UNIT - 1
1) Explain the Origin of Banking
Banking in India forms the base for the economic development of the country.
Major changes in the banking system and management have been seen over the
years with the advancement in technology, considering the needs of people.
Pre Independence-Period (1786-1947)
The first bank of India was the “Bank of Hindustan”, established in 1770 and
located in the then Indian capital, Calcutta. However, this bank failed to work and
ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the
country, but only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were established in
India. They were:

The General Bank of India (1786-1791)

Oudh Commercial Bank (1881-1958)

Bank of Bengal (1809)

Bank of Bombay (1840)

Bank of Madras (1843)
During the British rule in India, The East India Company had established three
banks: Bank of Bengal, Bank of Bombay and Bank of Madras and called them the
Presidential Banks. These three banks were later merged into one single bank in
1921, which was called the “Imperial Bank of India.”
The Imperial Bank of India was later nationalised in 1955 and was named The
State Bank of India, which is currently the largest Public sector Bank.
Bank Name
Year of Establishment
Allahabad Bank
1865
Punjab National Bank
1894
Bank of India
1906
Central Bank of India
1911
Canara Bank
1906
Bank of Baroda
1908
Post-Independence Period (1947-1991)
At the time when India got independence, all the major banks of the country were
led privately which was a cause of concern as the people belonging to rural areas
were still dependent on money lenders for financial assistance. With an aim to
solve this problem, the then Government decided to nationalise the Banks. These
banks were nationalised under the Banking Regulation Act, 1949. Whereas, the
Reserve Bank of India was nationalised in 1949.Following it was the formation of
State Bank of India in 1955 and the other 14 banks were nationalised between the
time duration of 1969 to 1991. These were the banks whose national deposits were
more than 50 crores.
Given below is the list of these 14 Banks nationalised in 1969:
1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10.Punjab National Bank
11.Syndicate Bank
12.Union Bank of India
13.United Bank
14.UCO Bank
In the year 1980, another 6 banks were nationalised, taking the number to 20
banks. These banks included:
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank
Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI
which were nationalised in 1959:
1. State Bank of Patiala
2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore
All these banks were later merged with the State Bank of India in 2017, except for
the State Bank of Saurashtra, which merged in 2008 and State Bank of Indore,
which merged in 2010.
Impact of Nationalization
There were various reasons why the Government chose to nationalise the banks.
Given below is the impact of Nationalising Banks in India:

This led to an increase in funds and thereby increasing the economic
condition of the country

Increased efficiency

Helped in boosting the rural and agricultural sector of the country

It opened up a major employment opportunity for the people

The Government used profit gained by Banks for the betterment of the
people

The competition decreased, which resulted in increased work efficiency
Liberalization Period (1991-Till Date)
Once the banks were established in the country, regular monitoring and regulations
need to be followed to continue the profits provided by the banking sector. The last
phase or the ongoing phase of the banking sector development plays a hugely
significant role.
To provide stability and profitability to the Nationalised Public sector Banks, the
Government decided to set up a committee under the leadership of Shri. M
Narasimha to manage the various reforms in the Indian banking industry.
The biggest development was the introduction of Private sector banks in India. RBI
gave license to 10 Private sector banks to establish themselves in the country.
These banks included:
1. Global Trust Bank
2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10.Development Credit Bank
The other measures taken include:

Setting up of branches of the various Foreign Banks in India

No more nationalization of Banks could be done

The committee announced that RBI and Government would treat both public
and private sector banks equally

Any Foreign Bank could start joint ventures with Indian Banks

Payments banks were introduced with the development in the field of
banking and technology

Small Finance Banks were allowed to set their branches across India

A major part of Indian banking moved online with internet banking and apps
available for fund transfer
2) Explain the Functions of Reserve Bank of India?

Monetary Authority: Formulates, implements and monitors the monetary
policy for A) maintaining price stability, keeping inflation in check; B)
ensuring adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system: lays out parameters of
banking operations within which the country’s banking and financial system
functions for- A) maintaining public confidence in the system, B) protecting
depositors’ interest; C) providing cost-effective banking services to the
general public.

Regulator and supervisor of the payment systems: A) Authorises setting
up of payment systems; B) Lays down standards for working of the payment
system; C) lays down policies for encouraging the movement from paperbased payment systems to electronic modes of payments. D) Setting up of
the regulatory framework of newer payment methods. E) Enhancement of
customer convenience in payment systems. F) Improving security and
efficiency in modes of payment.

Manager of Foreign Exchange: RBI manages forex under the FEMAForeign Exchange Management Act, 1999. in order to A) facilitate external
trade and payment B) promote the development of foreign exchange market
in India.

Issuer of currency: RBI issues and exchanges currency as well as destroys
currency & coins not fit for circulation to ensure that the public has an
adequate quantity of supplies of currency notes and in good quality.

Developmental role: RBI performs a wide range of promotional functions
to support national objectives. Under this its setup institutions like
NABARD, IDBI, SIDBI, NHB, etc.

Banker to the Government: performs merchant banking function for the
central and the state governments; also acts as their banker.

Banker to banks: An important role and function of RBI is to maintain the
banking accounts of all scheduled banks and acts as the banker of last resort.

An agent of Government of India in the IMF.
3) Briefly elaborate the Banking Regulation Act 1949
Evolution of Central Bank
The classical function of a Central Bank in a county is to control the currency and
credit of that country and to mobilise its reserves, but the constitutional structure
and powers vary in details according to the prevailing economic conditions, the
organisation of money and capital market, etc., in a country. A Central Banking
Institution has to stimulate banking enterprises in the country. The Reserve Bank’s
which a Central Bank of the country, first duty is to see that the banking business is
carried on sound principles as well as to help the provision of banking facilities all
over the country. The present activities of Reserve bank combine traditional
Central Banking functions with developmental activities and the dynamic role
players by it in national economy and has also been instrumental in the planned
development of the county. With the advent of the privatisation and globalisation
the role and the duty of the Reserve Bank has increased in stabilising the inflation
by control of flow of money and other credit control. Central Bank is an apex of
the monetary and banking structure, supervising the activities of the commercial
banks and other financial institutions, exercising the sole right of note issue,
working as a banker to the banker and supervising credit system of the nation. It
occupies a central pivotal position in the monetary and banking of the nation.
The Banking Regulation Act, 1949 is one of the important legal frame works.
Initially the Act was passed as Banking Companies Act,1949 and it was changed to
Banking Regulation Act 1949. Along with the Reserve Bank of India Act 1935,
Banking Regulation Act 1949 provides a lot of guidelines to banks covering wide
range of areas. Some of the important provisions of the Banking Regulation Act
1949 are listed below.
– The term banking is defined as per Sec 5(i) (b), as acceptance of deposits of
money from the public for the purpose of lending and/or investment. Such deposits
can be repayable on demand or otherwise and withdraw able by means of cheque,
drafts, order or otherwise
– Sec 5(i)(c) defines a banking company as any company which handles the
business of banking
– Sec 5(i)(f) distinguishes between the demand and time liabilities, as the liabilities
which are repayable on demand and time liabilities means which are not demand
liabilities – Sec 5(i)(h) deals with the meaning of secured loans or advances.
Secured loan or advance granted on the security of an asset, the market value of
such an asset in not at any time less than the amount of such loan or advances.
Whereas unsecured loans are recognized as a loan or advance which is not secured
– Sec 6(1) deals with the definition of banking business – Sec 7 specifies banking
companies doing banking business in India should use at least on work bank,
banking, banking company in its name
– Banking Regulation Act through a number of sections restricts or prohibits
certain activities for a bank.
For example:
(i) Trading activities of goods are restricted as per Section 8
(ii) Prohibitions: Banks are prohibited to hold any immovable property subject to
certain terms and conditions as per Section 9 . Further, a banking company cannot
create a charge upon any unpaid capital of the company as per Section 14. Sec
14(A) stipulates that a banking company also cannot create a floating charge on the
undertaking or any property of the company without the prior permission of
Reserve Bank of India
(iii) A bank cannot declare dividend unless all its capitalized expenses are fully
written off as per Section 15
Functions of a Central Bank:
1. Issuing of currency notes
2. Banker to Government
3. Custodian on cash reserves of commercial banks
4. Custodian of foreign exchange
5. Lender of last resort
6. Bank of central clearance
7. Controller of credit
The Reserve Bank of India, which is the central bank of our nation, was
established in 1935 under R.B.I. Act 1934. It took over the currency issue authority
and credit control from the then Imperial Bank of India. The Bank was
nationalized in 1948.
4) What are the Measure of Credit Control?
Credit control is most important function of Reserve Bank of India. Credit control
in the economy is required for the smooth functioning of the economy. By using
credit control methods RBI tries to maintain monetary stability. There are two
types of methods:
 Quantitative control to regulates the volume of total credit.
 Qualitative Control to regulates the flow of credit
Here is a brief description of the quantitative and qualitative measures of credit
control used by RBI.
Quantitative Measures
The quantitative measures of credit control are as follows:
Bank Rate Policy
The bank rate is the Official interest rate at which RBI rediscounts the approved
bills held by commercial banks. For controlling the credit, inflation and money
supply, RBI will increase the Bank Rate.
Open Market Operations
Open Market Operations refer to direct sales and purchase of securities and bills in
the open market by Reserve bank of India. The aim is to control volume of credit.
Cash Reserve Ratio
Cash reserve ratio refers to that portion of total deposits in commercial Bank which
it has to keep with RBI as cash reserves.
Statutory Liquidity Ratio
SLR refers to that portion of deposits with the banks which it has to keep with
itself as liquid assets (Gold, approved govt. securities etc.) If RBI wishes to control
credit and discourage credit it would increase CRR & SLR.
Qualitative Measures
Qualitative measures are used by the RBI for selective purposes. Some of them are
Margin requirements
This refers to difference between the securities offered and amount borrowed by
the banks.
Consumer Credit Regulation
This refers to issuing rules regarding down payments and maximum maturities of
instalment credit for purchase of goods.
RBI Guidelines
RBI issues oral, written statements, appeals, guidelines, warnings etc. to the banks.
Rationing of credit
The RBI controls the Credit granted / allocated by commercial banks.
Moral Suasion
Psychological means and informal means of selective credit control.
Direct Action
This step is taken by the RBI against banks that don’t fulfil conditions and
requirements. RBI may refuse to rediscount their papers or may give excess credits
or charge a penal rate of interest over and above the Bank rate, for credit demanded
beyond a limit.
UNIT - 2
1) ROLE OF COMMERCIAL BANKS
Commercial banks are one source of financing for small businesses. The role of
commercial banks in economic development rests chiefly on their role as financial
intermediaries. In this capacity, commercial banks help drive the flow of
investment capital throughout the marketplace. The chief mechanism of this capital
allocation in the economy is through the lending process which helps commercial
banks.
Risk: One of the most significant roles of commercial banks in economic
development is as arbiters of risk. This occurs primarily when banks make loans to
businesses or individuals. For instance, when individuals apply to borrow money
from a bank, the bank examines the borrower's finances, including income, credit
score and debt level, among other factors. The outcome of this analysis helps the
bank gauge the likelihood of borrower default. By weeding out risky borrowers,
commercial banks lessen the risk of financial losses.
Small Business: Commercial banks also finance business lending in a variety of
ways. A business owner may solicit a loan to finance the start-up costs of a small
business. Once funded, the small business may begin operations and embark on a
growth plan. The aggregate effect of small business activity generates a significant
portion of employment around the country.
Wealth.: Commercial banks also offer types of accounts to hold or generate
individual wealth. In turn, the deposits commercial banks attract with account
services are used for lending and investment. For example, commercial banks
commonly attract deposits by offering a traditional menu of savings and checking
accounts for businesses and individuals. Similarly, banks offer other types of timed
deposit accounts, such as money market accounts and certificates of deposit.
Government Spending: Commercial banks also support the role of the federal
government as an agent of economic Development. Generally, commercial banks
help fund government spending by purchasing bonds issued by The Department of
the Treasury. Both long- and short-term Treasury bonds help finance government
Operations, programs and support deficit spending.
Commercial banks have come to play a significant role in the development of
countries. Here we shall deal with the important services provided by commercial
banks and show how banks play a significant role in the economic development of
a nation.
(1) Banks are necessary for trade and industry: All economic progress in the
last 200 years or so has been based on extensive trade and industrialization, which
could not have taken place without the use of money. In all large transactions,
payments are not made in terms of money but in terms of cheques and drafts.
Between countries, trade is financed through bills of exchange which are
discounted (i.e., bought) by banks.
(2) Banks help in distribution of funds between regions: Another way by which
commercial banks encourage production and enhance national income is by the
transference of surplus capital from regions where it is not wanted so much to
those regions where it can be more usefully and efficiently employed.
(3) Banks create credit and help in business expansion: Fluctuations in bank
credit have an important bearing on the level of economic activity. Expansion of
bank credit will provide more funds to entrepreneurs and, hence, will lead to more
investment.
(4) Banks monetize debt: A very important service that banks render to the
community is the creations of demand deposits in exchange of debts of other which
(viz., short and long- term securities). Commercial banks buy debts of others
which are not generally acceptable as money, either because the debtors are not
sufficiently known or because their debt is payable only after a period of time.
(5) Bank promotes capital formation: Commercial banks afford facilities for
saving and thus encourage habits of thrift and industry among people. They
mobilize the idle and dormant capital of the community and make it available for
productive purposes. Economic developments depend upon the diversion of
economic resources from consumption to capital formation.
(6) Banks influence interest rates: Bank can influence economic activity in
another way also.They can influence the rate of interest in the money market
through its supply of funds. By offering more or less funds, it can exert a powerful
influence upon interest rates. In a developing country like India, banking facilities
are highly inadequate. The vast number of people living in villages and towns do
not have any banking facilities and consequently all their savings are wasted. Thus,
banks have come to occupy an important place in the industrial and commercial
life of a nation. A developed banking organization is a necessary condition for the
industrial development of country.
2) Distinguish Between the Advantages and Disadvantages of Cooperative
Banks ?
Advantages of Co-operative Banks
The Co-operative banks have acted as a boon to various sectors of Indian society
and also played an important role in the development of the economy.
Given below are a few advantages of the Co-operative Banks in India:

These banks have provided aid to the rural population by granting loans and
credits with interest rates, lower in comparison to that asked by local money
lenders

They have their reach at every corner of the country and have managed to
maintain a personal rapport with the customers

Since the bank is owned and governed by the members themselves, they do
not seek huge profits and believe in mutual help

The interest rate on deposits is high and on loans is low

They promote productive borrowing, in order to reduce the risk of loss

Co-operative Banks have helped the farmers by providing them agricultural
credits to buy basic products like fertilizer, seeds, etc.
Disadvantages of Co-operative Banks
Discussed below are a few disadvantages of the Co-operative Banks in India:

To lend money, they need investors which are tough to find

Over the years, the number of NPAs and overdues have been increasing

Since the lack of investors and money, few of them have not been delivering
the credits and money to the rural population

Rather than small industrialists, the benefits from Co-operative Banks have
been enjoyed by rich landowners

The Co-operative Banks across the country are not equally developed. A few
states have more functioning and beneficial units, while some states have
faced loss

Political interference has also been observed in these banks

With new types of banks opening up, the Co-operative Banks are facing the
risk of losing their customers
3) What are the Functions of Development of Banks ?
Functions of development banks
1. Financial Gap Fillers:
Development banks do not provide medium-term and long-term loans only but
they help
industrial enterprises in many other ways too. These banks subscribe to the bonds
and debentures of the companies, underwrite their shares and debentures and,
guarantee the loans raised from foreign and domestic sources. They also help
undertakings to acquire machinery from within and outside the country.
2. Undertake Entrepreneurial Role:
Developing countries lack entrepreneurs who can take up the job of setting up new
projects. It may be due to a lack of expertise and managerial ability. Development
banks were assigned the job of entrepreneurial gap filling. They undertake the task
of discovering investment projects, promotion of industrial enterprises, provide
technical and managerial assistance, undertaking economic and technical research,
conducting surveys, feasibility studies, etc. The promotional role of the
development bank is very significant for increasing the pace of industrialization.
3. Commercial Banking Business:
Development banks normally provide medium and long-term funds to industrial
enterprises. The working capital needs of the units are met by commercial banks.
In developing countries, commercial banks have not been able to take up this job
properly. Their traditional approach in dealing with lending proposals and
assistance on securities has not helped the industry.
4. Joint Finance:
Another feature of the development bank’s operations is to take up joint financing
along with other financial institutions. There may be constraints of financial
resources and legal problems (prescribing maximum limits of lending) which may
force banks to associate with other institutions for taking up the financing of some
projects jointly.
5. Refinance Facility:
Development banks also extend the refinance facility to the lending institutions. In
this scheme, there is no direct lending to the enterprise. The lending institutions are
provided funds by development banks against loans extended’ to industrial
concerns.
6. Credit Guarantee:
The small-scale sector is not getting proper financial facilities due to the clement of
risk since these units do not have sufficient securities to offer for loans, lending
institutions are hesitant to extend the loans. To overcome this difficulty many
countries including India and Japan have devised the credit guarantee scheme and
credit insurance scheme.
7. Underwriting of Securities:
Development banks acquire securities of industrial units through either direct
subscribing or underwriting or both. The securities may also be acquired through
promotion work or by converting loans into equity shares or preference shares. So,
as learn about development banks may build portfolios of industrial stocks and
bonds.
UNIT – 3
1) List out the features of saving Account?
Saving Account
Savings account refers to an account that is meant for people who keep their saving
to fulfill their financial requirements in future. It allows to earn interest on the
balance maintained.
Features of Saving Account
The main features of saving account in bank are as follows:
1. The main objective of saving account is to promote savings.
2. There is no restriction on the number and number of deposits. However, in
India, mandatory PAN (Permanent Account Number) details are required to be
furnished for doing cash transactions exceeding र50, 000.
3. Withdrawals are allowed subject to certain restrictions.
4. The money can be withdrawn either by cheque or withdrawal slip of the
respective bank.
5. The rate of interest payable is very nominal on saving accounts. At present it is
between 4% to 6% p.a in India.
6. Saving account is of continuing nature. There is no maximum period of holding.
7. A minimum amount has to be kept on saving account to keep it functioning.
8. No loan facility is provided against saving account.
9. Electronic clearing System (ECS) or E-Banking are available to pay electricity
bill, telephone bill and other routine household expenses.
10. Generally, equated monthly installments (EMI) for housing loan, personal loan,
car loan, etc., are paid (routed) through saving bank account.
11. It provides a facility such as Electronic fund transfer (EFT) to other people's
accounts.
12. It helps to do online shopping via facility like internet banking.
13. It aids to keep records of all online transactions carried on by the account
holder.
14. It provides immediate funds as and when required through ATM.
15. The bank offers number of services to the saving account holders.
2) List out the types of Bank Deposits?
Savings Bank Account:
As the name of this deposit suggests, it is suitable for those who have a definite
income and want to save some money. To understand this let us take an example:
the regular salaried people incline savings account and it is best suited for them as
well. Generally, for opening a savings bank account, you have to deposit a small
amount as an initial deposit, which varies from bank to bank.
You can deposit money at any time in your savings account. The interest is earned
as per the rate of interest offered by the bank and is paid on the balance in your
account. You can deposit money in this account anytime. For withdrawing money
from this account, you can either use an ATM card, issue a cheque, or sign a
withdrawal form. Generally, there is a restriction on the number and amount of
withdrawal from the savings account.
Current Account:
A type of bank account that has lesser restrictions than a savings account in terms
of transactions and withdrawals is known as a current account. Another name of
the current account is a demand deposit account and is most of the opted by the
businessmen for conducting their transactions smoothly.
You should select this account type only if you are a businessman (even if an
owner of a small business) who has to perform multiple transactions daily. There is
no limit on the number of transactions from this account in one day. The overdraft
facility is also offered by the banks to its account holders.
This means, as an account holder of such an account, you can withdraw more
money than that is in your account. In addition to this, there is no restriction to
maintain a minimum balance in this account. The biggest disadvantage of having a
current account is that the banks do not pay any interest on them and for
maintenance and service bank charges hefty fees.
Recurring Deposit:
A special type of account wherein you do not have to deposit a lump sum amount
rather you have to deposit a fixed amount every month. This fixed amount can be
as low as Rs. 100 every month. When you want to incorporate a habit of savings,
then you should open this account. The rate of interest offered on a current deposit
varies from bank to bank and may range from 5% to 7% and different rates are
provided to the senior citizens.
A recurring deposit can have different maturity ranges that may vary from six
months to 120 months. You can give an order to your bank for withdrawing a
specific amount every month, and this amount can be credited to the Recurring
Deposit account regularly. However, the bank can charge some penalty for delay in
an installment payment.
Another special feature of an RD account is that you can take a loan up to 80% to
90% of your deposit by the use of this deposit. There is no facility for premature
withdrawal, and if you close your recurring deposit account before the date of
maturity, then you have to pay the penalty.
Fixed Deposit:
The fixed deposit is a type of investment instrument offered by banks, other
financial institutions, non-banking financial companies. With a fixed deposit, your
money is deposited for a fixed tenure and you get guaranteed returns. The interest
on fixed deposits ranges from 5% to 9%. The rate of interest offered in a fixed
deposit account is higher than what is provided in a savings account.
The tenure for which your money gets deposited in a fixed deposit ranges from
seven days to 10 years. You may or may not have to have a separate account for
opening a fixed deposit account with a bank. Some banks these days offer fixed
deposits that provide tax exemption of up to Rs. 1, 50,000. You can use this tax
exemption every year U/S 80C of the Income Tax Act, 1961.
Another advantage of opening a Fixed Deposit account is that the interest amount
below Rs. 40,000 is free from tax. The interest amount is more than Rs. 40,000 is
subject to TDS (Tax Deduction at Source). Same as recurring deposit, you cannot
perform a premature withdrawal, however, you can shut-down the FD account
prematurely.
3) What are the Steps to follow before closing a bank account?
 Stop all automatic debits first
Before you proceed to close your bank account, you need to de-link other debits or
relationships. This includes closing any securities trading account linked with it,
and primary and secondary credit cards issued by the bank linked with this savings
bank account. In case your old bank account is linked to repay monthly loan
instalments or invest in recurring deposits, you need to provide a new alternative
bank account number for your lender or recurring deposit providing institution to
debit. You can provide these details while filling a de-linking account form issued
by the bank at the time of account closure. It will take you approximately a week to
10 days to close your other relationships connected with the bank account you wish
to close. Only after all those are done can you proceed with closing your bank
account.
 Submit account closure form
To carry out the account closure process, an account holder needs to visit the
branch personally. At the branch, you need to submit an account closure form
along with the de-linking form, unused cheque book and debit card. In the form,
you need to mention the reason for the closure of the bank account. You can also
submit a letter to the branch manager with your account details, stating the reason
for the closure of account. In the case of a joint account, the form or letter should
be signed by all account holders. Also, provide details of an alternative account to
transfer the funds in the bank account. You can also choose to take a demand draft
or opt for national electronic fund transfer (NEFT), etc. as mode of payment while
closing an account. In case the balance in the account is less than Rs 20,000 it can
be paid in cash during the closure process. After successfully closing an account,
maintain the last bank account statement that states the date of closure, for future
reference.
 Update your new account details
In case you close your old salary account, then update the employer with the new
account details for future credit. Similarly, if you were earning pension income
from government service after retirement in the account just closed, you need to
inform and update your government employer of the change in account details.
If you had linked your utility bill payments with the bank account just closed, you
need to provide the new bank account’s details for pre-authorised debit to continue.
 Be aware of closure charges
Banks don’t charge customers in case savings accounts are closed within 14 days
of opening. But, account closure after 14 days, but before one year is charged by
most banks. So it is important to choose your bank wisely. For instance, SBI
charges Rs 500 from customers who close accounts after 14 days of opening, but
close it before one year. After, completion of one year, there are no charges for
account closure levied by SBI. Banks levy these account closure charges from
customers to recover the costs incurred in opening accounts and issuing cheque
books and debit cards.
4) Mention the Nonperforming Asset (NPA) and its types in detail ?
What Is a Nonperforming Asset (NPA)?
A non performing asset (NPA) refers to a classification for loans or advances that
are in default or in arrears. A loan is in arrears when principal or interest payments
are late or missed. A loan is in default when the lender considers the loan
agreement to be broken and the debtor is unable to meet his obligations.
Types of Nonperforming Assets (NPA)
Although the most common nonperforming assets are term loans, there are other
forms of nonperforming assets as well.

Overdraft and cash credit (OD/CC) accounts left out-of-order for more than
90 days

Agricultural advances whose interest or principal installment payments
remain overdue for two crop/harvest seasons for short duration crops or
overdue one crop season for long duration crops

Expected payment on any other type of account is overdue for more than 90
days
Recording Nonperforming Assets (NPA)
Banks are required to classify nonperforming assets into one of three categories
according to how long the asset has been nonperforming: sub-standard assets,
doubtful assets, and loss assets.
A substandard asset is an asset classified as an NPA for less than 12 months. A
doubtful asset is an asset that has been nonperforming for more than 12
months. Loss assets are loans with losses identified by the bank, auditor, or
inspector that need to be fully written off. They typically have an extended period
of non-payment, and it can be reasonably assumed that it will not be repaid.
Special Considerations
Recovering Losses
Lenders generally have four options to recoup some or all losses resulting from
nonperforming assets. When companies struggle to service their debt, lenders may
take proactive steps to restructure loans to maintain cash flow and avoid
classifying the loan as nonperforming altogether. When loans in default
are collateralized by the borrower's assets, lenders can take possession of the
collateral and sell it to cover losses.
Lenders can also convert bad loans into equity, which may appreciate to the point
of full recovery of principal lost in the defaulted loan. When bonds are converted
to new equity shares, the value of the original shares is usually eliminated. As a
last resort, banks can sell bad debts at steep discounts to companies that specialize
in loan collections. Lenders typically sell defaulted loans that are unsecured or
when other methods of recovery are deemed to not be cost-effective.
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5) Difference Between Secured and Unsecured Loan (Secured vs Unsecured
loan)
What is a Secured Loan?
A secured loan is a loan given out by a financial institution wherein an asset is
used as collateral or security for the loan. For example, you can use your house,
gold, etc., to avail a loan amount that corresponds to the asset’s value. In the case
of a secured loan, the bank or financial institution that is dispensing the loan will
hold on to the ownership deed of the asset until the loan is paid off.
Examples of secured loans
 Loan
against property
 Home equity line of credit
 Car loan
What is an Unsecured Loan?
Unsecured loans, like the name suggests, is a loan that is not secured by a collateral
such as land, gold, etc. These loans are comparatively riskier to a lender and
therefore associated with a high interest rate. When a lender releases an unsecured
loan, he does so after evaluating your financial status and assessing whether or not
you are capable of repaying your loan.
Examples of unsecured loans
 Credit
cards
 Personal loans
 Student loans
 The most important difference between a secured and unsecured loan is the
collateral required to attain the loan. A secured loan requires you to provide
the lender with an asset that will be used as a collateral for the loan. Whereas
and unsecured loan doesn’t require you to provide an asset as collateral in
order to attain a loan.
 Another key difference between a secured and unsecured loan is the rate of
interest. Secured loans usually have a lower rate of interest when compared
to an unsecured loan. This is because unsecured loans are considered to be
risker loans by lenders than secured loans.
 Secured loans are easier to obtain while unsecured loans are harder to obtain,
as it is less risker for a banker to dispense a secured loan.
 Secured loans usually have longer repayment periods when compared to
unsecured loans. In general, secured loans offer a borrower a more desirable
contract that an unsecured loan would.
 Secured loans are easier to obtain for the mere fact that they are less risky
for a lender to give out, while unsecured loans are comparatively harder to
obtain.
UNIT – 4
1) What are the Essential Features of a Valid Cheque?
If one takes a close look at the definition of a cheque, it becomes clear that a
cheque has the following 10 essential elements or characteristics
1. Instrument in writing: A cheque must be in writing. An oral order to pay does
not constitute a cheque.
2. It should be drawn on banker: It is always drawn on a specified banker. A
cheque can be drawn on a bank where the drawer has an account, saving bank, or
current.
3. unconditional: A cheque is an order to pay and it is not a request. The order must
be unconditional.
4. The check must have an order to pay a certain sum: The cheque should contain
an order to pay a certain sum of money only. If a cheque is drawn to do something
in addition to, or other than to pay money, it cannot be a cheque.
5. It should be signed by the drawer and should be dated: A cheque does not carry
any validity unless signed by the original drawer. It should be dated as well.
6. It is payable on demand: A cheque must be an order to pay a certain sum of
money on demand but it is not necessary to the word ‘on demand ‘ or equivalent
words.
7. Validity: A cheque is normally valid for six months from the date it bears.
Thereafter it is termed as stale cheque. A post-dated or antedated cheque will not
be invalid. In both cases, the validity of the cheque is presumed to commence from
the date mentioned on it.
8. It may be payable to the drawer himself: Cheques may be payable to the drawer
himself/herself. It may be drawn payable to bearer on demand unlike a bill or a
pro-note.
9. Specific banker only: A cheque is always drawn only on a particular banker.
Usually, the name & address of the banker is clearly printed on the cheque leaf
itself.
10. It does not require acceptance and stamp: Unlike a bill of exchange, a cheque
does not require acceptance on part of the drawee. There is, however, a custom
among banks to mark cheques as ‘good’ for the purpose of clearance. But this
marking is not an acceptance. Similarly, no revenue stamp is required to be affixed
on cheques.
2) Explain the Crossing of a cheque?
Crossing is an ‘instruction’ given to the paying banker to pay the amount of the
cheque through a banker only and not directly to the person presenting it at the
counter. A cheque bearing such an instruction is called a ‘crossed cheque’; others
without such crossing are ‘open cheques’ which may be encased at the counter of
the paying banker as well. The crossing on a cheque is intended to ensure that its
payment is made to the right payee.
Section 123 to 131 of the Negotiable Instruments Act contain provisions relating
to crossing. According to Section 131-A, these Sections are also applicable in case
of drafts. Thus not only cheques but bank drafts also may be crossed.
Cheque crossed generally
Where a cheque bears across its face an addition of the words “and company” or
any abbreviation thereof, between two parallel transverse lines, or of two parallel
transverse lines simply, either with or without the words “not negotiable”, that
addition shall be deemed a crossing, and the cheque shall be deemed to be crossed
generally. [S. 123]
Cheque crossed specially
Where a cheque bears across its face an addition of the name of a banker, either
with or without the words “not negotiable”, that addition shall be deemed a
crossing, and the cheque shall be deemed to be crossed specially, and to be crossed
to that banker. [S.124].
Payment of cheque crossed generally or specially
Where a cheque is crossed generally, the banker on whom it is drawn shall not pay
it otherwise than to a banker. Where a cheque is crossed specially, the banker on
whom it is drawn shall not pay it otherwise than to the banker to whom it is
crossed, or his agent for collection. [section 126].
Cheque bearing “not negotiable”
A person taking a cheque crossed generally or specially, bearing in either case the
words “not negotiable”, shall not have, and shall not be capable of giving, a better
title to the cheque than that which the person form whom he took it had. [section
130]. Thus, mere writing words ‘Not negotiable’ does not mean that the cheque is
not transferable. It is still transferable, but the transferee cannot get title better than
what transferor had
“Account Payee” crossing: N.I. Act does not recognize “Account Payee” crossing,
but this is
prevalent as per practice of banks in India. In view of this, RBI has directed banks
that:
(1) Crediting the proceeds of account payee cheques to parties other than that
clearly delineated in the instructions of the issuers of the cheques is unauthorized
and should not be done in any circumstances.
(2) If any bank credits the account of a constituent who is not the payee named in
the cheque without proper mandate of the drawer, it would do so at its own risk
and would be responsible for the unauthorized payment. Reserve Bank has also
warned that banks which indulge in any deviation from the above instructions
would invite severe penal action.
(3) In case of an ‘account payee’ cheque where a bank is a payee, the payee bank
should always ensure that there are clear instructions for disposal of proceeds of
the cheques from the drawer of the cheque. If there are no such instructions, the
cheque should be returned to the drawer. (4) However, with a view to mitigating
the difficulties faced by the members of co-operative credit societies in 106 PPBL&P collection of account payee cheques, relaxation has been extended in
respect of co-operative credit societies. Banks may consider collecting account
payee cheques drawn for an amount not exceeding `50,000/- to the account of their
customers who are co-operative credit societies, if the payees of such cheques are
the constituents of such co-operative credit societies.
Double Crossing
A cheque bearing a special crossing is to be collected through the banker specified
therein. It cannot, therefore, be crossed specially again to another banker, i.e.,
cheque cannot have two special crossings, as the very purpose of the first special
crossing is frustrated by the second one. However, there is one exception to this
rule for a specific purpose. If a banker, to whom the cheque is originally specially
crossed submits it to another banker for collection as its agent, in such a case the
latter crossing must specify that it is acting as agent for the first banker to whom
the cheque is specially crossed.
3) What are the refusal of payment cheques dutiess holder in due course?
A holder is a person in possession of an instrument payable to bearer or to the
identified person possessing it. If a person to whom an instrument is negotiated
becomes nothing more than a holder, the law of commercial paper would not be
very significant, nor would a negotiable instrument be a particularly useful
commercial device.
A mere holder is simply an assignee, who acquires the assignor’s rights but
also his liabilities; an ordinary holder must defend against claims and overcome
defenses just as his assignor would. The holder in due course is really the crux of
the concept of commercial paper and the key to its success and importance. What
the holder in due course gets is an instrument free of claims or defenses by
previous possessors. A holder with such a preferred position can then treat the
instrument almost as money, free from the worry that someone might show up and
prove it defective.
HOLDER
The “holder” of a promissory note, bill of exchange or cheque means any
person entitled in his own name to the possession thereof and to receive or recover
the amount due thereon from the parties thereto. Where the note, bill or cheque is
lost or destroyed, its holder is the person so entitled at the time of such loss or
destruction
HOLDER IN DUE COURSE
“Holder in due course” means any person who for consideration became the
possessor of a promissory note, bill of exchange or cheque if payable to bearer, or
the payee or endorsee thereof, if 9[payable to order], before the amount mentioned
in it became payable, and without having sufficient cause to believe that any defect
existed in the title of the person from whom he derived his title.
REQUIREMENTS FOR BEING A HOLDER IN DUE COURSE
Under Section 3-302 of the Uniform Commercial Code (UCC), to be a
holder in due course (HDC), a transferee must fulfill the following:
1. Be a holder of a negotiable instrument;
2. Have taken it:
a) for value,
b) in good faith,
c) without notice
 that it is overdue or
 has been dishonoured (not paid), or
 is subject to a valid claim or defense by any party, or
 that there is an uncured default with respect to payment of another
instrument issued as part of the same series, or
 that it contains an unauthorized signature or has been altered, and
3. Have no reason to question its authenticity on account of apparent evidence of
forgery, alteration, irregularity or incompleteness.
The point is that the HDC should honestly pay for the instrument and not
know of anything wrong with it. If that’s her status, she gets paid on it, almost no
matter what.
ANALYSIS OF HOLDER-IN-DUE-COURSE REQUIREMENTS
Again, a holder is a person who possesses a negotiable instrument “payable
to bearer or, the case of an instrument payable to an identified person, if the
identified person is in possession.”Uniform Commercial Code, Section 1-201(20).
An instrument is payable to an identified person if she is the named payee, or if it
is indorsed to her. So a holder is one who possesses an instrument and who has all
the necessary indorsements.
TAKEN FOR VALUE
Section 3-303 of the UCC describes what is meant by transferring an
instrument “for value.” In a broad sense, it means the holder has given something
for it, which sounds like consideration. But “value” here is not the same as
consideration under contract law. Here is the UCC language:
An instrument is issued or transferred for value if any of the following apply:
 The instrument is issued or transferred for a promise of performance, to
the extent the promise has been performed.
 The transferee acquires a security interest or other lien in the instrument
other than a lien obtained by judicial proceeding.
 The instrument is issued or transferred as payment of, or as security for,
an antecedent claim against any person, whether or not the claim is due.
 The instrument is issued or transferred in exchange for a negotiable
instrument.
 The instrument is issued or transferred in exchange for the incurring of an
irrevocable obligation to a third party by the person taking the
instrument.
UNIT – 5
1) Explain briefly the E-BANKING?

ATMs (Automated Teller Machines)

Telephone Banking

Electronic Clearing Cards

Smart Cards

EFT (Electronic Funds Transfer) System

ECS (Electronic Clearing Services)

Mobile Banking

Internet Banking

Telebanking

Door-step Banking

Bill payment – Every bank has a tie-up with different utility companies,
service providers, insurance companies, etc. across the country. The banks
use these tie-ups to offer online payment of bills (electricity, telephone,
mobile phone, etc.). Also, most banks charge a nominal one-time registration
fee for this service. Further, the customer can create a standing instruction to
pay recurring bills automatically every month.

Funds transfer – A customer can transfer funds from his account to another
with the same bank or even a different bank, anywhere in India. He needs to
log in to his account, specify the payee’s name, account number, his bank,
and branch along with the transfer amount. The transfer is effected within a
day or so.

Investing – Through electronic banking, a customer can open a fixed deposit
with the bank online through funds transfer. Further, if a customer has a
demat account and a linked bank account and trading account, he can buy or
sell shares online too. Additionally, some banks allow customers to purchase
and redeem mutual fund units from their online platforms as well.

Shopping – With an e-banking service, a customer can purchase goods or
services online and also pay for them using his account. Shopping at his
fingertips.
2) Diffence between the Advantages and Disadvantages of Cryptocurrency?
Cryptocurrencies were introduced with the intent to revolutionize financial
infrastructure. As with every revolution, however, there are tradeoffs involved. At
the current stage of development for cryptocurrencies, there are many differences
between the theoretical ideal of a decentralized system with cryptocurrencies and
its practical implementation.
Some advantages and disadvantages of cryptocurrencies are as follows.
Advantages

Cryptocurrencies represent a new, decentralized paradigm for money. In
this system, centralized intermediaries, such as banks and monetary
institutions, are not necessary to enforce trust and police transactions
between two parties. Thus, a system with cryptocurrencies eliminates the
possibility of a single point of failure, such as a large bank, setting off a
cascade of crises around the world, such as the one that was triggered in
2008 by the failure of institutions in the United States.

Cryptocurrencies promise to make it easier to transfer funds directly
between two parties, without the need for a trusted third party like a bank or
a credit card company. Such decentralized transfers are secured by the use
of public keys and private keys and different forms of incentive systems,
such as proof of work or proof of stake.

Because they do not use third-party intermediaries, cryptocurrency transfers
between two transacting parties are faster as compared to standard money
transfers. Flash loans in decentralized finance are a good example of such
decentralized transfers. These loans, which are processed without backing
collateral, can be executed within seconds and are used in trading.

Cryptocurrency investments can generate profits. Cryptocurrency markets
have skyrocketed in value over the past decade, at one point reaching
almost $2 trillion. As of Dec. 20, 2021, Bitcoin was valued at more than
$862 billion in crypto markets.

The remittance economy is testing one of cryptocurrency's most prominent
use cases. Currently, cryptocurrencies such as Bitcoin serve as intermediate
currencies to streamline money transfers across borders. Thus, a fiat
currency is converted to Bitcoin (or another cryptocurrency), transferred
across borders and, subsequently, converted to the destination fiat currency.
This method streamlines the money transfer process and makes it cheaper.
Disadvantages

Though they claim to be an anonymous form of transaction,
cryptocurrencies are actually pseudonymous. They leave a digital trail that
agencies such as the Federal Bureau of Investigation (FBI) can decipher.
This opens up possibilities of governments or federal authorities tracking
the financial transactions of ordinary citizens.

Cryptocurrencies have become a popular tool with criminals for nefarious
activities such as money laundering and illicit purchases. The case of Dread
Pirate Roberts, who ran a marketplace to sell drugs on the dark web, is
already well known. Cryptocurrencies have also become a favorite of
hackers who use them for ransomware activities.

In theory, cryptocurrencies are meant to be decentralized, their wealth
distributed between many parties on a blockchain. In reality, ownership is
highly concentrated. For example, an MIT study found that just 11,000
investors held roughly 45% of Bitcoin's surging value.

One of the conceits of cryptocurrencies is that anyone can mine them using
a computer with an Internet connection. However, mining popular
cryptocurrencies requires considerable energy, sometimes as much energy
as entire countries consume. The expensive energy costs coupled with the
unpredictability of mining have concentrated mining among large firms
whose revenues running into the billions of dollars. According to an MIT
study, 10% of miners account for 90% of its mining capacity.

Though cryptocurrency blockchains are highly secure, other crypto
repositories, such as exchanges and wallets, can be hacked. Many
cryptocurrency exchanges and wallets have been hacked over the years,
sometimes resulting in millions of dollars worth of "coins" stolen.

Cryptocurrencies traded in public markets suffer from price volatility.
Bitcoin has experienced rapid surges and crashes in its value, climbing to as
high as $17,738 in December 2017 before dropping to $7,575 in the
following months. Some economists thus consider cryptocurrencies to be a
short-lived fad or speculative bubble.
3) Explain the Public Financial Management System?
The Public Financial Management System (PFMS) is a web-based online software
application developed and implemented by the Controller General of Accounts
(CGA), Department of Expenditure, Ministry of Finance, Government of India.
PFMS started during 2009 with the objective of tracking funds released under all
Plan schemes of Government of India, and real time reporting of expenditure at all
levels of Programme implementation. Subsequently, the scope was enlarged to
cover direct payment to beneficiaries under all Schemes. Gradually, it has been
envisaged that digitization of accounts shall be achieved through PFMS and
beginning with Pay & Accounts Offices payments, the O/o CGA did further value
addition by bringing in more financial activities of the Government of India in the
ambit of PFMS. The outputs / deliverables for the various modes / functions of
PFMS include (but are not limited to):

Payment & Exchequer Control

Accounting of Receipts (Tax & Non-Tax)

Compilation of Accounts and Preparation of Fiscal Reports

Integration with Financial Management Systems of States

A financial management platform for all plan schemes, a database of all
recipient agencies, integration with core banking solution of banks handling
plan funds, integration with State Treasuries and efficient and effective
tracking of fund flow to the lowest level of implementation for plan scheme
of the Government.

To provide information across all plan schemes/ implementation agencies in
the country on fund utilization leading to better monitoring, review and
decision support system to enhance public accountability in the
implementation of plan schemes.

To result in effectiveness and economy in Public Finance Management
through better cash management for Government transparency in public
expenditure and real-time information on resource availability and
utilization across schemes. The roll-out will also result in improved
programme administration and management, reduction of float in the
system, direct payment to beneficiaries and greater transparency and
accountability in the use of public funds. The proposed system will be an
important tool for improving governance.
4) Explain the types of blockchain networks?
What is blockchain technology?
Blockchain is a shared, immutable ledger for recording transactions, tracking
assets and building trust. Discover why businesses worldwide are adopting it
 Public blockchain networks
A public blockchain is one that anyone can join and participate in, such as
Bitcoin. Drawbacks might include substantial computational power required,
little or no privacy for transactions, and weak security. These are important
considerations for enterprise use cases of blockchain.
 Private blockchain networks
A private blockchain network, similar to a public blockchain network, is a
decentralized peer-to-peer network. However, one organization governs the
network, controlling who is allowed to participate, execute a consensus
protocol and maintain the shared ledger. Depending on the use case, this can
significantly boost trust and confidence between participants. A private
blockchain can be run behind a corporate firewall and even be hosted on
premises.
 Permissioned blockchain networks
Businesses who set up a private blockchain will generally set up a
permissioned blockchain network. It is important to note that public blockchain
networks can also be permissioned. This places restrictions on who is allowed
to participate in the network and in what transactions. Participants need to
obtain an invitation or permission to join.
 Consortium blockchains
Multiple organizations can share the responsibilities of maintaining a
blockchain. These pre-selected organizations determine who may submit
transactions or access the data. A consortium blockchain is ideal for business
when all participants need to be permissioned and have a shared responsibility
for the blockchain.
 Blockchain security
 Risk management systems for blockchain networks
When building an enterprise blockchain application, it’s important to have a
comprehensive security strategy that uses cybersecurity frameworks, assurance
services and best practices to reduce risks against attacks and fraud.
5) What are the Small Finance Banks in India?
a) Objective:
The objective for these Small Banks is to increase financial inclusion by the
provision of savings vehicles to under-served and unserved sections of the
population, supply of credit to small farmers, micro and small industries, and other
unorganized sector entities through high technology-low cost operations.
b) Registration:
The small bank shall be registered as a public limited company under the
Companies Act, 2013.
c) Committee on Small Banks :
Usha Thorat Committee
d) Validity :
The “in-principle” approval granted will be valid for 18 months to enable the
applicants to comply with the requirements under the Guidelines and fulfill other
conditions as may be stipulated by the RBI.
e) Eligibility:
Resident individuals with 10 years of experience in banking and finance,
companies, and Societies will be eligible as promoters to set up small banks.
NFBCs, microfinance institutions (MFIs), and Local Area Banks (LABs) can
convert their operations into those of a small bank.
f) Capital Requirement:
The minimum paid-up equity capital for small finance banks shall be Rs. 100
crore.
g) Operation:
Small banks will offer both deposits as well as loan products. They cannot set up
subsidiaries to undertake non-banking financial services activities. For the first
three years, 25 percent of branches should be in unbanked rural areas. For the
initial three years, prior approval will be required for branch expansion.
h) Loans & Advances:
The maximum loan size and investment limit exposure to single/group
borrowers/issuers would be restricted to 15 percent of total capital funds. Loans
and advances of up to Rs 25 lakhs, primarily to micro-enterprises, should
constitute at least 50 percent of the loan portfolio.
i) Foreign Shareholding:
The foreign shareholding in the small finance bank would be as per the Foreign
Direct Investment (FDI) policy for private sector banks as amended from time to
time.
AU Small Finance Bank
Equitas Small Finance Bank
ESAF Small Finance Bank
Fincare Small Finance Bank
Jana Lakshmi Small Finance Bank
Capital Small Finance Bank (1st Small Finance Bank)
Ujjivan Small Finance Bank
Utkarsh Small Finance Bank
Suryoday Small Finance Bank
North East Small Finance Bank