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2024
1 (Sem–3) BCM (FIN) 07 2024
COMMERCE (FINANCE)
PAPER: BCM0300704 (BANKING)
Full Marks: 60, Time: 2½ hours
The figures in the margin indicate full marks for the questions.
1. Choose the correct answers of the following: [1×8=8]
(a) In which year the Reserve Bank of India was nationalised?
(i) 1st April, 1936
(ii) 1st January, 1948
(iii) 1st January, 1949
(iv) 1st July, 1955
Answer: (iii) 1st January, 1949
(b) Who issues the Garnishee Order?
(i) Court
(ii) RBI
(iii) The Central Government
(iv) Concerned State Government
Answer: (i) Court
(c) The first Indian Commercial Bank to undertake merchant banking services in India is:
(i) State Bank of India
(ii) Bank of Baroda
(iii) Canara Bank
Answer: (i) State Bank of India
(d) Which of the following is not a negotiable instrument of statute?
(i) Promissory Note
(ii) Bill of Exchange
(iii) Cheque
(iv) Share Warrant
Answer: (iv) Share Warrant
(e) Cash reserve maintained by a bank is called the first line of defence.
(i) Correct
(ii) Incorrect
Answer: (i) Correct
(f) ICICI Bank is the first Universal Bank in India.
(i) Correct
(ii) Incorrect
Answer: (ii) Incorrect
(g) A promissory note can be crossed.
(i) Correct
(ii) Incorrect
Answer: (ii) Incorrect
(h) A married woman is considered as a special type of bank customer.
(i) Correct
(ii) Incorrect
Answer: (ii) Incorrect
2. Answer any six of the following questions: [2×6=12]
(a) What is a scheduled bank?
Answer: A scheduled bank is a bank whose name is included in the Second Schedule of the Reserve Bank of India Act, 1934. These banks fulfil RBI requirements regarding paid-up capital and reserves and are entitled to receive facilities such as refinance and membership of the clearing house. They can borrow from the RBI for maintaining liquidity.
(b) What is pledge?
Answer: Pledge is a form of bailment where goods are delivered by the borrower (pledgor) to the lender (pledgee) as security for a loan. Possession of the goods is transferred, but ownership remains with the pledgor. If the borrower fails to repay, the pledgee has the legal right to sell the pledged goods after proper notice.
(c) What is hypothecation?
Answer: Hypothecation is a charge on movable assets where the borrower keeps both ownership and possession of the goods, while the lender holds an equitable charge over them. It is used in vehicle loans, inventory financing, etc. In case of default, the lender can take possession of the hypothecated goods and recover the dues.
(d) What is a negotiable instrument?
Answer: A negotiable instrument is a written document guaranteeing the payment of a certain sum of money either to the bearer or to the order of a specified person. It is freely transferable by endorsement or delivery, and the transferee gets a good title. Promissory notes, bills of exchange and cheques are the main negotiable instruments.
(e) Write the meaning of the term ‘Bank Customer’.
Answer: A bank customer is a person who maintains an account with a bank and avails banking services. A person becomes a customer when the banker–customer relationship is established, usually through opening an account. The customer can use services like deposits, withdrawals, loans and other facilities.
(f) What is meant by the term ‘Liquidity of Assets’?
Answer: Liquidity of assets refers to the ease and speed with which an asset can be converted into cash without losing value. Cash and marketable securities are highly liquid, while fixed assets like machinery are less liquid. Liquidity is essential for meeting short-term financial commitments.
(g) What is a non-performing asset?
Answer: A non-performing asset (NPA) is a loan or advance in which interest or principal remains overdue for more than 90 days. Such assets stop generating income for the bank and increase credit risk. NPAs negatively affect the profitability and financial soundness of banks.
(h) What is a recurring deposit account?
Answer: A recurring deposit (RD) account is a savings scheme where a fixed amount is deposited every month for a specified period. At maturity, the depositor receives the total amount with interest. It encourages regular savings and is ideal for individuals with steady monthly income.
(i) What is the crossing of a cheque?
Answer: Crossing of a cheque means drawing two parallel lines on its face, with or without additional words. It makes the cheque payable only through a bank and not over the counter, thereby providing safety against misuse.
(j) What is overdraft?
Answer: Overdraft is a facility where a bank allows a customer to withdraw more money than the balance available in the current account. Interest is charged only on the overdrawn amount. It is a short-term borrowing facility, mainly used by businesses to meet temporary financial requirements.
3. Answer any four questions of the following in about 200 words each: [5×4=20]
(a) Differentiate between public sector banks and private sector banks in table.
Answer: Public sector banks and private sector banks form the two major segments of the Indian banking system. Both contribute to financial development, but they differ in ownership, objectives, functioning and customer approach. The following table highlights the major differences:
Public sector banks play a vital role in promoting inclusive growth, while private sector banks focus on efficient service and innovation. Both segments together strengthen India’s financial system by balancing social obligations with profitability and modernisation.
(b) Briefly state the principles of sound lending.
Answer: Sound lending is essential for the safety, profitability and stability of banks. Banks mobilise public funds, therefore they must ensure that loans are given only after careful examination. The principles of sound lending guide banks to minimise risks and maintain financial discipline.
A major principle is Safety, which ensures that the borrower has the ability and willingness to repay the loan. Banks study the borrower’s character, capacity and financial position before granting loans. Liquidity is another important principle because banks must lend in such a way that the funds can be easily realised to meet withdrawal demands.
The principle of Purpose ensures that loans are granted for productive and legitimate activities. Banks evaluate whether the purpose of borrowing will generate sufficient returns to repay the loan. Profitability is essential as interest on loans is a major source of income for banks. A bank must ensure that the loan yields adequate interest and contributes to its overall earnings.
The principle of Security requires that banks obtain adequate collateral or security to safeguard against default. Collateral acts as a fallback in case the borrower fails to repay. Another principle is Diversification of Risk, which means banks should not concentrate loans in a few sectors or borrowers. Diversification reduces the impact of losses.
The principle of Stability ensures long-term financial soundness by lending cautiously to trustworthy borrowers. Finally, National Interest requires banks to follow government policies and support priority sectors like agriculture, small industries and exports.
Thus, the principles of sound lending help banks ensure safety, liquidity, profitability and social responsibility while maintaining a stable financial system.
(c) Distinguish between promissory note and cheque in table.
Answer: A promissory note and a cheque are both negotiable instruments governed by the Negotiable Instruments Act, 1881. However, they differ in purpose, parties involved and legal characteristics. Their differences are presented below:
In summary, a promissory note is a promise document, while a cheque is a payment instrument used through the banking system.
(d) Write a brief note on banking sector reforms in India.
Answer: Banking sector reforms in India began in the early 1990s with the aim of improving efficiency, competitiveness and financial stability. The Narasimham Committee (1991 and 1998) played a key role by recommending structural and policy changes for modernising the sector.
One major reform was reducing the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) to free more funds for lending. Interest rates were deregulated, enabling banks to determine rates based on market conditions. This enhanced competition and improved credit flow to various sectors.
Another significant reform was the introduction of prudential norms such as income recognition, asset classification, provisioning and capital adequacy (CAR). These norms aligned Indian banks with international standards and improved financial discipline. The creation of Board for Financial Supervision (BFS) strengthened supervisory practices.
Reforms also promoted entry of private sector banks like HDFC Bank and ICICI Bank, which brought technological innovation and competition. Foreign banks received wider operational freedom. Public sector banks underwent recapitalisation and adopted modern risk-management practices.
Technological reforms included Core Banking Solutions (CBS), ATMs, digital banking and electronic payment systems. The enactment of the SARFAESI Act, 2002 empowered banks to recover dues from defaulters more efficiently. The establishment of NABARD, NHB and payment banks further diversified financial services.
Recent reforms include Insolvency and Bankruptcy Code (IBC), merger of public sector banks, promoting financial inclusion through Jan Dhan Yojana, and strengthening regulation under the RBI and Basel norms.
Overall, banking reforms transformed the sector into a more competitive, transparent and technology-driven system capable of supporting India’s economic growth.
(e) Write a short note on the powers of RBI under the Banking Regulation Act, 1949.
Answer: The Reserve Bank of India (RBI) is the central banking authority responsible for regulating and supervising the banking system. Under the Banking Regulation Act, 1949, the RBI has been vested with extensive powers to ensure stability, control and orderly development of banks in India.
One of the important powers is licensing of banks. No banking company can commence or continue business without the RBI’s licence. RBI also has the power to approve new branches and control branch expansion. It can regulate the paid-up capital and reserves of banks to ensure financial soundness.
RBI exercises control over management and corporate governance by approving the appointment of key managerial personnel such as the chairman, CEO and directors. It can remove managerial staff in the interest of public depositors. The RBI also inspects banks through periodic audits to ensure compliance with laws and prudential norms.
Another important power relates to regulation of banking operations. RBI issues guidelines on cash reserve ratio (CRR), statutory liquidity ratio (SLR), interest rates, credit policy and risk-management practices. It can direct banks on how they should conduct their business to maintain financial discipline.
Additionally, the RBI has powers relating to supervision and control of advances. It can give directions regarding the purpose, margins and limits of loans. RBI also plays a major role in the merger, reconstruction or winding up of weak banks to protect depositors.
RBI ensures transparency by requiring banks to submit periodic returns and statements. In case of violation of laws, it has the authority to impose penalties.
Thus, the powers granted to RBI under the Banking Regulation Act, 1949 enable it to maintain a strong, stable and efficient banking system in India.
(f) Explain briefly about the different types of credit facilities provided by a commercial bank. Use points also.
Answer: Commercial banks provide various credit facilities to meet the financial needs of individuals, businesses and industries. These facilities help promote economic growth by providing timely finance for production, trade and consumption activities. The main types of credit facilities are explained below.
i) Cash Credit: It is the most common working capital facility. The bank sanctions a credit limit based on the borrower’s security such as stock or receivables. The borrower can withdraw funds as required and interest is charged only on the utilised amount.
ii) Overdraft: This facility allows current account holders to withdraw more money than the balance available. It is a short-term credit mainly used by businesspeople to meet temporary cash shortages. Interest is charged only on the amount overdrawn.
iii) Term Loans: These are loans granted for a fixed period, usually for purchasing fixed assets such as machinery, equipment or buildings. Term loans may be short-term, medium-term or long-term depending on repayment period.
iv) Loans and Advances: Banks provide loans for various purposes like business expansion, education, housing and personal needs. The entire amount is disbursed at once and repaid in instalments.
v) Discounting of Bills: Banks provide finance by discounting bills of exchange before their maturity. The bank deducts a discount (interest) and provides immediate cash to the customer.
vi) Credit Cards: Banks issue credit cards that allow customers to purchase goods and services on credit and pay later. It is a form of unsecured short-term credit.
vii) Letter of Credit and Bank Guarantees: These are non-fund-based credit facilities that assure payment to sellers or secure performance of contracts. They help in domestic and foreign trade.
These credit facilities ensure smooth financial functioning and support the growth of trade and industry.
(g) What are the different methods available for fund transfer under the E-Banking system? Explain. Use points also.
Answer: E-Banking has modernised financial transactions by enabling quick and secure electronic fund transfers. Various methods are available to customers for transferring money within the country or internationally. The main fund transfer methods under the e-banking system are as follows:
i) NEFT (National Electronic Funds Transfer): NEFT is a nationwide payment system used for transferring funds from one bank account to another on a deferred settlement basis. Transactions are processed in half-hourly batches, and there is no minimum or maximum limit.
ii) RTGS (Real Time Gross Settlement): RTGS is used for high-value transfers, usually above ₹2 lakh. Funds are transferred in real time and on a gross basis, making it the fastest method for large transactions.
iii) IMPS (Immediate Payment Service): IMPS enables instant 24×7 fund transfers through internet banking or mobile banking. It is widely used for small and medium-value payments due to its speed and availability.
iv) UPI (Unified Payments Interface): UPI allows instant fund transfer using a virtual payment address without needing account numbers or IFSC codes. It has become highly popular due to its ease, speed and availability on mobile apps.
v) Mobile Wallets: Digital wallets such as Paytm, PhonePe and Google Pay allow users to store money digitally and transfer funds instantly to other users.
vi) SWIFT (Society for Worldwide Interbank Financial Telecommunication): It is used for international fund transfers. SWIFT provides secure communication between banks globally.
vii) ECS/NACH (Electronic Clearing Service / National Automated Clearing House): These systems are used for bulk payments such as salaries, pensions, dividends or loan instalments.
These e-banking fund transfer methods ensure speed, security, convenience and transparency in modern financial transactions.
(h) Explain the structure of commercial banks in India.
Answer: The structure of commercial banks in India is well-organised and includes a wide range of institutions that work together to support the financial needs of individuals, businesses and the economy. The commercial banking structure can be broadly classified into the following categories:
i) Public Sector Banks: These banks are owned and controlled by the Government of India, holding more than 50% of shares. They include State Bank of India and its associates (before merger), and nationalised banks such as Punjab National Bank, Bank of Baroda and Canara Bank. They focus on financial inclusion and priority sector lending.
ii) Private Sector Banks: These banks are owned by private individuals and corporations. They are divided into old private banks (like Federal Bank, Karur Vysya Bank) and new private banks (like HDFC Bank, ICICI Bank, Axis Bank). They are known for modern technology, efficiency and customer service.
iii) Foreign Banks: These banks operate in India as branches of their parent companies located abroad. Examples include Citibank, HSBC and Standard Chartered Bank. They mainly serve high-net-worth individuals and corporate clients.
iv) Regional Rural Banks (RRBs): Established to provide credit facilities to the rural population, RRBs are jointly owned by the Central Government, State Government and sponsor public sector bank. They focus on agriculture and rural development.
v) Scheduled and Non-Scheduled Banks: Scheduled banks are listed under the Second Schedule of the RBI Act, 1934 and enjoy certain privileges such as access to refinancing from RBI. Non-scheduled banks are smaller institutions not included in the schedule.
vi) Local Area Banks (LABs): These operate in a limited geographical area to mobilise rural savings and provide loans to local people.
vii) Co-operative Banks: Although not strictly classified as commercial banks, some co-operative banks perform commercial functions. They provide credit to farmers, small traders and self-employed people.
Thus, the commercial banking structure in India is diverse and aims to ensure financial inclusion, economic development, innovation and stability in the banking system.
4. Answer any two of the following questions: [10×2=20]
(a) Describe the functions of a bank. (12–14 marks)
Answer: A bank is a financial institution that performs a wide range of functions to promote savings, investment, trade and economic development. The functions of a bank can be broadly divided into primary, secondary and general utility functions. These functions help banks mobilise public funds and allocate them efficiently for productive purposes. The major functions of a bank are described below.
i) Accepting Deposits: One of the most important functions of a bank is to accept deposits from the public. Banks provide different types of deposit accounts such as savings deposits, current deposits, fixed deposits and recurring deposits. These deposits encourage savings and provide safety to customers’ money.
ii) Granting Loans and Advances: Banks extend loans and advances to individuals, businesses and industries. These include cash credit, overdrafts, demand loans, term loans and discounting of bills. Loans help customers meet their working capital and long-term financial needs and contribute to economic development.
iii) Creation of Credit: Banks create credit by granting loans out of the deposits they receive. When a loan is sanctioned, the bank credits the customer’s account, thereby increasing money supply in the economy. Credit creation enhances capital formation and promotes business activities.
iv) Agency Functions: Banks perform various agency functions on behalf of customers. These include collection of cheques and bills, making payments of rent, salaries, insurance premiums, and receiving dividends, interest and other payments. Banks act as agents for their customers and earn commission for these services.
v) General Utility Services: Banks provide various utility services such as issuing letters of credit, safe deposit lockers, travellers’ cheques, and credit cards. Banks also provide foreign exchange services for importers and exporters and issue guarantees to strengthen business transactions.
vi) Remittance of Funds: Banks help in the transfer of money from one place to another through NEFT, RTGS, IMPS, UPI and bank drafts. This ensures safe and quick remittance of funds within and outside the country.
vii) Investment of Funds: Banks invest surplus funds in government securities, treasury bills, bonds and other approved investments to maintain liquidity and earn income. These investments help banks manage risk and comply with statutory requirements.
viii) Promotion of Economic Development: Banks play a crucial role in promoting economic growth by financing agriculture, small industries, trade, commerce and infrastructure. Priority sector lending ensures balanced regional development.
ix) Maintaining Liquidity and Safety: Banks maintain sufficient liquidity to meet withdrawal demands of customers. They follow RBI guidelines regarding CRR, SLR and capital adequacy norms to ensure financial stability.
Through these diverse functions, banks serve as financial intermediaries, mobilise savings, create credit and support the overall development of the economy.
(b) Discuss the general relationships between bankers and customers.
Answer: The relationship between a banker and a customer is fundamental to the functioning of the banking system. This relationship develops when a person opens an account with a bank or avails any service from it. The relationship is multifaceted and depends on the nature of transactions and services offered by the bank. The important general relationships between bankers and customers are discussed below.
i) Debtor–Creditor Relationship: When a customer deposits money in a bank, the banker becomes the debtor and the customer becomes the creditor. The money deposited becomes the bank’s liability and the bank is required to repay it on demand. However, when the bank grants a loan, the roles reverse. The customer becomes the debtor and the bank becomes the creditor. This dual relationship is the basis of banking operations.
ii) Agent–Principal Relationship: Banks perform various agency functions such as collection of cheques, dividends and bills, making payments on behalf of customers, and purchasing or selling securities. In performing these duties, the bank acts as an agent and the customer as the principal. The bank charges commission for these services.
iii) Trustee–Beneficiary Relationship: When a bank holds securities or valuables of a customer in safe custody or manages trust funds, it acts as a trustee. The customer, whose goods are held in trust, is the beneficiary. The bank must act with utmost care, honesty and confidentiality.
iv) Bailer–Bailee Relationship: When a customer deposits valuables like gold, documents or ornaments for safe custody in a locker, the customer becomes the bailer and the bank becomes the bailee. The bank must return the goods in the same condition when demanded.
v) Lessor–Lessee Relationship: In safe deposit locker facilities, the bank acts as the lessor and the customer as the lessee. The customer pays rent for using the locker.
vi) Pledger–Pledgee Relationship: When a customer pledges goods or securities to obtain a loan, the customer becomes the pledgor and the bank becomes the pledgee. The bank may sell the pledged goods if the customer defaults.
vii) Mortgagor–Mortgagee Relationship: When goods or property are mortgaged for loans, the customer is the mortgagor and the bank is the mortgagee. The bank has the right to take possession of the mortgaged property in case of non-payment.
viii) Obligation of Secrecy: One of the most important aspects of the banker–customer relationship is maintaining secrecy regarding customer accounts. The bank must not disclose information except under legal obligation or with customer consent.
Thus, the relationship between a banker and a customer is dynamic and depends on the nature of financial transactions, legal obligations and services rendered. It strengthens the trust and understanding between both parties and ensures smooth banking operations.
(c) Differentiate between ‘Holder’ and ‘Holder in Due Course’ in table. And also explain the privileges enjoyed by the Holder in Due Course.
Answer: A negotiable instrument passes through several hands before it reaches the rightful owner. Among the persons who handle the instrument, two important categories are Holder and Holder in Due Course. Their differences are given in the table below:
Privileges of a Holder in Due Course: The Negotiable Instruments Act grants several privileges to a holder in due course, which are essential for promoting the free circulation of negotiable instruments.
i) Better Title: A holder in due course gets a clean title even if the previous holder had a defective title. This ensures that the instrument remains negotiable.
ii) Presumption of Consideration: It is presumed that the instrument was obtained for consideration. The burden of proof lies on the opposite party.
iii) Right Against Prior Parties: Every prior party is liable to the holder in due course until the instrument is satisfied. This gives him the strongest legal protection.
iv) No Effect of Conditional Delivery: Any defect arising from conditional or incomplete delivery cannot be used against a holder in due course.
v) Estoppel Against Denial: The drawer and acceptor cannot deny the validity of the instrument or capacity to contract when sued by a holder in due course.
vi) Protection in Case of Fraud: Even if the instrument was originally obtained through fraud, coercion or theft, a holder in due course who obtained it in good faith is protected.
These privileges ensure the reliability and security of negotiable instruments and encourage their smooth circulation in trade and commerce.
(d) Discuss the provisions of the Banking Regulation Act, 1949 in regard to (i) Licensing of Banks (ii) Constitution of the Board of Directors.
Answer: The Banking Regulation Act, 1949 provides a comprehensive legal framework for the regulation, supervision and control of commercial banks in India. Two of the most important aspects covered under the Act are the provisions relating to the licensing of banks and the constitution of the Board of Directors. These provisions ensure that banks operate in a sound, efficient and ethical manner and maintain the confidence of the public.
(i) Licensing of Banks
The licensing of banks is governed by Section 22 of the Banking Regulation Act, 1949. No banking company can carry out banking business in India without obtaining a licence from the Reserve Bank of India (RBI). The major provisions regarding licensing are explained below:
i) Mandatory Licence: A bank must uobtain a licence from RBI before commencing banking operations. Similarly, existing banks must also hold a valid licence to continue their business.
ii) Conditions for Granting Licence: Before issuing a licence, RBI examines various factors such as capital adequacy, earning prospects, management efficiency, and the ability to comply with the Act. The bank must have adequate paid-up capital and reserves.
iii) Public Interest and Banking Development: RBI ensures that issuing a licence serves public interest and contributes positively to the development of banking in India. The location, viability of business and financial inclusion needs are also considered.
iv) Foreign Banks: RBI may grant a licence to foreign banks to operate in India, subject to conditions relating to reciprocity and compliance with Indian banking rules.
v) Power to Cancel Licence: RBI may cancel a licence if the bank fails to comply with the conditions, if it is conducting business detrimentally, or if it is unable to pay its depositors.
Thus, licensing provisions ensure that only financially strong and professionally managed institutions operate as banks.
(ii) Constitution of the Board of Directors
The Board of Directors is crucial for the governance and management of a bank. The provisions relating to the constitution of the board are contained in Section 10A and other related sections of the Act.
i) Minimum Number of Directors: Every banking company must have a minimum of three directors. Large banks generally have more directors depending on their size and operations.
ii) Fit and Proper Criteria: The Act requires that directors must be persons of integrity, sound financial background and professional experience. Those who have been connected with insolvency or fraud are not eligible.
iii) Professional Representation: At least 51% of the directors must have special knowledge or practical experience in fields such as accountancy, finance, law, economics, business or agriculture. This helps the board take informed and expert decisions.
iv) Restriction on Number of Directors from One Group: To prevent concentration of control, not more than three directors can belong to the same company or firm.
v) CEO/Managing Director: RBI must approve the appointment or reappointment of the Chairman, Managing Director or CEO. RBI also has the power to remove them in the interest of public depositors.
vi) Disqualification of Directors: Directors who are loan defaulters, or who engage in activities harmful to the bank’s interest, are disqualified.
These provisions ensure transparency, professionalism and accountability in the management of banking companies.
(e) What is a mortgage? State the various types of mortgage. (12–14 marks)
Answer: A mortgage is a legal method of creating a charge on immovable property such as land, buildings or houses as security for a loan. According to Section 58 of the Transfer of Property Act, 1882, a mortgage is the transfer of an interest in specific immovable property for securing payment of money advanced or to be advanced by way of loan, or for the performance of an obligation. The ownership of the property remains with the mortgagor, but the mortgagee gets certain rights over the property until the loan is repaid.
A mortgage is important because it provides long-term security to banks and financial institutions. If the borrower defaults, the mortgagee can recover the loan amount by selling the mortgaged property. The various types of mortgage recognised under the Act are described below.
i) Simple Mortgage: In a simple mortgage, the mortgagor does not deliver possession of the property, but binds himself personally to repay the loan. The mortgagee has the right to sell the property through court if the mortgagor fails to repay.
ii) Mortgage by Conditional Sale: Here the mortgagor sells the property to the mortgagee with a condition that the sale becomes void if the mortgage money is repaid. If the borrower defaults, the sale becomes absolute.
iii) Usufructuary Mortgage: In this type, the mortgagor delivers possession of the property to the mortgagee, and the mortgagee enjoys the rents and profits in place of interest or towards repayment of the mortgage amount. The mortgagee cannot sue for recovery.
iv) English Mortgage: The mortgagor transfers the property absolutely to the mortgagee but with a condition that the mortgagee will retransfer it to the mortgagor upon full repayment. This type ensures strong security to banks.
v) Mortgage by Deposit of Title Deeds (Equitable Mortgage):This is created by simply depositing the title deeds of the immovable property with the bank. It is common in cities like Mumbai, Kolkata and Chennai. It is convenient, inexpensive and widely used by banks.
vi) Anomalous Mortgage: Any mortgage that does not fall under the above categories is termed an anomalous mortgage. It is created by combining features of different types of mortgages.
Mortgages play a crucial role in long-term financing, housing loans and commercial loans because they give strong security to banks and ensure repayment.
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