Chapter 1: Banker-Customer Relationship (JAIIB - Paper 2)
1. As per Banking Regulation Act, 1949, which of the following is NOT a requirement to be called a 'bank'?
A. Accepting deposits from the public
B. Lending or investing the money so collected
C. Repayable on demand or otherwise
D. Engaged only in providing locker facilities
To qualify as a bank, an institution must accept deposits, repayable on demand or otherwise, and use them for lending/investment. Locker facilities alone do not make an entity a bank.
2. The banker-customer relationship is primarily a:
A. Agent and Principal
B. Debtor and Creditor
C. Trustee and Beneficiary
D. Bailor and Bailee
When a customer deposits money, the banker becomes a debtor, and the customer is the creditor. This is the core relationship in banking.
3. In which situation does the banker act as a trustee?
A. When securities or valuables are entrusted to the bank for safe custody
B. When the customer deposits money in a savings account
C. When a loan is sanctioned to a customer
D. When issuing a demand draft
When a bank keeps securities or valuables in safe custody, it acts as a trustee, holding them for the benefit of the customer.
4. A customer instructs his bank to pay electricity bills automatically every month. Here, the banker is acting as:
A. Debtor
B. Trustee
C. Agent
D. Bailee
When a bank makes payments or collects cheques on behalf of a customer, it acts as an agent of the customer.
5. Which of the following is TRUE regarding the general lien of a banker?
A. Bank can sell the securities without notice
B. Lien can be exercised even if the money is held in trust
C. Lien is automatic for all goods deposited
D. Bank can retain securities until dues are cleared
A banker’s general lien allows the bank to retain securities in its possession until the customer’s outstanding dues are paid, but selling requires due process.
6. When a bank receives valuables for safe custody, what is the legal relationship between the bank and the customer?
A. Debtor – Creditor
B. Trustee – Beneficiary
C. Bailee – Bailor
D. Agent – Principal
In safe custody, the bank becomes a Bailee and the customer is the Bailor under the Indian Contract Act, 1872.
7. Which duty does a banker, as a Bailee, owe to the Bailor (customer)?
A. To take reasonable care of goods as an ordinary man would
B. To use the goods for profit-making activities
C. To return goods only on payment of extra charges
D. To pledge goods to recover bank dues
A Bailee is responsible to take reasonable care of the goods bailed, as a man of ordinary prudence would take care of his own goods.
8. A customer instructs the bank to collect a cheque from another bank and credit his account. What is the relationship here?
A. Debtor – Creditor
B. Trustee – Beneficiary
C. Bailee – Bailor
D. Agent – Principal
When a bank collects cheques or makes payments on behalf of a customer, the bank acts as an Agent and the customer is the Principal.
9. In which of the following cases does the bank act as an Agent of the customer?
A. Accepting deposits from customers
B. Payment of insurance premium as per customer’s mandate
C. Granting loans to customers
D. Maintaining customer’s savings account
When banks perform services like paying bills or insurance premiums on behalf of the customer, they act as Agent of the customer.
10. Which of the following statements is TRUE about the Agent–Principal relationship in banking?
A. It arises when the bank acts on specific instructions of the customer
B. It exists in all deposit accounts by default
C. It allows bank to act without customer’s consent
D. It applies only in locker services
The Agent–Principal relationship arises only when a bank performs certain actions based on the customer’s instructions, such as collection or payment of bills.
11. Mr. A deposits his gold ornaments in a bank's safe custody service. Later, he claims compensation when the ornaments are lost due to a fire in the bank’s vault. What is the bank’s liability?
A. Bank is liable in all cases of loss
B. Bank has no liability as ornaments were deposited voluntarily
C. Bank is liable if it failed to take reasonable care as a Bailee
D. Bank must reimburse full market value automatically
In a Bailee–Bailor relationship, the bank must take reasonable care of goods as an ordinary person would. Liability arises only if negligence is proved.
12. A customer instructs his bank to buy government securities on his behalf. Later, the customer suffers a loss due to market price fluctuation. What is the bank’s responsibility?
A. Bank is responsible for the loss
B. Bank must compensate the difference in price
C. Bank can refuse to act as Agent in such cases
D. Bank is not liable for market losses if due care was taken while executing the mandate
In an Agent–Principal relationship, the bank must act with due care while executing instructions, but it is not liable for market risks.
13. A customer deposits a cheque in his account. The bank presents it for collection, but the drawee bank dishonours it. Who bears the loss?
A. Collecting bank, since it acted as Agent
B. Customer, unless negligence is proved against collecting bank
C. RBI, being regulator of banks
D. Both banks equally
The collecting bank acts as Agent of the customer. If due care is taken, dishonour risk is borne by the customer, not the bank.
14. A bank mistakenly credits ₹50,000 to a customer’s account. The customer withdraws and spends it. What is the banker–customer relationship here?
A. Debtor–Creditor, and customer must refund the money
B. Bailor–Bailee, and customer has no liability
C. Trustee–Beneficiary, and bank must bear the loss
D. Agent–Principal, and bank can recover from RBI
Wrongful credit does not belong to the customer. The bank can recover the money, and the customer is bound to refund under debtor–creditor principles.
15. A customer leaves securities with the bank as collateral for a loan. Later, he repays the loan but the bank fails to return the securities. Which legal duty has the bank violated?
A. Duty as an Agent
B. Duty as a Trustee
C. Right of lien
D. Duty as a Bailee to return goods on repayment
In a pledge, the bank is Bailee and must return the securities after repayment of dues. Failure is a violation of Bailee’s duty under the Indian Contract Act.
16. When a customer hires a safe deposit locker from a bank, what is the legal relationship between the bank and the customer?
A. Bailor – Bailee
B. Lessor – Lessee
C. Trustee – Beneficiary
D. Debtor – Creditor
Safe deposit locker facility creates a Lessor–Lessee relationship where the bank leases the locker to the customer under a rental agreement.
17. In a safe deposit locker agreement, what is the main responsibility of the bank as a Lessor?
A. To guarantee the contents of the locker
B. To insure valuables kept inside
C. To provide a secure locker and allow access as per contract terms
D. To keep a record of items stored in the locker
The bank, as a Lessor, provides the locker facility securely but does not guarantee or insure the contents kept by the customer.
18. In a contract of indemnity, who is the Indemnifier?
A. The person whose loss is protected
B. The bank customer in a loan agreement
C. The guarantor of a loan
D. The person who promises to compensate for the loss
In a contract of indemnity, the Indemnifier is the person who promises to compensate the Indemnified for any loss.
19. A bank issues a letter of indemnity to a customer for duplicate demand draft issuance. Who is the Indemnified here?
A. The bank, since it will be compensated if loss occurs
B. The customer, since the draft is reissued
C. RBI, as the regulator
D. The payee of the draft
The bank is the Indemnified party, as it is protected against potential loss from issuing a duplicate instrument. The customer provides the indemnity.
20. Which of the following is the best example of a banker acting under a contract of indemnity?
A. Collecting cheques for a customer
B. Obtaining indemnity when releasing duplicate Fixed Deposit receipts
C. Maintaining a savings account
D. Granting loans against securities
When banks issue duplicate documents like FDRs, they ask for indemnity so they can recover losses if the original is misused. This is a classic indemnity example.
21. Which of the following is TRUE about a Recurring Deposit (RD) account?
A. Fixed monthly installments with interest paid at maturity
B. One-time lump-sum deposit with monthly payouts
C. No premature closure allowed under any circumstances
D. Interest is calculated only on the first installment
RD takes equal periodic installments; interest is compounded (as per bank policy) and paid on maturity. Premature closure is usually allowed with penalty.
22. Which account is fully repatriable with tax-free interest in India for eligible NRIs?
A. NRO Savings Account
B. Resident Savings Account
C. NRO Fixed Deposit
D. NRE Savings/Term Deposit
NRE accounts (Savings/Term) are maintained in INR, are fully repatriable and interest is exempt from Indian income tax for eligible NRIs.
23. FCNR(B) deposits are maintained in which form and have what primary benefit to depositors?
A. INR; protection against domestic inflation
B. Designated foreign currencies; hedge against INR exchange rate risk
C. Gold; protection against gold price volatility
D. Mixed INR and FX; higher TDS exemption
FCNR(B) deposits are held in permitted foreign currencies; principal and interest are in the same currency, reducing INR exchange risk for depositors.
24. In a “Savings + Sweep” (auto sweep) facility, which statement is MOST accurate?
A. Entire savings balance is converted to term deposit monthly
B. Sweep-in is not permitted once created
C. Surplus over a threshold is swept to linked term deposits and can be swept back for payments
D. Interest rate remains the same as savings account
Auto sweep converts balance above a threshold into linked FDs; “sweep-in” breaks them (often LIFO) to honor transactions, usually with applicable penalties/rules.
25. Which of the following attracts TDS by banks under normal rules of Section 194A of the Income-tax Act?
A. Interest on Fixed Deposits exceeding the threshold in a financial year
B. Interest on Savings Bank accounts
C. Dividend credited to a demat account
D. Principal amount of Recurring Deposit
Banks deduct TDS on FD/RD interest when the aggregate interest crosses the prescribed threshold. Savings account interest is taxable but banks don’t deduct TDS on it.
26. Which statement about NEFT/RTGS/IMPS is CORRECT?
A. IMPS is not available on bank holidays
B. RTGS has no minimum transaction size
C. NEFT is only for corporate customers
D. IMPS provides instant funds transfer; RTGS settles high-value transfers in real time
IMPS is instant, 24×7. RTGS is real-time gross settlement meant for high-value transfers (with a prescribed minimum). NEFT is available to all eligible customers.
27. DICGC insurance coverage on bank deposits applies up to which limit per depositor per bank (principal + interest)?
A. ₹1 lakh
B. ₹5 lakh
C. ₹10 lakh
D. ₹15 lakh
The current DICGC cover is ₹5 lakh per depositor per bank, inclusive of principal and interest, across eligible deposit types.
28. Case: Ms. R opens a Minor Savings Account for her child with herself as guardian. She wants a cheque book and ATM card in the minor’s name. What should the bank do?
A. Issue both freely to promote financial inclusion
B. Deny the account opening
C. Follow bank policy; typically allow limited facilities with guardian’s consent/operating mandate
D. Issue a credit card to the minor
Minor accounts are permitted with guardian oversight. Facilities like cheque book/ATM are as per bank board-approved policy and regulatory guidelines with clear mandates.
29. Which of the following is a typical “Service to Investors” offered by banks acting as intermediaries?
A. ASBA facility for IPO applications through SCSB branches/channels
B. Issuing equity shares to retail investors directly from bank treasury
C. Fixing IPO issue price
D. Guaranteeing IPO allotment
Banks as SCSBs provide ASBA—blocking funds in the applicant’s account until allotment. They don’t fix prices or guarantee allotment.
30. A customer wants the bank to dematerialize his physical share certificates and also credit dividends directly to his account. Which banking services are relevant?
A. NEFT + RTGS
B. Standing Instructions + Demand Draft
C. Locker + Safe Custody
D. Depository Participant (Demat) services + ECS/Direct credit mandate
Banks (as DPs with NSDL/CDSL) open Demat accounts and process dematerialization. Dividends can be auto-credited via ECS/mandate to the linked bank account.
