DBF PRINCIPLES AND PRACTICES OF

BANKING
MCQs- Some selected Modules
Part 4
Compiled by R JAGANNATHAN from various sources
 1) DIFFERENT MODES OF CHARGING SECURITIES
Pledge
Hypothecation
Mortgage
Assignment
Lien
Set off
2) TYPE OF COLLATERALS AND THEIR CHARACTERISTICS
 Pledge
Hypothecation
Mortgage
Assignment
Lien
Set off
1) Pledge is defined under section ___________ Indian Contract Act
1872.
a) 172
b) 173
c) 174
d) 175
2) If the pledgee wants to sell the goods according to Sec 176 of Indian
Contract Act 1872:
a) The notice is not necessary
b) When the auction notice is given in the newspaper the pledger
would come to know about this
c) The pledgee has to give reasonable notice to the pledger
d) It is the prerogative of the pledgee to give the notice to the pledger
3) In case the pledgee fails to re transfer the possession of the goods to
the pledger on repayment of loan, within a reasonable time and the
goods are damaged, as per Sec 161 of Indian Contract Act 1872:
a) The pledgee would be responsible for any loss
b) The pledger would be responsible for any loss
c) The loss if any should be shared by the pledger and pledgee
d) No one is responsible, it is an act of God
4) After the conversion of hypothecation into pledge the bank would
have the rights of a
a) Pledgee
b) Mortgagee
c) Pledger
d) hypothecatee
5) Your bank has allowed an advance against stocks of cotton bales
lying in a warehouse owned by a third party. The warehouse owner is
keeping the goods on behalf of the bank and the same has been
acknowledged by him. This type of pledge is called:
a) Constructive pledge
b) Real pledge
c) Hypothecation
d) assignment
6) The pledgee has sold the goods according to the provisions of Sec
176 of Indian Contract Act 1872. The bank could not recover the entire
loan amount. What should be done to recover the remaining part of
the loan amount:
a) Pledger can be held responsible for the balance amount
b) Pledgee should be satisfied with the amount received
c) Both the pledger and the pledgee have to share the balance
amount equally
d) Pledger is not at all responsible
7) ABC a firm had obtained loans against shares in the name of one of
the partners. The firm has not repaid the loan availed and the bank
wants to adjust the loan by selling the shares. Which of the following
charges are available:
a) Lien
b) Hypothecation
c) Assignment
d) Pledge
8) On complete repayment of the loan to the pledgee what is the right
of the pledger?
a) To take possession of the goods
b) If there is any surplus with the pledgee after adjusting the loan
amount, the pledger is entitled for this amount
c) If the pledger has repaid the loan after the expiry of the notice
period but before the sale of the goods by the pledgee, the pledger
is entitled for the goods
d) All the above
9) When the bank takes in to possession of any security for a particular
loan that cannot be used for any other loan, the then, it is called:
a) General lien
b) Particular lien
c) Negative lien
d) Perfect lien
10) As a pledgee, the bank has got the following rights as per Indian
Contract Act:
a) U/s 173, to keep the goods in possession for payment of the
principal, interest and maintenance expenses
b) U/s 174, to retain the possession of goods for the loan and not for
any other loan in general if there is no contract to the contrary
c) If a pledgee incurs extraordinary expenses for the protection of the
goods, he is entitled to recover such expenses
d) All the above
11) Where the goods under pledge are in possession of the bank and
possession is demanded by the Government for recovery of tax:
a) The goods will be handed over to the Government
b) Surplus if any will be given to the Government after recovery of
the bank dues
c) Sale proceeds will be shared equally between the bank and the
government
d) These will be given to the government and surplus will be used for
the bank loan repayment
12) A trust receipt is:
a) An instrument in writing under which either goods or documents of
a title to goods are handed over to the borrower in a trust
b) An instrument under which the borrower keeps the possession of
goods or documents of title to goods for and on behalf of the
creditor in a trust
c) An instrument under which pledge is effective even after the
delivery of the goods
d) All the above
13) Bailment of goods as a security of a debt is called:
a) Hypothecation
b) Pledge
c) Lien
d) Mortgage
 4) The godo of a orro er is lo ked y a k s lo ker. Su h type of
charge is called:
a) Pledge
b) Assignment
c) Hypothecation
d) Mortgage
15) Actionable claim means:
a) All claims for which civil suits can be filed
b) Claim for a beneficial interest in a movable property not in
possession of the claimant
c) Debt against mortgage of property
d) None of the above
16) A charge in which the ownership and the possession of the
property remain with the bank:
a) Pledge
b) Hypothecation
c) Mortgage
d) None of the above
17) Hypothecation has been defined under:
a) Indian Contract Act 1872
b) Transfer of Property Act
c) Banking Regulation act
d) Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002
18) Which of the following is transferred against Hypothecation?
a) Ownership of the charged goods
b) Possession of the charged goods
c) Both the above
d) None of the above
19) Which of the following can be hypothecated?
a) Movable property
b) Immovable property
c) Actionable claims
d) Borrowed property
20) The bank is informed that the goods hypothecated to it is being
sold by the borrower. Under such circumstances,
a) Bank should inform the police
b) Bank should inform the higher ups
c) The bank should convert the hypothe ation in to pledge by
taking possession of the goods
d) Bank will buy the hypothecated goods
21) The loan has been granted to a partnership firm against
hypothecation of goods. The charge is to be registered with:
a) Registrar of Firms
b) Registrar of Companies
c) Registrar of Assurances
d) There is no need to register this charge
22) A bank has sold shares pledged with it under an agreement that the
bank can sell the shares without notice to the pledger. One of the high
courts held the sale as invalid because:
a) This agreement was against the provisions of the Act
b) This agreement was not executed with the permission of the court
c) The agreement was not brought to the notice of the higher ups of
the bank
d) This was not included in the agreement
23) Where is mortgage defined?
a) Transfer of Property Act
b) Negotiable Instruments Act
c) Sale of Goods Act
d) Indian Contract Act
 4) Whi h Se tio of T P a t defi es ortgage ?
a) 58
b) 59
c) 60
d) 61
25) Mortgage is:
a) Transfer of ownership
b) Transfer of rights
c) Transfer of interest
d) All the above
26) Which of the following is correct with reference to the mortgage:
a) All the rights of the mortgagor is transferred to the mortgage
b) Consideration is necessary
c) Both the above
d) None of the above
27) Which of the following may be a consideration for the mortgage?
a) Existing debts
b) Past debts
c) Future debts
d) All the above
28) What is the period of limitation in case of a loan repayment
guaranteed by a mortgage of a property?
a) 3 years
b) 12 years
c) 20 years
d) 30 years
29) When is registration of a simple mortgage is not necessary?
a) If the amount concerned does not exceed Rs.100
b) If the amount concerned does not exceed Rs.10000
c) If the amount concerned does not exceed Rs.100000
d) If the amount concerned does not exceed Rs.1000
30) If two are more charges are created on the same property by a
company, the priority of the charge will be on the basis of :
a) Date of execution of the mortgage deed
b) Date of sanction of the loan
c) Date of disbursement of the loan
d) Date of creation of charge with the Registrar of Companies
31) Which of the following types of mortgages does not require
registration?
a) Equitable mortgage
b) Usufructuary mortgage
c) Simple mortgage
d) English mortgage
32) Which of the following statement is not correct regarding equitable
mortgage?
a) It does not require stamp duty
b) It does not require registration
c) It does not require mortgage deed
d) It can be created in any place in India
33) Where can we create equitable mortgage in our country?
a) Areas having population more than 100000 as per latest census
b) Four metros and all cities notified by state governments in this
regard
c) Any city in India
d) Only in Four metros
34) Which of the following is necessary for creation of an equitable
mortgage?
a) Title deeds will be deposited in notified cities only
b) The property should be situated in any one of the notified cities
only
c) Title deeds should be only of the residential property only
d) The value of the property should be more than Rs.100/-
35) Who notifies the notified centers for creation of equitable
mortgage?
a) State Government
b) Central Government
c) Supreme Court Judge
d) Chairman of State Bank of India
36) As per Indian Limitation Act, an equitable mortgage gets time
barred after____
a) 3 years
b) 10 years
c) 12 years
d) 20 years
37) Which of the following statement is not correct generally, regarding
a mortgage?
a) It is a transfer of interest in a specified immovable property
b) Consideration is necessary
c) Ownership is transferred
d) Six types of mortgages are defined in Transfer of Property Act
38) Can a property be equitably mortgaged to two banks?
a) Yes, if there is the consent of the first mortgagee
b) Yes, if the first bank keeps the title deed of the property as an agent
of the second bank
c) It is not possible
d) a and
39) In which type of mortgage, the mortgage property is transferred to
mortgagee at the time of giving the loan and is transferred back to the
mortgagor when the loan is repaid?
a) Equitable mortgage
b) Usufructuary mortgage
c) English mortgage
d) Simple mortgage
40) A loan which is secured by the mortgage of immovable property is
repayable on demand. What will be limitation period for the personal
liability of the borrower?
a) 3 years from the date of the Demand Promissory Note
b) 3 years from the date of the sanction of the loan
c) 12 years from the date of execution of the mortgage deed
d) 12 years from the date of granting of loan
41) A borrower customer of your bank, wants to create equitable
mortgage in favour of your bank. Which of the following is not true in
the case of an Equitable Mortgage?
a) It can be created in respect of a property which is specific
b) It can be created with the deposit title deeds and needs no
registration
c) The property should be located in the notified place only
d) The place where the mortgage is to be created should be a notified
centre.
42) An anomalous mortgage means:
a) A mortgage other than those five mentioned in the TP act
b) A mortgage for which some other act applies
c) A mortgage where there is no consideration is necessary
d) A mortgage for which registration has not taken place with the
registrar of assurance
43) A mortgage under which the mortgagor undertakes to repay the
mortgage money on a fixed date, he also transfers the property to the
mortgagee under the condition that on repayment of mortgage money
the mortgagee will retransfer the property to the mortgagor, is called:
a) Simple mortgage
b) Usufructuary mortgage
c) English mortgage
d) Mortgage by conditional sale
44) A charge on immovable property to create is :
a) Lien
b) Assignment
c) Hypothecation
d) Mortgage
45) In a Usufructuary mortgage, the repayment of the mortgage money
is:
a) The personal liability of the mortgagor
b) Not the personal liability of the mortgagor. The loan is recovered
from the income of the property
c) Personal and property liability
d) No liability on the property or on the person
46) Which of the following acts defines assignment?
a) Transfer of Property act
b) Indian Contract act
c) Negotiable Instruments act
d) Banking Regulation act
47) What is an assignment?
a) Transfer of rights of an actionable claim
b) Transfer of possession without transfer of ownership
c) Transfer of movable property
d) Transfer of immovable property
48) A charge by assignment may be created in case of:
a) Book debts
b) Actionable claims
c) Supply bills
d) All the above
49) Which of the following is an actionable claim?
a) Life Insurance Policy
b) Rent in arrears
c) Future rents
d) All the above
50) Which of the following is not an actionable claim?
a) Judgement debt and Decree of the Court
b) Copy right
c) Claim for compensation on breach of contract
d) All the above
51) In respect of a loan against insurance policy, which of the following
value is taken as the basis for fixation of the limit for the loan amount:
a) Surrender value of the policy
b) Maturity value of the policy
c) Face value of the policy
d) Net asset value of the policy
52) Lien is defined in
a) Section 170 of Indian Contract Act
b) Section 170 of N I Act
c) Section 170 of Sale of Goods Act
d) Section 171 of Indian Contract Act
53) Ba ker s lien is considered to be equivalent to pledge because (a)
bank has its possession the goods/securities (b) bank has a right to sell
( C) bank retains the goods and securities. Which of these are correct?
a) (a) only
b) (b) only
c) ( c) only
d) a , and all
54) Under a loan secured by lien, there is agreement that the bank can
sell the securities without giving notice before sale:
a) It is discretion of the bank to give notice or not
b) Notice is compulsory
c) Notice is already waived. Hence no notice is required to be given
d) None of the options is correct
55) A banker has following securities with him. Which of these may not
e su je t to a ker s ge eral lie ?
a) Securities deposited upon a particular trust, although the trust is a
failed one
b) Securities entrusted to the bank for the purpose of selling the same
c) Securities obtained for a proposed advance, but the advance could
not be granted
d) All of the above
56) The lien can be exercised when the relationship is that of
a) Creditor and Debtor
b) Principal and Agent
c) Teacher and Student
d) Bailor and Bailee
57) Which among the following can be exercised by a bank on a term
deposit receipt which matured before 6 months.
a) Right of assignment
b) Right of appropriation
c) Right of Set off
d) Right of subrogation
58) While sanctioning a loan to a public limited company, your Regional
Office advised you to obtain an undertaking from the said company
that the company does not create any charge on its assets in favour of
any one else nor it can sell the assets without obtaining permission
from your bank. Such an undertaking is known as:
a) Negative lien
b) Equitable charge
c) Right of set off
d) Lien
59) Which among the following rights is conferred on the bank under
Sec 171 of Indian Contract Act 1872?
a) A anker s general lien with right to possess but not to sell the
goods or securities
b) A particular lien giving right to sell the goods
c) A particular lien giving right to retain the goods
d) A a ker s general lien with right to possess and to sell the goods
or securities
60) On which of the following the right of lien cannot be exercised by
the bank ?
a) Fixed Deposit receipt in the joint name of the borrower and his wife
b) Savings Bank account in the name of the borrower
c) Title deeds handed over to the bank for safe custody
d) All the above
61) Under general lien, the bank can
a) Sell the security after giving notice to the debtor
b) Sell the security without giving notice to the debtor
c) Can file a suit in the court of Law
d) Not do anything without consulting the borrower/debtor
6 ) The period of li itatio for the a ker s lie is
a) No limit
b) 3 years
c) 12 years
d) 20 years
63) Mr X is maintaining one overdraft account your bank. He is also having
three other accounts with your bank. They are (i) his personal Savings Bank
account (ii) Joint account SB account with his wife (iii) one fixed deposit
account in the name of his minor son in which he is the guardian. Which of
these account can be used by the bank for exercising right of set off:
a) Right of set off is available on all these accounts
b) Right of set off is available in the joint account with his wife
c) Right of set off is available in the FD account in which he is the guardian
d) Set off right is available only in his personal SB account
64) A and B enjoy an overdraft limit with your bank and there is an
outstanding overdue amount of Rs.20000, which the bank finds it difficult to
recover. A is also maintaining an SB account where there is a balance of
Rs.50000. In this case:
a) A is liable to pay only 50% of the total dues. Only 50% of the loan
outstanding can be recovered from his SB account
b) Right of set off is not available as the accounts are not in the same
capacity
c) The bank can debit the A s Personal SB account to recover the entire
dues
d) The bank should get the consent of A to debit the account to settle the
dues
65) The nature of charge created on the intangible securities like
a ou ts re ei a le is:
a) Assignment
b) Mortgage
c) Lien
d) Hypothecation
66) Under the provisions of ________, banks can sell the mortgaged
property, without the intervention of the court after observing
formalities mentioned there in.
a) SARFAESI ACT 2002
b) Transfer of Property Act
c) Banking Regulation act 1949
d) Negotiable Instruments Act 1881
67) In the case of pledge and hypothecation, the title in the goods
is________ to the bank making the advance:
a) Not transferred
b) Transferred
c) Will be transferred
d) None of the above
68) A _____________ , though appears to be a negotiable instrument,
is not a negotiable one, but only quasi-negotiable, since a bona fide
transferee for value can be affected by the defects in the title of the
transferor.
a) Cheque
b) Promissory note
c) Bill of exchange
d) Documents of title to goods
69) Banks finance book debts by______ (which is the odd one?)
a) Factoring
b) Forfaiting
c) Overdraft and cash credit against assignment of book debts
d) Cash credit against the pledge of book debts
70) The provisions of SARFAESI ACT 2002 can be applied while taking
possession of goods_____________ to the bank and selling them
without the intervention of the court and after observing the required
formalities:
a) Hypothecated
b) Pledged
c) Mortgaged
d) Assigned
71) Banks advance loans against the security of assets and the nature
of charge created while doing so is_________________ (locate the
odd one)
a) Pledge
b) Hypothecation
c) Mortgage
d) Purchase
72) The possession of the mortgaged property is normally given to the
mortgagee in the case of _________
a) Usufructuary mortgage
b) Simple mortgage
c) Equitable mortgage
d) None of the above
TYPE OF COLLATERALS AND THEIR
CHARACTERISTICS
1) Before acceptance of the land and building as a collateral security,
the banks normally ask for non-encumbrance certificate for a
period of :
a) 3 years
b) 4 years
c) 5 years
d) 12 to 30 years
2) If a bank accepts simple mortgage of a land and the value/amount of
________ is Rs._____ or above, the registration of mortgage, is
mandatory
a) Loan, Rs. 100
b) Land, Rs.100
c) Loan Rs.1 lac
d) Land Rs.1 lac
3) When the loan is given by accepting shares as a security, the shares
can be:
a) Of two types only, equity and preference shares
b) Of only one type, equity shares only
c) Ordinary shares or equity shares or preference share
d) Partly paid shares
4) The document issued by a company acknowledging its indebtedness
to the registered holder is
a) Debentures
b) Equity shares
c) Preference shares
d) Partly paid shares
5) Which of the following securities will be more preferable by a bank
from the point view of increasing value of the security:
a) Shares and debentures
b) Land and building
c) Goods and merchandise
d) Book debts of reputed companies
6) Which of the following types of security is not a tangible form:
a) Book debts of companies
b) Land and buildings
c) Goods and merchandise
d) Shares and debentures
7) For the purpose of allowing loan against the security of goods and
merchandise, the valuation is done by the bank as follows:
a) Cost price or market price whichever is lower
b) Cost price
c) Market price
d) Cost price or market price whichever is higher
8) Which of the following is not a feature of the document to title to
goods:
a) The transferee gets a defect free title even when the title of the
transferor is defective
b) A proof of possession of goods
c) Document of control over the goods
d) Document can be transferred by endorsement and delivery
9) Which of the following is true in the context of a life insurance
policy:
a) The insurable interest must be present in the insured
b) The policy is issued by General Insurance Company
c) The contract of insurance is a contract of utmost reliability
d) The assignee of life policy cannot sue in his now name
10) Which of the following is not a demerit for accepting an insurance
policy as security?
a) If the premium is not paid regularly, the policy will lapse
b) The insurance contract is a contract of utmost good faith and any
misrepresentation by the borrower while obtaining the policy, can
make the policy void
c) The policy may have restrictive clauses that may restrict the liability
of the insurance company
d) If the maturity of the policy is for a long period, the surrender
value may be affected
11) What type of charge is available to the bank, when the loan is
granted against the security of fixed deposit receipt?
a) Assignment
b) Hypothecation
c) Pledge
d) Mortgage
12) In the case of supply bill facility, the bank shall receive the payment
directly from the government department on the basis of:
a) Power of attorney executed by the borrower and registered by the
government department with them
b) Documents sent by the bank to the department
c) Charge of assignment approved by the Government Department
d) None of the above
13) In the case of supply bills, the document evidencing the movement
of goods from the seller to the buyer is called:
a) Delivery challan
b) Warehouse receipt
c) Bill of exchange
d) Supply bill
14) What type of charge is created when the security for the loan is the
document of title to goods.
a) Pledge
b) Assignment
c) Lien
d) hypothecation
15) There is no need to give notice to the customer, of a k s intention
to exercise:
a) Right of set off
b) Right to sell the pledged goods
c) Right to sell the mortgaged property
d) Ba ker s lien