Class 11 Finance Chapter 5 Different Types of Bank Accounts Question answer to each chapter is provided in the list so that you can easily browse throughout different chapters Assam Board Class 11 Finance Chapter 5 Different Types of Bank Accounts and select needs one.
Class 11 Finance Chapter 5 Different Types of Bank Accounts
Also, you can read the AHSEC book online in these sections Solutions by Expert Teachers as per AHSEC (CBSE) Book guidelines. These solutions are part of AHSEC All Subject Solutions. Here we have given Assam Board Class 11 Finance Chapter 5 Different Types of Bank Accounts Solutions for All Subject, You can practice these here.
Different Types of Bank Accounts
Chapter: 5
VERY SHORT TYPE QUESTIONS & ANSWERS
1. The relationship between a banker and a customer is primarily that of a ____ and a ____. (Fill in the blanks)
Ans: debtor and creditor.
2. When a banker accepts the securities for safe custody, the relationship between a banker and a customer is that of:
(a) a debtor and a creditor.
(b) trustee and beneficiary.
(c) principal and agent.
Ans: (b) trustee and beneficiary.
3. A right of appropriation first lies with the –
(a) debtor (b) creditor (c) court
Ans: (a) debtor.
4. The customer is one who:
(a) frequently visits the bank.
(b) has an account with the bank.
(c) intends to have an account with the bank.
Ans: (b) has an account with the bank.
5. The banker is entitled to exercise right of lien in respect of the following:
(a) Securities received for safe custody.
(b) Bills under collection.
(c) Dividend warrants paid to the bank under a mandate.
Ans: (c) Dividend warrants paid to the bank under a mandate.
6. The person appointed to operate the account after his death by the deceased himself before his death is called–
(a) executor (b) administrator (c) attorney
Ans: (a) executor
7. A joint account can be opened by the banker on receipt of application signed by –
(a) majority of the joint account holders.
(b) all joint account holders.
(c) any joint account holder.
Ans: (b) all joint account holders.
8. What is fixed deposit receipt?
Ans: When a customer deposits the money against fixed deposit, he receives a deposit receipt called fixed deposit receipt. It is not negotiable. It can be transferred to a third party.
9. Give the meaning of Recurring Deposit account.
Ans: This is another form of fixed deposit. In this account a certain sum of money (Not less than Rs. 5.00) is deposited every month for a period of 12 to 60 months or more. This is also known as cumulative deposit account. The rate of interest is almost equal to the rates of fixed deposits.
10. What is a Current Account?
Ans: A current account is a running and active account which may be opened with the Bank by a businessman or an organisation. The depositor can withdraw the money from this account whenever the requires it. In general the bank grants no interest on this account because it has to keep the cash ready at all times to meet the requirements of the depositors.
SHORT & LONG TYPE QUESTIONS & ANSWERS
1.What is Derived or Active deposit?
Ans: The deposit which has been created on the basis of primary deposit is called derivative deposit or secondary deposit, while creating derivative deposit banks transform illiquid assets like bills, stock, bond etc. into liquid assets of deposit money.
2. What is Fixed Deposit Account?
Ans: Fixed Deposit Accounts are also known as time deposit. In this account certain sum of money is fixed for a fixed period of time. The money or deposit is repayable on the expiry of a fixed period of time. The rate of interest for the different periods is different but it is usually higher than the interest rate offered in savings accounts.
3. What is Saving Deposit Account?
Ans: The account which is mostly opened and operated by lower and middle class people so as to meet their future requirements is called Saving Deposit Account. It can be opened with a small sum of Rs. 5.00 and it is necessary to have Rs. 5 in the account if cheque book facility is not required. The banks allow interest against these accounts. The number of withdrawals in a savings account may not exceed one or two in a week.
4. Write three features of Savings Bank Account.
Ans: The three features of Saving Bank Account are:
(a) Interest Rates: The way in which your savings will grow is with a competitive interest rate with a savings account the financial institution offers a standard variable interest rate per annum.
(b) Bonus Incentives: A bonus rate is offered on top of the base rate when a spícific criteria is met. It often requires us to make a minimum deposit per month along with a limited number of withdrawals.
(c) Promotional Interest Rate: This rate is usually only for a limited time before reverting to the standard variable interest rate of the account.
5. Give a short note on ‘Insurance of Bank Deposit’.
Ans: Protection provided usually by a government agency to depositors against risk of loss arising from failure of a bank or other depository institution. Deposit insurance is mandatory and pays claims from a pool of funds to which every depository institution regularly contributes. However it covers only a fixed maximum amount per account holder.
6. Discuss the advantages of Internet Banking from customers’ point of view.
Ans: The Advantages of internet banking are:
(a) Online accounts are simple to open and easy to operate.
(b) It is quite convenient as you can easily pay your bills, can transfer funds between accounts etc.
(c) It is available all the time, i.e. 24×7. You can perform your tasks from anywhere and at any time, even at night when the bank is closed or on holidays.
(d) It is fast and efficient, Funds get transferred from one account to the other very fast.
(e) Through Internet banking, you can keep an eye on your transactions and account balance all the time. This facility also keeps your account safe.
7. Write two advantages of current account.
Ans: The advantages of current account are as follows:
(a) Current account is mainly opened for businessmen such as proprietors, partnership firms, public and private companies, trust, association of persons etc. that has a large number of daily banking transactions i.e. receipts and/or payments.
(b) It enables businessmen to carry out their business transactions properly and promptly.
7. Write about the operating system of credit cards.
Ans: The operating system of credit card are:
(i) Insert the ATM card into the machine as directed and wait till the machine indicates the key in the PIN.
(ii) Wait for a few seconds till the machine processes the PIN.
(iii) Then key in the amount of cash needed.
(iv) Wait for a few seconds till the ATM card comes out, count the cash and always remember to collect this card before leaving.
9. What are the features of Saving Deposit Account?
Ans: The features of Savings Deposits accounts are:
(a) Withdrawal is made through cheques.
(b) There are certain restrictions on withdrawal of money.
(c) Small amount of interest is given.
(d) This account is generally opened by small savers.
(e) No overdraft facility is given in this type of account.
(f) This type of account can be held on a long-term basis, i.e., more than a year. There is no limit.
10. What are the features of Fixed Deposit Account?
Ans: The general features of fixed deposit accounts are:
(a) No use of cheques.
(b) Withdrawal is not allowed before maturity.
(c) High rate of interest is given.
(d) No overdraft facility is given.
(e) These accounts may be opened by an individual in his own name, two or more persons jointly, corporate bodies.
(f) A fixed deposit of money should be deposited to the account only one time.
11. What are the various types of E-Banking or Electronic Banking?
Ans: The different types of E-Banking are as follows: Corporate Banking, Personal Banking, Tele-Banking, Mobile Banking, Card Based Banking, and Internet Banking.
12. What are the objectives of E-Banking?
Ans: The functions or objectives of E-Banking are:
(a) To enable the customer to operate their bank account from anywhere in the world.
(b) To help the customers to avail banking services round the clock i.e., 24 hours in a day and 365 days in a year.
(c) To provide fast, efficient hassle free and fast fund transfer services to the customers.
(d) To provide on-line purchase and payment of goods and services to the customers.
(e) To provide general information to the customers about the products and services of a bank, new bank branches, bank schemes etc.
13. What are the advantages and disadvantages of Credit Cards?
Ans: The advantages of Credit Cards are:
(a) It enables us to buy goods and services and make payments anytime and anywhere.
(b) It is universally acceptable. It can be used anywhere in the world.
The disadvantages of Credit Cards are:
(a) Every card has a particular limit of payments for a particular period.
(b) The cost of operating a credit card is very high.
14. Name the different types of bank accounts.
Ans: The different types of bank accounts are:
(i) Fixed Deposit account
(ii) Savings Deposit accounts
(iii) Current Deposit accounts
(iv) Recurring Deposit account etc.
15. State the meaning of Banker and Customer.
Ans: Banker: According to Negotiable Instruments Act 1881 “The term banker includes persons or a corporation or a company acting as bankers.” According to Dr. Hart, “A banker is one who in the ordinary course of his business honours cheques drawn upon him by persons from and for whom he receives money on current account.”
Customer: In common parlance the term ‘Customer’ means a person who has an account with the bank, although the word ‘customer’ appears in sec. 131 of the Negotiable Instrument Act, 1881 but it is not defined therein. Sir John Paget, an old banking expert, expressed his view as, “to constitute a customer there must be some recognisable course or habit of dealing in the nature of regular banking business.”
16. Describe the procedure of opening a Recurring and Fixed deposit account in a bank.
Ans: The Recurring deposit account can be opened by any person, more than one person jointly, by a guardian in the name of a minor and even by a minor. While opening the account, the depositor is given a Pass Book which is to be presented to the bank at the time of monthly deposits and repayment of the amount.
Money in these accounts is deposited monthly in instalments for a fixed period and is repaid to the depositors along with interest on maturity. In case a depositor is compelled to close the account before its maturity, the bank pays no interest if the deposits are made for less than 3 months.
For opening a fixed deposit account a depositor is required to fill up an application form wherein he or she mentions the amount of deposits and the period for which deposit is to be made. He also gives his specimen signature. A fixed deposit receipt is thereafter issued to the depositor, acknowledging the receipt of the sum of money specified therein, to be repaid at the expiry of the period mentioned therein along with interest at the specified rate.
Though interest is payable at the stipulated rate at the maturity of fixed Deposit Receipt, banks usually pay interest quarterly or half yearly also at the request of the depositor. The interest earned during the said quarter/half year is paid to the depositor in cash or is credited to the savings account. This system of payment is based on ‘Quarterly rests’ or ‘half yearly rests’ and so on.
The depositor is required to present the receipt for the purpose of necessary entry regarding payment of interest on the back thereof. Withdrawal of interest or the principal through cheques is not permitted. At the request of the customer, the banker may credit the amount of interest or the principal to his savings or current account from which he may withdraw the same through cheques.
17. State the procedure for opening a current account.
Ans: Before opening a current account, the following formalities are required to be completed.
(i) Application on the Prescribed form: Whenever any person, company, firm etc. wants to open a current account with the bank, he has to make a request on the prescribed form. Every bank has its own form, on which the applicant is required to give his or her name, address, date and occupation. The applicant has also to declare that he/she shall comply with all rules in force from time to time.
(ii) Reference or Introduction: Before opening a current account, the applicant is required to give the name of the respectable person or party in the application form from whom the banker may make enquiries regarding the customer’s character, integrity and responsibility.
(iii) Signature: The applicant is required before opening a current account with the bank to furnish or give one or more specimens of his/her signature to the bank on the prescribed form. These signatures are also taken on cards which are filled in an alphabetical order.
(iv) Agents Role: Whenever a customer desires to get his account operated by another person or by his agent, the bank will obtain a mandate in writing to that effect. For this, the bank will obtain necessary information as well as the specimen signature of the person in whose favour the mandate is given.
18. What is pay-in-slip?
Ans: This book contains printed slips with perforated counterfoils. Thebank supplies pay-in-slip either in book form or loose to the customer while depositing cash, cheques, drafts etc. to the credit of his account. The depositor is expected to fill in the amount, nature of account, account number, date, details of currency notes and coins, signature etc. in the pay-in-slip. After the receipt of the cash or cheque and draft, the bank puts the date stamp and is signed by the cashier and counter signed by the Accountant or Manager and the counterfoils is returned to the depositor, which is used for the record of the customer.
19. Distinguish between Pass Book and Cheque Book.
Ans: A Pass Book is a small handy book issued by a banker to his customer to record all dealings between them. Infact, it is an authenticated copy of the customer’s account in the account books of the banker. It also contains rules and regulations governing the savings account. The customer deposits the Pass Book periodically with the bank for the purpose of recording entries therein.
As it passes from the hands of the customer to the banker and vice versa, it is called Pass Book. A Pass book is very important to a customer because it enables him to know some of the entries made by the banker in his ledger account -for example, the amount of interest allowed or charged, the incidental or other charges made by Bank Reconciliation statements with the help of the Pass Book.
On the other hand a Cheque Book contains bank cheques form with counter foils which can be used by the customer to withdraw money from his account. The Cheque Book and the counterfoil are serially numbered and these numbers are entered into the cheque book register. of the bank and also recorded in the bank ledger.
20. Discuss the objectives of the Deposit Insurance Corporation of India.
Ans: The objectives of the Deposit Insurance Corporation, of India are:
(i) The main objects of Deposit Insurance Corporation of India is to give safeguard to the depositors and help the commercial bank for the smooth running of their activities.
(ii) To inspire public confidence in the banking system.
(iii) To provide substantial measure of protection to small depositors in the event of bank failures.
(iv) To provide guarantee to depositors that their deposits will be returned if the Bank fails.
(v) To provide insurance protection to small depositors.
(vi) To provide credit guarantee to the banks for loans extended to small borrowers etc.
(vii) To provide insurance cover to the commercial banks, Regional rural banks and co-operative banks.
21. Describe the concept of E-Banking.
Ans: The growth and development of commercial banks move simultaneously along with the line of development in commerce. The growth of Electronic Commerce has compelled the banking sector to grow in the line of E-Banking using the services of information and communication technology. E-Commerce refers to the ability to conduct business electronically including the business of banking. The business including banking is going to be related to transmission of knowledge and information on finance and risk management.
Under the impact of modern information technology banking will surely tend to be more informatic, speedy and boundary less. Banks have to adapt to the use and application of information technology for their survival. Thus E-Banking is knowledge based and it has turned to be more science than art under the impact of Electronic Revolution. It is characterized by powers of information execution, speed, choice, convenience and economy. Banking is basically INTERNET BANK.
22. Explain the meaning of `Credit Card and ATM.
Ans: Credit Card: Credit cards also known as plastic money are new facility introduced by banks. The credit cards are a medium of exchange which enables its holder to buy goods and services without using money. These are issued to credit worthy customers having a minimum income. The credit cards are honored among the members participating in the scheme.
The card holders usually buy durable consumer goods, and certain services at establishments like shops, departmental stores, nursing homes, hotels, airways, railways etc. The card holders are generally business executives, doctors, engineers, and other persons belonging to middle income groups. These are all members of credit card scheme.
ATM (Automated Teller Machine): ATM is newly introduced electronic device to serve bank customers. It is an attempt to replace teller counters managed by persons. But unlike teller counter ATM is at customer service for twenty four hours a day. It provides any time money anywhere irrespective of branch where the account is maintained. The card is non transferable and it may be cancelled by the issuing bank without assigning any reason.
The ATM service is for withdrawing cash against the balance that is already available in the card holder’s account. A card holder may withdraw a certain minimum and maximum amount per day as decided by the bank.
The card holder can see the balance in his accounts linked to ATM card on the screen as well as obtain a transaction receipt showing the balance. Card holder may withdraw money at any ATM provided his account is maintained at some other branch connected online with a computer.
23. Write a brief note about the Deposit Insurance Corporation of India.
Ans: The Deposit Insurance Corporation of India was established by an Act of Parliament to insure the deposits in the commercial banks and the scheme of deposits insurance was introduced with effect from January, 1962. The Corporation has been renamed as Deposit Insurance and credit guarantee corporation with effect from July 15, 1978.
An important feature of Indian Banking is that deposits of the Public with the bank are insured up to the limit of Rs. 30,000 in each account. After the failure of the Palai Central Bank Ltd. a scheduled bank in Kerala and Laxmi Bank Ltd. in Maharashtra in 1960, the Govt.. and the Reserve Bank felt in necessity of insuring the deposits in the banks.
The Deposit Insurance Corporation has authorized and paid up capital of Rs. 2 crores. The whole amount has been subscribed by Reserve Bank. Moreover, they can also borrow from the Reserve Bank up to maximum of Rs. 5 crores.
The corporation is managed by the board of directors consisting of five members, that is Governor of the Reserve Bank, an officer of the Central Bank and two directors nominated by central government in consultation with the Reserve Bank. The functioning of the corporation is supervised by the Board of Directors.
24. What are the different types of e-banking services?
Ans: Indian banks are trying to make your life easier. Not just bill payment, you can make investments, shop or buy tickets and plan a holiday at your fingertips. In fact, sources from ICICI Bank tell us, “Our Internet banking base has been growing at an exponential pace over the-last few years. Currently around 78 percent of the bank’s customer base is registered for Internet banking.”
The various E-Banking services of a Bank are: Electronic Clearing Services (ECS), Electronic Payments, Automated Teller Machine (ATM), Credit Card, Debit Card, Smart Card, Virtual Card, and Electronic Fund Transfer (EFT).
25. State the procedure of opening a joint account.
Ans: (i) Fill up Bank Account Opening Form – Proposal Form: The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Nowadays the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification.
(ii) Give References for Opening your Bank Account: The bank normally requires references or introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose The reference or introduction is required to safeguard the interest of the bank.
(iii) Submit Bank Account Opening Form and Documents: The duly filled in proposal form must be submitted to the bank along with necessary documents. For e.g. in case of a joint stock company, the application form must accompany the Board’s resolution to open the account. Also certified copies of articles and memorandum of association must be produced.
(iv) Officer will verify your Bank Account Opening Form: The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.
(v) Deposit initial amount in newly opened Bank Account: After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of a joint account. In the case of fixed deposits, a fixed deposit receipt is issued. In the case of a current account, a cheque book and a pay in slip book is issued. For recurring accounts, the pass book and a pay in slip book is issued.
26. Discuss the general and special features of the relationship between a banker and his customer.
Ans: The relationship between the banker and the customer is important from both legal as well as social point of view, as both are legally bound to honour their commitments and both faithfully serve the society to grow and economy to prosper. The relationship between the two can be studied under the following heads:
General Features:
(i) Relationship of a Debtor and Creditor: Primarily, the relationship between a banker and its customer is that of a debtor and creditor. The customer deposits his money with the banker, who has a right to make use of the same according to his own will. The customer has on the other hand, the right to demand back his money from the banker. The banker is not obliged to pay interest on the sum deposited neither it has to pay the identical coins or notes deposited by the customers. The banker can pay in any kind of legal tender money.
This relationship between the banker and the customer differs from the general relationship of a debtor and creditor in the following way:
(a) The customer (creditor) must demand payment. The banker (debtor) is not bound to repay the amount on his own accord.
(b) The demand must be made by the customer in the same branch where he has the account, during the banking hours only on a working day of the bank.
(c) Demand must be made in proper manner through cheques or order as per the common usage among the bankers.
(ii) Relationship of a Bailee and a Bailor: Bank is obliged to provide ancillary service to its customers. Under such an obligation, the banker accepts the customer’s valuables, documents, bonds, debentures etc. for safe custody. Thus under Indian Contract Act, the customer becomes the bailer and the banker bailee. The banker may or may not charge something for providing such a service but he is liable to compensate for any loss to the property in bail with him.
(iii) Relationship of an Agent and principal: A banker acts as an agent of his customer and performs a number of agency functions for the convenience of his customers. For example, he buys or sells securities on behalf of his customer, collects cheques on his behalf and makes payment of various duties of his customers like insurance premium etc. The range of such agency functions have become much wider and the banks are now rendering a large number of agency services of diverse nature to their customers.
(iv) Relationship of a Trustee and Beneficiary: The customer tends to keep his valuable documents etc. with the banker on trust. In such cases, the customer continues to be the owner of the valuables deposited with the banker and these are not available for distribution amongst the several creditors in case of liquidation of the bank.
The relationship of a trustee also arises in some special cases even though there is the ordinary relationship between debtor and creditor between the two.
For example: In case of a cheque sent for collection from another banker. The banker acts as the trustee till the cheque is realized and credited to the customer’s account and thereafter he will be the debtor for the same account. Similarly, the relationship of trustee is also established when the customer instructs the banker to make some investment and trusts the banker to credit the profit so earned, on his investments.
Special features or obligations of the relationship between the banker and customer:
Though the primary relationship between the banker and his customer is that of the debtor and a creditor or vice versa, the special features of this relationship, impose the following special obligations on the banker:
(i) Obligation to honour the cheques: The deposits accepted by a banker are his liabilities repayable on demand or otherwise. The banker is, therefore, under a statutory obligation to honour his customer’s cheques in the usual course provided:
(a) He has sufficient funds of the customer.
(b) The funds are properly applicable to the payment of such cheques.
(c) The banker has been duly required to pay.
(d) The cheque has been presented within the due period.
(e) No prohibitory order of the court or any other competent authority e.g. tax authority etc., is standing against the accounts of the customer.
(ii) Obligation to maintain secrecy of accounts: It is obligatory for the banker not to disclose the state of the customer’s account with it, since such disclosure may adversely affect the customer’s credit and business. This obligation continues even after the customer has closed his account with the banker.
However, the banker is exempted from the above obligation under the following circumstances:
(a) where such disclosure is a legal necessity;
(b) where such disclosure is permissible on account of banking practices, or
(c) where such disclosure is in public interest.
27. Describe the circumstances under which the banker customer relationship may be terminated?
Ans: The relationship between the banker and the customer is contractual and therefore both are bound by certain obligations. This leads to the fact that if one of the parties frees himself from such obligation, then the relationship between the two is terminated.
The following are the circumstances under which the relationship between the two is terminated:
(i) Closure of the account: The relationship between the banker and customer is established with the opening of an account and with the closure of the said account, the relationship is terminated. The customer is at will to close his account (except fixed account), by giving a written notice to the bank about it, without mentioning the reason thereof.
The banker also may offer for closure of the account, if an account remains unoperated is guilty of conducting his account in an unsatisfactory manner i.e. if the customer is convicted for forging cheques or bills etc.
(ii) Death, Insanity and / or Insolvency of the customer: If the customer dies or a confirmed and authentic news reaches the baker about the insanity of the customer or the customer is declared insolvent then the relationship between the two is terminated. The banker in his turn is not under any obligation to honour the cheques etc. issued by the customer even if they have been issued period to such occurrences. On the death of a customer, his legal heir inherits the rights on his account. Under insolvency, the credit balance of the customer’s account is transferred to the official receiver.
(iii) Assignment of account: The customer has a right to assign his account to someone. The implication of such an assignment is that the balances standing against the customer’s name in the bank account is transferred to the name of person in whose favour the assignment has been done. The moment such instructions are received by the banker, the relationship between him and the customer stands terminated. Obviously on transfer of assigned account the banker enters in a new relationship with his new (the assigned) customer.
(iv) Garnishee Order on the customer’s account: If a Garnishee order for the whole account is received, it implies that the whole amount in the customer’s account now has no be paid to the party in favour of whom the Garnishee order has been received or as the instructions contained therein.
The customer is then not allowed to withdraw from his account, placed under such an order. This automatically terminates the relationship on the plea that practically there exists no account of the customer. However, if the Garnishee order is for the part of the amount in balance, then, for the remaining amount in balance there exists a relationship between the two. The relationship between the banker and his customer is re-established after the Garnishee order is lifted by the court.
(v) Closure of the business: In case a firm is closed or a partnership is dissolved or a company is liquidated, on receiving the information about such dissolution or liquidation, the bank has to close the account of such firm or company. These accounts can be operated only under instruction of the official liquidator, appointed for the liquidation process.
28. What precautions should a bank take in opening and operating an account in the name of a school or college?
Ans: Schools and Colleges are non-trading organizations. However, they may also approach a bank for opening an account in their name. The banks should observe the following precautions while dealing with their accounts:
(i) Incorporation and registration: A institution gets legal recognition as an entity separate from its members, only after its incorporation under a proper act. An unregistered institution cannot be sued under law. A banker, before opening an account, must ensure that the institution is a properly incorporated body.
(ii) The rules and bye-laws of the institution: Apart from being governed by the provisions of the act under which the institution is registered, it may have its own constitution, charter or memorandum of association, rules and bye-laws, etc. A certified copy of the relevant rules should be on the record of the banker for proper observance.
(iii) Resolution of the Governing body: The Governing/special body of the institution must pass a resolution for opening a bank account which should state that –
(a) appointing the bank concerned as a banker of the institution;
(b) mentioning the name of the person, who is authorized to open the account; and
(c) giving any other directions for the operation of the said account. A copy of the resolution must be obtained by the bank for its own record.
(iv) Death or resignation: In case the person, authorized to operate the account on behalf of an institution dies or resigns, the banker should stop operation of the account till intimation of fresh details of operation.
(v) Care in case of personal accounts: The officials of the institution may also have their personal accounts with the same bank. The banker is under lawful obligation to ensure that the funds of the institution are not credited to the personal accounts of officials, otherwise he will be guilty of negligence under section 131 of the Negotiable Instruments Act.
29. State the formalities to be completed and precautions to be taken while opening and operating the accounts in the names of – (a) Executors and Administrators (b) Trustees.
Ans: (a) Executor: The Executor is one who is appointed by the deceased (testator) through his will, to manage, operate, appropriate and achieve the purpose of the will, the property etc. The executor has to get a certification of the will by the court which is called a probate.
Administrator: The ‘Administrator’ is appointed by court in those cases where the deceased has not given the name of Executor in his will or person named as executor has died or refused to act, under a ‘letter of administration’.
The Banker should observe the following precautions while dealing with Executors or Administrators:
(i) The moment a customer’s death comes to the knowledge of the banker he should stop operation of the account of the deceased without fail.
(ii) The bank should obtain the ‘Letter of Probate’ (i.e. official confirmation of the will) in case of Executors and ‘Letter of Administration’ in case of Administrators in original, to acquaint itself with the powers and functions of the executors and administrators.
(iii) An account in the following style may be opened in the name of executors or administrators “ABC executors (or administrators) of the estate or, the deceased”.
(iv) In case of joint executors or administrators, the banker should get a letter of authority signed by all of them, stating the name/ names of the persons who will operate the account. Any of the executors/administrators is competent to countermand the payment of cheque issued by any other executor/administrators.
(v) If the executor requires an overdraft or a loan before he obtains the probate in order to make necessary payment, the banker usually advances such a loan on the personal security of the executor, so that he can recover the same in case the probate is not granted. The executors are made jointly and individually liable for such loans.
(vi) After the court grants probate or issues a letter of Administration, the executor or the administrator may pledge specific assets of the testator to obtain an overdraft from the banker, unless the will or the letters forbids
(vii) No credit meant for the estate of the deceased should be credited to the personal accounts of executor/administrator.
(b) Trustees: According to the Indian Trusts Act, 1882, a trust is an obligation annexed to the ownership of property and arising out of confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another or of another and the owner (section 3). The document creating the trust is called the ‘trust deed’.
There are three parties to a Trust:
(i) The author of a trust. The person who reposes the confidence is called the author of the trust. He is owner of the property, which is the subject matter of the trust.
(ii) Trustee is the person in whom the confidence is reposed.
(iii) The beneficiary is the person for whose benefits the trust has been formed.
The bank take the following precautions while accepting a trustee as its customers:
(i) Examining the trust deed: The banker should thoroughly examine the trust deed appointing the applicant as the trustees. The trust deed contains the names of the trustee, their powers, the details of the trust property and other terms and conditions. It may be remembered that the trustees are authorized to act jointly and unless the trust deed authorizes them to do, they are not competent to delegate their powers.
(ii) In case of several trustees, all trustees must act jointly unless the trust deed provides for delegation of power to some of the trustees.
(iii) In case an account is opened for two or more trustees, the bank should obtain clear instructions as regards the person or persons who shall sign the cheques or other instruments. In the absence of such instructions, all trustees must sign on each occasion.
(iv) Normally, a trust deed will provide as to the authority of the remaining trustees, when one or more trustees dies. In case all the trustees are dead, the matter has to be decided by a court of law.
(v) Insolvency of a trustee affects him personally but does not affect the trust property. The creditors of the trustee are not allowed to touch the trust property.
(vi) A banker should never allow transfer of trust money to the personal accounts of a trustee which is already overdrawn. This amount will have to be refunded to the trust.
(vii) A banker is placed in the same position in which the trustee is, as far as the use of trust money is involved. If he has a knowledge of misuse of trust money, he shall be held liable. The banker should, therefore, take all possible precautions to safeguard the interests of the beneficiaries of the trust.
(viii) The trustees do not have implied borrowing powers. They can borrow money and charge the trust property only if the trust deed specifically authorized them to do so.
30. What are the types of accounts a customer can open with a bank? Explain briefly.
Ans: Bank is an institution which attracts money or deposits for the purpose of lending to trade, industry etc. Receiving deposits from the public is an important function of a commercial bank. A bank provides the facility to open different kinds of deposit accounts with various facilities to suit the needs of various customers or depositors. There are three main types of accounts which a person can open with a bank, namely –
(i) Fixed or Time Deposit Account.
(ii) Saving Bank Deposit Account.
(iii) Current Deposit Account or Current Account.
(i) Fixed or Time Deposit Account: Fixed deposit account is one wherein money is deposited for a fixed period and cannot be withdrawn before the expiry of the said period. The said period usually varies from three months to five years. The rate of interest allowed on such accounts increases with the period of deposit. This is also called “Term Deposit Account.”
The bank prefers these types of deposits since it does not have to maintain cash reserves against these deposits and, therefore, the bank offers higher not rates of interest on such deposits. On the other hand, this account attracts those customers who have money on invest for a longer period but do want to take much of the risk. Generally the customer cannot withdraw the amount before a fixed period, but he/she has the option to take a loan against the deposit at a higher rate of interest than the deposit. But if one insists to withdraw the money before the due date, he forgoes much of interest accrued on such deposit.
(ii) Savings Bank Deposit Account: This is an account into which small savings are deposited into the bank by the customers. This account is meant for the benefit of middle class and low income group people. A Savings Bank Deposit Account can be opened by any person with a minimum deposit of five rupees. The special feature of this account is that deposits can be made in this account any number of times in a week but withdrawals can be made only once or twice a week.
Restrictions on withdrawals are imposed by banks to discourage the habit of frequent withdrawals. At present 50 withdrawals are permitted in a half year by most of the banks. The rate of interest payable by the banks on such deposits is very low as compared to fixed deposit accounts which ranges from 3.5% to 5% p.a.
(iii) Current Deposit Account or Current Account: Current Accounts, sometimes also called ‘Open Account’ is one in which money can be deposited can withdrawn at any time during working hours on all working days. This account may be defined as running account between a banker and a customer. Since customers can deposit money into or withdraw money from a current account whenever they like, businessmen like to keep money with a bank rather than in their own cash box from where it can be lost or stolen.
Current Accounts suit the requirements of businessmen, companies, corporations, institutions, firms etc.
31. Discuss the different types of customers of a Bank.
Ans: The different types of customers of a Bank are:
(i) Individual customer: All competent major persons, irrespective of caste, creed, religion etc. by opening an account with the Bank become a customer of the Bank. At the time of opening account with the bank they make a contract in between Banker and Customer. So the prospective customer must be competent enough to perform the contract. But Bank may not allow to open Bank account of thief, robber, fraudulent persons etc.
(ii) Minor: According to sec. 3 of the Indian Majority Act, 1875, a ‘minor’ is a person who has not completed the age of 18 years, unless before the completion of his 18 years of age, a guardian of his person or property is appointed by court, Majority is attained at the age of 21 years. According to the Indian Contract Act 1872 a minor is not capable of entering into a valid contract and a contract entered into by a minor is void. But a minor can open an account with the Bank.
(iii) Married woman: A married woman can open a current as well as savings account with the Bank. She can enter into a contract in her own name. A married woman enjoys the same power and capacity as a man or a single lady. According to the Indian Contract Act, “a married woman can enter into contracts, acquire and sell property and lend or borrow money.”
A married woman has power to draw cheques and give a sufficient discharge. But in the case of an overdraft, granted to a married woman, the banker will have no remedy against her, if she has no separate estate. The husband will not be responsible for any transaction or debit account of his wife in case. (a) She acts as the agent of the husband and (b) The debt has been taken by the wife for purchasing certain articles of her necessities.
(iv) Lunatics: Under the Indian Act 1872 lunatic is a person of an unsound mind and is incompetent to enter into a valid contract. Any person who is unable to make any judgement about what is good or bad may have an unsound mind and any contract entered into by him is void. In case a lunatic person applies to the bank for opening an account, the bank must refuse to open an account with him.
Precaution: Before opening the account, the banker should take the following precautions.
(a) If a person who has an account with the bank and has become lunatic or insane, the bank can suspend the operation of his account on receiving notice of customer’s insanity.
(b) The bank is entitled to debit the account of the lunatic person against all the cheques honoured by the former before getting the notice.
(c) If the bank receives sufficient proof of the lunacy of the person, it can stop the operation of the account of any customer on the ground of Lunacy.
(d) On receiving the information of a customer’s lunacy, the banker has the right to return all cheques on the customer’s account with the words refer to ‘drawer’ and not by remark ‘customer insane’.
(v) Joint account (2009): When an account is opened by two or more persons jointly in their names, it is called a joint account. A banker should not open a joint account, except upon the receipt of an application by persons interested in the account. The joint account holders enter into contract with the bank jointly and individually, so that each of them has a right against the bank, and the banker has right to honour all the cheques or transactions as are signed by all those in whose names the joint account has been opened.
(vi) Partnership firm: Sec 4 of the Indian Partnership Act defines partnership as “the relations between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” The term ‘firm’ is merely a commercial notion. A firm can not become a member of another partnership firm though its partners can join any other firm as partners can join any other firm as partners. A banker should take the following precautions while opening an account in the name of a partnership firm.
(a) Number of partners.
(b) Title of the firm’s account.
(c) Opening of an account.
(d) The partnership letter or mandate.
(e) Revocation of authority to operate the account.
(vii) Company: A company means a company formed and registered under the Company Act 1956. It is an artificial person created by law to achieve certain objectives. A company is considered as a separate legal entity. According to Lord Justice Lindley “a company is an association of many persons who contribute money or money ‘s worth to a common stock and employ it for a common purpose.” A company can open an account with the Bank. But before opening an account in the name of the company, a banker should examine the following precautions carefully.
(a) Memorandum of Association.
(b) Articles of association.
(c) Certificate of incorporation.
(d) Copies of annual account etc.
(viii) Clubs, schools and colleges: Non trading institutions like clubs, schools, colleges, charitable institutions etc. maintain their accounts with some bank. At the time of opening such accounts the bank should take the following precautions.
(a) The society must be incorporated.
(b) Copies of memorandum, articles of association and other necessary documents must be produced.
(c) Resolution of the managing committee.
(d) Power to borrow.
(e) No mixing of personal accounts with the society.
(f) Death or resignation, etc.
(ix) Executors and Administrators: Executors and Administrators, both are persons appointed to settle the accounts of a person after his death. The Executor is appointed by the deceased himself, before his death. The person appointing him is called ‘testator’. The executor has to act according to the directions given in the ‘will’. He must get the official confirmation of the will, technically called a ‘probate’ from the court.
The administrator is appointed by court in those cases where the deceased has not given the name of executor in his ‘will’ or person named as executor has died or refuses to act. He disposes of the assets and makes payment of the liabilities of the deceased as per the directions given in the will or in its absence in the-letter of administration issued by the court appointing him as administrator.
The Bank should take the following precautions:
(a) The bank should examine the ‘Letter of probate’ in case of executor and letter of administration in case of administrator.
(b) An account in the following style may be opened in the name of executor or administrator. ‘ABC executors or Administrator of the estate of ‘X’, the deceased.’
(c) In case of joint executors or administrators, the banker should get clear instruction regarding the operation of the account.
(x) Liquidators (2009): Bankers should be very careful while dealing with persons appointed to wind up the affairs of companies. A liquidators business is to realize the company’s assets and to collect such amounts as may be due to the company from its shareholders and debtors. He has to apply the funds thus collected in payment of the company’s debt and distribute the balance, if any, among its shareholders. He has the power to borrow money against the security of the company’s assets and to draw, accept, make and endorse bills and notes, in the name and on behalf of the company.
(xi) Illiterate person: An illiterate person may open an account with a bank. The banker should take the following steps.
(a) Thumb impression: The left hand thumb impression of the depositor should be obtained on the account opening form and the specimen signature sheet in the presence of an authorized supervising official.
(b) Identification mark: Brief details of one or two identification marks of the depositor should be noted at the time of opening the account.
(c) Photograph: Two copies of the passport photograph of the depositor should be obtained and get renewed every three years.
(d) General: Implications and conditions for operation of the account should be explained to the depositor by an authorized official. The Deposit can be made through any person but at the time of withdrawal from the account should generally be allowed only when the person comes physically and produces his or her pass book.
(xii) Trustees: According to sec 3 of the Indian Trust Act 1882, “Trust is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another and the owner.” A trustee is a person in whom a confidence is reposed.
The Banker should take the following precaution in opening the account of a trustee.
(a) Before opening an account in the name of trust, a banker should examine carefully the ‘trust deed’.
(b) In case of more than one trustee, all trustees must act jointly or the delegation of powers to some of the trustees.
(c) After getting a notice of the insanity of a trustee the bank may suspend the operation of the trustee’s account.
(d) In case of granting loans to trustees, the banker should thoroughly examine their borrowing powers as per the ‘trust deed.’
(e) In the event of death or retirement of all the trustees, the new trustees may be appointed by the court etc.
Hi! my Name is Parimal Roy. I have completed my Bachelor’s degree in Philosophy (B.A.) from Silapathar General College. Currently, I am working as an HR Manager at Dev Library. It is a website that provides study materials for students from Class 3 to 12, including SCERT and NCERT notes. It also offers resources for BA, B.Com, B.Sc, and Computer Science, along with postgraduate notes. Besides study materials, the website has novels, eBooks, health and finance articles, biographies, quotes, and more.
