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Banking: NBSE Class 10 Book Keeping
Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 2 Banking, NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
If you notice any errors in the notes, please mention them in the comments
Summary
Banking is the process of accepting money from people and lending it to others for investment. It helps in removing barriers to raising finance or credit. Modern banking also stimulates economic activity by dealing with money. It collects savings and provides funds for businesses. Banking has a role in achieving social and economic goals set by the government. The focus of banking has shifted over time, moving from urban areas to rural areas, from serving a few to serving many, from old methods to new ones, and from short-term goals to long-term development.
There are different types of banks. Commercial banks help trade and industry by managing deposits and providing loans. They offer services like overdrafts and various accounts. Agricultural banks provide both short-term and long-term loans to farmers. Industrial banks meet the long-term financial needs of industries. In India, institutions like the Industrial Development Bank of India help industries. Exchange banks assist in foreign trade and handle foreign exchange. Indigenous banks were common before independence but charged high interest rates. The Reserve Bank of India acts as the central bank, controlling cash and credit in the economy.
Banks offer several types of accounts. A current account is for businesses that need frequent transactions. It does not earn interest but offers an overdraft facility. Savings accounts encourage saving among people with low income. They earn some interest and require maintaining a minimum balance. Fixed deposit accounts hold money for a fixed period and offer higher interest rates. Home safe accounts help small income groups save by collecting coins and notes in a box provided by the bank. Recurring deposit accounts allow people to deposit a fixed amount every month for a certain period. Multiple option deposit accounts combine features of savings and fixed deposit accounts.
Electronic banking uses technology to provide banking services. It allows customers to manage their accounts online. National Electronic Funds Transfer and Real Time Gross Settlement systems help transfer money between banks quickly. Automated Teller Machines let people withdraw cash without visiting a bank. Debit cards allow users to pay directly from their accounts. Credit cards let people borrow money up to a limit and repay later. Net banking lets customers perform transactions using the internet.
Opening different accounts has benefits and drawbacks. Current accounts suit businesses but do not earn interest. Savings accounts are good for individuals but have withdrawal limits. Fixed deposit accounts earn high interest but lock money for a period. Banks offer services like issuing cheques, passbooks, and pay-in-slip books to help manage accounts. E-banking benefits customers by providing continuous service and greater security. It also reduces the load on bank branches and expands their reach.
Textbook solutions
Multiple Choice Questions (MCQs)
1. Mr. Sema needs to withdraw money from his bank. Which of the following facility will allow him to withdraw more than the deposit?
a. Cheque book
b. Pay-in-slip book
c. Overdraft facility
d. None of the above
Answer : c. Overdraft facility
2. Which among the following is the central bank of India?
a. Axis Bank
b. SBI
c. HDFC Bank
d. RBI
Answer : d. RBI
3. This bank account does not carry any interest rate. Can you pick the right one?
a. Current Account
b. Savings Account
c. Fixed Deposit Account
d. Recurring Deposit Account
Answer : a. Current Account
4. Gloria has opened an account in the Bank of India. What do we call the copy of her ledger account, which is maintained by the bank?
a. Cheque Book
b. Cash Book
c. Passbook
d. Pay-in-Slip Book
Answer : c. Passbook
5. Mr. Neiphiu Phesao is a businessman. What kind of bank account would be most suitable for him?
a. Fixed Deposit Account
b. Recurring Deposit Account
c. Savings Account
d. Current Account
Answer : d. Current Account
Very Short Answer Type Questions
1. What is banking?
Answer: Banking is the process of accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. Banking removes the hindrance of raising finance of credit.
2. What is an ATM?
Answer: It is a free-standing self-service terminal performing 60% of a tellers’ job quickly and at lesser cost and more convenience.
3. What are the advantages of opening a Savings Account?
Answer: This account can be opened with a very small amount.
4. What is e-Banking?
Answer: E-Banking is a service which connects the user with a PC and a Browser to the website of the Bank and avails of the services provided by the Bank.
5. Define a credit card.
Answer: The card issued to selected customers to enable them to make payment of credit bills up to specified limit anytime anywhere through a computer is known as a credit card.
6. What is a multiple option deposit account?
Answer: The multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit accounts.
7. What is an overdraft facility?
Answer: An overdraft facility is the special feature of this account. The account holder may arrange with the bank to withdraw more than the deposit.
8. What is a debit card?
Answer: The card issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals and transfer of money anytime, anywhere through the computer is known as a Debit Card.
Short Answer Type Questions
1. Enumerate the differences between a Current Account and a Savings Account.
Answer: The differences between a Current Account and a Savings Account are:
| Feature | Current Account | Savings Bank Account |
| Account Held By | This account is held by business houses in general. | The idea behind this account is the mobilisation of savings. |
| Withdrawal Method | The amount can be withdrawn by cheques only. | The amount can be withdrawn by both cheques and withdrawal forms. |
| Overdraft Facility | Overdrafts can be made by current account holders. | Overdraft facility is not available. |
| Interest | Generally, interest is not allowed on this account. | Interest is allowed normally at around 5% per annum on minimum monthly balances. |
| Restriction on Withdrawals | There is no restriction on withdrawals. | There is restriction on withdrawals. |
2. List the benefits of e-Banking.
Answer: E-Banking is beneficial to both the customer and the Service Provider Bank. Benefits to the Customer
i. Continuous service
ii. Services available from everywhere
iii. Greater customer satisfaction
iv. Greater security to the customer
v. Financial discipline
Benefits to the Service Provider Bank
i. Building Competitive Strength
ii. Reduction of Load on Branches
iii. Unlimited Network to the Bank
3. Define:
i. Net Banking
ii. credit card
iii. Debit card
Answer: i. Net banking is used to provide convenience to customers for banking anytime, anywhere in the world.
ii. The card issued to selected customers to enable them to make payment of credit bills up to specified limit anytime anywhere through computer is known as credit card.
iii. The card issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals and transfer of money anytime, anywhere through the computer is known as a Debit Card.
4. What are the contents of a Fixed Deposit Receipt?
Answer: The contents of an FDR are:
(i) Name and address of the depositor.
(ii) Amount of deposit.
(iii) Date of deposit.
(iv) Date of maturity (date of repayment).
(v) Rate of interest.
(vi) Signature of bank officers.
5. Define:
i. Passbook
ii. Pay-in-Slip Book
iii. Cheque Book
Answer: i. It is the copy of the customer’s ledger account maintained by the bank.
ii. This is also known as a deposit slip. These slips are filled up while depositing cash, cheques and drafts into the bank.
iii. A cheque is an instruction to the bank by the account holder to pay a certain specified amount to herself/himself to or any other person as per the instruction of the account holder.
6. Why should one open a Current Account?
Answer: One should open a current account because of the following reasons:
(i) The facility of deposits and withdrawals. An amount can be deposited and withdrawn many times in a day.
(ii) The facility of overdraft. In case of a current account in the bank, there is a facility of withdrawing an amount more than the available deposit in the account.
(iii) Increase in goodwill. A business establishment with a current account in the bank is assumed to be reputed as compared to business units with no current accounts.
7. Enumerate the features of a Fixed Deposit Account.
Answer: Features of Fixed Deposit Account are:
(i) Can be opened in an individual’s name or joint name or even in the name of a minor.
(ii) The minimum amount for opening a fixed deposit account is Rs 500.
(iii) Fixed deposit receipt cannot be endorsed or transferred.
(iv) If the amount is withdrawn before the due date, interest is paid at a lower rate.
(v) Loans can be obtained on the security of FDR.
8. What facilities do commercial banks provide?
Answer: The facilities commercial banks provide are:i. They provide assistance by depositing funds in various accounts and releasing as per their requirement.
ii. In current account overdraft facilities are also granted.
iii. Assistance is also provided by financing trade, commerce and industry.
iv. Individual persons can also open their account in commercial banks.
v. In addition to the main functions of accepting deposits and lending money, commercial banks render various agency and other services.
Long Answer Type Questions
1. Name and define the various types of banks.
Answer: The various types of banks are:
I. Commercial Banks. These banks have been established to assist trade, commerce and industry in their efforts of their development.
II. Agricultural Banks. Agriculture needs both short-term and long-term loans. Long-term financial needs are met by land mortgage banks also known as agricultural bank.
III. Industrial Banks. Industry needs long-term funds. The banks that meet the financial requirements of industrial enterprises are known as Industrial Banks.
IV. Exchange Banks. These banks help in the payment of foreign trade. These banks also help in the financing of foreign trade.
V. Indigenous Banks. Before India’s independence, the financial needs of farmers and small business units were met by indigenous banks in rural areas. These banks were operated by traditional moneylenders like Seths, Sahukars, Mahajans, Sardars, etc.
VI. Central Bank . Reserve Bank of India. Every country has a central bank responsible for the overall control of cash and credit money in the economy. In India, the Reserve Bank of India (or the RBI) works as the central bank of the country.
2. What are the advantages and disadvantages of opening a Current Account?
Answer: The advantages of opening a Current Account are:
(i) Facility of deposits and withdrawals. An amount can be deposited and withdrawn many times in a day. This enables the business and industry to flourish.
(ii) Facility of overdraft. In case of a current account in the bank, there is a facility of withdrawing an amount more than the available deposit in the account. To avail an overdraft facility, an agreement with the bank is signed.
(iii) Increase in goodwill. A business establishment with a current account in the bank is assumed to be reputed as compared to business units with no current accounts.
The disadvantages of opening a Current Account are:
(i) No interest. Generally interest is not allowed on a current account, so enterprises have to suffer the loss of interest, which may have been received in case of other types of bank accounts.
(ii) Maintenance of minimum balance. In case of a current account, generally a minimum balance of Rs 5,000 has to be maintained.
(iii) Bank charges. The bank renders certain agency services and charges for these services, such as collection charges postal charges, commission on making bank drafts and on mail transfers, etc.
3. What are the new services being provided by banks through computerised equipment? Define each.
Answer: The new services being provided by banks through computerised equipment are:
i. National Electronic Funds Transfer System (NEFT). National electronic funds transfer is a nationwide funds transfer system to facilitate transfer of funds from any bank branch to any other bank branch.
ii. Real Time Gross Settlement System (RTGS). The RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on ‘real time’ and on ‘gross’ basis.
iii. Automated Teller Machine (ATMs). It is a free standing self-service terminal. While using ATM a plastic card is inserted into the terminal. After that identification code is also inserted. The machine responds by delivering required cash, cashing cheques, taking deposits and simple banking transactions.
iv. Debit Card. The card issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals and transfer of money anytime, anywhere through the computer is known as a Debit Card.
v. Net Banking. Net banking is used to provide convenience to customers for banking anytime, anywhere in the world.
vi. Credit Card. The card issued to selected customers to enable them to make payment of credit bills up to specified limit anytime anywhere through computer is known as credit card.
4. Enumerate the special features of a Fixed Deposit Account.
Answer: The special features of a Fixed Deposit Account are:
(i) Can be opened in an individual’s name or joint name or even in the name of a minor.
(ii) Minimum amount for opening a fixed deposit account is Rs 500.
(iii) Fixed deposit receipt cannot be endorsed or transferred.
(iv) If the amount is withdrawn before the due date, interest is paid at a lower rate.
(v) Loan can be obtained on the security of FDR.
5. Name and define the various types of accounts that can be opened in a bank.
Answer: The various types of accounts that can be opened in a bank are:i. Current Account: Cash, cheques and drafts may be deposited/withdrawn many times a day in this account. As this account renders continuous services, it is known as a current account.
ii. Saving Bank Account: Commercial banks have provided saving bank facilities to encourage savings among low income group, i.e., workers, empioyees and students, etc.
iii. Fixed Deposit Account: This is an account where a fixed amount is deposited with the bank for a specified period. The bank utilises the money for the period it has without bothering much for the refund at any time.
iv. Home Safe Account: Home safe account facility is provided by the bank to very small income groups just to develop the habit of savings. A cash box is issued to an account holder in a home safe account, who drops coins and notes through a hole in the cash box daily, or whenever surplus cash is available.
v. Recurring Deposit Account: Recurring means repetition, and hence in this type of account a fixed specified amount is deposited every month for a specified period, i.e., 3, 4, 5 or 10 years.
vi. Multiple Option Deposit: The multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit accounts.
Extras
Additional questions and answers
1. What is banking?
Answer : Banking is the process of accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
Q. What is the main role of the modern banking system?
Answer : The main role of the modern banking system is to stimulate economic activity in the market by dealing in money, mobilising savings, and making funds available for financing businesses.
Q. What are commercial banks?
Answer : Commercial banks are banks that have been established to assist trade, commerce, and industry in their efforts of development by depositing funds in various accounts and releasing them as per requirements. They also provide assistance by financing trade, commerce, and industry and render various agency and other services.
Q. Define agricultural banks?
Answer : Agricultural banks are banks that provide both short-term and long-term loans for agriculture. Short-term loans are required for purchasing seeds, manure, oxen, and ploughs, which are met by cooperative banks. Long-term financial needs, such as the purchase of land, tractors, other equipment, and installation of tube wells, are met by land mortgage banks, also known as agricultural banks.
Q. What is an industrial bank?
Answer : An industrial bank is a bank set up to meet the financial requirements of industrial enterprises, especially their need for long-term funds, which cannot be effectively fulfilled by commercial banks.
Q. What are exchange banks?
Answer : Exchange banks are banks that help in the payment and financing of foreign trade. These banks deal in foreign exchange and mostly include foreign banks operating in India, such as Citibank, Bank of Tokyo, Grindlays Bank, and Chartered Bank.
Q. Who operated indigenous banks?
Answer : Indigenous banks were operated by traditional moneylenders such as Seths, Sahukars, Mahajans, and Sardars.
Q. What is a fixed deposit account?
Answer : A fixed deposit account is an account where a fixed amount is deposited with the bank for a specified period. The bank utilizes the money for the period it has been deposited without worrying much about refund at any time. Fixed deposit account holders receive interest at the highest rate.
Q. What is the maturity date in banking?
Answer : The maturity date in banking refers to the date of repayment mentioned on the Fixed Deposit Receipt (FDR), which indicates when the deposited amount will be returned along with the accrued interest.
Q. Define home safe account.
Answer : A home safe account is a facility provided by the bank to very small income groups to develop the habit of savings. A cash box is issued to an account holder, who drops coins and notes through a hole in the cash box daily or whenever surplus cash is available. The cash box is locked, and its key is retained by the bank. After a week, month, or at the account holder’s will, the cash box is taken to the bank, where it is opened in the presence of the customer, and the cash is counted and deposited into the account.
Q. What does MOD account stand for?
Answer : MOD account stands for Multiple Option Deposit account.
Q. What does ATM stand for?
Answer : ATM stands for Automated Teller Machine.
Q. What is NEFT?
Answer : NEFT stands for National Electronic Funds Transfer System. It is a nationwide funds transfer system to facilitate the transfer of funds from any bank branch to any other bank branch. This system is not restricted to any geographical area and helps in removing the inconveniences of handling cash by making money electronically mobile.
Q. Define savings bank account.
Answer : A savings bank account is an account provided by commercial banks to encourage savings among low-income groups, such as workers, employees, and students. This account can be opened with a very small amount, and a prescribed minimum balance has to be maintained. Interest is allowed on this account, generally at around 5% per annum on minimum monthly balances.
Q. What is an overdraft facility?
Answer : An overdraft facility is a special feature of a current account that allows the account holder to withdraw more than the available deposit in the account. To avail of this facility, an agreement with the bank is signed.
Q. Mention two main functions of commercial banks?
Answer : Two main functions of commercial banks are:
(i) Accepting deposits
(ii) Lending money
Q. List two types of loans agricultural banks provide?
Answer : Agricultural banks provide two types of loans:
(i) Short-term loans for purchasing seeds, manure, oxen, and plough, etc.
(ii) Long-term loans for the purchase of land, tractors, other equipment, and for the installation of tube wells.
Q. What financial needs do industrial banks meet?
Answer : Industrial banks meet the long-term financial requirements of industrial enterprises.
Q. List the foreign banks working as exchange banks in India?
Answer : The foreign banks working as exchange banks in India are:
(i) Citibank
(ii) Bank of Tokyo
(iii) Grindlays Bank
(iv) Chartered Bank
Q. What was a disadvantage of indigenous banks?
Answer : A disadvantage of indigenous banks was that they virtually exploited poor rural people by advancing loans at very high rates of interest. Borrowers had to pledge their ornaments, land, and valuables for borrowing funds.
Q. State any two features of a current account.
Answer : Two features of a current account are:
(i) Facility of deposits and withdrawals, where an amount can be deposited and withdrawn many times in a day.
(ii) Facility of overdraft, allowing the account holder to withdraw more than the available deposit in the account after signing an agreement with the bank.
Q. Why is no interest allowed in current accounts?
Answer : No interest is allowed in current accounts because the bank has to keep itself prepared to honor its commitment towards the account holder at all times, and it provides continuous services for deposits and withdrawals.
Q. List any two contents of a fixed deposit receipt (FDR).
Answer : Two contents of a fixed deposit receipt (FDR) are:
(i) Name and address of the depositor.
(ii) Amount of deposit.
Q. What is the primary purpose of home safe accounts?
Answer : The primary purpose of home safe accounts is to develop the habit of savings among very small income groups. A cash box is issued to an account holder who drops coins and notes into it daily or whenever surplus cash is available, and the accumulated cash is later deposited into the account.
Q. What are the advantages of a recurring deposit account?
Answer : A recurring deposit account is the best method of accumulating a large sum of money bit by bit over a period. This money received may be utilized for planned purchases, investments, or large payments such as for higher education or healthcare. It is most suitable for fixed-income groups to create savings for the purchase of expensive products or experiences in a planned manner.
Q. What are the features of a multiple option deposit account?
Answer : The multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit account. It allows one to securely write cheques up to the availability of drawing power as overdraft in the current account. Account holders can also conveniently withdraw money through an Automated Teller Machine (ATM).
Q. How does electronic banking reduce transaction costs?
Answer : Electronic banking reduces transaction costs by providing services that lower operational expenses for banks and add value to customer relationships. It offers convenience to customers for managing savings, checking accounts, applying for loans, and paying bills over the internet using a personal computer, mobile phone, or handheld device.
Q. Describe the role of automated teller machines (ATMs).
Answer : Automated Teller Machines (ATMs) are free-standing self-service terminals performing 60% of a teller’s job quickly and at a lesser cost, offering more convenience. They allow users to insert a plastic card and identification code to withdraw cash, cash cheques, make deposits, and perform simple banking transactions.
Q. What are the benefits of net banking for customers?
Answer : Net banking provides 24-hour service, 365 days a year, allowing customers to access their accounts and make transactions like balance enquiries, cheque book requests, and fund transfers from anywhere in the world. It ensures greater security by minimizing risks associated with carrying cash, records every financial transaction, and makes periodic statements available to customers, thereby promoting financial discipline.
Q. State two benefits of using a debit card.
Answer : Two benefits of using a debit card are: (i) It facilitates and simplifies bank payments, withdrawals, and money transfers anytime, anywhere through a computer. (ii) There are no fees, interest charges, or overdraft facilities associated with its use.
Q. Describe the shifting direction of banking.
Answer : The shifting direction of banking is as follows:
- From Urban Orientation to Rural Orientation.
- From Class Banking to Mass Banking.
- From Traditional Practices to Innovative Practices.
- From Short-term Objectives to Development Objectives.
Q. What are the primary functions of commercial banks?
Answer : The primary functions of commercial banks include accepting deposits in various accounts and lending money. Additionally, commercial banks provide agency services and other related services to their customers.
Q. Explain the types of loans provided by agricultural banks.
Answer : Agricultural banks provide two types of loans:
- Short-term loans, which are required for purchasing seeds, manure, oxen, ploughs, etc. These needs are met by cooperative banks.
- Long-term loans, which are required for the purchase of land, tractors, other equipment, and the installation of tube wells. These needs are met by land mortgage banks, also known as agricultural banks.
Q. Describe the role of industrial banks.
Answer : Industrial banks are set up to meet the financial requirements of industrial enterprises, as industries need long-term funds which cannot be effectively provided by commercial banks. In India, there are not sufficient industrial banks, and instead, institutions like the Industrial Development Bank of India and various financial corporations fulfill the financial needs of industrial enterprises.
Q. What are the main functions of exchange banks?
Answer : Exchange banks help in the payment and financing of foreign trade. They deal in foreign exchange and facilitate transactions related to international trade. Many Indian commercial banks also provide exchange services, while foreign banks such as Citibank, Bank of Tokyo, Grindlays Bank, and Chartered Bank operate as exchange banks in India.
Q. Mention the features of indigenous banks.
Answer : Indigenous banks were operated by traditional moneylenders such as Seths, Sahukars, Mahajans, and Sardars. Their special feature was advancing loans at a very high rate of interest. These banks had a simple working process, allowing farmers and borrowers to approach them at any time. Borrowers had to pledge their ornaments, land, and valuables to borrow funds. Indigenous banks were exploitative towards poor rural people but continue to serve the needs of the poor masses despite the development of national banks and financial corporations.
Q. Describe the functions of the Reserve Bank of India?
Answer : The Reserve Bank of India (RBI) works as the central bank of the country and is responsible for the overall control of cash and credit money in the economy.
Q. Discuss the advantages and disadvantages of opening a savings bank account?
Answer : Advantages of opening a savings bank account are:
(i) It encourages savings among low-income groups such as workers, employees, and students.
(ii) It can be opened with a very small amount.
(iii) Interest is allowed, generally at around 5% per annum on minimum monthly balances.
Disadvantages of opening a savings bank account are:
(i) There is a restriction on withdrawals.
(ii) A prescribed minimum balance has to be maintained at all times, which is generally ₹500 without a cheque book and ₹1,000 with a cheque book.
Q. What are the contents of a pay-in-slip book?
Answer : A pay-in-slip book contains information such as the name, account number, amount in words and figures, details of cash deposited in terms of notes of various denominations, coins, etc., and details of cheques and drafts. It has two parts: the main form and a counterfoil, which is retained for reference.
Q. Explain the features of a recurring deposit account?
Answer : The features of a recurring deposit account are:
(i) A fixed specified amount is deposited every month for a specified period, such as 3, 4, 5, or 10 years.
(ii) After the expiry of the agreed period, the deposit together with interest is paid to the depositor.
(iii) The rate of interest on this account is generally higher than in other accounts.
(iv) It is the best method of accumulating a large sum of money bit by bit over a period and may be utilized for planned purchases, investments, or large payments.
Q. Describe the role of ATMs in banking services?
Answer : ATMs, or Automated Teller Machines, are free-standing self-service terminals that perform 60% of a teller’s job quickly, at a lesser cost, and with more convenience. While using an ATM, a plastic card is inserted into the terminal, followed by an identification code. The machine responds by delivering required cash, cashing cheques, taking deposits, and performing simple banking transactions.
Q. What are the advantages of electronic banking to customers?
Answer : The advantages of electronic banking to customers are:
- Continuous service: E-Banking provides 24 hours, 365 days-a-year services to the customer of the bank, which traditional banking cannot provide.
- Services available from everywhere: Permitted services of the bank can be availed from the office, home, or even while travelling through a mobile telephone. Visiting a bank for transactions is not required.
- Greater customer satisfaction: The bank provides unlimited access to its website, which provides greater satisfaction to the customer.
- Greater security to the customer: The customer can avoid travelling with cash while availing E-Banking services, minimizing risks with greater security.
- Financial discipline: E-Banking services record every financial transaction and make the statement of a customer’s account available periodically, inculcating financial discipline among customers.
Q. Explain the process and significance of NEFT and its benefits?
Answer : NEFT, or National Electronic Funds Transfer, is a nationwide funds transfer system to facilitate the transfer of funds from any bank branch to any other bank branch. This system is not restricted to any geographical area, and steps are being taken to widen its coverage. In 2008, around 44,000 branches of 85 banks were brought under the NEFT system. The significance of NEFT lies in its ability to remove the inconveniences of handling cash, as it makes money electronically mobile. Its benefits include enabling seamless and secure fund transfers across the country without physical cash handling.
Q. What are the key benefits of a multiple option deposit account?
Answer : A multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit account. It allows account holders to securely write cheques up to the availability of drawing power as overdraft in the current account. Such account holders can also conveniently withdraw money through an Automated Teller Machine (ATM).
Q. Explain the meaning and objectives of modern banking.
Answer : Banking is the process of accepting deposits of money from the public for the purpose of lending or investment, repayable on demand or otherwise, and withdrawable by cheque, draft, order, or otherwise. Modern banking removes the hindrance of raising finance or credit and stimulates economic activity in the market by dealing in money. It mobilises savings and makes funds available for financing businesses, thereby assisting in the development of trade, commerce, and industry. Recently, banking has been linked with the social and economic objectives of the Government, shifting its direction from urban orientation to rural orientation, from class banking to mass banking, from traditional practices to innovative practices, and from short-term objectives to development objectives.
Q. List and describe various types of banks.
Answer : The various types of banks are:
(i) Commercial Banks : These banks assist trade, commerce, and industry by accepting deposits in various accounts and providing financial assistance through loans and overdraft facilities. They also render agency and other services.
(ii) Agricultural Banks : These banks cater to the financial needs of agriculture, providing both short-term loans for seeds, manure, and equipment, and long-term loans for purchasing land, tractors, and installing tube wells. Short-term needs are met by cooperative banks, while long-term needs are fulfilled by land mortgage banks, also known as agricultural banks.
(iii) Industrial Banks : These banks meet the long-term financial requirements of industrial enterprises. In India, institutions like the Industrial Development Bank of India and various financial corporations serve this purpose instead of dedicated industrial banks.
(iv) Exchange Banks : These banks facilitate payments and financing related to foreign trade. Many Indian commercial banks provide exchange services, and foreign banks such as Citibank, Bank of Tokyo, Grindlays Bank, and Chartered Bank operate as exchange banks in India.
(v) Indigenous Banks : Before India’s independence, these banks, operated by traditional moneylenders like Seths, Sahukars, Mahajans, and Sardars, met the financial needs of farmers and small business units in rural areas. They charged very high interest rates and required borrowers to pledge their valuables.
(vi) Central Bank – Reserve Bank of India (RBI) : The RBI acts as the central bank of India, responsible for the overall control of cash and credit in the economy.
(vii) Cooperative Banks : These banks work on a cooperative basis and primarily serve rural areas, providing financial assistance to farmers and small businesses.
Q. Discuss the main functions of a current account and mention its advantages and disadvantages.
Answer : The main functions of a current account include serving the business community by allowing them to deposit and withdraw money multiple times a day. Cash, cheques, and drafts can be deposited or withdrawn frequently in this account. It is designed to provide continuous services, which is why it is called a current account.
The advantages of opening a current account are:
(i) Facility of deposits and withdrawals. An amount can be deposited and withdrawn many times in a day, enabling businesses and industries to flourish.
(ii) Facility of overdraft. Account holders can withdraw more than the available deposit in the account by arranging an overdraft facility with the bank.
(iii) Increase in goodwill. A business establishment with a current account in the bank is considered reputed compared to those without current accounts.
The disadvantages of opening a current account are:
(i) No interest. Generally, interest is not allowed on a current account, so enterprises lose out on the interest they could have earned with other types of bank accounts.
(ii) Maintenance of minimum balance. A minimum balance, typically ₹5,000, must be maintained, which can be difficult for small business units.
(iii) Bank charges. The bank renders certain agency services and charges for these services, such as collection charges, postal charges, commission on making bank drafts, and mail transfers.
Q. Compare and contrast savings bank accounts and fixed deposit accounts?
Answer : Savings bank accounts and fixed deposit accounts differ in terms of their purpose, operation, and features. A savings bank account is primarily meant for encouraging savings among low-income groups such as workers, employees, and students. It can be opened with a small amount, and the prescribed minimum balance varies between banks. Generally, it is ₹500 without a cheque book facility and ₹1,000 with a cheque book facility. Interest is allowed on this account at a rate determined by the government (e.g., 1.5% as mentioned). Withdrawals can be made through cheques or withdrawal slips, depending on whether the account has a cheque book facility.
On the other hand, a fixed deposit account involves depositing a fixed amount with the bank for a specified period. The bank utilizes the money without worrying about refunds during the period, which is why fixed deposit account holders receive interest at the highest rate compared to other accounts. Fixed deposits are opened using a Fixed Deposit Receipt (FDR) form, and the receipt contains details like the depositor’s name, address, deposit amount, date of deposit, maturity date, rate of interest, and signature of bank officers.
Key differences include:
- Interest Rates : Savings accounts offer lower interest rates compared to fixed deposit accounts, which provide the highest interest rates.
- Withdrawals : In savings accounts, withdrawals can be made multiple times, but in fixed deposit accounts, withdrawals before maturity result in reduced interest rates.
- Purpose : Savings accounts aim to mobilize savings, while fixed deposit accounts are designed for individuals with surplus funds for a specific period.
- Loan Facility : Loans can be obtained against fixed deposit receipts, whereas no such facility exists for savings accounts.
Q. Explain the special features and benefits of home safe accounts.
Answer : Home safe accounts are specifically provided by banks to very small income groups to encourage the habit of savings. A cash box is issued to the account holder, into which coins and notes can be dropped daily or whenever surplus cash is available. The cash box is locked, and its key is retained by the bank. After a week, month, or at the account holder’s convenience, they take the cash box to the bank. The bank opens the lock in the customer’s presence, counts the cash, and deposits it into the customer’s account. This process allows the accumulation of a large sum of money over time through small, regular contributions.
To further promote savings, banks have recently deployed agents or employees to collect money directly from customers’ residences.
Q. Discuss the features and benefits of recurring deposit accounts.
Answer : Recurring deposit accounts are designed for individuals who wish to save a fixed amount every month for a specified period, such as 3, 4, 5, or 10 years. A fixed amount is deposited monthly, and upon the expiry of the agreed period, the deposit along with accumulated interest is paid to the account holder. The interest rate on recurring deposit accounts is generally higher than that of savings accounts.
This account is particularly beneficial for fixed-income groups as it allows them to accumulate a large sum of money over time in a planned manner. The accumulated money can be used for planned purchases, investments, or significant expenses such as higher education or healthcare. It is also suitable for saving toward expensive products like consumer durables or experiences like overseas travel.
Q. Discuss electronic banking and list its advantages for both customers and banks.
Answer : Electronic Banking, also known as E-Banking, is banking using electronic media. It is a service that connects the user with a PC and a Browser to the website of the Bank and avails of the services provided by the Bank. There is no human operator to respond to the needs of the customer. The bank has a Centralised Database that is web-enabled, and all the services permitted on the Internet are displayed on a menu.
The advantages of E-Banking for customers are:
- Continuous service: E-Banking provides 24 hours, 365 days-a-year services to the customer of the bank.
- Services available from everywhere: Permitted services of the bank can be availed from the office, home, or even while traveling through a mobile telephone.
- Greater customer satisfaction: The bank provides unlimited access to its website, which provides greater satisfaction to the customer.
- Greater security to the customer: The customer can avoid traveling with cash while availing of E-Banking services, minimizing risks with greater security.
- Financial discipline: E-Banking services record every financial transaction and make the statement of a customer’s account available periodically, inculcating financial discipline among customers.
The advantages of E-Banking for banks are:
- Building Competitive Strength: Banks providing E-Banking services to customers have an edge over traditional banks, enjoying competitive advantages and expanding their business.
- Reduction of Load on Branches: The service provider bank establishes a centralized database, takes over certain accounting functions of its branches, and deals centrally with certain operations, reducing the load on the branches of the bank.
- Unlimited Network to the Bank: E-Banking provides an unlimited network to the bank and is not limited to the number of branches. Any PC connected to an internet connection can satisfy the cash withdrawal needs of a customer.
Q. Describe the role and functions of debit and credit cards in electronic banking.
Answer : A debit card is issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals, and transfer of money anytime, anywhere through the computer. There is no overdraft facility for Debit Card holders, and there is no fee, interest, or charge for issuing these cards. Under the scheme, point-of-sale (POS) terminals are located at a merchant’s check-out counters and tied electronically to a bank computer. When the customer presents a debit card, the POS terminal automatically transfers the money for the purchase from the customer’s account to the store’s account. An individual can also pay bills automatically by using a personal computer linked by telephone to the bank’s computer.
A credit card is issued to selected customers to enable them to make payment of credit bills up to a specified limit anytime, anywhere through the computer. It is also used for withdrawing cash from ATMs. The amount overdrawn is repaid up to a specified date, and interest is charged if payment is not made by the specified date. The credit card system has facilitated, simplified, and encouraged credit transactions. A credit card is a substitute for cash that can be used by selected customers and provides overdraft facilities as well. These are plastic cards with a photo identity and the signature embossed on the cards, containing the issuing bank’s name and validity period of the card.
Q. Explain the multiple option deposit account and its advantages.
Answer : The multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit accounts, so that one can securely write cheques up to the availability of drawing power as overdraft in the current account. Such account holders can also conveniently withdraw money through an Automated Teller Machine (ATM).
The advantages of this account include the ability to manage both savings and fixed deposits under one umbrella, allowing flexibility for cheque writing and ATM withdrawals while maintaining the benefits of term deposits.
Q. Explain the process and significance of National Electronic Funds Transfer (NEFT).
Answer : The National Electronic Funds Transfer (NEFT) system is a nationwide funds transfer mechanism to facilitate the transfer of funds from any bank branch to any other bank branch. This system is not restricted to any geographical area, and steps are being taken to widen its coverage. In the year 2008, around 44,000 branches of 85 banks were brought under the NEFT system.
The process involves initiating a funds transfer request through a bank branch or online banking platform. Once the request is made, the funds are electronically transferred from the sender’s account to the recipient’s account.
The significance of NEFT lies in its ability to remove the inconveniences of handling cash as it makes money electronically mobile, enabling seamless and secure transactions across the country.
Q. Discuss in detail the advantages of electronic banking to customers and banks.
Answer : The advantages of electronic banking (E-Banking) to customers are:
- Continuous service: E-Banking provides 24 hours, 365 days-a-year services to the customer of the bank. Such services have never been and can never be provided by traditional banking.
- Services available from everywhere: Permitted services of the bank can be availed from office, home, or even while travelling through a mobile telephone. Visiting a bank for transactions is not required.
- Greater customer satisfaction: The bank provides unlimited access to its website, which provides greater satisfaction to the customer.
- Greater security to the customer: The customer can avoid travelling with cash while availing of E-Banking services. It minimises risks with greater security.
- Financial discipline: E-Banking services record every financial transaction and make the statement of a customer’s account available periodically. It inculcates financial discipline among customers.
The advantages of E-Banking to the service provider bank are:
- Building competitive strength: Banks providing E-Banking services to customers have an edge over traditional banks. These banks enjoy competitive advantages and expand their business.
- Reduction of load on branches: The service provider bank establishes a centralised database, takes over certain accounting functions of its branches, and deals centrally with certain operations. It reduces the load of the branches of the bank.
- Unlimited network to the bank: E-Banking provides an unlimited network to the bank and is not limited to the number of branches. Any PC connected to an internet connection can satisfy the cash withdrawal needs of a customer.
58. Describe the contents and importance of fixed deposit receipts (FDR).
Answer : The contents of a Fixed Deposit Receipt (FDR) include:
(i) Name and address of the depositor
(ii) Amount of deposit
(iii) Date of deposit
(iv) Date of maturity (date of repayment)
(v) Rate of interest
(vi) Signature of bank officers
The importance of FDR lies in its role as a formal document issued by the bank to acknowledge the deposit of a specified amount for a fixed period. It serves as proof of the deposit and outlines the terms and conditions, including the rate of interest and maturity date. Additionally, it enables the depositor to avail loans on the security of the FDR.
Additional MCQs
1. What is banking?
A. Deposits for lending
B. Loans only
C. Safeguarding valuables
D. Money printing
Answer: A. Deposits for lending
Q. Banking removes the hindrance of raising ______.
A. Credit
B. Loans
C. Capital
D. Assets
Answer: A. Credit
Q. Besides accepting deposits, what is another function of modern banking?
A. Stimulating economy
B. Printing money
C. Regulating stocks
D. Issuing bonds
Answer: A. Stimulating economy
Q. Banking mobilises our ______ and makes funds available for financing businesses.
A. Savings
B. Investments
C. Earnings
D. Profit
Answer: A. Savings
Q. Which type of bank is established to assist trade, commerce, and industry?
A. Commercial
B. Agricultural
C. Industrial
D. Exchange
Answer: A. Commercial
Q. Which bank type provides both short-term and long-term loans for agriculture?
A. Agricultural
B. Industrial
C. Commercial
D. Central
Answer: A. Agricultural
Q. Which bank is responsible for the overall control of cash and credit money in India?
A. Reserve Bank
B. Commercial Bank
C. Exchange Bank
D. Cooperative Bank
Answer: A. Reserve Bank
Q. Which bank deals primarily in foreign exchange transactions?
A. Exchange
B. Indigenous
C. Industrial
D. Commercial
Answer: A. Exchange
Q. Which type of bank was traditionally operated by rural moneylenders?
A. Indigenous
B. Agricultural
C. Industrial
D. Commercial
Answer: A. Indigenous
Q. Which key feature does a current account offer?
A. Overdraft facility
B. High interest
C. Fixed deposit
D. Limited withdrawal
Answer: A. Overdraft facility
Q. Which account is primarily used by business houses for frequent transactions?
A. Current
B. Savings
C. Fixed
D. Recurring
Answer: A. Current
Q. Which document serves as a copy of the customer’s ledger account in a current account?
A. Passbook
B. Cheque book
C. Deposit slip
D. Withdrawal form
Answer: A. Passbook
Q. What is a disadvantage of a current account?
A. No interest
B. Overdraft limit
C. High security
D. Unlimited access
Answer: A. No interest
Q. Which account encourages savings among low-income groups?
A. Savings
B. Current
C. Fixed
D. MOD
Answer: A. Savings
Q. What is the typical interest rate mentioned for a savings account?
A. 1.5%
B. 5%
C. 3%
D. 0.5%
Answer: A. 1.5%
Q. What is the key characteristic of a fixed deposit account?
A. Fixed period deposit
B. Unlimited withdrawal
C. Overdraft facility
D. Daily transactions
Answer: A. Fixed period deposit
Q. Which of the following is not included in a Fixed Deposit Receipt?
A. Branch location
B. Depositor address
C. Date of maturity
D. Rate of interest
Answer: A. Branch location
Q. What is the minimum amount required to open a fixed deposit account?
A. Rs 500
B. Rs 1,000
C. Rs 100
D. Rs 50
Answer: A. Rs 500
Q. Which account is designed for gradual savings by depositing money regularly in a cash box?
A. Home safe
B. Savings
C. Current
D. Fixed
Answer: A. Home safe
Q. What does a recurring deposit account require from the account holder?
A. Fixed monthly deposit
B. Variable deposit
C. One-time deposit
D. No deposit
Answer: A. Fixed monthly deposit
Q. Which account combines features of a savings or current account with a term deposit?
A. Multiple option deposit
B. Recurring deposit
C. Fixed deposit
D. Home safe
Answer: A. Multiple option deposit
Q. Electronic Banking is also known as ______.
A. E-banking
B. Online banking
C. Mobile banking
D. ATM banking
Answer: A. E-banking
Q. Which system facilitates a nationwide electronic funds transfer in India?
A. NEFT
B. RTGS
C. ATM
D. POS
Answer: A. NEFT
Q. What is the minimum remittance amount through the RTGS system?
A. Rs 1 lakh
B. Rs 10,000
C. Rs 50,000
D. Rs 5 lakh
Answer: A. Rs 1 lakh
Q. Which facility allows cash withdrawal using a plastic card at a terminal?
A. ATM
B. NEFT
C. RTGS
D. Net banking
Answer: A. ATM
Q. Which card is issued to facilitate bank payments without an overdraft facility?
A. Debit card
B. Credit card
C. ATM card
D. Cheque card
Answer: A. Debit card
Q. Which service provides secure online access to bank accounts via a login ID and password?
A. Net banking
B. E-banking
C. ATM
D. Credit card
Answer: A. Net banking
Q. Which card allows selected customers to make credit bill payments and cash withdrawals?
A. Credit card
B. Debit card
C. ATM card
D. Cheque card
Answer: A. Credit card
Q. Which benefit of e-banking offers round-the-clock service?
A. Continuous service
B. Greater security
C. Financial discipline
D. Unlimited network
Answer: A. Continuous service
Q. Which benefit of e-banking provides greater security by avoiding the need to carry cash?
A. Greater security
B. Financial discipline
C. Unlimited access
D. Competitive edge
Answer: A. Greater security
Q. Which benefit of e-banking instils financial discipline by recording every transaction?
A. Transaction records
B. Branch visits
C. Manual ledger
D. Cheque books
Answer: A. Transaction records
Q. Which benefit helps banks build competitive strength through e-banking services?
A. E-banking
B. Traditional methods
C. Manual processing
D. Local branches
Answer: A. E-banking
Q. Which advantage to banks is achieved by centralising operations via e-banking?
A. Centralised operations
B. High interest
C. Low deposits
D. Increased loans
Answer: A. Centralised operations
Q. Which document is used when depositing cash, cheques, or drafts into a bank account?
A. Pay-in-slip
B. Cheque book
C. Passbook
D. FDR
Answer: A. Pay-in-slip
Q. Which option is not a type of bank account?
A. Investment
B. Savings
C. Current
D. Fixed
Answer: A. Investment
Q. Which type of cheque is credited to an account instead of being cashed directly?
A. Crossed cheque
B. Bearer cheque
C. Order cheque
D. Cash cheque
Answer: A. Crossed cheque
Q. Which facility in a current account allows a withdrawal exceeding the deposited amount?
A. Overdraft facility
B. Cheque book
C. Passbook
D. Deposit slip
Answer: A. Overdraft facility
Q. Why is a passbook issued to a customer?
A. Account summary
B. Cheque issuance
C. Loan processing
D. Overdraft approval
Answer: A. Account summary
Q. In which year were around 44,000 branches of 85 banks included in the NEFT system?
A. 2008
B. 2005
C. 2010
D. 2015
Answer: A. 2008
Q. How many transactions does the RTGS system handle on a typical day?
A. 14,000
B. 10,000
C. 5,000
D. 20,000
Answer: A. 14,000
Q. Which account is best for accumulating money gradually over time?
A. Recurring deposit
B. Fixed deposit
C. Current account
D. Home safe
Answer: A. Recurring deposit
Q. Which account’s receipt cannot be endorsed or transferred?
A. Fixed deposit
B. Savings
C. Current
D. Recurring deposit
Answer: A. Fixed deposit
Q. Which account allows obtaining a loan on the security of its receipt?
A. Fixed deposit
B. Savings
C. Current
D. Home safe
Answer: A. Fixed deposit
Q. Which account issues a cash box to help develop the habit of saving among small income groups?
A. Home safe
B. Current
C. Savings
D. Recurring deposit
Answer: A. Home safe
Q. What does a MOD account combine?
A. Savings and term deposit
B. Fixed and recurring
C. Current and savings
D. Fixed and current
Answer: A. Savings and term deposit
Q. Electronic banking connects a user to bank services via ______.
A. Internet
B. Telephone
C. Fax machine
D. Radio
Answer: A. Internet
Q. Which card features a photo identity and embossed signature?
A. Credit card
B. Debit card
C. ATM card
D. MOD card
Answer: A. Credit card
Q. Which benefit of e-banking minimises the risk of carrying cash?
A. Greater security
B. Continuous service
C. Financial discipline
D. Lower transaction cost
Answer: A. Greater security
Q. What is a benefit to banks of e-banking services regarding branch workload?
A. Reduced branch load
B. Increased interest
C. Higher deposit fees
D. More branches
Answer: A. Reduced branch load
Q. Which account provides a cheque book facility for withdrawals?
A. Savings
B. Fixed deposit
C. Home safe
D. Recurring deposit
Answer: A. Savings
Q. Which account does not offer an overdraft facility?
A. Savings
B. Current
C. MOD
D. Home safe
Answer: A. Savings
Q. Which document contains details of cash, cheques, and drafts deposited into a bank account?
A. Deposit slip
B. Cheque book
C. Passbook
D. FDR
Answer: A. Deposit slip
Q. Which account is primarily held by business houses?
A. Current
B. Savings
C. Fixed deposit
D. Recurring deposit
Answer: A. Current
Q. Which account is preferred by employees and the middle income group?
A. Savings
B. Current
C. Fixed deposit
D. MOD
Answer: A. Savings
Q. Which account typically requires a minimum balance of Rs 5,000?
A. Current
B. Savings
C. Fixed deposit
D. Home safe
Answer: A. Current
Q. What may replace a passbook as an account summary document in current accounts?
A. Statement of account
B. Cheque book
C. FDR
D. Deposit slip
Answer: A. Statement of account
Q. Which document is used to prepare bank reconciliation statements?
A. Passbook
B. Cheque book
C. FDR
D. Cash box
Answer: A. Passbook
Q. Which account provides an overdraft facility upon signing an agreement with the bank?
A. Current
B. Savings
C. Fixed deposit
D. Recurring deposit
Answer: A. Current
Q. What is the typical interest rate on savings accounts?
A. 1.5%
B. 5%
C. 3%
D. 0.5%
Answer: A. 1.5%
Q. Which account permits withdrawals by both cheque and withdrawal slips?
A. Savings
B. Current
C. Fixed deposit
D. Home safe
Answer: A. Savings
Q. Which card is issued without fee, interest, or charges?
A. Debit card
B. Credit card
C. ATM card
D. MOD card
Answer: A. Debit card
63. What does a centralised database in e-banking do?
A. Stores customer data
B. Issues cheques
C. Dispenses cash
D. Maintains passbooks
Answer: A. Stores customer data
