Test: Principles and Practices of Banking - 3 - Bank Exams MCQ

• Electronic benefit transfer is a card-based system similar to a debit card that allows recipients of government assistance such as food stamps to pay retailers directly for their purchases. State governments provide benefits and track their use via the EBT system.
• Through the EBT program, recipients of nutrition assistance are issued an electronic card similar to a debit card for payment of benefits directly to retailers. The EBT has replaced the old-style color-coded paper food stamps.
• Some states have incorporated other public assistance programs into the EBT systems they administer. The use of EBT programs has expanded recently in response to the COVID-19 pandemic through a program called the Pandemic Electronic Benefits Transfer (P-EBT).
• P-EBT benefits differ by state - check whether your state has continuing P-EBT benefits on the USDA website. EBT is used most commonly for a program called SNAP, which provides food-purchasing assistance for low- and no-income people.
• Hence, the correct answer is option (c).

(a) Operating cycle method - Estimates working capital
(b) Projected net working capital method - determine the margin requirements through net working capital accruals made during the course of the year
(c) Projected turnover method - determine the working capital needs of all types of businesses
Hence, option (b) is the correct choice.

It is significant to have the aptitude to avoid unethical temptations. The choice to take the ethical path needs sufficient commitment to the value of good ethics. Ethical people usually say "no" to the individual gain if it is irrelevant to institutional benefit and goodwill.

Hence, option (b) is correct choice.

According to Section 87 of the N.I. Act, any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such an alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties. Any material alteration should be authenticated under the full signature of the drawer.
Hence, option (d) is the correct choice.

Dedication is one of the most significant qualities of an ethical worker. Companies do seek consequences, but most companies look for a truthful effort from employees who can be considered a "natural" at the job. When an employee joins the workforce, he/she is agreeing to offer the best for helping the company to flourish.
Hence, option (a) is correct choice.

The following are the correct statement in context to ATM:

• Automated Teller Machines (ATMs) are largely used for carrying out various financial operations, such cash withdrawals or deposits of cash or checks, etc.
• The installation of ATMs in India was advised by the committee, which was led by Dr. C. Rangarajan.
• The Automated Teller Machine, or ATM, enables people to withdraw and deposit money from their bank accounts using machines.

Hence, option (b) is the correct choice.

There is no minimum limit on the amount to be transferred through IMPS. Earlier the maximum limit of Rs 2 lakh to transfer through IMPS was revised to Rs 5 Lakh to facilitate and encourage customers to use and adapt to digital banking.

• An ethical dilemma is a moral situation in which a choice has to be made between two equally undesirable alternatives which are extremely complicated challenges that cannot be easily solved.
• In general, an ethical dilemma is a complex situation a person (business) faces in which a decision must be made about the adequate action to be taken.
• Hence, Option (c) is the correct answer.

In the above instances Bank shall verify and ascertain the title of the presenter and the same can be paid if everything is in order.

• A deferred payment guarantee is a type of financial instrument that is commonly used in international trade transactions. It provides assurance to the seller that they will receive payment for their goods or services, even if the buyer defaults on the payment. The purpose of a deferred payment guarantee is to ensure timely payment by the buyer to the seller, thereby mitigating the risk of non-payment and helping to facilitate trade. Options B, C, and D are not the primary purposes of a deferred payment guarantee.
• Hence, the correct answer is option (a).

• Self-help groups are where preferably number of members is preferably between 10 to 20 and one person cannot be a member in more than one SHG. They follow panchsutras.
• Hence option b is correct.

• REs shall frame a Customer Acceptance Policy. No account is opened where the RE is unable to apply appropriate CDD measures, either due to non-cooperation of the customer or non-reliability of the documents/information furnished by the customer.
• Hence option d is correct

The following are correct match:

• Preliminary proceedings of a court are called garnishee order nisi.
• Subsequent proceedings of a court are called garnishee absolute.
• Orders received from the court for recovery of certain debts are called garnishee order.
• Orders received from the revenue authorities (income tax/sale tax authority) are called attachment order.

Hence, option (d) is correct choice.

Need for Computerisation
The four major objectives of computerisation in banking are to improve:
(a) customer service
(b) housekeeping
(c) decision-making
(d) productivity and profitability.

The main objectives of computerisation at the branch level should be to improve customer service, quality of housekeeping and generation of data for better management control. At the regional and head office levels, the purpose of computerisation should be to store, analyse and retrieve data received from branches, generating information speedily, thereby strengthening the internal control over branches for policy formulation.

Hence, option (d) is correct choice.

Non-Fund based credit facilities are those facilities extended by banks that do not involve outflow of the funds from the bank when the customer avails the facilities but may at a later date crystallize into a financial liability if the customer fails to honour the commitment made by availing these facilities.

Option a: Correct

• Non-fund-based credit facilities do not lead to immediate outlay of funds

Option b: Incorrect

• Cash credit and Overdraft are types of fund based activities because they involve direct outflow of the Bank's fund to the borrower.

Option c: Correct

• The banker undertakes a risk to the amount on happening of a contingency. These items are contingent upon certain breaches of commitment. They do not involve any immediate outlay of funds but may at a later date crystalize into a financial liability if the customer fails to honour the commitment made by availing these facilities.

Option d: Correct

• Off-balance sheet items refer to assets or liabilities that do not appear on a company's Balance Sheet. Non-fund based credit items are not assets or liabilities to be reported in the balance sheet as on the date of the balance sheet but may get converted into an asset or liability at a later date, depending on the happening of a certain event. These Contingent Liabilities have to disclosed as 'Notes to the Balance Sheet'.

Hence, the answer is option (b).

Dishonor of a Cheque for Insufficiency of Funds or Exceeds Arrangement under Section 138 of the Negotiable Instruments Act: If a cheque issued by a person to another person for the discharge, in whole or any part of any debt or other liability is returned by the bank unpaid, on account of insufficient funds in the account or exceeds the agreement made with that bank; such person is deemed to have committed an offence, and liable to be punished with imprisonment up to two years or with fine up to twice the amount of the cheque or with both, if following conditions are satisfied:

• The cheque has been presented within the validity period i.e., three months of the date of cheque)
• A demand for payment is made by notice within 30 days of the return of cheque, and
• The drawer fails to make payment within 15 days of receipt of the notice.

Thus, Option (d) is the correct answer.

Capacity measures the borrower's ability to repay a loan by comparing income against recurring debts and assessing borrower's debt-to-income ratio; Lenders also consider any capital that the borrower puts toward a potential investment; Character more specifically refers to credit history, which is a borrower's reputation or track record for repaying debts; Collateral can help a borrower secure loans; In addition to examining income, lenders look at the general conditions relating to the loan.
Hence, (a) is the correct option.

The committees on communication networks for banks, set up in 1987 under the chairmanship of Shri T.N. Anantharam Iyer, executive director, Reserve Bank of India, had strongly recommended the establishment of a cooperative communication network, especially for the banking industry.
Hence, the correct answer is Option(a).

EFT (Electronic Fund Transfer) can be used to facilitate the automatic transmission and processing of messages and funds from one branch/bank to another branch/bank. EFT at points of sale terminals allows transfer of funds electronically and debit and credit the respective accounts. The EFT system can be integrated with an existing online system to automate and speed up the fund transfer process.

Hence, option (a) is the correct choice.

When a customer deposits money with his bank, the customer becomes a lender, and the bank becomes a borrower. The money handed over to the bank is a debt. The relationship between the banker and the customer is that of a debtor and a creditor. The bank is not bound to keep such money intact. It is not bound to return the notes and coins of the same denomination as it was deposited.

Hence option d is correct.

Data is subjected to a sanity check in this step to see whether it is acceptable for the purposes of data mining.

• Data is first gathered from a variety of organisational data sources.
• Multiple databases, flat files, and data cubes are examples of these data sources.
• During the data integration process, problems like object matching and schema integration may occur.
• Due to the difficulty of quickly matching data from several sources, the procedure is highly complicated and difficult. As an illustration, table A includes the entity cust no, whereas table B contains the entity cust-id.
• As a result, it might be challenging to determine whether or not the two supplied objects correspond to the same value. Here, using metadata can help to streamline the data integration process and cut down on mistakes.
• The next step is to look for the collected data's attributes. Answering the data mining questions (chosen in the business phase) using the query, reporting, and visualisation tools is a useful method to explore the data.
• Based on the results of query, the data quality should be ascertained. Missing data if any should be acquired.

Hence, option (d) is the correct choice.

• Based on the guidelines, issued by the Reserve Bank of India, a demand draft in India is valid up to three months, from the date of issue of the draft by the bank. After the lapse of three months, the customer can re-validate the DD with a written request to the issuing bank.
• The revalidation of a demand draft can be done only once a year and after a year, the same demand draft will be cancelled by the bank and a new one will be issued after charging a fee that is associated with the process.
• The draft can be negotiated by endorsement and delivery. As per NI Act, there can be any number of endorsements on the negotiable instrument because there is no limit for negotiation.
• In case of draft, Banker is the debtor and the purchaser of the draft is the creditor as Bank has to pay the draft on negotiation.
• Hence all options are correct.

• Impartiality: Banks must abstain from any discrimination of ethnical origin, religion, financial and social status, or sex in the provision of their service.
• Transparency: Bank's dealings and transactions must be made transparently and fairly by providing clear and easily comprehensible information about their services, products, risks and benefits to their customers.
• Integrity: Banks are required to act with integrity towards people who deposit money with them - they should lend with these funds responsibility, 'in the sense of managing the risk and return characteristics of the lending book' - supposedly a duty of care owned by banks to their client is assumed. Banking is a business based on trust. And trust is based on the belief that a company handles their business with integrity. Therefore, Option (c) is correct.
• Information Abuse: Banks must take all kinds of measures and actions to prevent the abuse of insider information about themselves and their customers.
• Hence, Option (c) is the correct answer.

• Tuning Production Strategies - Product strategies may be effectively fine-tuned by managing product portfolios and repositioning goods in light of quarterly or annual sales comparisons.
• Customer Analysis - Customer analysis entails examining the customer's purchasing habits, budget cycles, and other factors.
• Data warehousing also aids in customer relationship management and environmental remediation.
• Operations Analysis We may also examine business operations using the information.
• Hence, option (d) is the correct choice.

• The district court, state commission, and national commission, which are consumer courts, are granted extensive authority to carry out their judgments. Despite notifications and reminders, if a defaulter still fails to show up in court, the judge may determine the case without him. The defaulter may get a maximum term of three years in jail and a fine of Rs 10,000 from the forum. In order to bring defaulters to court, forums may issue warrants. They can enact directives using the police and tax agencies.
• Hence, option (b) is correct.

Time deposit- it is also referred to as a term deposit, is an interest-bearing bank account with a fixed term. It allows depositors to grow their money with higher interest rates compared to a regular savings account. When the term is over, depositors can withdraw their money, or it can be renewed and held for another term

• Fixed deposit (with simple interest payable every 3 months)
• Short-term deposits (period of deposit is less than a year)
• Monthly interest deposits (interest payable monthly)
• Quarterly interest deposits (interest is payable every quarter)
• Reinvestment deposit scheme (interest is not paid out but reinvested by the bank. The interest is capitalized)
• Recurring deposits scheme (deposits are credited in equal instalments on monthly basis by the customers)

Hence, the correct answer is Option(c) .

A paying banker is protected under NI Act in the following cases:
Forged endorsement in an
i. order cheque under section 85 (1)
ii. bearer cheque under section 85 (2)
iii. draft under section 85 (A)
Material alteration in a cheque under section 89
Payment of a crossed cheque under section 128.
Hence, option (d) is correct choice.

The documents taken by a banker for a loan may be:
I. Demand Promissory Notes (DPN)
II. Agreements
III. Forms

Demand Promissory Notes: Where no specification for a fixed period for the repayment of loan is given, the bankers take the DPN. In DPN, the borrower makes a promise to the banker to repay the loan amount on demand with agreed rate of interest. The form of DPN should be in conformity with Section 4 of the Negotiable Instruments Act, 1881. The form of a DPN varies normally to suit the situation such as fixed rate of interest, floating rate of interest, single borrower, joint borrowers, joint and several borrowers, etc. DPN attracts a stamp duty as per Indian Stamp Act. The rate of stamp duty on DPN is uniform throughout India. As per Section 35 of the Indian Stamp Act, if a DPN is unstamped or under-stamped, the defect cannot be rectified even by paying a penalty. Such a DPN cannot be admissible as evidence in a court of law. It must be ensured that the DPN is duly filled in and stamped before the borrower signs it.
Hence, the correct answer is Option(b) .

Ethics and morals are different and Ethics deals with individual character.
Hence option d is correct.

The checksum is generated to ensure the integrity of data stored in a computer file. A checksum is a number calculated on the basis of certain key data items of the file. In a branch banking environment, the checksum generated at the time of closing of an application on the previous day is tallied with that generated at the time of day-begin function on the next day. Checksum usually involves at least the account number, balances and names of the account holders or account number.
Thus, Option (d) is the correct answer.