
losses for the bank.
Default on overdrafts: Without a reference, the bank may grant overdrafts to
customers who cannot repay them, causing financial losses.
c) What exactly is the difference between current, savings and fixed deposit
accounts?
Answer : The main differences between current, savings, and fixed deposit
accounts are as follows:
Current Account:
Purpose: Designed for frequent transactions and everyday banking needs.
Interest: Typically, little to no interest is earned on the balance.
Liquidity: High liquidity as funds can be withdrawn without restrictions.
Minimum Balance: Some may require a minimum balance, while others do not.
Overdraft: Often allows for overdraft facilities.
Savings Account:
Purpose: Intended for saving money over time and earning modest interest.
Interest: Earns interest on the account balance, though rates are relatively low.
Liquidity: Easily accessible, but may have some withdrawal limitations.
Minimum Balance: Usually requires a minimum balance, but it's lower than in
current accounts.
Overdraft: Typically doesn't offer overdraft facilities.
Fixed Deposit Account:
Purpose: For long-term savings with a fixed tenure.
Interest: Offers higher interest rates compared to current or savings accounts.
Liquidity: Funds are locked in for a predetermined period; early withdrawals may
incur penalties.
Minimum Balance: Requires a lump sum deposit for a fixed term.
Overdraft: Does not offer overdraft facilities; the money is locked in until
maturity.
Each type of account serves different financial needs, offering varying levels of
liquidity and interest-earning potential.
2.a) Explain the term 'collecting banker'. What are his duties and
responsibilities in the collection of his customer's cheque?

A "collecting banker" is a bank that undertakes the responsibility of collecting a

customer's cheque on their behalf. The collecting banker plays a crucial role in
the process of check collection and has specific duties and responsibilities,
which typically include:

1. Presenting the cheque: The collecting banker presents the customer's

cheque to the drawee bank (the bank on which the cheque is drawn) for
payment. This may involve physically presenting the cheque at the drawee
bank or sending it for clearance through the banking system.

2. Verification: The collecting banker verifies the authenticity of the cheque to

ensure it is properly drawn, signed, and dated. They also check for any
irregularities or discrepancies that could lead to rejection.

3. Prompt collection: The collecting banker makes efforts to collect the funds as
quickly as possible, as per banking regulations and customer instructions.
Timely presentation and follow-up are important.

4. Endorsement: The collecting banker may endorse the cheque with their
bank's stamp or endorsement, indicating that they are collecting it on behalf of
their customer.

5. Credit to the customer's account: Once the cheque is successfully collected,

the collecting banker credits the proceeds to the customer's account, typically
after deducting any applicable fees or charges.
6. Notification to the customer: The collecting banker informs the customer of
the status of the cheque collection process, including whether the cheque has
been paid, returned, or is still in process.

7. Safeguarding customer's interests: The collecting banker is responsible for

taking reasonable care to prevent any loss or damage to the customer's
cheques during the collection process.

8. Follow-up on dishonored cheques: If the cheque is dishonored (not paid),

the collecting banker informs the customer and may take further instructions,
such as re-presenting the cheque or taking legal action if necessary.

It's important to note that the specific duties and responsibilities of a collecting
banker may vary depending on the bank's policies and the terms of the
customer's account agreement. The role of a collecting banker is critical in
ensuring the efficient and secure collection of funds on behalf of their
customers.

b) Discuss the different types of negotiable instruments. Enumerate the

statutory protection of the paying bankers.

Negotiable instruments are financial documents that can be transferred from

one person to another, usually serving as a promise to pay a specific sum of
money. There are several types of negotiable instruments, including:

1. Promissory Notes: A promissory note is a written promise to pay a specified

sum of money to a designated payee. It includes a promise to repay the
principal amount along with any agreed-upon interest.

2. Bills of Exchange: A bill of exchange is a written order, typically used in

commercial transactions, where one party (the drawer) instructs another party
(the drawee) to pay a specified sum of money to a third party (the payee) at a
future date.

3. Cheques: A cheque is an instrument that orders a bank to pay a specified

sum of money to the person or entity named on the cheque. Cheques are
commonly used for various payments and transactions.

4. Bank Drafts: A bank draft, also known as a banker's draft or cashier's check,
is a financial instrument issued by a bank, guaranteeing payment to a specified
payee. It is often used for secure payments.

5. Certificates of Deposit: A certificate of deposit (CD) is a time deposit with a

fixed maturity date and specified interest rate. While not strictly a traditional
negotiable instrument, it represents a promise to pay upon maturity.

Statutory Protection of Paying Bankers:

Paying bankers, the banks responsible for honoring cheques and other
negotiable instruments, are provided with certain statutory protections to
ensure the efficient functioning of the financial system and safeguard against
fraudulent activities. Some key statutory protections include:

1. Protection against forgery: Paying bankers are protected against liability for
payments made on forged or altered instruments as long as they act in good
faith and exercise ordinary care in the processing of the instrument.

2. Protection against unauthorized or irregular endorsements: Paying bankers

are protected if they make payments on an instrument with an endorsement
that appears irregular or unauthorized, provided they act in good faith and
without negligence.
3. Protection against wrongful dishonor: If a paying banker wrongly refuses to
honor a cheque without valid reason, they may be liable to the drawer or
holder for damages. However, statutory protections also exist to safeguard
paying bankers from unwarranted liability in such cases.

These statutory protections are aimed at balancing the interests of banks,

customers, and the broader financial system. They provide a framework for
addressing disputes and liabilities related to negotiable instruments while
promoting the efficient flow of funds in financial transactions. It's important to
note that the specific legal provisions governing negotiable instruments and
the protection of paying bankers may vary by jurisdiction and are subject to
legal interpretation.

c) Define automated clearing house. How is an account payee cheque cleared

through automated clearing house? Explain it with an example

An Automated Clearing House (ACH) is a system that facilitates electronic funds

transfers and transactions between financial institutions. It allows for the
electronic clearing and settlement of various types of financial transactions,
including payroll deposits, bill payments, and other transfers. ACH transactions
are typically more efficient and cost-effective than traditional paper-based
methods.

To clear an account payee cheque through an Automated Clearing House,

here's how it generally works, along with an example:

1. Deposit at Payee's Bank: The account payee cheque is initially deposited by

the payee (the person named on the cheque) into their bank account, which is
referred to as the "depository bank."

Example: Sarah receives an account payee cheque from her friend, John, for
$500. She deposits this cheque into her bank account at Bank X.
2. Transmission to Clearing House: The depository bank (Bank X) electronically
transmits the cheque information to the appropriate clearing house. The
clearing house acts as an intermediary for processing ACH transactions and
facilitates the transfer of funds between banks.

Example: Bank X sends the cheque information to the ACH clearing house.

3. Clearing House Verification: The clearing house verifies the cheque

information, ensuring that the cheque is indeed marked as "account payee"
and that the payee's bank account information is accurate.

Example: The clearing house confirms that the cheque from John to Sarah is
marked "account payee."

4. Funds Transfer: After verification, the clearing house instructs the payer's
bank (John's bank) to transfer the specified amount (in this case, $500) from
John's account to Sarah's account at Bank X. The payment is made
electronically.

Example: The clearing house instructs John's bank (Bank Y) to transfer $500
from John's account to Sarah's account at Bank X.

5. Confirmation: Both the depository bank (Bank X) and the payer's bank (Bank
Y) receive confirmation of the successful transaction. The funds are now
available in Sarah's account.

Example: Bank X receives confirmation that $500 has been credited to Sarah's
account.
6. Final Settlement: The clearing house ensures that the payer's bank (Bank Y)
transfers the necessary funds to the depository bank (Bank X) to settle the
transaction.

Example: Bank Y transfers $500 to Bank X to settle the payment to Sarah.

The entire process occurs electronically, reducing the time and cost associated
with traditional paper-based cheque clearing methods. Account payee cheques
are processed through ACH in a secure and efficient manner, ensuring that the
funds reach the intended recipient's account. It's important to note that
specific ACH procedures and timelines may vary by country and financial
institution.

d) Expound the different types of E-Banking products available in Bangladesh.

What are the main obstacles to implement E-Banking in Bangladesh?

In Bangladesh, as in many other countries, electronic banking (E-Banking) has

witnessed significant growth and diversification. Various E-Banking products
and services are available to cater to the needs of customers. Some of the main
types of E-Banking products in Bangladesh include:

1. **Internet Banking**: Internet banking allows customers to access their

bank accounts, check balances, transfer funds, pay bills, and perform various
banking transactions online through a secure web portal.

2. **Mobile Banking**: Mobile banking services are accessible through

smartphones and mobile devices. Customers can check account balances,
transfer funds, make payments, and receive notifications via SMS or mobile
apps.
3. **Mobile Wallets**: Mobile wallets like bKash and Nagad have become
popular in Bangladesh. They enable users to store money on their mobile
phones, make payments, pay bills, and perform various financial transactions
without a traditional bank account.

4. **ATM Services**: Automated Teller Machines (ATMs) are widely available,

allowing customers to withdraw cash, check balances, and perform some basic
banking functions 24/7.

5. **Electronic Fund Transfer (EFT)**: EFT systems enable individuals and

businesses to electronically transfer funds between accounts or to third
parties. This includes services like Real-Time Gross Settlement (RTGS) and
National Payment System (NPS).

6. **Online Payment Gateways**: Payment gateways facilitate online

payments for e-commerce transactions, allowing customers to make purchases
and payments on websites using their bank accounts or cards.

7. **Prepaid Cards**: Prepaid cards are used for online shopping and
transactions, and they can be recharged with a specific amount of money.

8. **Point of Sale (POS) Services**: POS devices enable card-based

transactions at merchant locations, making it convenient for customers to pay
for goods and services.

Obstacles to Implement E-Banking in Bangladesh:

The implementation of E-Banking in Bangladesh faces several obstacles,

including:
1. **Limited Internet Penetration**: A significant portion of the population in
Bangladesh still lacks access to the internet, which restricts the adoption of
internet banking and online services.

2. **Low Financial Literacy**: Many people, especially in rural areas, have

limited financial literacy and may be hesitant to use E-Banking products.

3. **Security Concerns**: Concerns about the security of online transactions,

data breaches, and fraud deter some individuals from embracing E-Banking
services.

4. **Infrastructure Challenges**: Inadequate technology infrastructure and

unreliable electricity supply in some regions can hinder the expansion of E-
Banking services.

5. **Regulatory Compliance**: Adhering to regulatory requirements and

ensuring compliance with anti-money laundering (AML) and Know Your
Customer (KYC) regulations can be challenging.

6. **Digital Divide**: The digital divide between urban and rural areas makes it
difficult to ensure equitable access to E-Banking services.

7. **Resistance to Change**: Many customers are accustomed to traditional

banking methods and are resistant to change.

8. **Cybersecurity Risks**: The risk of cyberattacks and fraud is a significant

concern, requiring ongoing investments in cybersecurity measures.

Despite these obstacles, Bangladesh has made progress in expanding E-Banking

services, and the government and financial institutions are working to address
these challenges to promote financial inclusion and digital banking access for a
broader population.

3. a) "Banking facilities are being reached to the rural people through Mobile
banking". Do you agree? If yes, describe the services of mobile banking in
Bangladesh

Yes, I agree that banking facilities are being extended to rural areas in
Bangladesh through mobile banking. Mobile banking has played a significant
role in increasing financial inclusion and providing access to banking services in
remote and underserved regions of the country. Mobile banking services in
Bangladesh offer a range of features and benefits, including:

1. **Account Balance Inquiry**: Customers can check their account balances

via mobile banking, which allows them to keep track of their finances.

2. **Fund Transfer**: Mobile banking enables users to transfer money

between accounts, including peer-to-peer (P2P) transfers, making it easier for
individuals to send and receive funds.

3. **Mobile Recharge**: Users can top up their mobile phone credit through
mobile banking, ensuring connectivity in areas with limited access to physical
recharge locations.

4. **Bill Payment**: Mobile banking allows users to pay utility bills, such as
electricity, water, gas, and internet bills, conveniently from their mobile
devices.

5. **Merchant Payments**: Customers can make payments at various

merchants, including shops and restaurants, by scanning QR codes or entering
the merchant's information into the mobile banking app.
6. **Government Disbursements**: Government subsidies, social welfare
payments, and other disbursements can be delivered to beneficiaries' mobile
banking accounts, promoting financial inclusion.

7. **Savings and Deposits**: Some mobile banking services offer savings and
deposit accounts, allowing customers to save and earn interest on their money.

8. **Loan Applications**: Users can apply for small loans through mobile
banking apps, which is particularly beneficial for small and micro-entrepreneurs
in rural areas.

9. **Cash Withdrawal and Deposit**: Some mobile banking agents serve as

cash-in and cash-out points, allowing users to deposit or withdraw physical
cash from their mobile accounts.

10. **Fund Management**: Mobile banking apps may provide features for
investment, financial planning, and portfolio management.

11. **Balance Alerts and Notifications**: Users receive notifications about

their account activities, ensuring transparency and security.

Mobile banking services in Bangladesh are typically offered by banks and non-
bank financial institutions, and they are often operated through mobile apps or
USSD (Unstructured Supplementary Service Data) codes. These services have
become a vital tool for expanding financial services to rural populations, where
access to traditional brick-and-mortar banks can be limited. Mobile banking has
contributed to greater financial inclusion, improved access to credit, and
enhanced convenience for individuals living in remote areas.
b) In present time Agent banking rises in the remote area of Bangladesh.
Elucidate the 3 features and activities of Agent banking
Agent banking is indeed on the rise in remote areas of Bangladesh, and it plays
a crucial role in extending financial services to underserved populations. Here
are some of the key features and activities of agent banking in Bangladesh:

**Features:**

1. **Third-Party Agents:** Agent banking involves the use of third-party

agents, typically local businesses or individuals, who act as intermediaries
between the bank and the unbanked or underbanked population. These agents
provide various banking services on behalf of the bank.

2. **Geographical Expansion:** Agent banking is particularly valuable in

remote and underserved areas, where traditional brick-and-mortar bank
branches are scarce or non-existent. It helps bridge the gap by bringing banking
services closer to the people.

3. **Simplified Account Opening:** Agent banking often simplifies the account

opening process, making it more accessible to individuals who may not have
the required documentation for a standard bank account. This promotes
financial inclusion.

4. **Basic Banking Services:** Agents offer a range of basic banking services,

including deposits, withdrawals, fund transfers, and balance inquiries. These
services are typically provided through mobile devices or point-of-sale (POS)
terminals.

**Activities:**
1. **Cash Handling:** Agents facilitate cash transactions, allowing customers
to deposit and withdraw money from their accounts. This is crucial for those
who rely on physical currency in their daily financial transactions.

2. **Fund Transfers:** Customers can transfer money to other bank accounts,

including those within the same bank or to other banks. This promotes safe
and efficient financial transactions, reducing the need for cash handling.

3. **Bill Payments:** In some cases, agent banking services extend to bill

payments, such as utility bills and mobile phone top-ups. This adds
convenience for customers in remote areas.

4. **Account Information:** Agents provide customers with access to their

account information, such as checking their account balance and transaction
history. This transparency is essential for financial literacy and decision-making.

5. **Customer Education:** Agents often play a role in educating customers

about financial products and services, helping to improve financial literacy
among the unbanked population.

6. **Loan Processing:** Some agent banking models involve loan

disbursement and repayment, allowing customers to access credit services that
might otherwise be unavailable to them.

7. **Verification and KYC:** Agents assist in verifying customer identities and

ensuring compliance with Know Your Customer (KYC) requirements, which is
crucial for maintaining the integrity of the financial system.

Agent banking has emerged as a valuable tool for financial inclusion in remote
areas of Bangladesh and other regions with similar challenges. It leverages
technology and local entrepreneurship to provide essential banking services to
those who need them most, fostering economic development and poverty
reduction.

c) Elucidate the role of Asset Liability Management (ALCO) committee to

reduce the risk of a bank

The Asset Liability Management Committee (ALCO) plays a vital role in a bank's
risk management and overall financial stability by ensuring that the bank
effectively manages its assets and liabilities. Here's how the ALCO committee
helps reduce the risk of a bank:

1. **Interest Rate Risk Management:** ALCO is responsible for monitoring and

managing interest rate risk, which is one of the most significant risks banks
face. The committee assesses the bank's exposure to interest rate fluctuations
and develops strategies to mitigate this risk. This includes ensuring a balance
between the bank's interest-earning assets and interest-bearing liabilities.

2. **Liquidity Risk Management:** ALCO ensures that the bank maintains

sufficient liquidity to meet its obligations, even in adverse conditions. The
committee sets policies and guidelines for liquidity management, which help
the bank weather unexpected funding shortages or deposit withdrawals.

3. **Balance Sheet Optimization:** ALCO reviews the bank's balance sheet,

analyzing the composition of assets and liabilities. By optimizing this balance,
the committee can enhance the bank's profitability, reduce risk, and achieve
strategic goals.

4. **Funding Strategy:** ALCO determines the bank's funding strategy,

deciding how it will source funds, whether through deposits, wholesale
funding, or other means. The committee aims to secure funding sources that
are stable, cost-effective, and in line with the bank's long-term objectives.
5. **Risk Assessment:** ALCO continually assesses various risks, including
credit risk, market risk, and operational risk, to identify potential issues that
could affect the bank's financial stability. It then formulates strategies to
mitigate these risks.

6. **Regulatory Compliance:** The committee ensures that the bank complies

with regulatory requirements related to capital adequacy and risk
management. ALCO's decisions and actions are aligned with the bank's
regulatory obligations.

7. **Stress Testing:** ALCO conducts stress tests and scenario analyses to

evaluate how the bank's financial position would be affected under adverse
conditions. This helps the bank prepare for and mitigate potential risks.

8. **Strategic Planning:** ALCO aligns the bank's asset and liability

management with its strategic objectives. It helps the bank define its risk
appetite and tolerance levels, allowing for informed decision-making regarding
asset and liability composition.

9. **Communication:** ALCO serves as a forum for communication and

collaboration between various departments within the bank, such as treasury,
risk management, and finance. This ensures that all stakeholders are on the
same page regarding the bank's risk management and financial stability.

10. **Policy Formulation:** The committee establishes policies and guidelines

for asset and liability management, which provide a framework for decision-
making and risk mitigation.

In summary, the ALCO committee plays a critical role in reducing the risk of a
bank by proactively managing interest rate risk, liquidity risk, and other
financial risks. It helps the bank maintain a stable and resilient financial
position while ensuring alignment with regulatory requirements and strategic
objectives. Effective ALCO operations contribute to the overall safety and
soundness of the bank.

d)According to the Section-28 under bank company act-1991, what are the
restrictions on loans and advances for a bank

Section 28 of the Bank Company Act, 1991 in Bangladesh provides restrictions

on loans and advances that a bank can extend. These restrictions are in place
to ensure responsible lending practices and maintain the financial stability of
the bank. Here are the key restrictions outlined in Section 28:

1. **Credit Limit for Single Borrower:** According to Section 28, a bank cannot
extend loans and advances to a single borrower or a group of related
borrowers that exceed 25% of the bank's total capital fund. This is intended to
prevent overconcentration of credit risk with a single borrower or related
group.

2. **Credit Limit for Directors and Their Firms:** The section also stipulates
that a bank cannot provide loans and advances to its directors or the firms
where they have a substantial interest (directly or indirectly) that exceed 15%
of the bank's total capital fund. This restriction aims to prevent conflicts of
interest and ensure that lending to directors is done prudently.

3. **Aggregate Credit Limit:** Section 28 limits the total amount of loans and
advances that a bank can extend to any borrower or group of related
borrowers to 50% of the bank's total capital fund. This is a safeguard against
excessive exposure to individual borrowers or groups.

4. **Exemptions:** There are exemptions provided in this section. It specifies

that loans and advances granted by a bank to the government or a statutory
corporation are not subject to the restrictions mentioned above.
5. **Prior Approval:** The section requires that loans and advances exceeding
the specified limits must have the prior approval of the bank's board of
directors. This is an additional layer of oversight to ensure responsible lending
decisions.

These restrictions are put in place to mitigate credit risk, prevent insider
lending practices, and maintain the financial stability of banks in Bangladesh.
Banks are expected to adhere to these limitations and ensure compliance with
Section 28 of the Bank Company Act, 1991 to promote sound banking practices
and safeguard the interests of depositors and stakeholders.

4. a) State and explain the protection offered by the negotiable instrument

Act, 1881 to the paying banker

The Negotiable Instruments Act, 1881 in India provides certain protections to

the paying banker when handling negotiable instruments like checks. These
protections are designed to ensure that the banker can act in good faith while
making payments and, in turn, encourage efficient banking transactions. Here
are the key protections offered to the paying banker:

1. **Protection for Payment in Due Course:** When a banker makes a

payment for a negotiable instrument in due course, they are protected under
the Act. Payment in due course refers to making the payment in accordance
with the usual banking practices and without any negligence. If the banker can
demonstrate that the payment was made in due course, they are safeguarded
against any claims made by the drawer or holder of the instrument.

2. **Crossing of Checks:** The Act also provides protection to the banker

concerning crossed checks. A crossed check is a check with two parallel lines
drawn across it, and it indicates that the payment should be made only through
a bank. The banker is protected when honoring crossed checks as long as the
payment is made to a banker or a collecting banker in due course.
3. **Protection for Forged or Unauthorized Signatures:** If a banker pays on a
forged or unauthorized signature and can prove that they acted in good faith
and without negligence, they are protected under the Act. However, the bank
is not protected if it fails to exercise reasonable care and caution in verifying
the signature.

4. **Protection for Alterations:** If a material alteration has been made on a

negotiable instrument (like changing the amount or payee's name), the banker
is protected when making payment if they do so in good faith and without
negligence. However, the protection does not apply if the alteration is so
obvious that it should have been detected.

5. **Protection Against Duplicate Payments:** If a banker mistakenly pays a

check more than once, they are protected by the Act as long as they can
demonstrate that the mistake was made in good faith and without negligence.
The person who receives the duplicate payment is obligated to refund the
excess amount.

6. **Protection When Acting on Customer's Authority:** When a banker acts

on the authority of their customer, they are protected under the Act. This
means that if a customer has given instructions for a particular payment, and
the banker follows those instructions, they are protected even if the payment
later turns out to be incorrect.

These protections are essential for maintaining the trust and efficiency of the
banking system. They encourage banks to conduct transactions promptly and in
good faith while providing a legal framework to safeguard bankers who act in
accordance with established banking practices. It's important to note that
these protections are subject to certain conditions and safeguards, and
negligence on the part of the banker can lead to the loss of protection under
the Act.

b) Is the banker's action legally justified in the following cases? Give reasons.
i. Cheque, dated-February 2013 presented on 1 March, 2013.

ii. Cheque, dated-3 June, 2013 presented on 4" December 2013.

iii. Cheque, dated 12 March 2013 presented on 7 January 2013.

iv. Cheque, dated 17 April, 2013 presented on 8 July, 2013

The legal justification for a banker's action in the cases involving post-dated
checks depends on the specific circumstances and the applicable legal
provisions. In general, banks have the discretion to accept or refuse to honor
post-dated checks, and the outcomes can vary. Here's an assessment of the
legality of the banker's actions in each of the given cases:

i. **Cheque dated February 2013 presented on 1 March 2013:**

- Legally Justified: The banker's action in this case is generally legally justified.
According to the Negotiable Instruments Act, 1881 in India, a post-dated check
is valid, and a banker may choose to honor it before the date mentioned on the
check. However, the banker should exercise due diligence and make sure that
the check has not been issued with fraudulent intent or without proper
authorization.

ii. **Cheque dated 3 June 2013 presented on 4 December 2013:**

- Legally Justified: In this case, the banker's action is also generally legally
justified. The check is post-dated, but the banker may choose to honor it after
the date mentioned on the check. However, the banker should ensure that the
check is genuine and the customer has not issued a stop payment instruction
before the presentation date.

iii. **Cheque dated 12 March 2013 presented on 7 January 2013:**

- Not Legally Justified: In this case, the banker's action is not legally justified.
The check is being presented before the date mentioned on it. According to the
Negotiable Instruments Act, a post-dated check cannot be honored before the
date mentioned on the check. The banker should refuse payment and can ask
the presenter to come back on or after the date of the check.

iv. **Cheque dated 17 April 2013 presented on 8 July 2013:**

- Legally Justified: In this case, the banker's action is legally justified. The
check is post-dated, and the banker may choose to honor it after the date
mentioned on the check. As long as there are no other irregularities, the
banker can accept and process the check on or after the date specified.

It's essential for both the banker and the customer to be aware of the rules and
regulations regarding post-dated checks, and they should act in accordance
with the applicable laws to ensure a smooth and legally sound banking
transaction.
c) What are the duties and responsibilities of the bank to the collection of his
customer's cheque?

Banks have important duties and responsibilities when it comes to the

collection of their customers' checks. These duties are essential to ensure the
integrity of the payment system and protect the interests of both the customer
and the bank. Here are the primary duties and responsibilities of a bank in
relation to the collection of customer's checks:
1. **Duty of Care:** Banks have a duty to exercise reasonable care and
diligence when handling their customers' checks. This includes verifying the
authenticity of the check, the customer's signature, and ensuring that the
check is properly completed.

2. **Prompt Collection:** Banks are responsible for collecting checks on behalf

of their customers promptly. This involves presenting the check to the drawee
bank (the bank on which the check is drawn) for payment as soon as possible.

3. **Funds Availability:** Banks must ensure that the funds corresponding to

the collected check are made available to the customer within a reasonable
time frame, subject to regulatory and legal requirements. This ensures that
customers have timely access to their funds.

4. **Disclosure of Collection Charges:** Banks should inform their customers

about any charges or fees associated with the collection of checks. This
transparency is important for customers to understand the cost of using
banking services.

5. **Provision of Collection Services:** Banks offer various collection services

to their customers, such as local and outstation check collection, which involves
collecting checks drawn on banks located in other cities or regions. These
services should be efficiently and accurately provided.

6. **Communication with Customers:** Banks have a responsibility to

communicate with their customers regarding the status of check collection,
including whether the check has been credited to the customer's account or
any issues or delays that may have occurred during the collection process.

7. **Anti-Money Laundering (AML) and Know Your Customer (KYC)

Compliance:** Banks must comply with AML and KYC regulations when
collecting checks. This involves verifying the identity of both the payer and the
payee to prevent money laundering and fraudulent activities.

8. **Stop Payment Orders:** If a customer requests a stop payment on a

check, the bank should promptly execute the stop payment order to prevent
the check from being honored. This is part of safeguarding the customer's
interests.

9. **Protecting Against Fraud:** Banks should have measures in place to

detect and prevent check fraud, including counterfeit checks, forged signatures,
and altered checks. They must work to minimize losses due to fraudulent
activities.

10. **Regulatory Compliance:** Banks are required to comply with relevant

laws and regulations related to check collection, such as those outlined in the
Negotiable Instruments Act and other banking regulations.

11. **Customer Education:** Banks should educate their customers on the

proper use of checks, including the importance of maintaining the
confidentiality of account information and safekeeping of checkbooks.

In summary, banks play a crucial role in the collection of their customers'

checks. Their duties and responsibilities are aimed at ensuring the efficiency,
security, and transparency of the check collection process, as well as protecting
the interests of both the customer and the bank.
d) A opens an account with C bank with an uncrossed cheque of Tk.1000
drawn on B bank and leaving Tk.300 to his credit takes away the balance of
Tk.700 in cash.
After B bank has paid the cheque, the drawer discovers that the payee has
never received it and the payee's endorsement has been forged. The drawer
claims from C bank the amount of the cheque. Discuss the position of C bank.
In the given scenario, where A opens an account with C bank using an
uncrossed cheque of Tk.1000 drawn on B bank, and after B bank pays the
cheque, the drawer discovers that the payee's endorsement has been forged,
the position of C bank is influenced by certain legal principles and
responsibilities.

1. **Holder in Due Course:**

- If C bank accepted the cheque in good faith, for value, and without notice of
any defects or irregularities, it may be considered a holder in due course. A
holder in due course is entitled to the payment of the instrument, even if there
are defects or issues in the underlying transactions.

2. **Forgery of Endorsement:**
- If the payee's endorsement has been forged, and C bank was not aware of
this forgery when it accepted the cheque, C bank may not be held liable for the
forgery. The responsibility for verifying the authenticity of endorsements lies
with the bank where the cheque is initially presented.

3. **Negligence and Due Diligence:**

- If, however, C bank failed to exercise reasonable care and diligence in
accepting the cheque or if there were obvious signs of forgery that the bank
should have detected, the bank might be held liable for negligence. Banks are
expected to adhere to proper banking standards and practices to avoid such
situations.

4. **Customer's Liability:**
- A customer who opens an account with a bank is generally responsible for
the instruments they deposit. If A's account with C bank was credited with the
amount of the cheque, and A subsequently withdrew the funds, C bank may
seek to recover the amount from A if it is determined that the cheque was
forged.
5. **Caveat Emptor Principle:**
- The principle of "caveat emptor" (buyer beware) applies to negotiable
instruments. If C bank acted in good faith and conducted its business in
accordance with banking norms, it may be protected against the claim of the
drawer.

6. **Legal Recourse:**
- The drawer may have legal recourse against the person who forged the
endorsement, and in some cases, against the bank where the cheque was
initially deposited (B bank). However, C bank's liability, if any, would depend on
the specific facts of the case and whether the bank fulfilled its obligations
diligently.

In summary, C bank's position is influenced by its status as a holder in due

course, its diligence in handling the cheque, and the customer's responsibility
for the instruments deposited. The legal outcome would depend on the
specifics of the case and whether C bank adhered to proper banking practices
in accepting the cheque.

5.a) Differentiate between loan and investment. Explain the characteristics of

business which usually gets bank loan.
Answer: Both loans and investments are examples of the utilization of bank
funds. Banks provide credit to the clients and cam interest from it to the clients
and claim interest from it. However, there are some key differences
between loans and investments. In the following section, we will try to identify
these:
A loan is an agent lending funds to another agent. This money can be used for
investment spending, or it can be used for personal consumption expenditures.
It can be used to buy fixed assets like real estate, which may or may not be
"investment" depending on how you use the terminology. In the case of the
IMF, the role of the institution is to ensure financial stability by providing funds
to countries in an emergency; for example, a country which becomes insolvent
and is unable to service its sovereign debt is likely to seek help from the IMF.
 The IMF would then provide a bailout loan along with a stabilization program
aimed at improving the country's public finances. This is not investment, in the
sense that it does not grow the country's capital stock; it just allows it to meet
its obligations to past creditors.
Investment is an expenditure which will yield revenue in the future, and
hopefully amortize itself through that revenue. In the case of a household,
investment can take the form of acquiring financial assets; in the case of an
economy, investment often refers to actions which improve the country's
productivity. This can be the construction of new factories, higher wages at
state subsidized education institutions, higher research and development
spending by the private sector, etc.
The reason the two are related is that quite a lot of investment is done through
borrowing. A corporation can borrow to ramp up capital expenditures, a
country can borrow on international capital markets to invest more in
infrastructure, and an individual can take out a mortgage to acquire a house.
All of these can be legitimately described as "investment".
The characteristics of business which usually gets bank
loan.
• Minimum credit score. A lender typically checks both your business and
personal credit scores. The type of loan determines the minimum score
required. For example, you should have a score of at least 680 to qualify for an
SBA loan or a traditional bank loan, and 630 for equipment financing
or business lines of credit. We also recommend good business credit.
• Annual revenue. Some lenders may want to see a minimum amount of annual
business revenue before you’ll be eligible for financing. This helps show your
business can support future debt payments.
• Time in business. Businesses that have been in operation for longer have a
greater chance of loan approval. In general, lenders typically require a business
to be in operation for at least one to two years. For some types of financing,
businesses that have been in operation for at least six months are eligible.
• Debt ratio. Lenders may also review your debt-to-income (DTI) and debt-
service coverage ratio (DSCR). Your DTI weighs your monthly personal debt
against your gross income while your DSCR measures your business’ annual net
operating income in relation to its total annual debt.
• Collateral. With secured loans, lenders require you to pledge collateral—
something of value, such as accounts receivable or real estate—that they can
seize if you fail to repay the loan.
• Personal guarantee. Some lenders and loan types require a personal
guarantee, which protects the lender in the case of a default. If your business
doesn’t honor its loan agreement, the lender will require you to repay the debt
with your personal funds.
On top of examining business loan requirements, you may also want to look
over common problems that

b) Briefly explain the factors of sound lending policy of a bank.

A sound lending policy is crucial for a bank to manage its loan activities
efficiently and minimize risks. Here are some key factors that contribute to a
sound lending policy:
1. Purpose of Loan: Banks should analyze whether the loan purpose aligns with
the bank’s scope and policies. The purpose must be viable, generate adequate
profit for the borrower, and ensure sufficient cash flow for loan repayment.
2. Safety: Safety is paramount. Banks should prioritize safety while sanctioning
loans. Sacrificing safety for higher returns can be detrimental in the long run.
3. Social Responsibility: Banks must consider the social impact of loans.
Responsible lending ensures positive contributions to society.
4. Business Ethics: Ethical practices are essential. Banks should adhere to ethical
standards while evaluating loan applications.
5. Spread and Risk Diversification: Diversifying loan portfolios across various
sectors and risk levels helps mitigate risk.
6. National Interest: Lending decisions should align with national economic goals
and priorities.
7. Recovery Possibility: Banks should assess the likelihood of loan recovery based
on the borrower’s financial health.
8. Liquidity: Maintaining liquidity ensures the bank can meet its obligations even
during economic downturns.
9. Profit and Profitability: Loans should contribute to the bank’s profitability
while balancing risk.
10. Business Solvency: Banks must evaluate borrowers’ solvency to prevent
defaults.
11. Adequate Security: Collateral and security measures protect the bank’s
interests.
Remember, a well-defined loan policy guides individual loan decisions and
shapes the overall loan portfolio of a bank.
 e) Define problem loan. How can a bank handle problem loan?

A problem loan is a term used in banking and credit markets to describe a loan
that faces challenges due to non-payment or other issues. These loans are also
known as nonperforming assets. In simpler terms, a problem loan is one that
poses a challenge for the lender, either due to delinquency or other repayment
difficulties.

How can a bank handle problem loan?

1. Restructure Loans: Modify terms to maintain cash flow and avoid

classifying them as problem loans.
2. Sell Collateralized Assets: If a loan defaults, lenders may sell assets held
as collateral to cover losses.
3. Sell Problem Loans: Some loans are sold to other companies at a discount,
providing an opportunity for those buyers
4. Companies often acquire problem loans from financial institutions at a
discount.

a) How the management of central bank is made? Discuss the objectives of

central bank?

A central bank is a financial institution that is responsible for overseeing the

monetary system and policy of a nation or group of nations, regulating its
money supply, and setting interest rates. Central banks enact monetary policy,
by easing or tightening the money supply and availability of credit, central
banks seek to keep a nation's economy on an even keel. A central bank sets
requirements for the banking industry, such as the amount of cash reserves
banks must maintain vis-à-vis their deposits. A central bank can be a lender of
last resort to troubled financial institutions and even governments. The
management of a central bank involves several key aspects:
1. Governance Structure:
o Most central banks are governed by a board consisting of representatives
from member banks.
o The chief elected official of the country appoints these directors, and
the national legislative body approves them.
o This structure ensures that the central bank remains aligned with the
nation’s long-term policy goals while maintaining independence from day-to-
day political influence1.
2. Monetary Policy Formulation:
o Central banks are responsible for managing the money supply within an
economy.
o They use various tools to control the money supply, including:
▪ Interest rates: Influencing borrowing costs for banks and consumers.
▪ Open market operations: Buying or selling government bonds to affect
liquidity.
▪ Quantitative easing: Expanding the money supply by purchasing financial
assets.
▪ Reserve requirements: Mandating how much cash banks must hold in reserve.
3. Lender of Last Resort:
o During financial crises, central banks act as an emergency lender to distressed
banks and financial institutions.
o They provide liquidity to prevent systemic collapse and stabilize the financial
system.

In summary, central banks play a critical role in managing monetary policy,

ensuring financial stability, and safeguarding the nation’s currency. Their
actions impact the overall health of the economy.

Discuss the objectives of central bank?

The central bank serves several critical objectives to ensure the stability and
well-being of an economy:
1. Inflation Control:
o A central bank aims for a low and stable rate of inflation. By managing the
money supply and interest rates, it strives to keep inflation in check.
o Stable prices benefit consumers, businesses, and investors, fostering economic
confidence and growth.
2. Employment and Growth:
o The central bank seeks high, stable real growth and a healthy employment
rate in the economy.
o By influencing interest rates and monetary policy, it supports job creation and
sustainable economic expansion1.
3. Market Stability:
o Central banks promote a stable financial market and ensure the soundness of
financial institutions.
o Their oversight helps prevent crises and maintains investor confidence

In summary, central banks play a pivotal role in maintaining price stability,

fostering economic growth, and safeguarding the financial system.
 b) Explain the functions of central bank

The central bank plays a crucial role in a country’s economic and financial
system. Let’s delve into its functions:
1. Regulator of Currency:
o The central bank is responsible for printing currency notes. In India,
the Reserve Bank of India (RBI) has the sole right to print money of all
denominations except the 1 rupee note.
o It ensures the availability and stability of currency in the economy.
2. Banker and Advisor to the Government:
o The central bank acts as a fiscal agent for the government. It manages the
deposits of both central and state governments.
o It provides financial advice to the government on matters related to monetary
policy and economic stability.
3. Lender of Last Resort:
o The central bank serves as the lender of last resort for financial institutions.
During crises, it provides emergency liquidity to banks and other financial
entities.
o This function helps maintain financial stability and prevents systemic collapses.
4. Monetary Policy Formulation:
o The central bank formulates and implements monetary policies. It adjusts
interest rates, controls money supply, and influences credit availability.
o Its goal is to achieve price stability, economic growth, and financial
equilibrium.
5. Regulator of the Financial Sector:
o The central bank oversees and regulates banks and financial institutions. It
ensures their compliance with rules and regulations.
o It promotes a sound and stable financial system by monitoring activities and
enforcing prudential norms.

6.Foreign Exchange Management:

o Central banks manage a country’s foreign exchange reserves. They

intervene in currency markets to stabilize exchange rates.
o They maintain a balance between domestic and international
economic interests.
In summary, the central bank is a powerful institution that influences the
country’s monetary framework, financial stability, and economic sovereignty.
It’s a critical player in shaping the nation’s economic landscape.

c) Discuss the role of central bank in the socio-economic development in

Bangladesh.

The central bank is regarded as the supreme monetary authority in every

country, and accordingly it has to perform various useful functions for
ensuring smooth functioning of the economy. Besides the discharge of
certain traditional functions the central bank in a developing economy can
play a special role, as is true of the Reserve Bank. This role can be
understood from the following functions performed by the BB:

1. Expanding currency supply for financing development plans:

A developing country like Bangladesh is to undertake massive

development plans and programs for accelerating the pace of development.
The government requires a vast amount of finance for this purpose, for
which the country is to rely on the method of deficit financing (i.e., the
issue of new paper-notes) in addition to using other methods. The banking
sector is to provide adequate finance for this purpose. The central bank,
being the sole note-issuing authority can assist the government by
expanding the supply of currency to enable the government to finance its
massive plan outlays.

Actually the Reserve Bank of India has been assisting the Government of
India by expanding the supply of currency. But, the supply of currency (and
credit) is to be properly regulated for enabling the economy achieve faster
growth with reasonable price stability.

2. Resource mobilization and supply of adequate credit:

The mobilization of resources for development purposes is an essential

requirement in a developing economy. In such an economy, the central
bank can assist the government in mobilising domestic resources for
financing the development plans through such activities as the floating of
new loans of the government, strengthening the banking structure for
mobilising resources even from the rural areas, and so on. Apart from these
the central bank s to make necessary arrangements for the supply of
adequate bank credit which is so essential for developmental activities. 3.
Increasing the flow of bank credit to the priority sectors:

The formulation of development priorities is an essential characteristic of

development planning. The central bank of a developing country is to frame
its monetary and credit policy in such a fashion that larger and desired
quantities of bank credit go to the priority sectors, such as agriculture,
cooperatives, small industries and export trade.

Furthermore, for social and economic along with economic growth

achieving, it has to formulate a policy for extending liberal bank credit to
the weaker and hitherto neglected sections of the community.

At the same time it can follow the policy of credit restraint for maintaining
price stability and for ensuring proper use of bank credit. For this reason
the Reserve Bank of India has been following a monetary and credit policy
what is known as the policy of controlled expansion of bank credit. Through
it the R.B.I. can undertake the direct financing of development projects by
lending liberally to those institutions which provide development finance.

4. Controlling inflation and containing cost escalation:

The rising price level is regarded as a concomitant of economic

development. The central bank in a developing economy is required to take
necessary steps in holding the price line at a desired level so that plan-
estimates are not totally upset due to cost-escalation.

In a developing economy various traditional and new measures of monetary

controls, especially selective credit controls, are used to check the
inflationary rise in prices. The measures like higher margin requirements for
speculative bank advances, higher CRR and incremental CRR, higher
statutory liquidity ratios, penal rates of interest on excessive borrowings
differential interest rate policy, higher bank rates and lending rates, etc.
may be adopted by the central bank, as done by the Reserve Bank of India,
for controlling inflation and for containing, or at least moderating, cost
escalations of development projects.
First mid
15th batch.
1.Discuss a banker's right of set-off in the following cases:
i.There is a credit balance in the account of A. The banker wishes to set this
off against an overdraft in the Joint name of A and B.
ii. D is guarantor for a loan granted by the bank to s. The loan has become
sticky. There is a credit balance In D's account. The banker wishes to set it off
against D's liability as a guarantor.
iii. There is a surplus of insurance policy amount available with the Bank
after adjustment of the balance in the deceased borrower R's clean overdraft
account.
iv. X has an account with the bank which has remained overdrawn for long
despite many reminders. Meanwhile, X obtains legal representation to the
estate of his deceased uncle Y, who too had a current account with the same
bank. By virtue of such legal representation, X goes to Bank to withdraw the
credit balance in Y's account, but the bank managers wants to set it off
against the overdraft in X's account.
Answer : The right of set-off is a legal right that allows a bank to combine or
merge two accounts and offset the balances in a way that benefits the bank. It
can be exercised in specific situations, subject to certain conditions and legal
provisions. Let's discuss the scenarios you provided:
i. **Credit balance in A's account set off against an overdraft in the Joint name
of A and B**:
- In this case, if A has a credit balance in their account and there is an
overdraft in the joint account of A and B, the bank typically has the right to set
off the credit balance against the overdraft. This is because the bank considers
both accounts as related and has the right to consolidate them.
ii. **Credit balance in D's account set off against D's liability as a guarantor**:
 - When D is a guarantor for a loan granted by the bank to S, and the loan has
become sticky, the bank can set off the credit balance in D's account against D's
liability as a guarantor. This is a common practice to recover the dues from the
guarantor.
iii. **Surplus of insurance policy amount set off against the balance in the
deceased borrower R's clean overdraft account**:
- If there is a surplus from an insurance policy payout after adjusting the
balance in a deceased borrower R's clean overdraft account, the bank can set
off the surplus to recover the balance from R's account. This is a legitimate way
to settle outstanding debts.
iv. **Setting off the credit balance in Y's account against the overdraft in X's
account**:
- This situation is more complex. While X may have legal representation for
Y's estate, the bank's right of set-off is generally limited to accounts held by the
same person or related entities. It's uncommon for the bank to set off the
credit balance in Y's account against X's overdraft, especially if the two
accounts are not directly related. X may need to resolve their overdraft
separately.
It's important to note that the right of set-off can vary by jurisdiction and the
terms and conditions of the banking relationship. Legal counsel and local
banking regulations should be consulted in each specific case to ensure the
appropriate use of this right and to address any disputes or concerns.
2. An open bearer cheque for Tk.10000 drawn by your customer is presented
for payment. The balance in his account is Tk. 9000. The presenter while
talking to the ledger keeper comes to know that the balance is short by tk
1000. He pays into the account Tk. 1000 by a pay-in-slip and Informs the
ledger keeper about the credit and gets his cheque for Tk10000 passed. The
drawer, when he comes to know of this, complaints to the manager and asks
for a refund of Tk.9000.
How will you as a banker deal with the situation.
Answer : In this situation, as a banker, you would need to carefully handle the
issue to ensure fairness and adherence to banking regulations. Here's how you
might deal with the situation:
1. **Investigate the Situation**: First, investigate the transaction and verify the
details. Ensure that the funds paid in by the presenter using the pay-in-slip
were credited to the customer's account and the cheque was subsequently
honored.
2. **Review Banking Regulations**: Consult the bank's policies and relevant
banking regulations to determine if the transaction was conducted in
accordance with established procedures and guidelines.
3. **Communication with the Drawer (Customer)**: Contact the customer
(drawer) who complained about the situation. Listen to their concerns and
explain the sequence of events, including the payment made by the presenter
to cover the shortfall.
4. **Documentation and Records**: Maintain clear records of all transactions,
including the deposit made by the presenter, to demonstrate the legitimate
adjustment of the customer's account to cover the cheque amount.
5. **Resolving the Issue**: If it is determined that the transaction was handled
correctly and in accordance with banking procedures, communicate this to the
customer, providing them with a clear explanation of the situation.
6. **Customer Relationship**: Work to maintain a good customer relationship.
Address the customer's concerns, be empathetic to their situation, and provide
them with any necessary documentation to show that their account was
correctly adjusted.
7. **Preventive Measures**: Consider reviewing internal procedures to
prevent similar situations from arising in the future, such as ensuring that
account balances are regularly updated and accurate.
It's important to handle such situations with transparency, professionalism, and
adherence to banking regulations. The key is to ensure that the customer's
concerns are addressed while maintaining the integrity of the banking system.
If there was any error on the bank's part, corrective measures should be taken
to rectify it.

2nd mid
1. Discuss the significance of "Account Payee" written on the face of a crossed
cheque, for the collecting banker and the paying banker.
Answer : Writing "Account Payee" on the face of a crossed cheque has
significance for both the collecting banker and the paying banker:
For the Collecting Banker:
1. Protection of the Payee: The "Account Payee" crossing signifies that the
cheque amount should only be credited to the bank account of the payee
mentioned on the cheque. It provides an added layer of security by preventing
the cheque from being encashed by someone other than the intended payee.
2. Legal Responsibility: If the collecting banker fails to observe the "Account
Payee" crossing and credits the amount to a different account or allows the
payee to receive cash, they may be held liable for any resulting loss or dispute.
For the Paying Banker (Drawee Bank):
1. Payment Restrictions: The "Account Payee" crossing serves as a clear
instruction to the paying banker not to make a cash payment to the holder of
the cheque. The amount must be credited to the account of the payee
mentioned.
2. Risk Mitigation: By adhering to the crossing, the paying banker minimizes the
risk of making a payment to the wrong person or entity, ensuring that funds are
disbursed as per the payee's instructions.
In summary, "Account Payee" on a crossed cheque is a protective measure that
helps ensure the intended payee receives the funds and reduces the risk of
fraud or misappropriation during the clearing process. It reinforces the
accountability of both the collecting and paying bankers in handling the
cheque.
2.A cheque issued by Mr.A is presented to you on 24 March 2022 and paid.
The cheque is dated 11 March 2022. On 25 March Mrs. A comes to the branch
and gives you a letter stating that Mr. A died on 7 March 2022 and demands
restoration of the amount of the cheque.
Answer : In this scenario, several factors need to be considered:
1. **Date of Death**: Mr. A's death on 7 March 2022, which occurred before
the cheque was dated (11 March 2022), is a significant element.
2. **Cheque Issuance**: The cheque was issued by Mr. A before his death,
which makes it a valid instrument at the time of issuance.
3. **Payment Date**: The cheque was presented and paid on 24 March 2022.
At this time, the bank had no knowledge of Mr. A's death.
4. **Claim by Mrs. A**: Mrs. A's claim for restoration of the cheque amount,
which was paid on 24 March, raises some legal and ethical questions.
Typically, a cheque is a negotiable instrument, and when it's presented and
honored by the bank, the payment is considered final and irrevocable,
assuming there are sufficient funds in the account. In this case, the bank had
no knowledge of Mr. A's death when the cheque was paid, and the payment
was made in good faith based on the date on the cheque.
However, if Mrs. A has a valid legal claim to the funds as part of her inheritance
or if there are specific circumstances regarding the cheque or the account that
require further investigation, the bank may need to work with legal authorities
and Mr. A's estate to address the matter appropriately.
The outcome may vary depending on local laws, the bank's policies, and
specific details surrounding Mr. A's account and the cheque issuance. It's
advisable for the bank to seek legal counsel and follow proper procedures to
handle this situation.
3. "The main risk the banker runs in collecting cheques for a customer is that
of conversion."- Comment.
Answer : The statement that "The main risk the banker runs in collecting
cheques for a customer is that of conversion" highlights a significant concern in
banking, particularly in the context of collecting cheques. Let's break down the
key points:
1. **Conversion Risk**: Conversion risk refers to the risk that a banker faces
when collecting a cheque on behalf of a customer, and the funds represented
by the cheque are diverted or misappropriated in some way. This could happen
if someone fraudulently endorses or alters the cheque, or if the cheque is
stolen and cashed by an unauthorized party.
2. **Collecting Cheques**: Banks frequently act as intermediaries in the
process of collecting cheques on behalf of their customers. When a bank
collects a cheque, it processes it through the clearing system to ensure that the
funds are transferred from the drawer's account to the payee's account. During
this process, various risks can emerge.
3. **Bank's Responsibility**: Banks have a duty to exercise due diligence in
verifying the authenticity of the cheques they collect and in confirming the
legitimacy of endorsements. However, there's always a risk that a fraudulent or
unauthorized transaction may occur, leading to financial loss for the customer
and potential liability for the bank.
4. **Risk Mitigation**: To mitigate this risk, banks implement various security
measures, including signature verification, stringent procedures for cheque
processing, and anti-fraud measures. Customers are also encouraged to use
secure banking channels, such as electronic transfers, for high-value
transactions.
5. **Legal Implications**: If conversion does occur, it can have legal and
financial implications for the bank. The bank may be held responsible for the
loss unless it can demonstrate that it followed proper procedures and exercised
reasonable care in handling the cheque.
In summary, conversion risk is a significant concern for bankers when collecting
cheques for customers. Banks need to balance the convenience of cheque
collection with the responsibility to protect their customers' funds and
safeguard against fraudulent activities. Effective risk management and
adherence to established procedures are crucial in mitigating this risk.
4. What are the requisites of a valid endorsement? Explain the different
kinds of endorsements with suitable examples.
Answer : To make a valid endorsement on a negotiable instrument like a check,
certain requisites must be met. A valid endorsement ensures the negotiability
and transferability of the instrument. The primary requisites of a valid
endorsement are:
1. **Signature**: The endorser must sign on the back of the instrument. The
signature can be in any form or style, but it should be recognizable as the
endorser's.
2. **Placement**: The endorsement should be made on the back of the
instrument, typically in the designated endorsement area.
3. **Clear Intention**: The endorser must clearly express an intention to
transfer the instrument. The language used should indicate the endorsement is
for negotiation or assignment.
Now, let's explore different types of endorsements with examples:
1. **Blank Endorsement (Endorsement in Blank)**:
- In a blank endorsement, the endorser simply signs their name on the back
of the instrument without specifying a particular payee.
- Example: If John Doe writes a check to Jane Smith, and Jane endorses it by
signing her name on the back without specifying a new payee, it becomes a
bearer instrument, and anyone who holds it can cash it.
2. **Special or Full Endorsement (Endorsement in Full)**:
- In a special endorsement, the endorser specifies the name of the new
payee, effectively transferring the instrument to that specific person or entity.
- Example: If Jane Smith wants to endorse the check to Bob Johnson, she
would write "Pay to the order of Bob Johnson" followed by her signature.
3. **Restrictive Endorsement**:
- A restrictive endorsement limits the further negotiation of the instrument. It
may include conditions or instructions.
- Example: Writing "For Deposit Only" along with the account number is a
common form of restrictive endorsement, indicating that the check should only
be deposited to the endorsed account.
4. **Conditional Endorsement**:
- A conditional endorsement imposes certain conditions for the payment of
the instrument. It makes payment contingent on the fulfillment of those
conditions.
- Example: An endorsement that says "Pay John Doe after he repairs my car"
is a conditional endorsement.
5. **Facultative Endorsement**:
- A facultative endorsement leaves the choice of how to further negotiate the
instrument to the holder. It's neither a blank nor a special endorsement.
- Example: An endorsement that says "Pay to the order of [Blank]" leaves the
payee's name blank, giving the holder the option to fill it in.
6. **Sans Recourse Endorsement**:
 - This endorsement disclaims the endorser's liability if the instrument is not
honored. It's often used to limit the endorser's responsibility.
- Example: An endorsement that says "Without recourse, John Doe" signifies
that John Doe won't be held liable if the check bounces.
It's important to note that the type of endorsement used can impact the
negotiability and legal liability associated with the instrument. The choice of
endorsement should align with the intentions of the parties involved in the
transaction.