Q. 1.

Write short note on 1) Negotiable Instruments 2) Debt Recovery Tribunal

### 1) Negotiable Instruments

Negotiable instruments are legally binding documents that guarantee the payment of a specific
amount of money either on demand or at a set time. These instruments play a crucial role in
commercial transactions by providing a secure and convenient way to transfer funds and settle
financial obligations. The key types of negotiable instruments include:

- **Promissory Notes**: These are written promises by one party (the maker) to pay a certain sum
of money to another party (the payee) either on-demand or at a specified future date. Promissory
notes are commonly used in lending agreements and credit transactions.

- **Bills of Exchange**: A bill of exchange is an unconditional written order by one party (the
drawer) to another party (the drawee) to pay a specified amount of money to a third party (the
payee) at a designated time in the future. Bills of exchange are widely used in international trade
and commerce.

- **Cheques**: A cheque is a written order by an account holder (drawer) instructing their bank
(drawee) to pay a specified amount of money to the bearer or a designated payee. Cheques are
commonly used for making payments, settling debts, and conducting business transactions.

Negotiable instruments possess certain characteristics that make them valuable in commercial
transactions:

- **Transferability**: They can be transferred from one party to another by endorsement (signing on
the back) or by delivery, making them highly liquid and convenient for payments.

- **Enforceability**: The rights and obligations under negotiable instruments are legally
enforceable, providing security to parties involved in financial transactions.

- **Uniformity**: There are standardized rules and practices governing negotiable instruments,
ensuring consistency and clarity in their usage.

### 2) Debt Recovery Tribunal (DRT)

Debt Recovery Tribunals (DRTs) are specialized legal bodies established under the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 in India. Their primary objective is to facilitate the
expeditious recovery of outstanding debts owed by individuals, companies, or other entities to banks
and financial institutions.

Here are the key functions and features of Debt Recovery Tribunals:

- **Debt Recovery**: DRTs handle cases related to the recovery of non-performing assets (NPAs)
and outstanding debts. They provide a forum for banks and financial institutions to initiate legal
proceedings against defaulting borrowers.

- **Jurisdiction**: DRTs have jurisdiction over cases involving debts above a specified threshold, as
determined by the government. They handle cases related to secured and unsecured debts, loan
defaults, mortgage-related disputes, etc.

- **Speedy Resolution**: The primary aim of DRTs is to ensure speedy resolution of debt recovery
cases, minimizing delays and facilitating the timely recovery of dues for banks and financial
institutions.

- **Legal Proceedings**: DRTs follow legal procedures and principles while adjudicating debt
recovery cases. They have the authority to issue orders, summon witnesses, and enforce decisions
through various legal means.

- **Appeals**: Decisions of DRTs can be appealed in the Debt Recovery Appellate Tribunal (DRAT)
and, subsequently, in higher courts if necessary, ensuring a fair and transparent appellate process.

Overall, Debt Recovery Tribunals play a crucial role in the financial sector by providing an effective
mechanism for banks and financial institutions to recover outstanding debts, maintain asset quality,
and uphold the integrity of the banking system.

Q. 2. Elaborate the System of Banking and Banking Instruments?

The system of banking and banking instruments is a comprehensive framework that encompasses
various entities, mechanisms, and instruments involved in the functioning of the banking sector. It
plays a crucial role in facilitating financial transactions, promoting economic growth, and supporting
the overall stability of the financial system. Let's delve into the components of this system:

### 1. Banking Institutions:

Banking institutions are entities that provide a range of financial services to individuals, businesses,
and governments. They act as intermediaries between depositors who have surplus funds and
borrowers who need capital. Some key types of banking institutions include:

- **Commercial Banks**: These are the most common type of banks that provide a wide array of
services such as accepting deposits, offering loans, providing credit facilities, facilitating international
trade, and wealth management services.

- **Central Banks**: Central banks, such as the Reserve Bank of India (RBI), are responsible for
regulating and supervising the banking system, formulating monetary policy, issuing currency,
managing foreign exchange reserves, and maintaining financial stability.

- **Cooperative Banks**: These banks are owned and operated by their members, who are typically
individuals or small businesses belonging to a particular community or region. They offer banking
services tailored to the needs of their members.

- **Development Banks**: Development banks focus on providing long-term financing for

infrastructure projects, industrial development, and economic growth initiatives. They often work
closely with governments and international development agencies.

### 2. Banking Instruments:

Banking instruments are documents or mechanisms used in financial transactions to transfer funds,
facilitate payments, and establish financial obligations. These instruments are crucial for conducting
various banking activities efficiently and securely. Some common banking instruments include:

- **Cheques**: Cheques are written orders by an account holder instructing their bank to pay a
specific amount of money to a designated payee. They are widely used for making payments, settling
bills, and transferring funds between accounts.

- **Demand Drafts**: A demand draft is a prepaid instrument issued by a bank on behalf of a

customer, guaranteeing payment to a specified beneficiary. It is often used for secure and
convenient fund transfers.

- **Promissory Notes**: Promissory notes are written promises by one party to pay a certain sum of
money to another party at a specified time or on demand. They are commonly used in lending
transactions and credit arrangements.
- **Bills of Exchange**: Bills of exchange are written orders by one party to another party to pay a
specified amount of money on a designated future date. They are widely used in international trade
and commercial transactions.

- **Electronic Fund Transfers (EFT)**: EFT refers to the electronic transfer of funds from one bank
account to another. It includes methods such as NEFT (National Electronic Funds Transfer), RTGS
(Real Time Gross Settlement), IMPS (Immediate Payment Service), and UPI (Unified Payments
Interface).

### 3. Regulatory Framework:

The banking system operates within a regulatory framework established by government authorities
and central banks. The regulatory framework aims to ensure the stability, transparency, integrity,
and efficiency of the banking sector. Key aspects of the regulatory framework include:

- **Licensing and Supervision**: Banks are required to obtain licenses from regulatory authorities
such as the central bank before commencing operations. Regulatory bodies conduct regular
inspections and audits to ensure compliance with banking regulations.

- **Capital Adequacy and Risk Management**: Banks are mandated to maintain adequate capital
reserves to cover potential losses and risks. They also implement robust risk management practices
to identify, assess, and mitigate various risks such as credit risk, liquidity risk, and operational risk.

- **Consumer Protection**: Banking regulations include provisions for consumer protection,

ensuring fair treatment of customers, transparency in banking products and services, and
mechanisms for redressal of customer grievances.

- **Prudential Norms**: Prudential norms set guidelines for asset classification, provisioning, capital
adequacy ratios, and risk management practices to maintain the financial health and stability of
banks.

- **Monetary Policy**: Central banks formulate and implement monetary policy measures to
regulate money supply, interest rates, inflation, and overall economic stability, which directly impact
the banking system.
In essence, the system of banking and banking instruments encompasses a complex network of
institutions, instruments, and regulations that collectively contribute to the efficient functioning of
the financial system, support economic activities, and promote financial inclusion and stability.

Q.3. Write the Salient features of Banking Regulation Act, 1949 and Banking Regulation
(Amendment) Ordinance, 2017.
Certainly! Let's outline the salient features of the Banking Regulation Act, 1949, and the Banking
Regulation (Amendment) Ordinance, 2017:

### Banking Regulation Act, 1949:

1. **Licensing of Banks**:

- The Act mandates that banks operating in India must obtain a license from the Reserve Bank of
India (RBI).

- It sets criteria for granting licenses, including minimum capital requirements, fit and proper
criteria for promoters and directors, and adherence to prudential norms.

2. **Regulation of Banking Business**:

- The Act regulates various aspects of banking operations, including acceptance of deposits, lending
activities, investments, and other banking transactions.

- It prohibits certain activities deemed detrimental to the interests of depositors or the stability of
the banking system.

3. **Control over Management**:

- The Act empowers the RBI to regulate the management and administration of banks, including
appointment and removal of directors and key executives.

- It ensures that banks operate efficiently, transparently, and in compliance with regulatory
standards.

4. **Restrictions on Loans and Advances**:

- The Act imposes limits and guidelines on loans, advances, and investments made by banks to
ensure prudent risk management and asset quality.

- It sets standards for credit appraisal, provisioning, and classification of assets to maintain the
health of bank portfolios.

5. **Supervision by RBI**:
 - The Act provides for RBI's supervisory role over banks to monitor their financial soundness,
compliance with regulations, and adherence to prudential norms.

- RBI conducts inspections, audits, and assessments to ensure the stability and integrity of the
banking sector.

### Banking Regulation (Amendment) Ordinance, 2017:

1. **Empowerment of RBI**:

- The amendment ordinance empowers the RBI with additional tools and authority to address the
rising issue of non-performing assets (NPAs) in banks.

- It enables RBI to issue directions to banks for initiating insolvency proceedings against defaulting
borrowers and resolving stressed assets.

2. **Stricter NPA Recognition and Resolution**:

- The ordinance introduces stricter norms for the recognition and classification of NPAs, ensuring
timely identification and provisioning for bad loans.

- It mandates banks to implement effective resolution mechanisms, including restructuring, asset

sale, and recovery efforts to reduce NPAs and improve asset quality.

3. **Enhanced Supervision and Oversight**:

- The amendment strengthens RBI's supervisory and oversight functions, particularly in monitoring
banks' asset quality, capital adequacy, and risk management practices.

- It emphasizes proactive measures to prevent the accumulation of NPAs and promotes early
intervention to address emerging financial risks.

4. **Resolution Mechanisms**:

- The ordinance facilitates the implementation of various resolution mechanisms, including the
Insolvency and Bankruptcy Code (IBC), for expeditious resolution of stressed assets and recovery of
dues.

- It aims to improve the efficiency and effectiveness of the banking sector in managing credit risk
and maintaining financial stability.

Overall, both the Banking Regulation Act, 1949, and the Banking Regulation (Amendment)
Ordinance, 2017, play critical roles in regulating and supervising the banking sector, ensuring sound
banking practices, protecting depositor interests, and maintaining the stability of the financial
system. The amendments introduced in 2017 further strengthened regulatory mechanisms to
address emerging challenges and enhance the resilience of banks in managing risks and resolving
financial distress.

Q.3. Write a short note on promissory note.

A promissory note is a legally binding written document where one party (known as the "maker" or
"promisor") promises to pay a specific sum of money to another party (known as the "payee" or
"promisee") at a designated time or on demand. It is a commonly used financial instrument that
facilitates lending and borrowing transactions between individuals, businesses, and financial
institutions.

Here are the key elements and characteristics of a promissory note:

1. **Parties Involved**:

- **Maker/Promisor**: The individual or entity making the promise to pay the money.

- **Payee/Promisee**: The individual or entity to whom the payment is promised.

2. **Promise to Pay**:

- The promissory note includes an unconditional promise by the maker to pay a specific sum of
money.

- The amount to be paid is typically mentioned in both numerical and written forms to avoid
ambiguity.

3. **Payment Terms**:

- The note specifies the terms of payment, including the due date (maturity date) when the
payment is to be made.

- In some cases, the note may be payable on demand, meaning the payee can request payment at
any time.

4. **Interest Rate (if applicable)**:

- If the note includes an interest component, the interest rate and the method of calculating
interest should be clearly stated.

- The interest rate can be fixed or variable based on the agreement between the parties.

5. **Repayment Schedule**:

- For notes with multiple payments or installment payments, the repayment schedule outlining the
amounts and due dates of each payment is specified.
 - The total amount to be repaid, including principal and interest (if applicable), is calculated based
on the repayment schedule.

6. **Negotiability**:

- Promissory notes are negotiable instruments, which means they can be transferred or assigned to
another party.

- The transfer of a promissory note involves endorsement (signing on the back of the note) and
delivery to the new holder, making it a legally enforceable obligation for the new holder.

7. **Legal Enforceability**:

- A properly executed promissory note is legally enforceable, and the payee can take legal action to
recover the amount owed if the maker defaults on payment.

- The note serves as evidence of the debt and the terms of repayment agreed upon by the parties.

Promissory notes are commonly used in various financial transactions, such as loans between
individuals, business financing, real estate transactions, and commercial transactions. They provide a
formal and structured means of documenting loan agreements, clarifying payment terms, and
establishing legal obligations between parties involved in financial transactions.

Q.4. Explain central banking functions of RBI under the Reserve Bank of India Act, 1934?
The Reserve Bank of India (RBI) plays a pivotal role in the Indian economy through its central banking
functions as outlined in the Reserve Bank of India Act, 1934. These functions are essential for
maintaining monetary stability, promoting economic growth, and ensuring the smooth functioning
of the financial system. Here's an explanation of the central banking functions of RBI under the Act:

1. **Issuance and Regulation of Currency**:

- The RBI has the sole authority to issue currency notes (except for one rupee notes and coins,
which are issued by the Government of India).

- It regulates the circulation and supply of currency to maintain price stability and prevent
counterfeiting.

2. **Monetary Policy Formulation and Implementation**:

- RBI formulates and implements monetary policy to achieve macroeconomic objectives such as
price stability, economic growth, and employment generation.

- It uses tools like repo rate, reverse repo rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio
(SLR), and Open Market Operations (OMOs) to influence money supply, credit availability, and
interest rates in the economy.
3. **Banker to the Government**:

- RBI acts as the banker, agent, and advisor to the Government of India and state governments for
managing their finances, transactions, and public debt.

- It handles government accounts, facilitates government borrowing through auctions of

government securities, and manages the government's cash balances.

4. **Banker's Bank and Lender of Last Resort**:

- RBI serves as the banker to banks, providing them with various banking services such as
maintaining their accounts, facilitating fund transfers, and providing liquidity support.

- It acts as the lender of last resort by extending credit to banks facing temporary liquidity
shortages to maintain financial stability and prevent systemic crises.

5. **Regulator and Supervisor of the Banking System**:

- RBI regulates and supervises banks, financial institutions, and non-banking financial companies
(NBFCs) to ensure their financial soundness, compliance with prudential norms, and protection of
depositor interests.

- It issues licenses, sets capital adequacy requirements, conducts inspections, and enforces
regulatory guidelines to maintain the stability and integrity of the banking system.

6. **Foreign Exchange Management**:

- RBI manages India's foreign exchange reserves and formulates policies related to foreign
exchange transactions, capital flows, and exchange rate management.

- It regulates foreign exchange markets, authorizes foreign exchange transactions, and intervenes
in forex markets to maintain external stability and competitiveness.

7. **Developmental Role**:

- RBI plays a developmental role by promoting financial inclusion, enhancing payment and
settlement systems, fostering credit delivery to priority sectors, and supporting development
initiatives through specialized institutions like NABARD, SIDBI, and NHB.

8. **Consumer Protection**:

- RBI ensures consumer protection in banking and financial services by promoting transparency,
fair practices, and grievance redressal mechanisms.

- It oversees initiatives such as the Banking Ombudsman Scheme and guidelines for customer
service to safeguard the interests of bank customers.
Overall, these central banking functions of RBI under the Reserve Bank of India Act, 1934, are crucial
for maintaining monetary stability, fostering economic growth, regulating the financial system, and
protecting the interests of various stakeholders in the Indian economy.