LEGAL ASPECTS OF BANKING OPERATIONS INDIAN INSTITUTE OF BANKING & FINANCE MODULE A & B 10.10.07

1. LEGAL ASPECTS OF BANKING OPERATIONSINDIAN INSTITUTE OF BANKING & FINANCEMODULE A & B10.10.07

2. **.. Banking is defined in the Banking Regulation Act. • Primary function to accept deposit, lend and invest. • Secondary functions include opening of Letters of credit , Issuing Bank guarantees, Demand Drafts • Mail Transfers, Telegraphic Transfers, Collection of instruments • Executor Trustee services, Dealing in Forex related transactions

3. Offering Safe Deposit Locker facilities, accepting Safe custody articles and so on • Oflate bankers offer other services like • ATM, Debit, Credit and other plastic cards • Accepting Electricity, Telephone bills , and extending services on behalf of the Service providers

4. Bancassurance, cross selling of various financial products and so on • While the bank is making a person as their customer due care has to be shown taking into consideration the latest provisions of KYC norms • A banker should be able to justify beyond doubt that his customer has become his customer after following all the procedures, norms and he has acted as a prudent banker.

5. 01.Bank license is issued by Reserve Bank of India based on the provisions of • A.. Banking Regulation Act • B.. Reserve Bank of India Act • C.. Both a & b • D.. Neither Banking Regulation Act nor Reserve Bank of India Act

6. 02.. Reserve Bank of India Act,1934 was enacted to constitute the Reserve Bank of India a.. To regularize issue of Bank notes b.. To Regulate the issue of Bank notes c.. For directing the banks when they err d.. To consolidate and amend the law relating to banking

7. **. Reserve Bank of India act was introduced in 1934 and since then amended from time to time to include the latest requirements. • A provision was inserted by the Information Technology Act,2000 to enable RBI to make regulations for regulating payment systems of banks and financial institutions

8. 03..Identify the Act which puts restrictions on the shareholding, directorship, voting rights and other aspects of banking companies. • a.. Companies Act • b.. Banking Regulation Act • C.. Reserve Bank of India Act • D.. All the above mentioned Acts

9. 04..Identify which one is not part of the Banking Regulation act • a. To regulate business of banking companies • b. To control over the management of banking business • c. To wind up a banking business • d. To keep reserves for securing monetary stability in India

10. 05..Private banks are governed by the Companies Act. In respect of their business of banking and by the RBI Act for their constitution. • a. The above is not incorrect • b. The above is incorrect • c. For Constitution, Companies Act and banking business provisions of both Banking Regulation Act and Reserve Bank of India Act • d. There is no role for Companies Act

11. **. RBI’s whole capital is held by the Central Government. .. The board has one Governor and not more than 4 Deputy Governors appointed by the Central Govt .. RBI alone can issue and mange currency in India as per the provisions of RBI act.

12. RBI as regulator of banking sector is mainly by virtue of the provisions of the Banking Regulation Act • RBI inspects banks and exercise supervisory powers and may issue directions in public interest • RBI also collects credit information and make available the same • RBI also imposes penalties wherever applicable

13. 06..Other than the Governor, Deputy Governors of RBI, the other directors are a.. Appointed b.. Nominated c.. Selected d.. Elected

14. 07..Reserve Bank of India has the powers to issue currency notes in denominations of a.. Rs.2/- b.. Rs.50/- c.. Rs.10,000/- d.. All the above

15. 08..The co-operative banks are under the regulatory purview of the Reserve Bank of India. This is due to the amendment to • a . Reserve Bank of India Act • b . Cooperative Act • C . Banking Regulation Act • d . Both a & b

16. **The refusal of licence to a company would make it ineligible to undertake banking business, but still the company can carry on other business like money lending . . RBI can stipulate a higher requirements of capital for the purpose of licensing a banking company, the RBI has to be satisfied that the company has adequate capital structure and earning prospects

17. In addition to the conditions applicable to domestic banks, for foreign banks RBI will look into • a. Whether the carrying on of banking business by the company in India will be in public interest. • b. Whether the government of the law of the country in which the company is incorporated discriminates in any way against banking companies • C.. Whether the company complies with the provisions of the BR Act as applicable to foreign companies

18. **The Banking Regulation Act authorizes the RBI to cancel the license granted to any banking company. The cancellation may be on account of a.. The company ceases to carry on banking business in India b.. The company at any time fails to comply with any of the conditions imposed or the company does not fulfill at anytime any of the conditions referred in the act.

19. **As per the BR act, a foreign bank (banking company incorporated outside India) operating in India has to deposit and keep deposited with RBI an amount of Rs.15 lacs (for such banks having places of business in Mumbai or Kolkata or both Rs.20 lacs) .. In addition to above, 20% of profit to be remitted with RBI

20. 09..The amount of deposit with RBI by foreign banks to be kept in a.. Cash b.. Unencumbered approved securities c.. Partly in both d.. None of the above

21. **As per the provisions 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. .. No shareholder can exercise voting rights in respect of the shares held by him in excess of 10% of the total voting rights of all the shareholders of the banking company.

22. 10..Which one is in correct a.. Banking companies are permitted to have only ordinary shares • Preference shares issued before 01.07.1944 can be allowed to continue • Banking companies are not permitted to have equity shares • Banking companies are not permitted to have special preference shares

23. 11..As per the provisions of the BR act, a.. No dividend is payable until all capitalized expenses are completely written off. b.. This also includes preliminary expenses and share selling commission c.. Both a & b are correct d.. Both a & b are incorrect

24. **At least 51% of the total number of directors shall be persons who have special knowledge or practical experience in respect of accountancy, agriculture and rural economy, banking, co-operation and so on ..The directors of a banking company not to hold office for more than 8 years continuously ..The whole –time Chairman and a Managing Director shall hold office for a period not exceeding 5 years

25. ..The Whole-time Chairman or the Managing Director of a banking company should have special knowledge or practical experience of the working of a banking company or State Bank of India or a subsidiary bank or a financial institution or financial, economical or business administration.

26. 12..A banking company can not have this person as the head of their institution a.. Managing Director b.. Chairman c.. Managing Agent d.. Whole Time Chairman

27. 13..As per the provisions of the Reserve Bank of India Act, the Whole time Chairman or the Managing Director of a banking company to hold qualification shares of minimum 50. • It is not 50 but 100 • They need not hold any qualification shares • They need to have minimum qualification shares of 10 as per the provisions of Banking Regulation act and not RBI act • None of these

28. **Banks have to file a return on their unclaimed deposit within 30 days of the end of each calendar year. .. All deposits not operated in 10 years .. For term deposits, the period of 10 years starts from the expiry of the period of the deposit

29. 14.. Rajkumar has nominated his brother Radhakrishn as the nominee for his Savings Bank account. Nominee will not be entitled to get the money on this account from the bank a.. As long as Rajkumar is alive b.. If Rajkumar is closing the said account. c.. If Rajkumar has changed the nomination in some one’s favour d.. In all the above cases

30. **RBI issues directions from time to time regulating the lending operations of banking companies ..The tools employed for exercising Selective Credit Control are • Minimum margins for lending against selected commodities • ceilings on the levels of credit and • charging of minimum rate of interest on advances against specified commodities

31. RBI is authorized to regulate interest rates on loans and advances as well as deposits. • The Usurious Loans Act. 1918 prohibits lending at exorbitant rates. The law has been made to protect the weaker borrowers from the powerful moneylenders • ..RBI has issued guidelines in respect of internet banking. These cover a.. Technology and Security issues b.. Legal issue and c . Regulatory and supervisory issues

32. **Banking Ombudsman is an authority established under the Banking Ombudsman Scheme, 1995 by the RBI. The purpose is to resolve and settle the complaints of banking public against the commercial banks and the scheduled primary cooperative banks without resorting to courts.

33. ** Banking Ombudsman scheme applicable to all commercial banks, RRBs and schedules primary co-operative banks. .. Disputes between two banks can also be taken up with the Banking Ombudsman ..A banking ombudsman may act as an arbitrator

34. 15..identify the odd one (Banking ombudsman) a.. Observance of Reserve Bank directives on interest rates • Non-acceptance of application for loans without assigning valid reasons to the applicant • Non-issuance of Demand Drafts to non-customers • Non-adherence to prescribed working hours by branches

35. 16..Every year a sum equivalent to not less than 15% of profits to be transferred to the reserve fund by a bank. Such transfer to be made not before any dividend is declared. a.. Yes b.. No c.. Partly true d.. Fully in correct

36. **Appropriation of any amount from the reserve fund or the share premium account has to be reported to RBI within 21 days of such appropriation. .. Every scheduled bank has to submit a return to RBI showing the demand and time liabilities and borrowings from banks in India

37. **In the case of banking companies which are not scheduled banks, as per the provisions of BR act, the cash reserve need not be maintained with RBI. It may be with the bank itself, or in a current account with RBI or byway of net balance in current accounts or in one or more of these ways

38. 17..For a non scheduled bank cash reserve balance should not be less than 20% of the demand and time liabilities as on the last Friday of the second preceding fortnight. a.. True b.. False c.. It is not 20% but 30% d.. These banks need not have any cash reserve

39. 18.. A bank has to submit a Friday statement to RBI . The said Friday(18th of a particular month) has not been declared as holiday under the Negotiable Instruments Act, but the previous working day was declared . Then the statement to be prepared as on a.. 16th of that month b.. 17th of that month c.. 18th of that month d.. 20th of that month

40. **Every banking company has to maintain in India certain amount of assets as per the provisions of BR act. .. At the close of business on the last Friday of every quarter, such assets shall not be less than 75% of the demand and time liabilities of the banking company in India.

41. 19..As per the provisions of the BR Act, a return regarding the assets maintained in India to be submitted to RBI, within 14 days from the end of every quarter. a.. Not 14 days b.. It is 20 days c.. It is 15 days not 20 days d.. One month

42. **Every banking company has to submit 3 copies of its balance sheet and profit and loss account to RBI within 3 months from the end of the period to which it relate. The period may be extended by the RBI by a further period not exceeding 3 months.

43. 20..A banking company need not submit copies of balance sheet and auditor’s report to the Registrar of Companies. • a. Yes. b. No • C. The banking company has to submit to Registrar of Companies also • D.. Since they are submitting to RBI there is no need to submit to Registrar Companies separately

44. 21..Foreign banks (banking companies incorporated outside India) operating in India 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 a.. The First of July of the year in which it carries on business b.. The First Monday in August c.. The First Friday in October d.. The Last Friday in November

45. **RBI is empowered to order special audit of the accounts of any banking company. The expenses relating to the special audit to be borne by the concerned banking company. .. Every month, a banking company has to submit to the RBI a return showing its assets and liabilities in India as at the close of business on the last Friday of the previous month

46. ..A bank is authorized to return paid instruments to their customers even before the end of the preservation period without any charges. .. The inspecting officer is authorized to examine any director or officer of a banking company on oath.

47. 22..It is not mandatory to give a copy of the report to the banking company. a.. Inspection report b.. Scrutiny report c.. Search report d.. All these reports

48. 23.. To order amalgamation of two banking companies under the provisions of Companies Act rests with a.. Central Government b.. Reserve Bank of India c.. Central Government with the consultation of Reserve Bank of India d.. Company Law Board

49. 24..Authroisation under the law for a debtor to postpone payment of dues for a specified time a.. Holiday period b. Gestation period c.. Moratorium d.. None of these

50. **State Bank of India was established under sec 3 of the State Bank of India Act,1955 to take over the undertaking of the then Imperial Bank and to carry on the business of banking and other business in accordance with that act. .. The Central Government can give directions to SBI on matters of policy involving public interest in consultation with the Governor of RBI and the Chairman of the State Bank.