Nothing Special   »   [go: up one dir, main page]
Scribd Logo
Upload

Welcome to Scribd!

  • 59 views

    Commercial Banking in India

    Uploaded by

    Shaifali Chauhan
    Commercial banking in India is regulated by the Reserve Bank of India and governed by the Banking Regulation Act of 1949. The three primary activities of commercial banks are accepting deposits, issuing checks, and collecting checks for customers. The Reserve Bank of India oversees commercial banks and is responsible for currency issuance, credit control, and more. Commercial banks offer various deposit accounts like savings, current, and term deposits that are insured by the Deposit Insurance and Credit Guarantee Corporation up to Rs. 100,000 per depositor. Banks also provide loans based on principles of safety, liquidity, profitability, and risk management.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Commercial Banking in India

    Uploaded by

    Shaifali Chauhan
    59 views32 pages
    Commercial banking in India is regulated by the Reserve Bank of India and governed by the Banking Regulation Act of 1949. The three primary activities of commercial banks are accepting deposits, issuing checks, and collecting checks for customers. The Reserve Bank of India oversees commercial banks and is responsible for currency issuance, credit control, and more. Commercial banks offer various deposit accounts like savings, current, and term deposits that are insured by the Deposit Insurance and Credit Guarantee Corporation up to Rs. 100,000 per depositor. Banks also provide loans based on principles of safety, liquidity, profitability, and risk management.

    Original Description:

    bank

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Commercial banking in India is regulated by the Reserve Bank of India and governed by the Banking Regulation Act of 1949. The three primary activities of commercial banks are accepting deposits, issuing checks, and collecting checks for customers. The Reserve Bank of India oversees commercial banks and is responsible for currency issuance, credit control, and more. Commercial banks offer various deposit accounts like savings, current, and term deposits that are insured by the Deposit Insurance and Credit Guarantee Corporation up to Rs. 100,000 per depositor. Banks also provide loans based on principles of safety, liquidity, profitability, and risk management.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    59 views32 pages

    Commercial Banking in India

    Uploaded by

    Shaifali Chauhan
    Commercial banking in India is regulated by the Reserve Bank of India and governed by the Banking Regulation Act of 1949. The three primary activities of commercial banks are accepting deposits, issuing checks, and collecting checks for customers. The Reserve Bank of India oversees commercial banks and is responsible for currency issuance, credit control, and more. Commercial banks offer various deposit accounts like savings, current, and term deposits that are insured by the Deposit Insurance and Credit Guarantee Corporation up to Rs. 100,000 per depositor. Banks also provide loans based on principles of safety, liquidity, profitability, and risk management.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 32

    COMMERCIAL BANKING IN

    INDIA: A BEGINNER'S
    MODULE
    DEFINITION OF BANKS

    • In India, the definition of the business of banking has been given in the Banking
    Regulation Act, (BR Act), 1949. According to Section 5(c) of the BR Act, 'a banking
    company is a company which transacts the business of banking in India.' Further,
    Section 5(b) of the BR Act defines banking as, 'accepting, for the purpose of lending
    or investment, of deposits of money from the public, repayable on demand or
    otherwise, and withdrawable, by cheque, draft.' This definition points to the three
    primary activities of a commercial bank which distinguish it from the other financial
    institutions. These are:
    (i) Maintaining deposit accounts including current accounts,
    (ii) Issue and pay cheques,
    (iii) Collect cheques for the bank's customers.
    FUNCTIONS OF COMMERCIAL BANKS
    ROLE OF RESERVE BANK OF INDIA VIS-À-VIS
    COMMERCIAL BANKS
    • The Reserve Bank of India (RBI) is the central bank of the country.12 It

    was established on April 1, 1935 under the Reserve Bank of India Act,

    1934, which provides the statutory basis for its functioning. When the

    RBI was established, it took over the functions of currency issue from

    the Government of India and the power of credit control from the then

    Imperial Bank of India


    TYPES OF DEPOSIT ACCOUNTS

    • (i) Demand deposits are defined as deposits payable on demand


    through cheque or otherwise. Demand deposits serve as a medium
    of exchange, for their ownership can be transferred from one
    person to another through cheques and clearing arrangements
    provided by banks. They have no fixed term to maturity.

    • (ii) Time deposits are defined as those deposits which are not
    payable on demand and on which cheques cannot be drawn. They
    have a fixed term to maturity. A certificate of deposit (CD),
    THERE ARE SEVERAL DEPOSIT ACCOUNTS
    OFFERED BY BANKS IN INDIA
    • Current account

    • Savings bank account

    • Term deposit account


    DEPOSIT RELATED SERVICES

    • Customer Information
    • Interest Payments
    • Savings bank accounts
    • Term deposits
    • Tax deducted at source (TDS)

    • Premature Renewal of Term Deposit


    • Premature Withdrawal of Term Deposit
    • Safe Deposit Lockers
    • Redress of Complaints and Grievances
    • Advances against Deposits
    • Stop Payment Facility
    • Dormant Accounts
    DEPOSIT INSURANCE

    • Deposit insurance helps sustain public confidence in the banking


    system through the protection of depositors, especially small
    depositors, against loss of deposit to a significant extent. In India, bank
    deposits are covered under the insurance scheme offered by Deposit
    Insurance and Credit Guarantee Corporation of India (DICGC), which
    was established with funding from the Reserve Bank of India. The
    scheme is subject to certain limits and conditions. DICGC is a wholly-
    owned subsidiary of the RBI.
    BANKS INSURED BY THE DICGC

    • All commercial banks including branches of foreign banks


    functioning in India, local area banks and regional rural
    banks are insured by the DICGC.22 Further, all State, Central
    and Primary cooperative banks functioning in States/Union
    Territories which have amended the local Cooperative
    Societies Act empowering RBI suitably are insured by the
    DICGC. Primary cooperative societies are not insured by the
    DICGC.
    WHEN IS DICGC LIABLE TO PAY?

    • In the event of a bank failure, DICGC protects bank deposits that are
    payable in India. DICGC is liable to pay if
    (a) a bank goes into liquidation
    (b) if a bank is amalgamated/ merged with another bank.
    TYPES OF DEPOSIT COVERED BY DICGC

    • The DICGC insures all deposits such as savings, fixed, current,


    recurring, etc. except the following types of deposits:
    • Deposits of foreign Governments
    • Deposits of Central/State Governments
    • Inter-bank deposits
    • Deposits of the State Land Development Banks with the State co-operative
    bank
    • Any amount due on account of any deposit received outside India
    • Any amount, which has been specifically exempted by the corporation with
    the previous approval of RBI
    MAXIMUM DEPOSIT AMOUNT INSURED BY THE
    DICGC
    • Each depositor in a bank is insured up to a maximum of Rs100,000 for
    both principal and interest amount held by him in the same capacity
    and same right. For example, if an individual had a deposit with
    principal amount of Rs.90,000 plus accrued interest of Rs.7,000, the
    total amount insured by the DICGC would be Rs.97,000. If, however,
    the principal amount were Rs. 99,000 and accrued interest of Rs 6,000,
    the total amount insured by the DICGC would be Rs 1 lakh.
    BASICS OF BANK LENDING

    • Banks extend credit to different categories of borrowers for a wide


    variety of purposes. For many borrowers, bank credit is the easiest to
    access at reasonable interest rates. Bank credit is provided to
    households, retail traders, small and medium enterprises (SMEs),
    corporates, the Government undertakings etc. in the economy.
    PRINCIPLES OF LENDING

    • To lend, banks depend largely on deposits from the public. Banks act as
    custodian of public deposits. Since the depositors require safety and
    security of their deposits, want to withdraw deposits whenever they
    need and also adequate return, bank lending must necessarily be
    based on principles that reflect these concerns of the depositors. These
    principles include: safety, liquidity, profitability, and risk diversion.
    LOAN POLICY

    • Based on the general principles of lending stated above, the Credit Policy
    Committee (CPC) of individual banks prepares the basic credit policy of the Bank,
    which has to be approved by the Bank's Board of Directors. The loan policy outlines
    lending guidelines and establishes operating procedures in all aspects of credit
    management including standards for presentation of credit proposals, financial
    covenants, rating standards and benchmarks, delegation of credit approving
    powers, prudential limits on large credit exposures, asset concentrations, portfolio
    management, loan review mechanism, risk monitoring and evaluation, pricing of
    loans, provisioning for bad debts, regulatory/ legal compliance etc. The lending
    guidelines reflect the specific bank's lending strategy (both at the macro level and
    individual borrower level) and have to be in conformity with RBI guidelines.
    SARFAESI ACT, 2002

    • Banks utilize the Securitization and Reconstruction of Financial Assets and Enforcement
    of Security Interest Act, 2002 (SARFAESI) as an effective tool for NPA recovery. It is
    possible where non-performing assets are backed by securities charged to the Bank by
    way of hypothecation or mortgage or assignment. Upon loan default, banks can seize
    the securities (except agricultural land) without intervention of the court
    • Example: SARFAESI is effective only for secured loans where bank can enforce the
    underlying security eg hypothecation , pledge and mortgages. In such cases, court
    intervention is not necessary, unless the security is invalid or fraudulent. However, if
    the asset in question is an unsecured asset, the bank would have to move the court to
    file civil case against the defaulters.
    CONT…

    The SARFAESI Act, 2002 gives powers of "seize and desist" to banks. Banks can give a notice in
    writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. If the
    borrower fails to comply with the notice, the Bank may take recourse to one or more of the
    following measures:
    • • Take possession of the security for the loan
    • • Sale or lease or assign the right over the security
    • • Manage the same or appoint any person to manage the same
    The SARFAESI Act also provides for the establishment of asset reconstruction companies
    regulated by RBI to acquire assets from banks and financial institutions. The Act provides for
    sale of financial assets by banks and financial institutions to asset reconstruction companies
    (ARCs). RBI has issued guidelines to banks on the process to be followed for sales of financial
    assets to ARCs
    BANK INVESTMENTS
    PENALTIES

    • If a banking company fails to maintain the required amount of SLR


    securities on any given day, it shall be liable to pay to the RBI penal
    interest for that day at the rate of 3 per cent per annum above the
    Bank Rate on the shortfall and, if the default continues on the next
    succeeding working day, the penal interest may be increased to a rate
    of 5 per cent per annum above the Bank Rate for the concerned days
    of default on the shortfall.
    OTHER ACTIVITIES OF COMMERCIAL BANKS

    • Foreign Exchange Services


    • Banks' services to Government
    • Payment and Settlement Systems
    RELATIONSHIP BETWEEN BANK AND
    CUSTOMER
    • In India, banks face a challenge of providing services to a broad range
    of customers, varying from highly rated corporates and high net worth
    individuals to low-end depositors and borrowers. Banks usually place
    their customers into certain categories so that they are able to (a)
    develop suitable products according to customer requirements and (b)
    service customers efficiently
    THE BANK-CUSTOMER RELATIONSHIP IS
    INFLUENCED BY SEVERAL DIMENSIONS,
    •
    NOTABLY:
    While banks are competing with each other to attract the most profitable
    businesses, financial inclusion is increasingly becoming part of their agenda. An
    important issue in India is that a large number of people, nearly half of the adult
    population, still do not have bank accounts. 'Financial Inclusion' would imply
    bringing this large segment of the population into the banking fold.
    • Second, banks have started using innovative methods in approaching the
    customers; technology is an important component of such efforts.
    • Finally, on account of security threats as well as black money circulating in the
    system, care has to be taken to identify the customers properly, know the
    sources of their funds and prevent money laundering.
    PRODUCT LIFE CYCLE STRATEGY

    • Identifying target markets


    • Developing and designing suitable products
    • Marketing the products
    • Sales and advice processes
    • After-sales service
    • Complaint handling.
    APPROPRIATE TARGETING

    • Banks focus on customer profiles and offer differentiated deposit and

    credit products to various categories of customers depending on their

    income category, age group and background. For example, banks may

    segment various categories of customers to offer targeted products,

    such as Private Banking for high net worth individuals, Defence

    Banking Services for defence personnel, and Special Savings Accounts

    for trusts.
    EXPANDING PRODUCT PORTFOLIO

    • To ensure that their customers get 'one-stop solution', a key component


    of banks' customer strategy is to offer an expanded set of products and
    services. Through their distribution network, banks may offer
    Government of India savings bonds, insurance policies, a variety of
    mutual fund products, and distribute public offerings of equity shares
    by Indian companies. As a depository participant of the National
    Securities Depository Limited (NSDL) and Central Depository Services
    (India) Limited (CDSL), a bank may offer depository share accounts to
    settle securities transactions in a dematerialized mode and so on.
    CUSTOMER RELATIONSHIP MANAGEMENT

    • Over the years, the RBI has taken a number of initiatives to improve the quality of
    customer service. These steps include grievance redress through the Banking
    Ombudsman Scheme and setting up a Customer Service Department within RBI. RBI
    has set up a full-fledged Customer Service Department with a view to making banks
    more customer-friendly and has taken a number of steps to disseminate instructions/
    guidelines relating to customer service and grievance redressal by banks by placing
    all customer related notifications and press releases on its multi-lingual Internet site.
    Customers of commercial banks can also approach the RBI with their grievances. In
    February 2006, RBI set up the Banking Codes and Standards Board of India (BCSBI)
    as an independent autonomous watchdog to ensure that customers get fair
    treatment in their dealings with bank
    CUSTOMER CONFIDENTIALITY OBLIGATIONS

    • The scope of the secrecy law in India has generally followed the common law principles
    based on implied contract. Bankers' obligation to maintain secrecy about customers'
    accounts arises out of the contractual relationship between the banker and customer,
    and as such no information should be divulged to third parties except under
    circumstances which are well defined.
    The following exceptions are normally accepted, where:
    • disclosure is under compulsion of law
    • there is duty to the public to disclose
    • interest of bank requires disclosure
    • disclosure is made with the express or implied consent of the customer.

    You might also like