INDIAN INSTITUTE OF

BANKING & FINANCE

LEGAL ASPECTS OF BANKING OPERATIONS

JAIIB

MODULE A & B

• 01. The Shareholders of an acquired bank have a

right to get compensation under Sec 36AG of the

Banking Regulation Act. The amount thereof will

be determined as provided in the Fifth Schedule

to the Act after consultation with the RBI.

• A. True B. False

• C. Not Banking Regulation Act

• D. Companies Act

• 02.Every banking company has to prepare its

balance sheet and profit and loss account as

stipulated in Sec.29 of the Reserve Bank of India

Act.

• A. It is not RBI Act 2.Companies Act

• C. Banking Regulation Act D. Both RBI and

Banking Regulation Act (only Section nos differ)

• 03.The banking Ombudsman passes an

order after affording the parties reasonable

opportunity to present their case. The order

is known as

• A. Preliminary Order B. Interim Order

• C. Final Order D. None of these

• 04.Which statement is not appropriate (Banking Ombudsman)

• A. Failure to honour LC commitment

• B. Ordinate delay in the payment or collection of cheques

• C. Non-issue of drafts to non customers

• D. Not to entertain genuine complaints of NRI customers

• 05.As per the Banking Regulation Act

Nomination facility is not applicable in

respect of

• A. Deposits B. Safe Custody Articles

• C. Safe Deposit Locker D. None of these

• 06.Return on Unclaimed Deposits to cover

all deposits not operated for

• A. 10 years B. 12 years

• C. 18 years D. 20 years

• 07. For unclaimed deposit in respect of Reinvestment plan term deposit, the same will figure in the return

• A. When the said deposit has not completed 10 years

• B. When the said deposit has completed 10 years

• C. Provided the period of 10 years starts from the expiry period of the deposit

• D. 10 years counted from the date of the deposit

• 08.The paid up capital of a banking

company represents

• A. Nominal Capital B. Amount subscribed

• C. Amount collected D. Contribution of the

sponsor bank

• 09..The additional director may be

appointed by the RBI

• A. in the interest of banking policy

• B. in the public interest

• C. in the interest of the depositors of the

banking company

• D. All the above

• 10.The directors of a banking company shall not

hold office for more than 8 years continuously.

However, it is not applicable to the Chairman.

• A. Not more than 5 years B. Not only Chairman

but also a whole-time director.

• C. In addition to the both even Executive Director

• D. In addition to b & c even for RBI nominated

Director

. 11.Identify the incorrect statement (regarding payment of

dividend to shareholders by banking companies)

• A. No dividend is payable until all capitalised expenses are

completely written off

• B. Dividend may be paid without writing of depreciation

• C. Preliminary expenses, share selling commission and

organization expenses will come under item A.

• D. The above are as per Section 15 of the Reserve Bank of

India Act.

• 12.The holding of shares by a banking company in any

company as pledgee, mortgagee or absolute owner shall

not exceed 25% of the paid up share capital and reserves

of that company or the paid up capital of the banking

company.

• A. The above is not incorrect B. The above is incorrect

• C. It is not 25% but 30%

• D. In addition to C, it is the paid up capital of that

company or the paid up capital and reserves of the banking

company.

• 13.Which statement is not correct with regard to Foreign Banks.

• A. Have to deposit with RBI Rs.20 lacs when they have place of business in Kolkata

• B. 20% of the profit in India to be deposited with RBI

• C. 15% of the profit to be deposited with RBI and not 20%

• D. The securities deposited can be replaced

• 14.Branch Licensing (identify the odd one)

• A. Changing the location of an existing place of business within the same city, town or village would not need prior permission.

• B. Opening of a temporary place of business upto one month for extending banking business for any exhibition, mela or conference requires prior permission.

• C. For RRBs permission is given by RBI

• D. For Co-operative banks RBI permission is a must

• 15. These are banking companies operating

only in a limited geographical area.

• A. Command Area Banks

• B. Regional Rural Banks

• C. Satellite Banks

• D. None of these

• 16.RBI provides temporary advances to meet immediate needs when there is interval between expenditures and flow of revenue. Such facilities are provided to both Central and State Governments.

• A. Temporary Overdrawing

• B. Tide Over Credit Facility

• C. Ways and Means Advances

• D. Line of Credit

• 17.Which one is not the permitted banking business

• A. Buying or selling or bartering of good directly or indirectly

• B. Acquire, construct and maintain any building for its own purpose

• C. Negotiating of loans and advances

• D. Undertake and execute trusts

• 18. Acceptance of deposits by non- banking

financial companies is regulated by

• A. RBI

. B. Central Government

• C. Both A & B

• D. Registrar of Companies

• 19.As per Sec 12(1) of the BR Act, the subscribed capital of a banking company shall not be less than half of its authorised capital and the paid up capital shall not be less than half of its subscribed capital.

• A. The above is not incorrect

• B. The above is not as per BR Act

• C. RBI Act has discussed the above

• D. The above is incorrect

• 20.The director of a banking company is exempted under Sec 10 of the BR Act, from the requirement of holding qualification shares.

• A. The correct one is not director but the Managing Director

• B. The Whole –time Chairman

• C. The Whole- time Chairman and the Managing Director

• D. The Whole- time Chairman or the Managing Director

• 21.In the absence of the Whole- time Chairman or

the Managing Director due to death, resignation or

illness, temporary arrangement can be made for a

period not exceeding six months without RBI’s

approval.

• A. True B. False

• C. Not 6 months but 4 months

• D. In addition to © RBI approval is a must

• 22. Apart from giving various directions,

RBI may also

• A . Caution

• B. Give Advises

• C. Both a & b

• D. Instruct the banks to carry out certain

directions

• 23.While general credit controls operate on the cost and total volume of credit, this aim at regulating the distribution of bank resources to particular sector of the economy.

• A. Bank Rate B. Selective Credit Control C. PLR

• D. Credit Policy

• 24.Every year, a sum equivalent to not above than

20 percent of profits of a banking company has to

be transferred to the reserve fund. Such transfer of

profits to reserve fund has to be made before any

dividend is declared.

• A. True B. False

• C. Not 20 % but 15 %

• D. Not 20 % but 10 %

• 25.Every banking company to maintain in India certain amount of assets as per Sec 25 of the BR Act. Accordingly, at the close of business on the last Friday of every quarter, such assets shall not be less than 25% of the demand and time liabilities of the banking company in India.

• A. It is not 25% but 50%

• B. 75% is correct

• C. No such stipulation

• D. At the discretion of the respective banks

• 26. Loans charging exorbitant rates of

interest.

• A. Substantial Interest

• B. Usufructuary Loans

• C. Anomalous Loans

• D.Usurious Loans

• 27.These banks have to display in a conspicuous

place in their principal office a copy of the last

audited balance sheet and profit and loss account.

This has to be done not later than the first Monday

in August of any year in which it carries on

business.

• A. Nationalized Banks B. State Bank of India also

C. Co-operative Banks D. None of these

• 28. RBI previous approval not required in

respect of a Banking Company

• A. Appointment of auditor

• B. Reappointment of auditor

• C. Removal of auditor

• D. None of the above

• 29. Apart from making regular inspection,

Reserve Bank is also empowered to conduct

• A. Further inspection

• B. Surprise verification

• C. Scrutiny

• D. Checking

• 30.If the compensation offered by the government or the

transferee bank is not acceptable to any person to whom

such compensation is payable, he may request the RBI to

refer the matter to the Tribunal.

• A. The above is correct

• B. The above is incorrect

• C. It is not RBI but Central Government

• D. It is not RBI but the transferee bank to refer to Tribunal

• 31.The RBI is empowered to order amalgamation of two

banking companies under sec 396 of the Companies Act.

But such power has to be exercised only after consultation

with the Central Government.

• A. True B. It is other way round

• C. Central Government can direct and no need for any

consultation with RBI.

• D. RBI has been empowered to go ahead with

amalgamation

• 32.The liquidator has to make a preliminary report to the

High Court within three months of the winding up order on

the availability of assets for making preferential payments

under Sec 530 of the Companies act and for discharging

liabilities to depositors and other creditors.

• A. Correct

• B. Not 3 months

• C. within Two months

• D. Incorrect

• 33.Identify which statement is incorrect (Preferential Payment)

• A. Depositors in Savings Bank accounts up to Rs.250/= and then other depositors upto Rs.250/= get priority over other creditors.

• B. After making these payments, the balance will be for general creditors

• C. Then for payment of further amounts due to the depositors.

• D. Then the depositors covered by the DICG Act

• 34. Authorisation under the law for a debtor

to postpone payment of dues for a specified

time is known as

• A. Postponement B. Deferred

• C. Deferment D. None of these

• 35. A committee established under the regulations framed by Reserve Bank of India under Sec 58 of the Reserve Bank of India Act to exercise powers of supervision and regulation under that Act and the BR Act.

• A. Committee for Financial Supervision

• B . Board for Financial Regulation

• C. Committee for Financial Regulation

• D. Board for Financial Supervision

• 36.Find out the correct one (State Bank of India & Subsidiary banks)

• A. The appointment of auditors is done by RBI in consultation with the Central Government

• B. The State Bank of Saurashtra was constituted under the State Bank of India( Subsidiary Banks )Act,1959

• C. The Chairman and Managing Director of SBI are appointed for a period not exceeding seven years and are not eligible for reappointment

• D. The Central Government may direct any Subsidiary bank in consultation with RBI to acquire the business of any bank.

• 37.Identify the correct order (RRBs)

35%:50%:15% issued capital

• A. Nationalised Bank :RBI : SBI

• B. Sponsor Bank : State Govt : Central Govt

• C. Apex Bank : Central Govt : State Govt

• D. Sponsor Bank: Central Govt : State Govt

• 38.RRB (which one is not correct)

• A. A person qualified to act as an auditor of companies under Sec 226 of the Companies Act is qualified to be an auditor of a RRB.

• B. The board consists of a Chairman appointed by the RBI

• C. RRBs were first set up in 1975 under the Regional Rural Banks Ordinance, 1975. The Ordinance was later replaced by the Regional Rural Banks Act, 1976.

• D. The Central Government is empowered to give directions to RRBs on matters of policy involving public interest

• 39.A nationalised bank has to hold an annual general meeting of shareholders within 4 weeks of the date of forwarding the balance sheet and related statements / returns to the Central Government.

• A. It is RBI & not Central Government

• B. Not 4 weeks C. Within 6 weeks

• D. Both Central Government & RBI

• 40. Provisions of Banking Regulation Act

applicable to

• A. State Co-operative Bank

• B. Central Co-operative Bank

• C. Primary Co-operative Bank

• D. All of these

• 41.A drawee bank will get protection in respect of

• A. When the Account holder’s signature is forged.

• B. When the payee’s signature is forged

• C. When one of the joint account holders signature

is forged

• D. When the Cheque is signed by a person other

than the drawer (who is not authorised by the

account holder)

• 42.Identify the correct Relationship

between the Customer - Banker

• A. Deposit = Creditor – Debtor

• B. Deposit = Donor – Trustee

• C. Deposit = Agent - Principal

• D. Deposit = Debtor - Creditor

• 43.A paying banker has to return an

instrument (Cheque) for the reason the Cash

Credit limit is fully utilised. Choose the

appropriate reason

• A. Insufficient Funds B. Not Arranged for

• C. Limit Full D. None of these

• 44. A bank has paid a forged cheque. They

filed a suit against the collecting banker as

well as the payee who received the money.

Whether Drawee bank would succeed?

• A. Yes B. No C. If the collecting banker

has acted in good faith and without

negligence they would loose the case D.

The paying bank need not suffer.

• 45.Which is not part of Sect131 of NIAct,1881 protection to Collecting Banker.

• A. The banker to act in good faith & without negligence

• B. Should collect for any one including a customer

• C. the cheque so collected must have been crossed generally or specially before receipt by the collecting banker

• D. None of these

• 46.On an order cheque, the word order has been altered as

bearer. The cheque has been received at the front office for

payment. The counter clerk refused payment on the ground

the alteration needs the full signature of the drawer (who is

not present)

• A. The counter clerk is correct

• B. He is wrong.

• C. He is wrong because it is not a material alteration

• D. He is not incorrect since it is a material alteration

• 47.Protection is available under the provisions of

NIAct,1881, to a banker when

• A. there is a material alteration on the cheque

• B. Which is not visible to have been altered

• C. Signature of the drawer is genuine and matching with

the mandate

D. All of these

• 48.A collecting banker will not get

protection on

• A. a Crossed Cheque

• B. a Specially Crossed Cheque

• C. an uncrossed cheque

• D. None of the above

• 49.Collection of third party cheque is

• A. Prohibited

• B. Not prohibited

• C. Avoided

• D. Not protected

.50.A collecting banker will not get protection

when he collects a crossed cheque

• A. For his customer

• B. with out making proper enquiries

• C. with out negligence

• D. which is otherwise in order

• 51.If a duplicate term deposit receipt is issued on the strength of an indemnity

• A. The depositor has to give an assurance that not to use the duplicate, if he comes across the original one

• B. Will use the duplicate and not the original which will be surrendered to the bank

• C. will surrender both to the bank for them to take appropriate decision.

• D. Will keep both with him till the due date

• 52.The number of Contracts under

indemnity

• A. One

• B. Two

• C. More than One

• D. None

• 53. Find out the correct one.

• A. Contract of indemnity is applicable when there is a default

• B. Contract of Guarantee is applicable when there is a loss

• C. Contract of Indemnity is not applicable for default

• D. Contract of Indemnity is applicable when there is a loss.

• 54.The bank has issued a guarantee on behalf of its

customer in favour of the beneficiary in which the bank

has undertaken to make payments on deferred basis.

• Identify the guarantee

• A. Advance payment

• B. Special Purpose

• C. Performance

• D. None of these

• 55. Bank D, has issued a performance guarantee on behalf of their client M/s.Jasmine & co, a partnership firm, in favour of IOC. Anticipating that the beneficiary is likely to invoke the guarantee, the partners approached the bank not to honour the claim under the said guarantee.

• A. The banker to oblige

• B. The banker to ignore their request

• C. Banker to advise the partners to approach the competent court

• D. Advise the partners to discuss with the beneficiary only

• 56.A bank has issued the guarantee with a protective clause which indicated that the bank’s liability is restricted to Rs.2 lacs and the guarantee will be valid till 31st Dec of a particular year. The beneficiary has invoked the guarantee on 31st Dec of that year but received by the bank only on 3rd of January next year.

• A. The bank need not pay the amount

• B. The bank has to make the payment

• C. The beneficiary should have ensured that the bank got the invocation request before 31st of Dec that year

• D. If the claim is done within the guarantee period and received within a reasonable time, the bank cannot refuse payment

• 57. When the contingent liability on a bank

guarantee becomes a regular liability?

• A. On invocation of the guarantee

• B. When payment is made by the bank

• C. When payment is refused by the bank

• D. None of these

• 58. A bank has issued a performance guarantee

(fully secured by way of Fixed Deposit). The bank

• A. Need not obtain counter guarantee or counter

indemnity

• B. Need to obtain counter guarantee or counter

indemnity as applicable

• C. can waive both of them

• D. None of the above

• 59.The bank had given the guarantee for their customer 7 months ago. Recently they came to know that the customer has closed down the business and left the place. The beneficiary has invoked the guarantee.

• A. The banker need not honour the claim

• B. The banker is not obliged to honour

• C. The banker cannot refuse payment

• D. The banker can postpone payment

• 60.A banker becomes a holder for value, when he

• A. Collects a cheque on behalf of his customer

• B. discounts a cheque on behalf of his customer

• C. Collects on behalf of another banker

• D. None of these

• 61.A person who for consideration became

the possessor of a bill

• A. Holder

• B. Payee

• C. Drawee in case of need

• D. None of these

• 62.A co-operative bank functioning in more

than one State is known as

• A. Urban Co-operative Bank

• B. State Co-operative Bank

• C. Multi- Force Co-operative Bank

• D. None of the above

• 63.Without stamp duty which instrument is

considered valid?

• A. Bill of Exchange

• B. Cheque

• C. Promissory Note

• D. Acknowledgement of Debt

• 64. Indemnity, Letter of Credit & Bank

Guarantee

• A. One and the same

• B. Both LC and Guarantee are same

• C. Indemnity is different from LC

• D. All are not similar

• 65. This bank is also known as Nominated

bank or Paying bank.

• A. Negotiating Bank

• B. LC opening Bank

• C. Exporter’s Bank

• D. Third party bank

• 66. This bank is deemed to undertake on its

part the liabilities of the credit vis-à-vis the

beneficiary or the Negotiating Bank.

• A. Importer’s bank

• B. Exporter’s bank

• C. Confirming bank

• D. Advising bank

• 67.Reimbursing bank is appointed by the

Importer to make reimbursement to the

Negotiating, Paying or Confirming bank.

• A. True B. False

• C. Not Importer but exporter

• D. None of these

• 68. A revocable credit is

• A. Less Common

• B. Acceptance Credit

• C. Time Credit

• D. Nominated Credit

• 69.With Recourse Credit means that the right (recourse )

against the drawer under the bill is not available.

• A. Correct

• B. Incorrect

• C. Partly available

• D. None of these

• 70.For registering the charge created under Sec125 of the

Companies Act,1956, the fees is decided based on

• A. The Value of the charge

• B. The Paid up Capital of the Company

• C. The Nominal Capital of the Company

• D. The decision of the Registrar

• 71. Identify which is incorrect (Documents to be filed with the Registrar of Companies)

• A. The Articles of Association duly signed, stamped and witnessed

• B. A copy of the letter received from the ROC intimating the non availability of the proposed name

• C. Any agreement which the company proposes to enter into with any individual for appointment as its managing or whole time director or manager

• D. None of the above

• 72.A partnership firm is deemed to be registered

• A. When the necessary papers are submitted to the

Registrar with adequate fees

• B. After 3 months from the date of submission of

necessary documents

• C. When the certificate of registration is granted

• D. When the bank account is opened

• 73.The ownership and possession of the

security with the customer.

• A. Mortgage & Pledge

• B. Pledge & Third party pledge

• C. Hypothecation & Mortgage

• D. Pledge & Hypothecation

• 74. A limitation period on a Term loan

• A. 3 years B. 12 years

• C . 3 years from the date of disbursement

• D. None of these

• 75.An obligation imposed on a person to

deal with property entrusted to him for the

benefit of persons including himself, the

obligation being enforceable.

A. Executor ship B. Administration

C. Trust D. All of these

• 76.This is not part of Articles of

Association. Identify.

• A. Number of Directors of the Company.

• B. Names of the Directors of the Company

• C. Procedure for transfer and transmission

of shares

• D. Borrowing powers of the company

• 77.In Bengal and other parts of erstwhile Bengal

province, a Hindu Undivided Family is governed

by Mitakshara Law. In other parts of India, it is

governed by Dayabhag Law.

• A. True B. False

• C. In other parts of the country it is Mitakshara

Law & in Bengal it is Dayabhag Law

• D. Through out India only one law i.e., Mitakshara

• 78.The three partners of ABC & Co

decided to induct A’s son as a partner who

is a minor.

• A. They cannot do it B. A minor can

become a partner C. With the consent of all

the existing partners a Minor can also be

admitted as a partner D. The law is silent

regarding this aspect

• 79. An hypothecation can be converted into

• A. Pledge

• B. Mortgage

• C. Both A & B

• D. None of the above

• 80. This type of mortgage provides a personal covenant to pay on a specified date notwithstanding the absolute transfer of the property to the mortgagee.

• A. English Mortgage

• B. Simple Mortgage

• C. Equitable Mortgage

• D. None of the above

• 81.This type of finance there is no bill

available even though the name suggests.

• A. Documentary Bill

• B. Supply Bill

• C. Bill of Exchange Discounting

• D. Cheque Purchasing

• ALL THE BEST

• THANKS

• T.M.C.VASUDEVAN

• (M) 9819500380

• (T) 022-27606208

• vasu1611@yahoo.co.in