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RBSE SS Voc Banking study materials
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RBSE SS Voc Banking practice questions

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Question 1Introduction to Banking and Financial Institutions

In the structure of the Indian financial system, which institution is the apex monetary authority responsible for issuing currency notes and conducting monetary policy?

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

Explanation

The Reserve Bank of India is the central bank, charged with currency issuance, monetary policy, and regulation of the banking system. The other bodies are sector regulators or specialised institutions, not the monetary authority.

Question 2Introduction to Banking and Financial Institutions

A customer deposits ₹50,000 in a savings account. Under the fractional reserve system, what is the primary way commercial banks use such deposits?

  1. They lock the entire amount in a vault until withdrawal
  2. They extend loans and create credit while keeping a fraction as reserves Correct answer.
  3. They transfer the full amount to the central bank as a permanent deposit
  4. They invest the full amount in government equity shares

Explanation

Banks keep only a fraction of deposits as reserves and lend the remainder, which is how credit is created in the economy. This fractional reserve practice is the basis of bank intermediation.

Question 3Introduction to Banking and Financial Institutions

Which type of account is primarily designed for business firms needing frequent transactions, overdraft facility, and unlimited withdrawals?

  1. Savings bank account
  2. Fixed deposit account
  3. Current account Correct answer.
  4. Recurring deposit account

Explanation

Current accounts are meant for traders and businesses, allow frequent transactions, and typically carry no interest but offer overdraft facilities. Savings accounts restrict withdrawals and earn interest, while deposits are time-bound.

Question 4Introduction to Banking and Financial Institutions

What does the Cash Reserve Ratio (CRR) require a commercial bank to do?

  1. Lend a fixed proportion of deposits to priority sectors
  2. Keep a portion of deposits in government securities
  3. Maintain a specified percentage of net demand and time liabilities as cash balances with the RBI Correct answer.
  4. Insure deposits up to a fixed amount per depositor

Explanation

CRR is the share of a bank's net demand and time liabilities that must be held as cash with the Reserve Bank. It is a monetary tool affecting liquidity and credit availability.

Question 5Introduction to Banking and Financial Institutions

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

  1. Regulating the securities market
  2. Issuing currency notes
  3. Accepting deposits and granting loans Correct answer.
  4. Fixing the repo rate

Explanation

Accepting deposits and lending are the core primary functions of commercial banks, through which they intermediate between savers and borrowers. The other activities belong to regulators or the central bank.

Question 6Introduction to Banking and Financial Institutions

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

  1. To regulate interest rates on savings accounts
  2. To protect depositors by insuring deposits up to a specified limit Correct answer.
  3. To lend emergency funds to banks facing a liquidity crisis
  4. To provide long-term project finance to industry

Explanation

DICGC insures bank deposits up to a statutory limit, giving depositors a measure of protection if a bank fails. It does not lend to banks or set interest rates.

Question 7Introduction to Banking and Financial Institutions

A bank's balance sheet shows deposits of ₹500 crore and advances of ₹400 crore. Which term describes the difference in the context of bank operations?

  1. The bank's liquidity gap between deposits and advances Correct answer.
  2. The bank's net worth
  3. The bank's non-performing assets
  4. The bank's capital adequacy ratio

Explanation

The gap between deposits mobilized and advances deployed reflects the bank's liquidity position and use of funds. It is not the same as net worth, capital adequacy, or asset quality.

Question 8Introduction to Banking and Financial Institutions

Which institution was established to provide credit and support to agriculture, small-scale industries, and rural development as a development finance institution?

  1. NPCI
  2. NABARD Correct answer.
  3. SEBI
  4. IRDAI

Explanation

NABARD is the apex development bank for agriculture and rural credit, supporting cooperatives and rural institutions. The other bodies regulate securities, insurance, and payments respectively.

Question 9Introduction to Banking and Financial Institutions

A bank raises the interest rate on fixed deposits to attract more funds. What is the most direct effect of this action?

  1. Advances will automatically become cheaper for borrowers
  2. The bank's CRR requirement will fall
  3. The bank's capital adequacy will improve immediately
  4. The bank's cost of funds will rise Correct answer.

Explanation

Higher deposit rates increase the interest the bank pays to depositors, raising its cost of funds. CRR and capital adequacy are regulatory ratios unaffected directly by deposit pricing.

Question 10Introduction to Banking and Financial Institutions

Which of the following best describes the Statutory Liquidity Ratio (SLR)?

  1. The minimum capital a bank must maintain relative to risk-weighted assets
  2. The maximum loan a bank may give to a single borrower
  3. The minimum cash a bank must hold with the RBI
  4. The minimum proportion of deposits a bank must hold in liquid assets such as government securities Correct answer.

Explanation

SLR requires banks to hold a specified share of their liabilities in liquid assets, chiefly government securities and cash. It ensures solvency and liquidity but is distinct from CRR and capital adequacy.

Question 11Introduction to Banking and Financial Institutions

A government wants to borrow money for infrastructure by issuing marketable securities. Which mechanism is most appropriate?

  1. Using the savings bank deposits of the public directly
  2. Borrowing from the DICGC
  3. Taking an overdraft from a commercial bank
  4. Issuing government securities through the primary market Correct answer.

Explanation

Governments raise long-term funds by issuing securities in the primary market, often through auctions managed by the central bank. Commercial overdrafts and deposit insurance funds are not suitable for large infrastructure financing.

Question 12Introduction to Banking and Financial Institutions

What distinguishes a cooperative bank from a commercial bank in India?

  1. Cooperative banks are regulated by SEBI
  2. Cooperative banks are owned by the government, while commercial banks are always private
  3. Cooperative banks are member-owned institutions focused on serving their members, while commercial banks are typically shareholder-owned and profit-oriented Correct answer.
  4. Cooperative banks cannot accept deposits from the public

Explanation

Cooperative banks operate on a member-owned, mutual basis and serve their members, whereas commercial banks are generally joint-stock companies driven by shareholder returns. Both accept deposits and are regulated within the banking framework.

Question 13Introduction to Banking and Financial Institutions

When the RBI conducts an open market operation by selling government securities, what is the usual intended effect?

  1. To lower the CRR automatically
  2. To inject liquidity into the banking system
  3. To absorb liquidity from the banking system Correct answer.
  4. To increase deposit insurance cover

Explanation

Selling securities in open market operations drains reserves from banks, reducing liquidity. Buying securities does the opposite by injecting liquidity.

Question 14Introduction to Banking and Financial Institutions

A small business wants a loan but cannot offer tangible collateral. Which facility is most relevant?

  1. A bill discounting facility backed by inventory
  2. A fixed deposit receipt pledged as security
  3. A collateral-free loan under a government-backed guarantee scheme for micro and small enterprises Correct answer.
  4. An overdraft secured by property

Explanation

Guarantee-backed schemes allow micro and small enterprises to obtain credit without tangible collateral by shifting part of the risk to a guarantor institution. The other options require security or existing assets.

Question 15Introduction to Banking and Financial Institutions

Which of the following is a non-banking financial company (NBFC) activity that distinguishes it from a bank?

  1. Providing deposit insurance to customers
  2. Accepting demand deposits from the public
  3. Issuing cheques drawn on itself
  4. Lending and investing without being part of the payment and settlement system Correct answer.

Explanation

NBFCs lend and invest but cannot accept demand deposits or issue cheques as part of the payment system, which distinguishes them from banks. Banks alone perform the core payment and deposit functions.

Question 16Introduction to Banking and Financial Institutions

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

  1. Its ability to issue currency will increase
  2. Its CRR requirement will be waived
  3. Its deposit insurance premium will be refunded
  4. Its capital adequacy and profitability will come under pressure Correct answer.

Explanation

Rising NPAs mean loans are not generating income and may require provisioning, which erodes profits and capital. This can weaken capital adequacy and lending capacity.

Question 17Introduction to Banking and Financial Institutions

Which of the following best explains why banks are described as financial intermediaries?

  1. They channel funds from savers to borrowers and thereby reduce information and transaction costs Correct answer.
  2. They fix the exchange rate of the rupee
  3. They print currency on behalf of the government
  4. They guarantee the returns of all investors

Explanation

Banks intermediate by collecting deposits from surplus units and lending to deficit units, while screening borrowers and pooling risk. This lowers search and information costs in the economy.

Question 18Introduction to Banking and Financial Institutions

A customer wants to compare a savings account and a fixed deposit. Which statement is accurate?

  1. Both offer identical liquidity and interest rates
  2. A savings account usually offers higher interest than a fixed deposit of the same tenure
  3. A fixed deposit can be withdrawn by cheque at any time without penalty
  4. A fixed deposit generally offers a higher interest rate but locks funds for a fixed term Correct answer.

Explanation

Fixed deposits pay higher interest because funds are committed for a set term, while savings accounts offer liquidity at lower rates. Premature withdrawal of a fixed deposit usually attracts a penalty.

Question 19Introduction to Banking and Financial Institutions

In the context of monetary policy transmission, which sequence is most plausible when the central bank reduces the policy repo rate?

  1. Bank lending rates fall, credit demand rises, and economic activity may expand Correct answer.
  2. The CRR automatically increases and liquidity tightens
  3. Bank lending rates rise and credit demand falls
  4. Deposit insurance cover increases and bank risk disappears

Explanation

A lower repo rate reduces the cost of funds for banks, which typically lowers lending rates and stimulates credit demand and activity. This is the intended transmission channel of monetary easing.

Question 20Introduction to Banking and Financial Institutions

A bank holds ₹100 crore in government securities and has net demand and time liabilities of ₹1,000 crore. If the SLR is 18 percent, what is the minimum additional liquid asset holding required?

  1. ₹18 crore
  2. No additional holding is required
  3. ₹80 crore Correct answer.
  4. ₹180 crore

Explanation

The SLR requirement is 18 percent of ₹1,000 crore, which is ₹180 crore. Since the bank already holds ₹100 crore, it needs ₹80 crore more in eligible liquid assets.

Question 21Introduction to Banking and Financial Institutions

Which combination correctly pairs a regulator with its sector?

  1. SEBI with securities, IRDAI with insurance Correct answer.
  2. NPCI with banking regulation, RBI with payments
  3. RBI with insurance, IRDAI with banking
  4. NABARD with securities, SEBI with rural credit

Explanation

SEBI regulates the securities market and IRDAI regulates insurance, so this pairing is correct. The other pairs swap or misassign regulatory mandates.

Question 22Introduction to Banking and Financial Institutions

A bank's advances grow much faster than its deposit base over a year. Which risk does this pattern most directly indicate?

  1. Operational risk from staff errors
  2. Legal risk from contract disputes
  3. Liquidity risk arising from a widening funding gap Correct answer.
  4. Reputational risk from advertising

Explanation

When lending outpaces deposit mobilization, the bank relies more on borrowed or short-term funds, creating a liquidity mismatch. This is a funding and liquidity risk rather than an operational or legal one.

Question 23Introduction to Banking and Financial Institutions

Which statement correctly distinguishes the primary market from the secondary market in financial instruments?

  1. Both markets only deal in government securities
  2. The primary market is regulated by IRDAI and the secondary market by NABARD
  3. The primary market involves new issuance of securities, while the secondary market allows trading of already-issued securities Correct answer.
  4. The primary market trades existing securities between investors, while the secondary market issues new securities

Explanation

New securities are issued in the primary market, raising fresh capital for the issuer, whereas the secondary market provides liquidity by letting investors trade existing securities. Regulation is by SEBI, not IRDAI or NABARD.

Question 24Introduction to Banking and Financial Institutions

A cooperative credit society collects deposits only from its members and lends to them. How is such an institution best classified within the financial system?

  1. As a scheduled commercial bank
  2. As a non-banking cooperative credit institution Correct answer.
  3. As a payment system operator
  4. As a development finance institution

Explanation

A member-only credit society that takes deposits and lends is a cooperative credit institution, not a scheduled commercial bank. It operates outside the commercial banking framework even though it performs similar intermediation for members.

Question 25Banking Operations and Types of Accounts

Under the RBI's classification of deposits, which account type allows withdrawals by cheque or ATM without any prior notice to the bank?

  1. Demand deposit account Correct answer.
  2. Cumulative fixed deposit account
  3. Term deposit account
  4. Recurring deposit account

Explanation

Demand deposits are payable on demand, meaning the depositor can withdraw funds at any time through a cheque, ATM, debit card, or electronic transfer without informing the bank in advance. Savings and current accounts are the two standard forms of demand deposits. Term and recurring deposits require a fixed maturity period.

Question 26Banking Operations and Types of Accounts

A customer opens a current account and asks why it earns no interest. What is the standard correct reason in Indian banking?

  1. Interest is paid only after the account completes five years
  2. Current account holders are exempt from service charges instead of receiving interest
  3. Interest is credited only if the average balance exceeds one lakh rupees
  4. Current accounts are meant for business liquidity and banks are not permitted to pay interest on them Correct answer.

Explanation

Current accounts are designed for traders and businesses that need frequent, unrestricted transactions, and RBI rules do not permit banks to pay interest on these balances. In exchange, the account offers unlimited withdrawals and is not subject to savings-account withdrawal limits. Any claim that interest accrues after a waiting period or a balance threshold misstates the rule.

Question 27Banking Operations and Types of Accounts

Which facility lets a savings account holder withdraw cash from an ATM beyond the balance in the account, up to a sanctioned limit?

  1. Direct debit mandate
  2. Standing instruction
  3. Lock-in facility
  4. Overdraft facility Correct answer.

Explanation

An overdraft is a sanctioned limit that permits the account holder to draw funds in excess of the available balance, and interest is charged on the amount and period of the excess. A standing instruction or debit mandate only automates routine payments. There is no banking product called a lock-in facility for savings withdrawals.

Question 28Banking Operations and Types of Accounts

In a joint savings account operated under the 'either or survivor' mandate, what happens to the balance when one holder dies?

  1. The balance is transferred to the nominee only, ignoring the survivor
  2. The account is frozen until a succession certificate is produced
  3. The surviving holder can continue to operate the account and receive the balance Correct answer.
  4. The account converts automatically into a fixed deposit in the deceased's name

Explanation

Under the either or survivor mandate, the surviving joint holder is entitled to operate the account and to receive the balance on the death of the other holder. A succession certificate is not required in this mode. The nomination, if any, does not override the survivor's right in such an account.

Question 29Banking Operations and Types of Accounts

Which document does a bank primarily use to verify a customer's identity and address at account opening under the KYC framework?

  1. Officially valid document such as passport, driving licence, or Aadhaar Correct answer.
  2. Ration card of an extended family member
  3. Reference letter from a neighbour
  4. Salary slip of the previous employer

Explanation

The KYC master direction recognises officially valid documents, including passport, driving licence, Aadhaar, voter identity card, and NREGA job card, for identity and address proof. Other papers may support a profile but do not by themselves satisfy the KYC requirement. The bank must also obtain a recent photograph and, where applicable, PAN.

Question 30Banking Operations and Types of Accounts

A customer wants a deposit where fixed monthly instalments build a lump sum over a chosen tenure. Which product matches this need?

  1. Current account
  2. Savings bank account
  3. Recurring deposit Correct answer.
  4. Demand draft

Explanation

A recurring deposit accepts a fixed instalment every month for a fixed tenure and pays interest, maturing into a lump sum. Savings and current accounts are transactional demand deposits with no instalment obligation. A demand draft is a payment instrument, not a deposit scheme.

Question 31Banking Operations and Types of Accounts

What is the effect of a bank honouring a cheque drawn on a savings account when the available balance is insufficient but an overdraft limit exists?

  1. The cheque is paid only after the customer deposits cash the same day
  2. The cheque must be returned for insufficient funds regardless of the limit
  3. The cheque is paid and the excess is treated as a loan drawing under the sanctioned limit Correct answer.
  4. The bank pays half the cheque amount as a compromise

Explanation

When a sanctioned overdraft limit exists, the bank may honour a cheque beyond the credit balance, and the resulting debit is a borrowing under that limit on which interest is charged. The limit is precisely the arrangement that prevents dishonour for want of funds. Returning the cheque or paying a part amount would defeat the purpose of the sanction.

Question 32Banking Operations and Types of Accounts

Which of these is a characteristic that distinguishes a savings bank account from a current account in India?

  1. Cheques cannot be issued from the account
  2. Only companies may open such an account
  3. No minimum balance requirement can ever apply
  4. Interest is payable and the number of withdrawals may be restricted Correct answer.

Explanation

Savings accounts earn interest and are subject to RBI-prescribed withdrawal restrictions, whereas current accounts earn no interest and permit unrestricted operations. Both account types allow cheque issuance, and savings accounts are typically opened by individuals. Banks may also prescribe minimum balance conditions for savings accounts.

Question 33Banking Operations and Types of Accounts

A firm deposits a cheque into its current account and the collecting bank credits the amount before the paying bank confirms clearance. What is this practice called?

  1. Noting of the instrument
  2. Final settlement of the instrument
  3. Immediate credit with a lien marked until realisation Correct answer.
  4. Endorsement in blank

Explanation

Some banks give immediate credit for cheques within a threshold, but they mark a lien or hold on the funds until the instrument is realised from the paying bank. The credit is provisional and can be reversed if the cheque is returned unpaid. Final settlement occurs only on actual realisation, and endorsement and noting are unrelated negotiable-instrument actions.

Question 34Banking Operations and Types of Accounts

A nominee is registered in a single-holder savings account. On the depositor's death, what is the nominee's legal position regarding the deposit?

  1. The nominee must obtain probate before the bank releases funds
  2. The nominee becomes the absolute owner free of any claim
  3. The nomination lapses and the bank retains the balance
  4. The nominee receives the money as a trustee for the legal heirs Correct answer.

Explanation

A nominee is entitled to receive the deposit on the depositor's death but holds it as a trustee for the legal heirs under the applicable banking rules. Nomination is a facility to avoid hardship and does not confer beneficial ownership. The bank releases funds to the nominee without requiring probate, and the nomination does not lapse on death.

Question 35Banking Operations and Types of Accounts

A customer wants to open a fixed deposit for five years but receive interest every quarter instead of at maturity. Which option should the bank offer?

  1. Flexible recurring deposit
  2. Recurring deposit
  3. Non-cumulative fixed deposit Correct answer.
  4. Cumulative fixed deposit

Explanation

In a non-cumulative fixed deposit, interest is paid out periodically, such as monthly, quarterly, or half-yearly, while the principal stays invested for the tenure. A cumulative deposit instead reinvests interest and pays it at maturity. Recurring deposits involve monthly instalments and are not the right product for a lump-sum placement.

Question 36Banking Operations and Types of Accounts

Why do banks insist on a 'know your customer' verification before allowing high-value transactions in an existing account?

  1. To transfer the account to another branch
  2. To increase the interest rate on the account
  3. To keep the customer profile current and detect money laundering or terrorist financing Correct answer.
  4. To convert the account into a term deposit automatically

Explanation

Periodic KYC updating keeps the customer profile current and supports transaction monitoring required under the Prevention of Money Laundering Act and RBI directions. It is a risk-management and compliance measure, not a pricing or product-conversion step. Branch transfer is a separate service request unrelated to KYC.

Question 37Banking Operations and Types of Accounts

A partnership firm wants to open an account. Which requirement is specific to this account type compared with an individual account?

  1. A fixed deposit receipt as collateral
  2. An income tax return of the senior-most partner only
  3. A partnership mandate or resolution naming the authorised signatories Correct answer.
  4. A personal photograph of every customer of the bank

Explanation

For a partnership account, the bank obtains the partnership deed and a mandate or resolution identifying who may operate the account and sign instruments. This protects the bank against disputes among partners over authority. Individual accounts rely on the account holder's own KYC and signature, and collateral is not an account-opening requirement.

Question 38Banking Operations and Types of Accounts

What does the 'survivor' element in a joint account operated by 'former or survivor' mean?

  1. The survivor can operate the account only after the death of the former holder Correct answer.
  2. Either holder can operate the account at any time
  3. Both holders must sign every cheque jointly
  4. The survivor forfeits the balance to the bank

Explanation

In the 'former or survivor' mode, the first-named holder operates the account during his or her lifetime, and the survivor gains the right to operate it only after the former's death. This differs from 'either or survivor', where both can operate simultaneously. The bank does not acquire the balance in any joint mode.

Question 39Banking Operations and Types of Accounts

A customer presents a cheque that is more than three months old. How should the bank normally treat it?

  1. Honour it because cheques remain valid for one year
  2. Return it as stale, since cheques are valid for three months from the date of issue Correct answer.
  3. Honour it if the payee confirms the delay in writing
  4. Return it only if the balance is insufficient

Explanation

Under RBI guidelines, a cheque is valid for presentation within three months from its date, after which it becomes stale and should be returned unpaid. The payee's written confirmation cannot extend the statutory validity. The balance position is irrelevant to the staleness question.

Question 40Banking Operations and Types of Accounts

A minor's savings account is opened and operated by a guardian. What happens when the minor attains majority?

  1. The minor becomes entitled to operate the account independently and must complete fresh KYC Correct answer.
  2. The guardian continues to operate it for life unless a court orders otherwise
  3. The account must be closed immediately on the eighteenth birthday
  4. The balance is transferred to the guardian's personal account

Explanation

On attaining majority, a minor becomes competent to contract and to operate the account in his or her own right, and the bank obtains fresh KYC and a specimen signature. The account is not automatically closed, and guardianship does not continue indefinitely. Transferring the balance to the guardian would defeat the minor's ownership of the funds.

Question 41Banking Operations and Types of Accounts

Which instrument is best suited when a buyer must pay a supplier in another city and wants a bank-guaranteed payment rather than a personal cheque?

  1. Demand draft issued by the buyer's bank Correct answer.
  2. Post-dated cheque of the buyer
  3. Bearer cheque signed by the buyer
  4. Promissory note of the buyer

Explanation

A demand draft is issued by a bank on another branch or correspondent and carries the bank's credit, so the payee need not rely on the buyer's personal creditworthiness. It is payable on demand at the drawee branch. A personal cheque or promissory note depends on the buyer's account and credit, and a post-dated cheque cannot be encashed before its date.

Question 42Banking Operations and Types of Accounts

A savings account holder issues a cheque, but the signature differs materially from the specimen on record. What is the bank's correct course of action?

  1. Pay it only if the payee is a known customer
  2. Pay it and regularise the signature later
  3. Pay it if the amount is small enough to be written off
  4. Return the cheque unpaid, since the mandate is not established by the signature Correct answer.

Explanation

A bank pays a cheque only when the drawer's signature matches the specimen on record, because the mandate to debit the account depends on a genuine signature. A material mismatch means the mandate is not established, so the instrument is returned. The amount or the payee's identity does not alter this rule.

Question 43Banking Operations and Types of Accounts

A customer wants a savings account but cannot visit a branch. Which facility allows account opening through a video-based process under RBI norms?

  1. Doorstep banking only
  2. Locker allotment
  3. Video-based customer identification process Correct answer.
  4. Mobile wallet migration

Explanation

The video-based customer identification process permits banks to complete KYC through a real-time, recorded video interaction, enabling remote account opening within prescribed limits. Doorstep banking is a service for existing customers, and wallets and lockers are unrelated to remote account opening. The interaction must be recorded and retained for audit.

Question 44Banking Operations and Types of Accounts

A customer holds a savings account with a lien marked by a court attachment. What does the bank's lien mean for the customer's operations?

  1. The entire account is closed permanently
  2. The customer may withdraw the attached amount with the manager's verbal approval
  3. The bank transfers the attached amount to the customer's nominee
  4. The attached amount cannot be withdrawn until the lien is lifted by the competent authority Correct answer.

Explanation

A lien or attachment restricts the customer's right to withdraw the earmarked amount until the authority that imposed it withdraws the order. The account itself continues for other purposes. Neither a verbal approval nor a nominee transfer can override a court attachment.

Question 45Banking Operations and Types of Accounts

A customer deposits a cheque into a savings account and the paying bank returns it unpaid for 'funds insufficient'. What is the collecting bank's obligation regarding the provisional credit already given?

  1. Retain the credit until the customer's next deposit
  2. Reverse the credit and debit the customer's account, informing the customer of the return Correct answer.
  3. Absorb the loss and retain the credit
  4. Convert the credit into an overdraft free of interest

Explanation

Provisional credit is given on the understanding that it will be reversed if the instrument is dishonoured. On return, the collecting bank debits the customer's account and notifies the customer, and the customer may pursue the drawer for recovery. The bank does not absorb the loss, and the debit is not a sanctioned overdraft.

Question 46Banking Operations and Types of Accounts

A company wishes to open a current account and the bank receives an unsigned board resolution naming two signatories. How should the bank proceed?

  1. Open the account in the name of the directors personally
  2. Open the account and allow either signatory to operate it immediately
  3. Reject the application permanently without further enquiry
  4. Seek a properly authenticated resolution and verify the signatories' authority before operating the account Correct answer.

Explanation

The bank must satisfy itself of the company's authority to open the account and of the persons empowered to operate it, which requires a properly authenticated board resolution and the company's constitutional documents. An unsigned resolution does not establish that authority. The bank may seek a corrected resolution rather than refusing outright, and it cannot open the account in the directors' personal names.

Question 47Banking Operations and Types of Accounts

A customer's savings account shows an unauthorised electronic debit. Within what framework must the bank resolve the customer's liability?

  1. The Negotiable Instruments Act provisions on cheque dishonour
  2. The deposit insurance scheme of the DICGC
  3. RBI's customer protection rules on limited liability for unauthorised electronic banking transactions Correct answer.
  4. The Banking Regulation Act provisions on licensing

Explanation

RBI's customer protection circular limits a customer's liability for unauthorised electronic transactions depending on whether the fraud is due to the customer's negligence, a third-party breach, or the bank's own systems, and requires prompt reporting and resolution. Dishonour of cheques, deposit insurance, and licensing are governed by entirely separate provisions and do not determine liability for unauthorised debits.

Question 48Banking Operations and Types of Accounts

A bank receives a request to set off a term deposit against a defaulted loan of the same customer. What principle governs this action?

  1. The rule that deposits are always immune from any adjustment
  2. The bank's general right of set-off, subject to the terms of the deposit and any statutory protection Correct answer.
  3. The requirement of a fresh loan application for every adjustment
  4. The nominee's consent as a precondition for set-off

Explanation

A bank may exercise set-off to combine a customer's credit balance with a matured debt owed to it, provided the debts are mutual and due, and subject to the deposit terms and any statutory protection such as for certain government-credited funds. The right is not absolute immunity for deposits. A fresh loan application and nominee consent are not preconditions for exercising set-off.

Question 49Banking Operations and Types of Accounts

A savings account holder dies leaving a balance and no nomination. How should the bank deal with the claim of the legal heirs?

  1. Divide the balance equally among all branch customers
  2. Transfer the balance to the last person who operated the account
  3. Retain the balance indefinitely as unclaimed
  4. Release the balance to the heirs on satisfactory proof of their title, following the bank's prescribed settlement procedure Correct answer.

Explanation

Where no nomination exists, the bank settles the deceased's balance with the legal heirs on proof of entitlement, such as a succession certificate, probate, letter of administration, or the bank's simplified settlement procedure for small balances. The bank cannot retain the money indefinitely, and operation of the account by another person creates no title.

Question 50Banking Operations and Types of Accounts

A salaried individual wants a deposit account that earns interest, permits cheque withdrawals, and allows a few free transactions each month. Which account type is designed for this need?

  1. Term deposit account
  2. Current account
  3. Savings bank account Correct answer.
  4. Recurring deposit account

Explanation

A savings bank account is meant for individuals to park idle funds while earning a modest interest rate, and it permits withdrawals by cheque, ATM or electronic transfer subject to a monthly free-transaction limit. Current accounts are for business-style transactional needs and pay no interest, while recurring and term deposits restrict access to the money.