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Welcome to
JAIIB Classes
PRINCIPLES OF BANKING
FUNCTIONS OF BANKS
BANKER-CUSTOMER
RELATIONSHIP
• DEBTOR-CREDITOR
• CREDITOR-DEBTOR
• AGENT-PRINCIPAL
• LESSOR-LESSEE
• BAILEE-BAILOR
KNOW YOUR CUSTOMER- KYC
• Know your customer norms are applicable
to all customer accounts. It deals with not
only to identify the customer but also
to understand the activities of the customer,
to ensure that the operations in the customer
account/s is/are for genuine purpose
KYC RULES
The main rules are –
1. Customer identification
2. Ceiling and monitoring of cash transactions
3. Internal Control Systems
4. Prevention of Terrorism Finance
5. Identification and Reporting of Suspicious
Transactions
6. Adherence to Foreign Contribution Regulation Act
(FCRA), 1976
7. Record Keeping
8. Training of staff and management
BANKER - CUSTOMER
RELATIONSHIP
Deposit Accounts
DEMAND
TERM
OTHERS
CURRENT
FIXED
CERTIFICATE OF DEPOSIT
SAVINGS
CUMULATIVE
FLEXI-DEPOSIT
RECURRING
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
Non-Resident Accounts - 1
Rupee accounts
Non-resident
Ordinary account
(NRO)
Non-resident
External account
(NRE)
Foreign Currency Non-resident
Deposit 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
CASH CREDIT
BILLS
FINANCE
OVERDRAFT
LOANS
&
ADVANCES
TERM
FINANCE
RETAIL
FINANCE
Loan Products –Non Fund Based
Co-Acceptance
Of
Bills
Letters of
Credit
Bank Guarantee
SERVICES OFFERED BY BANKS
Over and above the traditional role of a bank to take
deposits and offer credit facilities Banks today offer the
following services1. Internet Banking
2. Telephone Banking
3. Mobile Banking
4. On-line trading in shares
5. Bills payment on- line
6. Booking air/ railway tickets on- line
7. Bills payment on-line
8. Cash Management Services
SERVICES OFFERED BY BANKS - contd
9 On-line remittance facility-RTGS/NEFT etc
10 Sale of third party products – Mutual fund
schemes/insurance
11Safe Custody
12 Safe deposit vault
13 Depository Services
14 tax payments on-line
15 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
BEARER
ORDER
CROSSED
OPEN
NEGOTIABLE INSTRUMENTS
Paying Banker:
Payment in
Due
Course
Apparent
Tenor
In good faith
Without
Negligence
NEGOTIABLE INSTRUMENTS
BANKER’S DUTIES
&
RESPONSIBILITIES
C0LLECTING
BANKER
COLLECTION OF
CHEQUES
HOLDER IN
DUE
COURSE
CONSIDERATION
TITLE
BEFORE
MATURITY
Six Cs
•
•
•
•
•
•
Character
Capital
Capacity
Collateral
Condition
Compliance
Working Capital Cycle
Bills receivables
sales
Cash
Raw material
Finished goods
Semi finished goods
FUND BASED FINANCE
CASH CREDIT
BILLS
FINANCE
OVERDRAFT
LOANS
&
ADVANCES
TERM
FINANCE
RETAIL
FINANCE
Non-Fund Based Finance
LETTERS OF
CREDIT
BANK
GUARANTEE
CO-ACCEPTANCE
OF BILLS
Credit Management in Banks
Capital adequacy
norms
Credit appraisal
system
Prudential
norms
Risks-ALM
Exposure
norms