CS Final :: Banking and Insurance - law and Practice : June 2005

Roll No…………………
Time allowed : 3 hours Maximum marks : 100
Total number of questions : 8 Total number of printed pages : 3
Part—A
(Answer Question No.1 which is compulsory and any two of the rest from this part.)
1. (a)

Can a banker exercise the right of lien on a security left with the bank, after the request for advance against the same has been declined ?
(4 marks)
(b)

Sunshine Ltd. borrowed consortium loan from a bank. The borrower furnished individual guarantee as security for the loan availed. When the company failed to repay, the bank issued legal notice to clear the dues of the bank. Since the borrower did not clear the dues, the bank filed an application before Debt Recovery Tribunal (DRT) against the borrower. Meanwhile, the bank exercised its right of general lien over the borrower’s deposit available in the account and communicated the same to the borrower by a letter.
Aggrieved by the bank’s action, the borrower filed a writ petition stating that the bank’s exercising general lien over the deposit was illegal.
Whether the bank is required to give prior notice for exercising general lien ?
The petitioner also stated that freezing of the amount and exercising general lien on the borrower’s deposit even before determination of liability by DRT is bad in law.
State whether is it necessary to determine the liability of the borrower before exercising the right of lien under section 171 of the Indian Contract Act, 1872.
(6 marks)
(c) Answer briefly the following :
(i)Name the three categories into which bank’s investment portfolio may be classified.
(ii)Asset-liability management (ALM) guidelines have been designed to take care of certain risks related to banking operations. Identify and describe the nature of risks.
(iii)What is meant by ‘prime lending rate’ (PLR) ?
(2 marks each)
(d)
(i)

Kunal purchased a demand draft from your branch in favour of Dinesh. After despatching the demand draft by post, next day he came back to your branch saying that he had since changed his mind about making the remittance of amount to Dinesh and surrendered the pay-in-slip of the said demand draft and requested for cancellation of the demand draft and refund of the amount. What action would you take as a branch manager ?
P.T.O

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(ii)

A demand draft for Rs.25,000.75 is presented in clearing for payment. The amount in words is stated as Rupees Twenty Five Thousands only. How will you deal with the draft ?
(2 marks each)
2. (a)

Enumerate the banker’s obligations to its customers.
(4 marks)
(b)

State with reasons whether the banker’s action is legally correct in the following cases

(i)Requiring an introduction before opening of a current account.
(ii)Returning and not collecting a cheque crossed to two banks.
(iii)Paying a cheque to Babita which is drawn in favour of Anita and marked ‘not negotiable’.
(iv)

Paying a cheque drawn on the customer’s current account when there is insufficient balance in it by making a lien on the shares held in the same customer’s safe custody account.
(2 marks each)
(c) “Payee cannot stop payment of a cheque.” Explain.
(3 marks)
3. (a)

Write short notes on the following :
(i)
(ii)
(iii)

FDI in the banking sector
Repo and reverse repo
Off-shore banking units.

(3 marks each)
(b)

A bank granted loan to Move Fast Pvt. Ltd. The loan was guaranteed by two directors of the company. The two directors executed a continuing guarantee. Subsequently, the directors resigned from the company. The company accepted the resignation and the same was recorded in the minutes of the meeting. Both the directors sent letters regarding resignation from the company to the bank.
The company defaulted in repayment of the loan. The bank filed a recovery suit against the company and the two directors.
Discuss whether the resignation of the directors from the company would absolve the liability of the directors from the guarantee.
(6 marks)
4.

Attempt any three of the following :
(i)Describe the methods of loan syndication.
(ii)Describe the categories of financial assistance provided by the EXIM Bank.
(iii)State the types of refinance and the requirement of beneficiaries for refinance by NABARD.
(iv)Write a note on strategies to reduce ‘non-performing assets’ by banks.

(5 marks each)
Contind...

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Part—B
(Answer Question No.5 which is compulsory and any two of the rest from this part.)
 
5. (a)

Brijesh was sanctioned an advance limit of Rs.2 lakh against the security of goods valued at Rs.4 lakh. He proposes to insure the goods as required by the bank, but only to the extent of the bank’s advance, viz., Rs.2 lakh. How would you react to the proposition and why ?
(4 marks)
(b) What are the pre-requisites for a risk to be covered by insurance ?
(4 marks)
(c) State, with reasons, whether the following statements are true or false :
(i)‘Morale hazard should not be confused with moral hazard’.
(ii)Reinsurance means – loss of one is shared by many; and it does not break any.
(iii)No proof of insurable interest is required in case of wife taking a life policy in her husband’s name.
(2 marks each)
(d)

For each of the following situations, suggest a life insurance policy that can be used to meet the situation :
(i)Amount of income that can be used for paying premium is limited.
(ii)A policy carrying repayment for education of a child.
(iii)Insuring human life value of an individual, aged 30 years, at the lowest possible annual premium
(iv)When life protection is needed.
(v)Lump sum benefits are needed at periodical intervals.
(vi)When extra protection is needed for short duration.
(2 marks each)
6. (a)

How can a Company Secretary monitor the changes in new insurance environment ?
(8 marks)
(b)

What are the important features of the ASCI Code of Conduct for insurance advertising agencies ?
(7 marks)
7. (a) In what forms NBFCs can enter into insurance business ?
(7 marks)
(b) What are the legal provisions for licensing of agents ?
(5 marks)
(c)

“Insurance contracts have distinct legal characteristics which distinguish them from other contracts.” Comment.
(5 marks)
8.

Attempt any five of the following :
(i)What are the ‘riders’, ‘options’ and ‘guarantees’ ?
(ii)Distinguish between ‘assignment’ and ‘nomination’.
(iii)State the elements of risk-management process in an organisation.
(iv)“Life insurance encourages savings.” Comment.
(v)Distinguish between ‘act policy’, ‘third party policy’ and ‘comprehensive policy’.
(vi)Explain the major characteristics of an insurance plan.
(3 marks each)

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