AHSEC - Class 12: Banking Solved Question Paper' 2012 | Class 12 Banking Solved Question Papers

[Banking Solved Question Papers, AHSEC, Class 12, 2012]

Full Marks: 100
Time: 3 hours
The figures in the margin indicate full marks for the questions.

1. Answer as directed:          1x10=10
a) In which year fourteen Indian commercial banks were nationalized?
Ans: 1969
b) What do you mean by scheduled bank?
Ans: Ans: Scheduled banks refer to those banking institutions whose names are included in the Second Schedule of the Reserve Bank of India Act, 1934.
C) Define Hundi.
Ans: A hundi may be defined as “a written unconditional order signed by the creditor, directing the debtor to pay a certain sum of money on demand or after a specified period to a person named therein”. It may be payable at sight or demand or at the expiry of a certain period.
d) The Reserve Bank of India was established in the year 1935. (Fill in the gap)
e) NABARD was established in the year 1982/1985/1987. (Choose the correct year)
f) Write the full form of IFCI.
Ans: Industrial Finance Corporation of India
g) What is post-dated cheque?
Ans: If a cheque bears a date later than the date of issue it is termed as post dated cheque.
h) Money market is the market for short-term funds. (State whether True or False)                        True
i) Lead Bank scheme was introduced in the year 1969 (Fill in the gap)
j) What is foreign exchange market?
Ans: The market in which currencies of different countries are bought and sold for one another is called the foreign exchange market.
2. What is bank rate?     2
Ans: Bank rate or discount rate is the rate at which the Central Bank of a country makes advances to the banks against approved securities or rediscounts the eligible bills.
3. Give two examples of public sector bank.                       2
Ans: Punjab National Bank, UCO Bank
4. Who can cross a cheque?            2
Ans: The Drawer: The drawer of a cheque may cross a cheque before issuing it. He may cross it generally or specially.
The Holder: The holder of a cheque can cross.
The Banker: The banker to whom the cheque is crossed specially may again cross it especially to another banker's agent, for collection. This is called double special crossing.
5. Name any two departments of the Reserve Bank of India.       2
Ans: Issue department: The issue department is concerned with the proper and efficient management of the note issue.
Banking department: The banking department is responsible for providing the banking services to the Government and to the banks.
6. State any two functions of stock exchange.            2
Ans: As the barometer measures the atmospheric pressure, the stock exchange measures the growth of the economy. it performs the following vital functions:
1.       Ready market and liquidity: Stock exchange provides a ready and continuous market where investors can convert their money into securities and securities into money easily and quickly. It provides a convenient meeting place for buyers and sellers of securities.
2.       Evaluation of securities: Stock exchange helps in determining the prices of various securities that reflect their real worth. The forces of demand and supply act freely in the stock exchange and help in the valuation of securities.
7. State the meaning of Development Bank.      2
Ans: Development bank is a specialised financial institution which provides medium and long term finance to business units in the forms of loans, underwriting, investments and guarantees operations, promote entrepreneurship and upgrade knowhow and do-how.
8. Write a short note on Presidency Bank.         3
Ans: The General Bank of India was set up in 1786. Next came the Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called them presidency Banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, which started as private shareholders banks, was established with mostly European shareholders.
9. What are the essentials of valid endorsement?           3
Ans: The rules and regulations regarding endorsement may be summarised as follows:
a)      Signature of the endorser: A regular endorsement implies signature of the holder of the negotiable instrument himself or his duly authorised agent on its face or back for the purpose of negotiation.
b)      Spelling: The endorser must sign his name in the exact spelling as appearing on the negotiable instrument.
c)       Prefixed and suffixes to be excluded: Endorsement need not contain the complementary Prefixes or Suffixes e.g. Mr., Mrs., Shri, Smt etc.
d)      Sign in Ink: Endorsement in pencil or by a rubber stamp is usually not accepted.
10. Write a short note on Mortgage.           3
Ans: A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan.
11. State any three important differences between Bill of Exchange and Cheque.           3
Ans: Difference between cheque and bill of exchange  
Bills of Exchange
A cheque is always drawn on a bank or banker.
A bill of exchange can be drawn on any person including a banker.
A cheque does not require any acceptance.
A bill must be accepted before the Drawee can be made liable upon it.
A cheque is payable immediately on demand without any days of grace.
A bill of exchange is normally entitled to three days of grace unless it is payable on demand.
12. Explain the meaning of ‘Non-Banking Financial Institution’ with illustration.  3
Ans: Non-Banking Financial Institutions (NBFI’s): NBFI’s include such institution as life-insurance companies, mutual savings bank, pension funds, building societies etc. which are doing diverse business. These financial institutions are thus a heterogeneous group of financial institutions other than commercial banks and co-operative societies. They include a wide variety of financial institutions, which raise funds from the public, directly or indirectly, to lend them to ultimate spenders. The growth of NBFI’s has been much faster than that of commercial banks. The main reason for this is that, in comparison to commercial banks, NBFI’s pay higher interest ratio to the depositors and change lower interest rate from the borrowers. Thus, they are competing with the commercial bank for public savings and as sources of Loanable funds.
13. What are the advantages of branch banking system?       3
Ans: Merits of Branch Banking
1.       Benefits of large Scale Production: Due to large scale production, the cost per unit of operation is very low in case of this system.
2.       Distribution of Risks: There is a distribution of risks because the losses incurred by one branch are made up by the profits earned by other branches.
3.       Effective Central Bank control: Due to presence of few big banks in the banking system, the RBI can effectively and easily regulate the activities of banks.
14. Draw specimens of different types of crossing of cheque.       3

15. Explain General Utility Services of a Bank.       3
Ans: General Utility functions: These are certain utility functions performed by the modern commercial bank which are:
1.       Locker facility: Banks provides locker facility to their customers where they can their valuables.
2.       Traveler’s cheques: Bank issue travelers cheques to help their customers to travel without the fear of theft or loss of money.
3.       Gift cheque: Some banks issue gift cheques of various denominations to be used on auspicious occasions.
16. Discuss briefly what is meant by ‘Payment is due course’.        5
Ans: According to Section 10 of the Negotiable Instrument Act, 1881, “Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned therein.”
Essential features or conditions of payment in due course:
a)      The payment should be made in accordance with the apparent tenor of the instrument.
b)      Payment may be made either in cash or through a clearing house or by a draft.
c)       The payment should be made in good faith and without negligence.
d)      The banker should make the payment in good faith, i.e. honestly. The banker should not make payment negligently.
e)      Payment must be made to the person who has the actual possession of the instrument. The payment of an order cheque should be made to the right person after proper identification.
17. Give an account of the International Bank for Reconstruction and Development.          5
Ans: The International Bank for Reconstruction and development (IBRD) generally known as the ‘World Bank’. This bank was established as a result of the deliberations at the economic conference held at Breton Woods in July 1944. This bank began its operations in June 1946. The World Bank was established with the object of reconstructing the economies of the war devastated countries, economic development of the member countries and to raise the standard of living of the people of the world. Initially, only nations that were member of the IMF could be members of the World Bank. But now any country can become the member of the World Bank.
The objectives of World Bank are:
a)      To provide long-run capital to the member countries for reconstruction and development.
b)      To promote private capital investment by providing guarantee on private loans and capital investment.
c)       To maintain equilibrium in balance of payments and balanced development of international trade.
The functions of World Bank are:
a)      The quantities of loans, interest rate and terms and conditions are determined by the bank itself.
b)      Bank provides loans to private investor of member countries on its own guarantee.
c)       The bank gives loans to government and also private borrowers.
18. Discuss the principles followed by the commercial banks in granting loans and advance. 5
Ans: The principles of sound lending by commercial banks are:
a)      Safety of principal: The first and foremost principle of lending is to ensure the safety of the funds lent. It means that the borrower is in a position to repay the loans, along with interest, according to the terms of the loan contract. The repayment of the loan depends upon the borrower’s (i) capacity to pay and (ii) willingness to pay. The banker should, therefore, take utmost care in ensuring that the enterprise or business to which a loan in to be granted is a sound one and the borrower is capable to repay it successfully.
b)      Profitability: Commercial banks are profit earning institutions. They must employ their funds profitably so as to earn sufficient income out of which to pay interest to the depositors, salaries to the staff and to meet various other establishment expenses and distribute dividends to the shareholder. The sound principle of lending does not sacrifice safety or liquidity for the sake of higher profitability.
c)       Marketability or Liquidity: Liquidity of loans is another principle of sound lending. The term liquidity of loan indicates quick realisation of loans from the borrowers. Banks are essentially dealers in short term funds and therefore, they lend money mainly for short term period. The banker should see that the borrower is able to repay the loan on demand or within a short notice.
d)      Purpose of the loan: Before granting loans, the banker should examine the purpose for which the loan is demanded. If the loan is granted for productive purpose, thereby the borrower will make much profit and he will be able to pay back the loan. In no case, loan is granted for unproductive purpose.
e)      Diversification: The element of risk in relation to loans cannot be totally eliminated, it can only be reduced. Risks of lending can be reduced by diversifying the loans. While granting loans, the banker should not grant a major part of the loan to one single particular person or particular firm or an industry. If the banker grants loans and advances to a number of firms, persons or industries, the banker will not suffer a heavy loss even if a particular firm or industry does not repay the loan.
19. What are the differences between Money Market and Capital Market?          5
Ans: Difference between capital market and money market
Basis of  Distinction
Capital Market
Money Market
1)   Meaning
The market dealing in long-term funds is known as capital market.
The market dealing in short-term funds in known as money market.
2)   Constituents
These include new issue market, stock market, stock brokers and intermediaries.
These include call money market, bill market and discounting market.
3)   Participants
Individual and institutional investors operate in the capital market.
Only the institutional investors operate in the money market.
4)   Amount of funds
Capital market arranges large amount of funds.
Money market arranges comparatively small amount of funds.
5)   Instruments
The instruments in the capital market include shares debentures bonds etc.
Trade bills T-bills, certificate of deposits, commercial papers etc. are the instruments of money market.
20. Briefly mention the duties and responsibilities of a collecting banker.          5
Ans: A collecting banker is one who collects the cheques and other negotiable instruments deposited by his customers and places the amount to the credit of the customers account. A collecting banker acts as an intermediary between the paying banker and his customer in collecting the proceeds of a cheque from the paying banker and crediting the same to the customer’s account.
The duties of a collecting banker towards his customers are as follows:
a)      Due care and Diligence in the collection of cheques: The collecting banker is bound to show due care and diligence in the collection of cheques presented to him. In case a cheque is entrusted with the banker for collection, he is expected to show it to the drawee banker within a reasonable time.
b)      Presentation of cheque for payment within reasonable time: The collecting banker should present the cheque of his customer to the drawee banker within a reasonable time. If the banker makes undue delay in presentation of cheque and the customer suffers a loss then the banker will be held responsible for the loss and shall be required to reimburse the loss.
c)       Remittance of proceeds to the customer: It is the duty of the collecting banker to inform his customer immediately about the collection of the cheques. When the proceeds are collected, the banker may debit his customer’s account in respect of his commission and credit the gross proceeds to the customers account.
d)      Serving Notice of Dishonour: When the cheque is dishonoured, the collecting banker is bound to give notice of the same to his customer within a reasonable time. If he fails to give such a notice, the collecting banker will be liable to the customer for any loss that the customer may have suffered on account of such failure.
21. Discuss about the institutions participating in the Indian Money Market.     5
Ans: Major Participants in the Indian Money Market is given below:
1) The Central Government: The Central Government is an issuer of Government of India Securities (G-Secs) and Treasury Bills (T-bills). These instruments are issued to finance the government as well as for managing the Government’s cash flow. T-bills and G-secs are issued by RBI on behalf of central bank to meet its short-term financial needs. Money market is regulated by RBI.
2) Commercial Banks: Commercial banks are major participants in money market. Certificate of deposits are issued by banks in money market. Then invest in government securities to maintain their statutory liquidity ratio. They alos participate in call and term markets both as lenders and borrowers.
3) Life Insurance Companies: Life Insurance Companies (LICs) invest their funds in G-Sec, Bond or short term money markets. They have certain pre-determined thresholds as to how much they can invest in each category of instruments.
4) Mutual Funds: Mutual funds invest their funds in money market and debt instruments. The proportion of the funds which they can invest in any one instrument vary according to the approved investment pattern declared in each scheme.
5) Non-banking Finance Companies: Non-banking Finance Companies (NBFCs) invest their funds in debt instruments to fulfill certain regulatory mandates as well as to park their surplus funds. NBFCs are required to invest 15% of their net worth in bonds which fulfill the SLR requirement.
22. (a) Give the meaning of liquidity. State the factors that affect cash reserve of commercial bank.      2+6=8
Ans. Liquidity means the ability of the bank to give cash on demand. Generally, the business of the bank depends upon the confidence of depositors on the bank and the depositors feel confident when they are sure that they can demand their money back at any time. Therefore, every bank must keep the adequate amount of liquid assets. The term liquid asset means those assets which can be readily converted into cash without any loss.  1999, 2009, 2011
According to R.S. Sayers’ “Liquidity is the word that the banker uses  to describe this ability to satisfy demands for cash in exchange for deposit.”
Liquidity depends on the availability of liquid assets. Liquid assets are those assets which can be easily converted into cash without loss. More the liquid assets, greater will be the liquidity and vice versa. The liquid assets of a bank are composed of the following:
a)      Cash in hand.
b)      Cash balance with RBI.
c)       Cash balance with other banks.
d)      Money at call and short notice.
e)      Investments.
f)       Advances.
Factors determining the cash balances: The following factors help the banks to decide the quantum of cash balances to be maintained:
1)      Banking habit: Banking habits play a significant role in determining the cash balances of a bank. Banking habits refers to the utilisation of banking services by the public. If the people have e-banking habits then the use of cash in transaction is reduced and the banks need to keep lesser amount of liquid cash.
2)      Structure of banking: The banking structure of the country also influence the liquidity requirements of the bank. In a branch banking system, the banks can function with less cash reserves because in case of emergency cash can be transferred from one branch to another. Whereas in unit banking system higher cash reserve is required.
3)      Nature of bank accounts: The nature of deposit accounts viz. savings, current or fixed accounts affect the amount of cash balance to be kept by the banks. In case of fixed deposit account holders, the bank can manage with less cash balance as against current account where it must keep larger cash balance.
4)      Type of depositors: The type of depositors is another determinant of cash balance of the banks. If the majority of the depositors of the bank are business firms, corporations, schools, college etc. the bank will have to maintain high liquidity because of unpredictable. On the other hand, if the deposits are mostly by individual customers and are of personal nature, the bank can operate with less liquid cash.
5)      Nature of advances: The nature of advances of bank i.e. loans, cash credit, overdraft and purchasing and discounting of bills also affect the size of the cash balances of the bank.
6)      Seasonal requirements: The banks have to take into consideration the seasonal requirements of credit from the customers. It is an established fact that during busy seasons e.g. festivals, sowing, harvesting etc. seasons, there is increased demand for credit. Hence, the banks should keep large amount of cash.
7)      Nature of business condition: The prevailing business condition in the country has its influence on the cash balances of a bank. When the condition is good, there is greater demand for cash. On the other hand, when the business is dull there is less borrowing from the banks.
8)      Existence of clearing house arrangements: Cash balance of a bank also depends upon the availability of clearing house facilities. Clearing house settles inter-bank claims. If there is a clearing house, inter-bank claims can be easily settled and the banks need not keep large cash balances.
(b) Explain the term ‘cash reserve’ and ‘cash credit’.
Ans: Cash Reserve: The liquid asset of bank is called cash reserve of bank. It is to be kept by the bank in order to meet the demands of the customers. Liquidity depends on the availability of liquid assets. Liquid assets are those assets which can be easily converted into cash without loss. More the liquid assets, greater will be the liquidity and vice versa. The liquid assets of a bank are composed of the following:
a)      Cash in hand.
b)      Cash balance with RBI.
c)       Cash balance with other banks.
d)      Money at call and short notice.
e)      Investments.
f)       Advances.
These cash reserves are also called the first line of defence, to indicate their significant role in defending the solvency, regulation and goodwill of the bank. The demand of the customer is immediately met by the bank with the cash reserves with itself or the balances which are within its immediate command.
The banker has to very cautions, prudent and far sighted in determining the Quantum of cash to be maintained in the above manner. In case he keeps cash reserves much above his actual needs, his losses interest on that portion. If the cash reserves fall short of his requirements, he may find himself in an embarrassing position. Hence determination of the adequate size of cash balances is an important task faced by a banker. He has to abide by the legal requirements and is to be guided by the conventions followed by the banking community is this regard.
Cash Credit: Cash Credit is a type of advance wherein a banker permits his customer to borrow money upto a particular limit by a bond of credit with one or more securities. The advantage associated with this system is that a customer can withdrawn money as and when required. The bank will charge interest only on the actual amount withdrawn by the customer. Many industrial concerns and business houses borrow money in this form. Cash credit limits are fixed once a year. Hence it gives rise to the tendency of fixing a higher limit than the amount of funds required by the customer throughout the year. In times of credit shortage the customer may misutilise the normally unutilized credit gap.
23. What are the different forms of crossing? Explain the significance of general crossing and special crossing. 2+6=8
Ans: Ans: Crossing of a cheque: A cheque is said to be crossed when two parallel transverse line with or without any words are drawn on the left hand corner of the cheque. The negotiability of a cheque doesn’t affect for crossing. Crossing of a cheque refers to the instruction to the banker relating to the payment of the cheque. A crossing is the direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safety because the holder of the cheque is not allowed to cash it across the counter. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers.
Types of crossing and their significance
1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “and company” or any abreactions thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, In case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.
A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identifies and suitable action taken against him.
2. Special crossing: Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”
Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.
24. (a) Explain briefly about the different credit control techniques adopted by the RBI.   8
Ans: Ans: The principle methods or instruments of Credit Control used by the Central Bank are:
1)      Quantitative or General Methods
2)      Qualitative or Selective methods
1)      Quantitative or General Methods: These are the traditional or general methods of credit control. These methods one used by Central Bank to expand or contract the total volume of credit in the economy neglecting the purpose for which it is used. These methods are :-
a)      Variation in the bank rate
b)      Open Market operations:
c)       Variation in cash reserve ratio:
d)      Variation in the statutory liquidity ratio:
e)      ‘Repo’ Transactions:
a)      Variation in the bank rate: Bank rate or discount rate is the rate at which the Central Bank of a country makes advances to the banks against approved securities or rediscounts the eligible bills. The purpose of change in the rate is to make the credit cheaper or expensive depending upon whether the purpose is to expand or control credit. An increase in bank rate result, in increase in lending rate of commercial banks lending to contraction of credit while a decrease in bank rate leads to decrease in lending rates of commercial banks lending to expansion of credit.
b)      Open Market operations: Open market operations means deliberate and direct buying and selling of securities and bills in the market by the Central Bank. The open market operations of the RBI are mostly confined to government securities. In order to increase money supply in the market, the RBI purchases securities in the open market. On the other hand, in order to contract credit, the RBI starts selling the securities in the open market.
c)       Cash reserve ratio: Every scheduled bank in India is required to maintain a minimum percentage of their deposits with the RBI. Larger the reserve, lesser is the power of the banks to create credit and smaller the reserves, greater is the power of the banks to create credit.
d)      Statutory liquidity ratio: Statutory liquidity ratio is another reserve requirement used by the RBI to control money supply. In India, besides maintaining the cash reserve, every bank has to maintain a statutory reserve of liquid assets in terms of cash, gold or unencumbered securities. This is termed as statutory liquidity ratio. In increase in the liquidity ratio implies a transfer of banking funds to Government and corresponding reduction in credit available to the borrowers.
e)      ‘Repo’ Transactions: ‘Repo’ stands for repurchase. Repo or repurchase transactions are undertaken by the Central Bank in the money market to manipulate short term interest rates and to manage liquidity levels. In case the RBI desire to inject fresh funds in the economy it conducts ‘Repo’ transactions. On the other hand, to absorb liquidity the RBI ‘Reserve Repo’ transactions. The securities eligible for carrying out this operation are selected by the RBI. It includes government promissory notes, treasury bills and public sector bonds.
3)      Qualitative or Selective Methods: These are basically the selective and general methods of credit control. These methods are used for controlling the use and direction of credit. They have nothing to do with the control of the total volume of credit in economy. These methods are :
a)      Directions: Sec. 21 of the Banking Regulation Act gives wide power to the RBI for controlling granting of advances by an individual bank or by banking as a whole. The RBI can give directors to any particular bank or all banks in general in regard to the purposes for which advances may or may not be made, the maximum amount of advance to any individual, firm or company etc.
b)      Margin requirement: Margin means the difference between the market price of security and loan amount. Changing margin requirement is another credit control method followed by the RBI. This system was introduced in 1956. By requiring higher margin while accepting a commodity as a security, the RBI can decrease the flow of credit to particular sector or vice versa.
c)       Consumer Credit Regulation: Under this method, consumer credit supply is regulated through hire-purchase and installment sale of consumer goods. Under this method the down payment, installment amount, loan duration, etc is fixed in advance. This can help in checking the credit use and then inflation in a country.
d)      Publicity: This is yet another method of selective credit control. Through it Central Bank (RBI) publishes various reports stating what is good and what is bad in the system. This published information can help commercial banks to direct credit supply in the desired sectors. Through its weekly and monthly bulletins, the information is made public and banks can use it for attaining goals of monetary policy.
e)      Credit Rationing: Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. This method controls even bill rediscounting. For certain purpose, upper limit of credit can be fixed and banks are told to stick to this limit. This can help in lowering banks credit exposure to unwanted sectors.
f)       Moral suasion: It implies to pressure exerted by the RBI on the Indian banking system without any strict action for compliance of the rules. It is a suggestion to banks. It helps in restraining credit during inflationary periods. Commercial banks are informed about the expectations of the central bank through a monetary policy. Under moral suasion central banks can issue directives, guidelines and suggestions for commercial banks regarding reducing credit supply for speculative purposes.
g)      Direct action: Under this method the RBI can impose an action against a bank. If certain banks are not adhering to the RBI's directives, the RBI may refuse to rediscount their bills and securities. Secondly, RBI may refuse credit supply to those banks whose borrowings are in excess to their capital. Central bank can penalize a bank by changing some rates.
(b) Write a brief note on the State Bank of India.        8
Ans: The State Bank of India was established under the State Bank of India Act, 1955, by nationalizing the Imperial bank of India with the object of extending banking facilities in rural areas. I came into existence on 1st July 1955. Though Imperial Bank was important banking institution in 16th April 1955, SBI bill was passed on 8th May 1955 by the Government of India. SBI was organized depending on the recommendation of All India Rural Credit Survey Committee (AIRCSC) which was appointed by RBI in 1951.
SBI is managed by Central Board of directors. In this Board, there is one chairman, one vice-chairman two managing directors and sixteen directors (Total 20 members). The head quarter of SBI is located at Mumbai and its local offices at Kolkata, Mumbai, Chennai, New Delhi, Lucknow, Ahmadabad, Hyderabad, Bhubaneswar, Bangalore, Guwahati etc. It performed all the functions performed by commercial banks. Besides it, SBI performed as an agent of RBI where there is no branch of RBI
As an agent of RBI, the SBI also performs certain Central Banking functions such as:
a)      It Acts as the banker to the Govt.
b)      It acts as the banker’s bank.
c)       It maintain currency Chests.
d)      It acts as a clarity house.
e)      It renders certain promotional function on behalf of the Reserve Bank.
Other functions of the SBI as General Banks act
a)      Accepting deposits.
b)      Advancing loans.
c)       Remittance of funds.
The objectives of establishment of SBI are as follows:
a)      To extend banking facilities on a large scale, particularly in the rural urban and semi-urban areas.
b)      To promote agricultural finance and remove the defects in the system of agricultural finance.
c)       To helps the RBI in implementing its credit policies.
d)      To help the Government to pursue its broad economic policies.