Important Short Questions and Answers: Overview of Indian banking system

Overview of Indian banking system

1.Define banks.

According to the Indian Banking Companies Act , “Banking Company is one which transacts the business of banking which means the accepting for the purpose of lending or investment of deposits money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”.

2.What are commercial banks?

The accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque,draft and order or otherwise

3.What are the NBFCs?

Non-bank financial companies (NBFCs) are financial   institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions typically are restricted from taking deposits from the public depending on the jurisdiction.

4.What are the scheduled banks?

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of theAct.

The   banks   included   in   this        schedule   list   should   fulfill   two   conditions.

1. The paid capital and collected funds of bank should not be less than Rs. 5 lac. 2.Any activity of the bank will not adversely affect the interests of depositors.

5.Who is banker?

Banker is one who in the ordinary course of his business,honours cheque drawn upon him by person from and for whom he receives money on current account

6.Who is customer?

Customer is the person who has the habit of resorting to the same place or person to do a business

7.What is balance sheet?

A bank balance sheet is a record of the assets ,liabilities and networth of a bank at a given period of time. assets=liabilities.

8.What is Net worth?

Difference between assets &liabilities and what is claimed by or owed to the owners of the bank

9.What is repo rate& reverse repo rate?

Repo rate is the rate at which banks borrow money from the central banks with out any sale of securities.

Reverse repo rate

The rate of interest at which the central bank borrows funds from other banks for the short term durations.

10.Define discounting of bill.

Discounting the bills of exchange means the arrangements of making payments before maturity of bills of exchange. The payment made by the bank to the holder of bill of exchange before its maturity is the amount of loan. The discount charged is the earning of the bank.

11.Write about bills of exchange?

It is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

12.What is a negotiable instrument?

It is a written document which creates a rights in the favour of somebody and is freely transferable by delivery

13.Write about cheque.

A “cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

14.Write a note on promissory note.

A „Promissory Note‟ is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

15.Overdraft

It is a short-term loan granted by commercial banks to their account holders. Under this type of loan, the customers are allowed to draw more than what they have in their current account up to a certain limit. The excess amount overdrawn is called overdraft.

16.Write about cash credit

Cash credit is a very common form of loan granted by commercial banks to businessmen and industrial units against the security of goods. The loan granted under this head is credited to current account opened in the name of borrower. The borrower can withdraw money through cheques according to his requirement. The interest is charged on the amount actually withdrawn by the borrower.

17. Write a note on lien &set off.

Lien is the right of a creditor to retain the goods &securities owned by his debtors until the debt is repaid

Set off:

Same name and same right, both the accounts must held in the same name & in the same capacity. this is to avoid misuse of funds belonging to someone else but standing in the name of the customer

18.Write about call money.

Call money is short-term finance repayable on demand, with a maturity period of one to fifteen days, used for inter-bank transactions. The money that is lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money.

19.What is mean by authorized, subscribed, paid up capital

Authorized capital

It is the total of the share capital which a limited company is allowed to issue. it presents the upper boundary for the actually issued share capital.

Subscribed capital - it is the portion of the issued capital which has been subscribed by all the investors including the public.

Paid up share capital-Is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in installments

20. What is a negotiable instrument?

It is a written document which creates a rights in the favor of somebody and is freely transferable by delivery.