Banking Licensing and Credit Control Quiz
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Questions and Answers

Who controls credit in India?

  • Government of India
  • RBI (correct)
  • Indian bank
  • SBI

What is the primary role of RBI in granting loans for agricultural purposes?

  • Short, medium and long term finance (correct)
  • Only short term finance
  • Medium and long term finance
  • Short and medium-term finance only

Which institution serves as the apex in agricultural finance?

  • IDBI
  • EXIM bank
  • RBI
  • NABARD (correct)

What is the main function of development banks?

<p>Providing term finance to industries (A)</p> Signup and view all the answers

When was LIC (Life Insurance Corporation) set up?

<p>1951 (D)</p> Signup and view all the answers

Under which section are negotiable instruments defined?

<p>Section 13 of the Negotiable Instruments Act, 1881 (D)</p> Signup and view all the answers

What is the term for the banking that attracts deposits and lending for only short periods?

<p>Unit banking (D)</p> Signup and view all the answers

Deposit banking is also known as which of the following?

<p>Commercial banking (B)</p> Signup and view all the answers

In India, every scheduled bank has to maintain a cash balance equivalent to all deposit liabilities with RBI, known as _______.

<p>Cash reserve ratio (A)</p> Signup and view all the answers

How many banks were nationalized in 1969 in India?

<p>15 (B)</p> Signup and view all the answers

Which committee recommended the establishment of private sector banks in India?

<p>Narashimham committee (C)</p> Signup and view all the answers

Where did the bill market first develop?

<p>London (D)</p> Signup and view all the answers

In the context of banking, which deposit is most suitable for the trading community?

<p>Current deposit (A)</p> Signup and view all the answers

When a pledge is made, it can be related to which of the following assets?

<p>Book debts (B)</p> Signup and view all the answers

A collecting banker receives statutory protection when he acts as ___.

<p>A holder in due course (A)</p> Signup and view all the answers

When does the law of limitation apply to a savings deposit account?

<p>Demanding it (A)</p> Signup and view all the answers

Among the listed assets, which one is considered the most liquid?

<p>Cash (A)</p> Signup and view all the answers

According to IBA, what is the maximum period for obtaining fixed deposits?

<p>7 years (D)</p> Signup and view all the answers

Who has the authority to cancel the crossing on a cheque?

<p>The paying banker (C)</p> Signup and view all the answers

What is not possible for the payee of a cheque?

<p>To make a specially crossed cheque into generally crossed cheque (D)</p> Signup and view all the answers

Under what condition should a banker not refuse payment of a cheque?

<p>The cheque contains an apparent material alteration not properly authenticated by the drawer (A)</p> Signup and view all the answers

What does the acceptor for honour do?

<p>Bears the liability similar to the person for whose honour he accepts the bill (B)</p> Signup and view all the answers

What is the primary cause of dishonour of a cheque?

<p>Insufficiency of funds in the account (B)</p> Signup and view all the answers

What does REPO facility mean?

<p>Borrowing against securities on repurchase basis (D)</p> Signup and view all the answers

What type of instrument is a negotiable instrument not drawn or made in India called?

<p>Foreign (D)</p> Signup and view all the answers

According to section 19(b) of the banking regulation act, what is the maximum percentage of shares a bank can hold in a company?

<p>25% (B)</p> Signup and view all the answers

What relationship exists between the hirer of a locker and a banker?

<p>Lessee and lessor (A)</p> Signup and view all the answers

When does a debit card holder typically make payments for purchases?

<p>Immediately through his account (C)</p> Signup and view all the answers

What type of information does a credit information report contain?

<p>For taking credit decisions (C)</p> Signup and view all the answers

How can credit information furnished by a credit information company to a bank be used?

<p>For taking credit decisions (B)</p> Signup and view all the answers

Flashcards

Appealing Bank License Cancellation

A banking company whose license has been revoked can appeal to the Indian government for a review.

RBI Credit Control

The Reserve Bank of India (RBI) has the ability to control the amount of credit available in the Indian economy.

RBI Agricultural Finance

The Reserve Bank of India provides loans for agriculture across various timeframes: short-term, medium-term and long-term.

NABARD: Apex Agricultural Finance

NABARD is the primary organization responsible for providing financial support to the agricultural sector in India.

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Development Banks: Funding Growth

Development banks are institutions that provide long-term finance to industries, enabling their growth and development.

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IFCI: Industrial Finance

IFCI, established in 1948, is a key institution that provides financial assistance to industries. It has its headquarters in New Delhi.

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NIDCL: Industrial Development

The National Industrial Development Corporation Ltd., founded in 1954, plays a crucial role in promoting industrial growth in India.

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LIC: Life Insurance

LIC, established in 1956, is a major insurance provider in India, offering life insurance policies.

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ICICI: Industrial Credit and Investment

ICICI, founded in 1955, is a significant financial institution providing credit and investment services for industries.

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Negotiable Instruments

A negotiable instrument is a document that can be transferred from one person to another, like a check or promissory note.

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Maker's Liability on Promissory Note

The person who signs a promissory note, promising to pay, is primarily responsible for repayment.

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Checks: Payable on Demand

A check is always payable on demand, meaning the holder of the check can request payment immediately.

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Commercial Banking: Short-term lending

Commercial banking involves accepting deposits and lending money for short periods. These banks are often called deposit banks.

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Cash Reserve Ratio (CRR)

Every bank that is classified as a scheduled bank must keep a certain percentage of their deposits in reserve with the RBI as mandated by the Cash Reserve Ratio.

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1969 Bank Nationalization

In 1969, the Indian government nationalized 14 major banks, bringing them under government control.

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1980 Bank Nationalization

In 1980, the government nationalized another 6 banks, further expanding its control over the banking sector.

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SBI: Agent of RBI

The State Bank of India (SBI) acts as an agent of the RBI, carrying out tasks like managing government accounts.

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Nayak Committee: Private Sector Banks

The Nayak Committee recommended the establishment of privately-owned banks in India, opening up the banking sector to competition.

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Establishment of RBI

The RBI was established in 1935 as a corporate body with perpetual succession and a common seal, demonstrating its enduring existence.

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Indian Money Market

The Indian money market refers to the market where short-term funds are borrowed and lent, facilitating short-term financing needs.

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Bill Market: Origin and Global Spread

The bill market, where bills of exchange are bought and sold, originated in London and spread globally.

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Garnishee Order: Stopping Payment

A banker's obligation to honor a customer's check can be revoked by a court order called a garnishee order, which freezes the account.

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Cancelling Crossing on a Check

The drawer of a check has the right to remove the crossing markings, potentially making the check payable to cash.

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Unauthenticated Alterations on Checks

If a check has changes that are not properly approved by the drawer, but are clearly visible, the banker should still typically honor the check.

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Acceptor for Honor: Shared Liability

An acceptor for honor takes on the liability of a cheque as if they were the original person who promised to pay.

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Insufficient Funds: Check Dishonor

A check will be dishonored if there is not enough money in the account to cover the requested amount.

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REPO Facility: Borrowing Against Securities

REPO facility allows banks to borrow money by selling securities with a promise to buy them back later.

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Capital Market Exposure for Banks

Banks are limited in their exposure to the capital market, with a maximum allowance of 40% of their net worth.

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Current Deposits: Trading Community

Current deposits are best suited for businesses that need frequent access to their funds, as withdrawals are usually allowed freely.

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Pledge of Shares

Shares of companies can be used as collateral for a loan through a pledge. This means the lender receives the shares if the loan is not repaid.

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Collecting Banker Protection

A collecting banker is protected by law only if they act as a holder in due course, meaning they acquired the instrument in good faith without knowledge of any defects.

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Savings Account: Limitation Period

The legal limit on how long a claim can be made on a savings account starts from the date the money is requested.

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Cash: Most Liquid Asset

Cash is considered the most liquid asset because it can be easily exchanged for other assets without any delays.

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Discounting Bills: Clean Advance

Discounting bills of exchange provides an upfront loan, also called a clean advance, against the future value of the bill.

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SWIFT: International Financial Network

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, a network used for secure international financial transactions.

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NEFT: Electronic Fund Transfer

NEFT stands for National Electronic Fund Transfer, a system enabling electronic transfers of funds within India.

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SBI: State Bank of India

SBI stands for State Bank of India, one of the largest public sector banks in India.

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Foreign Instruments

A negotiable instrument drawn outside India is considered a foreign instrument because it originates from a different country.

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Term Loan: Unsecured

A term loan does not require the borrower to pledge assets as collateral, meaning they rely on the borrower's creditworthiness.

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Bank Shareholding Limit

According to banking regulations, a bank can hold shares in a company up to a maximum of 30% of its total shares.

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Duplicate Demand Draft: Indemnity Bond

To obtain a duplicate demand draft, the original purchaser is required to provide an indemnity bond, assuring the bank they will not make any claims against the original draft.

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Bank Locker: Lessee-Lessor

The relationship between a bank and a customer renting a locker is likened to a lessor-lessee arrangement.

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Debit Card: Immediate Payment

Debit card transactions are typically made directly from the cardholder's account, meaning payment is deducted immediately.

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Credit Information: Credit Decisions

Credit information companies can provide banks with information about a borrower's creditworthiness, which the bank can use to make credit decisions.

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Study Notes

Banking and Finance

  • A banking company whose license is cancelled may appeal to the Central Government.
  • The RBI (Reserve Bank of India) controls credit in India.
  • RBI grants short, medium, and long-term finance for agricultural purposes.
  • The apex institution in agricultural finance is NABARD (National Bank for Agriculture and Rural Development).
  • Development banks are institutions that provide term finance to industries.
  • IFCI (Industrial Finance Corporation of India) was established in 1948 and has its registered office in New Delhi.
  • National Industrial Development Corporation Ltd was established in 1954.
  • LIC (Life Insurance Corporation) was set up in 1956.
  • ICICI (Industrial Credit and Investment Corporation of India) was incorporated in 1955.

Negotiable Instruments

  • Negotiable instruments are defined under Section 13 of the Negotiable Instruments Act, 1881.
  • The maker is primarily liable on a promissory note.
  • A cheque is always payable on demand.
  • The banking which attracts deposits and lending for only short periods is known as commercial banking.
  • Deposit banking is also called commercial banking.

RBI and Banking

  • Every scheduled bank has to maintain with RBI a cash balance equivalent of all the deposit liabilities called the cash reserve ratio.
  • In 1969, 14 banks were nationalized.
  • In 1980, 6 banks were nationalized.
  • The SBI (State Bank of India) acts as an agent of the RBI.
  • The Nayak Committee recommended the establishment of private sector banks in India.
  • RBI was set up in 1935 and has been constituted as a corporate body having perpetual succession and a common seal.
  • The Indian money market is the market in which short-term funds are borrowed and lent.

Banking Operations

  • The bill market first developed in London.
  • The obligation of a banker to honour his customer's cheque is extinguished on receipt of an order of the court, known as a garnishee order.
  • The drawer can cancel the crossing on a cheque.
  • A banker should not refuse payment of a cheque if the cheque contains an apparent material alteration which is not properly authenticated by the drawer.
  • The acceptor for honour bears the liability similar to the person for whose honour he accepts the bill.
  • The cause of dishonour of a cheque must be insufficiency of funds in the account.
  • REPO facility means borrowing against securities on repurchase basis.
  • Aggregate capital market exposure for banks is prescribed as 40% of net worth.
  • The best-suited deposit for the trading community is a current deposit.

Pledge and Security

  • A pledge can be made in respect of shares.
  • A collecting banker is given the statutory protection only when he acts as a holder in due course.
  • The law of limitation applies to a savings deposit account from the date of demanding it.
  • The most liquid asset is cash.

Other Banking Concepts

  • Discounting of bills of exchange is a clean advance.
  • Expansion of SWIFT is Society for Worldwide Interbank Financial Telecommunication.
  • Expansion of NEFT is National Electronic Fund Transfer.
  • Expansion of SBI is State Bank of India.
  • A negotiable instrument not drawn or made in India is called a foreign instrument.
  • A term loan is not secured by a pledge of goods.
  • According to Section 19(b) of the Banking Regulation Act, a bank can hold shares in a company not exceeding 30%.
  • For issuing a duplicate demand draft, the purchaser is required to submit an indemnity bond.
  • The relationship between the hirer of a locker and banker is that of lessee and lessor.
  • A debit card holder makes payment for purchases immediately through his account.
  • Credit information furnished by a credit information company to a bank can be used by it for taking credit decisions.

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Test your knowledge on banking licensing, credit control in India, RBI grants for agricultural purposes, and apex institutions in agricultural finance. Choose the correct options for each question.

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