Banking Notes

Functions of Banks :

Accepting deposits
Giving loans
Remittance facility
Lockers
Safe custody of articles
Insurance banking ( bank & selling insurance)
Invest banking / merchant banking
Foreign exchange
Innovative banking internet banking, ATMs, offshore and doorstep
banking etc.

Types of Banks :Scheduled commercial banks :Scheduled commercial banks are those banks included in the second
schedule of the Reserve bank of India act 1934.
For this they have to satisfy, these conditions they are,
It must have paid up capital and reserves of an aggregate value of at
least Rs. 5 lakhs
It is carrying on the business of banking in India
It must be a cooperation or cooperative society and not partnership
or sole partner of firm
India banks registered or incorporated in India
Foreign banks - registered or incorporated in their home country not in
India
Public sector banks : State bank of India and its associate banks called sate bank group
Nationalized banks 20
Regional rural banks mainly sponsored by public sector banks
Privae sector banks :-

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Private banks
Foreign banks operates in India
Schedule cooperative banks
Non- schedule banks

Cooperative sector banks :

The cooperative sector is very much useful for rural people

State cooperative banks
Central cooperative banks
Primary agriculture credit societies

Development banks or financial institutions :

IDBI
NABARD
IIBI
ICICI
IFCI
National housing bank
Export and import bank of India

Reserve bank of India Est. 1935, Nationalized 1949

Sole authority of note issues

Bankers bank ,
Lender of the last resort,
Control of credit, , it controls inflation credit

Banks to government,
RBI maintains all deposits of government
RBI implements many welfare schemes of the government
RBI does government business : payment of pension both Gov.
RBI gives ways and means advance to central and state Gov.
All schemes are implemented by RBI with commercial banks

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 Except one rupee all coins are issued central government coinage act
1906
One rupee issued by finance secretary of state
Maximum note printable by RBI is 10 thousand
RBI stopped printing Rs 2 note
All coins up to 25 paise are not legal tender
A small coin means 50 paise
Controlling credit
RBI controls crediting under Quantitative methods / general method
Bank rate discount rate,
The commercial banks borrow money from RBI by keeping Govt,
securities as guarantee.
Under Section 49, RBI 1934, bank rare can increase for controlling
the credit.
A change in he B.R. is always follows by a change in the directions in
the notes
Open market operations,
Purchase and sale of govt. securities by RBI to conduct in money
market,
if the money market is flourishing & active then RBI sells Govt.
securities and Observes liquidity from money market.
On the other hand money market is weak, RBI purchases Govt.
securities from the money market.
Cash reserve ratio ,
All schedule banks must maintain a certain percentage of their net
demand & time liabilities in the form of cash reserves with RBI.
Section 42, RBI 1934.
An increase in the CRR reduce the lendable resources of the bank vis
versa
CRR must maintain on daily basis at 9% of NDTLs
RBI does not pay any interest on CRR balances

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Statutory liquidity ratio,

Every commercial bank must maintain on daily basis on certain % of
its NDTLs in the form of Cash, Gold, un approved securities.
Any increase in SLR reduces the lendable resources of the bank Vis
Versa.

Selective / quantitative credit control,

RBI initiates the selective credit norms to prevent the
speculative holding of essential commodities and control their prices (
sugar, wheat, pulses, oils, seeds, vegetables cotton etc.

Fixing of margins
Regulating credit
Moral suasion :- it is positive in nature
Direct action :- it is punishment oriented or unity in nature

CRR :
RRBs also must maintain CRR in schedule banks, in respect of non
schedule banks CRR to be maintain 3% of their NDTLs & their CRR balance
shows to be maintained by non schedule banks as cash balance with
themselves section 18, banking regulation act 1949

Policies rates of banks :Repo rate : It is the rate at which commercial banks borrow founds from RBI,
through repurchase agreement against their securities under liquidity
adjustment policy of RBI.
Repo means repurchase agreement
Repo means injunction of liquidity into banking system by RBI
Repo transactions are conducted as auctions
Minimum bit size of Repo transaction is Rs 5 crores and multiples
there off,

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 No Repo transactions are on Saturday

Reverse Repo Rate : It is the rate at which RBI borrows funds from commercial banks,.
Reverse Repo means absorptive of liquidity from the banking system
by RBI.

Marginal standing facility rate : It is the rate at which commercial banks borrow funds from RBI at
any point of time or over night.
Then banks return to RBI with 7-14 days. Minimum amount Rs. 1
crore & maximum 2% - 5% of NDTLs.
Banks have o use MSF as the last option for taking loans.

Base rate :

It is the Minimum rate of interest on bank loan

It is also called transparent rate
Base rate replaced Benchmark Prime Leading Rate
Individual banks are free to fix base rate
Base rare does not apply to staff loans, loans on deposits, DRI loans

Commercial Paper:
Commercial Paper (CP) is an unsecured money market instrument
issued in the form of a promissory note. Corporates, primary dealers (PDs)
and the All-India Financial Institutions (FIs) are eligible toissue CP. Maturity
period: between a minimum of 7 days and a maximum of up to one year
from the date of issue. CP can be issued in denominations of Rs.5 lakh or
multiples thereof. Only a scheduled bank can act as an IPA (Issuing and
Paying Agent) for issuance of CP.

Treasury Bills:
Treasury bills (T-bills) offer short-term investment opportunities,
generally up to one year. They are thus useful in managing short-term
liquidity. At present, the Government of India issues three types of treasury

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bills through auctions, namely, 91-day, 182-day and 364-day. There are no
treasury bills issued by State Governments. Treasury bills are available for a
minimum amount of Rs.25,000 andin multiples of Rs. 25,000. Treasury bills
are issued at a discount and are redeemed at par. Treasury bills are also
issued under the Market Stabilization Scheme (MSS).
Certificates of Deposit (CD):
Certificate of Deposit (CD) is a negotiable money market instrument
and issued in dematerialised form or as a Usance Promissory Note against
funds deposited at a bank or other eligiblefinancial institution for a
specified time period. Note: CDs can be issued by (i) scheduled commercial
banks {excluding Regional Rural Banks and Local Area Banks}; and (ii) select
All-India Financial Institutions (FIs) that have been permitted by RBI
Minimum amount of a CD should be Rs.1 lakh, and in multiples of Rs. 1 lakh
thereafter. The maturity period of CDs issued by banks should not be less
than 7 days and not more than one year, from the date of issue.
Deposits :- they are 4 types of deposits
1. Saving 2. Current deposits are Demand deposits
6%, &7%, one in 6 month, on daily pdls

- Payable 4%, 5%,

3. Fixed - 4. Recurring deposits are Time liability - individual banks only

for fixed savings.

Joint account :Former / survivor under this any of the a/c holder will operate the
a/c till the death of any of them, survivor comes into picture later on.

Nomination :

Rules are prescribed by RBI through banking regulation act 1949.

Rules of nomination apply to personal account only
Nomination rule apply to
Deposits
Lockers
Safe custody of articles

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 Nominee will come into picture only on the death of the depositor
Deposit insurance :

This is paid by DICGC

DICGC means deposit insurance credit guarantee corporation
It established by RBI. Maximum amount insurance is Rs. 1 lakh
Insurance premium is paid by banks only on debt of customers and
depositors
Negotiable instrument act :- 1881
They are 3 negotiable instruments they are,

Promissory note :1. Demand P.N payable on demand

2. Ussance P.N payable on date or action expiring at the time maintained
in the P.N.
Bill of exchange - it is drawn in business transactions
Cheque - A cheque is a BOE drawn on a specified banker.
Magnetic ink character recognition :- it consists 9 digits
First 3 digits indicates bank name
Middle 3 digits indicates place or area
Last 3 digits indicates - branch name
Dishonoring of check :when it is presented for payment to the payer bank and the bank
makes timely return of the check or sends timely notice of dishonor or
nonpayment.
Primary sector advances : All loans are assets for banks
All deposits are liabilities for bank

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 All assets show debit balance

All liabilities show credit balance
If money is taken out of a deposit a/c customer gets debited & cash
amount of the bank gets credited
If an amount is deposited in the bank customer a/c gets credited &
cash a/c of bank gets debited
Minimum period for which a fixed deposit can be taken is 7 days &
maximum 10 years
Priority sector loans :1. Education loan ; for studies in India edu. Loan is Rs. 10 lakhs
2. For studies in abroad education loan is Rs. 20 lakhs
Housing loan ;
1. In area with a population more then 10 lakhs H.L. is 25 lakhs
2. In area with a population less then 10 lakhs H.L. is 15 lakhs
A). For repairs to existing houses,
1. In rural/ semi urban areas H.L is 2 lakhs
2. In urban / metro towns H.L is 5 lakhs
DRI Differential Rate of Interest loan
The scheme stared in 1972
I. Target group - people below poverty life
II. Rate of interest 4% simple interest
III. Maximum loan Rs. 15,000 composite loan
IV. Additional loan - Rs. 5000
V. Housing loan - Rs. 20,000
Targets ;
Total DRI loans should 1% of total advanced of the premier year of
the bank
Out of total DRI loans must go to sc, st.

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 2/3 of total DRI loans must be granted through rural/ semi urban
branches
A cheque having a future dae is called post dated cheque
Stale cheque is one which is out of date on validity of which expire
General crossing :A. ) For general crossing there two transfer lines must
B). It is a direction to the paying banker to pay the cheque to the bank only
Special crossing : With or without transfer lines, if the name of the is written amounts
this cheque is a special crossing
It is a direction to the paying banker to pay the cheque to bank which
is mentioned on the crossing
a/c payee crossing ;
This is not defined anywhere. It is a well established legalized
practices.
It is a direction to the collecting banker to pay the cheque to the
credit of payees a/c only.

Agricultural finance :Direct finance

Agricultural loans to raise agricultural crops
Agricultural loans to raise agricultural land
Agricultural loans upto 50 lakhs against agricultural produce
Indirect finance to agriculture : Loans to RRBs & micro finance institutions for on ending to farmers
Loans upto NGOs to support the self help groups

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 Loans upto 5 crores to deal in fertilizers, seeds, pesticides etc.

Targets ;
1. Total P.S. loans should be 40%
2. Total agricultural loan 18%
3. Weaker sections 10%
4. Indirect finance to agricultural 25%

Non performing assets :Term loan

: in respect of term loans if interest and installment of
principal remain over due for a period of over 90 days it is NPA
Bill finance : in respect of bills purchased or discounted if the bill remain
over due for more then 90 days it is NPA
Overdraft / cash credit ; in respect of OD/CC if the account remains out
of order for hen 90 days it is NPA

Agricultural loans :A loan granted to short duration crops will be NPA if the installment
of principle & interest there on remains over due for 2 crops season
A loan granted to long duration crops will be NPA if the installment of
principle & interest there on remains over due for 1 crops season

Classification of assets :Standard assets regular assets

Sub standard assets
A sub standard asset is one which has
remained NPA for a period less or equals to 12 months
Doubtful asset
- it is one which has remained in substandard asset
beyond 12 months
Loss asset
- it is one which a loss has been identified by the bank
and interest external auditors RBI inspectors
Loss asset always 100%
Tearer loans
; initially the rate of interest is low as years go on they will
increase the rate

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Balance sheet :It is statement of assets & liabilities of a company or bank

cooperation generally prepares on the last date of financial year.
Current assets :Those assets which can be converted into cash with in one year is
called current assets.
For ex. Cash, bank balance, bill receivable, accounts receivable, book
debts etc.
Current liabilities :Those liabilities which have to be paid with in one year called current
liabilities,
ex. a/c payable, deposits payable, investment / disinvestment
payable, income / sales tax payable and bonds payable etc.
Intangible assets :Those assets which cannot be seen, touch are measured physical are
called intangible asses.
For ex. Good will patents, copy rights, trade marks, trade secrets,
knowledge assets like know how, computer software etc. these assets are
also known as non monetary assets.
Contingent liabilities :These liabilities which come into picture at a later day on he happing
of a event which is also known as off balance sheet items. These liabilities
are always mentioned notes below
for ex. Bank guarantees, letters and credits, outstanding court cases,
income / sales tax, deposited bill purchased / discounted destruction due to
floods etc.
Know Your Customer :To prevent identity fraud identity threat, terrorist finance and money
laundering etc. RBI introduced KYC norms.
KYE has 4 features they are,

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Customer acceptance policy

Customer identification procedure
Monitoring of transactional
Risk management

Monitoring of transactional : Accept cash in to deposit a/c up to Rs. 49,999 beyond that interests
for PAN card must
Advise customers to use cheques only for all transactions of 50, 000
& above
Prepare cash transaction report for all cash transaction of 10 lakhs &
above
Prepare suspicions transactions report for all cash transactions of 10
lakhs & above and submitted the same to the RBI with in 7 days
Financial inclusion : Delivering of banking services at on effort able cost to the vast
sections of disadvantaged low income groups
Opening bank a/c for under privileged people called financial
inclusion
Promotion of banking habit among unbaked & under banked areas is
called financial inclusion
Under this government of India taken 3 steps they are,
No frills a/c are opened means o based a/c
KYC norms are simplified
General purpose credit cards worth 25, 000 were issued
Tax Deduction sources :

Cut off limit for TDS is Rs. 10,000 interest on deposits

No TDS on NRE, FCNR and NRNR a/c
TDS for NRO a/c 30%
TDS for inwards remittance into NRO a/c is 20%

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Do not deduct TDS it forms 15 is given by depositing

Do not deduct TDS it forms 15 h is giving by senior citizens
Capital adequacy ratio :Minimum CAR 8%
Minimum CAR RBI for India 9%

NEFT (National Electronic Fund Transfer):

NEFT enables funds transfer from one bank to another but works a
bit differently than RTGS. NEFT is slower than RTGS. The transfer is not
direct and RBI acts as the service provider to transfer the money from one
account to another. You can transfer any amount through NEFT, even a
rupee.
Note: Minimum & Maximum Limit of NEFT: no limit.
ii. Limit of NEFT to Nepal in a day is Rs 50,000
RTGS(Real time gross settlement):
RTGS system is funds transfer systems where transfer of money or
securities takes place from one bank to another on a "real time" andon
"gross" basis. Settlement in "real time" means payment transactionis not
subjected to any waiting period. The transactions are settled as soon as
they are processed.
Minimum & Maximum Limit of RTGS: 2 lakh and no upper limit.
Call Money: Call Money is the borrowing or lending of funds for 1day.
Notice Money: Money borrowed or lend for period between 2 days and 14
days it is known as Notice Money
Term Money: Term Money refers to borrowing/lending of funds for period
exceeding 14 days
IFSC (Indian Financial System Code):

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 Indian Financial System Code is an alpha-numeric code that uniquely

identifies a bank-branch participating in the NEFT system.
This is an 11 digit code with the first 4 alpha characters representing
the bank, The 5th character is 0 (zero).and the last
6 characters representing the bank branch.
IFSC is used by the NEFT system to identify the originating /
destination banks / branches and also to route the messages
appropriately to the concerned banks / branches.

Cheque truncation system : It started from 1/1/2014.

It is a process of stopping the flow of physical cheques to the drawee
bank branch.
An electronic image is sent along with relevant information like the
MICR fields, date of presentation, and presenting bank etc.

Banking ombudsman :

The scheme started on 14/6/1995

Ombudsman is appointed by RBI for a term of 3 years
Ombudsman takes care of customer grievances
He entertains the complaints from commercial banks, RRBs, schedule
primary cooperative banks etc.
He excludes NBFCs and housing finance companies
Maximum award of compensation which he can give is Rs. 10 lakhs in
respect of credit cards, he can awarded compensation of 1 lakh
Appellate authority for ombudsman is deputy governor of RBI

Retail banking : Delivery of banking services to a large group of individual customers

is called retail banking under this main focus is on consumer market
Under retail banking there are multiple products, multiple customer
groups, and multiple delivery channels etc. ( branches, ATM, internet
banking mobile banking kiosk etc.

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Cross selling :
It means selling products to the existing customers only. It is not a
transaction based activity

Non banking financial companies : A company is treated as NBFC it financial assets are more then 50%
of its total assets
Income from financial assets are more then 50% of its total assets
NBFC must be registered with RBI
There are 4 types,
Asset finance company
Loan finance company
Investment companies and
Infrastructure companies

Asset reconstruction company : This is a company incorporated under companies act 1956, now
companies bill 2012.
It Registered with RBI
Its main activity is financial asset reconstruction
ARC acquire NPA or distributed assets from banks and financial
institutions at discount and recover them

Debt recovery tribunal - Debt recovery appellate tribunal :These two tribunals are established by central/state governments
Under recovery of debt due to banks & financial institutions act 1993.
DRT act valid through out India except Jamu and Kashmir
DRT recovery loans Rs. 10 lakhs and above
Orders passed by DRT is applicable with 45 days to DRAT

SARFAESI ACT 2002 : It means securitization & reconstruction of financial assets &
enforcement of securities interest ac 2002.
It started on 23/8/2002
Applies to all loans to Rs. 1 lakh and above
Under this in the event of a deduct by the borrower bank can
Take possession, sell or loans secured assets

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 Take over the management of business

Recovery any money, payable by third parties to the borrower
Exceptions : The act does not cover loans up to 1 lakh
Under this agricultural land cannot be sold
The act does not apply to loans on deposits, pledge and lien laons
etc.

Charging of securities :-

Pledge

Hypothecation Mortgage

Assignment

Gold stocks

Moveable assets Immobile

like
vehicles, properties like
scoters etc.
land,
building
etc.
Define
under Define
under
SARFESI act
traveler
of
property act
The possession The possession
of security is of security is
with
the with the bank
borrower

Book debts, LIC

policies etc.

Define
under
Indian contract
act
It is bill payment
of goods as
security
for
payment of a
loan

Not define any

where
It is charge on
actionable claims
like book debts
and LIC policies

Lien
Particular lien
Stretched cloths, Repairs watch

General lien
Bankers, Implied liens

Lien is a right of creditors to retain the possession of goods and

services owned by the debtors.
NOSTRO Account our a/c with you
VOSTRO Account - your a/c with us

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LORO a/c - their a/c with them

Customer and banker relationship :Debtor & creditor :When customer deposits money in his account the bank becomes
debtor and customer becomes creditor.

Creditor & debtor :When customer borrows money from his account the bank becomes
creditor and customer becomes debtor.

THE END

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