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CHSE Odisha Vocational BFSI (BC/BF) study materials
CHSE Odisha Vocational BFSI (BC/BF) study resources

CHSE Odisha Vocational BFSI (BC/BF) practice questions

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Question 1Introduction to Banking and Financial Services

In the Indian financial system, which institution is responsible for issuing currency notes (except one-rupee notes and coins) and conducting monetary policy?

  1. Reserve Bank of India Correct answer.
  2. State Bank of India
  3. Securities and Exchange Board of India
  4. National Bank for Agriculture and Rural Development

Explanation

The Reserve Bank of India is the central bank, and the RBI Act, 1934 empowers it to issue all currency notes except the one-rupee note, which is issued by the Government of India. Monetary policy is also framed and implemented by the RBI through the Monetary Policy Committee.

Question 2Introduction to Banking and Financial Services

A customer deposits money in a savings bank account and the bank uses part of it to give a loan to another customer. Which function of a commercial bank does this illustrate?

  1. Issuing demand drafts
  2. Acting as a trustee
  3. Safe custody of valuables
  4. Credit creation through acceptance of deposits Correct answer.

Explanation

Banks accept deposits and lend a portion of them, so the same funds support new credit and the money supply expands; this is called credit creation. The other listed activities are agency or utility services and do not involve lending depositors' funds.

Question 3Introduction to Banking and Financial Services

Under the Know Your Customer norms followed by Indian banks, which action is a bank required to take at the time of opening a new account?

  1. Obtain a guarantor who is a bank employee
  2. Collect a minimum fixed deposit of one lakh rupees
  3. Insist on a credit card application along with the account
  4. Obtain and verify proof of identity and proof of address of the customer Correct answer.

Explanation

KYC requires banks to identify each customer and verify identity and address using officially valid documents before opening an account. This helps prevent money laundering and terrorist financing and is mandated by the RBI's master directions on KYC.

Question 4Introduction to Banking and Financial Services

Which type of account is best suited for a small trader who needs to deposit and withdraw money frequently and also wants an overdraft facility?

  1. Fixed deposit account
  2. Recurring deposit account
  3. Current account Correct answer.
  4. Senior citizens' savings account

Explanation

Current accounts are meant for businesses and traders, allow unlimited transactions and generally pay no interest, and they can carry an overdraft facility. Deposit accounts such as fixed or recurring deposits restrict withdrawals and do not offer overdrafts.

Question 5Introduction to Banking and Financial Services

What is the main purpose of the Deposit Insurance and Credit Guarantee Corporation (DICGC) in the Indian banking system?

  1. To insure deposits of bank customers up to a specified limit in case a bank fails Correct answer.
  2. To regulate the securities market
  3. To print and supply currency notes to banks
  4. To provide loans to farmers at subsidised interest rates

Explanation

DICGC, a wholly owned subsidiary of the RBI, insures deposits so that depositors are repaid up to the statutory limit if an insured bank is unable to pay. This protects small depositors and strengthens confidence in the banking system.

Question 6Introduction to Banking and Financial Services

Which of the following is an example of a negotiable instrument under Indian law?

  1. A cheque payable to bearer Correct answer.
  2. A share certificate of a private company
  3. A fixed deposit receipt marked non-transferable
  4. A land sale deed

Explanation

The Negotiable Instruments Act, 1881 covers promissory notes, bills of exchange and cheques. A bearer cheque is freely transferable by delivery and is a classic negotiable instrument.

Question 7Introduction to Banking and Financial Services

A customer wants to send money to a relative's account in another bank in a different city on the same day. Which service should the bank recommend?

  1. Real Time Gross Settlement (RTGS) or Immediate Payment Service (IMPS) Correct answer.
  2. Opening a recurring deposit
  3. Purchasing a demand draft by post
  4. Issuing a bearer cheque

Explanation

RTGS settles high-value interbank payments in real time, and IMPS provides instant interbank transfers through mobile or net banking. Both move funds to another bank quickly, unlike deposit products or paper instruments sent by post.

Question 8Introduction to Banking and Financial Services

In a bank's balance sheet, deposits accepted from customers are shown as which of the following?

  1. Liabilities, because the bank owes the money to depositors Correct answer.
  2. Capital, because deposits belong to shareholders
  3. Contingent liabilities, because repayment is uncertain
  4. Assets, because the bank holds the cash

Explanation

Deposits are funds the bank must repay on demand or at maturity, so they are recorded as liabilities. Loans and investments made out of those funds appear on the asset side.

Question 9Introduction to Banking and Financial Services

A bank advertises a savings account paying 4% per annum interest, compounded quarterly. A customer keeps 10,000 rupees for one year. Which statement about the interest earned is correct?

  1. It will be less than 400 rupees
  2. It will be slightly more than 400 rupees because of quarterly compounding Correct answer.
  3. It will be 1,000 rupees because interest is paid four times
  4. It will be exactly 400 rupees

Explanation

With quarterly compounding the effective annual yield exceeds the nominal rate because interest is added to principal each quarter and earns interest thereafter. The amount is therefore a little above the simple interest of 400 rupees.

Question 10Introduction to Banking and Financial Services

A customer presents a cheque that is six months old at the counter. What is the standard practice a bank follows?

  1. The cheque is treated as stale and is returned unpaid unless it is a validly revalidated instrument Correct answer.
  2. The cheque is paid because cheques are valid for one year
  3. The cheque is paid only if the amount is below 10,000 rupees
  4. The cheque is paid after charging a stamp duty

Explanation

Under RBI guidelines a cheque is generally valid for three months from the date of issue. A cheque presented after that period is a stale cheque and is returned unpaid, though the drawer may issue a fresh cheque.

Question 11Introduction to Banking and Financial Services

Which of the following best describes the role of a Business Correspondent (BC) appointed by a bank?

  1. To provide basic banking services at the customer's doorstep on behalf of the bank in unbanked areas Correct answer.
  2. To set the bank's lending interest rates
  3. To sanction large corporate loans independently
  4. To audit the bank's branches

Explanation

Business Correspondents are individuals or entities engaged by banks to deliver services such as deposit collection, small remittances and account opening in areas without branches. They act as agents of the bank and cannot exercise powers reserved for bank officers.

Question 12Introduction to Banking and Financial Services

A customer wants to open a Pradhan Mantri Jan Dhan Yojana account. Which feature is associated with this scheme?

  1. A basic savings bank deposit account with a RuPay debit card and an overdraft facility after satisfactory operation Correct answer.
  2. A locker facility provided free of cost
  3. A current account meant only for companies
  4. A fixed deposit with a guaranteed 12% return

Explanation

PMJDY accounts are basic savings bank deposit accounts that come with a RuPay debit card, accidental insurance cover and an overdraft facility after the account is operated satisfactorily for a period. The scheme aims to bring unbanked households into the formal financial system.

Question 13Introduction to Banking and Financial Services

Which instrument would a bank issue when a customer wants a guaranteed payment to a supplier in another city but does not want to carry cash?

  1. A demand draft drawn on the bank's branch in that city Correct answer.
  2. A post-dated personal cheque
  3. A share certificate
  4. A promissory note signed by the customer

Explanation

A demand draft is a prepaid instrument issued by a bank branch and payable at another branch or location, so the payee receives assured funds. It is safer than carrying cash and does not depend on the customer's account balance at the time of payment.

Question 14Introduction to Banking and Financial Services

What does the Cash Reserve Ratio (CRR) require banks to do?

  1. Keep a specified percentage of deposits in government securities
  2. Maintain a minimum capital adequacy ratio
  3. Lend a fixed percentage of deposits to priority sectors
  4. Keep a specified percentage of their net demand and time liabilities as cash with the RBI Correct answer.

Explanation

CRR is the share of net demand and time liabilities that a bank must hold as cash balances with the RBI, and it earns no interest. The RBI uses CRR to influence liquidity and credit in the banking system.

Question 15Introduction to Banking and Financial Services

A bank's gross non-performing assets rise sharply. Which consequence is most likely for the bank?

  1. It will automatically receive more deposits from the RBI
  2. It can ignore the loans until they reach the recovery stage
  3. It can immediately increase its dividend payout
  4. It must make higher provisions, which reduces its profitability and lending capacity Correct answer.

Explanation

When loans stop generating interest and principal, banks classify them as NPAs and must set aside provisions from profits. Higher provisioning reduces net profit and the capital available for fresh lending, which is why asset quality is closely monitored by the RBI.

Question 16Introduction to Banking and Financial Services

In a Unified Payments Interface (UPI) transaction, what role does the customer's bank play?

  1. It issues currency notes to the payee
  2. It physically delivers cash to the payee
  3. It acts as the merchant's accountant
  4. It debits the customer's account and passes the payment instruction through the UPI network Correct answer.

Explanation

UPI enables instant account-to-account transfers; the remitter bank debits the customer's account, and the beneficiary bank credits the payee through the NPCI-operated network. No cash or physical delivery is involved.

Question 17Introduction to Banking and Financial Services

Which of the following is a key difference between a debit card and a credit card?

  1. A debit card charges interest, while a credit card does not
  2. A debit card is issued only to companies, while a credit card is issued to individuals
  3. A debit card requires a guarantor, while a credit card does not
  4. A debit card spends money already in the account, while a credit card creates a loan that must be repaid later Correct answer.

Explanation

A debit card draws on the balance in the customer's deposit account, so spending is limited to available funds. A credit card is a revolving credit facility: the issuer pays the merchant and the customer repays the bank, usually with an interest-free period.

Question 18Introduction to Banking and Financial Services

A customer with a fixed deposit wishes to close it before maturity. What does the bank normally do?

  1. Refuse closure under all circumstances
  2. Convert the deposit into a current account without any adjustment
  3. Pay the full contracted interest for the entire term
  4. Pay the deposit with interest at the applicable premature withdrawal rate, which is lower than the contracted rate Correct answer.

Explanation

Banks permit premature closure but apply a reduced rate of interest, usually the rate applicable for the period the deposit actually remained with the bank, less any penalty specified. This compensates the bank for the funds not being available for the full term.

Question 19Introduction to Banking and Financial Services

What is the primary function of a mutual fund in the financial services sector?

  1. To issue currency on behalf of the central bank
  2. To insure depositors against bank failure
  3. To provide loans to small businesses at subsidised rates
  4. To pool money from many investors and invest it in a diversified portfolio managed by professionals Correct answer.

Explanation

A mutual fund collects subscriptions from investors and invests them in securities according to the scheme's objective, giving small investors diversification and professional management. It is regulated by SEBI and is not a bank or an insurer.

Question 20Introduction to Banking and Financial Services

A customer receives a phone call asking for the OTP sent to her mobile, claiming to be from the bank's fraud team. What is the correct advice?

  1. Share it only if the caller knows the account number
  2. Share it after the caller promises not to misuse it
  3. Share it and then change the PIN later
  4. Never share the OTP, because bank staff do not ask for it, and report the call Correct answer.

Explanation

One-time passwords authenticate the customer, so anyone who obtains them can authorise transactions. Genuine bank staff never ask for an OTP, PIN or password, and such calls should be reported to the bank immediately.

Question 21Introduction to Banking and Financial Services

Which of the following correctly explains the difference between a bank's Statutory Liquidity Ratio (SLR) and its Cash Reserve Ratio (CRR)?

  1. SLR is held as cash with the RBI, while CRR is held in government securities
  2. SLR applies only to foreign banks, while CRR applies only to Indian banks
  3. Both are held only in foreign currency
  4. SLR is held in approved securities and gold, while CRR is held as cash with the RBI Correct answer.

Explanation

SLR requires banks to hold a portion of net demand and time liabilities in cash, gold or approved government securities, whereas CRR must be kept as cash balances with the RBI. Both are quantitative tools the RBI uses to regulate liquidity.

Question 22Introduction to Banking and Financial Services

A loan account has been classified as a sub-standard asset. What does this classification indicate?

  1. The borrower has repaid the entire amount and the account is closed
  2. The loan has never been disbursed
  3. The loan has remained overdue for a period beyond the norm but is still being serviced or has not yet become a loss asset Correct answer.
  4. The loan is guaranteed by the government and carries no risk

Explanation

Under RBI's asset classification norms, a sub-standard asset is one that has been classified as an NPA for a period of up to twelve months. It is riskier than a standard asset but is not yet a doubtful or loss asset, and provisions increase as classification worsens.

Question 23Introduction to Banking and Financial Services

A customer's cheque is dishonoured for insufficient funds. Which statement about the legal position is accurate?

  1. The payee may initiate proceedings under Section 138 of the Negotiable Instruments Act after issuing a statutory notice to the drawer Correct answer.
  2. The drawer is automatically barred from operating the account for life
  3. The bank can immediately arrest the drawer without any notice
  4. The payee can recover the amount only by filing a civil suit, as criminal action is not available

Explanation

Section 138 of the Negotiable Instruments Act makes dishonour of a cheque for insufficiency of funds an offence, but the payee must first serve a written notice demanding payment within the statutory period. Criminal action is available only if the drawer fails to pay within the stipulated time after notice.

Question 24Introduction to Banking and Financial Services

A bank's current account customer issues a cheque that is later altered to increase the amount. Which party generally bears the loss if the alteration is not apparent and the bank pays in good faith?

  1. The collecting bank, because it must verify every endorsement
  2. The drawer, because a materially altered cheque is void and the bank is protected when the alteration is not apparent Correct answer.
  3. The payee, because the payee presented the cheque
  4. The RBI, because it regulates all cheque payments

Explanation

A material alteration without the drawer's consent makes the instrument void, and the drawer cannot recover from a paying bank that acted in good faith and without negligence where the alteration was not apparent. The drawer's remedy lies against the person who made the alteration.

Question 25Banking Operations and Procedures

In a savings bank account, interest is normally calculated on which balance?

  1. The closing balance on the last working day of the month
  2. The minimum balance held between the tenth and the last day of each month Correct answer.
  3. The average of the opening and closing balances of the quarter
  4. The highest balance recorded at any time during the month

Explanation

Banks in India compute savings bank interest on the daily product of balances, using the minimum balance recorded between the 10th and the last day of the calendar month. This rule was introduced so that deposits made early in the month earn interest while withdrawals near month-end do not reduce the base unfairly.

Question 26Banking Operations and Procedures

A customer wants to deposit cash into another person's account at a branch. What is the standard requirement?

  1. The depositor must fill a pay-in slip showing the account number and name, and the bank may ask for identification Correct answer.
  2. Cash deposits into third-party accounts are refused by all banks
  3. Only a cheque drawn by the depositor is accepted for such deposits
  4. The account holder must be physically present at the counter

Explanation

Banks accept third-party cash deposits supported by a pay-in slip that records the beneficiary account number, the depositor's name and contact details. Under KYC guidelines the bank may additionally seek identification of the depositor to maintain an audit trail.

Question 27Banking Operations and Procedures

Which of the following is the primary function of a cheque's crossing?

  1. It guarantees that the cheque will not be dishonoured
  2. It directs that the proceeds be paid into a bank account rather than over the counter Correct answer.
  3. It fixes the maximum amount payable under the cheque
  4. It transfers ownership of the cheque to the collecting bank

Explanation

Crossing is a direction to the paying banker that payment should be made through a bank rather than in cash across the counter. A general crossing consists of two parallel transverse lines, with or without the words 'and company'.

Question 28Banking Operations and Procedures

In banking terminology, what does 'KYC' primarily require a bank to do?

  1. Report every cash transaction to the Reserve Bank of India
  2. Keep customer records confidential from all government agencies
  3. Collect a minimum deposit before opening any account
  4. Verify the identity and address of the customer and monitor transactions on an ongoing basis Correct answer.

Explanation

KYC, or Know Your Customer, obliges banks to establish the identity and address of customers using officially valid documents and to keep the profile updated through periodic re-verification. It also includes ongoing transaction monitoring for suspicious activity.

Question 29Banking Operations and Procedures

A fixed deposit receipt is generally issued in which form to the depositor?

  1. A share certificate evidencing ownership in the bank
  2. A promissory note payable on demand to any bearer
  3. A passbook entry only, with no separate receipt
  4. A deposit receipt acknowledging the amount, tenure and rate of interest Correct answer.

Explanation

A fixed deposit receipt records the principal, the maturity date and the contracted interest rate, and is the depositor's evidence of the term deposit. Banks may issue it in physical or electronic form, and it is not a negotiable instrument transferable by mere delivery.

Question 30Banking Operations and Procedures

Which of the following instruments is a demand liability of a bank?

  1. A savings bank balance held by a customer Correct answer.
  2. A five-year recurring deposit instalment already paid
  3. A term loan sanctioned to a borrower
  4. A bank's investment in government securities

Explanation

Demand liabilities are amounts payable by the bank on demand, and savings bank balances qualify because the customer may withdraw at any time. Time deposits, borrowings and capital are classified separately in the bank's liability structure.

Question 31Banking Operations and Procedures

What is the effect of an endorsement 'pay to A only' on the reverse of a cheque?

  1. It converts the cheque into a bearer instrument
  2. It authorises the bank to pay in cash to the bearer
  3. It cancels the drawer's signature on the cheque
  4. It restricts further negotiation of the cheque to A alone Correct answer.

Explanation

A restrictive endorsement, such as 'pay to A only', prevents further transfer and limits the instrument to the named endorsee. The collecting bank must credit only A's account and cannot treat the cheque as payable to bearer.

Question 32Banking Operations and Procedures

Under the Banking Regulation Act, 1949, banking business in India essentially means:

  1. Accepting deposits of money repayable on demand or otherwise, for lending or investment Correct answer.
  2. Issuing insurance policies against fire and marine risks
  3. Managing mutual fund portfolios for retail investors
  4. Trading in commodities on behalf of customers

Explanation

Section 5(b) of the Banking Regulation Act, 1949 defines banking as accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or order. Other financial activities are permitted only as ancillary business.

Question 33Banking Operations and Procedures

A customer presents a cheque dated three months and ten days before the date of presentation. How should the bank treat it?

  1. Pay it because cheques remain valid for six months
  2. Pay it after obtaining the drawer's oral confirmation
  3. Return it as a stale cheque because it is older than three months Correct answer.
  4. Return it because post-dated cheques are not accepted

Explanation

A cheque is valid for presentation within three months from the date written on it, and a cheque presented beyond that period is stale. The paying bank should return it unpaid with the remark 'stale cheque', even if funds are available.

Question 34Banking Operations and Procedures

A customer's savings account shows a balance of Rs. 8,000 but a cheque for Rs. 12,000 is presented. The bank should:

  1. Pay Rs. 8,000 as a part payment and return the cheque for the balance
  2. Pay the full amount and create an overdraft automatically
  3. Hold the cheque until sufficient funds are deposited
  4. Return the cheque unpaid for insufficient funds and record the reason on the return memo Correct answer.

Explanation

A paying bank is obliged to honour a cheque only up to the available clear balance, and partial payment of a cheque is not permitted. The instrument is returned dishonoured with a reason such as 'insufficient funds', which also protects the bank from liability to the drawer.

Question 35Banking Operations and Procedures

Which of the following best describes the 'collecting bank' in a cheque transaction?

  1. The bank that issues the cheque book to the drawer
  2. The bank on which the cheque is drawn and which pays it
  3. The bank that receives the cheque from the customer and presents it for clearing Correct answer.
  4. The bank that guarantees the drawer's creditworthiness

Explanation

The collecting bank acts as the customer's agent, taking the instrument for credit and routing it through clearing to the paying bank. It is distinct from the drawee bank, which is the bank named on the cheque and which ultimately decides whether to pay.

Question 36Banking Operations and Procedures

What is the principal purpose of the 'positive pay system' introduced for high-value cheques?

  1. To replace the drawer's signature with a digital token
  2. To allow the bearer to encash a cheque without identification
  3. To increase the maximum amount payable by a single cheque
  4. To let the drawer pre-register cheque details so that the paying bank can verify them before payment Correct answer.

Explanation

Under the positive pay system, the drawer submits key particulars of a high-value cheque, such as number, date, payee and amount, through the bank's channels. The paying bank cross-checks these details before honouring the instrument, which reduces fraud from altered or cloned cheques.

Question 37Banking Operations and Procedures

A customer holds a joint savings account operated with the mandate 'either or survivor'. On the death of one holder, what happens to the account?

  1. The account is frozen until a succession certificate is produced
  2. The bank closes the account and issues a draft in the name of the nominee
  3. The surviving holder can continue to operate the account and the balance passes to the survivor Correct answer.
  4. The balance is divided equally between the survivor and the deceased's legal heirs

Explanation

An 'either or survivor' mandate allows the surviving account holder to operate the account after the death of the other holder, and the balance becomes payable to the survivor. The bank records the death and updates the account records accordingly.

Question 38Banking Operations and Procedures

A bank receives a garnishee order from a court attaching a customer's account. What is the correct action?

  1. Attach the amount specified in the order as on the date of receipt and mark a lien for that amount Correct answer.
  2. Close the account immediately and remit the entire balance to the court
  3. Ignore the order until the customer consents to the attachment
  4. Freeze the account permanently without any further communication

Explanation

A garnishee order restrains the bank from paying out the customer's money to the customer and directs payment to the decree holder. The bank should mark a lien for the amount mentioned in the order as on the date of receipt and honour the order to that extent, leaving the balance available to the customer.

Question 39Banking Operations and Procedures

Which of the following is a key feature of a recurring deposit account?

  1. Interest is payable only at the time of each monthly instalment
  2. A fixed instalment is deposited every month for a chosen tenure and repaid with interest at maturity Correct answer.
  3. The account is meant for daily business collections
  4. The depositor may deposit any amount at any time without a fixed schedule

Explanation

A recurring deposit requires the customer to pay a fixed monthly instalment for a selected period, and the accumulated amount with interest is paid at maturity. Default in instalments attracts the bank's prescribed charges or reduced interest.

Question 40Banking Operations and Procedures

A customer asks the bank to stop payment of a cheque already issued. Which action is appropriate?

  1. Record the stop-payment instruction with the cheque number and date, and return the cheque if presented Correct answer.
  2. Cancel the entire cheque book issued to the drawer
  3. Inform the payee that the cheque has been cancelled
  4. Return the cheque only if the drawer's balance is insufficient

Explanation

A drawer may revoke the authority to pay by giving the bank a clear stop-payment instruction identifying the cheque. The bank records the instruction and, on presentation, returns the instrument unpaid with the remark 'payment stopped by drawer'.

Question 41Banking Operations and Procedures

In the context of loans, what does 'sanction' mean?

  1. The repayment of the loan in instalments
  2. The actual disbursement of the loan amount to the borrower
  3. The creation of a mortgage over the borrower's property
  4. The bank's formal approval of a credit facility, subject to stated terms and conditions Correct answer.

Explanation

Sanction is the bank's decision to grant credit up to a specified limit on agreed terms, communicated through a sanction letter. Disbursement, security creation and repayment are subsequent stages in the credit process.

Question 42Banking Operations and Procedures

A term loan is sanctioned with a moratorium period. What does this mean for the borrower?

  1. The loan amount is increased after the moratorium ends
  2. The borrower may repay the loan without any security
  3. No interest is charged for the entire life of the loan
  4. Repayment of principal begins only after the moratorium, though interest may accrue during it Correct answer.

Explanation

A moratorium is a period during which principal repayment is deferred, often to allow a project to generate cash flow. Interest generally continues to accrue during this period and may be serviced or capitalised as per the sanction terms.

Question 43Banking Operations and Procedures

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

  1. A fixed deposit receipt marked non-transferable
  2. A warehouse receipt issued by a godown
  3. A promissory note payable to a specified person or order Correct answer.
  4. A share certificate of a company

Explanation

The Act recognises promissory notes, bills of exchange and cheques as negotiable instruments, and a promissory note payable to order can be transferred by endorsement and delivery. Other documents may be assignable but are not negotiable instruments in the statutory sense.

Question 44Banking Operations and Procedures

A customer presents a cheque with the amount in words differing from the amount in figures. How should the paying bank proceed?

  1. Pay the amount in figures, which prevails
  2. Return the cheque unpaid because the two amounts do not agree Correct answer.
  3. Pay the lower of the two amounts
  4. Pay the amount in words, which prevails

Explanation

Where the words and figures on a cheque differ materially, the instrument is treated as materially altered and should not be paid. The bank returns it unpaid with the remark 'amount in words and figures differ', leaving the drawer to issue a fresh cheque.

Question 45Banking Operations and Procedures

A bank pays a cheque carrying a forged drawer's signature. What is the bank's position?

  1. The bank is liable to the customer because a forged signature confers no authority to pay Correct answer.
  2. The bank can recover the amount from the payee in every case
  3. The bank is protected because payment was made in good faith at the counter
  4. The bank is liable only if the customer reports the forgery within one week

Explanation

A forged signature is wholly inoperative, so the paying bank has no mandate to debit the customer's account. The bank must reimburse the customer, and its remedy, if any, lies against the forger or a negligent collecting bank.

Question 46Banking Operations and Procedures

A bank holds a lien over securities deposited by a customer for a specific loan. The customer clears the loan but the bank continues to retain the securities for another unconnected claim. Is the retention valid?

  1. No, because a lien can never be exercised over documents of title
  2. Yes, because a banker's lien is always general and covers every claim
  3. No, because a particular lien ends when the debt for which the securities were given is discharged Correct answer.
  4. Yes, because the bank may retain securities until the customer closes all accounts

Explanation

Where securities are deposited for a specific advance, the bank has a particular lien that is extinguished once that debt is repaid. Retaining them for an unrelated claim would require a general lien arising from the banker-customer relationship, which does not apply to specifically pledged goods.

Question 47Banking Operations and Procedures

A customer deposits a cheque into his account and the collecting bank credits the account before clearing. The cheque is later returned unpaid. What is the bank's right?

  1. It may reverse the provisional credit and recover the amount from the customer Correct answer.
  2. It can recover the amount only after obtaining court permission
  3. It must bear the loss because the credit was already shown in the passbook
  4. It can adjust the loss against the drawer's account instead

Explanation

Credits given before realisation are provisional, and the bank is entitled to reverse them if the instrument is returned unpaid. The account holder remains liable for the amount, and the bank may also charge the applicable return charges as per its schedule.

Question 48Banking Operations and Procedures

Under the RBI's customer protection framework, if a bank fails to reverse an unauthorised electronic transaction within the prescribed timeline, what is the consequence?

  1. The liability shifts entirely to the payment system operator
  2. The bank is exempt because the delay was unintentional
  3. The customer forfeits the right to any refund
  4. The bank must pay compensation for the delay in addition to reversing the transaction Correct answer.

Explanation

The RBI's limited liability framework fixes timelines for reporting and for reversal of unauthorised electronic transactions. Where the bank delays reversal beyond the prescribed period, it bears the loss and must pay compensation for the delay, while the customer's liability depends on how promptly the fraud was reported.

Question 49Banking Operations and Procedures

A borrower's account is classified as a non-performing asset. Which of the following best explains the classification?

  1. Interest or principal has remained overdue for more than 90 days as per the bank's income recognition norms Correct answer.
  2. The security offered has fallen in market value
  3. The loan was disbursed in cash rather than by transfer
  4. The borrower has requested a reduction in the sanctioned limit

Explanation

An asset becomes non-performing when interest or instalment remains overdue for more than 90 days, or when other objective criteria such as bill dishonour or restructuring are met. Classification affects income recognition, provisioning and the bank's capital adequacy.

Question 50Banking Operations and Procedures

A customer wants to open a fixed deposit account with a bank. Which of the following documents is primarily required for KYC verification when opening this account?

  1. Proof of address and proof of identity Correct answer.
  2. Proof of income and proof of employment
  3. Proof of investment and proof of insurance
  4. Proof of educational qualification and proof of age

Explanation

Banks are required to verify the identity and address of customers under the KYC norms prescribed by the Reserve Bank of India. A fixed deposit account, like any other deposit account, requires proof of identity and proof of address to comply with these norms. Other documents such as income or employment proof are not mandatory for opening a fixed deposit.