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Welcome to JAIIB Classes
PRINCIPLES OF BANKING
FUNCTIONS OF BANKS
BANKER-CUSTOMERRELATIONSHIP
• DEBTOR-CREDITOR
• CREDITOR-DEBTOR
• AGENT-PRINCIPAL
• LESSOR-LESSEE
• BAILEE-BAILOR
KNOW YOUR CUSTOMER- KYC
• Know your customer norms are applicableto all customer accounts. It deals with notonly to identify the customer but alsoto understand the activities of the customer,to ensure that the operations in the customeraccount/s is/are for genuine purpose
KYC RULESThe main rules are –1. Customer identification 2. Ceiling and monitoring of cash transactions3. Internal Control Systems4. Prevention of Terrorism Finance5. Identification and Reporting of Suspicious Transactions6. Adherence to Foreign Contribution Regulation Act
(FCRA), 19767. Record Keeping8. Training of staff and management
BANKER - CUSTOMER RELATIONSHIP
Deposit Accounts
C U R R E N T
S A V IN G S
D E M A N D
F IX E D
C U M U L A TIV E
R E C U R R IN G
TE R M
C E R TIF IC A TE O F D E P O S IT
F L E X I-D E P O S IT
O TH E R S
Indian Banking - Significant events 1
• Three presidency banks were established in Calcutta (1806) in Bombay (1840) and in Madras (1843)
• In the early part of 20th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and Central Bank of India.
• In 1921 the three presidency banks were merged and the Imperial Bank of India was created.
• During the period 1900 to 1925 many banks failed, and the Government appointed in 1929 a Central Banking Enquiry Committee to trace the reasons for the failure of banks.
• The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949
• The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India
Indian Banking - Significant events 1
• Three presidency banks were established in Calcutta (1806) in Bombay (1840) and in Madras (1843)
• In the early part of 20th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and Central Bank of India.
• In 1921 the three presidency banks were merged and the Imperial Bank of India was created.
• During the period 1900 to 1925 many banks failed, and the Government appointed in 1929 a Central Banking Enquiry Committee to trace the reasons for the failure of banks.
• The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949
• The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India
Progress of banking in India
• In the liberalised, privatised and globalised environment, banks opeating in India have diversified their banking activities by offering Para Banking facilities like– Merchant banking/Mutual funds– ATMs/Credit Cards/Internet banking– Venture capital funds– Factoring– Bancassurance
Rupee accounts
Non-residentOrdinary account
(NRO)
Non-residentExternal account
(NRE)
Non-Resident Accounts - 1
Foreign Currency Non-residentDeposit Accounts –FCNR (B)
• FCNR (B) accounts • NRIs,PIOs,residing outside India can open FCNR (B) accounts• FCNR (B) accounts are maintained as fixed deposits in certain
designated currencies• The designated currencies are:• US$, GBP, Japanese Yen, Euro, Cad$, Aus $• Maintained in Banks in India in the above mentioned foreign currencies and interest is also earned in
such foreign currencies• Repatriation of funds (principal, interest) is allowed
Loan Products – Fund Based
BILLS FINANCE
TERMFINANCE
RETAIL FINANCE
OVERDRAFT
CASH CREDIT
LOANS&
ADVANCES
Loan Products –Non Fund Based
Letters of Credit
Bank Guarantee
Co-Acceptance Of
Bills
SERVICES OFFERED BY BANKSOver and above the traditional role of a bank to take
deposits and offer credit facilities Banks today offer the following services-
1. Internet Banking2. Telephone Banking3. Mobile Banking4. On-line trading in shares5. Bills payment on- line6. Booking air/ railway tickets on- line7. Bills payment on-line8. Cash Management Services
SERVICES OFFERED BY BANKS - contd
9 On-line remittance facility-RTGS/NEFT etc10 Sale of third party products – Mutual fund
schemes/insurance 11Safe Custody12 Safe deposit vault13 Depository Services14 tax payments on-line15 Counseling Services
CASH MANAGEMENT SERVICES• In today's competitive market place, effective
management of cash flows can make the difference between success and failure
• The cash management product usually offers corporate customers fast track cheque collections, speedier release of funds and profitable funds management, at a reasonable cost
• Payments received from buyers and made to suppliers of a corporate client are efficiently processed to optimise cash flow position and to ensure the effective management of business' operating funds
• The flow of receivables and payables can also usually be seen on-line.
DEPOSITORY SERVICES• With a view to adding value to banking services
and making available the numerous benefits of depository system to clients, banks in India offer Demat services through either Depositories viz.National Securities Depository Limited (NSDL) or Central Depository Services (India) Ltd. (CDSL) or both by becoming a sub-participant.
• Services offered are usually at par with those offered by specialized organizations like Integrated etc
COUNSELLING SERVICES• The following are the usual objectives of counselling
services provided by some banks. • Advising on gaining access to structured financial system
including banking • Creating awareness among the public about financial
management • Counseling people who are struggling to meet the
repayment obligations and helping debt resolution • Helping in rehabilitation of borrowers in friendly and
timely guidance not only to mitigate the immediate stress of the trapped individuals and their households, but also to help to infuse confidence in others who are in distress.
POWER OF ATTORNEY• Power of attorney (POA) also called letter of attorney is an
authorization to act on someone else's behalf in a legal or business matter. The person authorizing the other to act is the principal, granter or donor (of the power), and the one authorized to act is the agent
• A power of attorney may be special or limited to one specified act or type of act, or it may be general, and whatever it defines as its scope is what a court will enforce as being its scope. It may also be limited as to time.
• The POA is usually stamped and notarised• The POA can be cancelled or amended by the donor at any
time.However is responsible for all acts till he gives notice
MANDATE
• Usually an unstamped letter• Addressed to a particular bank• Authorises a third party to act on his/her
behalf• Issued for short/ temporary period• Not acceptable from limited companies/
cooperative societies
CHARGES
• HYPOTHECATION• PLEDGE• MORTGAGE• ASSIGNMENT• LIEN• SET OFF
LIEN & SET OFF• A lien is the right of a creditor in possession of goods,
securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. It is a right to retain possession of specific goods or securities or other movables of which the ownership vests in some other person and the possession can be retained till the owner discharges the debt or obligation to the possessor.
• The right of set off is also known as the right of combination of accounts .A bank has a right to set off a debt owing to a customer against a debt due from him.
• Both the claim and the set-off must be mutual debts, due from and to the same parties, under the same right A claim by a person in a representative capacity cannot be set off against a personal claim
Garnishee Order• A garnishee order is an attachment order issued by a court
• Example : A borrows money from B .A fails to repay the loan. B files a suit under Civil Procedure Code and the Court issues
a decree and attaches the funds in A’s bank account with Bank XYZ Ltd.
• The order issued by the Court on bank XYZ Ltd is called a“Garnishee Order”
• B is called the judgement creditor. A is the Judgement debtor. Bank XYZ Ltd is Judgement debtor’s debtor
• It has 2 parts ‘order nisi’ , and ‘order absolute’
CHEQUES
OPEN
CROSSED
ORDER
BEARER
NEGOTIABLE INSTRUMENTSPaying Banker:
Payment inDue
Course
ApparentTenor In good faith Without
Negligence
NEGOTIABLE INSTRUMENTS
BANKER’S DUTIES&RESPONSIBILITIESC0LLECTINGBANKERCOLLECTION OFCHEQUES
HOLDER INDUE
COURSE
CONSIDERATION TITLE BEFOREMATURITY
Six Cs
• Character• Capital• Capacity• Collateral• Condition• Compliance
Working Capital Cycle
Cash
Raw material
Semi finished goodsFinished goods
sales
Bills receivables
FUND BASED FINANCE
BILLS FINANCE
TERMFINANCE
RETAIL FINANCE
OVERDRAFT
CASH CREDIT
LOANS&
ADVANCES
Non-Fund Based Finance
BANKGUARANTEE
CO-ACCEPTANCEOF BILLS
LETTERS OF CREDIT
Credit Management in Banks
Capital adequacynorms
Prudentialnorms
Credit appraisalsystem
Exposure norms
Risks-ALM