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GNDU Question Paper-2023
Bachelor of Commerce
(B.Com) 5
th
Semester
BANKING SERVICES MANAGEMENT
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Briefly discuss Monetary implications of Banking operations.
2. Explain the deficiency in Services and Briefly discuss various ways to improve the
Services.
SECTION-B
3. Briefly discuss the Loans and Advances.
4. What do you mean by Industrial Advances? Explain the Advances to Small borrowers.
SECTION-C
5. Write a detailed note on Bills of Exchange.
6. Briefly discuss the rights and liabilities of parties of negotiable instruments.
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SECTION-D
7. Briefly discuss the E-Banking Services and Mobile Banking
8. Briefly discuss the globalized challenges in Banking Services.
GNDU Answer Paper-2023
Bachelor of Commerce
(B.Com) 5
th
Semester
BANKING SERVICES MANAGEMENT
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Briefly discuss Monetary implications of Banking operations.
Ans: Understanding the Link Between Banking and Money Supply
Banks are not just passive intermediaries moving money from savers to borrowers. They
actively create money through the process of credit creation.
Here’s how:
1. You deposit ₹10,000 in your bank.
2. The bank keeps a fraction (say ₹1,000) as reserves, as required by the RBI.
3. It lends out the remaining ₹9,000 to someone else.
4. That borrower spends it, and the recipient deposits it in another bank.
5. The cycle repeats, multiplying the total deposits in the system.
This is called the money multiplier effect — a small change in reserves can lead to a much
larger change in the total money supply.
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Key Monetary Implications of Banking Operations
Let’s break down the main ways banking operations affect the economy’s monetary
conditions.
1. Influence on Money Supply
• Deposits and Loans: When banks increase lending, they expand the money supply;
when they tighten lending, the money supply contracts.
• Reserve Requirements: The RBI’s Cash Reserve Ratio (CRR) and Statutory Liquidity
Ratio (SLR) determine how much banks can lend. A lower CRR means more lending
and a higher money supply; a higher CRR means less lending and a tighter money
supply.
Implication: Banking operations directly determine how much money is circulating in the
economy, which in turn affects spending, investment, and growth.
2. Impact on Credit Availability
• Banks decide who gets loans, how much, and at what interest rate.
• Easy credit policies can stimulate business expansion and consumer spending.
• Tight credit policies can slow down borrowing and investment.
Implication: By controlling credit flow, banks can either fuel economic activity or cool it
down.
3. Effect on Interest Rates
• The rates banks charge for loans and pay on deposits influence borrowing and saving
behaviour.
• If banks lower lending rates, borrowing becomes cheaper, encouraging investment.
• If they raise rates, borrowing slows, and saving becomes more attractive.
Implication: Banking operations help set the tone for the cost of money in the economy,
influencing everything from home loans to corporate investments.
4. Transmission of Monetary Policy
The RBI uses tools like repo rate, reverse repo rate, CRR, and open market operations to
influence liquidity. Banks are the transmission channel — they pass on these changes to
customers.
Example:
• RBI cuts repo rate → banks can borrow more cheaply → banks reduce lending rates
→ businesses and consumers borrow more → economic activity rises.
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Implication: Without banks transmitting policy changes effectively, monetary policy loses its
impact.
5. Influence on Inflation
• If banks lend aggressively, demand for goods and services can outpace supply,
leading to inflation.
• If banks restrict lending, demand slows, and inflationary pressures ease.
Implication: Banking operations are a key lever in controlling price stability.
6. Role in Financial Stability
• Sound banking operations maintain confidence in the financial system.
• Poor lending practices can lead to bad loans (NPAs), bank failures, and financial
crises.
• Stability in banking ensures smooth functioning of payment systems and credit
markets.
Implication: Healthy banking operations are essential for a stable monetary environment.
7. Sectoral Allocation of Credit
• Banks decide which sectors get more credit — agriculture, industry, housing,
infrastructure.
• Priority sector lending norms ensure that weaker sections and essential sectors get
adequate funds.
Implication: Banking operations influence not just the quantity of money, but also where it
flows in the economy.
A Day-in-the-Life Illustration
Think of a single day in the banking system:
• Morning: A large corporate deposits ₹50 crore from a bond issue — increasing bank
deposits and potential lending capacity.
• Afternoon: The bank sanctions home loans worth ₹10 crore — creating new
purchasing power in the housing market.
• Evening: RBI conducts an open market operation, buying government securities from
banks — injecting liquidity and enabling more lending.
By the end of the day, these actions have:
• Changed the total money supply.
• Influenced interest rates.
• Affected credit availability in specific sectors.
• Contributed to the overall direction of economic activity.
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Why This Matters for the Economy
The monetary implications of banking operations are not abstract — they touch everyday
life:
• The EMI on your home loan.
• The interest you earn on your savings.
• The availability of jobs (through business investment).
• The prices you pay for goods and services.
When banks operate efficiently and in sync with monetary policy, they help maintain a
balance between growth and stability. When they mismanage credit or fail to transmit
policy changes, the economy can face inflation, stagnation, or instability.
Conclusion
Banking operations are like the heartbeat of the monetary system. Every deposit accepted,
every loan sanctioned, every investment made sends ripples through the economy’s money
supply, credit flow, interest rates, and inflation levels.
The monetary implications are profound:
• They determine how much money is in circulation.
• They influence the cost and availability of credit.
• They shape the effectiveness of monetary policy.
• They impact economic growth, price stability, and financial confidence.
In short, banks are not just financial intermediaries — they are active creators and managers
of money in the economy. Their operations are inseparable from the nation’s monetary
health, making them one of the most powerful forces in shaping economic destiny.
2. Explain the deficiency in Services and Briefly discuss various ways to improve the
Services.
Ans: A Fresh Beginning
Imagine you walk into your favourite restaurant after a long and tiring day. You are hungry
and excited to taste your favourite dish. But when you sit down, nobody comes to take your
order for 15 minutes. When your food finally arrives, it’s cold, and the waiter is rude when
you complain. At that moment, you don’t just feel disappointed with the food—you feel let
down by the entire service experience.
This small story perfectly explains what we call deficiency in services. It is not just about
what product or service is given, but how it is delivered, and whether it meets or fails to
meet expectations.
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Now, let’s dive deeper into what “deficiency in services” actually means, why it happens,
and how businesses or organizations can improve it.
What Do We Mean by “Deficiency in Services”?
In simple words, deficiency in services means failure to provide the promised level of
service, or providing it in a way that causes dissatisfaction to the customer.
It can be:
• Delay in service
• Poor quality service
• Misbehaviour by staff
• Lack of proper facilities
• Failure to meet promises or standards
So, whether it’s a bank taking too long to process your request, a hospital not attending to
patients on time, or an online delivery app bringing the wrong product, all these are
examples of service deficiency.
Why Do Deficiencies in Services Occur?
Deficiency in services does not happen overnight. It usually arises from some common
reasons:
1. Lack of Proper Training
Many service staff members are not trained to handle customers effectively. They
may know the technical part of the job but not the human side of it.
2. Poor Infrastructure
Sometimes the service provider doesn’t have enough facilities, tools, or technology
to provide smooth services.
3. Negligence or Carelessness
Employees may ignore customers, delay tasks, or fail to follow procedures.
4. Communication Gaps
When promises made by advertisements don’t match actual service, customers feel
cheated.
5. Overcrowding or Excess Demand
For example, in banks during salary days or in hospitals during emergencies, too
many customers make it hard to serve everyone efficiently.
6. Lack of Accountability
If nobody takes responsibility when things go wrong, the deficiency continues
without correction.
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Real-Life Examples of Deficiency in Services
• A patient visiting a hospital but having to wait hours because of careless staff.
• A train ticket booked online, but the amount is deducted and no ticket is issued.
• A student joining a coaching institute but not getting the promised study material.
• A tourist hotel promising “sea-facing rooms” but giving a dusty room with no view.
Each of these cases shows how customers feel cheated or dissatisfied due to service failure.
Now the Big Question: How Can Services Be Improved?
Here comes the interesting part—turning problems into solutions. Improving services is not
a one-time action; it’s a continuous process. Let’s break it down into simple ways:
1. Training and Development of Staff
Employees are the face of the service. If they are polite, skilled, and attentive, customers
feel valued. Regular training on communication skills, customer handling, and technical
updates can reduce deficiencies.
Example: Airlines train their staff not only in safety but also in how to smile, greet, and
handle stressed passengers.
2. Use of Technology
Technology can remove many service deficiencies. Online tracking, AI chatbots, mobile apps,
and self-service kiosks reduce delays and improve accuracy.
Example: Food delivery apps showing live order-tracking make customers less anxious and
more satisfied.
3. Clear Communication
Over-promising leads to disappointment. Service providers must give realistic timelines and
set proper expectations.
Example: Instead of saying “your package will arrive in one day,” it is better to say “delivery
will take 1–3 days.”
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4. Strong Feedback Mechanism
Listening to customers is the key. Companies should encourage feedback through surveys,
helplines, or apps. Corrective action should be taken immediately.
Example: Most e-commerce websites allow you to rate sellers and delivery, and poor ratings
push the company to improve.
5. Accountability and Responsibility
When things go wrong, someone must take ownership. Apologies, refunds, or
compensation can rebuild trust.
Example: A hotel giving a free meal when the promised room is not ready on time.
6. Improved Infrastructure and Resources
Better seating in banks, clean waiting rooms in hospitals, and faster internet in service
centers improve the overall experience.
7. Customer-Centric Culture
The most successful companies put the customer at the center of every decision. A “service
with a smile” culture ensures customers not only get their needs met but also feel happy.
Benefits of Improving Services
Why should service providers bother? Because improving services brings:
• Higher customer satisfaction
• Better reputation and goodwill
• More repeat customers and loyalty
• Competitive advantage in the market
• Increased profits in the long run
So, in the end, improving services is not just about avoiding complaints—it’s about building
stronger relationships.
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Wrapping Up the Story
Let’s go back to the restaurant story. Imagine instead of waiting 15 minutes, a waiter quickly
greets you, offers water, and politely explains there may be a slight delay. When the food
arrives, it’s hot and delicious. Even if you had to wait a little, you wouldn’t mind, because
the service was respectful, honest, and caring.
That’s the magic of good service. When services fail, customers remember the
disappointment. But when services are improved and delivered with care, customers
remember the happiness—and they keep coming back.
So, to conclude:
• Deficiency in services means failing to meet customer expectations.
• It occurs due to poor training, negligence, lack of infrastructure, miscommunication,
or excess demand.
• It can be improved through training, technology, communication, feedback,
accountability, and a customer-first attitude.
If every service provider follows these steps, the word “deficiency” will slowly vanish, and
services will become not just a necessity but a delightful experience for all.
SECTION-B
3. Briefly discuss the Loans and Advances.
Ans: Meaning of Loans and Advances
Both loans and advances are ways banks lend money to customers, but they differ in
purpose, duration, and structure.
• Loan: A fixed sum of money lent by a bank to a borrower for a specific period,
repayable with interest, usually in instalments.
• Advance: A short-term credit facility provided by a bank to meet immediate or
working capital needs, often repayable within a year.
In simple terms:
• Loans are like long journeys — planned, structured, and for bigger goals.
• Advances are like short trips — quick, flexible, and for immediate needs.
Loans — The Longer Route
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Features of Loans
1. Fixed Amount: The borrower gets the entire sanctioned amount in one go.
2. Specific Tenure: Usually medium to long term — from a few months to several
years.
3. Interest: Charged on the full amount from the date of disbursement.
4. Repayment: In fixed instalments (EMIs) or as agreed.
5. Security: Can be secured (against collateral) or unsecured.
Types of Loans
• Secured Loans: Backed by assets like property, gold, or fixed deposits. Examples:
Home loan, car loan, gold loan.
• Unsecured Loans: No collateral; based on creditworthiness. Examples: Personal loan,
education loan.
• Term Loans: For a fixed term, often for business expansion or asset purchase.
• Demand Loans: Repayable on demand by the bank.
Example in Aarav’s Story
If Aarav takes ₹20 lakh to buy new machinery, repayable over 5 years, that’s a loan.
Advances — The Short Sprint
Features of Advances
1. Short Duration: Usually up to one year.
2. Flexible Withdrawal: Often linked to a current account or specific facility.
3. Interest: Charged only on the amount actually used, not the entire sanctioned limit.
4. Purpose: To meet day-to-day operational or working capital needs.
Types of Advances
• Overdraft (OD): Permission to withdraw more than the balance in your account, up
to a limit.
• Cash Credit (CC): Credit facility against security like stock or receivables; widely used
by businesses.
• Bills Discounting: Bank buys a bill of exchange before its maturity at a discount,
giving immediate funds to the seller.
• Short-Term Loans: For urgent needs, repayable within months.
Example in Aarav’s Story
If Aarav needs ₹5 lakh to buy raw materials for a big order and will repay after selling the
goods in 3 months, that’s an advance.
Key Differences Between Loans and Advances
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Basis
Loans
Advances
Purpose
Long-term needs like asset
purchase, education, housing
Short-term needs like working
capital
Tenure
Medium to long term
Usually up to 1 year
Disbursement
Full amount at once
Withdraw as needed within limit
Interest
On full amount from disbursement
On amount actually used
Security
Often secured, can be unsecured
Often secured by stock,
receivables, or account balance
Repayment
Fixed schedule (EMIs)
Flexible, within agreed period
Monetary and Economic Importance
Loans and advances are not just banking products — they are engines of economic activity:
• For Individuals: Help achieve personal goals like buying a home, studying abroad, or
starting a business.
• For Businesses: Provide capital to expand, manage cash flow, and seize
opportunities.
• For the Economy: Fuel production, create jobs, and stimulate demand.
How Banks Safeguard Lending
Banks take several precautions before granting loans or advances:
1. Credit Appraisal: Assessing the borrower’s repayment capacity.
2. Security: Taking collateral to reduce risk.
3. Documentation: Legal agreements to protect both parties.
4. Monitoring: Regular checks on how the funds are used.
A Day in the Bank — Loans and Advances in Action
• Morning: A young couple signs papers for a home loan — the bank becomes their
long-term partner in building a dream house.
• Afternoon: A trader gets an overdraft approved to stock up for the festive season —
quick credit to meet immediate demand.
• Evening: A manufacturer discounts bills to get instant cash for paying suppliers —
keeping the production line moving.
Each transaction is different in size and duration, but all share the same goal: moving money
where it’s needed most.
Blending the Two
Sometimes, businesses use both:
• A loan for buying fixed assets (like Aarav’s machinery).
• An advance for day-to-day operations (like buying raw materials).
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This combination ensures both long-term growth and short-term liquidity.
Conclusion
Loans and advances are two sides of the same coin — both are ways banks put money into
the hands of those who can use it productively.
• Loans are structured, long-term commitments for bigger goals.
• Advances are flexible, short-term arrangements for immediate needs.
For customers, understanding the difference helps in choosing the right facility. For banks,
managing both wisely ensures profitability and stability. And for the economy, they are the
channels through which savings are transformed into growth, opportunity, and progress.
4. What do you mean by Industrial Advances? Explain the Advances to Small borrowers.
Ans: Industrial Advances and Advances to Small Borrowers – A Humanized Explanation
Imagine you are standing in front of a large factory. Machines are humming, workers are
busy, raw materials are coming in from one side, and finished goods are rolling out from the
other. It looks like a smooth-running machine, but behind this energy and movement lies
something invisible yet extremely powerful—money in the form of advances from banks.
Without money, factories can’t buy machines, small shopkeepers can’t stock goods, and
new entrepreneurs can’t bring their ideas to life. This is where the concept of industrial
advances and advances to small borrowers steps in. Let’s understand it step by step, just
like a story unfolding.
1. What Do We Mean by Industrial Advances?
To understand “industrial advances,” imagine industries as living organisms. Just like
humans need oxygen to survive, industries need finance to function. And this oxygen often
comes in the form of advances given by banks and financial institutions.
• Definition:
Industrial advances mean the loans or credit facilities provided by banks to industries
for their growth, expansion, modernization, or day-to-day working.
• Why Needed?
Industries face huge expenses – buying raw materials, paying workers, running
machines, investing in technology, or setting up new units. Without timely financial
help, industries may stop production, lose competitiveness, or even shut down.
Industrial advances act as a lifeline.
• Forms of Industrial Advances:
These advances may be given in various forms like:
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o Working Capital Loans – To cover day-to-day running expenses.
o Term Loans – For buying machines, land, or setting up a new factory.
o Overdraft/Cash Credit – To meet sudden or short-term money needs.
o Bills Discounting – To help industries when payments from customers are
delayed.
Think of it as a toolkit—different tools (loans) are available for different needs of industries.
2. Why Are Industrial Advances So Important?
Let’s pause and think: why do banks even bother to give advances to industries? After all,
there’s risk involved. The answer is simple—industries are the backbone of the economy.
• Employment Generation:
Industries provide jobs to millions. When industries grow, employment rises, and
people have better incomes.
• Economic Growth:
A developing country like India relies heavily on industries for GDP growth. Banks
support this growth through advances.
• Innovation and Modernization:
New machines, better technology, and updated infrastructure need heavy
investments. Advances make it possible.
• Exports and Foreign Exchange:
Industrial products exported abroad bring in foreign currency. Banks indirectly
support this by financing exporters.
Thus, industrial advances are not just loans; they are fuel for national progress.
3. Who Are Small Borrowers?
Now, let’s shift the focus from large factories to a small shop at the corner of your street.
The shopkeeper needs money to buy stock for Diwali sales. A farmer nearby needs funds to
purchase seeds and fertilizers. A young graduate wants to start a tiny printing press. These
are examples of small borrowers.
• Definition:
Small borrowers are individuals or tiny business units who require small amounts of
credit to run their livelihood or small enterprises.
• Examples:
o Farmers, artisans, and self-employed persons.
o Small traders and shopkeepers.
o Cottage industries and micro-entrepreneurs.
For them, even a loan of ₹10,000 or ₹50,000 can make a life-changing difference.
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4. Why Are Advances to Small Borrowers Important?
At first glance, small borrowers may not seem very significant compared to giant industries.
But here lies the beauty: they form the grassroots of the economy.
• Self-Employment:
Many small borrowers do not look for salaried jobs; instead, they want to create self-
employment through small ventures.
• Rural Development:
In India, most people live in villages. Advances to small borrowers help farmers,
craftsmen, and rural entrepreneurs, reducing poverty.
• Balanced Growth:
If only big industries are supported, wealth gets concentrated in a few hands. Small
borrowers ensure a fairer distribution of economic opportunities.
• Social Upliftment:
Credit to small borrowers empowers weaker sections, women, and minorities, giving
them a chance to improve their living standards.
In short, while big industries strengthen the nation, small borrowers strengthen society.
5. How Banks Support Small Borrowers?
Banks and government policies ensure that small borrowers are not left behind. Here’s how:
1. Priority Sector Lending (PSL):
The Reserve Bank of India (RBI) requires banks to lend a certain portion of their
funds to priority sectors like agriculture, small businesses, and weaker sections.
2. Microfinance Institutions:
Special institutions provide microloans (very small loans) without heavy paperwork.
3. Government Schemes:
Schemes like Pradhan Mantri Mudra Yojana (PMMY) or Stand-Up India provide
collateral-free loans to small entrepreneurs.
4. Self-Help Groups (SHGs):
In villages, groups of women or farmers come together to borrow collectively and
support each other in repayment.
Thus, advances to small borrowers are not just banking activities; they are social missions.
6. Comparing Industrial Advances and Small Borrower Advances
Basis
Industrial Advances
Advances to Small Borrowers
Loan Size
Usually large (crores of rupees)
Small (thousands to a few lakhs)
Borrowers
Big industries, factories, companies
Farmers, artisans, shopkeepers
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Purpose
Expansion, modernization, working
capital
Daily livelihood, self-employment
Impact
National economic growth
Local development and poverty
reduction
Risk to
Bank
High, but manageable with securities
Smaller amounts, often unsecured
This table shows how both types of advances complement each other. One works on a
macro level (industries), the other on a micro level (small borrowers).
7. Challenges in Advances
No story is complete without challenges. Both industrial advances and advances to small
borrowers face hurdles.
• For Industries:
o Risk of non-repayment (bad loans).
o Economic downturns reduce demand.
o Over-dependence on borrowed funds.
• For Small Borrowers:
o Lack of collateral to offer banks.
o Sometimes misuse of funds.
o Low financial literacy, making repayment difficult.
Banks have to carefully balance between supporting growth and safeguarding their funds.
8. Conclusion – The Two Sides of the Same Coin
Let’s wrap it up with a simple analogy. Imagine the economy as a giant tree.
• The roots are the small borrowers—farmers, shopkeepers, artisans—who silently
nourish the base of society.
• The trunk and branches are the industries—strong, visible, and responsible for
spreading the shade (growth, jobs, development).
For the tree to survive, both roots and branches must be strong. That is why banks provide
industrial advances to fuel industries and advances to small borrowers to empower the
grassroots.
So, industrial advances and small borrower advances may look different in size and scale,
but together, they weave the story of economic progress. And that’s why they hold such an
important place in our banking system.
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SECTION-C
5. Write a detailed note on Bills of Exchange.
Ans: A Fresh Beginning: The Merchant’s Dilemma
Imagine a busy marketplace in the old days — long before online banking, credit cards, or
even cheques existed. Traders used to travel miles carrying goods like spices, cloth, or grains
to sell in other towns. Now, here comes a problem: A cloth merchant sells fabric worth
₹50,000 to another trader, but the buyer says,
“Brother, I don’t have the money right now. Can you give me two months? By then, I’ll sell
these clothes in my town and pay you back.”
The merchant scratches his head. He trusts the buyer but also feels uneasy about waiting
two months without proof. What if the buyer denies payment later? What if he forgets?
How will the merchant prove his right?
And that’s when the brilliant idea of a Bill of Exchange came into the world. It was a written
promise — a document signed by the buyer — saying:
“I will definitely pay you ₹50,000 on this date.”
With that simple piece of paper, the merchant now had security. He could even show this
bill to others, or sell it to a moneylender for quick cash. That’s how Bills of Exchange
became a trusted instrument of credit, not just in India but all over the world.
What is a Bill of Exchange? (Simple Definition)
A Bill of Exchange is a written, unconditional order made by the seller (drawer) directing the
buyer (drawee) to pay a certain sum of money either on demand or after a fixed period, to a
specific person (payee) or the bearer of the bill.
In even simpler words:
It is like a written “I owe you” with legal power, where one party orders another to pay
money on a fixed date.
Essential Features of a Bill of Exchange
To really understand it, let’s break down its key features:
1. Written Document
A Bill of Exchange is always in writing, not oral. Words fly, but writing stays.
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2. Unconditional Order
It is not a request or a “maybe.” It’s a clear command to pay, without conditions like
“if I sell my house” or “if it rains.”
3. Signed by Drawer
The seller (drawer) must sign it. Without a signature, it’s just a piece of paper.
4. Certain Amount of Money
The amount must be fixed — for example, ₹50,000, not “as much profit as I make.”
5. Payable on Demand or on Future Date
Payment is either immediate (“on demand”) or after a set time (say, 90 days).
6. Parties Involved
At least three parties are involved:
o Drawer: The one who makes the bill (seller).
o Drawee: The one who is ordered to pay (buyer).
o Payee: The one who will actually receive the payment (can be the drawer
himself or someone else).
7. Transferability
Bills of Exchange can be transferred from one person to another by endorsement.
Parties to a Bill of Exchange (Story-Style Explanation)
Let’s continue with our marketplace story.
• The cloth merchant who sold fabric is the Drawer.
• The buyer who purchased the cloth is the Drawee.
• If the merchant himself waits for payment, he is also the Payee. But suppose he
needs urgent cash and gives the bill to a moneylender — then the moneylender
becomes the Payee.
This shows how flexible the Bill of Exchange is — it works like a promise that can travel from
hand to hand until it reaches the final person who will receive the money.
Types of Bills of Exchange
Like every tool, Bills of Exchange come in different forms:
1. Inland Bill
When the bill is drawn and payable within the same country.
Example: A trader in Delhi orders a buyer in Mumbai to pay after 90 days.
2. Foreign Bill
When the bill is drawn in one country and payable in another.
Example: An Indian exporter draws a bill on an American importer.
3. Trade Bill
Drawn against genuine trade transactions (sale of goods).
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4. Accommodation Bill
Not linked to real trade, but drawn to help a friend raise money.
5. Demand Bill
Payable immediately when presented.
6. Time Bill
Payable after a fixed time, say 3 months.
Functions of a Bill of Exchange (Why It’s Important)
A Bill of Exchange is not just a piece of paper; it plays several vital roles in business:
1. Credit Facility
It allows buyers time to pay and sellers security to wait.
2. Legal Evidence
It serves as proof of debt and can be used in court.
3. Negotiable Instrument
It can be transferred to others, almost like cash.
4. Discounting Facility
If the seller needs money urgently, he can take the bill to a bank, and the bank will
pay him (after deducting a small fee). This is called discounting the bill.
5. Certainty of Payment
Since it has a fixed amount and date, both parties know when and how much will be
paid.
Advantages of Bills of Exchange
1. Promotes trade by giving credit.
2. Builds trust between buyers and sellers.
3. Works as a legal safeguard.
4. Can be used to raise funds quickly through discounting.
5. Transferable — can circulate in the market like money.
Disadvantages of Bills of Exchange
1. If the drawee dishonours the bill (refuses to pay), it causes loss and complications.
2. Requires legal formalities and proper stamping.
3. Not very useful in small transactions.
4. Dishonour of a bill may spoil business relations.
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Real-Life Example to Connect
Suppose you sell a bike to your friend for ₹40,000. He doesn’t have money right now but
promises to pay after 2 months. You ask him to sign a Bill of Exchange.
• If he pays on the due date, all is well.
• If you need urgent cash before 2 months, you can sell this bill to your bank for, say,
₹38,500. The bank will later collect ₹40,000 from your friend.
• If your friend refuses to pay, you have this bill as legal proof to take action.
That’s the beauty and security of a Bill of Exchange.
Conclusion
A Bill of Exchange is not just a financial instrument; it is a brilliant invention of human trust
turned into writing. It solves the age-old problem of “delayed payment” in trade and
ensures fairness to both buyers and sellers. With features like transferability, legal
protection, and discounting facility, it has become an essential part of modern commerce.
In simple words, if money is the heart of business, a Bill of Exchange is the vein that carries
it safely across time and distance.
6. Briefly discuss the rights and liabilities of parties of negotiable instruments.
Ans: Parties to a Negotiable Instrument
Before we dive into rights and liabilities, let’s quickly meet the main “characters” in this
story. Depending on whether it’s a promissory note, bill of exchange, or cheque, the parties
can include:
1. Maker — The person who makes a promissory note, promising to pay.
2. Drawer — The person who creates a bill of exchange or cheque, ordering payment.
3. Drawee — The person (often a bank) directed to pay.
4. Acceptor — The drawee who accepts the bill of exchange.
5. Payee — The person to whom the money is to be paid.
6. Holder — The person entitled to possess the instrument and recover the amount.
7. Holder in Due Course — A holder who has obtained the instrument for
consideration, in good faith, before maturity, and without knowledge of defects.
8. Endorser — The person who signs the instrument to transfer it to another.
9. Endorsee — The person to whom the instrument is transferred by endorsement.
Rights of the Parties
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1. Rights of the Holder
• To Receive Payment: The holder can demand payment from the parties liable on the
instrument.
• To Sue in Own Name: The holder can file a case in their own name if payment is
refused.
• To Cross a Cheque: The holder can cross a cheque generally or specially to ensure
safer payment.
• To Negotiate Further: Unless restricted, the holder can endorse or transfer the
instrument to another person.
2. Rights of the Holder in Due Course
A holder in due course enjoys special privileges:
• Better Title: Even if the instrument had a defect in the title of a previous holder, the
holder in due course gets a clean title.
• Right Against Prior Parties: Every prior party is liable to a holder in due course until
the instrument is satisfied.
• Protection from Certain Defences: Parties cannot deny the validity of the instrument
against a holder in due course on grounds like lack of consideration between earlier
parties.
3. Rights of the Maker/Drawer
• To Receive Payment on Maturity: If the maker or drawer has paid the instrument,
they can recover it and prevent further claims.
• To Be Discharged on Payment: Once payment is made according to the terms, they
are discharged from liability.
4. Rights of the Drawee/Acceptor
• To Require Proper Presentment: The drawee can insist that the instrument be
presented properly before payment.
• To Be Indemnified: If the drawee pays a forged or materially altered instrument
without negligence, they may recover the amount from the party responsible.
5. Rights of the Endorser
• To Be Indemnified by Subsequent Holders: If the endorser has to pay the holder,
they can recover the amount from parties who came after them in the chain.
• To Restrict Further Negotiation: By adding words like “Pay to X only,” the endorser
can limit further transfer.
Liabilities of the Parties
1. Liability of the Maker (Promissory Note)
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• Primary Liability: The maker must pay the amount as promised on maturity.
• Absolute Obligation: The liability is unconditional — unless the instrument is invalid,
the maker must pay.
2. Liability of the Drawer (Bill of Exchange or Cheque)
• Secondary Liability: The drawer is liable if the drawee/acceptor fails to pay upon
proper presentment.
• To Compensate Holder: If dishonoured, the drawer must compensate the holder for
the amount plus expenses.
• To Provide Funds: The drawer must ensure the drawee has funds to honour the
instrument.
3. Liability of the Drawee/Acceptor
• Primary Liability (After Acceptance): Once the drawee accepts a bill, they are
primarily liable to pay on maturity.
• To Honour Acceptance: Failure to pay after acceptance makes them liable for
damages.
4. Liability of the Endorser
• Secondary Liability: The endorser is liable to all subsequent holders if the instrument
is dishonoured, provided due notice of dishonour is given.
• To Compensate: Must pay the amount plus interest and expenses to the holder if
liable.
5. Liability of the Holder
• To Present for Payment: The holder must present the instrument for payment
within a reasonable time.
• To Give Notice of Dishonour: If the instrument is dishonoured, the holder must
notify prior parties to preserve their liability.
• To Deliver Instrument on Payment: Once paid, the holder must hand over the
instrument to the paying party.
A Simple Journey Example
Let’s follow a cheque’s journey to see rights and liabilities in action:
1. Ravi (Drawer) writes a cheque to Meera (Payee) for ₹50,000.
o Ravi’s liability: Ensure his account has funds; liable if cheque bounces.
o Meera’s right: Demand payment from Ravi’s bank.
2. Meera endorses the cheque to Arjun (Endorsee) for payment of a debt.
o Meera’s liability: If the cheque bounces, Arjun can claim from her.
o Arjun’s right: Present the cheque to the bank for payment.
3. The bank (Drawee) pays Arjun.
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o Bank’s liability: Honour the cheque if funds are available and no irregularity
exists.
o Bank’s right: Debit Ravi’s account for the amount.
If the cheque is dishonoured:
• Arjun (holder) can sue Meera (endorser) and Ravi (drawer).
• Meera can recover from Ravi.
• Ravi remains ultimately liable to pay.
Why This Matters
Knowing the rights and liabilities:
• Protects Parties: Everyone knows their duties and what they can claim.
• Prevents Disputes: Clear rules reduce misunderstandings.
• Supports Trade: Negotiable instruments are trusted because the law backs them.
SECTION-D
7. Briefly discuss the E-Banking Services and Mobile Banking
Ans: A New Way of Banking – The Beginning of a Story
Imagine this: a few decades ago, if you wanted to check your account balance, you had no
choice but to walk down to the nearest branch, stand in a long queue, fill out slips, and wait
for the cashier to confirm. Transferring money to someone else was even more tiring—you
had to write cheques, fill out demand drafts, or stand at counters for hours. Banking was
essential, but it often felt like a task that consumed time and energy.
Now fast forward to today. You are sitting on your couch, sipping tea, and with just a few
taps on your phone, you can transfer money to your friend, pay your electricity bill, recharge
your mobile, or even shop online. You don’t need to worry about bank timings, queues, or
paperwork. This magical transformation is the gift of E-Banking and Mobile Banking.
So let’s walk together into this modern banking world, where technology has replaced
hassles with convenience.
What is E-Banking?
E-Banking (Electronic Banking) simply means doing banking through electronic devices,
mainly using the internet. Instead of physically visiting a bank, customers can access most of
the banking services online—whether it is through a computer, ATM, or even a smartphone.
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Think of it as a “virtual branch” of your bank that never sleeps. It’s available 24×7, no matter
where you are—at home, in office, or traveling abroad.
Key Services under E-Banking:
1. Online Account Access
Customers can check their account balance, download statements, and track their
transaction history anytime.
2. Funds Transfer
o NEFT, RTGS, IMPS, UPI allow instant money transfer from one account to
another.
o Gone are the days of writing cheques and waiting for clearance.
3. Bill Payments
Electricity, gas, water, broadband, and even school fees can be paid online directly
from your bank account.
4. Online Shopping & Payments
E-Banking supports debit/credit card payments and net banking options while
shopping online.
5. ATM Services
Though not directly through the internet, ATMs are part of e-banking. They allow
cash withdrawal, deposits, and mini statements without entering the bank.
6. Investment & Insurance Services
Customers can apply for fixed deposits, recurring deposits, mutual funds, or even
insurance policies through online portals.
In short, e-banking has turned the traditional branch into a click-based banking system
where everything is just a few keystrokes away.
What is Mobile Banking?
While e-banking covers a wide range of electronic services, Mobile Banking is a specialized
part of it. It means accessing banking services using a smartphone or tablet through apps or
SMS-based services.
Earlier, people used only computers for online banking, but since smartphones became
common, banks shifted their focus to mobile apps. Why? Because mobile phones are
portable and always in our hands.
Imagine you are traveling in a train and suddenly remember that your electricity bill’s due
date is today. Instead of panicking, you open your bank’s mobile app, make the payment in
a few seconds, and continue your journey peacefully. That’s the power of mobile banking.
Key Services in Mobile Banking:
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1. Balance Inquiry & Mini Statement – Quick view of account balance and recent
transactions.
2. Fund Transfer – Through IMPS, UPI, or mobile wallets, money can be transferred
instantly.
3. Recharge & Bill Payments – Mobile/DTH recharges, utility bills, and even credit card
bills can be cleared.
4. QR Code Payments – Just scan and pay in shops, malls, or even street vendors.
5. Loan & Credit Card Requests – Apply for personal loans, increase credit card limits,
or manage EMIs through the app.
6. Notifications & Alerts – Instant SMS/email alerts about every debit/credit for better
security.
So, mobile banking is like carrying your entire bank in your pocket.
Difference Between E-Banking and Mobile Banking
It’s easy to get confused because both terms sound similar, but here’s a simple way to
differentiate:
Feature
E-Banking (Internet Banking)
Mobile Banking
Device Used
Computer, Laptop, ATM
Smartphone/Tablet
Access
Method
Through bank’s website
Through mobile apps or SMS
Convenience
Great, but limited to
desktop/laptop users
More convenient, portable, instant
Popular
Services
Online shopping, fund transfer, e-
statements
UPI, QR payments, instant transfers,
recharges
Speed
Slightly slower, depends on
website
Fast, one-tap payments
In short: E-Banking is the parent, and Mobile Banking is the superstar child.
Advantages of E-Banking & Mobile Banking
1. 24×7 Availability – No need to wait for banking hours.
2. Time-Saving – Transactions happen in seconds.
3. Accessibility – Banking possible from home, office, or even while traveling.
4. Cost-Effective – Saves transport costs and reduces paperwork.
5. Safe & Secure – With OTPs, biometrics, and encryption, transactions are protected.
6. Eco-Friendly – Less paper usage as statements and receipts are digital.
7. Financial Inclusion – People in rural areas can also access banking services without
visiting far-off branches.
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Challenges and Risks
Of course, nothing is perfect. With so much convenience comes some risks too:
1. Cyber Frauds & Hacking – Phishing emails, fake apps, or cyber attacks can trick
users.
2. Technical Issues – Server downtime or poor internet connection can delay
transactions.
3. Security Awareness – Many people still don’t know how to use e-banking safely.
4. Dependence on Technology – Without internet or smartphones, access becomes
difficult.
That’s why banks keep investing in stronger security, and customers must also stay alert—
never sharing OTPs, using strong passwords, and downloading apps only from trusted
sources.
Real-Life Example
Let’s say Ramesh, a college student, receives money from his father every month. Earlier, his
father had to send a demand draft by post, which took 3–4 days. Now, with mobile banking,
his father simply transfers money through UPI, and Ramesh receives it instantly. Not only
does this save time, but it also ensures safety—no risk of the draft getting lost in the mail.
This simple example shows how e-banking and mobile banking have changed lives, making
financial transactions smoother and faster.
Conclusion
Banking is no longer just about visiting branches and dealing with passbooks. It has
transformed into a digital experience where the bank travels with us.
• E-Banking opened the doors to online banking services.
• Mobile Banking made it even more personal, instant, and accessible.
Together, they have changed the way we handle money, bringing banking at our fingertips.
So, the next time you quickly pay your friend back using UPI or recharge your phone in two
taps, remember—you’re living in an age where banking has become simpler, smarter, and
faster than ever before.
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8. Briefly discuss the globalized challenges in Banking Services.
Ans: What Globalization Means for Banking
Globalization in banking is about the integration of financial markets, institutions, and
services across countries. It means:
• Banks can operate internationally.
• Customers can send money, invest, or borrow across borders.
• Capital flows freely between nations.
• Technology connects banks and customers worldwide in real time.
While this creates opportunities for growth, innovation, and efficiency, it also exposes banks
to global risks that are bigger, faster, and harder to control than ever before.
Key Globalized Challenges in Banking Services
Let’s walk through these challenges as if we’re touring different “zones” in our global
banking airport.
1. Regulatory Diversity — The Customs Checkpoint
When a bank operates in multiple countries, it must follow the laws and regulations of each
one.
• The Challenge: Rules differ widely — what’s allowed in one country may be
restricted in another.
• Example: Anti-money laundering (AML) requirements, capital adequacy norms, and
reporting standards vary across jurisdictions.
• Impact: Compliance costs rise, and banks must invest heavily in legal and compliance
teams to avoid penalties.
2. Currency Fluctuations — The Foreign Exchange Counter
Global operations mean dealing in multiple currencies.
• The Challenge: Exchange rates can swing sharply due to political events, economic
data, or market sentiment.
• Example: A sudden depreciation of a currency can turn profitable overseas loans
into losses.
• Impact: Banks must use hedging strategies, but these add complexity and cost.
3. Cross-Border Risks — The Immigration Desk
When lending or investing abroad, banks face risks tied to the political and economic
stability of other countries.
• The Challenge: Political unrest, policy changes, or sanctions can disrupt operations.
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• Example: Sanctions on certain countries can freeze assets or block transactions
overnight.
• Impact: Banks must constantly monitor geopolitical developments.
4. Technological Disruption — The Digital Boarding Gate
Technology has made global banking faster, but it’s also raised the stakes.
• The Challenge: Competing with fintech startups, adapting to blockchain, AI, and
digital currencies.
• Example: Global customers expect instant payments, 24×7 service, and seamless
mobile experiences.
• Impact: Banks must invest in innovation while maintaining security and compliance.
5. Cybersecurity Threats — The Security Check
With global connectivity comes global vulnerability.
• The Challenge: Cyberattacks can originate from anywhere in the world and target
customer data, payment systems, or trading platforms.
• Example: A coordinated ransomware attack can disrupt services across multiple
countries.
• Impact: Banks must spend heavily on cybersecurity infrastructure and training.
6. Intense Global Competition — The Departure Lounge
Globalization means banks compete not just with local rivals but with international giants.
• The Challenge: Foreign banks with advanced technology or lower costs can enter
domestic markets.
• Example: A global bank offering better digital services can lure away customers from
local banks.
• Impact: Pressure on margins, need for constant innovation, and improved customer
service.
7. Cultural and Customer Diversity — The Multilingual Help Desk
Serving customers across cultures means understanding different preferences, habits, and
trust levels.
• The Challenge: A product that works in one market may fail in another due to
cultural differences.
• Example: Islamic banking principles in Middle Eastern markets require
Sharia-compliant products.
• Impact: Banks must adapt products and marketing to local norms.
8. Global Economic Shocks — The Weather Report
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Events in one part of the world can quickly affect banks everywhere.
• The Challenge: Global recessions, pandemics, or commodity price swings can hit
loan repayments, investment values, and liquidity.
• Example: The 2008 global financial crisis started in the US housing market but spread
worldwide.
• Impact: Banks must build resilience and diversify risks.
9. Talent Management — The Crew Room
Operating globally requires skilled staff who understand international finance, technology,
and regulations.
• The Challenge: Shortage of talent with cross-border expertise.
• Impact: Banks must invest in training and attract global talent, often at high cost.
10. Sustainable and Ethical Banking — The Green Terminal
Global awareness of environmental and social issues is reshaping banking.
• The Challenge: Investors and regulators expect banks to finance sustainable projects
and avoid harmful industries.
• Example: Pressure to reduce financing for fossil fuels and increase green lending.
• Impact: Banks must align with ESG (Environmental, Social, Governance) standards
while staying profitable.
How Banks Can Navigate These Challenges
Just like pilots rely on navigation systems, banks need strategies to fly safely in global skies:
1. Strong Compliance Frameworks — Harmonise internal policies to meet diverse
regulations.
2. Advanced Risk Management — Use analytics to monitor currency, credit, and
geopolitical risks.
3. Technology Investment — Embrace digital transformation while securing systems.
4. Cultural Adaptation — Customise products for local markets.
5. Collaboration — Partner with fintechs, global institutions, and regulators.
6. Sustainability Focus — Integrate ESG principles into lending and investment.
A Simple Story to Tie It Together
Think of a global bank like “SkyBank International.”
• It has branches in 20 countries, deals in 15 currencies, and serves millions of
customers online.
• One day, a sudden political crisis in one country causes its currency to drop —
SkyBank’s overseas loans there lose value.
• At the same time, a cyberattack attempt is detected on its European servers.
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• Meanwhile, new regulations in Asia require changes to its reporting systems.
SkyBank’s teams across continents work round the clock — compliance experts update
policies, IT strengthens firewalls, treasury hedges currency risks, and product teams tweak
offerings for local customers. This is the daily reality of globalized banking — a constant
balancing act between opportunity and risk.
Conclusion
Globalization has turned banking into a high-speed, borderless service industry. The rewards
are huge — access to new markets, diversified income, and global brand recognition. But
the challenges are equally significant — regulatory complexity, currency volatility, cyber
threats, competition, cultural diversity, and global shocks.
Banks that succeed in this environment are those that combine global vision with local
understanding, embrace technology without compromising security, and manage risks as
skillfully as they chase opportunities.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
