TOPIC OF THE DAY

Wednesday, November 9, 2011

Set-off means- that the bank can adjust the credit balance in a customer's account against a debit balance in another account maintained by the same customer.
In an on going, situation, the right of set-off can be exercised by a banker- by serving a reasonable notice on the customer.
The right of set-off can be exercised by the banker only when the relationship between the customer and the banker is that of- Debtor and Creditor.
The banker can exercised the right of set-off only in respect of- debts due and determined.
The following condition are required to be fulfilled before a banker can exercise the right of set-off- (a)The debt must be a sum certain and due immediately, (b) The debt must be due by and to the same parties and the in the same right, (c) There should be no agreement to the contrary.
The right to set-off account arise immediately in the following cases- (a) On the death, metal incapacity or insolvency of a customer, (b) On the insolvency of a firm, or on the liquidation of a company, (c) On the receipt of garnishee order.

A lien is the right to- retain goods or securities belonging to a debtor until he discharged a debt to the retainer thereof.
A lien may be- Particular or/and General.
Banker's lien is a general lien and is specially conferred by- Section 171 of the Indian Contract Act, 1872.
Banker's general is available in respect of- all securities deposited with him as banker by the customer, unless there is contract inconsistent with lien.
The right of lien is available to the banker only when the goods/securities have been given to him as:- Bailee.
The right of lien is available to the banker- even in respect of time-barred debts.
The banker's lien is- an implied pledge.

When a Person maintain a deposit account with the bank, principal relationship between the two is one of- Debtor and Creditor.
Upon the banker's allowing an overdraft to customer in his current account, the relationship between the two will be that of- Creditor and Debtor.
While collecting cheques/bills etc. for a customer, the bank act as- An agent of the customer.
When a customer deposits a sealed box with the bank for safe custody, the relationship between the two is that of- Bailor and Bailee.
When a customer takes a locker in the Bank, the relationship between the bank and the customer is one of- Lessor and Lessee.
When a customer gives standing instruction to the bank for remitting a specified sum of money every month towards payment of his rent to a person, the bank act as-an agent of the customer.
In case the securities or documents are deposited by a customer for purpose of safe custody the banker deals with them according to the instructions of the customer, the position of the banker is that of a- trustee.
When a banker undertakes to pay bills domiciled on him by his customer, the relationship between the two is that of- Principal and Agent.

The Banking Regulation Act, 1949 does not at all apply to- Primary agriculture credit societies and co-operative land mortgage banks.
Nothing contain in the Banking Regulation Act, 1949 (except section 34-A) applies to- Industrial Development Bank of India.
Section 11 of the Banking Regulation Act, 1949 stipulates that if a foreign bank wishes to carry on business in India at a place other than Bombay and Calcutta, the aggregate value of its paid-up capital and reserves shall not be less than- Rs. 15,00,000.00.
A foreign banking company having a place of business in the city of Bombay or Calcutta or both, must have an aggregate value of its paid up capital and reserves of amount not less than- Rs. 20,00,000.00.
In terms of the explanation (ii)(b) to section 35 of the Banking Regulation Act, 1949, inspection of branches of Indian banks situated abroad is to be carried out by- Reserve Bank of India.

Stipulation of certain minimum margin in respect of advance against specified commodities- is adopted by RBI does not fall within "general" or "quantitative" method of credit control.
For the performance of its duties as the regulator of credit, the RBI posses the usual instruments of general credit control viz,- Bank Rate, Open market operation and the power to vary the reserve requirements of banks.
Open market operation are employed by RBI with a view to- minimise fluctuations in money supply, as as an adjunct to Bank Rate to make it function more effectively, maintain stability in the average price of government securities.
Bank rate policy, open market operations, variable reserve reserve requirements and, statutory liquidity requirements employed by RBI as measures of credit control are classified as- Quantitative methods.
Selective credit control, credit authorisation scheme, Moral Suasion- are fall under the Qualitative methods of credit control adopted by RBI.
The term Moral Suasion refers to- the advice given by RBI to banks/financial institution in the matter of their lending and other operations with the objective that they might implement or follow it.

Bank Rate means- the standard rate at which the RBI is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under the Reserve Bank of India Act, 1934.
When the RBI desires to restrict expansion of credit it- raise the Bank Rate.
In period of depression when the Reserve Bank desires to encourage the Banking system to create more credit it- reduce the bank rate.

To regulate the flow of credit in the economy, one of the measures adopted by RBI is 'Open Market Operation'. The term open market operation in this connection refers to- sale or purchase of short term or long term government securities by Reserve Bank.
Open market operations are employed by Reserve bank of India- to control the reserve base of banks, to minimize fluctuation in money supply, as an adjunct to Bank Rate to make it function more effectively.
In period of boom, which leads to economic instability, the Reserve Bank resorts to- sale in the market of first class securities in its possession to reduce the supply of money as a measure of open market operations.