Banking - Short Question Answer

Here in this section of Banking Short Questions Answers, We have listed out some of the important Short Questions with Answers which will help students to answer it correctly in their University Written Exam.

1. What is the ‘cost of debt’?

When any company borrows funds, from a financial institution (bank) or other resources the interest paid on that amount is known as ‘cost of debt’.

 

2. What is ‘balloon payment’?

The ‘balloon payment’ is the final lump sum payment that is due. When the entire loan payment is not amortized over the life of the loan, the remaining balance is due as the final repayment to the lender. Balloon payment can occur within an adjustable rate or fixed rate mortgage.

3. What is ‘Amortization’?

The repayment of the loan by instalment to cover principal amount with interest is known as ‘Amortization’

4. What is negative Amortization?

When repayment of the loan is less than the loans accumulated interest, then negative Amortization occurs. It will increase the loan amount instead of decreasing it. It is also known as ‘deferred interest’.

5. What is the difference between ‘Cheque’ and ‘Demand draft’?

Both are used for the transfer of the amount between two accounts of same banks or different bank. ‘Cheque’ is issued by an individual who holds the account in a bank, while ‘Demand draft’ is issued by the bank on request, and will charge you for the service. Also, demand draft cannot be cancelled, while cheques can be cancelled once issued.

 

6. What is debt-to-Income ratio?

The debt-to-income ratio is calculated by dividing a loan applicant’s total debt payment by his gross income.

7. What is adjustment credit?

Adjustment credit is a short-term loan made by the Federal Reserve Bank (U.S) to the commercial bank to maintain reserve requirements and support short term lending, when they are short of cash.

8. What do you mean by ‘foreign draft’?

Foreign draft is an alternative to foreign currency; it is generally used to send money to a foreign country. It can be purchased from the commercial banks, and they will charge according to their banks rules and norms. People opt for ‘foreign draft’ for sending money as this method of sending money is cheaper and safer. It also enables receiver to access the funds quicker than a cheque or cash transfer.

9. What is ‘Loan grading’?

The classification of loan based on various risks and parameters like repayment risk, borrower’s credit history etc. is known as ‘loan grading’. This system places loan on one to six categories, based on the stability and risk associated with the loan.

10. What is ‘Credit-Netting’?

A system to reduce the number of credit checks on financial transaction is known as credit- netting. Such agreement occurs normally between large banks and other financial institutions. It places all the future and current transaction into one agreement, removing the need for credit cheques on each transaction.

11. What is ‘Credit Check’?

A credit check or a credit report is done by the bank on a basis of an individual’s financial credit. It is done in order to make sure that an individual is capable enough of meeting the financial obligation for its business or any other monetary transaction. The credit check is done keeping few aspects in concern like your liabilities, assets, income etc.

12. What is inter-bank deposit?

Any deposit that is held by one bank for another bank is known as inter-bank deposit. The bank for which the deposit is being held is referred as the correspondent bank.

 

13. What is ILOC (Irrevocable Letter Of Credit)?

It is a letter of credit or a contractual agreement between financial institute (Bank) and the party to which the letter is handed. The ILOC letter cannot be cancelled under any circumstance and, guarantees the payment to the party. It requires the bank to pay against the drafts meeting all the terms of ILOC. It is valid upto the stated period of time. For example, if a small business wanted to contract with an overseas supplier for a specified item they would come to an agreement on the terms of the sale like quality standards and pricing, and ask their respective banks to open a letter of credit for the transaction. The buyer’s bank would forward the letter of credit to the seller’s bank, where the payment terms would be finalized and the shipment would be made.

14. What is the difference between bank guarantee and letter of credit?

There is not much difference between bank guarantee and letter of credit as they both take the liability of payment. A bank guarantee contains more risk for a bank than a letter of credit as it is protecting both parties the purchaser and seller

15. What is cashier’s cheque?

A cashier cheque issued by the bank on behalf of the customer and takes the guarantee for the payment. The payment is done from the bank’s own funds and signed by the cashier. The cashier cheque is issued when rapid settlement is necessary.

 

16. What do you mean by co-maker?

A person who signs a note to guarantee the payment of the loan on behalf of the main loan applicant’s is known as co-maker or co-signer.

 

17. What is home equity loan?

Home equity loan, also known as the second mortgage, enables you to borrow money against the value of equity in your home. For example, if the value of the home is $1, 50,000 and you have paid $50,000. The balance owed on your mortgage is $1, 00,000. The amount $50,000 is an equity, which is the difference of the actual value of the home and what you owe to the bank. Based on equity the lender will give you a loan. Usually, the applicant will get 85% of the loan on its equity, considering your income and credit score. In this case, you will get 85% of $50,000, which is $42,500.

18. What is Line of credit?

Line of credit is an agreement or arrangement between the bank and a borrower, to provide a certain amount of loans on borrower’s demand. The borrower can withdraw the amount at any moment of time and pay the interest only on the amount withdrawn. For example, if you have $5000 line of credit, you can withdraw the full amount or any amount less than $5000 (say$2000) and only pay the interest for the amount withdrawn (in this case $2000).

 

19. How bank earns profit?

The bank earns profit in various ways

  1. Banking value chain
  2. Accepting deposit
  3. Providing funds to borrowers on interest
  4. Interest spread
  5. Additional charges on services like checking account maintenance, online bill payment, ATM transaction

 

20. What are payroll cards?

Payroll cards are types of smart cards issued by banks to facilitate salary payments between employer and employees. Through payroll card, employer can load salary payments onto an employee’s smart card, and employee can withdraw the salary even though he/she doesn’t have an account in the bank.

21. What is the card based payments?

There are two types of card payments

  1. Credit Card
  2. Debit Card

 

22. What ACH stands for?

ACH stands for Automated Clearing House, which is an electronic transfer of funds between banks or financial institutions.

 

23. What is ‘Availability Float’?

Availability Float is a time difference between deposits made, and the funds are actually available in the account. It is time to process a physical cheque into your account.

For example, you have $20,000 already in your account and a cheque of another $10,000 dollar is deposited in your account but your account will show balance of $20,000 instead of $30,000 till your $10,000 dollar cheque is cleared this processing time is known as availability float.

 

24. What do you mean by term ‘Loan Maturity’ and ‘Yield’?

The date on which the principal amount of a loan becomes due and payable is known as ‘Loan Maturity’. Yield is commonly referred as the dividend, interest or return the investor receives from a security like stock or bond, interest on fix deposit etc. For example, any investment for $10,000 at interest rate of 4.25%, will give you a yield of $425.

25. What is Cost Of Funds Index (COFI)?

COFI is an index that is used to determine interest rates or changes in the interest rates for certain types of Loans.

 

26. What is Convertibility Clause?

For certain loan, there is a provision for the borrower to change the interest rate from fixed to variable and vice versa is referred as Convertibility Clause.

 

27. What is Charge-off?

Charge off is a declaration by a lender to a borrower for non-payment of the remaining amount, when borrower badly falls into debt. The unpaid amount is settled as a bad debt.

 

28. What ‘LIBOR’ stands for?

‘LIBOR’ stands for London Inter-Bank Offered Rate. As the name suggest, it is an average interest rate offered for U.S dollar or Euro dollar deposited between groups of London banks. It is an international interest rate that follows world economic condition and used as a base rate by banks to set interest rate. LIBOR comes in 8 maturities from overnight to 12 months and in 5 different currencies. Once in a day LIBOR announces its interest rate.

29. What do you mean by term ‘Usury’?

When a loan is charged with high interest rate illegally then it is referred as ‘Usury’. Usury rates are generally set by State Law.

30. What is Payday loan?

A pay-day loan is generally, a small amount and a short-term loan available at high interest rate. A borrower normally writes post-dated cheques to the lender in respect to the amount they wish to borrow.

31. What do you mean by ‘cheque endorsing’?

‘Endorsing cheque’ ensures that the cheque get deposited into your account only. It minimizes the risk of theft. Normally, in endorsing cheque, the cashier will ask you to sign at the back of the cheque. The signature should match the payee. The image over here shows the endorsed cheque.

32. What are the different types of Loans offered by banks?

The different types of loans offered by banks are:

  1. Unsecured Personal Loan
  2. Secured Personal Loan
  3. Auto Loans
  4. Mortgage Loans
  5. Small business Loans
33. What are the different types of ‘Fixed Deposits’?

There are two different types of ‘Fixed Deposits’

Special Term Deposits: In this type of ‘Fixed Deposits’, the earned interest on the deposit is added to the principal amount and compounded quarterly. This amount is accumulated and repaid with the principal amount on maturity of the deposit.

Ordinary Term Deposits: In this type of ‘Fixed Deposits’, the earned credit is credited to the investor’s account, once in a quarter. In some cases, interest may be credited on a monthly basis.

The earned interest on fixed deposits is non-taxable. You can also take a loan against your fixed deposit.

 

34. What are the different types of Loans offered by Commercial Banks?

Start-Up Loans

This type of Loan is offered to borrower to start their business and can be used to build a storefront, to acquire inventory or pay franchise fees to get a business rolling.

Line of Credit

Lines of credit are another type of business loan provided by commercial banks. It is more like a security for your business; the bank allows the customer to withdraw the amount from readily available funds in an adverse time. Customer or Company can pay back over time and withdraw money again without going into the loan process.

Small Business Administration Loans

It is a Federal Agency (U.S) that gives funding to small businesses and entrepreneurs. SBA (Small Business Administration) loans are made through banks, credit unions and other lenders who partners with SBA.

35. What is ‘Bill Discount’?

‘Bill Discount’ is a settlement of the bill, where your electricity bill or gas bill is sold to a bank for early payment at less than the face value and the bank will recover the full amount of the bill from you before bill due date. For example, electricity bill for XYZ is $1000; the electricity bill company will sell the bill to the bank for 10% to 20% discount to the face value. Here, the bank will buy the electricity bill for $900 whose face value is $1000, now the bank will recover, full amount of bill from the customer i.e $1000. If the customer fails to pay the bill, the bank will put interest on the outstanding bill and ask the customer for the payment.

36. What is ‘Bill Purchase’?

In ‘Bill Purchase’ the loan will be created for the full value of the draft and the interest will be recovered when the actual payment comes. For example, a ‘Sight draft’ is presented for which the loan is created for 100% of the draft value. The money is received after 7 days, and then the interest will be recovered for 7 days along with the principal amount.

37. What is ‘Cheque Discount’?

Cheque discounting service is offered only by few banks. For instance, if you have a cheque of $3000 outstation and the cheque will take 7 seven days for clearance, then bank will offer you a service for early payment. The bank can make an early payment, but they will pay only for certain percentage of the actual amount, here they will pay you $2000 but they will charge interest on it and the remaining $1000 will be paid, once the outstation cheques get clear.

 

38. Explain the utility of banking services to business.

Some utilities of banking services to business are as follows:

(a) Money deposited in a bank remains safe. Precious articles too can be kept in the safe custody of banks in the lockers

(b) Banks provide credit facilities to their customers.

(c) Banks provide convenient and safe means of transferring money from one place to another and facilitate business dealings/transactions.

(d) Banks meet the financial needs of small scale business units which are located in economically backward areas

39. Describe the services of a commercial bank to the business community.

A commercial bank performs the following services to business community.

(a) Issue of letter of credit, traveller’s cheque and circular notes.

(b) Supply of trade information.

(c) Acting as a reforce as regards financial status of customers.

(d) Safe custody of important documents in safe deposits vaults (lockers) available on hire.

40. Explain the role of banking in modern society

Following are the advantages of banks in a modern society:

  1. Money deposited in commercial banks can be withdrawn on demand by cheque. Payments can also be made by cheque. Thus, business firms are not required to make large payments in cash and also not required to maintain large cash balances with them.
  2. Financial assistance is provided by banks by way of cash credit, overdraft, loans and advances on discounting of bills of exchange.
  3. Various agency services provided by commercial banks are prompt and reliable, for all these services bank charge only a nominal fee or commission.
41. Describe the possible effects of suspension of banking activities

1. In the event of suspension of banking activities, the people would not be able to deposit their savings in banks, nor able to withdraw money from banks. Saving are then likely to decline with a corresponding increase in consumption expenditure.

2. Farmers and small business units will suffer badly if banking operations are suspended. They will be forced to go to money lenders to borrow money at high rates of interest when bank finance is not available.

3. Foreign trade will be badly affected in the absence of facilities regarding issue of letter of credit and foreign exchange transactions.

42. Do banks provide services other than accepting deposits and lending money? Discuss.

Banks provide many services other than accepting deposits and lending money. The various other services of banks are:

  1. Promoting and mobilising savings of the public.
  2. Providing funds to trade and industry by way of discounting bills, overdraft, cash credit facility and transfer of funds from one place to another.
  3. Providing agency services to customers, such as collection of bills, payments of insurance premium, purchase and sale of securities, etc. and other general services, such as issue of travellers cheques, credit cards, locker facility, etc.
43. Write a short note on Reserve Bank of India.

In every country, the bank which is entrusted with the responsibility of guiding and regulating the banking system is known as the Central Bank. In India, Reserve Bank of India is entrusted with this responsibility. It regulates the volume of currency and credit and has powers of control and supervision overall banking institutions.

44. What are co-operative banks?

Co-operative banks in India are established under the provisions of the Co-operative Societies Act, 1912. These are organised on co-operative basis. Co-operative banks are organised both at primary and district level. A co-operative credit society at the primary level can be formed by the local people having common interest and common purposes.

45. What do you understand by development banks?

Development banks are special financial institutions which provide long-term capital to industry. These banks assist the promotion, expansion and modernisation of industries. They act as underwriters also. Development banks which have been established and functioning in India are IFCI, SFCs, IDBI, ICICI, IRBI, etc.

46. Write a short note on the functions of commercial banks.

The functions of commercial banks are divided into two categories.

(i) Primary functions,

(ii) Secondary function.

Primary functions include accepting deposits and lending money. Loans given by banks are: Short- term loans and long-term loans. Banks grant short-term loan to its customers by way of cash credit, overdraft discounting of bills.

Bank accepts deposits from the public and their customers in the form of current deposit, saving deposit, fixed deposit and under other deposit scheme. Bank grant loans to customers as demand loans and term loan.

The auxiliary services of banks are agency services and general utility services. Agency services are rendered as agent of customers whereas general utility services are rendered to the general public.

47. What are gift cheques?

Cheques printed with attractive colours and designs, which are issued by banks to the members of public to enable them to present a specific amount to a friend or relative on special occasions, are called gift cheques.

48. What type of services do banks provide as ‘Agent’ of customers? Mention any five services.

Services of bank to its customers as agent’s are:

  1. Dealing in Bills of Exchange, Promissory Notes, Hundies and Drafts.
  2. Issuing letter of credit, Travellers cheques and circular notes.
  3. Buying, selling and dealing in bullion as well as foreign exchange and foreign bank notes.
  4. Acting as ‘agent’ for clients, buying and selling shares and debentures and acting as underwriter.
  5. Collection and remittance of money and extending guarantee against loans raised by customers.
49. In what ways a bank may be helpful to (a) a retired pensioner, (b) a traveller and (c) a housewife

(a) A Retired Pensioner:

Bank provides various services as collecting pension on behalf of clients is one of the important services by the bank to their customers.

(b) A Traveller:

Banks issue traveller’s cheques mainly for the convenience of travelling executives or individuals. These cheques can be encashed from the branch office of the bank at the place of visit and also used to pay for airlines booking, settling hotel bills, etc.

(c) A Housewife:

Safe custody of valuable articles can be arranged by hiring lockers in banks, etc.

50. What do you mean by non-banking services and agency services?

Non-banking Services:

Non-banking services are rendered in the interest of general public. Some of these services are issue of traveller’s cheques, gift-cheques, bank drafts, circular notes and safe custody of valuable articles and documents in bank lockers, etc.

Agency Services:

Agency services include payment of subscription, insurance premium, collection of cheques and dividends, buying and selling snares and debentures on behalf of customers.

51. How do commercial banks serve the business community in our country? Briefly explain.

(i) Banks undertake collection of book debts, bills of exchange promissory notes dividend warrants, etc., which greatly facilitate business activities.

(ii) Foreign trade activities are also greatly facilitated by banks undertaking issue of letter of credit; acceptance and payment of documentary bills, and providing financial assistance by way of pre-shipment and post-shipment credit, etc.

(iii) An important service provided by banks to individuals and business firms is that of acting as a reference.

52. Explain the methods of granting loan by bank.

The loan can be granted as:

(a) Demand loan,

(b) Term loan.

(a) Demand Loan:

Demand loan is repayable on demand. The entire amount of demand loan is disbursed at one time and the borrower has to pay interest on it. The borrower can repay the loan either in lumpsum or as agreed with the bank.

(b) Term Loans:

Medium and long term loans are called, Term loans’. Term loans are granted for more than one year and repayment of such loans is spread over a longer period The repayment is generally made in suitable instalments of fixed amount. These loans are repayable over a period of 5 years and maximum upto 15 years.

53. What do you mean by bank overdraft? Explain the procedure for granting overdraft by bank?

Overdraft facility is the result of an agreement with the bank by which a current account holder is allowed to withdraw a specified amount over and above the credit balance in his/her account. It is a short term facility. This facility is made available to current account holders only who operate their account through cheques. Overdraft facility is generally granted by bank on the basis of a written request by the customer.

54. Differentiate between loans and advances.

A loan is granted for a specific time period. Generally commercial banks grant short-term loans. But term loans, that are loan for more than a year, may also be granted. Loans are generally granted against the security of certain assets. An advance is a credit facility provided by the bank to its customers.

It differs from loan in the sense that loans may be granted for a longer period but advances are normally granted for a short period of time. The rate of interest charged on advance varies from bank to bank.

55. Explain cash credit facility allowed by banks to customers.

A cash credit facility is an arrangement whereby the bank agrees to lend money to the borrower upto a certain limit. The bank put this amount of money to the credit of the borrower.

The borrower draws the money as and when he needs. Interest is charged only on the amount actually drawn and not on the amount placed to the credit of borrower’s account. Cash credit is generally granted on a bond of credit or certain other securities.

56. What do you mean by discounting of bills by bank?

Banks purchase the bills at face value minus interest at current rate of interest for the period of the bill. This is known as ‘Discounting of bills’. Bills of exchange are negotiable instruments and enable the debtors to discharge their obligations towards their creditors, such bills of exchange arise out of commercial transactions both in internal trade and external trade. By discounting these bills before they are due for a nominal amount, the banks help the business community.

57. Explain in brief the agency functions of a commercial bank.

The agency functions of a commercial bank are as follows:

(a) Collection and payment of cheques and bills on behalf of the customers.

(b) Collection of dividends, interest and rent, etc on behalf of customers, if so instructed by them.

(c) Purchase and sale of shares and securities on behalf of customers.

(d) Payment of rent, interest, insurance premium subscription etc. on behalf of customers, if so instructed.

(e) Acting as a trustee or executor.

58. Differentiate between primary and secondary functions rendered by bank.

Primary functions of a commercial bank include:

(a) Accepting deposits: and

(b) Granting loans and advances. Secondary functions of a commercial bank include as follows:

(i) Issuing letters of credit traveller’s cheques, circular notes, etc.

(ii) Undertaking safe custody of valuables, important documents and securities by providing safe deposit vaults or lockers.

(iii) Providing customers with facilities of foreign exchange.

(iv) Collecting and supplying business information, etc.

59. Describe briefly the various modes of acceptance of deposits by banks.
60. Describe briefly the various modes of acceptance of deposits by banks.
61. Describe the procedure of opening and operating a current account.

Opening the Current Account: To open a current account, one has to fill up the application form giving all the information required by bank. The application must be introduced by a person known to the bank and operating current account with it. The specimen signature of the person who will operate the account must also be put on a separate card.

After completing all the formalities, the applicant is given an account number to be mentioned at the time of withdrawing money or depositing any amount in the account.

Operating the Current Account: A current account is an account which is generally opened by business people at their convenience. Money can be deposited and withdrawn at any time Money can be withdrawn only by means of cheques usually a banker does not allow any interest on this account.

62. Can a customer encash a fixed deposit receipt before the due date? Discuss.

In case a depositor requires the money before the due date, he or she makes a request to the bank for its payment. When the payment of fixed deposit is made before the due date, the depositor loses interest which is normally 1 % less compared to the rate applicable for the period.

63. Write short note on recurring deposit account.

It is one form of saving deposits. Depositors save and deposit regularly every month a fixed installment so that they are assured of sizeable amount at a later period. This will enable the depositors to meet contingent expenses. The interest earned on recurring account is higher than on the saving account

64. What are pay-in-slips?

Pay-in-slips are printed forms with perforated counterfoils used for depositing cash or cheque. It contains information in respect of the name of the account holder, amount deposited, and the signature of the person depositing it. On the receipt of money, the cashier signs and stamps the pay-in-slip and the counterfoil is given back to the depositor which serves as proof of deposit.

65. Can we withdraw any amount in excess of the balance in current account? Discuss.

With the permission of the bank, a depositor can withdraw money in excess of what he has deposited in the bank. This facility in known as overdraft facility and is normally granted only to current account holders.

66. What do you understand by ‘secured loans’? Enumerate the types of securities generally required by banks for such loans.

Secured loans are those which are granted against the security of tangible assets, like stock in trade and immovable property.

There are various types of securities which are accepted for giving secured loans:

(a) Tangible assets such as plant and machinery, motor vehicles, etc.

(b) Document of title to goods, like Railway Receipt, Bills of Exchange, etc.

(c) Financial securities (Shares and Debentures)

(d) Life insurance policy

(e) Real estates (land, building, etc.)

(f) Fixed deposit receipt (FDR)

(g) Gold ornaments, jewellery, etc.

67. Enumerate the advantages of loans and advances raised from banks by business firms.

The advantages of loans and advances raised from banks by business firm are as follows:

(a) Loan and advances can be arranged from banks in keeping with the flexibility in business operations. Thus business may be run efficiently with borrowed funds from banks for financing its working capital requirements.

(b) Loans and advances are utilized for making payment of current liabilities, wages and salaries of employees, and also the tax liability of business.

(c) Bank loans and advances are found to be convenient as far as its repayment is concerned.

(d) Loans and advances by banks generally carry element of secrecy with it.

68. State the meanings of Term Loan. Cash Credit and Borrowing Rate.

Term Loan:

Medium-term loans and long-term loans are generally known as Term loans’. These loans are granted for more than one year for heavy repairs, expansion of units, modernisation/renovation, etc. Such loans are sanctioned against the security of permanent immovable assets.

Cash Credit:

A cash credit is an arrangement by which the customer (borrower) is allowed to borrow money upto a certain limit. This is a permanent arrangement and the borrower need not draw the sanctioned amount at once, it draws the amount as and when required.

Borrowing Rate:

On the deposits received, the bank pays interest to the depositors at a specified rate. This is known as the borrowing rate.

69. Write a short note on the Reserve Bank’s role in loan operations

The Reserve Bank manages the public debt and is responsible for the issue of new loans. The rupee loans of the Central Government are floated in the form of stock certificates and promissory notes through the Public Debt offices of the bank.

The State Governments also avail themselves of the bank’s facilities for the issue of new loans. In view of the bank’s close contacts and an intimate knowledge of the financial markets, it is in a position to advise the Government on the quantum, timing and terms of the new loans. The bank actively operates in the gilt-edged market to ensure the success of loan operation

70. Does the Reserve Bank sell treasury bills? Discuss.

The Reserve Bank sells Treasury Bills whenever necessary on behalf of the Central Government. The sale of Treasury Bills provides short-term finance to the Government and also helps to absorb any excessive liquidity in the money market Treasury bills are also rediscounted by the bank for state government’s banks and other approved bodies.

71. Briefly discuss the advisory function of the Reserve Bank.

Like all central banks, the Reserve Bank also acts as adviser to the government not only on banking and financial matters but also on a wide range of economic issues including those in the field of planning and resources mobilisation.

The Bank’s advice is sought on different aspects of formulation of the country’s five-year plans such as the financing pattern, mobilisation of resources and institutional arrangements with regard to banking and credit matters. The bank has also to tender advice to Government on various matters of international finance.

It has, of course, a special responsibility in respect of financial policies and measures concerning new loans, agricultural finance, co-operative organisation, industrial finance and legislation affecting banking and credit.

72. Describe the Reserve Bank’s regulatory and supervisory functions relating to commercial banks.

The Reserve Bank’s regulatory and supervisory functions relating to commercial banks cover their establishment {i.e., licensing), branch expansion, liquidity of their assets management and methods of working, amalgamation, reconstruction and liquidation.

The control is exercised by the bank through periodic inspections conducted by its own staff and follow-up action after the inspections, as also by calling for returns and necessary information from banks

73. Describe the functions of the Reserve Bank regarding controlled monetary expansion.

The bank has made use of both traditional and quantitative methods of credit control, and selective or qualitative controls. The primary objective of credit control can be summed up in the phrase controlled monetary expansion’. In terms of this objective, the Reserve Bank has endeavoured to do two things:

(a) To control the supply of credit so as to curb the inflationary tendencies in the economy, and

(b) To make available adequate liquidity to meet the increasing developmental requirements of trade, industry, agriculture and other sectors of the economy

74. What is the role of the Reserve Bank in agricultural credit?

The role of the Reserve Bank in agricultural credit is highly significant. The Reserve Bank of India Act envisages (a) provision of agricultural credit by the Bank through the scheduled or state co-operative banks for different purposes, and (b) setting up a special agricultural credit department to maintain the necessary staff for study and review of all questions of agricultural credit for consultation by the Government of India, the State Governments. State co-operative banks and other banking organisations.

75. What is NABARD?

The National Bank for Agriculture and Rural Development (NABARD) was established in July 1982 for the purpose of strengthening the system of rural credit and coordinating the activities of all other financial institutions engaged in financing of agriculture and rural development programme.

NABARD does not give direct loans and advances to agriculturists. It provides credits to the rural sector through the network of cooperative banks, commercial banks, RRB’s and other financial institutions. Over the years, NABARD has emerged as the most significant institution responsible for rural transformation

76. Describe the functions of NABARD.

The main functions of NABARD are as follows:

(i) To provide short, medium and long term credit to State Co-operative Bank, Regional Rural Banks. Land Development Banks and other financial institutions approved by the RBI.

(ii) To grant long term loans to State Government for subscribing to the share capital of cooperative societies

(iii) To coordinate activities of Central and State Governments and other all India or State level institutions entrusted with the work of development of small scale industries, village industries and rural crafts

(iv) To inspect cooperative banks, RRB’s and co-operative societies.

(v) To promote research in agriculture and rural development.

(vi) To act as a refinancing agency for institutions providing finance to agricultural and rural development programmes.

77. Write a short note on Kisan Credit Card scheme.

Kisan Credit Card (KCC) scheme was introduced in 1998-99 to facilitate farmer’s access to credit from Commercial Banks and Regional Rural Banks Farmers are being provided with credit cards and passbooks.

With these credit cards, the farmers can avail the loan facilities made available by the banks upto the prescribed limits. The limits are fixed on the basis of operational land holding of the farmers, cropping pattern, scale of operations, etc.

The card is valid for three years, but is renewed on the basis of good performance and timely repayment of loans. The scheme is implemented by some selected Commercial Banks. Central and State Cooperative Banks and Regional Rural Banks.

78. Give the brief introduction of SIDBI.

 SIDBI became operational on April 2, 1990 with an initial paid up capital of Rs. 250 Crore and taking over the outstanding portfolio of IDBI relating to small scale sector held under the Small Industrial Development Fund as on March 31, 2000 amounting to Rs. 4200 crore.

79. What are the forms of financial assistance from state financial corporations?

State financial corporations extend financial assistance in the following forms :

(i) Granting of loans or advances and subscribing to the debentures of industrial concerns, repayable within a period of not exceeding twenty years.

(ii) Underwriting the issues of stocks, shares, bonds or debentures by industrial concerns.

80. What is the main objective of UTI ? What are the advantages which UTI offers for small investors?

The main objective of the UTI is to mobilise the savings of the community and channelise them into productive corporate investments so as to provide with growth and diversification of the economy UTI offers the following advantages for small investors:

(a) Considerably reduced risk since, funds are invested in a balanced and well distributed portfolios,

(b) The benefit of expert management,

(c) A steady income,

(d) Liquidity.

81. What are the functions of NABARD ?

(i) The Bank gives long-term assistance to state Governments (Upto 20 years) for subscribing to the share capital of co-operative credit institutions.

(ii) The Bank has the responsibility of inspecting state cooperative banks and RRBS.

82. What are the main features of IDBI?

(i) Planning, promoting and developing industries to fill vital gaps in industrial structure.

(ii) Providing technical and administrative assistance for promotion, management and expan­sion of industry.

83. What is bank? What are the types of banks?

A bank is a financial institution licensed as a receiver of cash deposits. There are two types of banks, commercial banks and investment banks. In most of the countries, banks are regulated by the national government or central bank.

 

84. What is investment banking?

Investment banking manages portfolios of financial assets, commodity and currency, fixed income, corporate finance, corporate advisory services for mergers and acquisitions, debt and equity writing etc.

 

85. What is commercial bank?

Commercial bank is owned by the group of individuals or by a member of Federal Reserve System. The commercial bank offer services to individuals, they are primarily concerned with receiving deposits and lending to business. Such bank earns money by imposing interest on the loan borrowed by the borrower. The money that is deposited by the customer will be used by the bank to give business loan, auto loan, mortgages and home repair loans.

86. What are the types of Commercial Banks?

1.Retail or consumer banking

It is a small to mid-sized branch that directly deals with consumer’s transaction rather than corporate or other banks

2. Corporate or business banking

Corporate banking deals with cash management, underwriting, financing and issuing of stocks and bonds

3. Securities and Investment banking

Investment banking manages portfolios of financial assets, commodity and currency, fixed income, corporate finance, corporate advisory services for mergers and acquisitions, debt and equity writing etc.

4. Non-traditional options

There are many non-bank entities that offer financial services like that of the bank. The entities include credit card companies, credit card report agencies and credit card issuers

 

87. What is consumer bank?

Consumer bank is a new addition in the banking sector, such bank exist only in countries like U.S.A and Germany. This bank provides loans to their customer to buy T.V, Car, furniture etc. and give the option of easy payment through instalment.

 

88. What are the types of accounts in banks?

1. Checking Account: You can access the account as the saving account but, unlike saving account, you cannot earn interest on this account. The benefit of this account is that there is no limit for withdrawal.

2. Saving Account: You can save your money in such account and also earn interest on it. The number of withdrawal is limited and need to maintain the minimum amount of balance in the account to remain active.

3. Money Market Account: This account gives benefits of both saving and checking accounts. You can withdraw the amount and yet you can earn higher interest on it. This account can be opened with a minimum balance.

4. CD (Certificate of Deposits) Account: In such account you have to deposit your money for the fixed period of time (5-7 years), and you will earn the interest on it. The rate of interest is decided by the bank, and you cannot withdraw the funds until the fixed period expires.

89. What are the different ways you can operate your accounts?

You can operate your bank accounts in different ways like

  1. Internet banking
  2. Telephone or Mobile banking
  3. Branch or Over the counter service
  4. ATM ( Automated Teller Machine)
90. What are the things that you have to keep in concern before opening the bank accounts?

Before opening a bank account, if it is a saving account, you have to check the interest rate on the deposit and whether the interest rate remains consistent for the period. If you have the checking account, then look for how many cheques are free to use. Some banks may charge you for using paper cheques or ordering new cheque books. Also, check for different debit card option that is provided on opening an account and online banking features.

 

91. What is ‘Crossed Cheque’ ?

A crossed cheque indicates the amount should be deposited into the payees account and cannot be cashed by the bank over the counter. Here in the image, number#2, you can see two cross-lines on the left side corner of the cheque that indicates crossed cheque.

92. What is overdraft protection?

Overdraft protection is a service that is provided by a bank to their customer. For instance, if you are holding two accounts, saving and credit account, in the same bank. Now if one of your accounts does not have enough cash to process the cheques, or to cover the purchases. The bank will transfer money from one account to another account, which does not have cash so to prevent check return or to clear your shopping or electricity bills.

93. Do bank charge for ‘overdraft protection’ service?

Yes, bank will charge on ‘overdraft protection’ services but the charges will be applicable only when you start using the service

94. What is (APR) Annual Percentage Rate?

APR stands for Annual Percentage Rate, and it is a charge or interest that the bank imposes on their customers for using their services like loans, credit cards, mortgage loan etc. The interest rate or fees imposed is calculated annually.

 

95. What is ‘prime rate’?

Basically, ‘prime rate’ is the rate of interest that is decided by nations (U.S.A) largest banks for their preferred customers, having a good credit score. Much ‘variable’ interest depends on the ‘prime rates’. For example, the ‘APR’ (Annual Percentage Rate) on a credit card is 10% plus prime rate, and if the prime rate is 3%, the current ‘APR’ on that credit card would be 13%.

96. What is ‘Fixed’ APR and ‘Variable’ APR?

‘APR’ (Annual Percentage Rate) can be ‘Fixed’ or ‘Variable’ type. In ‘Fixed APR’, the interest rate remains same throughout the term of the loan or mortgage, while in ‘Variable APR’ the interest rate will change without notice, based on the other factors like ‘prime rate’.

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