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Haryana BSEH SS NSQF BFSI study materials
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Haryana BSEH SS NSQF BFSI practice questions

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Question 1Introduction to Banking, Financial Services and Insurance

Under the BFSI NSQF course, which institution is responsible for issuing currency notes in India, excluding one-rupee notes and coins?

  1. NITI Aayog
  2. Ministry of Finance
  3. State Bank of India
  4. Reserve Bank of India Correct answer.

Explanation

The Reserve Bank of India has the sole authority to issue currency notes of denominations two rupees and above under the RBI Act, 1934. One-rupee notes and all coins are issued by the Government of India, so the RBI is the correct answer for general note issuance.

Question 2Introduction to Banking, Financial Services and Insurance

A customer deposits ₹50,000 in a savings account. Which function of a bank is best illustrated by accepting this deposit and promising repayment on demand?

  1. Issuing currency
  2. Accepting deposits Correct answer.
  3. Underwriting shares
  4. Regulating credit

Explanation

Accepting deposits is a primary function of commercial banks, where they collect idle savings and become liable to repay them on demand or per agreed terms. Currency issuance and credit regulation belong to the central bank, and underwriting shares is an investment banking activity.

Question 3Introduction to Banking, Financial Services and Insurance

In insurance terminology, the principle that the insured should be restored to the same financial position as before the loss, without profit, is known as:

  1. Utmost good faith
  2. Contribution
  3. Indemnity Correct answer.
  4. Subrogation

Explanation

The principle of indemnity states that insurance compensates the insured for the actual financial loss suffered, placing them back in their pre-loss position without allowing profit. It applies to general insurance rather than to life insurance, which is a benefit policy.

Question 4Introduction to Banking, Financial Services and Insurance

Which of the following is a negotiable instrument under the Negotiable Instruments Act, 1881?

  1. A share certificate
  2. A land sale deed
  3. A promissory note Correct answer.
  4. A fixed deposit receipt

Explanation

The Negotiable Instruments Act, 1881 recognises three negotiable instruments: promissory notes, bills of exchange and cheques. A promissory note is therefore the correct choice, while the other documents are not negotiable instruments under this Act.

Question 5Introduction to Banking, Financial Services and Insurance

A candidate preparing for a BFSI role wants to understand KYC norms. What is the primary purpose of Know Your Customer procedures in a bank?

  1. To guarantee loan repayment
  2. To reduce the number of bank branches
  3. To increase the interest rate on deposits
  4. To verify customer identity and prevent money laundering Correct answer.

Explanation

KYC procedures require banks to verify the identity and address of customers and monitor transactions to prevent money laundering and terrorist financing. They support regulatory compliance rather than determining interest rates, branch count or loan repayment.

Question 6Introduction to Banking, Financial Services and Insurance

Which regulator is primarily responsible for supervising insurance companies in India?

  1. SEBI
  2. PFRDA
  3. RBI
  4. IRDAI Correct answer.

Explanation

The Insurance Regulatory and Development Authority of India (IRDAI) regulates and develops the insurance industry. SEBI oversees securities markets, RBI handles banking and monetary policy, and PFRDA regulates pension funds.

Question 7Introduction to Banking, Financial Services and Insurance

A firm sells goods worth ₹2,00,000 and receives a cheque dated a future date. The bank refuses to pay it when presented before that date. Which characteristic of a cheque explains this refusal?

  1. A cheque requires RBI approval before payment
  2. A cheque is payable on demand, so a post-dated cheque cannot be honoured before its date Correct answer.
  3. A cheque must always be crossed to be valid
  4. A cheque is valid only for six months from issue

Explanation

A cheque is a bill of exchange payable on demand, and a post-dated cheque becomes payable only on or after the date written on it. Presenting it earlier gives the bank a valid reason to return it unpaid, though crossing and validity periods are separate matters.

Question 8Introduction to Banking, Financial Services and Insurance

A bank customer wants to transfer funds electronically in real time to another bank account using the IFSC code. Which system should be used?

  1. ECS
  2. RTGS Correct answer.
  3. NSC
  4. NEFT

Explanation

RTGS (Real Time Gross Settlement) settles high-value transactions individually and in real time, requiring the beneficiary's IFSC. NEFT settles in batches, ECS handles bulk repetitive payments, and NSC is a savings certificate, not a payment system.

Question 9Introduction to Banking, Financial Services and Insurance

A person aged 30 takes a term life insurance policy for ₹50 lakh for 20 years. If the policyholder survives the term, what does a pure term plan typically pay?

  1. The premiums paid without interest
  2. A guaranteed bonus
  3. No maturity benefit, as the plan covers only death risk Correct answer.
  4. The full sum assured

Explanation

A pure term insurance plan provides financial protection only against death during the policy term and generally pays nothing if the insured survives. The low premium reflects the absence of a survival or maturity benefit, unlike endowment or money-back plans.

Question 10Introduction to Banking, Financial Services and Insurance

A bank's assets include cash, balances with RBI, and money lent to borrowers. How is a bank's liquidity best described?

  1. The interest spread earned on loans
  2. The ability to meet depositors' withdrawal demands and other obligations as they fall due Correct answer.
  3. The ratio of fixed assets to total assets
  4. The total amount of loans sanctioned during a year

Explanation

Liquidity refers to a bank's capacity to meet its obligations, especially deposit withdrawals and maturing liabilities, without incurring undue loss. It is about the availability of cash and readily realisable assets, not loan volumes, fixed assets or spreads.

Question 11Introduction to Banking, Financial Services and Insurance

An insurance agent sells a policy but does not disclose that the premium will increase sharply after five years. Which principle of insurance has been violated?

  1. Mitigation of loss
  2. Indemnity
  3. Utmost good faith Correct answer.
  4. Proximate cause

Explanation

Utmost good faith requires both insurer and insured to disclose all material facts truthfully, and misrepresenting premium terms breaches this duty. Indemnity concerns compensation, mitigation concerns reducing loss, and proximate cause concerns identifying the dominant cause of loss.

Question 12Introduction to Banking, Financial Services and Insurance

Which of the following best describes the role of a bank's Non-Performing Asset (NPA)?

  1. A loan on which interest or principal has remained overdue for more than 90 days Correct answer.
  2. A deposit that has not been operated for ten years
  3. A loan given at below the repo rate
  4. An investment in government securities

Explanation

An NPA is a loan or advance where interest or principal repayment is overdue for more than 90 days, signalling credit risk. Below-repo lending, dormant deposits and government securities are different concepts and do not define an NPA.

Question 13Introduction to Banking, Financial Services and Insurance

A student opens a bank account under a scheme where a parent operates the account until the student turns 18. This account is best described as:

  1. A current account for a business
  2. A joint account of two adults
  3. A minor account operated by a guardian Correct answer.
  4. A dormant account

Explanation

Banks allow minors to hold accounts operated by a parent or guardian until the minor attains majority, after which the minor can operate it independently. This arrangement is a guardian-operated minor account, distinct from adult joint, business current or dormant accounts.

Question 14Introduction to Banking, Financial Services and Insurance

A customer's cheque is dishonoured for insufficient funds. Under the Negotiable Instruments Act, 1881, which statement is accurate about the bank's obligation?

  1. The bank must inform the police immediately
  2. The bank must return the cheque unpaid with a memo stating the reason Correct answer.
  3. The bank must cancel the customer's account
  4. The bank must pay the cheque and create an overdraft automatically

Explanation

When a cheque is presented without sufficient funds, the drawee bank returns it unpaid along with a return memo recording the reason, such as insufficient funds. The bank is not obliged to grant an overdraft, report to police or close the account.

Question 15Introduction to Banking, Financial Services and Insurance

Which of the following correctly matches a financial market segment with its typical instrument?

  1. Capital market - treasury bills
  2. Money market - treasury bills Correct answer.
  3. Money market - equity shares
  4. Forex market - debentures

Explanation

The money market deals in short-term instruments of up to one year, and treasury bills are a classic example. Equity shares and debentures belong to the capital market, while the forex market deals in currencies.

Question 16Introduction to Banking, Financial Services and Insurance

An applicant for a home loan has a high income but an irregular repayment history on past loans. Why does the lender give weight to the credit history in addition to income?

  1. Credit history replaces the need for any collateral
  2. Credit history determines the RBI repo rate
  3. Credit history directly fixes the property's market value
  4. Credit history indicates the borrower's willingness and discipline in repaying debt Correct answer.

Explanation

Credit history reflects past repayment behaviour and thus the borrower's willingness and discipline in servicing debt, complementing income, which shows capacity. Property valuation, collateral and monetary policy are separate matters that credit history does not decide.

Question 17Introduction to Banking, Financial Services and Insurance

A bank's balance sheet shows deposits of ₹500 crore, borrowings of ₹100 crore and equity of ₹40 crore. Using these figures, what are the bank's total liabilities?

  1. ₹640 crore Correct answer.
  2. ₹500 crore
  3. ₹600 crore
  4. ₹540 crore

Explanation

In a bank's balance sheet, deposits, borrowings and equity all represent liabilities and capital that fund assets. Adding ₹500 crore, ₹100 crore and ₹40 crore gives total liabilities of ₹640 crore.

Question 18Introduction to Banking, Financial Services and Insurance

A bank calculates interest on a savings account using the daily balance method. If a customer maintains ₹40,000 for 15 days and ₹60,000 for the remaining 15 days of a 30-day month at 4% per annum, what is the approximate interest for the month?

  1. ₹200
  2. ₹240
  3. ₹164 Correct answer.
  4. ₹120

Explanation

Interest is computed on the sum of daily products: ₹40,000 × 15 = ₹6,00,000 and ₹60,000 × 15 = ₹9,00,000, totalling ₹15,00,000. Multiplying by 4% and dividing by 365 days gives approximately ₹164 for the 30-day period.

Question 19Introduction to Banking, Financial Services and Insurance

An exporter receives $10,000 and the bank quotes an exchange rate of ₹83 per dollar while charging 1% commission. What amount will the exporter receive in rupees after commission?

  1. ₹8,13,400
  2. ₹8,30,000
  3. ₹8,38,300
  4. ₹8,21,700 Correct answer.

Explanation

The gross rupee value is $10,000 × ₹83 = ₹8,30,000. A 1% commission of ₹8,300 is deducted, leaving ₹8,21,700 as the net amount payable to the exporter.

Question 20Introduction to Banking, Financial Services and Insurance

A bank holds a portfolio of fixed-rate government bonds. When the RBI raises the policy repo rate sharply, what is the most likely effect on the market value of this portfolio?

  1. The market value falls because bond prices move inversely with interest rates Correct answer.
  2. The market value rises because higher rates increase coupon payments on existing bonds
  3. The market value falls only if the bonds are sold before maturity
  4. The market value stays unchanged because government bonds are risk-free

Explanation

Bond prices and interest rates have an inverse relationship: when rates rise, newly issued bonds offer higher yields, so existing fixed-coupon bonds must trade at lower prices to match. This mark-to-market loss occurs irrespective of whether the bonds are actually sold.

Question 21Banking Operations and Products

Under Indian banking practice, which account allows a depositor to withdraw funds on demand without any prior notice to the bank?

  1. A cumulative deposit scheme
  2. A recurring deposit account
  3. A savings bank account Correct answer.
  4. A fixed deposit account

Explanation

A savings bank account is a demand deposit, so the holder may withdraw money whenever required during banking hours without informing the bank in advance. Fixed and recurring deposits are time liabilities that mature on a set date.

Question 22Banking Operations and Products

In the KYC framework followed by Indian banks, what does the 'C' in KYC primarily require a bank to do?

  1. Confirm the customer's employment with the employer
  2. Verify the identity of the customer using officially valid documents Correct answer.
  3. Check the customer's credit score before opening an account
  4. Collect the customer's photograph for the passbook

Explanation

KYC stands for Know Your Customer, and the core obligation is customer identification and verification through Officially Valid Documents such as Aadhaar, passport or driving licence. Credit assessment and employment verification belong to separate processes.

Question 23Banking Operations and Products

A customer deposits a cheque drawn on another bank into their savings account. Which term describes the bank that first receives the cheque from the customer for collection?

  1. The issuing bank
  2. The drawee bank
  3. The collecting bank Correct answer.
  4. The paying bank

Explanation

The bank where the cheque is deposited for realisation is the collecting bank, while the bank on which the cheque is drawn is the paying or drawee bank. The two roles are distinct in the clearing process.

Question 24Banking Operations and Products

Which of the following is the primary function of a bank as a financial intermediary?

  1. Printing currency notes for the central bank
  2. Fixing the repo rate for the banking system
  3. Underwriting every equity issue in the market
  4. Accepting deposits and lending those funds to borrowers Correct answer.

Explanation

Intermediation means mobilising surplus funds through deposits and channelling them to deficit units as loans and advances, earning a spread. Currency issue and monetary policy are central bank functions.

Question 25Banking Operations and Products

In a term loan repayment schedule, what does the term 'moratorium period' mean?

  1. The period during which the borrower is not required to repay principal Correct answer.
  2. The period after which the interest rate becomes floating
  3. The period during which the bank cannot recall the loan at all
  4. The period in which the borrower must prepay the entire loan

Explanation

A moratorium is a holiday from principal repayment, often granted at the start of a project or education loan while the asset is being built up. Interest may still accrue and be serviced during this phase.

Question 26Banking Operations and Products

A customer wants a cheque to be paid only into the account of the named payee and not across the counter. Which crossing should be used?

  1. Account payee crossing Correct answer.
  2. General crossing
  3. Restrictive crossing with 'or bearer'
  4. Not negotiable crossing

Explanation

Account payee crossing directs the collecting bank to credit the proceeds only to the payee's account, preventing encashment over the counter. General crossing merely means the cheque must be collected through a bank.

Question 27Banking Operations and Products

Which document is a bank most likely to demand as proof of a customer's address under the KYC norms?

  1. A recent utility bill in the customer's name Correct answer.
  2. The customer's school leaving certificate
  3. The customer's vehicle insurance policy
  4. The customer's income tax return of a decade ago

Explanation

Address proof under KYC must be a recent Officially Valid Document or utility bill showing the customer's current residence. Stale or unrelated documents do not establish present address.

Question 28Banking Operations and Products

What is the main purpose of the Deposit Insurance and Credit Guarantee Corporation in relation to bank depositors?

  1. To guarantee cheque clearing across all banks
  2. To insure the bank's loans against borrower default
  3. To insure deposits up to a specified limit per depositor per bank Correct answer.
  4. To guarantee the interest rate on all fixed deposits

Explanation

DICGC provides insurance cover up to a statutory limit for deposits held by a depositor in each bank, protecting small savers if the bank fails. It does not fix deposit rates or guarantee loan recovery.

Question 29Banking Operations and Products

A customer with a savings account wants to give another person the right to operate the account, but the customer must remain the account holder. Which arrangement should the bank suggest?

  1. Transferring the account into the other person's sole name
  2. Opening a joint account with either-or-survivor mandate
  3. Adding the person as an authorised signatory Correct answer.
  4. Converting the account into a partnership account

Explanation

An authorised signatory can operate the account on the holder's behalf while ownership stays with the original customer. A joint account changes ownership, and a transfer removes the original holder entirely.

Question 30Banking Operations and Products

A borrower's home loan carries a floating interest rate linked to an external benchmark. If the benchmark rises, what happens to the borrower's obligation?

  1. The principal outstanding is automatically reduced
  2. The interest rate and usually the EMI or tenure are reset upward Correct answer.
  3. The interest rate stays fixed until the loan matures
  4. The bank must waive interest for the remaining tenure

Explanation

Under a floating rate loan, the rate moves with the referenced benchmark, and the bank resets the EMI or extends the tenure to keep the schedule consistent. The principal does not reduce simply because the benchmark rises.

Question 31Banking Operations and Products

A customer presents a cheque that is more than three months old. What should the bank do?

  1. Hold it for another three months before clearing
  2. Pay it only in cash across the counter
  3. Pay it immediately because the signature is genuine
  4. Return the cheque as stale, since it is beyond its validity period Correct answer.

Explanation

Cheques are valid for three months from the date written on them under RBI instructions, after which they become stale and should not be paid. The bank returns such instruments to the collecting bank.

Question 32Banking Operations and Products

Which of the following best describes the difference between a demand draft and a cheque?

  1. A demand draft is issued by a bank on itself, whereas a cheque is drawn by a customer on the bank Correct answer.
  2. A demand draft can be drawn only by an individual, whereas a cheque is drawn by a bank
  3. A demand draft is always payable to bearer, whereas a cheque is always account payee
  4. A demand draft requires no signature, whereas a cheque requires two signatures

Explanation

A demand draft is a prepaid instrument issued by a bank branch on another branch or on itself, so the bank is both drawer and drawee. A cheque is drawn by the account holder on the bank where the account is maintained.

Question 33Banking Operations and Products

A customer asks the bank to stop payment of a cheque already issued because the payee has not delivered the goods. What is the bank's correct response?

  1. Refuse because only the payee can stop a cheque
  2. Pay the cheque and ask the customer to recover money later
  3. Record the stop-payment instruction and dishonour the cheque if presented Correct answer.
  4. Cancel the customer's account immediately

Explanation

The drawer has the right to stop payment before the cheque is paid, and the bank records the instruction and returns the instrument with the remark 'payment stopped by drawer'. The dispute over goods is a separate civil matter.

Question 34Banking Operations and Products

In the context of priority sector lending, which category of borrower is typically counted toward a bank's priority sector target?

  1. A stockbroker funding margin trading positions
  2. A large corporate house raising a term loan
  3. A small and marginal farmer availing a crop loan Correct answer.
  4. A non-resident individual buying a flat abroad

Explanation

Priority sector lending targets include agriculture, micro and small enterprises, education, housing and weaker sections, and small and marginal farmers are a core agriculture category. Large corporates and speculative market activity fall outside the priority sector.

Question 35Banking Operations and Products

Which of the following is a key feature of a Non-Resident External deposit account?

  1. The account can be opened only by a resident Indian
  2. The balance is held in Indian rupees and is fully repatriable Correct answer.
  3. Interest earned is not taxable in India under any circumstances
  4. The balance is held only in foreign currency and is not repatriable

Explanation

An NRE account is maintained in rupees, funded from foreign exchange remittances, and both principal and interest are repatriable. Interest is also exempt from Indian income tax for the non-resident holder.

Question 36Banking Operations and Products

A bank's loan account is classified as a Non-Performing Asset after the borrower fails to pay interest or principal for how long, in the standard norm?

  1. More than 90 days Correct answer.
  2. More than 180 days
  3. More than 365 days
  4. More than 30 days

Explanation

An asset becomes non-performing when interest or principal remains overdue for more than 90 days, and sub-standard, doubtful and loss classifications follow based on the length of the overdue period.

Question 37Banking Operations and Products

A customer wants to remit funds to a supplier through the Real Time Gross Settlement system. Which characteristic distinguishes RTGS from NEFT?

  1. RTGS settles transactions individually and in real time, while NEFT settles in batches Correct answer.
  2. RTGS is used only for foreign remittances, while NEFT is domestic
  3. RTGS is available only on holidays, while NEFT operates on working days
  4. RTGS has no minimum transaction value, while NEFT has a minimum

Explanation

RTGS processes each transaction individually as it is received, whereas NEFT nets and settles transactions in half-hourly batches. Both are domestic systems, and RTGS carries a minimum value threshold.

Question 38Banking Operations and Products

A customer has pledged a fixed deposit receipt as security for a loan. What does the bank typically do to perfect its charge on the deposit?

  1. Convert the fixed deposit into a savings account
  2. Return the receipt to the customer for safekeeping
  3. Record a lien on the deposit and mark the receipt Correct answer.
  4. Cancel the deposit and issue a fresh one in the bank's name

Explanation

By marking a lien on the deposit, the bank gains the right to set off the deposit against the loan if the borrower defaults. The receipt is normally retained and the lien noted in the bank's records.

Question 39Banking Operations and Products

In a letter of credit transaction, which bank undertakes to pay the beneficiary if compliant documents are presented?

  1. The advising bank
  2. The negotiating bank only
  3. The issuing bank Correct answer.
  4. The beneficiary's bank

Explanation

The issuing bank gives the primary undertaking to pay against compliant documents, which is why the letter of credit is a bank obligation rather than the buyer's. The advising bank only communicates the credit.

Question 40Banking Operations and Products

A customer with a current account issues a cheque for an amount exceeding the available balance. How should the bank handle it?

  1. Hold the cheque until the customer deposits funds
  2. Pay it and allow the account to show a debit balance
  3. Return the cheque for insufficient funds and charge as per the tariff Correct answer.
  4. Pay it after reducing the amount to the available balance

Explanation

A cheque drawn without sufficient funds must be dishonoured, and the bank may levy charges as per the agreed schedule. Paying it would create an unauthorised overdraft.

Question 41Banking Operations and Products

A customer wants to repay a loan early. Which clause in the loan agreement determines the charge payable for premature repayment?

  1. The garnishee clause
  2. The foreclosure or prepayment penalty clause Correct answer.
  3. The set-off clause
  4. The escalation clause

Explanation

The prepayment clause sets out whether foreclosure is allowed and what charge applies, subject to RBI restrictions on floating rate loans to individuals. The other clauses deal with different contractual matters.

Question 42Banking Operations and Products

A bank discovers that a customer's account has received several small cash deposits structured just below the reporting threshold. Which compliance action is most appropriate?

  1. Report the matter to the customer's employer
  2. Close the account without any record of the reason
  3. Adjust the deposits against the customer's loan account
  4. File a suspicious transaction report with the Financial Intelligence Unit Correct answer.

Explanation

Deliberate structuring to avoid reporting thresholds is a recognised red flag under anti-money laundering rules, and the bank must file a suspicious transaction report with the FIU. Closing the account without reporting would breach the obligation.

Question 43Banking Operations and Products

A bank holds a deposit as security for a loan and the borrower defaults. Under the right of set-off, what may the bank do?

  1. Adjust the deposit against the outstanding dues after due notice Correct answer.
  2. Retain the deposit indefinitely without adjusting it
  3. Transfer the deposit to another customer's account
  4. Sell the deposit to a third party at a discount

Explanation

Set-off allows the bank to combine the borrower's deposit with the loan account and apply the balance to the dues after giving notice. It does not permit sale of the deposit or indefinite retention.

Question 44Banking Operations and Products

A customer's cheque is returned unpaid with the remark 'refer to drawer'. What does this most commonly indicate?

  1. The drawer's account lacks sufficient funds or has been restricted Correct answer.
  2. The payee's signature is missing on the reverse
  3. The cheque was crossed twice with different words
  4. The cheque was signed in the wrong ink colour

Explanation

'Refer to drawer' is the standard return reason when the drawer's account does not have enough balance or is under some restriction, so the collecting bank must refer back to the drawer. It is not about ink colour or endorsement.

Question 45Banking Operations and Products

A bank is evaluating a proposal where the borrower offers only a personal guarantee from a friend with modest income. How should the bank most appropriately treat this security?

  1. As unnecessary if the borrower's credit score is high
  2. As a weak secondary security that needs stronger collateral or a lower exposure Correct answer.
  3. As equivalent to a first charge on immovable property
  4. As sufficient because a guarantee is always enforceable

Explanation

A personal guarantee is only as good as the guarantor's net worth, so a guarantee from a modest-income friend is weak secondary security. The bank should seek stronger collateral or limit the exposure.

Question 46Banking Operations and Products

A customer wants a savings account in which withdrawals can be made only after giving the bank written notice of a fixed period, in exchange for a slightly higher rate of interest. Which deposit product matches this requirement?

  1. A notice deposit account Correct answer.
  2. A fixed deposit renewed automatically for one year
  3. A recurring deposit with monthly instalments
  4. A savings deposit with a cheque book facility

Explanation

A notice deposit requires the depositor to give advance written notice before withdrawing funds, and the bank pays a rate higher than an ordinary savings account for this restriction. It differs from a fixed deposit because the money is not locked for a fixed term, and from a recurring deposit because no monthly instalments are involved.

Question 47Banking Operations and Products

Under the Negotiable Instruments Act, 1881, which party to a bill of exchange is primarily liable to pay the amount on maturity?

  1. The payee
  2. The acceptor Correct answer.
  3. The drawer
  4. The endorsee

Explanation

Once a bill of exchange is accepted, the acceptor becomes the principal debtor and is primarily liable to pay on the due date. The drawer and prior endorsers carry secondary liability, which arises only if the acceptor dishonours the instrument and due notice is given.

Question 48Banking Operations and Products

A customer deposits a cheque payable to a third party into their own savings account, and the cheque bears no endorsement in the customer's favour. How should the collecting bank treat this instrument?

  1. Treat it as a collection item and credit the account only after realisation
  2. Credit the account immediately because the payee has signed the cheque
  3. Return it to the customer because title does not pass without endorsement Correct answer.
  4. Credit the account after obtaining a simple signature of the customer on the pay-in slip

Explanation

A cheque payable to a named payee can be negotiated only by endorsement and delivery; without the payee's endorsement the collecting customer has no title to the instrument. The bank therefore cannot treat the customer as a holder in due course and should return the cheque for proper endorsement.

Question 49Banking Operations and Products

Which of the following is the principal document through which a bank records the terms on which it sanctions a term loan to a borrower?

  1. The pay-in slip
  2. The locker agreement
  3. The account opening form
  4. The sanction letter and loan agreement Correct answer.

Explanation

The sanction letter conveys the bank's approval with the amount, rate and conditions, and the loan agreement converts these into an enforceable contract signed by the borrower. Together they record the terms of the loan; the other documents relate to deposits or safe custody services.

Question 50Banking Operations and Products

A bank sanctions a cash credit limit of Rs 10 lakh against hypothecation of stock. The drawing power is computed at Rs 8 lakh after margin. The borrower's outstanding is Rs 9 lakh. What is the position?

  1. The account is regular because it is within the sanctioned limit
  2. The limit must be reduced to Rs 8 lakh immediately
  3. The account is irregular to the extent of Rs 1 lakh over the drawing power Correct answer.
  4. The account must be closed because stock is hypothecated

Explanation

In a cash credit account the sanctioned limit is the outer ceiling, but the borrower may draw only up to the drawing power computed from the value of current assets after margin. An outstanding above drawing power, even if within the limit, is an irregularity that the bank must regularise by obtaining fresh stock statements or reducing the balance.