Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,435 Questions

This topic covers essential concepts of credit, debt, and finance including bankruptcy, debt recovery, and financial acts. These questions are frequently asked in banking and IBPS exams. Test your knowledge of financial terminology and loan classifications.

Debt recovery actsBankruptcy filing proceduresFinancial classificationsMedium term financeCredit loss management

Credit, Debt, and Finance Questions

Multiple choice

Which of the following is true?

  1. Bailor is the person who receives the goods as a security for the loan.

  2. When documents are delivered by a customer for safe custody to the bank and the bank takes due care, but there is loss to documents, the bank is liable to the customer.

  3. If the bailor has knowledge about the defect in the goods due to which bailee suffers loss, the bailor is liable.

  4. Bailee can use the goods as he likes and is not liable for damages for such use.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Bailor will not be liable for the defects which are not within his knowledge. However, if the bailor is aware about the defect, then he is liable to bailee. The bailor must disclose to the bailee any faults or defects in the goods. 

Multiple choice

A bank has to file a suit on the basis of a promissory note dated September 22, 2006. The bank made the demand for payment on November 10, 2006. The suit can be filed latest by

  1. November 09, 2009

  2. September 22, 2009

  3. September 21, 2009

  4. November 10, 2009
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

On the basis of a promissory note, one can file a suit for recovery of money latest by the completion of third year. The given promissory note is dated September 22, 2006. Thus, suit can be filed latest by September 21, 2009.

Multiple choice

The provisions of SARFAESI Act are not applicable in case of a loan account in which the amount due is

  1. 20% or less of principal amount

  2. less than 20% of principal amount

  3. 20% or less of principal amount and interest

  4. less than 20% of principal amount and interest
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The provisions of this act are applicable only for NPA loans with outstanding above Rs. 1 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this act.

Multiple choice

Which of the following statements is incorrect?

  1. Winding up means closing a company and settling the accounts.

  2. Moratorium means a legal authority to a debtor to postpone payment of dues for a specified time.

  3. Amalgamation means breaking a company into two or more parts for the betterment of the company.

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Amalgamation is the combination of one or more companies into a new entity. Thus, option 3 is incorrect.

Multiple choice

Which of the following statements are correct?

Where a company creates charge on its assets and fails to get the charge particulars field and registered

(a) any person interested in the charge can file and get it registered (b) if charge is not filed and registered, the creditor becomes unsecured creditor in the event of liquidation of the company (c) if the charge remains unregistered, the loan becomes due immediately (d) it is responsibility of the company to file the charge within given time period

  1. Only (b), (c) and (d)

  2. Only (a), (c) and (d)

  3. Only (a), (b) and (c)

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correct Answer: All of the above

Multiple choice

Recovery of debt due to banks and Financial Institutions Act, 1993 Section 2 (g) provides definition of ‘debt’. It does not include any liability

  1. inclusive of interest which is secured

  2. inclusive of interest which is not secured

  3. payable under a decree or order of a civil court

  4. recoverable by the bank from its employee who committed a fraud
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Recovery of debt due to banks and Financial Institutions Act, 1993 Section 2(g) states that "debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application.

Thus, option 4 is the most suitable option. 

Multiple choice

XYZ were allowed certain credit facilities on the guarantee of G. Later on, the account was secured by equitable mortgage of the property. But for certain reasons, the bank released the equitable mortgage. When the account became difficult for recovery and money was demanded from G also, he took the plea that he stands discharged to the extent the value of mortgage, which has been released by the bank.

  1. Guarantor is not discharged as the mortgage was taken subsequent to the date of guarantee.

  2. Guarantor is not discharged as he is liable as long as borrower is liable.

  3. Guarantor is discharged to the extent of value of equitable mortgage, as bank has put the guarantor to loss.

  4. Guarantor is discharged since value of security in the account has come down.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Renu Gupta and Another vs Debt Recovery Tribunal-II  The guarantor shall not be discharged from his liability by the bank's releasing the borrower or by any act or omission of the bank legal consequence of which may be to discharge borrower or by any act of the bank which would, but for this present provision, be inconsistent with the guarantor's right as surety or by the bank's omission to do any act which, but for this present provision, the bank's duty to the guarantor would have required the bank to do. Though as between the borrower and the guarantor, the guarantor is surety only, the guarantor agrees that as between the bank and the guarantor, the guarantor is the principle debtor, jointly with the borrower and accordingly the guarantor shall not be entitled to any of the rights conferred as surety by Section 133, 134, 135, 139 and 141 or any other relevant provision of the Contract Act.

Multiple choice

A pledge is bailment of goods to secure a loan. The goods are delivered by the owner to the creditor. These parties as per Section 172 of Indian Contract Act are called

  1. bailor and bailee

  2. bailee and bailor

  3. pledger and pledgee

  4. pawner and pawnee
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per Section 172 of Indian Contract Act, the bailment of goods as security for payment of a debt or performance of a promise is called "pledge". The bailor is in this case called the "pawner". The bailee is called the "pawnee".

Multiple choice

Which of the following is not correct with regard to a deferred payment guarantee?

  1. Guarantee is issued normally for purchase of capital assets on long term credit from the supplier.

  2. Guarantee is issued in lieu of term loan and appraisal is also done like a term loan.

  3. Difference between TL and such guarantee is of outlay of funds.

  4. This is a payment guarantee issued to your importer for deferred or timely receiving of the goods.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This is a payment guarantee issued to your exporter for deferred or timely payment of the goods, and corresponding interest.

Multiple choice

Which of the following is not a priority sector advance?

  1. Retail loans with certain limits

  2. Housing loans with certain limits

  3. Real estate loans

  4. Small business
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Priority sector lending includes loans to agriculture, small businesses, housing (within limits), retail trade, and weaker sections. Real estate loans (commercial property, land acquisition) are explicitly excluded from priority sector as they are considered speculative. The other options are all classified as priority sector advances by RBI guidelines.

Multiple choice

Where neither the debtor nor the debtor signifies the manner of appropriation then the payment shall be applied in the order of

  1. time of debt (earliest debt first) irrespective of the limitation period

  2. larger of the amounts first

  3. smaller of the amounts first

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When neither the debtor nor creditor specifies how to apply a payment, the law requires it to be applied to the earliest debt first, irrespective of the limitation period. This is known as the rule of appropriation in debt payment. The other options (larger amount first, smaller amount first) are not the legal default.

Multiple choice

Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, _________________

  1. the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, provided its recovery is not barred by the law.

  2. it is to be applied in discharge of the debts in order of time.

  3. it is to be applied in discharge to the debts in order of time provided they are not barred by the law of limitation.

  4. the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suit.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option (4) is correct. The payment can be appropriated as per discretion of creditor. Option (1) is incorrect because it contains the condition whether its recovery is not barred by law. It may be barred or not barred by law. Option (2) is applicable when appropriation is made by debtor expressly or impliedly. Option (3) is applicable as appropriation by law when both the parties make any appropriation.