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Maharashtra HSC Vocational BFSI study materials
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Maharashtra HSC Vocational BFSI practice questions

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Question 1Introduction to Banking and Financial Services

Under the Reserve Bank of India Act, 1934, which body is responsible for formulating India's monetary policy?

  1. The National Bank for Agriculture and Rural Development
  2. The Insurance Regulatory and Development Authority of India
  3. The Monetary Policy Committee Correct answer.
  4. The Securities and Exchange Board of India

Explanation

The Monetary Policy Committee was created through an amendment to the RBI Act and is statutorily mandated to fix the policy repo rate to achieve the inflation target. SEBI, NABARD and IRDAI regulate securities markets, rural credit and insurance respectively, not monetary policy.

Question 2Introduction to Banking and Financial Services

A customer deposits a cheque drawn on another bank into her savings account. In clearing terminology, which bank is the 'drawee' bank?

  1. The clearing house that sorts the instruments
  2. The bank on which the cheque is drawn and which must pay it Correct answer.
  3. The RBI branch that supervises the clearing process
  4. The bank that collects the cheque on behalf of the customer

Explanation

In a cheque, the drawee is always the bank directed to pay, that is, the bank where the drawer holds the account. The collecting bank is the presenting bank, while the clearing house merely facilitates settlement between banks.

Question 3Introduction to Banking and Financial Services

Which of the following is a primary function of a commercial bank?

  1. Accepting deposits from the public Correct answer.
  2. Regulating the securities market
  3. Issuing currency notes
  4. Conducting monetary policy meetings

Explanation

Accepting deposits and lending them onward are the core primary functions of a commercial bank. Currency issuance is the monopoly of the RBI, while policy meetings and securities regulation belong to other institutions.

Question 4Introduction to Banking and Financial Services

A customer wants a fixed sum paid to a named beneficiary only after he dies. Which service should the bank provide?

  1. A demand draft
  2. A nominee-registered term deposit Correct answer.
  3. A standing instruction
  4. A safe deposit locker

Explanation

A term deposit with a registered nominee allows the proceeds to pass to the named person on the depositor's death. A standing instruction is a recurring payment mandate, a locker stores valuables, and a demand draft is an immediate payment instrument.

Question 5Introduction to Banking and Financial Services

What does the 'repo rate' represent in Indian monetary policy?

  1. The rate at which banks borrow in the overseas market
  2. The rate at which the RBI lends short-term funds to banks against government securities Correct answer.
  3. The rate at which banks lend to their best corporate customers
  4. The rate paid on ordinary savings bank deposits

Explanation

The repo rate is the policy rate at which the RBI provides short-term liquidity to banks against the collateral of government securities under a repurchase arrangement. It is distinct from the base rate or MCLR charged to borrowers and from deposit rates.

Question 6Introduction to Banking and Financial Services

In KYC terms, which document is accepted as 'proof of identity' but generally not as 'proof of address'?

  1. A PAN card Correct answer.
  2. A electricity bill in the customer's name
  3. A rent agreement registered in the customer's name
  4. A passport

Explanation

A PAN card establishes identity through the unique tax number but carries no address information, so it is used as proof of identity only. Utility bills and registered rent agreements are classic proof-of-address documents, while a passport serves as both.

Question 7Introduction to Banking and Financial Services

Which of the following best describes 'CASA deposits' for a bank?

  1. Cash reserves maintained with the RBI
  2. Current account and savings account balances Correct answer.
  3. Corporate advances and secured assets
  4. Credit appraisal and sanction approvals

Explanation

CASA stands for current account and savings account deposits, which are low-cost funds because banks pay little or no interest on them. A high CASA ratio reduces a bank's overall cost of funds and supports its net interest margin.

Question 8Introduction to Banking and Financial Services

A bank customer wants to transfer funds to a beneficiary account in another bank instantly, 24x7, using only the account number and IFSC. Which system should be used?

  1. Real Time Gross Settlement
  2. A banker's cheque
  3. National Electronic Funds Transfer
  4. Immediate Payment Service Correct answer.

Explanation

IMPS operated by NPCI enables instant interbank transfers round the clock using account number and IFSC. NEFT settles in batches, RTGS is meant for high-value transactions during specified hours, and a banker's cheque is a paper instrument.

Question 9Introduction to Banking and Financial Services

What is the main purpose of the Deposit Insurance and Credit Guarantee Corporation in India?

  1. To guarantee repayment of corporate bonds
  2. To insure bank deposits up to a specified limit per depositor per bank Correct answer.
  3. To provide crop insurance to farmers
  4. To insure the physical assets of bank branches

Explanation

DICGC insures deposits of member banks up to a statutory limit for each depositor in each bank, protecting small savers if a bank fails. It does not cover bonds, crops or bank premises.

Question 10Introduction to Banking and Financial Services

A person opens a joint savings account with the instruction 'either or survivor'. What does this mean for operations?

  1. Both holders must sign every cheque
  2. Only the first-named holder may operate the account
  3. Either holder can operate the account during their joint lifetimes, and the survivor can operate it alone Correct answer.
  4. The account is frozen until both holders apply jointly

Explanation

The 'either or survivor' mandate allows any one of the joint holders to operate the account while both are alive, and the surviving holder continues to operate it after the other's death. It does not require joint signatures.

Question 11Introduction to Banking and Financial Services

Which regulator licenses and supervises non-banking financial companies in India?

  1. The Ministry of Corporate Affairs
  2. The National Housing Bank
  3. The Reserve Bank of India Correct answer.
  4. The Securities and Exchange Board of India

Explanation

The RBI regulates and supervises NBFCs under the Reserve Bank of India Act, 1934, including registration and prudential norms. SEBI regulates securities markets, the Ministry of Corporate Affairs handles company law, and NHB focuses on housing finance.

Question 12Introduction to Banking and Financial Services

A customer's cheque is returned unpaid with the remark 'insufficient funds'. Which consequence applies under Indian law?

  1. The payee must accept the cheque again after six months
  2. The collecting bank must pay the amount from its own funds
  3. The bank may close the account without notice
  4. The drawer may face criminal liability under the Negotiable Instruments Act if the statutory notice is served Correct answer.

Explanation

Dishonour of a cheque for insufficiency of funds can attract criminal liability under Section 138 of the Negotiable Instruments Act, provided the payee issues the prescribed demand notice within the stipulated period. The bank cannot unilaterally close the account or pay from its own funds.

Question 13Introduction to Banking and Financial Services

What is the primary role of a 'lead bank' in the Lead Bank Scheme?

  1. To coordinate credit planning and banking development in an assigned district Correct answer.
  2. To lend only to large corporate borrowers
  3. To act as the lender of last resort
  4. To settle interbank payment obligations

Explanation

Under the Lead Bank Scheme, a designated bank acts as the lead bank in each district to coordinate credit planning, branch expansion and implementation of government schemes. Lender of last resort functions belong to the RBI.

Question 14Introduction to Banking and Financial Services

A customer borrows at a floating interest rate linked to the bank's MCLR. If the RBI reduces the repo rate and the bank lowers its MCLR, what happens to the customer's interest burden?

  1. It becomes fixed for the remaining tenure
  2. It decreases because the loan is priced above a lower benchmark Correct answer.
  3. It stays the same because MCLR applies only to new loans
  4. It increases because the loan tenure is extended

Explanation

A floating-rate loan is priced as the benchmark plus a spread, so when the bank lowers its MCLR the effective rate and the interest burden fall. Existing floating-rate borrowers benefit because the benchmark itself has moved down.

Question 15Introduction to Banking and Financial Services

Which instrument is a written order directing a bank to pay a specified sum to a named person or bearer on demand?

  1. A promissory note
  2. A cheque Correct answer.
  3. A bill of exchange
  4. A share certificate

Explanation

A cheque is a bill of exchange drawn on a specified banker and payable on demand, as defined in the Negotiable Instruments Act. A promissory note is a promise to pay, and a share certificate evidences ownership of capital.

Question 16Introduction to Banking and Financial Services

A bank wishes to raise long-term capital by issuing securities that convert into equity only if its capital ratio falls below a threshold. Which instrument is this?

  1. A commercial paper
  2. An additional tier-1 bond Correct answer.
  3. A certificate of deposit
  4. A treasury bill

Explanation

Additional tier-1 bonds are perpetual instruments that absorb losses by converting into equity or being written down when the bank's capital ratio breaches a trigger. Certificates of deposit and commercial paper are short-term money market instruments, and treasury bills are government securities.

Question 17Introduction to Banking and Financial Services

What is the purpose of the Pradhan Mantri Jan Dhan Yojana?

  1. To promote universal access to banking services, including a basic savings account and RuPay card Correct answer.
  2. To regulate microfinance institutions
  3. To provide crop loans to farmers
  4. To insure bank deposits

Explanation

PMJDY aims at financial inclusion by giving every household access to a basic savings account, an overdraft facility and a RuPay debit card. It does not provide crop loans, deposit insurance or regulatory oversight.

Question 18Introduction to Banking and Financial Services

In a bank's balance sheet, where does a customer's fixed deposit appear?

  1. As part of shareholders' funds
  2. As a contingent liability
  3. As an asset under loans and advances
  4. As a liability under deposits Correct answer.

Explanation

A fixed deposit is money the bank owes to the customer, so it is recorded as a liability under deposits. The bank uses these funds to create assets such as loans and advances.

Question 19Introduction to Banking and Financial Services

Which of the following is a key difference between a savings account and a current account?

  1. A savings account generally earns interest and has withdrawal limits, while a current account earns no interest and is meant for business transactions Correct answer.
  2. A current account cannot be operated by a company
  3. Both accounts earn the same interest rate
  4. A current account earns interest while a savings account does not

Explanation

Savings accounts earn interest and carry some withdrawal conditions, whereas current accounts are designed for frequent business transactions and normally pay no interest. Companies routinely operate current accounts.

Question 20Introduction to Banking and Financial Services

A customer wants to send money abroad for his son's education. Which regulatory framework governs the remittance?

  1. The Companies Act, 2013
  2. The Foreign Exchange Management Act, 1999 Correct answer.
  3. The Indian Contract Act, 1872
  4. The Negotiable Instruments Act, 1881

Explanation

Cross-border remittances are governed by FEMA and the RBI's Liberalised Remittance Scheme, which sets limits and documentation for outward remittances. The other statutes deal with instruments, companies and contracts respectively.

Question 21Introduction to Banking and Financial Services

A bank computes its net interest margin as:

  1. Net profit divided by total deposits
  2. Gross income divided by total assets
  3. Net interest income divided by average earning assets Correct answer.
  4. Total interest paid divided by total borrowings

Explanation

Net interest margin measures the difference between interest earned and interest paid, expressed as a percentage of average earning assets. It indicates how efficiently a bank deploys its interest-bearing assets.

Question 22Introduction to Banking and Financial Services

What is meant by 'non-performing asset' in Indian banking?

  1. An investment that earns no dividend
  2. A loan on which principal or interest remains overdue for more than 90 days Correct answer.
  3. An asset that has been sold to another bank
  4. A deposit that has not been claimed for ten years

Explanation

A loan is classified as a non-performing asset when interest or principal is overdue for more than 90 days, as per RBI norms. Such assets require provisioning by the bank and reflect credit risk.

Question 23Introduction to Banking and Financial Services

A customer holds a savings account in a bank that is placed under a moratorium. What protection does the deposit insurance scheme provide?

  1. No protection until the bank is liquidated and all assets are sold
  2. Repayment up to the statutory insured limit per depositor per bank Correct answer.
  3. Repayment only to depositors with fixed deposits
  4. Full repayment of any amount held

Explanation

DICGC pays each depositor up to the statutory insured amount per bank if the bank is liquidated or placed under certain restrictions, regardless of the type of deposit. Amounts above that limit are recovered only through the liquidation process.

Question 24Introduction to Banking and Financial Services

Which of the following describes the role of a 'banking correspondent'?

  1. An individual or entity engaged by a bank to provide specified banking services in remote areas on its behalf Correct answer.
  2. A broker who arranges interbank loans
  3. A bank employee who audits branch accounts
  4. A regulator appointed by the RBI to inspect banks

Explanation

Banking correspondents are individuals or entities such as kirana shops or cooperatives engaged by a bank to deliver basic banking services in unbanked areas. They act as agents of the bank and are not regulators or auditors.

Question 25Introduction to Banking and Financial Services

A customer opens a recurring deposit of a fixed monthly instalment for 24 months. Which statement is correct?

  1. Each monthly instalment earns interest for the period it remains with the bank Correct answer.
  2. No interest is paid on recurring deposits
  3. The deposit can be withdrawn only after the bank's financial year ends
  4. The entire maturity amount is deposited at the time of opening

Explanation

In a recurring deposit the customer pays fixed instalments every month, and each instalment earns interest for the period it stays with the bank until maturity. Interest is paid along with the maturity value, not on the full amount from day one.

Question 26Introduction to Banking and Financial Services

Under the RBI's Basel III capital framework for Indian banks, which instrument is counted in Additional Tier 1 capital?

  1. Paid-up equity share capital and free reserves
  2. A 10-year subordinated bond with a fixed maturity date
  3. Perpetual non-cumulative preference shares with discretionary dividend Correct answer.
  4. General provisions created against standard assets

Explanation

Additional Tier 1 capital consists of instruments that are perpetual, absorb losses while the bank is a going concern, and carry fully discretionary, non-cumulative coupons; perpetual non-cumulative preference shares meet these criteria. Instruments with a fixed maturity date qualify only as Tier 2, because they are not perpetual. Common equity and general provisions belong to different tiers of the capital structure.

Question 27Introduction to Banking and Financial Services

A savings bank customer wants to set up a standing instruction so that a fixed amount moves automatically to a recurring deposit each month. What is the essential feature of such an instruction?

  1. It is valid only if countersigned by the branch manager each month
  2. It authorises the bank to debit the account periodically without a fresh cheque each time Correct answer.
  3. It converts the savings account into a current account for the debit period
  4. It requires the customer to sign a fresh mandate every month before the debit

Explanation

A standing instruction is a continuing authority given once by the account holder, allowing the bank to debit the account at stated intervals for a stated purpose until it is revoked. The whole point is that no fresh signature or paper mandate is needed for each occurrence. It does not change the nature of the underlying account.

Question 28Introduction to Banking and Financial Services

In Indian banking practice, what does the term 'locker rent' charged by a branch represent?

  1. A charge levied only when the locker is actually opened by the customer
  2. A statutory levy collected on behalf of the RBI
  3. A fee for the safe deposit locker facility, distinct from any deposit the bank holds Correct answer.
  4. Interest paid by the bank to the locker holder on the security deposit

Explanation

Locker rent is the consideration a customer pays for hiring a safe deposit locker from the bank; it is a service charge, not a deposit or interest-bearing product. The security deposit taken at allotment is separate from the rent. The charge is periodic and applies whether or not the locker is opened.

Question 29Introduction to Banking and Financial Services

A small trader receives an order from an overseas buyer and wants payment guaranteed by a bank, but no loan is being sought. Which documentary credit arrangement fits this need?

  1. A bill discounting facility under which the trader's own bank advances funds against receivables
  2. An overdraft sanctioned on the trader's current account
  3. A letter of credit issued by the buyer's bank undertaking to pay against compliant documents Correct answer.
  4. A bank guarantee issued in favour of the trader's supplier of raw material

Explanation

A letter of credit substitutes the creditworthiness of a bank for that of the buyer: the issuing bank undertakes to pay the exporter when the stipulated documents are presented and found compliant. It is a payment undertaking, not a lending facility to the exporter. Bill discounting, bank guarantees and overdrafts address different financing or security needs.

Question 30Introduction to Banking and Financial Services

A customer's account shows a debit entry titled 'charges - returned cheque'. Which explanation is consistent with standard Indian banking practice?

  1. The bank has paid the customer interest because a cheque was credited late
  2. The bank has reversed an earlier erroneous credit to the account
  3. The bank has charged stamp duty on a fresh cheque book issued to the customer
  4. The bank has recovered its processing charge because the customer's cheque was dishonoured on presentation Correct answer.

Explanation

When a cheque deposited or issued by a customer is returned unpaid, the bank incurs processing cost and recovers it through a service charge, shown as a debit. A return charge is a recovery from the customer, not a payment of interest. Reversals of wrong credits and cheque book stamp duty are described by different narrations.

Question 31Banking Operations and Procedures

A savings bank account holder in Maharashtra wants to withdraw cash using a cheque payable to himself. Which type of crossing should appear on the cheque so that it must be collected through a bank account and cannot be cashed at the counter?

  1. Special crossing with a bank name
  2. Account payee crossing Correct answer.
  3. Not negotiable crossing with the words 'not negotiable'
  4. General crossing with two parallel lines

Explanation

An account payee crossing directs the collecting bank to credit the proceeds only to the payee's account and prevents payment across the counter to any other person. A general crossing or a special crossing restricts the mode of collection but does not by itself bar the payee from receiving cash. The account payee instruction is the specific restriction that enforces credit to the named account.

Question 32Banking Operations and Procedures

Under the RBI's Know Your Customer norms, a customer opens a small savings account with a balance well below the prescribed threshold. What is the standard period after which the bank must complete full KYC verification for such a 'small account'?

  1. Six months from the date of opening
  2. Twenty-four months from the date of opening
  3. Twelve months from the date of opening Correct answer.
  4. Thirty-six months from the date of opening

Explanation

A small account is a temporary facility that must be regularised by full KYC within twelve months of opening, failing which further operations are frozen until verification is done. The twelve-month window is the standard rule applied by banks for such low-balance accounts. Shorter or longer periods do not match the prescribed limit.

Question 33Banking Operations and Procedures

A customer deposits a bearer cheque for ₹75,000 into his savings account. Under the RBI's prescribed cheque collection policy, within what maximum period should the collecting bank credit the proceeds to the customer's account (excluding the day of deposit)?

  1. Within three working days for local cheques Correct answer.
  2. Within fifteen working days for local cheques
  3. Same day for local cheques
  4. Within seven working days for local cheques

Explanation

The RBI's cheque collection policy requires local cheques to be credited within three working days of receipt, excluding the day of deposit. This timeline reflects the clearing cycle for cheques drawn on banks in the same city. Longer periods apply only to outstation cheques, not local ones.

Question 34Banking Operations and Procedures

A term deposit of ₹2,00,000 is held in the joint names of a husband and wife with a 'former or survivor' mandate. The husband dies. What is the correct treatment of the deposit?

  1. The wife continues to hold the deposit as the survivor and can operate it Correct answer.
  2. The entire deposit is paid to the nominee of the deceased
  3. The deposit is frozen until a succession certificate is produced
  4. The deposit is transferred to the legal heirs only after probate

Explanation

A 'former or survivor' mandate allows the surviving joint holder to continue operating the deposit after the death of the former holder, without requiring succession documents. The survivor becomes entitled to the balance as the mandated survivor. Succession certificates or probate are needed only where no such mandate exists.

Question 35Banking Operations and Procedures

A customer presents a cheque dated 1 April 2024 at the counter on 1 October 2024. What should the bank do?

  1. Return it because it is post-dated
  2. Pay it after obtaining the drawer's fresh confirmation
  3. Return it as stale because it is beyond three months Correct answer.
  4. Pay it because cheques are valid for one year

Explanation

A cheque is valid for presentation within three months from the date it bears, after which it becomes stale and must be returned unpaid. A cheque presented six months after its date is well beyond this validity period. Fresh confirmation from the drawer does not extend the statutory validity of the instrument.

Question 36Banking Operations and Procedures

A bank issues a demand draft payable at par at all its branches. What does 'at par' mean for the holder?

  1. The draft carries a fixed service charge at every branch
  2. The draft can be presented at any branch of the issuing bank without extra charges Correct answer.
  3. The draft can be encashed only at the issuing branch
  4. The draft must be cleared through the local clearing house only

Explanation

An 'at par' draft is payable at all branches of the issuing bank without additional collection charges. This makes it convenient for the holder to present it at a nearby branch. It is not restricted to the issuing branch or to a clearing house.

Question 37Banking Operations and Procedures

A fixed deposit receipt is marked 'not transferable'. A customer who wants to pledge it as security for a loan to his firm asks the bank to permit transfer. What is the correct position?

  1. The deposit can be transferred only with the RBI's prior approval
  2. The deposit can be transferred by endorsement despite the marking
  3. The deposit must be closed and rebooked in the firm's name before any lien
  4. The deposit cannot be transferred, but it can be pledged by creating a lien in favour of the bank Correct answer.

Explanation

A 'not transferable' fixed deposit cannot be assigned or endorsed to a third party, but the depositor can still create a lien or pledge in favour of a bank for a loan. The marking restricts transfer of ownership, not the creation of a security interest. Closing and rebooking is not a legal requirement for creating a lien.

Question 38Banking Operations and Procedures

A customer wants to remit funds through RTGS. What is the minimum amount that can be sent through RTGS?

  1. ₹1 lakh
  2. ₹2 lakh Correct answer.
  3. ₹5 lakh
  4. There is no minimum amount

Explanation

RTGS is a real-time gross settlement system with a prescribed minimum transaction value of ₹2 lakh. Amounts below this threshold must be routed through NEFT or other retail payment systems. The minimum is set to ensure RTGS is used for large-value settlements.

Question 39Banking Operations and Procedures

A customer's NEFT transfer is initiated on a working day after the batch cut-off. On what basis are such transactions settled?

  1. Immediately in real time
  2. Only once at the end of the day
  3. In half-hourly batches through the day Correct answer.
  4. Only on the next working day regardless of time

Explanation

NEFT operates on a deferred net settlement basis with half-hourly batches throughout the day, including on Saturdays, Sundays and holidays in many cases. Transactions received after a cut-off are queued for the next batch rather than settled instantly. Real-time settlement is the feature of RTGS, not NEFT.

Question 40Banking Operations and Procedures

A customer with an overdraft facility of ₹5 lakh in his current account issues a cheque for ₹6 lakh. The bank dishonours the cheque for insufficient funds. Which provision of the Negotiable Instruments Act applies to the drawer's liability?

  1. Section 138 for dishonour of cheque Correct answer.
  2. Section 123 for general crossing
  3. Section 85 for payment in due course
  4. Section 118 for presumption of consideration

Explanation

Section 138 of the Negotiable Instruments Act deals with the dishonour of a cheque for insufficiency of funds or because it exceeds the arrangement, and it creates a criminal liability for the drawer. The other sections deal with payment in due course, presumptions and crossing, none of which governs dishonour for insufficient funds.

Question 41Banking Operations and Procedures

A bank's branch receives a stop-payment instruction from a customer for a cheque already presented in clearing. What is the bank's correct obligation?

  1. Hold the cheque until the customer's instruction is withdrawn
  2. Return the cheque unpaid citing 'payment stopped by drawer' Correct answer.
  3. Pay the cheque and recover the amount from the customer later
  4. Honour the cheque because clearing has already begun

Explanation

A valid stop-payment instruction from the drawer obliges the paying bank to dishonour the cheque, and the return reason must reflect that payment was stopped by the drawer. The bank cannot ignore the instruction merely because clearing has started. Paying and recovering later would breach the mandate.

Question 42Banking Operations and Procedures

A customer wants to open a fixed deposit in the name of a minor aged 10 years, with the minor as the sole depositor. What is the correct position?

  1. A minor can open a fixed deposit, and the bank may allow operation by the minor if he can understand the nature of the transaction Correct answer.
  2. A minor can open a deposit only jointly with a guardian
  3. A minor can open a deposit only after attaining 18 years
  4. A minor cannot open a fixed deposit in his own name

Explanation

A minor is competent to open and operate a deposit account, and banks may permit operation by the minor if he is capable of understanding the nature of the transaction. A guardian is usually involved for younger children. A minor is not barred from holding a fixed deposit in his own name.

Question 43Banking Operations and Procedures

A current account holder deposits a cheque drawn on another bank. The cheque is returned unpaid with the reason 'drawer's signature differs'. What is the collecting bank's obligation towards its customer?

  1. Debit the customer's account and return the cheque with the reason Correct answer.
  2. Pay the customer and claim from the paying bank
  3. File a case against the drawer on the customer's behalf
  4. Absorb the loss because the bank guaranteed collection

Explanation

When a cheque is returned unpaid, the collecting bank reverses the provisional credit and returns the instrument to the customer with the reason for dishonour. The bank does not guarantee collection and cannot absorb the loss. Legal action against the drawer is the customer's own remedy.

Question 44Banking Operations and Procedures

A bank branch receives a request to debit a customer's account under a standing instruction for a monthly insurance premium. The account lacks sufficient balance on the due date. What should the branch do?

  1. Skip the debit and continue the instruction for the next month Correct answer.
  2. Debit a part amount and close the instruction
  3. Debit the account and allow it to become overdrawn
  4. Cancel the standing instruction permanently

Explanation

A standing instruction is executed only when sufficient funds are available; if the balance is insufficient, the debit is skipped for that cycle and the instruction continues for subsequent cycles. Creating an overdraft without sanction would be improper. Permanent cancellation requires the customer's instruction.

Question 45Banking Operations and Procedures

A customer presents a cheque for payment that has been materially altered by changing the amount from ₹1,000 to ₹10,000 without the drawer's consent. What is the paying bank's correct action?

  1. Pay ₹10,000 as written on the cheque
  2. Dishonour the cheque because a material alteration voids it Correct answer.
  3. Pay ₹1,000, the original amount
  4. Pay the altered amount and seek the drawer's ratification

Explanation

A material alteration made without the drawer's consent renders the cheque void, and the paying bank must dishonour it. Paying the original amount is not permissible because the instrument itself has been vitiated. Ratification after payment cannot cure the defect.

Question 46Banking Operations and Procedures

A bank receives a garnishee order from a court attaching a customer's account. Which of the following correctly describes the bank's duty?

  1. Ignore the order until the customer is heard
  2. Close the account and remit the balance to the court immediately
  3. Attach the balance available at the time of receipt of the order, subject to prior claims Correct answer.
  4. Attach the entire balance including amounts deposited after receipt of the order

Explanation

A garnishee order attaches the credit balance available at the moment the order is received, subject to any prior claims or liens. Deposits made after receipt are not covered by that order. Closing the account is not the prescribed response.

Question 47Banking Operations and Procedures

A bank issues a letter of credit to a customer for import of machinery. Which of the following best describes the bank's obligation under the letter of credit?

  1. The bank guarantees the quality of the machinery supplied
  2. The bank undertakes to pay the beneficiary on presentation of complying documents Correct answer.
  3. The bank acts as an agent of the importer for inspection of goods
  4. The bank is liable only if the importer defaults on payment

Explanation

A letter of credit is a documentary credit under which the issuing bank undertakes to pay the beneficiary against presentation of documents that comply with the credit terms. The bank deals in documents, not in goods, and does not guarantee quality. Its liability arises on complying presentation, not on the importer's default.

Question 48Banking Operations and Procedures

A customer wants to deposit a cheque into his account that is drawn in favour of a third party and endorsed in blank. What should the collecting bank do?

  1. Accept it only if the third party is present at the counter
  2. Accept it for collection as a bearer instrument Correct answer.
  3. Return it because a blank endorsement is invalid
  4. Accept it after obtaining the drawer's consent

Explanation

A cheque endorsed in blank becomes payable to bearer, and the collecting bank may accept it for collection as a bearer instrument. A blank endorsement is valid under the Negotiable Instruments Act. The presence of the third party or the drawer's consent is not required.

Question 49Banking Operations and Procedures

A customer wants to close his savings account and transfer the balance to another bank. Which of the following is the correct procedure?

  1. The bank must obtain RBI approval before closing the account
  2. The bank must insist on a fresh account opening at the same branch
  3. The bank must keep the account open for six months before closure
  4. The customer submits a closure request and the bank pays the balance by a banker's cheque or transfer Correct answer.

Explanation

Account closure is a customer right; the customer submits a written closure request and the bank pays the balance by a banker's cheque or electronic transfer. RBI approval is not required for individual account closure. There is no mandatory waiting period before closure.

Question 50Banking Operations and Procedures

A customer deposits ₹2,00,000 in cash into his savings account in a single day. Under the RBI's cash transaction reporting norms, what is the bank required to do?

  1. Inform the local police station about the deposit
  2. Refuse the deposit because it exceeds the limit
  3. Report the transaction as a cash transaction report if it exceeds the prescribed threshold Correct answer.
  4. Obtain the customer's income tax PAN before accepting the deposit

Explanation

Banks are required to file cash transaction reports for cash deposits above the prescribed threshold as part of anti-money-laundering compliance. The deposit itself is not refused, and PAN or police intimation is not a general requirement for such deposits. The obligation is reporting, not blocking.