Situational problems(and solutions)in operational Banking. K.R.Venkateswaran.

Collected ,collated and compiled by

1) Introduction to an account is insisted upon in all types of Accounts. 2) Banks generally insist that the first transaction in a running account should be a cash transaction. with a view to qualifying for statutory protection under section(u/s)131 of the Negotiable instruments Act, 1881 wherein a bank must collect cheque for a customer and a person must first become a customer by deposit of cash before a cheque is accepted for collection. 3) Banks do not open current account in the name of minors because :- a contract with a minor is void ab-initio and an overdraft, if granted even inadvertently, will be incapable of being recovered. 4) For a loan/cash credit/overdraft granted to a partnership: all the partners are liable jointly and severally. 5) The drawee banker would view a cheque as:- a mandate from the customer as well as a negotiable instrument. 6) The negotiable Instruments Act, 1881, allow three days grace on :- usance bills of exchange. (thus there is no grace period in case of demand bills) 7) For all outward bill sent for collection and for all inward bills received for collection, the bank records contra entries:- bills for collection, inward or outward, reflect assets as well as liabilities and the contra entries enable their financial implications to get reflected in the banks system of accounts. 8) The drawer of a cheque has the right to stop its payment by so instructing the bank. In the case of a bank draft:- payment of bank draft cannot be stopped. 9) Match the following securities and the methods of charging them and tick the incorrect pair:a) Banks Fixed Deposit Receipt - Lien b) Immoveable property - Hypothecation. c) Life Insurance Policy - Assignment. d) Goods - Pledge. (in this answer is not given) 10) Savings bank rate has to be uniform for all the banks. 11) What is BPLR? It is Bench Mark prime lending rate.It is fixed by each bank individually. (Now Base Rate has substituted BPLR)

12) In the matter of a Public Limited Company, the term Authorised Capital means the amount of capital which the company is authorized to raise by :- the companys memorandum of association. 13) Mr.X offers partly paid shares in ABC Ltd., with a market value of Rs.30,0000/- and request for a loan of Rs.20,000/- for an approved purpose and with an acceptable repayment programme. The bank:- a) cannot entertain the request as partly paid shares carry with them the element of contingent liability. b) cannot grant the advance as party paid shares are not transferable. 14) In the case of contract of guarantee :- the liability of the guarantor fixes up as soon as the principal commits a default to repay. 15) Authorised dealers in foreign exchange maintain accounts with correspondents/branch offices abroad. Such Accounts are known as:- Nostro Accounts. 16) In preparing a draft, it is customary to keep a carbon with face upward and so that an inverted carbon image of what is written on the face of the draft falls on its reverse:- It is found that it is difficult to alter such drafts chemically. 17) In documentary credit transactions:- all parties deal in documents and not in goods. 18) When certain terms of a letter of credit are ambiguous:- a reference should be made to the bank establishing the letter of credit. 19) On the expiry date of letter of credit, the document could not be negotiated for the banking business could not be transacted because of riots:-the letter of credit is to be treated as expired unless renewed by the opening bank. 20) Balance confirmation letters slips in respect of overdraft/cash credit/loan accounts are required to be stamped because :- these letters slips are acknowledgement of debts which require to be stamped under the Stamp Act, 1899. 21) Introduction of performance budgeting in the banks serves as a tool for:- a systematic analysis of the sources of funds available and their utilization optimally for desired ends. 22) In the matter of a joint stock company, the term negative lien means:- where a company, through its own resolution, is restrained from creating further charge on its assets. 23) In a partnership undertaking, a minor : can be admitted only to the benefits of partnership. 24) In the case of a joint stock company, the registration of a charge with ROC is not compulsory:against the pledge of movable property.

25) Shares of Private limited Companies are not considered as an acceptable security against advances by banks:- because such shares are not easily marketable. 26) A demand draft drawn by another branch of your bank for Rs.50,000/- is presented for payment in clearing. On scrutiny, it is found that the draft does not bear the signature of an authorized official of the drawing branch:- the draft will be returned with the answer drawing branchs signature required. 27) In order to facilitate foreign exchange transactions, foreign banks maintain non-resident rupee accounts with authorized dealers in foreign exchange in India. These accounts are known as:Vostro Accounts. 28) In a Free on Board (FOB) contract, the insurance cover is arranged by:- the buyer. 29)In a Cost and Freight(C&F) contract, the insurance cover is arranged by:- the buyer. 30) In Cost, Insurance and Freight (CIF) Contract, the insurance cover is arranged by:-the seller. 31) Export Credit and Guarantee Corporation of India (ECGCI) provides various types of insurance covers and guarantees to :- exporters and financing banks/institutions. 32) H and W maintain a fixed deposit for Rs.30,000/- at your branch in joint names payable to either or survivor. You receive a letter from H requesting the bank to add the name of S, who is a minor and is the son of H and W. :- The letter of request should be signed by both H and W. 33)In the case of packing credit/preshipment advances, the amount of advances is regulated with reference to : a) FOB value of the goods b)CIF value of the goods c)c & f value of the goods or d) domestic price of the goods.(the answer is d) 34) A usance(time) bill drawn on Mr.A is presented to him for acceptance by a bank. A simply puts his signature on the face of the bill. This:- constitutes a valid acceptance. 35) A bill for Rs.1000/- was drawn on Ram who accepted it when presented to him. Subsequently, the amount of the bill was altered to Rs.4,000/- and the bill was negotiated to Shyam. Ram is liable to Shyam:- No. Ram is not liable for any amount as he is discharged from liability due to subsequent forgery in the instrument. 36) A draws a cheque in favour of B and stipulates that the cheque is valid for payment for 15 days from the date of issue. The drawee bank:- cannot ignore the direction of the bank. 37) A executes a promissory note for Rs.8,000/- payable in 8 monthly installments, the first instalment due one month after date. A is :- entitled to three days grace for each installment.

38) A cheque is drawn pay cash or order. The drawee bank: should make the payment of the cheque only to the drawer. 39) A cheque is drawn in favour of X and is crossed not negotiable. X endorses the cheque in favour of Y for valuable consideration. Y becomes:- Only a holder. 40) A cheque is crossed Account Payee only. It is :- a direction to the collecting banker to ensure that the proceeds of the cheque are collected for the account of the payee only. 41) Allonge is a sheet of paper attached to an instrument:- for the purpose of making successive endorsements. 42) A promissory note for Rs.10,000/- is drawn in favour of A. He endorses it to B with a condition that B can receive the amount only after his marriage with As daughter:- The endorsement is not valid since the condition attached to it may never happen. 43) A issues a cheque for Rs. 10,000/- in favour of B as advance payment for the supply of goods. B endorses the cheque in favour of C for consideration. B fails to supply the goods and the cheque, when presented by Cs Bank, is returned with the answer:- payment stopped. C can claim the cheque from:- A and B as he is a holder in due course. 44) In the case of a term loan, the nature of the advance is such that it is payable on: in phased installments. 45) Bills of exchange accompanied by will be treated as documentary bills. A lorry (truck) receipt as designed by the Indian Banks Association for the approved transport operators, Railway Receipt, Bill of lading, dock warrant, warehouse keepers certificate, wharfingers certificate,multimodel transport document, warrant or order for the delivery of goods. 46) In an advance secured by pledge,:-only possession must with the bank. 47) The term liquid Surplus means:-difference between current assets and current liabilities. 48) In the case of an English Mortgage, on liquidation of the advance, the mortgaged property is released by :- reconveyance of property to the mortgagor. 49) A bill of exchange, duly accepted, is sent to a branch for collection. On the due date, the acceptor is unable to retire the bill. X, who is not acting on behalf of the acceptor or any other party to the bill, offers to take up the bill.:- the bank cannot agree to accept from X. 50) A usance bill of exchange drawn on Rajendra Prasad&Co., a partnership undertaking, accepted by one of the partners, mahinder prashad. The bill is :-enforceable against the firm as well as

Mahinder Prashad as in a partnership undertaking the partners are liable jointly and severally. 51) Where there are several drawees in a Bill of exchange, whether all should accept the said bill? Where there are several drawees of a bill of exchange who are not partners, each of them can accept it for himself, but none of them can accept it for another without his authority. 52) X purchases a draft in favour of Y and delivers it to the latter. The draft is lost while in the custody of Y. X refuses to help Y in taking a duplicate draft:- a duplicate draft can be issued at the request of the payee, y, provided he executes a stamped indemnity bond . 53) In the case of a lost safe custody receipt the securities/articles may be delivered:- against the issue of a duplicate safe custody receipt on the depositors executing a stamped indemnity bond. 54) A cheque purchased by the bank has been dishonoured. The bank can:- debit the customers account under advice to him. 55) Statutory protection under the Negotiable Instruments Act,1881, Sec.131 is not available for a cheque: a)bearing an endorsement by a minor b) bearing a forged endorsement c) which has been stolen. d) bearing irregular endorsement. (the answer is d) 56) Hypothecation of advances granted to partnership undertakings should be registered with:-such advances do not require any registration. 57) An Equitable mortgage created by a joint stock company, on availing advance from a bank, like any other mortgages, has to be filed with the ROC for registration of the charge.(this is a statement and not a problem or its solution) 58) A revalidated bank draft is valid for payment for:- six months from the date of revalidation. 59) H and W(husband and wife) maintain a current account at your branch. A cheque drawn by H, and a material alteration authenticated under the signature of W is presented for payment:- The bank cannot refuse payment of the cheque, it otherwise in order and the state of the account permits. 60) A cheque drawn by X for Rs.2000/- payable to self or bearer is presented after business hours by Xs son for encashment:-The cheque should not be paid. 61) A customer introducing a new account to the bank is not responsible for any loss suffered by the bank unless: the new customer turns out to be a fictitious person. 62) A FDR, duly discharged, is presented on the due date by the major son of the depositor as the person is unable to attend the bank because of old age:-The bank will make payment if the FDR is accompanied by a letter of authority authorizing the major son to receive payment and on proper authentication of the signature.

63) Which of the following is fully negotiable instrument? a)a bill of lading b) a postal order c) a debenture d) a bill of exchange.(answer is d) 64) Whether demand bill of exchange requires stamp duty? (NO); usance(time)bill requires stamp duty. 65) Whether demand promissory note requires stamp duty(Yes);also usance promissory note requires stamp duty. 66) Whether a cheque can be made payable after two months after date? ( No since a cheque is always payable on demand) 67) Whether you can file a criminal complaint under the negotiable instrument act if a cheque given to you as a gift is returned unpaid for want of funds or exceeds arrangement? No. the cheque should be issued for the discharge of a legally enforceable debt. Legally enforceable debt means a debt which is not barred by the law of limitation. 68) What is the law of limitation generally provides? It stipulates various time periods before the expiry of which an action has to be initiated in a court of law to enforce a claim. The time from which the period begins to run is also enumerated under the Limitation Act. 69) A few examples of limitation period are as follows:a) for money deposited under an agreement that it shall be payable on demand, including money in the hands of his banker so payable, the limitation period for taking legal action is 3 years and the limitation period begins to run from the time when a demand is made. b) To enforce payment of money secured by a mortgage or otherwise charged upon immovable property, the limitation period for taking legal action is twelve(12) years when the money sued for became due. ie if a term loan taken against a mortgage is repayable in installments, then 12 years from the time each installment became due. 70) Sections 18 and 19 of the limitation Act deals with extension of the period of limitation by the act of the debtor. S. 18 stipulates that where before the expiry of the period of limitation, if the borrower or his agent acknowledges the liability in writing duly signed, the period of limitation will extend for similar period from the date of such acknowledgement of liability. A letter addressed to a person other than the creditor admitting his liability would also extend the period of limitation under section 18. Under S.19, where before the expiry of the limitation period, if the debtor or his agent pays any amount towards the debt under his signature, the period of limitation will extend for similar period. 71) RTGS=Real time gross settlement. EFT=Electronic Fund transfer. 72) Highly value clearing means cheque for Rs. One lakh and more. Such cheques will be sent

directly to RBI so that the clearing time is reduced. 73) A and B have a joint savings bank Account payable jointly with your branch and the Account shows a credit balance of Rs.15,000/-. A dies, and the necessary death certificate is produced. B approaches you for payment of the balance.:- The balance in the account is payable to B and the legal representative(s) of the deceased A against their joint discharge. 74) An open cheque for Rs.2,000/- drawn on you by a valued customer, in favour Mr. Umaid, is presented for encashment over the counter. It is known that Umaid is an undischarged insolvent:-The cheque cannot be paid because prima facie(at the first sight)the property represented by it vests with the official receiver/assignee; he must authorize the transaction. 75) Serious Educational Trust maintain an account with your Branch to be jointly operated by all the three trustees A, B and C in terms of the trust deed. A resolution passed at a meeting of the trustee is received in the branch authorizing B and C to operate the account jointly in the absence of A who is proceeding abroad for three years :-The bank cannot act on the resolution unless the trust deed specifically provides for such delegation of powers. 76) A customer maintains a current account showing a credit balance of Rs.800/- and also a savings bank account showing a balance of Rs.2,100/-. A cheque drawn on the current account for Rs.2,000/- is presented and the bank honours it by transferring Rs.1,500/- from the savings bank account. Subsequently, a cheque for Rs.1,000/- drawn on savings bank account is also presented:- The bank must not refuse payment of the latter cheque. 77) In order to create a valid equitable mortgage, the title deeds must be deposited in :-mumbay, kolkatta, or Chennai or in any other town notified by the state govt., for this purpose, in their official gazette. ******&******