Operational Aspects of Handling Clearing Collection Cash | Banker’s Special Relationship | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE A: GENERAL BANKING OPERATIONS

Banker - Operational Aspects and Legal Rights

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1. Clearing, Collection, and Cash

Clearing involves the process of settling payments between banks. The collection refers to receiving payment from a customer's cheque or draft. Cash management is a core banking activity involving receipt, payment, and secure custody.

2. Cheque Truncation System (CTS)

CTS is a project by RBI for faster cheque clearing. Under CTS, physical cheques are truncated at the presenting bank and an electronic image is sent for processing.

3. RBI Guidelines on Collection of Instruments

RBI mandates timelines for cheque clearance, compensation for delays, local and outstation cheque handling, and special arrangements for senior citizens and disabled persons.

4. Cash and its Custody

Cash must be securely held in strong rooms or safes, with dual custody, periodic balancing, and insurance coverage to prevent loss.

5. Security Arrangements at Branches and ATMs

Banks must deploy CCTV, guards, burglar alarms, access controls, and strong physical barriers to prevent theft and ensure safety.

6. Banker’s Special Relationship

Special relationships include duty of secrecy, honoring cheques, providing statements, and acting as a trustee or agent.

7. Mandate – Definition

A mandate is an instruction from the account holder authorizing a third party to operate the account.

8. Power of Attorney (POA) – Definition

A POA is a legal document allowing a person to act on behalf of another, including in banking transactions.

9. Banker’s Lien

Lien is the right to retain goods or securities until a debt is repaid. Banker’s lien is general unless otherwise specified.

10. Right of Set-off

The right to combine accounts and adjust debit with credit balances after notice to the customer.

11. Right of Appropriation

When a customer owes multiple debts, he may specify payment appropriation. If not, the banker may decide.

MCQs

1. What does CTS stand for?
   • A. Cheque Transfer System
   • B. Cheque Truncation System ✅
   • C. Centralized Transfer Scheme
   • D. Clearing and Transfer Settlement
2. Under CTS, physical cheques are:
   • A. Sent to RBI
   • B. Sent to Payee’s bank
   • C. Truncated and replaced with images ✅
   • D. Destroyed immediately
3. RBI mandates compensation for cheque collection delay beyond:
   • A. 1 day
   • B. 5 days
   • C. 7 days ✅
   • D. 10 days
4. Which of the following is not part of cash custody measures?
   • A. Strong room
   • B. Safe vaults
   • C. ATMs ✅
   • D. Dual custody
5. Which RBI system deals with cheque image clearing?
   • A. NEFT
   • B. CTS ✅
   • C. RTGS
   • D. ECS
6. Bankers must act as ________ to customers.
   • A. Principal
   • B. Trustee ✅
   • C. Debtor
   • D. Supervisor
7. Mandate is:
   • A. Power of Attorney
   • B. Written authorization to operate account ✅
   • C. Legal verdict
   • D. Standing instruction
8. Power of Attorney gives authority to:
   • A. Mandate an order
   • B. File cases
   • C. Act on another’s behalf ✅
   • D. Close accounts
9. Banker’s lien is:
   • A. Specific
   • B. General ✅
   • C. Legal
   • D. Optional
10. Right of set-off is:
    • A. Combining debts and credits ✅
    • B. Settling a cheque
    • C. Transferring accounts
    • D. Refusing service
11. Appropriation right lies with:
    • A. Customer first ✅
    • B. RBI
    • C. Bank manager
    • D. Lawyer
12. CTS improves cheque clearing by:
    • A. Avoiding manual signature checks
    • B. Removing human errors
    • C. Sending electronic images ✅
    • D. Depositing directly
13. Which document allows one to operate a bank account on behalf of another?
    • A. Cheque
    • B. Passbook
    • C. Mandate ✅
    • D. Withdrawal form
14. Who regulates cheque collection norms?
    • A. IBA
    • B. Ministry of Finance
    • C. RBI ✅
    • D. SEBI
15. ATM security includes:
    • A. Guards
    • B. CCTV
    • C. Alarms
    • D. All of the above ✅
16. Which is NOT a banker’s right?
    • A. Lien
    • B. Set-off
    • C. Refund charges ✅
    • D. Appropriation
17. What is the key feature of POA?
    • A. Legal binding ✅
    • B. Verbal agreement
    • C. Cheque facility
    • D. SMS confirmation
18. In banker-customer relationship, banker acts as:
    • A. Agent ✅
    • B. Principal
    • C. Regulator
    • D. Client
19. RBI guidelines ensure:
    • A. Delay in clearance
    • B. Protection of customer interests ✅
    • C. Bank monopoly
    • D. Complex procedures
20. Cheque collection timelines are set by:
    • A. RBI ✅
    • B. Bank Manager
    • C. Customer
    • D. Court