Gauahti University Banking Solved Question Paper 2022 [GU BCom 5th Sem CBCS]

Gauahti University BCom 5th Semester Banking Solved Question Paper 2022 as per CBCS Pettern 

 2022

COMMERCE

(Honours Elective)

Paper: COM-HE-5046

(Banking)

Full Marks: 80

Time: Three hours

The figures in the margin indicate full marks for the questions.

1.Choose the correct answer of the following:  (any ten)    1×10=10                                                                       

(a) In which year was the State Bank of India established?

(i) 1934

(ii) 1949

(iii) 1955

(iv) 1959

ANSWER - (iii)1955

(b) The first Indian commercial bank to undertake merchant banking services in India is.

(i) State Bank of India

(ii) Bank of Baroda

(iii) Canara Bank

(iv) UCO Bank

ANSWER - (ii) Bank of Baroda

(c) In which year was the Regional Rural Bank Act passed?

(i) 1969

(ii) 1975

(iii) 1976

(iv) 1980

ANSWER - (ii) 1975.

(d) A banker's lien is.

(i) particular lien

(ii) negative lien

(iii) general lien

(iv) All of the above

ANSWER – (iii) general lien

(e) A garnishee order is issued by

(i) the customer of the bank

(ii) the banker

(iii) the court

(iv) None of the above

ANSWER – (iii) the court

(f) Which of the following accounts should not be allowed to open by a minor?

(i) Savings bank account

(ii) Recurring deposit account

(iii) Fixed deposit account

(iv) Current account

ANSWER – (iv) Current account

(g)  Overdraft is granted

(i) in saving bank account

(ii) in fixed deposit account

(iii) in current account

(iv) All of the above

ANSWER – (iii) in current account

(h) In case of negotiable instruments which person generally gets a good title?

(i) Finder of the lost instrument

(ii) Holder of the stolen instrument

(iii) Holder in due course

(iv) None of the above

ANSWER – (iii) Holder in due course

(i) Which of the following is not a negotiable instrument by statute?

(i) Promissory Note

(ii) Bill of Exchange

(iii) Cheque

(iv) Share Warrant

ANSWER – (iv) Share Warrant

(j) In which year was the Reserve Bank of India established?

(i) 1921

(ii) 1934

(iii) 1935

(iv) 1949

ANSWER – (iii) 1935

(k) ICICI Bank is the first universal bank of India

(i) Correct

(ii) Incorrect

ANSWER – (ii) Incorrect

(I) An illiterate person cannot open account in a bank.

(i) Correct

(ii) Incorrect

ANSWER – (ii) Incorrect

(m) Deposits of a bank represent its liabilities.

(i) Correct

(ii) Incorrect

ANSWER – (i) Correct

(n) Cash reserve serve maintained by a bank is called the first line of defence.

(i) Correct

(ii) Incorrect

ANSWER – (i) Correct

(0) Borrower's character + capacity + capital = safe credit.

(i) Correct

(ii) Incorrect

ANSWER – (i) Correct

(p) A promissory note can be crossed.

(i) Correct

(ii) Incorrect

ANSWER – (ii) Incorrect

(q) Negotiable instruments are not freely transferable.

(i) Correct

(ii) Incorrect

ANSWER – (ii) Incorrect

(r) Banks can carry on trading activities.

(i) Correct

(ii) Incorrect

ANSWER – (i) Correct

 

 

2. Answer any five of the following questions:                                                                          2x5=10

(a) What is scheduled bank?

ANSWER – A scheduled bank is a bank that is listed by the Reserve Bank of India and follows certain rules and regulations to conduct banking operations in India.

(b) What is fixed deposit account?

ANSWER – A fixed deposit account is a type of bank account where you deposit a specific amount of money for a fixed period at an agreed interest rate.

(c) What are 'banking' and 'banking company' as per the Banking Regulation Act, 1949?

ANSWER – 'Banking' refers to accepting deposits, granting loans, and other financial services. A 'banking company' conducts banking business and is registered under the Banking Regulation Act, 1949, in India.

(d) Who is a minor?

ANSWER – A minor is a person who is under the legal age of adulthood, usually below 18 years, and has limited legal rights and responsibilities compared to adults.

(e) What is pledge?

ANSWER – Pledge is when you give something valuable as security for a loan, promising to return it when the loan is repaid. If not repaid, the pledged item can be sold.

(f) What is hypothecation?

ANSWER – Hypothecation is when you borrow money and use an asset (like a vehicle) as collateral. You keep using the asset, but the lender can take it if you don't repay.

(g) What is crossing of a Cheque?

ANSWER – Crossing a Cheque involves drawing two lines on it, making it payable only through a bank. It ensures safer transfer and prevents direct cash withdrawal by others.

(h) What is negotiable instrument?

ANSWER – A negotiable instrument is a document, like a cheque or promissory note that promises payment to a specific person or their order, making it easily transferable to others.

(i)What is non-performing assets?

ANSWER – Non-performing assets (NPAs) are loans or debts that borrowers haven't repaid for a certain period. They're considered risky for banks as they might not be recovered fully.

(i) What is capital adequacy ratio?

ANSWER – Capital adequacy ratio is the measure of a bank's financial strength, comparing its capital to risk-weighted assets. It ensures banks have enough capital to cover potential losses.

 

 

 

3. Answer any four questions of the following in about 200 words each:                           5x 4 =20

(a) Differenciate between public sector banks and private sector banks.

ANSWER –

BASIS	PUBLIC SECTOR	PRIVATE SECTOR
1.       1. Ownership:	Majority owned by the government.	Owned by private individuals or corporations.
2.       Purpose:	Focus on financial inclusion, serving a wide range of customers including low-income segments.	Emphasize profitability and innovation.
3.       Access:	Have a larger network of branches in rural and semi-urban areas	Concentrate on urban and semi-urban markets, offering modern banking services.
4.       Interest Rates:	Often offer lower interest rates on loans and deposits.	May offer competitive interest rates to attract customers.
5.       Governance:	Subject to government policies and regulations.	Operate with more autonomy and flexibility in decision-making.

 

(b) What is E-banking? State the different focets of E-banking?

ANSWER – E-banking, short for electronic banking, refers to the use of electronic technology to conduct various banking activities and services over the internet or through electronic devices.

Different Facets of E-banking:

1.       Online Banking: Customers can access their bank accounts, view balances, and perform transactions such as fund transfers, bill payments, and account management through the bank's website or mobile app.

2.       Mobile Banking: This allows customers to conduct banking activities using their smartphones or tablets. It includes features like mobile check deposits, balance inquiries, and transaction alerts.

3.       ATM Services: Automated Teller Machines (ATMs) enable customers to withdraw cash, deposit funds, and perform basic transactions round-the-clock.

4.       Electronic Fund Transfers: E-banking facilitates electronic money transfers between accounts, both within the same bank and across different banks, using NEFT, RTGS, and IMPS.

5.       E-wallets and Mobile Payment Apps: Customers can store money digitally and make payments using apps like Paytm, Google Pay, or Apple Pay.

(c) Briefly state the obligations of a banker to maintain secrecy of customer's account.

ANSWER – A banker has a legal and ethical duty to maintain the confidentiality and secrecy of a customer's account information. This obligation is essential to build trust and ensure the privacy of a customer's financial matters.

Obligations of a Banker to Maintain Secrecy:

1.       Confidentiality: A banker is required to keep all customer information, transactions, and account details strictly confidential. This includes not disclosing any information to unauthorized individuals or entities.

2.       Data Protection: Bankers must implement robust security measures to safeguard customer data from unauthorized access, hacking, or breaches.

3.       Identity Protection: Customer identities must be protected, and their personal information should not be used for any fraudulent activities.

4.       Transaction Privacy: Bankers should not reveal details of a customer's financial transactions, balance, or credit history to anyone without proper authorization.

5.       Legal Requirement: Bankers are bound by laws and regulations that mandate the protection of customer data and financial information. Violation of these laws can lead to severe penalties.

 

(d) When is the relationship between the banker and the customer terminated?

ANSWER – The relationship between a banker and a customer can be terminated under various circumstances, either by the customer's choice or by the bank's decision.

1.       Voluntary Termination: Customers can choose to end the relationship by closing their accounts. They might do this due to changing banks, relocating, or no longer needing banking services.

2.       Account Closure: If a customer's account becomes dormant, with no activity for a certain period, the bank may initiate closure.

3.       Non-Compliance: If a customer repeatedly violates bank policies, engages in fraudulent activities, or fails to meet account requirements, the bank might terminate the relationship.

4.       Death or Insolvency: The relationship terminates upon the death of a customer or their declaration of insolvency.

5.       Bank Closure: If a bank goes out of business or merges with another institution, the customer relationship ends.

(e) Briefly state the principles of sound lending.

ANSWER –

(f) Distinguish between promissory note and Cheque.

ANSWER –

BASIS	PROMISSORY NOTE	CHEQUE
1.       Promise to Pay:	A promissory note is a written promise made by one party (the maker) to pay a certain sum of money to another party (the payee) on a specific date or on demand.	A cheque is a written order issued by an account holder (drawer) to their bank, directing the bank to pay a specific amount to the person or entity named on the cheque (payee).
2.       Parties Involved:	It involves two parties - the maker who promises to pay, and the payee who receives the payment.	It involves three parties - the drawer (account holder), the drawee (bank), and the payee (recipient).
3.       Nature:	It is a written acknowledgment of debt and represents a loan agreement between the maker and the payee.	It is a payment instrument used for making transactions and settling dues.
4.       Usage:	Promissory notes are often used for credit transactions, loans, and borrowing purposes.	Cheques are commonly used for routine payments, such as bills, purchases, and business transactions.
5.       Transfer:	It can be transferred by endorsement, making it negotiable and allowing the payee to transfer it to another party.	It can be transferred by endorsement, but the subsequent parties may not have the same level of rights as in the case of a promissory note.
(g) State the features of negotiable instruments. ANSWER – Negotiable instruments possess specific characteristics that make them easily transferable and facilitate commercial transactions. These features are essential for ensuring the smooth flow of trade and commerce: 1.       Transferability: Negotiable instruments can be transferred from one party to another through endorsement and delivery. This transfer enables easy circulation of value. 2.       Bearer or Order: They can be either payable to a specific person or entity (order instruments) or to the holder of the instrument (bearer instruments), providing flexibility in ownership transfer. 3.       In Writing: Negotiable instruments must be in writing, ensuring clear terms and conditions that govern the obligation to pay. 4.       Unconditional Promise: The promise to pay or order to pay must be unconditional, without any conditions or contingencies. 5.       Fixed Sum: The amount to be paid must be definite and fixed, ensuring clarity in terms of the payment obligation. (h) Write a brief note on banking sector reforms in India. ANSWER – Banking sector reforms in India have been vital for enhancing the efficiency, transparency, and stability of the financial system. Beginning in the early 1990s, these reforms aimed to modernize the sector and align it with global standards: 1.       Liberalization: The process began with economic liberalization, allowing private banks to enter the sector, ending the monopoly of public sector banks (PSBs). 2.       Privatization: PSBs were given autonomy, but some were also privatized to improve their efficiency and competitiveness. 3.       Technology Adoption: Reforms led to the widespread adoption of technology, enabling online banking, ATMs, and electronic fund transfers. 4.       NPA Resolution: Efforts to address non-performing assets (NPAs) through mechanisms like Asset Reconstruction Companies (ARCs) and Insolvency and Bankruptcy Code (IBC). 5.       Basel Norms: Adoption of Basel norms enhanced risk management practices and capital adequacy in banks.   4. Answer any four of the following questions in about 600 words each :                     10×4=40 (a) Describe the functions of a bank. ANSWER – Banks play essential roles in a country's economy by performing various functions that contribute to financial stability, economic growth, and facilitating transactions: 1.       Accepting Deposits: Banks provide a safe place for individuals, businesses, and institutions to deposit their surplus funds. These deposits can be withdrawn on demand or after a fixed period. 2.       Granting Loans and Advances: Banks lend money to borrowers for various purposes, such as business expansion, buying homes, or funding education. This promotes economic activities. 3.       Payment System: Banks offer a convenient and secure platform for making payments, both domestically and internationally, through mechanisms like cheques, electronic funds transfers, and digital wallets. 4.       Credit Creation: Banks have the ability to create credit by lending more than the amount of actual deposits they hold, which stimulates economic growth. 5.       Safety of Funds: Banks provide a secure environment for depositors' funds, reducing the risk of loss or theft compared to keeping money at home. 6.       Investment Services: Banks offer investment opportunities like fixed deposits, mutual funds, and retirement plans, allowing individuals to earn returns on their savings. 7.       Foreign Exchange Services: Banks facilitate foreign trade and travel by providing foreign exchange services, enabling currency conversion and international transactions. 8.       Financial Intermediation: Banks act as intermediaries between savers and borrowers, channeling funds from those with surplus to those in need. 9.       Advisory Services: Banks offer financial advice, wealth management, and insurance products to help customers make informed financial decisions. 10.   Monetary Policy Implementation: Banks assist central banks in implementing monetary policy by participating in open market operations and managing interest rates.   (b) Discuss the various types of E-banking services. ANSWER – E-banking services encompass a wide range of digital solutions that make banking convenient and accessible through electronic channels. Some prominent types include: Online Banking: This offers customers access to their accounts via internet banking platforms. Users can view balances, transfer funds, pay bills, and manage accounts from their computers or mobile devices. 1.       Mobile Banking: Mobile apps allow users to perform similar tasks as online banking but through smartphones or tablets. This provides the convenience of banking on-the-go. 2.       ATM Services: Automated Teller Machines offer cash withdrawals, deposits, fund transfers, and account inquiries round-the-clock. 3.       E-Wallets: Digital wallets store payment card information securely, enabling users to make online purchases, pay bills, and transfer money seamlessly. 4.       Mobile Payment Apps: Apps like Google Pay, Apple Pay, and Paytm allow users to make payments using their smartphones, eliminating the need for physical cards. 5.       Online Investment Platforms: E-banking provides platforms for investing in stocks, mutual funds, bonds, and other financial instruments from the comfort of one's home. 6.       Remittance Services: E-banking enables cross-border money transfers, offering a more cost-effective and convenient solution compared to traditional methods. 7.       Virtual Banking: Some banks operate exclusively online, offering a full range of services without physical branches. 8.       Personal Finance Management: E-banking platforms often provide tools for tracking expenses, setting budgets, and managing personal finances effectively. 9.       Customer Support: Online chat, email, and phone services provide customers with quick assistance and issue resolution without visiting a physical branch. (c) Discuss the general relationships between banker and customer. ANSWER – The relationship between a banker and a customer is built on trust, communication, and mutual benefit. The banker, often representing a financial institution, provides various services to the customer. These can include opening accounts, processing transactions, offering loans, and giving financial advice.   Customers rely on bankers for their expertise and assistance in managing their finances effectively. Bankers offer guidance tailored to the customer's needs, helping them make informed decisions about saving, investing, and borrowing. In return, customers provide the bank with their business, deposits, and often rely on the bank's stability and security.   Communication is key, as customers need to convey their financial goals and concerns, while bankers must explain products and services clearly. Trust is crucial; customers share sensitive information, expecting it to be handled confidentially and securely. A positive banker-customer relationship fosters loyalty, leading to long-term partnerships that benefit both parties. (d) State the procedures of opening a bank account in the name of (i) an illiterate person, and (ii) A joint stock. Company. 3+7=10 ANSWER – (i) Opening a bank account for an illiterate person: 1.       Visit the Bank: The account holder or their representative visits the bank branch to initiate the account opening process. 2.       Identification: The illiterate person must provide valid identification documents like a government-issued ID, Aadhar card, or passport. 3.       Introducer: In some cases, a trusted person known to the bank (an introducer) might be required to vouch for the illiterate person's identity. 4.       Account Type: Choose the appropriate account type, such as savings or basic account, suitable for the illiterate person's needs. 5.       Fill Forms: The bank staff will assist in filling out the required forms, helping with signatures or thumbprints.   (ii) Opening a bank account for a joint-stock company: 1.       Documentation: Gather necessary documents like the company's Certificate of Incorporation, Memorandum and Articles of Association, Board Resolution to open an account, and a list of authorized signatories. 2.       Visit the Bank: A representative of the company visits the bank to start the account opening process. 3.       Authorized Signatories: List the individuals authorized to operate the account, along with their identification documents and signatures. 4.       Account Type: Choose the appropriate account type based on the company's financial needs, such as business checking or corporate account. 5.       Fill Forms: Complete the account opening forms, providing all required information about the company and its signatories. (e) What is mortgage? State the various types of mortgage. 2+8=10 ANSWER – A mortgage is a loan to buy a home. You pay back the loan plus interest over time. If you don't pay, the bank can take the home. There are several types of mortgages, each designed to suit different financial situations and preferences: 1.       Fixed-Rate Mortgage: The interest rate remains constant throughout the loan term, providing predictable monthly payments. 2.       Adjustable-Rate Mortgage (ARM): The interest rate changes periodically, often after an initial fixed period. Payments can increase or decrease based on market rates. 3.       Interest-Only Mortgage: Borrowers pay only the interest for a specified period, after which they start repaying both the principal and interest. 4.       FHA Loan: Insured by the Federal Housing Administration, this type requires a lower down payment and is suitable for first-time homebuyers. 5.       VA Loan: Backed by the Department of Veterans Affairs, this offers eligible veterans and service member’s favorable terms with no down payment. 6.       USDA Loan: The United States Department of Agriculture backs loans for rural and suburban homebuyers with low to moderate incomes. 7.       Jumbo Mortgage: For high-priced homes, this type provides larger loan amounts that exceed conventional loan limits. 8.       Reverse Mortgage: Available to older homeowners, it allows them to convert home equity into cash while living in the home. (f) Discuss the various types of credit. ANSWER – Credit comes in various forms, allowing individuals and businesses to borrow money for different needs. Here are some common types of credit:   1.       Credit Cards: These allow users to make purchases on credit, with the option to pay off the balance over time or in full each month. They often come with rewards and benefits. 2.       Personal Loans: These are unsecured loans that individuals can use for various purposes, such as debt consolidation, home improvements, or unexpected expenses. 3.       Auto Loans: These loans help individuals purchase vehicles. The car itself serves as collateral, and borrowers make monthly payments over a fixed term. 4.       Mortgages: Specifically for buying homes, mortgages are long-term loans with the property as collateral. They come in various types, like fixed-rate or adjustable-rate mortgages. 5.       Student Loans: Aimed at funding education, these loans offer favorable terms for students. They are typically repaid after graduation. 6.       Business Loans: Designed for entrepreneurs, these loans fund business operations, expansion, or capital investments. 7.       Payday Loans: Short-term, high-interest loans meant to cover immediate expenses until the next paycheck. They often carry substantial fees. 8.       Secured Loans: These loans are backed by collateral, like a car or savings account, which the lender can claim if the borrower defaults. 9.       Lines of Credit: Similar to credit cards, lines of credit allow borrowers to access funds up to a certain limit. Interest is paid on the amount used. 10.   Installment Loans: Borrowers receive a lump sum and repay it in fixed installments over a predetermined period. (g) What is endorsement? Explain the various types of endorsements with suitable examples. ANSWER – Endorsement is a signature or statement on a document, like a check or contract, indicating approval, support, or transfer of rights from one person or entity to another. Endorsements are important in validating documents like checks and contracts. Here are different types of endorsements: 1.       Blank Endorsement: A signature without specifying a recipient. The check becomes payable to anyone who possesses it. Example: "John Smith." 2.       Special Endorsement: Also known as "endorsement in full," it specifies a new payee. The check can only be cashed by the specified person. Example: "Pay to Jane Doe." 3.       Restrictive Endorsement: Limits the check's use, adding instructions. For deposit only or for a particular purpose. Example: "For Deposit Only." 4.       Qualified Endorsement: Reduces endorser liability, often with "without recourse." Protects the endorser from losses if the check bounces. 5.       Facsimile Endorsement: A printed copy of the signature, useful for businesses processing a high volume of checks. 6.       Conditional Endorsement: Requires the fulfillment of specific conditions for the endorsement to be valid. Example: "Pay to Mike Smith after July 1st." 7.       Third-Party Endorsement: Transferring the check to someone else by endorsing it. Example: "John Smith" endorsing to "Mary Johnson."     (h) State the statutory protections granted to the paying banker under the Negotiable Instruments Act, 1881. ANSWER – Under the Negotiable Instruments Act, 1881, there are statutory protections provided to paying bankers, ensuring a secure environment for financial transactions. Eight of these protections include:   1.       Payment in Due Course: A paying banker is protected if the payment is made in accordance with established banking practices and procedures, even if there are irregularities in the instrument. 2.       Protection against Forged Endorsements: If a paying banker honors a check with a forged endorsement, they are shielded from liability as long as the payment was made in due course. 3.       Protection for Honoring Customer's Mandate: When the banker honors a customer's valid mandate to make a payment, they are safeguarded from any claims from the customer. 4.       Protection for Payment to Joint Payees: If a paying banker honors a check made out to joint payees, they are protected as long as they follow the instructions on the instrument. 5.       Protection for Payment to Minor: If a banker mistakenly pays a minor, they are not liable if the payment was made in due course and the minor had indorsed the instrument. 6.       Protection for Payment of Lost Instruments: A paying banker is protected if they honor a lost instrument if the payment is made in good faith and without negligence. 7.       Protection for Paying Wrongly Indorsed Instruments: If a banker makes payment on an instrument that was wrongly indorsed, they are protected as long as they followed due course. 8.       Protection for Payment in Suspicion of Fraud: If the banker, in good faith, pays an instrument that appears fraudulent, they are protected from liability if they acted with reasonable care. (i) Discuss the powers of the Reserve Bank of India under the Banking Regulation Act, 1949. ANSWER – The Reserve Bank of India (RBI) wields significant powers under the Banking Regulation Act, 1949. It supervises and regulates banks to ensure stability and efficiency in the banking system. RBI can issue licenses to establish new banks and control the opening of branches. It can also inspect banks' accounts and management, promoting transparency and safeguarding depositors' interests. The RBI sets cash reserve and liquidity requirements, ensuring banks maintain a portion of their deposits as reserves. It can intervene in troubled banks, controlling mergers, acquisitions, and even superseding their boards if necessary. Additionally, the RBI supervises and controls cooperative banks, preventing financial irregularities. It possesses the authority to regulate interest rates and bank lending, influencing the economy's monetary aspects. In essence, these powers empower the RBI to maintain a stable, secure, and efficient banking system in India. (j) Describe the provisions of the Banking Regulation Act, 1949 in regard to (i) constitution of Board of Directors, and (ii) Loans and advances. 2 +8 = 10 ANSWER – The Banking Regulation Act, 1949 outlines provisions regarding the constitution of Board of Directors and loans and advances for banks in India.   (i) Constitution of Board of Directors: The Act mandates that a bank's Board of Directors must comprise individuals with diverse skills and backgrounds to ensure effective governance. It defines the qualifications and disqualifications for directors, emphasizing their competence and integrity. The Act also outlines the appointment and removal process for directors, aiming to prevent conflicts of interest and ensure transparent decision-making.   (ii) Loans and Advances: The Act lays down rules to prevent risky lending practices. It specifies that banks should not grant loans or advances against their own shares or those of their holding companies. It also prohibits loans without adequate security and stipulates that certain loans must be sanctioned only by the Board of Directors. This helps to maintain prudent lending practices, minimize the risk of non-performing assets, and safeguard the interests of depositors and the banking system as a whole. -0000-