Banking.

2205.
1. Define the terms Bank, Banker and Banking. Distinguish between
brunch banking and unit banking.
Ans:
Bank:
J.C.Wood: Bank is the lender of money and loan.
Prof Sayers: A bank is the institutions whose debts are commonly accepted in
settlement of other people debt.
R.P.Kent: A bank is an institution the principle function of which is to collect the
unutilized money of the people and to lend it to others.
Banker:
Dr. Hart: A Banker is one who in the ordinary course of his business honors
cheque drawn upon him persons from and for whom he received money on
current accounts.
H.P. Sheldon: The function of receiving money from his customers and repaying
it by honoring their cheque as and when required is the function above all other
functions which distinguishes a banking business from any other kind of business.
Banking:
Indian company Act 1949, Section-5(1): Banking means the accepting, for the
purpose of lending or invests of deposits or money from public, repayable on
demand or otherwise, and withdraw able by cheque, draft, order or otherwise.
Oxford Dictionary Of Finance and Banking: Banking means the activities
undertaken by banks, this includes personal banking (non- business customers),
and commercial banking ( small and medium- sized business customers), and
corporate banking ( large international and multinational corporations).
Distinguishes between unit banking and brunch banking:
Area Of
Unit Bank.
Brach Bank.
Difference.
1. Definition.
In the unit banking system, the
Brunch banking is a system where
banking operations are carried
the banking business is carried on
through a single office and
by single bank with a network of
confined to a particular area.
branches throughout the length
and breadth of the country.
2. Formation
Formation procedures are smile
Formation procedures are
procedures.
and easy.
competently complex are lengthy.
3. Origin
United States Of America is the
United Kingdom is the origin of
Introduction.
origin of united banks.
branch banks.
4. Ownership
It is organized as sole
It is operated all over the world.
proprietorship, partnership or
private limited company.
5. Scope of
One particular office and limited
Different reasons of the country as
operation.
area.
well as foreign country.
6. Overhead
Administrative and other
Overhead expenditure is

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2205.
expenditure

expenditure are comparatively low. comparatively high because of its

large-scale operation.
7. Decision
The manager of a unit bank can
In this case it takes time to make
making.
take quick decision regarding
quick decision.
sanctioning of loan and it removes
delay.
8. Liquidity
It has to maintain more liquidity
Any breach can operate efficiently
because of lack of quick financial
with lower amount of liquidity
support from other institutions.
because a branch office has interrelationship with other branches.
9. Formation of Formation of capital and loan
Formation of capital and loan
capital and
sanctioning ability is low because
sanctioning ability are
loan
of small scale of operations
comparatively high.
sanctioning
compared to branch banks.
10. Role in
It does not play significant role in
It can play very significant role in
credit control.
credit control.
credit control.
11. Equality in To maintain equality in interest
Equality in interest rate
interest rate.
rate is complex each bank charge
maintained in all the branches.
different interest rate in different
regions independently.
12. Transfer of It has to depend on other banks to It can quickly transfer money with
money.
transfer money.
the help of branch network inside
the country and outside the
country.
13. Division of Division of labor is not so
There are ample of opportunities
labor
effective.
for division.
14. Role in
It can not play role in foreign
It can play significant role in
foreign trade
trade.
foreign trade.
15. Relation
It is not compulsory to maintain
It has to maintain direct
with central
direct relationship with central
relationship with the central bank.
bank
bank.
16.
Dissolution is very easy.
Dissolution process is complex.
Dissolution.

2. Describe various types of bank classified on the basis of functions.

Ans:
i.
ii.
iii.
iv.

Deposit banking.
Investment Banking.
Merchant banking.
Mixed banking.

3. Mention the various utility services provide by commercial banks.

Ans:
i.
ii.

Collection of deposits and lending.

Cash management and other services.

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2205.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.

Letter of credit service.

Agency service.
General utility services.
Safe deposits of valuables.
Credit cards.
Online banking.
Foreign trade financing.
Collection of cheque through clearing house.
Information and other services.

4. What are the functions of commercial banking to the development of

the economy of BD?
Ans:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
xiii.
xiv.

Capital formation.
Industrial and Agricultural development.
Consortium financing.
Infrastructure development.
Services sector financing.
Import and export financing.
Export trade financing.
Internal trade financing.
Financing agricultural and rural development.
Remittance of fund.
Spread of Banking Habit.
Employment generation.
Credit creation.
Entrepreneurship.

5. What are the services produced by modern bank?

Ans:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.

The payments (Transaction functions).

The shift ( savings functions)
The investment/ financial paying function (development)
The real state and community development function.
The cash management functions.
The merchant banking (security underwriting function.).
The investment banking (security underwriting function).
The security brokerage (trading function).
The insurance (risk management function).
The credit (loan functions).

6. What is merchant banking? What are the functions carried out in

merchant banking?
Ans:

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2205.
A merchant bank may be considered as an institution which, depending upon the
regulatory environment in the country of operation, concentrates its operations on all or
most of the following activities:

Corporate financial advice on such diverse matters as raising capital

through issue of new share and bonds.
Restricting the companys capital.
Arranging mergers of two or more companies and advising modalities and
fixing the terms of sale or purchase of one company to or from another.
The taking of deposits and participation in foreign currency money market
operations, including foreign exchange dealings.
Medium term lending and arranging syndication of loan to finance large
sized projects.

Functions of merchant bank:

i.
Corporate counseling.
ii.
Project counseling.
iii.
Manager to the issue.
iv.
Credit syndication.
v.
Investment management.
vi.
Servicing of issue.
vii.
Act as a custodian.

7. Define Central Bank? Why central bank does regulate credit?

Ans:

Meyers and Others: Central bank is to issue currency.

Prof. R.G.Hawtray: Central bank is the lender of last resort.
W.A.Shaw: A central bank is a bank which controls credit
M.N.Mishra: Central bank occupies a central or pivotal position in the monetary
and banking structure of a country.

Central Bank Regulates Credit:

Closely linked to the issue of currency is the central banks function of credit control. The
central banks control over money supply could be undermined by the commercial banks
mechanism of credit creation. The total amount of money in circulation has a relationship
with the creation of credit. Commercial bankers are not the only people having this
power. There are other forms of credit. Businessman and industrial enterprises can
acquire goods and services without paying for them immediately. The modern credit
cards, debit cards and other forms of electronic money play a part in creation of money. A
modern central bank, therefore, try to control credits to supplements its broad objectives
of monetary control. These attempts can further be reinforced by appropriate fiscal
policies.

8. Central bank is the lender of last resort- Explain.

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2205.
Ans:
Central bank controls the money market and the banking system of a country. Central
bank is the only bank which issue note and reserves the foreign exchange.
Commercial banks of a country make profits by giving loans. But when the bank is
unable to collect the loan then bank faces the money crisis. In this situation when
commercial bank fails to collect money it goes to the central bank. The central bank acts
as the lender of last resorts.
According to Gordon and NatarajanWhen commercial banks are not able to secure financial accommodation from other
sources, then as a last resort, they can approach the central bank for necessary facilities.
According to HawtreyThis essential duty of the central bank as the lender of last resort is to make good storage
of each among the competitive banks.
According to S.VarshneyThe central bank assumes the responsibility of meeting directly or indirectly all
reasonable demands for accommodation by commercial banks in times of difficulties and
crisis.

9. What is credit control?

Ans:
In a modern developed country economy the aggregate volume of bank credit constitutes
the bank of the communitys money supply. Credit has come to predominant part in the
settlement of monetary policy in a country. If the commercial banks are operating freely
they are like to be influenced by the ordinary motives of private business and thus it
creates monetary stability. Therefore it becomes an essential for central bank to influence
and control the volume of bank credit.
The credit control is the method or technique by which the central bank can keep the
availability of credit or money supply at desired level and can control the credit creation
power of banking system.

10.Describe the methods of credit control used by the central bank of a

country.
Ans:
i.
ii.
iii.
iv.
v.
vi.
vii.

Bank rate policy.

Open market operations.
Variable reserve system.
Selective credit controls.
Credit rationing.
Margin restrictions.
Direct action.

11.Distinguish between commercial bank and central bank.

Ans:
Point Of

Commercial Bank.

Central Bank.

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2205.
Differences.
1. Formation.
2. Ownership
3. Objective
4. Number
5. Brunch
6. Representative.
7. Control
8. Credit control
9. Note issue

Commercial bank formulates

according to the banking act.
Investors are the owners of
the commercial bank.
To earn profit by operating
business.
There is huge number of
commercial bank in a
country.
Commercial bank has many
brunches.
Commercial bank represents
central bank.
Commercial bank controlled
by banking act.
Commercial bank controls
credit by many ways.
Commercial banks do not
issue notes.

Central bank formulates in the

parliament.
Govt. is the owner of central
bank.
The main objective is the control
the economy.
Central bank is the only one in a
country.
Central bank has only one brunch.
Central bank is the representatives
of a government.
Central bank is controlled by
government.
Central bank directly controls
credit.
Central bank issues note.

12.Explain the functions of a central bank others then credit control.

Ans:
Traditional Functions:
i.
Bank of issue.
ii.
Custodian of cash reserve.
iii.
Custodian of foreign balances of the country.
iv.
Lender of last resort.
v.
Central clearance, settlement and transfer.
Non- Traditional Functions:
i.
Development of different production oriented sector, like agriculture, cottage,
industry, fishing etc.
ii.
Development of foreign trade especially in the export oriented sector by
maintaining exchange rate in favorable condition.
iii.
Bangladesh bank increases the quality of man-power through different sorts of
training Programme.

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2205.
13. Define Customer.
Ans:
The term customer of a bank is not defined by law. Ordinarily, a person who has an
account in a bank is considered its customer.
- According to Sir John Paget:
To constitute a customer there must be some recognizable course or habit of dealing in
the nature of regular banking business.
- According to Dr. Hart:
A customer is one who has an account with a banker or for whom a banker habitually
undertakes to act as such.
Broadly speaking, a customer is a person who has the habit of restoring to the same place
or person to do person to do business.
14. What are the features of a banker right of general lien?
Ans:
i.
The banker possesses the right of general lien on all the goods and securities
entrusted to him in his capacity as a banker and in the absence of a contract
inconsistent with the right of lien.
ii.
A bankers lien is tantamount to an implied pledge.
iii.
The right of lien is conferred upon the banker by the contract act.
iv.
The right of lien can be exercised on goods or other securities standing in the
name of the borrower only and not jointly with others.
v.
The banker can exercise his right of lien on the securities remaining in his
possession after the loan.
15. Particular lien vs. General lien.
Ans:
Particular lien:
A particular lien can be exercised by craftsman or a person who has spent his time, labor
and money on the goods retained.
General Lien:
A general lien is applicable in respect of all amounts due from the debtor to the creditor.
16. Give a brief occasions bank is justified in disclosing the state of his customers
account.
Ans:
i.
Disclosure of information required by law:
- Under income tax act.
- Under the companies act.
- By order of the court under the bankers book evidence act.
- Under the reserve bank of India.
- Under the baking regulation act.
- Under the gift tax act.
- Disclosure to police.

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2205.
ii.

Under foreign exchange regulation act.

Under the industrial development bank of India.

Disclosure permitted by the Bankers practices and usages:

- With express or implied consent of the customer.
- The banker may disclose the state of his customers account.
- Bankers reference.
- Duty to the public to disclose.

17. Discuss the obligation of a banker to a customer.

Ans:
i.
Obligation to honor the cheque.
- There must be sufficient fund of the drawer in the hands of the drawer. It
is to be noted that funds available must be equal or greater than the
amount of the cheque.
- The fund must be applicable for the payment of the cheque. If some funds
are pre specified for some special purpose that amount of money is not
available for payment.
- The banker must be require to pay duly that is in proper time and proper
place.
ii.

Obligation to maintain secrecy about account.

- The bank is under an obligation to take utmost care in keeping secrecy
about the accounts information of the customers.

18. Explain the different types of accounts can be opened in a bank.

Ans:
i.
Savings deposit account.
ii.
Current deposit account.
iii.
Fixed deposit account.
iv.
Short term deposit account.
v.
Recurring deposit accounts.
vi.
Foreign currency account.
vii.
Different deposit schemes.
19. Who can open account?
Ans:
Every person, who is competent to contract can open an account with a bank provided the
bank is satisfied regarding his bonafides and is willing to enter into necessary business
relations with him.
20. Discuss the common formalities for opening deposit accounts by depositors.
Ans:
i.
Application form.
ii.
Introduction or reference.
iii.
Submission of photograph & interview.
iv.
Mandate in writing.

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2205.
v.
vi.
vii.
viii.
ix.

Transaction profile.
Verification of documents.
Specimen signature.
Opening the account.
Pay-in-slip.