Important Acts Related to Banking

7/27/2019 Important Acts Related to Banking

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Important acts relating to Banking

Banking Regulation Act,1949

RBI Act,1934 & RBI Act, 1948

SBI Act,1955, General Regulations SBI Act,1956

Bankers Book Evidence Act,1891 Negotiable Instruments Act,1881

Indian Contract Act,1872

Suretys Liability

Partnership Act,1932

Companies Act,1956

Criminal Procedure Code, 1973

Consumer Protection Act, 1986


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Indian Penal Code, 1860

Prevention of Corruption Act, 1988

Income Tax Act

Banking Companies ( acquisition and transfer of undertakings) Act,1970/1980

Nationalized Banks (management and miscellaneous provisions) Schemes,1970/1980

Banking Services Commission Act, 1984 SBI Subsidiaries Act, 1959

IDBI Act, 1964

Industrial Finance Corporation of India Act, 1948

Capital Issues (control act, 1947)

Securitisation and Reconstruction of Financial Assets and Enforcement ofSecurity Interest (SRFAESI) Act, 2002

Securities and Exchange Board of India Act, 1992


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Important Financial Instituitions

EXIM Bank

DICGC

IDBI

SIDBI NABARD

Discount of Finance House of India

Stock Holding Corporation Of India

National Stock Exchange S.T.C.I (Securities trading corporation of India), 1994

National Housing Bank, 1988

Indian Banks Association

Joint Publicity Committee


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Structure of Indian Banking Central Bank of the country: RBI Commercial Banks: Public sectors & Private SectorSBI Group- Nationalised

SBI & 7 associate banks.

Branches of Banks incorporatedoutside India, Other Indian

scheduled commercial banks,Non-scheduled banks, Pvt LocalArea banks for Rural saving.

Regional Rural Banks- Co-operative banks,State Co-operative Banks,

Distt Co-operative Banks

Primary Co-operative Banks

PACs- Primary Agricultural Society.

Land Development Banks

State Land Development Banks

Primary Land Development Banks

Development Banks (Term Lending Instituitions)

All-India, ICICI- Industrial Credit and Investment Corporation of India

State level- IFCI, IRBI, IIBI, IDBI, SFCs, SIDBI, NABARD, EXIM, ECGC, UTI, LIC, GIC, MHB


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Phase of Banking Consolidation: 1951-1964

Banking Structure, Banking Regulation Act, 1949

replaced the Banking Companies Act.

Public confidence

Banking Policies & Practices

i. Upsurge in credit to industry.

ii. Diversification in form of financing.

iii. Enlargement of functional coverage.

iv. Credit authorization scheme- SSI, Exports,

Agricultural Finance.


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Phase of Innovative Banking: 1964-1990

Social Control.

Organizational changes.

National Credit Council.

Agriculture Finance Corporation Ltd.

Follow up of social control.

Organizational framework of implementation of social control.

Lead Bank Scheme (LBS).

Nationalization.

New Bill Market Scheme (NBMS).

Tondon committee report.

Bank credit to priority sector.


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Autonomy Measures

Recruitment and creation of posts.

Supervisory authority- BFS(Board of Financial Supervision).

Appointment of CMPs/CEOs and Board Members.

Narsimhan committee II on Banning of Sector Reforms, 1998.

Approach to Reform/Re-organization.

Directed Investments/Programmes and Interest Rates. Directed Credit Programmes.

Capital Adequacy, Accounting Policies and relational Matters.

Structural Organization.

Organization, Methods and Procedures.

Regulations and Supervision. Legislative Measures.

Asset/Liability management- Risk Management.

Earnings and Profitability.


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Systems and Methods in Banks.

Internal Systems.

Human Resources Management.

Technology upgradation.

Structural issues- DFIS/PFIS, NBFCs.

Rural and Small Industrial Credit.

CDR Standing Forum, CDR Empowered Group.

CDR Cell.


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Elements of Tier-I Capital

Paid up capital, statutory reserves, capital

reserves equity investment in subsidiaries,

intangible assets and losses in currentperiod and those brought forward from

previous periods should be deducted from

Tier-I capital.


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Elements of Tier-II

Undisclosed reserves & Cumulative Perpetual Shares.

Re-evaluation Reserves.

General Provision & Loss Reserves.

Hybrid Debt Capital Reserves.

Subordinated Debt. Reporting Requirements.

Exposure Norms.

Credit Exposures to Individual/Group Borrowers.

Investment Exposures.

Credit Exposure to Industry or certain sectors. Real Estate.


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Exposure to Leasing, Hire-Purchase & Factoring Services.

Exposure to Indian Joint Ventures/ Wholly owned subsidiariesabroad.

Exposure limits on Advances against Shares and Holding of Sharesas Investment.

Statutory limit on Shareholding Companies. Regulatory Limits.

Advances against Shares to Individuals.

Advances against limits of Mutual Funds.

Bank Finance to Employees to buy shares of their own Companies.

Advances against shares of Stock Brokers and Market Makers.

Bank loans for Financing Promoters Contributions.

Bridge Loans.


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Exposure to Unsecured Guarantees & Unsecured Advances.

Exposure Norms for Investments.

Investments in Shares, Debentures and Bonds.

Investments in New Bonds of a Corporate.

Exposure limit on Shareholding of companies.

Investment in Venture Capital (VC). Investment in Subordinated Debt Instruments.

Underwriting of Corporate Shares & Debentures.

Prohibitions on Underwriting Options.

Underwriting of Bonds of Public Sector Undertakings.

Safety Net schemes for Public Issues of Shares & Debentures. Lending to Non-Banking Financial Companies.


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Operational risk & the methods forcalculating operational risks,

capital charges of banks, under

Basel committee new framework.


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Operational risk is defined as the risk of

loss resulting from inadequate or failed

internal processes, people and systems or

from external events. This definitionincludes legal risks (i.e. exposure to fines,

penalties or punitive damages), but

excludes strategic and reputational risks.


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Measurement methodologies

The revised framework prescribes 3

approaches for calculating operational risk

capital charges are:

Basic indicator approach.

Standardized approach.

Advanced measurement approaches.


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Basic Indicator Approach

The capital for operational risk should be equal to theaverage over the previous three years of a fixed

percentage (denoted by alpha) of positive annual grossincome. Figures for any year in which annual grossincome or zero should be excluded from both the

numerator or denominator when calculating the average.The capital charge may be represented as follows:

KBIA= [ ( GI 1.n x )]/N

Where KBIA= the capital charge under the basic indicatorapproach.

GI = annual Gross Income, where positive, over in previousthree years.

n= no. of the previous three years for which GI is positive.

= 15%, which is set by the committee


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The Standard Approach

In the standard approach, banks activities are divided into 8 businesslines i.e. Corporate finance, trading & sales, Retail Banking,

Commercial Banking, Payment and Settlement, Agency Services,Asset Management and Retail Brokerage.

Within each business line, GI is treated as a broad indicator for

determining the operational risk exposure. The capital charge foreach business line is calculated by multiplying GI by a factor

(denoted by beta) assigned to that business line. Beta serves as aproxy for the industry wide relationship between the operational risk

loss experience for a given business line and in aggregate GI forthat business line.


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The capital charge for operational risk can berepresented as under:

KTSA= { years 1-3 max [GI18 x 1-8,0]}/3

Where KTSA= the capital charge under thestandard approach,

GI 1-8 = annual GI in a given year for each of the 8business line.

1-8=a fixed percentage, set by the committee,relating to the level of required capital to thelevel of GI for each of the 8 business lines.


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Advanced measurement

approaches

Under the AMA, the regulatory capital

requirements will equal the risk measure

generated by the banks internal

operational risk measurement systemusing the quantitative and qualitative

criteria for the AMA, subject to supervisory

approval.

Documents

Important Acts Related to Banking