LPGB 96th BPE: Understanding Terminology - Banking Diploma Preparation

Bankers’ Lien Versus Bankers’ Right to Set Off

Definition: Banker’s Lien is the right of a bank to retain possession of goods until the debt is repaid. Bankers’ Right to Set-off means combining two or more accounts to settle debt.
Types of Asset: Banker’s Lien is related to movable assets, whereas Bankers’ Right to Set off is related to money in the accounts.
Examples: Bankers’ Lien: Ornaments/FDR against loan. Bankers’ Right to set off: A has an overdue loan of Tk. 500000, and the balance in the Savings Account is Tk. 100000. The bank can set off the overdue amount by Tk. 100000 from the Savings Account.

Bid Bond Versus Performance Guarantee

Definition: A bid bond is a guarantee of a bank on behalf of bidders in favour of a project owner that ensures the bidder will sign the contract if he wins the bid. A performance guarantee assures that a contractor will complete the work.
Nature of Guarantee: Bid bond is a pre-contract guarantee, whereas Performance Guarantee is a Post-contract guarantee.
Purpose: To protect the project owner from fake bidders. To ensure the project owner that the work will be completed by the contractor.
Compensation: In case of Bid Bond, if the bank provides a bid bond of Tk. 100000.00, and if the bidder fails to sign the contract after winning the bid, the bank will compensate Tk. 100000.00 to the project owner. In Case of a performance guarantee, if the bank provides a performance guarantee for Tk. 10,00,000.0,0, and if the contractor fails to complete the work, the bank will pay 10,00,000 to the project owner.

Traveller’s Cheque Versus Circular Letter of Credit

Definition: A traveller’s Cheque is a prepaid instrument used by travellers to make payment or withdraw cash while he is traveling. A Circular Letter of Credit is a bank document provided to a customer that allows withdrawing cash up to a certain limit.
Nature: A traveller’s Cheque bears a fixed denomination like $50, $100 etc. A Circular Letter of Credit offers withdrawal of cash up to a certain limit.
Number of Signatures: A Traveller’s Cheque requires two signatures, one at the time of purchase and the other at the time of withdrawal. But no such type of signature is required for a Circular Letter of Credit.

Deposit Bank Versus Mixed Bank

Definition: A deposit bank is a type of bank that collects deposits from customers and provides loans to customers. Whereas A mixed bank performs both commercial and investment banking activities.
Nature: Deposit Bank is a traditional Commercial Bank, but a Mixed Bank is a combination of a deposit bank and an investment bank.
Core Tasks: A deposit bank’s activities include: 1) Opening Savings Accounts, 2) Accepting Savings, Current, and Fixed Deposits, and 3) Providing Loans. Whereas, A mixed bank performs the functions of a deposit bank and provides investment services like underwriting of shares and debentures, etc.
Examples: Deposit Bank: Sonali Bank PLC, Bangladesh Development Bank PLC, Mixed Bank: HSBC, Standard Chartered Bank.

Transferability Versus Negotiability

Definition: Transferability means the right of an instrument can be transferred from one person to another. Wheares, negotiability means an instrument can be transferred, and the transferee will get a better title.
Nature of Right: In case of Transferrability, the transferee gets the right to receive the benefit. But, in case of negotiability, the transferee becomes the holder in due course and can sue in his own name.
Protection: The transferability feature of an instrument cannot ensure protection against a previous defective title. Whereas, the Negotiability feature ensures free from the previous defective title.
Example: Instruments with transferability features: Insurance policy, fixed deposit receipt (FDR), Instruments with negotiability features: Cheque, Bill of Exchange, Promissory Note.

Conditional Endorsement Versus Restrictive Endorsement

A Conditional Endorsement is one where there is a specific condition. The holder of the insrument will get the payment only if the mentioned condition is fulfilled. If the condition is not fulfilled, the endorsee will not get the payment.

For example: “Pay to Mr. Asif if he delivers 10 kg rice by 10 March 2026.”

A Restrictive Endorsement is one where the payment is made to a specific person only. That means no payment can be made to a person other than the one mentioned in the endorsement.

For example: “Pay to Mr. X Only”