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Sunday, July 26, 2020

AHSEC Class 12 Solved Question Papers: Banking' 2020

Full Marks: 100
Pass Marks: 30
Time: Three hours
The figures in the margin indicate full marks for the questions
1. (a) Bank of Bombay was established in the year 1809/1843/1840.                        1
Ans: 1840
(b) How many local boards assist the Central Board of RBI?                         1
Ans: 4(Four). Four local boards located at Kolkata, Mumbai, New Delhi and Chennai.
(c) Write the full form of IFCI.                   1
Ans: Industrial Finance Corporation of India
(d) What is meant by Non-Banking Financial Institution?                             1

Ans: NBFIs: 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.
(e) Asian Development Bank gives foreign currency loans. (State True or False)             1
Ans: True
(f) In case of Bill of Exchange, the order must be conditional. (State True or False)                          1
Ans: False, Unconditional
(g) What is the main difference between ‘Scheduled Bank & Non-Scheduled’ Bank?                     1
Ans: Scheduled banks refer to those banking institutions whose names are included in the Second Schedule of the Reserve Bank of India Act, 1934.
Non-Scheduled banks refer to those banking institutions, whose names do not appear in the Second Schedule of the RBI Act, 1934.
(h) What is the meaning of marking of a cheque?                            1
Ans: Marking of a cheque is the writing on a cheque by the drawee banker which indicates that it would be honoured when it is duly presented for payment.
2. How does commercial bank help in execution of Monetary Policy?                   2
Ans: Commercial bank help in execution of monetary policy by maintaining CRR and SLR. They also follow the RBI guidelines for granting loans and advances.
3. Give the meaning of Endorsement.                   2
Ans: The term “Endorsement” of a negotiable instrument means writing of a person’s name of the back of the instrument for the purpose of negotiation. According to Section 15 of the Negotiable Instrument Act, 1881, “When the maker or holder of a negotiable instrument sings his name, otherwise than such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto he is said to have endorsed the instrument.” The person who puts his signature is called the “endorser” and the person in whose favour it is being endorsed in called the “endorsee”.
4. What is meant by Cash Credit?                             2
Ans: 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.
5. Write a note on RBI’s role in Bank Inspection.                               2
Ans: Inspection of Bank is done by Officers of Reserve Bank of India as per Banking Regulation Act 1949 and some other laws of Government of India. The main job of the Inspecting Officers of RBI is to check the Authenticity of the Audit Report. They also carry some extra work other than carried out by CAs.
6. What is meant by SENSEX? How many stocks are included in SENSEX?                              1+1=2
Ans: Sensex: It is a Market Capitalisation Weighted index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India.
7. Write three objectives of nationalization of banks in India.                   3
Objectives of Nationalization:
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.

8. What are meant by Cash Reserve Ratio and Statutory Liquidity Ratio?                              3
Ans: All the banks operating in a country, beside, cash in hand must maintain statutory cash reserve in the Reserve Bank of India against their time and Demand liabilities which is called cash reserve ratio. The Cash Reserve Ratio (CRR) refers to the portion of total deposits of a commercial bank which it has to keep with the RBI in the form of cash reserves. Present CRR is 4%.
Statutory Liquidity ratio of the total deposits of a bank which it has to maintain with itself in the form of liquid funds like government securities and cash in hand at any given conditions and point of time. Present SLR is 19.25%.
9. Write about three types of Non-Banking Financial Institutions.                           3
Ans: Broadly NBFI’s in India are classified into two groups:
(i) Organised NBFI’s which is further divided into Industrial development banks and agricultural development banks.
(ii) Unorganised NBFI’s
(i) Organised NBFI’s: The organised NBFI’s include development banks and other specialised institutions. Development banks are further divided into Industrial Development banks and Agricultural Development banks:
Industrial Development banks are the following: (i) Industrial Development banks of India (IDBI). (ii) Industrial Credit and Investment Co-operations of India (ICICI). (iii) Industrial Development banks of India (IDBI). (iv) Life Insurance corporation (LIC). (v) Unit Trust of India (UTI). (vi) General Insurance Corporations (GIC).
Agricultural Development banks are the following: (i) National bank for agricultural and rural development (NABARD). (ii) Land Development Bank (LDB) (ii) Unorganised NBFI’s: A number of unorganised NBF does also operate in the country. They are known as loan companies; higher purchase finance companies, chit funds etc.
(ii) Unorganised NBFIs: The unorganised non-banking financial institutions include merchant banking companies, credit rating agencies, factoring companies, leasing companies etc.
10. What are the rights of a holder in due course?                           3
Ans: A Holder in Due Course enjoys the following rights and privileges:
a)      He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.
b)      All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.
c)       No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.
11. Write the differences between promissory note and cheque.                            3
Difference between Promissory Note and Cheque:                        2015, 2020
Promissory Note
It is an unconditional promise by the maker to pay the money.
It is an unconditional order to the bank to pay certain sum of money.
Days of Grace
Three days of grace are allowed for payment.
No days of grace are allowed for payment.
A promissory note cannot be crossed.
A cheque can be crossed.
A promissory note must be stamped.
A cheque does not require a stamp.
The maker of a promissory note is one who pays the money.
The drawer of a cheque is one who withdraws the money from the drawee.
The maker of promissory note cannot be payee.
The drawer of a cheque can be the payee.
Write the differences between Private Sector Banks and Public Sector Banks.                  3
Ans: Difference between Public Sector Banks and Private Sector Banks
Public Sector
Private Sector
Public Sector banks are owned by the Govt. either directly or through the RBI.
Private Sector banks are owned by private individuals or business corporations.
2. Setup
These banks are setup under the special act of Parliament.
These banks are setup under the Companies Act.
3. Aim
These banks aim at saving the Society.
These banks are driven by profit motive. 
4. Foreign Bank

Public Sector banks does not include foreign bank.
Private Sector banks may be Indian Banks as well as foreign banks.
5. Area of operation
These banks operated in rural, Semi-urban and Urban areas.
Private Sector banks mainly operated in Semi-urban and Urban areas.
6. Capital
In public sector banks more that 50% of capital or full capital is supplied by the Government.
But, in private sector banks, all total capital is supplied by the shareholders of the bank.

12. Discuss the features of Money Market.                         5
Ans: Features of Money Market: The salient features of money market are as follows:  2020
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)      No fixed geographical location: There is no fix geographical location of money market. Different name is given to money market located in different areas.
c)       Participants: The major participants of money market consist of the government, commercial banks, Life insurance companies, Mutual funds, Non-banking finance companies, stock exchange brokers etc.
d)      Instruments:  It deals in money or instruments which are a close substitute of money such as treasury bills (TBs), Commercial bills, Commercial paper (CP), ADRs, GDRs, Call and Short money market etc.
e)      Sub-markets or components: Money market consists of many sub-markets such as call money market, collateral loan market, acceptance market, bill market, treasury bills market etc.
Discuss the functions of Foreign Exchange Market.                         5
Ans: FUNCTIONS OF FOREIGN EXCHANGE MARKET: Following are the important functions performed by the foreign exchange market:
a)      Facilitates transfer: The basic function of the foreign exchange market is to transfer purchasing power between countries i.e. to provide a platform whereby currency of one country is converted into currency of another country at the prevailing exchange rate.
b)      Facilitates credit: Foreign bills of exchange used in the international payments normally have maturity period of three to six months. The foreign exchange market performs the function of providing credit to promote foreign trade. Credit is provided on the basis of such foreign bills of exchange.
c)       Facilitates hedging: In a situation of exchange risks, the foreign exchange market performs hedging function. Hedging is the act of equating one’s assets and liabilities in a foreign currency to avoid the risk resulting from future exchanges in the value of foreign currency.
d)      Facilitates trade and investment: International trade and investment would not have been possible without the arrangements or mechanism for buying and selling foreign currency. The foreign exchange market is required to undertake import/export transactions.
13. Discuss the functions of a Lead Bank.                              5
Ans: Objectives and Functions of Lead banking scheme
a)      To ascertain the scope of development of banking in the allotted district.
b)      To ascertain unbanked areas within district for mobilization of savings.
c)       To ascertain the credit needs of business and industrial units in the allotted district and extend credit facilities to them.
d)      To provide financial assistance to other institutions in the allotted district.
e)      To make provisions for training of small farmers so as to ensure proper utilization of funds.
14. What is Hundi? What are its different types?                             2+3=5
Ans: The word, “Hundi” has been derived from the Sanskrit word “hund” or “huna” (2017) which means to “collect”. A Hundi is a traditional bill of exchange which is written in oriental Indian languages.  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. (2012)
Types of Hundies:                          
1) Darshani Hundi: It is a type of Hundi which is payable at sight or on demand.
2) Muddati Hundi: It is similar to a time of bill of exchange. It is payable after a specified period of time. It is also known as “Miadi Hundi.”
3) Shah-Jog Hundi: It is drawn by a merchant upon another asking the later to pay the amount of the Hundi to a shah – respectable person in the market.
4) Jokhmi Hundi: It is drawn by the consignor of goods on the consignee against the goods shipped.
Discuss the duties of a Collecting Banker.                            5
Ans: 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 customer’s 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.
15. Discuss different methods of note issue of Central Bank.                      5
Ans: The first function or the primary function of money is to issue paper currency. The Central Bank has the sole power to issue paper currency. The notes are legal tender money. In India, the RBI issue currency notes of all types except One Rupee note which are issued by the Ministry of Finance, Govt. of India. But the notes are issued following some methods. The Central Banks follows different methods or system according to the currency or banking regulations to issue notes. These systems are:
a)      Simple Deposit system/Full reserve system.                              
b)      Fixed fiduciary system.
c)       Proportional reserve system.
d)      Minimum reserve system.  (Followed in India from 1956 onwards)
e)      Maximum reserve system.
The simple deposit system is also knows as full reserve system. Under this system, the Central Bank is required to keep 100% of metal, either gold or silver or both as reserve for every note issued. The notes so issue becomes representative paper money. The advantage of this system is that it enjoys a public confidence and there is no danger of over issue of currency notes. But it is very costly and money supply cannot be increase as and when required.
The system of fixed fiduciary was first introduced in England in 1844. Under this system, the Central Bank issue currency notes up to a certain limit against reserves of Govt. securities. The notes issued beyond the limit set by the law have to be fully banked by metallic reserves. Though the system inspires public confidence and ensures convertibility of currency notes without any danger of over issue, yet the system is uneconomical and un-elastic as it requires sufficient gold reserves and the supply of money cannot be increased easily at time of emergency.
The proportional system of issuing currency is very simple and elastic. According to this system, the notes issued by Central Bank are banked by both metallic reserves and securities. A certain percentage (25 to 40%) of the total notes issued has to be backed by gold or silver reserves and the remaining by Govt. securities. The system guarantees the convertibility of paper money and is economical to use.
The minimum reserve system is followed in India since 1956. This 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. 
The system in which the Central Bank is authorized to issue notes up to a certain limit without any gold reserves is known as Maximum Reserve System. Under this system, the Central Bank is given power to determine the maximum limit and also the power to reserve the limit from time to time according to the needs of the economy. This system is elastic and economical to use. But it involves the danger of over issue of notes and lacks public confidence.
16. What is meant by Letter of Credit? What are its types?                          2+3=5
Ans: A Letter of Credit is an assurance document issued by the bank of the importer in favour of the exporter specifying that the bills of exchange drawn by the exporter on the importer will be met upto a specified amount in case the importer fails to honour his commitment. Letter of credit is mainly used as a means to make payment in international trade. In actual practice, a letter of credit means, “a document issued by a banker authorizing the banker to whom it is addressed to honour the bills of the person named therein to the extent of certain amount.”
Various types of letter of credit are: 
(A) Traveler’s Letter Credit.
a)      Circular Note.
b)      Circular Cheque.
c)       Traveler’s Cheques.
(B) Commercial Letter of Credit.
a)      Documentary and clean letter of credit.
b)      Revocable and irrecoverable Letter of Credit.
c)       Fixed and revolving Letter of Credit.
d)      Confirmed and Unconfirmed Letter of Credit.
e)      Red clause Letter of Credit.
f)       Transferable and Non-transferable letter of credit.
g)      With and Without Resource Letter of credit.
17. Write a note on recent trends in developments of commercial banks in India.                           5
Ans: a) Core banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers and have a separate line of business to manage small business. Larger business is handled by the corporate banking division of the institution. Core banking basically is depositing and lending of money.
b) Factoring: Factoring is a service of financial nature involving the conversion of credit bills into cash. Accounts receivables, bills recoverable and other credit dues resulting from credit sales appear, in the books of accounts as book credits. Here the risk of credit, risk of credit worthiness of the debtor and as number of incidental and consequential risks are involved. These risks are taken by the factor which purchase these credit receivables without recourse and collects them when due. These balance-sheet items are replaced by cash received from the factoring agent. Factoring is also called “Invoice Agent” or purchase and discount of all “receivables”.
C) Internet /E-Banking: Online banking also known as internet banking, e-banking, or virtual banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website. Internet banking is a term used to describe the process whereby a client executes banking transactions via electronic means. This type of banking uses the internet as the chief medium of delivery by which banking activities are executed. The activities clients are able to carry out are can be classified to as transactional and non transactional.
Discuss the 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.
Objectives/Functions of NABARD
a)      Integrated rural development.
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.
18. What is Bill of Exchange? Write its features.                               2+3=5
Ans: Bills of Exchange: According to Section 5 of the Negotiable Instrument Act 1881, “A Bill of Exchange 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.”
Features of bills of exchange:
a)      A bill of exchange is an instrument in writing.
b)      It contains an unconditional order to pay money and money only.
c)       It must be signed by the drawer. Unsigned document will be invalid.
d)      It must be stamped as per the requirement of law.
e)      The payment to be made must be certain.
f)       The date on which payment is made must also be certain.
g)      The bill of exchange must be payable to a certain person.
h)      The amount mentioned in the bill of exchange is payable either on demand or within a stipulated time.
i)        There are three parties in bills of exchange: Drawer, Drawee and Payee.
What is International Development Association (IDA)? What are its procedures of giving loans?                             2+3=5
Ans: The International Development Association is an affiliate of IBRD. It was establishment in 1960 to provide soft loans to less developed member countries for the purpose of slum clearance, construction of roads and bridges etc.
Financing Procedure of IDA: The IDA loans are different from the conventional loans. The following are the distinctive features of the financing policy of the IDA:
a)      The IDA grants loans for protects whether they are directly productive or not.
b)      The IDA loans are interest free; only a nominal annual rate of 3.4% on the amounts withdrawn and outstanding is charged to meet the administrative expenses.
c)       The IDA loans are for long periods, i.e., for 50 years.
d)      There is a 10 years of grace and no amount is repayable during this period of grace. After this only 1% of the principal is to be repaid annually for 10 years and 3% annually for the remaining 30 years.
e)      IDA loans are generally repayable in foreign exchange.
f)       IDA loans are granted to the government of the country concerned.
19. Discuss the advantages and disadvantages of branch banking.                            4+4=8
Branch Banking: Branch Bank is a type of banking system under which the banking operations are carried with the help of branch network and the branches are controlled by the Head Office of the bank through their zonal or regional offices. Each branch of a bank will be managed by a responsible person called branch manager who will be assisted by the officers, clerks and sub-staff. In England and India, this type of branch banking system is in practice. In India, State Bank of India (SBI) is the biggest public sector bank with a very wide network of 16000 branches.
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.
4.       Public Confidence: Branch banking system gains greater public confidence because of its large scale operations and huge financial resources.
5.       Easy transfer of funds: Since the branches of bank under branch banking are spread all over the country, it is easier and cheaper, for it to transfer funds from one place to another.
Demerit of branch banking
1.       Problems of Management: The effective management and control of bank under branch banking system is difficult due to large network of branches.
2.       Delay in Decision Making: Decision making is delayed because the branch manager has to consult with the head office before taking decision.
3.       Ignorance of local heads: Branches follows the policies framed by the head office. The head office and the branch may not be aware of the local conditions.
4.       Monopolistic tendencies: Branch banking encourages monopolistic tendencies. A few big banks can dominate and control the whole banking system.
5.       Regional imbalances: Under branch banking system the financial resources collected in smaller and backward regions are transferred to the bigger industrial centre. This encourages regional imbalances in the country. 
What are the types of capital market? Discuss the functions of capital market.                                 4+4=8
Ans: The capital market is classified into two categories (Components), namely,
(i)      Primary market or new issue market, and
(ii)    Secondary market or stock exchange.
Functions and Importance of Capital Market
a)      Availability of funds: Capital market helps to raise long term funds from both domestic and as well as foreign institutional investors.
b)      Mobilization of savings: Capital market mobilizes the savings of individuals and institutions to productive channels. It facilitates flow of long term capital from those who have surplus capital to those who need capital.
c)      Industrial growth: it plays a significant role in the economic development of a country. It facilitates increase in production and productivity in the economy and hence enhances the economic welfare of the society.
d)     Stability in security prices: The Capital market tends to stabilize the values of stocks and securities and reduce the fluctuations in the price to the minimum. The process of stabilization is facilitated by providing capital to the borrowers at a lower interest rate and reducing the speculative and unproductive activities.
e)      Liquidity: It provides liquidity to investors in capital market. The securities issued through the primary market are traded in the secondary market which provides liquidity to the investors and also short-term as well as long-term yields on their investments.
f)       Promotion of economic growth: The capital market not only reflects the general conditions of the economy, but also smoothens and accelerates the process of economic growth. Various institutions of the capital market allocate the resources rationally in accordance with the development needs of the country.
g)      Balance between demand and supply: It bring about balance between demand and supply of capital by creating a link between those who demand capital and those who supply capital.
h)      Attracting foreign capital: Capital market helps in attracting foreign investments. The Indian capital market provides the channel through which foreign institutional investors and NRIs ca invest their funds in the securities of Indian companies.
20. Define Negotiable Instrument? Discuss its characteristics.                   3+5=8
Ans: Negotiable instrument: Negotiable Instrument means a written document which guarantees the specific amount of money to the person named therein and is transferable by delivery or by endorsement. 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.
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.
21. Explain the duties of a Paying Banker.                            8
Ans: Duties of paying banker:
a)      Prescribed form: Before payment, the paying banker must ensure that the cheque presented must be in prescribed form. The banker has every right to dishonor a customer’s cheque if they are not submitted in the prescribed form.
b)      Sufficient funds: The paying banker must pay the cheque if there is sufficient balance in the account of the drawer. If the funds are not enough, the cheque cannot be honoured.
c)       Genuine Payee: Before payment, the paying banker must ensure that the payee is genuine.
d)      Material Alternation: Materially altered cheque should not be honoured by the banker as such alteration is done without the knowledge or consent of the drawer. However, such a cheque can be honoured if the alteration is confirmed by the drawer by affixing his full signature at the place of alteration.
e)       No payment if restriction imposed: The paying banker should not pay the cheque if there is restriction imposed on the payment by the drawer or by the law.
f)       Payment on behalf of customer only: Another important duty of a paying banker is to pay on behalf of his customer of the bank and he has account in the bank.
g)      Drawee’s signature: The signature of the drawer or his authorised agent should agree or tally with the signature on the cheque. Only if the signature tallies, the banker has the right to debit the customer’s account.
h)      Payment through ban k account only: The paying banker should not make payment of crossed cheques over the counter of the bank.
i)        Must be presented within reasonable time: The paying banker must pay the cheque when it is presented within reasonable time and during banking hours.
22. What are the developmental functions of RBI? Discuss.                        8
Ans: The RBI, as a Central Bank of the Country has assumed greater responsibility as developmental and promotional agency. Its promotional functions and activities have been mainly directed towards building up and strengthening financial infrastructure and filling the institutional gap by setting up new financial institutions and by ensuring the allocation of credit in the socially desired directions. The Development and Promotional functions of the Central Banks are listed below:
a)      To promote and strengthen commercial banking in our country by taking various steps such as putting regulation on banks, setting up of deposit insurance corporation, amalgamation and consolidation of banks.
b)      To promote agricultural and rural credit by setting up and developing key financial institutions like NABARD and RRBS.
c)       To promote short, medium and long term industrial finance by setting up various institutions such as IDBI, SIDBI, SFCs, SSIDC etc.
d)      To promote exports through refinance to banks against export credit.
e)      To maintain internal price and exchange rate stable.
f)       To promote the market for investments in Govt. securities.
g)      To promote housing finance by promoting the national housing bank in 1988 to organise and augment resources for housing.
h)      To promote co-operative banking by providing funds to co-operative banks.
i)        RBI also encourages and promotes research in the areas of banking.
Discuss the objectives and functions of General Insurance Corporation of India.              8
Ans: Before independence, the general insurance business in India was done by foreign companies. After independence, the general insurance business was completely owned by the government. In 1972, the government nationalized the general insurance business and 107 insurer were amalgamated and grouped into four companies, namely The National Insurance Company Limited, The New India Assurance Company, The Oriental Insurance Company Limited and the United India Assurance Company Limited. The General Insurance Corporation of India was setup in 1972 as a holding company of these four general insurance companies.
General Insurance Corporation of India (GICI) sell insurance against specific risks, such as loss from fire and accident, to property of various kinds, such as motor vehicles good, machinery, building etc. and also against risk of personal Accidents and sickness. The policies of these companies do not involve savings features. GICI provides loans and investment in the capital market of the country. GICI invests in shares and debentures, underwriters and invests in new issues of the corporate sector, grants loans and advances to companies.
Objective and Functions of GICI:
a)      The carrying on of any part of general insurance business as deemed desirable.
b)      Aiding, assisting and advising the companies in the matter of setting up of standard of conduct and sound practice in general insurance business and rendering efficient customer service.
c)       Advising the acquiring companies in the matter of controlling the expenses including the payment of commission and other expenses.
d)      Advising the acquiring companies in the matter of investment of funds.
e)      Issuing directions to acquiring companies in relation to the conduct of general insurance business.

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