1. Select the correct alternative and write answers to the following questions :
1. In which kind of account generally interest is not paid on the deposit?
(A) Savings account
(B) Current account
(C) Recurring account
(D) Fixed deposit account
2. In which kind of account it is compulsory to deposit certain amount at certain time?
(A) Savings account
(B) Current account
(C) Recurring account
(D) Fixed deposit account
3. In which kind of account the bank gives maximum rate of interest on the deposited amount?
(A) Current account
(B) Fixed deposit account
(C) Recurring account
(D) Savings account
4. What is the name of the central bank (Monetary Authority) of India?
(A) State bank of India
(B) Central bank of India
(C) Reserve bank of India
(D) Bank of India
5. What is the facility of overdraft for the certain period called?
(A) Pay order
(B) Cash credit
(C) Demand draft
(D) Overdraft
6. What type of cheque is used by the bank to repay its debts?
(A) Travellers cheque
(B) Pay order
(C) Demand draft
(D) Cash credit
7. Which facility of bank can be used against the risk of cash in travelling?
(A) Demand draft
(B) Cheque
(C) Pay order
(D) Traveller’s cheque
8. Minimum how much amount can be transferred in RTGS?
(A) Any amount
(B) 2 lakhs
(C) 5 lakhs
(D) 50,000
9. In which kind of transaction the central bank transacts as per batch?
(A) NEFT
(B) RTGS
(C) Core banking
(D) Call money
10. How do banks transact with one another and solve the problem of fund/ money occurring at certain time?
(A) Call money
(B) Pay order
(C) Over draft
(D) Cash credit
11. Minimum how much amount can be transferred in NEFT?
(A) Any amount
(B) 2 lakhs
(C) 5 lakhs
(D) 50,000
12. Which card is issued to the customer by the bank on the basis of his credit?
(A) Debit card
(B) Credit card
(C) Letter of credit
(D) Demand draft
2. Answer the following questions in one sentence each :
1. Write the meaning of ‘Bank’.
Answer:
As per the Reserve Bank of India (RBI), a bank is a financial institution that accepts deposits from the public and lends them out, with a commitment to repay these deposits either on demand or after a specific period.
2. Which kind of account can be opened in the name of a business unit?
Answer:
A current account.
3. In which kind of account the number of withdrawn tranction is limited up to a certain limit?
Answer:
Savings account.
4. How much amount can be transacted in cash through NEFT?
Answer:
NEFT does not have any lower or upper limit for transferring funds.
5. Within how much time money is transferred through NEFT?
Answer:
Money sent through NEFT is usually credited within 24 hours, depending on the available processing batch.
6. In which kind of card only the amount available in the account can be spent?
Answer:
Debit card. (Note: The original answer said “Credit card,” but that is factually incorrect. A credit card allows spending beyond the actual account balance up to a credit limit. A debit card restricts spending to the available account balance.)
3. Answer the following questions in short :
1. What is Overdraft?
Answer:
Overdraft refers to a facility provided to current account holders where they are permitted to withdraw more funds than their available balance, allowing them to operate in a negative balance.
2. What is Cash Credit?
Answer:
Cash credit is a borrowing facility where a person can withdraw funds up to a specific limit sanctioned by the bank, usually against pledged security or collateral.
3. Define ‘Traveller’s cheque’?
Answer:
A traveller’s cheque is a secure financial instrument issued by a bank, which can be used in place of cash while travelling. It assures the recipient that the amount stated will be paid once the seller meets the delivery terms.
4. Give two examples of Non-Financial transaction done through E-Banking.
Answer:
Examples include downloading account statements and placing a request for a new cheque book or PIN, or issuing a stop-payment instruction.
5. Explain :
(a) Credit Card:
Answer:
A credit card is a plastic payment card given by banks to customers, allowing them to purchase goods or services on borrowed money up to a preset limit.
A credit card eliminates the need for immediate cash during transactions. Its usage became common from the late 20th century.
To get a credit card, a customer must apply to a bank, which then assesses their creditworthiness and repayment ability. Based on this evaluation, a spending limit is decided.
For example, if the bank finds a customer can repay ₹20,000 per month, it sets that as the credit limit. Whenever the customer uses the card, the amount is deducted from this limit and credited to the seller.
The bank provides a monthly statement of the expenses, and the cardholder is expected to clear the dues within the specified time.
Credit cards can be used for in-store purchases, online payments, bookings, etc.
(b) Debit Card
Answer:
A debit card resembles a credit card but is linked directly to a savings or current account. Payments made with it are instantly deducted from the user’s bank balance.
A debit card enables payments at stores, online portals, or ATM withdrawals.
When used at a shop, the seller swipes the card in a card machine, the customer enters a PIN, and the billed amount is immediately debited from their account.
Unlike credit cards, one can only spend up to the available balance with a debit card.
(c) ATM:
Answer:
ATM stands for Automated Teller Machine, which allows customers to perform basic banking activities like withdrawing cash or checking balance without visiting a bank branch.
Banks install ATMs at various places. Customers are issued ATM cards and a confidential PIN for secure access.
Through an ATM, one can withdraw cash (within daily and per-transaction limits set by the bank), check balances, and perform other minor services.
Customers can use any bank’s ATM, though charges may apply as per RBI’s rules when using a different bank’s machine.
4. Answer the following questions in brief :
1. Write Short Notes :
(a) Call Money
Answer:
In routine banking operations, banks may sometimes fall short of funds, even for very short durations like a day or less.
To manage such shortfalls, they may borrow funds from other banks at an interest rate that is influenced by the availability of money or the market’s demand-supply situation.
This borrowing process does not involve direct interaction between the banks; instead, it is facilitated by an intermediary appointed by the Reserve Bank.
Such short-term borrowings are referred to as Call Money, and the interest rate applicable to these transactions is known as the Call Money Rate.
(b) Core Banking
Answer:
The term CORE stands for Centralized Online Real-time Exchange. It is a banking technology where all branches of a bank, regardless of their geographical location, are digitally connected via the internet to perform transactions.
A central database holds information of all customer accounts across the bank’s branches. Any update in this central server is immediately accessible by every branch.
Because of this system, customers can operate their accounts from any branch, such as depositing or withdrawing money, without visiting their home branch.
This results in saving both time and effort for customers and the bank.
Thus, the person is recognized as a customer of the bank, not of a particular branch.
(c) RTGS
Answer:
Real-Time Gross Settlement (RTGS) is a fund transfer method that enables the transfer of money between banks across India instantly and individually.
The bank facilitating such transactions must be a registered RTGS member bank, identified by a unique IFSC code, which is an 11-character alphanumeric code provided by IDRBT, Hyderabad.
Transactions using RTGS are completed online, from the sender’s account to the receiver’s account in another bank.
Since cash or cheque is not used, both banks must use IFSC codes for processing.
According to RBI rules, RTGS is used for transactions of ₹2 lakh or more.
Because it is a real-time transfer, the recipient’s account gets credited on the same day once the instructions are received.
The sender pays the transaction fee, while the receiver is not charged.
(d) NEFT
Answer:
National Electronic Funds Transfer (NEFT) is an Indian electronic payment system that allows money to be sent from one bank account to another.
Only banks and branches that are part of the NEFT system can process these transactions.
The transfer occurs online between sender and receiver accounts in either the same or different banks using internet banking.
To make a transaction, the sender must have the 11-digit IFSC code of the receiver’s bank and branch.
The transaction typically completes on the same day or within 48 hours. However, NEFT follows a batch-wise settlement system, where transfers happen at scheduled time slots throughout the day using Deferred Net Settlement (DNS).
People without bank accounts (walk-in customers) can also use NEFT by depositing cash at a participating bank, but only up to ₹50,000 per transaction.
Generally, NEFT has no fixed lower or upper limit on the transaction amount.
(e) M-Banking
Answer:
Mobile banking (m-banking) is a facility that enables users to carry out banking activities from anywhere using their internet-enabled mobile phones.
With this service, one can do multiple transactions like checking account balance, transferring money, paying utility bills (electricity, water, gas), and fees, all from a mobile device.
To access mobile banking, a user must request activation from their bank. The bank then issues a login ID and password to enable secure access.
Since mobile phones can be easily lost or stolen, banks implement strong security measures to protect the account and data of users during mobile banking transactions.
2. Explain – “The account holder is not the customer of a particular branch of the bank but of the bank.”
Answer:
In today’s time, banks operate using the CORE banking system, which stands for Centralized Online Real-time Exchange.
This system connects all bank branches globally through the internet, enabling real-time banking operations and services.
A central database stores account details of customers across all branches. Any changes made in one branch are instantly visible to all others.
With this setup, account holders can carry out transactions like deposits or withdrawals at any branch, not just the one where they opened the account.
Therefore, customers are no longer limited to one branch. They are considered as clients of the entire bank instead of a specific branch.
This approach provides more convenience and better service to both customers and banks.
5. Answer the following questions in detail :
1. Explain functions of bank.
Answer:
Banking operations can be broadly grouped into:
(A) Primary functions, and
(B) Secondary or Additional functions.
(A) Primary functions:
Accepting Deposits:
Individuals with surplus funds can deposit their money into a bank account. The foremost responsibility of the bank is to uphold the depositor’s trust. Banks accept various types of deposits:
Savings account deposits
Current account deposits
Recurring deposits
Fixed or term deposits
Providing Loans and Advances:
Banks collect deposits from numerous individuals. These funds remain with the bank, on which interest is paid to depositors. Simultaneously, others approach banks to borrow money. Banks lend funds at a higher interest rate, thus earning profit from the interest rate margin.
Banks provide funds in the following manners:
(a) Loans:
Banks issue both short-term and long-term loans to individuals, businesses, and industries. Some loans are secured (hypothecated), while others are not. Examples include housing loans, education loans, vehicle loans, gold loans, personal loans, etc.
(b) Overdraft and Cash Credit:
Overdraft: When a customer holding a current account is permitted to withdraw more than the balance in their account for a short period.
Cash Credit: This allows a customer to withdraw up to a certain limit against pledged security like raw material or goods. Unlike overdraft, cash credit requires collateral.
Investment Activity:
Banks aim to earn profit by lending and investing capital wisely. As per RBI guidelines, a portion of deposits must be invested in government-approved securities which provide low but secure returns. These investments are liquid and help during emergencies.
Inter-Bank Transactions (Call Money):
Banks may face short-term cash deficits. In such situations, banks can borrow from one another for a day or even a few hours at a rate influenced by market liquidity. The Central Bank appoints an intermediary to carry out this process. This short-term borrowing is called call money, and the interest charged is termed call money rate.
(B) Secondary/Optional functions:
Handling Customer Transactions:
Banks assist both depositors and borrowers in performing financial tasks efficiently.
For example, banks honor cheques, collect cheques on behalf of customers, and allow payments of bills and premiums, and online transfers.
Foreign Exchange Services:
Banks authorized by the Central Bank facilitate currency exchange, import-export documentation, and other international trade services.
Issuing Letters of Credit (L/C):
This is a bank’s guarantee ensuring that the seller will receive full payment on fulfilling certain conditions. It’s commonly used in global trade. Before issuing an L/C, the bank takes collateral or a deposit from the applicant and charges a commission.
Traveller’s Cheques (TC):
Traveller’s cheques are safer alternatives to cash for domestic or international travel. After verifying identity and signature, the bank issues these cheques. The traveller can encash them at designated locations. However, this service has declined with the advent of ATMs.
Demand Draft (DD):
A DD is a payment order issued by a bank to another branch to pay a specific sum to a named recipient. The applicant pays a fee and fills out a form to initiate this process. If the draft is payable only within the same branch, it is known as a pay order.
Issuing Solvency Certificates:
Due to continuous interaction, banks understand their customers’ financial status. A business may request the bank to verify a customer’s creditworthiness. The bank provides a solvency certificate after evaluating the person’s financial strength.
Underwriting Services:
When a new company enters the share market, it may seek the bank’s assurance to raise a minimum capital. The bank agrees to buy the unsold shares if required, thereby becoming the underwriter or guarantor.
Offering Additional Facilities:
Banks also provide modern services like ATM cards, debit/credit cards, locker facilities, and Demat accounts for digital share trading.
2. Explain the types of bank account.
Answer:
Savings Account:
This account is primarily for individuals who want to save a portion of their income and earn interest. The bank offers interest based on the average balance. Typically, a minimum balance must be maintained, and there’s a limit to the number of withdrawals. Transactions can be made through cheques, withdrawal slips, or ATMs.
Savings accounts can be opened individually or jointly, and nomination facilities are available. Such accounts are key sources of deposits for banks and come with services like cheque books, online banking, and ATM cards.
Current Account:
Intended for business owners, this account helps in managing daily business-related transactions. Unlike savings accounts, no interest is paid on the balance. Additionally, the bank may levy maintenance charges. There’s no restriction on the number of transactions per month.
These accounts offer overdraft facilities and are ideal for managing regular payments and receipts.
Recurring Deposit Account:
A recurring deposit account helps people save systematically. A fixed amount is deposited monthly for a fixed period. On maturity, the bank pays back the cumulative amount with interest.
The interest rate is higher than a savings account but slightly lower or equal to fixed deposits. The commitment to deposit a set amount every month is mandatory.
Fixed Deposit Account:
This type of account is for those who want to invest a lump sum for a specific tenure and earn higher returns. The deposited amount remains locked until maturity. If early withdrawal is made, a penalty is imposed, and the interest rate may be reduced.
Due to the commitment and lesser liquidity, banks offer the highest interest rates on fixed deposits. The amount, along with the accumulated interest, is returned upon maturity, making it a secure form of investment.
