Indian Banking System Solved Question Paper 2022
[Dibrugarh University BCOM 5th SEM CBCS Pattern]
5 SEM TDC DSE COM (CBCS)
501 (GR-IV)
2022 (Nov/Dec)
COMMERCE (Discipline
Specific Elective)
(For Honours/Non-Honours)
Paper: DSE-501 (Group-IV)
(Indian Banking System)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. Answer the following as directed: 1x8=8
(a) The RBI follows _______ system for issuing paper currency notes.
(Fill in the blank)
Ans: Minimum reserve system
(b) Bank deposit is a non-marketable security. (Write True or False)
Ans: True
(c) Punjab National Bank was established in the year _______. (Fill
in the blank)
Ans: 1894
(d) ‘Skimming’ in E-banking is a method of _______. (Fill in the
blank)
Ans: Fraud
(e) There is no limit on transactions through NEFT. (Write True or
False)
Ans: True
(f) Chain-banking is a cheap system of banking. (Write True or
False)
Ans: False
(g) Section _______ of the Banking Regulation Act discusses about
licensing of banking companies. (Fill in the blank)
Ans: Section 22
(h) Unit Banking originated in _______. (Fill in the blank)
Ans: USA
2.
Write short notes on any four of the following: 4x4=16
(a)
Imperial Bank of India.
Ans: Imperial Bank of India: The three Presidency Banks were
amalgamated into the Imperial Bank of India which was brought into existence on
27th January, 1921, by the Imperial Bank of India Act, 1920. The liability of
shareholders of the Imperial Bank was limited like that of shareholders of
other banks registered under the Company Act. However, the word “limited” did
not from a part of the name of the Bank.
After independence, Government has taken most important steps in
regard of Indian Banking Sector reforms. In 1955, the Imperial Bank of India
was nationalized and was given the name “State Bank of India”, to act as the
principal agent of RBI and to handle banking transactions all over the country.
It was established under State Bank of India Act, 1955.
(b)
Regional Rural Banks.
Ans: Regional Rural Banks were established under the provisions of an
Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976
with an objective to ensure sufficient institutional credit for agriculture and
other rural sectors. The RRBs mobilize financial resources from rural /
semi-urban areas and grant loans and advances mostly to small and marginal
farmers, agricultural laborers and rural artisans. The area of operation of
RRBs is limited to the area as notified by Government of India covering one or
more districts in the State.
The Regional
Rural Banks (RRBs) have been set up to supplement the efforts of cooperative and
commercial banks to provide credit to rural sector. The following were the
reasons or need set up the RRBs:
1. To free the
rural poor, small and marginal farmers from the clutches of money lenders
2. To provide
credit to small farmers, marginal farmers, rural artisans, landless laborers
who do not fulfill the criterion of creditworthiness as per the banking
principles.
3. To provide
banking services to the rural community at a relatively lower cost by adopting
a different staffing pattern, wage structure and banking policies.
(c)
Relationship banking.
Ans:
(d)
Reserve Bank of India as bankers’ bank.
Ans: Bankers Bank: RBI is a banker to all the other banks. It is
the supreme bank of all the banks. As the supreme bank it performs various
functions. Some of the functions are:
a)
Custodian of cash reserve of the bank:
The Central Bank acts as the custodian of cash reserve of the banks. Every
Commercial bank has to keep a certain portion of their deposits and time and
demand liabilities to the Central Bank in the form of cash reserves. The
Central Bank maintains this cash reserve as the custodian and grants money to
the commercial bank in times of emergency.
b)
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.
c)
Clearing agent (2018): 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. One bank may have to pay certain amount to another bank again the
RBI will transfer fund from debtor to creditors account. Since all banks have
their accounts with the RBI, the RBI can easily settle the claims of various
banks each other with least use of cash.
(e)
Debit card.
Ans:
(f)
Bridge loan.
Ans: Bridge Loan:
Bridge loan is a short-term temporary loan extended by financial institutions
to help the borrower to meet the immediate expenditure pending disposal of
requests for long- term funds or regular loans. Here, the bridge loan is not
against any main loan arrangement but against anticipated cash flow. Again, if
an individual is negotiating the sale of his asset, say a house, a bridge loan
may be extended by a bank to meet the seller's immediate cash requirements. The
loan will be paid off when the borrower realizes his sale proceeds.
3.
(a) Discuss about the development of banking in India after Independence. 14
Ans: Origin, Growth and development of banks in India
The word
Bank has been originated from many words. There is no single word or answer to
this origin of the word ‘Bank’. According to some economists, the word ‘Bank’
has been originated from the German word ‘Banck’ which means heap or mound or
joint stock fund. From this, the Italian word ‘Ban co’ has been derived. It
means heap of money. But according to this group, the word bank is derived from
the Greek word ‘Banque’ which mean a ‘bench’. It refers to a place where
money-lenders and money changers used to sit and display their coins and
transact business. Thus the origin of the word ‘Bank’ can be traced as follows.
Bank →
Banco → Banque → Bank
Banking
industry in India has a long history. It has travelled a long path to assume
its present form. The banking industry in Indian started with small money
lenders and has now large joint stock world class banks in its fold. The growth
of banks in India is discussed below over two eras:
A) Pre-Independence Period
B) Post-Independence Period
A) Pre-Independence Period: Banking
in its crude from is as old as authentic history. All throughout the period of
India history, indigenous bankers and money lenders are recorded to have
existed and carried on the business of banking and money lending on a large
scale. Between 2000 and 1400 BC during the Vedic Period records of deposits and
lending are found. Renowned Hindu Law giver Manu has dealt with the matter of
deposits and pledges in section of his work. According to Manu – “a sensible
man should deposit has money with a person of good family, or good conduct,
will acquainted with the Law, veracious, having many relatives, wealthy and
honourable”. Reference is also made to the same in Kautilya’s Arthashastra. The
Indian banks enjoyed considerable public confidence and this can be gauged from
fact that hundis were used from the days of Mahabharata. During the Moghul
Period, the indigenous bankers were most prominent in connection with the
financing of trade and use of instruments of trade. From the early Vedic period
right through the Moghul period as well as that of the East India Company’s
rule until the middle of the 19th Century, indigenous bankers were
the hub of the Indian Financial System providing credit not only to the trade
but also to the Government.
Agency
House: The indigenous bankers lost their importance to a certain with the
advent of the English traders in India. The starting of modern banking in India
can be traced to the beginning of the East India Company’s trade relation with
our country. The growing trade Interest of the English merchants and
non-existence of any organised banks in India, many English Agency Houses which
were essentially trading company started to add banking business to their
activities. The bank of Hindustan was the earliest bank started under European
direction in India. The banking business of Agency House could not continue for
long. Most of these Houses failed because of their complete disregard towards
the principle of banking business. The Bank of Hindustan could not withstand
the failure of its parent from and was closed down in 1832.
Presidency
Banks: The banking business of Agency House which survived and continued to
carry on trade and banking together was progressively taken over by the
Presidency Banks. The three Presidency Banks viz.:
a) The
Bank of Bengal (1809);
b) The
Bank of Mumbai (1840); and
c) The
Bank of Chennai (1843)
were
established under the Charter of the East India Company. These Banks acted as
banker to the East India Company at Kolkata, Mumbai and Chennai and performed
Central Banking functions for their respective areas.
Principle
of Limited Liability: A land-mark development took place in the year 1860. It
was in this year the principle of “limited liability” was first applied to the
joint stock banks. Till then little or so banking legislation existed in India.
Many banks have raised like mushrooms and failed, mostly due to speculation,
mismanagement and fraud on the part of the management. The introduction of the
principle of limited liability promoted the growth of banks in India. By 1895,
there were 15 joint stock banks with limited liability in India.
The
Swadeshi Movement: Swadeshi movement prompted Indians to start many new
institutions. The number of joint stock banks increased remarkably during
1906-1913. The peoples Bank of India Limited, the Bank of India Limited, the
Central Bank of India Limited, Indian Bank Limited and the Bank of Baroda
Limited were setup during that period.
Imperial
Bank of India: The three Presidency Banks were amalgamated into the Imperial
Bank of India which was brought into existence on 27th January,
1921, by the Imperial Bank of India Act, 1920. The liability of shareholders of
the Imperial Bank was limited like that of shareholders of other banks
registered under the Company Act. However, the word “limited” did not from a
part of the name of the Bank.
B) Post-Independence Period: After
independence, Government has taken most important steps in regard of Indian
Banking Sector reforms. In 1955, the Imperial Bank of India was nationalized
and was given the name “State Bank of India”, to act as the principal agent of
RBI and to handle banking transactions all over the country. It was established
under State Bank of India Act, 1955.
In 1959,
the 'State Bank of India' (Subsidiary Banks) Act was passed by which the public
sector banking was further extended. The following banks were made the
subsidiaries of State Bank of India:
(i) The
State Bank of Bikaner
(ii) The
State Bank of Jaipur
(iii) The
State Bank of Indore
(iv) The
State Bank of Mysore
(v) The
State Bank of Patiala
(vi) The
State Bank of Hyderabad
(vii) The
State Bank of Saurashtra
(viii) The
State Bank of Travancore
These
banks forming subsidiary of State Bank of India was nationalized in1960. In
1963, the first two banks were amalgamated under the name of "The State
Bank of Bikaner and Jaipur".
On 19th
July, 1969, 14 major Indian commercial banks of the country were nationalized.
In 1980, another six banks were nationalized, and thus raising the number of
nationalized banks to20. Seven more banks were nationalized with deposits over
200 Crores. Later on, in the year 1993, the government merged New Bank of India
with Punjab National Bank. It was the only merger between nationalized banks
and resulted in the reduction of the number of nationalized banks from 20 to
19. Till the year1980 approximately 80% of the banking segment in India was
under government’s ownership. On the suggestions of Narasimham Committee, the
Banking Regulation Act was amended in 1993 and hence, the gateways for the new
private sector banks were opened.
Or
(b)
Describe the kinds of a business a banking company may engage as provided in the
Banking Regulation Act, 1949. 14
Ans: A bank is a financial institution which deals
in money and credit. It provides fundamental banking services such as accepting
deposits and lending loans. As financial intermediaries, a
bank acts as a connecting link between borrowers and lenders of money. Banks
collect money from those who have surplus money and give the same to those who
are in need of money. When
banks accept deposits its liabilities increase and it becomes a debtor, but
when it makes advances its assets increases and it becomes a creditor.
Banking
System: Banking systems refer to a structural network
of institutions that provide financial in a country. It deals with the
ownership of banks, the structure of banking system, functions performed and
the nature of business. The element of the banking system includes commercial
banks, Investment banks and Central bank.
The
commercial banks accept deposits and lend loans and advances; the investment
banks deal with capital market issues and trading; and the central bank
regulates the banking system by setting monetary policies besides many other
functions like currency issue.
Definitions
of bank and banking, given by various writers are given below:
Crowther defines
a bank as, "one that collects money from those who have it to spare or who
are saving it out of their income and lends the money so collected to those who
require it".
In the
words of Professor Sayers, “Commercial banks are institutions, whose debts-
usually referred to as bank deposits are commonly accepted in final settlement
of other people’s debt”.
According
to Prof. Kinley, “A bank is an establishment which makes to
individuals such advances of money as may be required and safely made, and to
which individuals entrust money when it required by them for use”.
The above
definitions of bank reveal that bank is a Business institution which deals in
money and use of money. We can say that any person, institution, company or
enterprise can be a bank. The business of a bank consists of acceptance of
deposits, withdrawals of deposits, making loans and advances, investments on
account of which credit is exacted by banks.
Business in
which a banking company may engage
Section
6 of the Banking Regulation Act, 1949 specifies the forms of business in which
a banking company may engage. These are:
1)
Borrowing, raising or taking up
of money, lending or advancing of money; handling in all manners Bills of
exchange/hundies/promissory notes.
2)
Acting as agents for any
government or local authority or any other person,
3)
Managing issues of shares,
stock, debentures etc. including underwriting guaranteeing,
4)
Carrying on and transacting
every kind of guarantee and indemnity business.
5)
Managing, selling and realizing
property which may come into the possession of the banking company in
satisfaction of its claims.
6)
Acquiring and holding and
generally dealing with any property or any right, title or interest in such
property which may form the security for any loans and advances.
7)
Underwriting and executing
trusts.
8)
Establishing and supporting or
aiding in the establishment and support of institutions, funds, trusts etc.
9)
Acquisition, construction,
maintenance and alteration of any building and works necessary for the purpose
of the banking company.
10)
Selling, improving, managing,
developing, or otherwise dealing with property and rights of the company.
11)
Acquiring and undertaking whole
or any part of the business of any person or company.
12)
Doing all such other things as
are incidental or conductive to the promotion or advancement of the business of
the banking company.
13)
Any other business which the
Central Government may specify.
4.
(a) What is universal banking? Discuss the advantages and limitations of
universal banking system. 4+8+2=14
Ans: Universal Banking –
Introduction, Advantages and Disadvantages
As Narrow
Banking refers to restricted and limited banking activity Universal Banking
refers to broad based and comprehensive banking activities. Under this type of
banking, a bank will deal with working capital requirements as well as term
loans for developmental activities. They will be dealing with individual
customers as well as big corporate customers. They will have expanded lines of
business activity combining the functions of traditional deposit taking, modern
financial services, selling long-term saving products, insurance cover,
investment banking, etc.
Advantages of Universal Banking
a)
Economies of Scale: Universal banking
results in greater economic efficiency in the form of lower cost, higher output
and better products. It enables the banks to exploit economies of large scale
and wider scope.
b)
Profitable Diversions: The banks can
utilize its existing skill in single type of financial services in offering
other kinds by diversifying the activities. Therefore, it involves lower cost
in performing all types of financial functions by one unit instead of other
institution.
c)
Resources Utilization: A bank
possesses all types of information about the existing customers which can be
utilized to perform other financial activities with the same customer.
d)
Easy Marketing of Services: A bank
with established brand name can easily use its existing branches and staff to
sell the other financial products like insurance policies, mutual fund plans
without spending much effort on marketing.
e)
One-stop Shopping: One-stop shopping
is beneficial for the bank and its customers as it saves lot of transaction costs
by increasing the speed of economic activities.
Disadvantages of Universal Banking
a)
No Expertise in Long Term Lending:
These are different types of long term loans like project finance and
infrastructure finance, having long gestation projects cannot properly handle
by the single bank.
b)
Non-performing Assets problem: One of
the most serious problems faced by universal banking is Non-Performing Assets.
c)
Risk of failure: The larger the banks,
the greater the effects of their failure on the system. The failure of a larger
institution could have serious for the entire banking system. If one universal
bank were to collapse, it could lead to a systemic financial crisis.
d)
Concentration of Monopoly Power
in the hands of few banker: Universal banking sometimes creates
monopoly power in the hands of few large bankers. Such a monopoly power in the
hands of a few big bankers is a source of danger to the community whose goal is
a socialistic pattern of society.
Bureaucratic
and inflexible: Universal banks tend to be bureaucratic and inflexible. They
tend to work primarily with large established customers and ignore or
discourage smaller and newly established businesses.
Or
(b)
Distinguish between the following:
7+7=14
(1)
Retail banking and Corporate banking.
Ans:
(2)
Commercial banking and Cooperative banking.
Ans:
Meaning of Commercial
Bank: The commercial bank generally extent short
terms loans to the business man and traders. They collect deposits from the
public and advance loans to the businessman and producer commercial banks are
normally owned by shareholders. In India most of the joint stock banks are
commercial banks.
Cooperative Banks: Cooperative Banks are those banks
which are run by following cooperative principles of service motive. Their main
motive is not profit making but to help the weaker sections of the society.
Some examples of cooperative banks in India include Central Cooperative Banks,
State Cooperative Banks.
Difference between Commercial
Banks and Co-operative Banks
|
Basis |
Commercial Bank |
Co-operative bank |
|
Formation |
These
are generally set up as companies under the Companies Act. |
These
are set up under the Co-operative Societies Act. |
|
Nature |
These
are ordinarily financial institution. |
These
are not profit seeking institutions. |
|
Raising
of funds |
These
banks accepts deposits from the public through different types of accounts. |
These
banks mainly accepts deposits from public of rural areas. |
|
Advances |
Commercial
banks mainly provide short and medium term loans. |
Co-operative
banks provides both short term and long term loans. |
|
Credit
creation |
Commercial
banks can create credit. |
Co-operative
bank can create credit. |
5.
(a) What is bank nationalization? Explain about the major achievements of
nationalized banks. 4+10=14
Ans: Nationalisation of Banks in India
Nationalization
is a process whereby a national government or State takes over the private
industry, organisation or assets into public ownership by an Act or ordinance
or some other kind of orders. This strategy has been frequently adopted
by socialist governments for transition from capitalism to socialism.
The banking
sector in India has been facing extreme changes with the economic growth of the
country. In 1948, RBI (Transfer of public ownership) Act was passed to
nationalised the Reserve Bank. On Jan 1, 1949, RBI was nationalised. In 1955,
the Imperial Bank of India was nationalized and was given the name “State Bank
of India”, to act as the principal agent of RBI and to handle banking
transactions all over the country. It was established under State Bank of India
Act, 1955.
On 19th
July, 1969, 14 major Indian commercial banks of the country were nationalized.
In 1980, another six banks were nationalized, and thus raising the number of
nationalized banks to20. Seven more banks were nationalized with deposits over
200 Crores. Later on, in the year 1993, the government merged New Bank of India
with Punjab National Bank. It was the only merger between nationalized banks
and resulted in the reduction of the number of nationalized banks from 20 to
19. Till the year1980 approximately 80% of the banking segment in India was
under government’s ownership. On the suggestions of Narasimham Committee, the
Banking Regulation Act was amended in 1993 and hence, the gateways for the new
private sector banks were opened.
Achievements of Nationalized
Banks
A banking
revolution occurred in the country during the post-nationalization era. There
has been a great change in the thinking and outlook of commercial banks after
nationalization. There has been a fundamental change in the lending policies of
the nationalized banks. Indian banking has become development-oriented. It has
changed from class banking to mass-banking or social banking. This system has
improved and progressed appreciably.
Various
achievements of banks in the post-nationalization period are explained below:
1)
Branch Expansion: Initially,
the banks were conservative and opened branches mainly in cities and big towns.
Branch expansion gained momentum after nationalization of top commercial banks.
This expansion was not only in urban areas but also in rural and village areas.
2)
Expansion of Bank Deposits: Since
nationalization of banks, there has been a substantial growth in the deposits
of commercial banks. Thus bank deposits had increased by 200 times. Development
of banking habit among people through publicity led to increase in bank
deposits.
3)
Credit Expansion: The
expansion of bank credit has also been more spectacular in the post-bank
nationalization period. At present, banks are also meeting the credit
requirements of industry, trade and agriculture on a much larger scale than
before.
4)
Investment in Government
Securities: The
nationalized banks are expected to provide finance for economic plans of the
country through the purchase of government securities. There has been a
significant increase in the investment of the banks in government and other
approved securities in recent years.
5)
Advances to Priority Sectors: An
important change after the nationalization of banks is the expansion of
advances to the priority sectors. One of the main objectives of nationalization
of banks to extend credit facilities to the borrowers in the so far neglected
sectors of the economy. To achieve this, the banks formulated various schemes
to provide credit to the small borrowers in the priority sectors, like
agriculture, small-scale industry, road and water transport, retail trade and
small business. The bank lending to priority sector was, however, not uniform
in all states.
6)
Social Banking - Poverty
Alleviation Program: Commercial
banks, especially the nationalized banks have been participating in the poverty
alleviation Program launched by the government.
7)
Differential Interest Scheme: With a view to provide bank credit to
the weaker sections of the society at a concessional rate the government
introduced the “Differential interest rates scheme” from April 1972. Under this
scheme, the public sector banks have been providing loans at 4% rate of
interest to the weaker sections of the society.
8)
Growing Importance of Small
Customers: The
importance of small customers to banks has been growing. Most of the deposits
in recent years have come from people with small income. Similarly, commercial banks’
lending to small customers has assumed greater importance.
Or
(b)
Explain the following: 7+7=14
(1)
Investment policy of Indian commercial banks.
Ans: Principles of Sound Investment: Banks
should follow some basic principles at the time of investing funds. This
ensures efficient and long term working of the banks. Some of the basic
principles of sound investments are as follows
1)
Safety of principal: The most
important rule for granting/lending loans is the safety of funds. A banker
deals in borrowed funds and therefore his main consideration is safety of
principal invested in securities. Banks must ensure the solvency and sound
financial position of the companies in which investments is made. The
government and semi-government securities are the safest securities because
they are guaranteed by the government.
2)
Marketability or liquidity: The second
important principle of sound investments is liquidity. Liquidity means
possibility of converting investments into cash without loss of time and money.
Thus, the banker should see that the security in which he invests his funds
possesses a ready market i.e. they can be sold in the market without loss of
time and money.
3)
Return or Profitability: Return
or profitability is another important principle. The funds of the bank should
be invested in securities to earn highest return, so that it may pay a
reasonable rate of interest to its customers on their deposits, reasonably good
salaries to its employees and a good return to its shareholders. However, a
bank should not sacrifice either safety or liquidity to earn a high rate of
interest.
4)
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 is not a speculator and
hence his object of buying security should not be to gain on wide fluctuations
in prices of the securities and 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.
5)
Diversification of Investment: One should not put all his eggs in one basket’ is an old proverb
which very clearly explains this principle. A bank should not invest all its
funds in one particular industry or security or company. In case that industry
or company fails, the banker will not be able to recover his funds. Hence, the
bank may also fail. So, the bank should diversify its investments in different
industries and should invest in variety of companies with sound financial
record.
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.
7)
Duration: In addition to the above
factor, a banker also considers the duration and denomination of security and
its future earnings prospects.
(2) Your
arguments in favour of bank nationalization.
Ans: Arguments in favour of nationalisation
1)
It
would enable the government to obtain all the large profits of the banks as its
revenue
2)
Nationalization
would safeguard interests of public and increase their confidence thereby
bringing about a rapid increase in deposits. Thus preventing bank failures
3)
It
would remove the concentration of economic power in the hands of a few
industrialists
4)
It
would help in stabilizing the price levels by eliminating artificial scarcity
of essential goods
5)
It
would enable the baking sector to diversify its resources for the benefit of
the priority sector.
6)
Eliminates
wasteful competition and raises the efficiency of the working of banks
7)
enables
rapid increase in the number of banking offices in rural & semi-urban areas
& helped considerably in deposit mobilization to a great extent
8)
necessary
for the furtherance of socialism and in the interest of community
9)
Enables
the Reserve Bank to implement its monetary policy more effectively
10)
It
would replace the profit motive with service motive
11)
It
would secure standardization of banking services in the country
12)
Would
check the incidence of tax evasion and black money?
13)
Through
pubic ownership and control, banks function like other public utility services
by catering to the financial need of the common man.
14)
Like
other countries, India should also get profit by nationalizing her banking
industry.
15)
Essential
for successful planning and all-round progress of the national economy,
community development and for the welfare of the people.
6.
(a) Write a note on different types of financing facility provided by banks in
recent times. 14
Ans: Types of Finance provided by banks
1. Take-Out Financing:
Banks usually lend for short-term. It is because their source of funds for
financing comes from deposits which are usually for a maximum period of 3 to 5
years. However, presently banks are encouraged to provide finance for long-term
projects like infrastructure industry.
Hence when
a bank, say, lend for 10 years against a 4 years’ deposit, there is a problem
of continuing the loan after 4 years. It is possible that the bank will
continue to get deposits every year. Yet, the fact today is a 10-year loan has
been made based on a 4- year deposit which is a risky affair. In such a
situation, few banks will come together and under an agreement each one of them
will take up the loan portfolio in turn, for a fixed period of time till the
loan matures.
For
example, if Bank A has provided a 10-year loan, with an arrangement with Bank B
and Bank C whereby, after the end of the 4th year, Bank B will finance the loan
for next 3 years and Bank C will finance the loan during the last 3 years.
2. Revolving Credit Facility:
Under a Revolving Credit Facility a bank fixes up a credit limit to a borrower
for certain period, say Rs.10 crores for 3 years’ period. The borrower will get
a maximum credit facility of Rs.10 crores at any point of time once the loan is
repaid. The borrower's facility automatically gets renewed up to Rs.10 crores
during the 3-year period any number of times. In other words, the credit
facility revolves around with a maximum of Rs.10 crore outstanding at any
point of time over a 3-year period. In principle, under a Revolving Facility
there is no formal repayment period. The borrower is allowed to draw, repay and
again draw throughout the loan period.
3. Ever greening of Loan:
Sometimes a bank provides a second finance facility to a borrower to help him
to pay back the original loan. It is because when a borrower defaults on
payment of interest/principal to the bank as per prudential norms, the loan
account will become an NPA and the bank has to make provisions. To avoid such
an unpleasant situation and to show a rosy picture of bank's loan portfolio,
sometimes banks do resort to ever greening. RBI does not permit this type of
replacement credit.
4. Syndicated Loan:
It is a loan facility provided to a single borrower by a group of banks. As the
loan is extended by a group of lenders, the size of syndicated loan is normally
large and a single lender/ banker may not have been in a position to extend
such a facility. Since, the bankers involved in providing such loan facility
are many; usually co-ordination work is done by a 'lead manager' who acts as an
intermediary between the lenders and the borrower. Also under this arrangement
one bank in the syndicate acts as an agent for collecting interest and other
payments from borrower and distributes to other banks.
5. Bridge Loan:
Bridge loan is a short-term temporary loan extended by financial institutions
to help the borrower to meet the immediate expenditure pending disposal of
requests for long- term funds or regular loans. Here, the bridge loan is not
against any main loan arrangement but against anticipated cash flow. Again, if
an individual is negotiating the sale of his asset, say a house, a bridge loan
may be extended by a bank to meet the seller's immediate cash requirements. The
loan will be paid off when the borrower realizes his sale proceeds.
6. Consortium Finance:
Under consortium finance a large credit facility may be jointly arranged by a
combination of several banks. Usually, one of the banks in the group will act
as the leader for the credit. The consortium leader will extend a larger share
of the credit as compared to other banks in the consortium. The word consortium
here refers to 'a combination of many banks who have agreed to extend the
credit facility'. The share of credit agreed to be extended will be decided by
the banks in the beginning. The borrower need not deal separately with all the
banks in the group. A bank is however not permitted to extend credit beyond 25
per cent of its net owned funds or 25 per cent of borrower's net owned funds
(whichever is lower) to a single borrower.
7. Preferred Financing:
In the highly competitive world of banking today, banks are reaching out to
customers, particularly high net worth or wealthy customers. One area of
lucrative finance for bankers is consumer finance, more particularly car
finance. A preferred financier is a lender or a bank, which provides large
consumer loans like car loan under an arrangement with the car manufacturer.
Because of the tie-up, the manufacturer agrees to provide some concession in
the car price and some additional facilities in the car. Thus, the manufacturer
makes available for two reasons. One, purchase price is assured and second it
gives some push for the demand of that car. Preferred Financier also benefits.
He gets wealthy customers. Default in the consumer finance sector is minimum
because most of the customers have regular income.
8. Guarantee Services/Non-fund
Based Business: Non-fund based business is not a
credit facility or a financial assistance. However, the banks make sizeable
income out of non-fund based business, mainly from guarantee services. Banks
offer 'Guarantee Services' to valued customers. Guarantee service refers to a
legal undertaking by the bank to pay a certain sum of money to a third-party or
a creditor in the event of the bank's client/customer fails to fulfill his part
of obligation. The obligation may be to pay some money or to perform certain
duties like a contract job. The guarantee from bank enhances the certainty of
performance or payment.
Or
(b)
What is phone banking? What are the functions that can be done by mobile
banking? Discuss. 4+10=14
Ans: Telephone banking
Telephone banking is
a service provided by a bank or other financial institution that enables customers to perform a range of financial transactions over the telephone, without the need to
visit a bank branch or automated
teller machine. Telephone banking times are usually longer than branch opening
times, and some financial institutions offer the service on a 24-hour basis.
Most financial institutions have restrictions on which accounts may be accessed
through telephone banking, as well as a limit on the amount that can be
transacted.
The types
of financial transactions which a customer may transact through telephone
banking include obtaining account balances and list of latest transactions, electronic bill payments, and funds transfers between a customer's or another's accounts.
From the
bank's point of view, telephone banking minimises the cost of handling
transactions by reducing the need for customers to visit a bank branch for
non-cash withdrawal and deposit transactions. Transactions involving cash or
documents (such as cheques) are not able to be handled using telephone banking,
and a customer needs to visit an ATM or
bank branch for cash withdrawals and cash or cheque deposits.
Modern Services
Provided by Bank through Telephone Banking
1.
Centralized Banking Solution (CBS) =
CBS, an inter-branch networking and data-sharing platform helps the customers
to operate their account from any city in India having CBS networked branches,
changing the status of customer from ‘Customer of the Branch’ to ‘Customer of
the Bank’.
2.
Online Tax Payment = Banks provide the
facility of online payment of service tax, excise duty, DGFT, Custom duty and
all charges under MCA 21 through internet banking.
3.
Corporate Internet Banking = Online
funds transfer, trade finance management, fund management, global access with
unmatched benefits through banks’ corporate internet banking.
4.
Online Shopping = This service
facilitates the customers to book hotels, buy gifts, send flowers, buy books
and lot of activities by making payments online.
5.
Retail Internet Banking = Internet
Banking assists the customers to have an online access to bank account anytime
and anywhere.
6.
Foreign Exchange = Banks have several
branches authorized for handling foreign exchange business and these branches.
7.
E-Money India = Internet banking helps
the customer in sending money to their loved ones in India through PNB’s
e-Money India service.
8.
Online Railway Reservation = Say
goodbye to long queues. Banks offer the customers online booking and
information through IRCTC payment gateway. Just click and travel comfortably.
9.
Depository Service = Banks Depository
service provides the facility of having shares and securities in Demat form and
executes transactions of sales and purchase hassle free electronically to the
customers through internet banking.
10.
Electronic Clearing Service and
Electronic Funds Transfer (EFT) = Internet banking assists the customers in
electronic clearing service for quick movement of funds in a paperless mode and
EFT to ensure an expeditious transfer of funds by using electronic media.
11.
Online Bill Payment = No more queues
to pay customers’ bills. Now the customers can pay their telephone, mobile,
electricity, insurance and several other bills 24 hours, 365 days, from the
desktop of customer.
12.
Online Air Ticket Booking = Banks
provide facility of online airline ticket booking of domestic as well as
international airlines to their customers through internet banking.
13.
Online Trading = Banks provide online
trading facilities to customers having account with bank and trading account
with approved brokers.
14.
Customer Care Facility = Banks present
24 hours’ customer care facility for all customer’s quarries and problems.
15.
Online Insta Remit-RTGS Service =
Instant remittance by customer himself now made possible, from one bank to
another bank at different centre’s on the same day with the help of Online Real
Time Gross Settlement (RTGS)/National Electronic Fund Transfer (NEFT) at modest
charges.
***
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