[Banking Solved Question Papers, AHSEC, Class 12, 2017]
BANKING SOLVED QUESTION PAPERS
AHSEC CLASS 12 BANKING' 2017
BANKING
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 Lead Bank Scheme was introduced?
Ans: 1969
b) What do you mean by unit banking?
Ans: It is a system of banking where an independent bank undertakes banking function in a particular area. The operation of a unit bank is limited to a particular area and hence this system is also known as “localized banking. A unit bank has just one office with no branches. This banking system was originated and developed in the USA.
c) Write the full form of NBFI.
Ans: Non-Banking Financial Institutions
d) What is Secondary Market?
Ans: Secondary market also called stock exchange represents a market where existing securities i.e. shares and debentures are traded.
e) The word ‘Hundi’ is borrowed from Sanskrit word “hund” or “huna” which means ‘to collect’.
f) Money Market is the market for short terms fund. (State whether True or False) TRUE
g) Asian Development Bank was established in 1956/1960/1966. (Choose the correct answer)
h) RBI is the apex monetary institution of India.
2. Name the two non-bank financial institutions of India. 2
Ans: IDBI, ICICI
3. 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.
4. What is Mutual fund? 2
Ans: Mutual Funds: A mutual fund is an institutional device through which the investors pool their funds to invest in a diversified portfolio of securities. The fund is termed as “Mutual” because all the profit & losses of the fund are shared by the investors in proportion to their investments.
5. Name two submarkets of Indian money market. 2
Ans: Call money market and Bill Market
6. Who is collecting banker? 2
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.
7. Discuss the various agency services rendered by commercial bank. 3
Ans: Agency functions: These functions are performed by the banker for its own customer. For these bank changes certain commission from its customers. These functions are:
a) Remittance of Funds: Banks help their customers in transferring funds from one place to another through cheques, drafts etc.
b) Collection and payment of Credit Instruments: Banks collects and pays various credit instruments like cheques, bill of exchange, promissory notes etc.
c) Purchasing and Sale of securities: Banks undertake purchase and sale of various securities like shares, stocks, bonds, debentures etc. on behalf of their customers.
8. Write a brief note about the money market. 3
Ans: Money market deals in cash or near money or liquid assets of short-term nature. It also trade in bills, promissory notes, government papers. Money market is essentially concerned with lending and borrowings of cash and also the buying and selling of assets which are close substitutes for money and can be easily converted into money within a short period. The dealers in money market consists of the government, banks, commercial and industrial concern, stock exchange brokers etc.
Features of Money Market: The salient features of money market are as follows:
a) Flow of short-term funds: The money market brings together the lenders who have surplus funds for short-term and the borrowers who are in need of short-term funds.
b) Role of brokers: Dealings in money market may be conducted with or without the help of brokers or intermediaries.
c) Sub-markets: Money market consists of many sub-markets such as inter-bank call money market, treasury bills market, bills discounting market etc.
9. What are the main objectives of IMF? 3
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Also Read: AHSEC Class 12 Finance Solved Question Papers
Finance [Banking] Solved Question Paper' 2012
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Ans: The objectives of I.M.F are:
a) To promote international economic and financial co-operation amongst member countries.
b) To promote exchange stability and avoid currency devaluation.
c) To promote the international trade by removing all obstacles.
d) To promote investment of capital in backward and undeveloped countries.
e) To make financial resources available to members.
f) To seek reduction on payment imbalances.
10. State any three differences between Bill of Exchange and Cheque. 3
Ans: Difference between cheque and bill of exchange
Basis | Cheque | Bills of Exchange |
Drawee | A cheque is always drawn on a bank or banker. | A bill of exchange can be drawn on any person including a banker. |
Acceptance | A cheque does not require any acceptance. | A bill must be accepted before the Drawee can be made liable upon it. |
Payment | 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. |
Stamp | A cheque does not require any stamp. | A bill of exchange must be stamped. |
11. Draw a specimen copy of bills of exchange. 3
Specimen of bill of exchange
STAMP Rs.50,000 | Mr. A (Drawer) Assam April 01,2017 |
Three Months after date pay to me or on order, a sum of rupees fifty thousand for value received. Sd/- Mr. A | |
To Mr. B (Drawee) Dibrugarh, Assam | Accepted By Sd/- Mr. B (July 04, 2017) |
Or
Give an account of the Presidency Bank of India.
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 banks acts as banker to the East India company. These banks takes over the banking business of agency houses which survived and continued to carry on trade and banking together. Presidency banks were amalgamated into the Imperial Bank of India in 1921.
12. Discuss the evolution and growth of commercial banking in India. 5
Ans: Pre-Independence: 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.
In 1865, the Allahabad Bank was established, and, for the first time, exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1923, Banks of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Mysore were set up. The Reserve Bank of India (RBI) was established in 1935.
Post Independence: The government took major steps in the Indian Banking Sector Reforms after independence. In 1955, it nationalized the Imperial Bank of India (the State Bank of India Act) with extensive banking facilities on a large scale, especially in rural and semi-urban areas as the first phase of nationalization. It formed the State Bank of India (SBI) to as the principal agent of RBI and to handle banking transactions of the Union and the State Governments of the Country.
In 1969, seven subsidiary banks of the State Bank of India were nationalized as a major process of nationalization due to the effort of then Prime Minister Mrs. Indira Gandhi, Later in 1969, 14 Major Private Commercial Banks in the country were nationalized. Again in 1980, 6 more banks were nationalized. In 1993, New bank is merged will Punjab National Bank. So, there are 19 nationalized banks in our country at present.
PHASE III
The third phase of development of Indian banking introduced many more products and facilities in the banking sector in its reform measures. In 1991, under the chairmanship of M. Narsimham, a committee was set up under his name, which worked for the liberalization of banking practices.
Or
Explain briefly the system of issuing currency notes by the Reserve Bank of India.
Ans: The minimum reserve system is a system in which the Central Bank is authorized to issue notes up to any limit by keeping a certain minimum reserve of gold and foreign securities. In India, the RBI is required to keep the minimum reserve of Rs. 200/- crore out of which Rs. 115/- crore should be kept in gold. The system is very elastic and economical for developing countries as it requires only a small and fixed amount of gold reserve. However, it lacks in public confidence due to non-convertibility of notes.
13. 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 also 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.
14. What are the main objectives of nationalization of Banks? 5
Ans: Objectives of Nationalisation:
a) Preventing concentration of economic powers in the hands of few.
b) Provide banking facilities in rural areas.
c) Mobilization of savings of rural areas.
d) Help to the agriculture industry.
e) Balanced regional development.
f) Provide adequate financial assistance to the public and private sector industry whether big or small.
g) Greater stability and control in banking sector.
Or
What are the basic functions of State Bank of India?
Functions of State Bank of India
As an agent of RBI, the SBI also performs certain Central Banking functions such as:
1. Bankers to Government : As an agent of the RBI, SBI acts as banker to the Central and State Government as a bankers as a adviser as a agent into there capacities :
a) As a bankers.
b) As an agent.
c) As an advisor.
As a Government banker the SBI performs the following functions:
a) It maintains and operates deposit account of the central and state governments.
b) It receives and collects payment on behalf of the Central and state governments.
c) It makes payments on behalf of the central and state governments.
d) It provides short term advances to government for which are called ways and means advances etc.
As a Government agent the SBI perform the followings functions:
1) Collect tax and other payments on behalf of the government.
2) Raise loan from the public and thus manages public debts.
3) Transfer funds and provide remittances facilities to the government etc.
2. Bankers Bank: As an agent of the RBI, SBI acts as a banker to all the other banks.
a) Custodian of cash reserve of the bank: As an agent of the RBI, SBI acts as the custodian of cash reserve of the banks.
b) Clearing agent: In India the central clearing functions is managed by the RBI or the SBI is authorized to manage clearing house functions every day. Each commercial bank receives a number of cheques for collection from other banks on account of their customers.
Other functions of the SBI as General Banks act
A) Primary functions:
a) Acceptance of deposits: It is the most important function of a bank. Under this function, bank accept deposits from individuals and organizations and finances the temporary needs of firms.
b) Making loans and advances: The second important function of banks is advancing loan. The commercial bank earns interest by lending money.
c) Investments of Funds: Besides loans and advances, banks also invest apart of its funds in securities to earn extra income.
d) Credit Creations: The Bank creates credit by opening an account in the name of the borrower while making advances. The borrower is allowed to withdraw money by cheque whenever he needs.
B) Secondary functions of a bank: This function is divided into two parts
1) Agency functions: These functions are performed by the banker for its own customer. For these bank changes certain commission from its customers. These functions are:
d) Remittance of Funds: Banks help their customers in transferring funds from one place to another through cheques, drafts etc.
e) Collection and payment of Credit Instruments: Banks collects and pays various credit instruments like cheques, bill of exchange, promissory notes etc.
f) Purchasing and Sale of securities: Banks undertake purchase and sale of various securities like shares, stocks, bonds, debentures etc. on behalf of their customers.
g) Income Tax Consultancy: Sometimes bankers also employ income tax experts not only to prepare income tax returns for their customer but to help them to get refund of income tax in appropriate cases.
15. Explain the circumstances under which a bank can dishonour cheque. 5
Ans: The bank may dishonour a cheque for the following cases.
a) When the cheque is post dated and it is presented for payment before the date it bears.
b) When there are insufficient funds to the credit of the drawer.
c) When the cheque is presented for payment at branch where the drawer of the cheque has no account.
d) When a cheque is not duly, presented, as for example a cheque presented outside banking hours.
e) When the cheque is ambiguous, mutilated, materially altered or irregular.
f) When the cheque has become stale, that is it is not presented within six months of the issue of the cheque.
g) When the signatures of the drawer of a cheque do not tally with the specimen signatures in the records of the bank.
h) When the amount in figures and in words is not the same in a cheque.
i) When the cheque is crossed and it is not presented through a bank.
j) Where the bank receives a notice of the insolvency or insanity of the customer.
16. Discuss the objectives and functions of NABARD. 5
Ans: The National Bank For Agriculture and Rural Development (NABARD), a developing bank, came into existence on July 12, 1982, under an Act of Parliament with an initial capital of Rs. 100 crores. It is an apex institution set up for providing and regulating credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas. The NABARD has taken over the functions of ARDC (Agricultural Refinance and Development Corporation) and refinancing functions of RBI in respect of co-operative banks and the RRBs.
a) Integrated rural development is main objective of NABARD.
b) To provide training and Research facilities for rural Development.
c) To keep a check on all the projects which are refinanced by NABARD; through timely inspection, monitoring and evaluation.
d) To Act as a coordinator and regulator for rural credit institutions.
e) Promotion and development of agriculture, Small Scale industries, cottage and village industries, handicrafts and other rural crafts.
f) To formulate rural credit plans on annual basis for all districts in country.
17. Write short note about the social control of commercial bank. 5
Or
Write short note about Lender of Last Resort.
Ans: Lender of the last resort: The Central Bank is the Lender of the last resort of the commercial banks. When the other banks shortage of funds, then they can approach to the Central Bank for financial assistance. The Central Bank lends money to them by discounting their bills. This enables the Central Bank to establish control over the banking system of the country. The RBI is ultimate source of money and credit provide fund to money market participate thus the RBI act as lender of last resort for the commercial banks.
18. Give the meaning of liquidity. State the factors that affect cash reserve of commercial bank. 1+4=5
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Also Read:
1. HS 12 Banking Chapter wise Notes
2. AHSEC Class 12 Banking Question Papers From 2012 Till Date
3. AHSEC Class 12 Banking Solved Question Papers From 2012 Till Date
4. Banking Chapter wise MCQs
5. Class 12 Banking Important Questions and Question Bank
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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.
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.
Or
Mention six functions of the Reserve Bank of India. Explain any two functions of R.B.I.
Ans: Functions of RBI:
1) Issue of Banks notes of all denominations except one rupee coin.
2) Bankers, agent and advisor of the government.
3) The Central Bank is a banker to all the other banks. As the supreme bank it performs various functions:
a) Custodian of cash reserve of the bank.
b) Lender of the last resort.
c) Clearing agent
4) As a central bank, the RBI take the responsibility to control of credit in order to economic development and price stability.
5) The RBI act as a custodian of gold and foreign exchange reserves for both on its own and on behalf of the Government.
6) Supervision and promotions of sound banking system in India.
Some of the important functions of RBI are detailed below:
1) Note Issue: The reserves bank of India is the sole authority for the issue of currency in India other than one rupee coins/notes and subsidiary coins. The RBI has adopted the minimum reserves system of note issue to issue currency notes in the country. Under this system the RBI maintains a minimum reserve of Rs. 200 crore of which Rs. 115 crore is in gold and the rest in securities. The issue department of RBI has the responsibility to issue paper money; the issue of currency into circulation and its withdrawal from circulation take place through the banking department of the Bank.
2) Bankers to Government :- The RBI acts as banker to the Central and State Government as a bankers as a adviser as a agent into there capacities :-
a) As a bankers.
b) As an agent.
c) As an advisor.
As a Government banker the RBI performs the following functions:-
a) It maintains and operates deposit account of the central and state governments.
b) It receives and collects payment on behalf of the Central and state governments.
c) It makes payments on behalf of the central and state governments.
d) It provides short term advances to government for which are called ways and means advances etc.
As a Government agent the RBI perform the followings functions:-
a) Collect tax and other payments on behalf of the government.
b) Raise loan from the public and thus manages public debts.
c) Transfer funds and provide remittances facilities to the government etc.
As an adviser the RBI acts as an advising the Government on all financial matters such as loan separations investment, agricultural and industrial finance, banking planning etc. It also advices to promote the attainment of the national economic goals.
19. Who is paying banker? Explain the protection available to paying banker. 2+6=8
Ans: The term paying banker refers to the drawee banker who pays the amount of cheques to his customer. The paying banker is defined as the “banker to whom the order is made to pay, where the order is issued as the form of a cheque”.
The negotiable instruments Act provides statutory protection to the paying banker under the following circumstances:
a) Protection in case of Bearer cheque: Section 85 (2) of the negotiable instruments Act 1881 states, “whereas a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereon, not withstanding any endorsement whether in full or in blank appearing thereon, notwithstanding that any such endorsement purports to restrict or exclude further negotiation.” In case a bearer cheque is crossed, the paying banker has no right to pay it across the counter in disregard of the crossing.
b) Protection in case of order cheque: In case the payment is made to a person other that the payee, the paying banker does not get any protection under the negotiable instruments Act. If the endorsement is regular and payment in made in due course, the paying banker gets the protection under Section 85 (i) of the negotiable Instrument Act 1881. In case, payment is made to a wrong person whose signature is not according to specimen signature, the protection is given to a banker under sec. 16 (2) of the negotiable instruments Act. It is not possible for a banker to know each of the endorser and their signatures.”
For getting the protection, the banker should note the following:
Ø Regular endorsement.
Ø Payment in due course.
c) Protection in case of crossed cheque: regarding payment of crossed cheque, the paying banker gets the protection under section 128 of the Negotiable Instrument Act 1881. “whereas the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque and the drawer thereof shall be entitled respectively to the same rights and placed in the same position if the amount of the cheque has been paid to and received by the true owner thereof.” In case the payment is made on the instruction of the drawer in good faith without any negligence, the paying banker gets the statutory protection under the Negotiable Instrument Act, 1881.
d) Protection in case of Drafts: In case of Demand drafts drawn by one branch of a bank upon another branch of the same bank, the banker gets protection under section 85 of the Negotiable Instruments Act. The section states “whereas any draft, that is an order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course.”
20. Discuss the principles of sound investment policy of commercial bank. 8
Ans: Principles of Sound Investment: Banks are one of the genuine investors in the securities market. Banks invest in the market in the hope of earning some return. Since, banks deals in borrowed funds, therefore a banker must select the securities very carefully and follow the following principles of sound investments:
1) Safety of principal: A banker deals in borrowed funds and therefore his main consideration is safety of principal invested in securities. The banker has to ensure that the principal amount invested by him remain safe. The safety of investments depend on the solvency and ability of the issuing authorities to honour their commitment made to the investors. The government and semi-government securities are the safest securities because they are guaranteed by the government.
2) Price stability: The price of security selected by the banker should remain stable. The safety of investments depends on the stability in the prices of securities. Banker should prefer those securities whose prices remain fairly stable over a period of time. The Prices of government securities remain stable and do not fluctuate.
3) Marketability or liquidity: The primary objective of buying securities by the banker is to earn income and at the same time maintain his liquidity position. Thus, the banker should see that the security in which he can be sold in the market without loss of time and money. Marketability of securities ensures liquidity of investments. Government and semi-government securities are highly liquid as they have a ready market.
4) Profitability or yield: After ensuring the safety of the principal money invested in securities, the banker should consider the returns from the investments. The banker should not give undue importance to higher yields at the cost of safety. The banker should not expect windfall profit, because high profit may bear the germ of loss.
5) Diversification of Investment: The banker should diversify the risk involved in investment by investing in wide variety of securities issued by wide variety of business enterprises belonging to different trade and industry.
6) Refinance: To ensure the liquidity of his investments the banker has to see that the security is eligible to obtain refinance from the Central Bank and other refinancing institutions.
In conclusion, it may be said that for a banker the government and semi-government securities are most ideal for investment of funds. Government securities with virtually no risks, have a ready market, are eligible for refinance and bring reasonably good return.
21. Show the differences between overdraft, cash credit and loan of commercial bank. 8
Ans: Difference between Loan, Cash Credit and Overdraft:
Basis | Loan | Cash Credit | Overdraft |
1. Mode | A loan may be given in cash or by credit to the account of the borrower. | Cash credit is always given through the current account. | Overdraft is granted to the current account holders. |
2. Borrower | The borrower of loan may be a customer of the bank or otherwise. | The borrower of cash credit becomes customer of the bank when he open the current account. | An existing customer having current account is granted over draft facility by the bank. |
3. Security | A loan may be granted against tangible securities or personal guarantee of the borrower. | Cash credit is always given against some tangible securities. | Overdraft may be clean, partly secured or fully secured. |
4. Interest | Interest is charged on the entire amount of loan. | Interest is payable only on the amount actually utilised by the borrower. | Interest is payable on the amount overdrawn from the current account. |
5. Rate of interest | The rate of interest charged by the bank in case of loan is lower than that of the cash credit and overdraft. | The interest rate in case of cash credit is higher than that of the loan and overdraft. | The rate of interest in case of overdraft is higher as compared to loans but lower than cash credit. |
6. Maturity | A loan has a specific maturity date and is repayable after a fixed period to time. | Cash credit do not have a fixed maturity date and it is technically repayable on demand. | Overdraft is repayable on demand and do not have any maturity date. |
7. Period of advance | A loan may be taken by the borrower for short, or medium or long period of time. | Cash credit may be obtained by the borrower for short, medium or long period of time. | Overdraft is a short term temporary arrangement. |
8. Number of withdrawals | In case of loan, funds are withdrawn once be the borrower. | In case of cash credit funds are withdrawn number of times by the borrower. | In case of overdraft, funds are withdrawn number of times. |
Or
Define Negotiable Instrument. Discuss the characteristics of the Negotiable Instrument.
Ans: Negotiable instrument: Negotiable Instrument means a written document which is transferable by delivery. According to Section 13 of the Negotiable Instrument Act 1881, “A Negotiable Instrument means a Promissory Note, Bill of Exchange and Cheque, payable either to order or to bearer.
There are different kinds of negotiable instruments:
a) Negotiable Instruments by statue: Bills of Exchange, Promissory Notes and Cheques.
b) Negotiable Instruments by customs or usages: Treasury Bills, Dividend Warrants, Share Warrants, Bearer Debentures, Hundi.
The characteristics of a Negotiable Instrument are:
a) Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.
b) Payable by Money: Negotiable Instruments are payable by the legal tender money of India.
c) Unconditional Promise and order: If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.
d) Freely transferable: A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.
e) Acquisition of Property: Any person, who possesses a negotiable instrument, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument.
f) No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.
22. Give the meaning of Development Bank. Explain the characteristics or features of Development Bank. 2+6
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. It is a multi-purpose financial institution and not just a term-lending institution. It does not accept deposits from the public, unlike commercial banks. A development bank does not perform ordinary banking functions.
According to William Diamond, “A Development Bank has the opportunity to promote enterprises i.e. to conceive investment proposal and to stimulate others to persue them or itself to carry them through from the ‘conception’ to ‘realisation’.
Features of Development Bank
a) Development bank is a specialised financial institution which provides medium and long term finance to business units.
b) It is a multi-purpose financial institution and not just a term-lending institution.
c) It does not accept deposits from the public, unlike commercial banks. A development bank does not perform ordinary banking functions.
d) Financial assistance is provided by a development bank not only to the private sector but also to the public sector undertakings.
e) One of its major aims is to promote the saving and investment habit in the community.
f) Its major role is the gap-filler, i.e. to fill up the deficiencies of the existing financial facilities.
g) Its motive is to serve the public interest. It works in the general interest of the nation rather than to make profits. A development bank is motivated by social profits.
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