Definitions of bank

• Banking regulation act 1949(sec 5c) : “banking

company means any company which transacts
the business of banking in India”
• Banking means(5 b) the accepting of deposits
of money from the public for the purpose of
lending or investment, which are repayable on
demand or otherwise and are withdraw able
by cheque , draft or otherwise
• According to negotiable instruments act 1881,
“ banker includes any person acting as a
banker as well as any post office savings bank.
• According to charles woelfel’s encyclopedia of
banking and finance, “ bank is any
organisation engaged in any or all the various
functions of banking, i.e. receiving, collecting,
transferring, paying, lending, investing,
dealing, exchanging, and service (safe
deposit,custodianship, agency, trusteeship) .
• Dr.D.L.Hart says a banker is a person or
company carrying on the business of receiving
moneys and collecting drafts for customers
subject to the obligation of honouring
cheques drawn upon them from time to time
by the customers to the extent of the amounts
available on their current accounts.
 Ingredients of bank
• Two mandatory functions
– Accepting of money from the public
– Lending or investing such deposits
• Deposits of money payable on demand or
otherwise
– Demand deposits
– Time deposits
• Withdrawal of deposits through cheque, draft,
order or otherwise
• Drawbacks or Limitations of the legal
definitations
• Exclusion of person or firm
• Exclusion of deposits from members
• Restriction on mode of withdrawal
• Special emphasis on the purpose of deposits.
 Functions of a banking company
• Compulsory functions
– Accepting deposits
– Lending and investments
– Providing facilities of demand and time deposits
– Facilitating withdrawal
 Permitted functions
• Borrowing, raising or taking up of money
• Lending or advancing with or without security
• Dealing negotiable instruments
• Granting letter of credit.travellers
cheques,circular notes
• Buying and selling gold or silver
• Buying and selling foreign exchange
• Acquiring and
 Functions of commercial bank
• The functions of a commercial banks are
divided into two categories:
• i) Primary functions, and
• ii) Secondary functions including agency
functions
• The primary functions of bank include:
• a) accepting deposits; and
• b) granting loans and advances;
 Subsidiary or auxiliary function
• General or usual function
issuing credit instrument
arranging foreign exchange
Safe keeping of valuables
diacounting of bills of exchange and hundies
• Agency functions
– Collecting payments
– Making payments
– Selling and purchasing of securities
– Transferring money
• Trustee functions
• Ancillary services
– Providing informative services
– Standing guarantor
– Advising
– Issuing credit instruments
– Issuing gift cheques
– Providing clearing house service
– Underwriting the shares and debentures
– Remitting the funds of customers
• Accepting the bills of the customer
• Providing various customer services
• Providing consumption credit
• establishing extension counters
• Adoption of innovative or welfare banking
• Merchant banking
• Establishment of multi service agency
branches
 Types of banks
• Type 1. Saving Banks
•
Saving banks are established to create saving
habit among the people. These banks are helpful
for salaried people and low income groups. The
deposits collected from customers are invested in
bonds, securities, etc. At present most of the
commercial banks carry the functions of savings
banks. Postal department also performs the
functions of saving bank
• Type 2. Commercial Banks
•
Commercial banks are established with an objective to help
businessmen. These banks collect money from general
public and give short-term loans to businessmen by way of
cash credits, overdrafts, etc. Commercial banks provide
various services like collecting cheques, bill of exchange,
remittance money from one place to another place.
• In India, commercial banks are established under
Companies Act, 1956. In 1969, 14 commercial banks were
nationalised by Government of India. The policies regarding
deposits, loans, rate of interest, etc. of these banks are
controlled by the Central Bank.
• Type 3. Industrial Banks / Development Banks
•
Industrial / Development banks collect cash by issuing
shares & debentures and providing long-term loans to
industries. The main objective of these banks is to
provide long-term loans for expansion and
modernisation of industries.
• In India such banks are established on a large scale
after independence. They are Industrial Finance
Corporation of India (IFCI), Industrial Credit and
Investment Corporation of India (ICICI) and Industrial
Development Bank of India (IDBI).
• . Land Mortgage / Land Development Banks
•
Land Mortgage or Land Development banks are also
known as Agricultural Banks because these are formed
to finance agricultural sector. They also help in land
development.
• In India, Government has come forward to assist these
banks. The Government has guaranteed the
debentures issued by such banks. There is a great risk
involved in the financing of agriculture and generally
commercial banks do not take much interest in
financing agricultural sector.
• Type 5. Indigenous Banks
•
Indigenous banks means Money Lenders and Sahukars.
They collect deposits from general public and grant
loans to the needy persons out of their own funds as
well as from deposits. These indigenous banks are
popular in villages and small towns. They perform
combined functions of trading and banking activities.
Certain well-known indian communities like Marwaries
and Multani even today run specialised indigenous
banks
• Type 6. Central / Federal / National Bank
•
Every country of the world has a central bank. In India,
Reserve Bank of India, in U.S.A, Federal Reserve and in
U.K, Bank of England. These central banks are the
bankers of the other banks. They provide specialised
functions i.e. issue of paper currency, working as
bankers of government, supervising and controlling
foreign exchange. A central bank is a non-profit making
institution. It does not deal with the public but it deals
with other banks. The principal responsibility of Central
Bank is thorough control on currency of a country.
• Type 7. Co-operative Banks
•
In India, Co-operative banks are registered under
the Co-operative Societies Act, 1912. They
generally give credit facilities to small farmers,
salaried employees, small-scale industries, etc.
Co-operative Banks are available in rural as well
as in urban areas. The functions of these banks
are just similar to commercial banks.
• Type 8. Exchange Banks
•
Hong Kong Bank, Bank of Tokyo, Bank of America are the
examples of Foreign Banks working in India. These banks
are mainly concerned with financing foreign trade.
• Following are the various functions of Exchange Banks :-
• Remitting money from one country to another country,
• Discounting of foreign bills,
• Buying and Selling Gold and Silver, and
• Helping Import and Export Trade.
• Type 9. Consumers Banks
•
Consumers bank is a new addition to the existing
type of banks. Such banks are usually found only
in advanced countries like U.S.A. and Germany.
The main objective of this bank is to give loans to
consumers for purchase of the durables like
Motor car, television set, washing machine,
furniture, etc. The consumers have to repay the
loans in easy installments.
• Regional rural banks
– These are added since october 1975 with the view
to developing the rural economy by providing
credit and other facilities to the small and
marginal farmers etc
– The operations of rrb’s is controlled by RBI, the
banking regulation act and NABARD
Organisation structure of bank
 Development of banks
• The oldest bank in existence in India is the State Bank
of India, which originated in the Bank of Calcutta in
June 1806, which almost immediately became
the Bank of Bengal.
• This was one of the three presidency banks, the other
two being the Bank of Bombay and the Bank of
Madras, all three of which were established under
charters from the British East India Company.
• The three banks merged in 1921 to form the Imperial
Bank of India, which, upon India's independence,
became the State Bank of India.
• Indian merchants in Calcutta established the
Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49.
• The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in
India.(Joint Stock Bank
• The first entirely Indian joint stock bank was the
Oudh Commercial Bank, established in 1881
in Faizabad. It failed in 1958. The next was
the Punjab National Bank, established in Lahore
in 1895,
• The period between 1906 and 1911, saw the
establishment of banks inspired by
the Swadeshi movement. The Swadeshi
movement inspired local businessmen and
political figures to found banks of and for the
Indian community. A number of banks
established then have survived to the present
such as Bank of India, Corporation
Bank, Indian Bank, Bank of Baroda,Canara
Bank and Central Bank of India.
• At least 94 banks in India failed between 1913 and
1918
• The Reserve Bank of India, India's central banking
authority, was nationalized on January 1, 1949 under
the terms of the Reserve Bank of India
• In 1949, the Banking Regulation Act was enacted which
empowered the Reserve Bank of India (RBI) "to
regulate, control, and inspect the banks in India."
• The Banking Regulation Act also provided that no new
bank or branch of an existing bank could be opened
without a license from the RBI, and no two banks could
have common directors.
• The Government of India issued an ordinance
and nationalised the 14 largest commercial
banks with effect from the midnight of July 19,
1969.then in 1980, 6 more banks were
nationalised.
• n the early 1990s, the then Narasimha
Rao government embarked on a policy
of liberalization, licensing a small number of
private banks
 Challenges
• Non performing assets
• Increasing competition in retail banking
• The urge to merge
• Impact of BASEL-II norms
 principles
• Profitability
• Liquidity
• Safety
• Social good
 Reserve bank of India
• The Reserve Bank of India (RBI) is the central
banking institution of India and controls the monetary
policy of the rupee as well as US$300.21 billion
(2010)[of currency reserves.
• The institution was established on 1 April 1935 during
the British Raj in accordance with the provisions of the
Reserve Bank of India Act, 1934. The share capital was
divided into shares of Rs. 100 each fully paid which was
entirely owned by private shareholders in the beginning.
• Reserve Bank of India plays an important part in the
development strategy of the government. It is a member
bank of the Asian Clearing Union. Reserve Bank of India
was nationalised in the year 1949
• Central Board of Directors
• The Central Board of Directors is the main
committee of the central bank.
The Government of India appoints the
directors for a four-year term. The Board
consists of a governor, four deputy governors,
four directors to represent the regional
boards, and ten other directors from various
fields.
• Supportive bodies
• The Reserve Bank of India has four regional representations: North
in New Delhi, South in Chennai, East in Kolkata and West in
Mumbai. The representations are formed by five members,
appointed for four years by the central government and serve -
beside the advice of the Central Board of Directors - as a forum for
regional banks and to deal with delegated tasks from the central
board. The institution has 22 regional offices.
• The Board of Financial Supervision (BFS), formed in November
1994, serves as a CCBD committee to control the financial
institutions. It has four members, appointed for two years, and
takes measures to strength the role of statutory auditors in the
financial sector, external monitoring and internal controlling
systems.
• The Tarapore committee was set up by the Reserve
Bank of India under the chairmanship of former RBI
deputy governor S S Tarapore to "lay the road map"
to capital account convertibility. The five-member
committee recommended a three-year time frame for
complete convertibility by 1999-2000.
• On 1 July 2007, in an attempt to enhance the quality of
customer service and strengthen the grievance
redressal mechanism, the Reserve Bank of India
constituted a new department —Customer Service
Department
• Offices and branches
• The Reserve Bank of India has 4 regional offices,15 branches and 5
sub-offices. It has 22 branch offices at most state capitals and at a
few major cities in India. Few of them are located
in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chen
nai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lu
cknow, Mumbai, Nagpur, Patna, andThiruvananthapuram. Besides it
has sub-offices
at Agartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shiml
a and Srinagar.
• The bank has also two training colleges for its officers, viz. Reserve
Bank Staff College at Chennai and College of Agricultural Banking
at Pune. There are also four Zonal Trainin Centres
at Belapur, Chennai, Kolkata and New Delhi.
• . The general superintendence and direction of the
Bank is entrusted to Central Board of Directors of 20
members, the Governor and four Deputy Governors,
one Government official from the Ministry of Finance,
ten nominated Directors by the Government to give
representation to important elements in the economic
life of the country, and four nominated Directors by the
Central Government to represent the four local Boards
with the headquarters at Mumbai, Kolkata, Chennai
and New Delhi. Local Boards consist of five members
each Central Government appointed for a term of four
years to represent territorial and economic interests
and the interests of co-operative and indigenous banks
 Functions of RBI
• Central banking functions
• Supervisory functions
• Promotional functions
 Central banking function
• Issue of bank notes
– Currency chests
• Banker to government
• Bankers bank
• Custodian of foreign exchange
• Controller of credit
 Supervisory functions
• Licencing and registration
• Branch expansion
• Liquidity of assests
• Amalgamation
• Liquidation etc
 Promotional function
• Promotion of special development banks
• RRB’s
• National housing bank
• EXIM
• Promotes research in banking
 Control of credit by RBI
• Variation in bank rate
• Open market operations
• Variation in cash reserves
• Variation in the statutory liquidity requirement
• Selective credit control
• Fixing of minimum and maximum lending rates
• Moral persuasion.
 Banker and
Customer
Relationship
Banker and Customer Relationship
• The relationship between the banker and
customer is very important. Both serve the
society to grow and the economy to expand.
• Before we discuss the relationship between
the banker and the customer, it seems
necessary that the two terms banker and
customer are made clear,
 What is the meaning of Banker?
• A banker is a dealer in capital or more properly a dealer in
money.
• He is an intermediate party between the borrower and the
lender. He borrows from one party and lends to another.
• Banking has been defined as “Accepting for the purpose of
lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdrawals by
cheque, draft, order or otherwise.
 What is the meaning of a Customer?
• A customer is a person who maintains an
account with the bank, without taking into
consideration the duration and frequency of
operation of his account.
• To constitute a customer of the bank.
– One should have an account with the bank.
– One should deal with the bank in its nature of
regular banking business.
– One should deal with the bank without
consideration of the duration and frequency of
operation of his account.
Banker and Customer Relationship
• The relationship between the banker and
customer is very important. It is generally
studied under the following two heads.
– General Relationship
– Special Relationship
 General Relationship
• Debtor and Creditor:
• The true relationship between banker and
customer is primarily of a debtor and creditor.
• When a customer deposits money with a
bank, the bank then is the debtor and the
customer is the creditor.
• The customer expects from the bank that
– His money will be kept safe by the bank
– It will be returned on demand within business
hours
– The money will be intact and safe and will give
some thing by the way of return (interest).
• The position is reversed if the customer is
advanced loan then the banker becomes
creditors and the customer is debtors.
 Special Relationship

• Principal and agent:

• The special relationship between the customer
and the banker is that of principal and agent.
• The customer (principal) deposits cheque, drafts,
dividends for collection with the bank.
• He also gives written instructions to the bank to
purchase securities, pay insurance premium,
installments of loans etc on his behalf.
• When the bank performs such agency services,
he becomes an agent of his customer.
 Bailer and Bailment relationship

• A bailment is the delivery of goods in trust. A bank

may accept the valuables of his customer such as
jewellary, documents, securities for safe custody.
• In such a case the customer is the Bailer and the
bank is bailee.
• The bank (bailee) charges a very small amount
as service charges for safe custody of the
valuables from his customer (bailer).
• This relationship between the bank and the
customer as bailee and bailer started from the
days of earlier goldsmiths.
 Pawner and Pawnee:

• When a customer Pledge goods and documents as

security for an advance he then become Pawner
(Pledger) and the bank becomes the pawnee
(pledgee).
• The pledged goods are to be returned intact to the
pawner after the debt is repaid by him.
 Mortgager and Mortgagee
relationship:

• Mortgage is the transfer of an interest in specific immovable

property for the purpose of securing the payment of money
advanced or to be advanced by way of loan.
• When a customer pledges a specific immovable property with
the bank as security for advance, the customer becomes
mortgager and banker is the mortagee.
 Bank as a trustee

• The bank act as a trustee for his customer in

those cases where he accept securities and
other valuables for safe custody.
• In such cases the customer continues to be
the owner of the valuables deposited with the
bank.
 Executer, attorney, guarantor

• The bank also acts as executor, attorney and

guarantor for his customer.
• Bailment vs Pledge
• • Bailment is an act of transferring goods to another
person and such goods need to be returned to the
owner after the completion of the purpose
• • Bailment involves only goods other than property
and money
• • Pledge is a special type of bailment where you
promise to pay the money a money lender gives in
exchange for your valuable goods that act as a security.
•
RIGHTS AND DUTIES OF THE
CUSTOMER TOWARDS THE
BANKER
• The main rights and duties of a customer
towards the banker in brief are as under:
• Rights of a customer:
– A customer who has deposited money can draw
cheque on his account up to the extent of his
credit balance or according to overdrawing limit
sanctioned by the bank.
– A customer has the right to receive statement of
accounts from the bank.
– A customer has the right to sue the bank for
compensation of a wrongful dishonor of his
cheque.
– A customer has a right to sue and demand
compensation if the bank fails to maintain the
secrecy of his account.
 Duties of a customer
– It is the duty of the customer to present cheque and other
negotiable instruments during the business hour of the
bank.
– The instruments of credit should be presented by the
customer with in due time from their dates of issue.
– A customer must keep the cheque books issued by the
bank in safe custody. In case of theft or loss, it is the duty
of the customer to report the matter immediately to the
bank.
– A customer should fill the cheque with utmost
care.
– If a customer find any forgery in the amounts of
the cheque issued by him. It should then
immediately be reported to the bank.
RIGHTS AND DUTIES OF THE
BANKER TOWARDS THE
CUSTOMER
• Duties or obligations of a
banker towards the customer
 To honour a customer’s cheque:
The banker is to honour the cheque of the
customers provided the cheque are:
– Properly drawn
– The customer has balance to his credit
– The loan contract has been signed
– There is no legal bar or restriction attaching to the
customer’s funds.
 Standing orders

• It is the duty of the bank to abide by the

standing orders of the customers in making
periodical payments on his behalf such as
club, library, insurance premium etc.
Secrecy of the customer’s account
• The bank owes a contractual duty not to disclose
the customer’s financial position without his
consent.
• However the obligation of secrecy is not
considered essential on the following occasions.
– Under income tax act
– Under companies act
– Under order of court
– Under banking regulation act etc
– When a banker is required to give evidence in the
court.
– When there is national emergency and disclosure
is essential in the public interest.
– When a consent is given by the customer to
provide information for the preparation of balance
sheet.
• Consequence of wrongful disclosures
liability towards third party
liability towards the customer
 Garnishee order
(order of the court)
• In case a debtor fails to pay the money due to
its creditor, the latter may apply to court
• It is the duty of the banker to abide by the
order of the court (garnishee order) and
attached the funds of the customer to the
creditors who has obtained the order in his
favour.
• Judgement debtor and creditor
• Order nisi and order absolute
 Rights of a banker
–Right to set off:
– It is a right of the banker to adjust his outstanding
loans in the name of the customer from his credit
balance of any of the accounts he is maintaining
with the bank.
Right to charge interest, commission
etc

– It is the right of the banker to charge interest

commission etc according to the rates for the
services the banker has rendered to the customer
as agent, trustee etc.
 Right to lien

– A banker has the right to retain the property

belonging to the customer until the debt due from
him has been paid.
• General lien
• Special lien or particular lien
 Ancillary service of a banker
• Remittance of funds
• Bank draft
Legal status of draft
Difference between cheque and draft
• Travelers' cheque
• Collection and payment of pension
• Safe custody of valuables
• Merchant banking
• Merchant banking
– project councelling
– Sponsor of issue
– Credit syndication
– Servicing of issue
– Investment management
– Arrangement for fixed deposits
– Other special activities
 factoring
• Arrangement between financial institution
(factor)and a business concern (client) selling
goods and services
• Benefits
– Reduction in cost of maintenance and collection
of book debts
– Saving in time, manpower etc
– Monitoring of books debts, prevention of bad
debts
 Leasing
• leasing is a method of acquiring right to use
an equipment or asset for consideration
• Certificate deposit
• Stock invest
• Underwriting
 Banking ombudsman
• It is an official appointed for investigating
citizens complaints against government or its
servant.
• Appointed under banking ombudsman
scheme 1995, by RBI, for a period of not
exceeding 3 years.
• He is whole time employee
Grounds of complaint . . . Banking Services
• non-payment or inordinate delay in
payment or collection of
– cheques, drafts, bills etc.;
– inward remittances

• non-acceptance of
– small denomination notes
– coins
or charging commission for acceptance
Grounds of complaint . . . Banking Services
• failure to issue or delay in issue, of drafts, pay
orders or bankers’ cheques;
• non-adherence to prescribed working hours;
• failure to honour guarantee or letter of credit
commitments ;
• failure to provide or delay in providing a
banking facility (other than loans and
advances) promised in writing by a bank or its
direct selling agents;
 Grounds of complaint . . . Banking
Services
• delays, non-credit of proceeds to parties'
accounts, non-payment of deposit or non-
observance of the Reserve Bank directives,
if any, applicable to rate of interest on
deposits in any savings, current or other
account maintained with a bank ;
• delays in receipt of export proceeds,
handling of export bills, collection of bills
etc., for exporters provided the said
complaints pertain to the bank's operations
in India;
Grounds of complaint . . . Banking Services
• complaints from Non-Resident Indians
having accounts in India in relation to their
remittances from abroad, deposits and
other bank-related matters;
• refusal to open deposit accounts without
any valid reason for refusal;
• levying of charges without adequate prior
notice to the customer;
• non-adherence by the bank or its
subsidiaries to the instructions of Reserve
Bank on ATM/Debit card operations or
credit card operations;
Grounds of complaint . . . Banking Services
• non-disbursement or delay in
disbursement of pension (to the extent
the grievance can be attributed to the
action on the part of the bank
concerned), but not with regard to its
employees;
• refusal to accept or delay in accepting
payment towards taxes, as required by
Reserve Bank/Government;
• refusal to issue or delay in issuing, or
failure to service or delay in servicing or
redemption of Government securities;
Grounds of complaint . . . Banking Services

• forced closure of deposit accounts without due

notice or without sufficient reason;
• refusal to close or delay in closing the accounts;
• non-adherence to the fair practices code as
adopted by the bank; and
• any other matter relating to the violation of the
directives issued by the Reserve Bank in relation to
banking or other services.
 Complaints - Loans and Advances
• non-observance of RBI directives on
interest rates;
• delays in sanction, disbursement or non-
observance of prescribed time schedule
for disposal of loan applications;
• non-acceptance of application for loans
without furnishing valid reasons to the
applicant and
• non-observance of any other directions or
instructions of the RBI from time to time.
 Goals
• To ensure customer facilitation and protection
through redressal of grievances of users of
banking services in an inexpensive, expeditious,
fair, reasonable and hassle free manner that will
provide impetus for improved customer service
on a continuous basis
• Provide feedback for framing appropriate and
timely guidelines
• Enhance awareness of the scheme itself
Organizational Chart

Deputy
Governor
(Appellate Authority

Executive Director

Customer Services
Department

Office of the Banking Ombudsman

 Redressal Process

Receipt of complaint

Review by BO

Reject
Maintainable
Non Maintainable
 Maintainable
Complaints

Referred to Bank

Resolved by mutual settlement

(Clause 11)
 Unresolved Complaints

Reject Award (Clause 12)

(Clause 13)

Complainant to accept & Bank

to implement

Complainant’s right to Bank & Complainant can

Appeal File an Appeal
 Appellate Authority
Banking
Ombudsman
Legal
Department
CSD, CO

Regulatory
Departments Customer

Set aside the award

Bank to
Remand the matter to BO
Implement
Modify the award
Pass any other order
Procedure for lodging complaints
• Essential – grievance to be taken up with
bank first;
• Aggrieved persons not satisfied by a bank’s
service and its resolution of complaint can
apply to the Banking Ombudsman within
one year;
• Complaint in prescribed format or in any
other but incorporating all the required
information.
• Complaints can be submitted online/
email/in hard copy
• Complaints from individuals/ their
representatives( except advocates)/GOI/RBI
Complaints Redressal Procedure
Maintainability of Complaint
Prescribed time –rejection of complaint/non
receipt of reply within one month of his
representation / non satisfaction of reply
not later than one year after the cause of action
not time barred as per the Indian Limitation Act
1963
Not a subject matter on which BO decision has
already been taken
Not a subject matter which is before court/
tribunal/ arbitrator/ other forum
 CONSUMER PROTECTION ACT, 1986

 Enacted to provide for the better protection of the

interest of consumer
 Act applies to whole of India except Jammu and
Kashmir
 Chapter I, II and IV came into force on 15.4.1987.
Chapter III came into force on 1.7.1987
 The act was amended in 2002 and the amendments
came into force w.e.f. 15th March 2003.

99
 WHAT IS A DEFICIENCY ?
 Fault In the
 Imperfection  Quality
 Shortcoming Or  Standard and
 Inadequacy  Manner of performance

Which is required to be maintained by or under any

law for the time being in force

100
 WHAT IS A SERVICE?
“Service” means service of any description, which is
made available to potential users and includes, but not
limited to the provisions of the facilities in connection
with
1) banking 2) financing 3) insurance 4) transport
5) processing 6) supply of electrical or other energy
7) boarding or lodging or both 8) house construction
9) entertainment 10) amusement or
11) the purveying or new or other information

But does not include the rendering of any service free of

charge or under a contract of personal service

101
 CONSUMER DISPUTE REDRESSAL
AGENCIES

1) A Consumer Dispute Redressal Forum at the District level.

2) A Consumer Dispute Redressal Commission at the State
level.
3) A National Consumer Dispute Redressal Commission at
national level.

102
 JURISDICTION
Forum / Commission Where the value of the goods or
services and the compensation, if
any claimed,
District Forum Does not exceed Rs. 20 lakhs
State Commission Rs. 20 lakhs and above but not
exceeding One Crore
National Commission Above One Crore

Besides, State and National Commission have appellate

jurisdiction also.

103
 FILING OF COMPLAINTS

A complaint may be filed by

a) The consumer to whom the goods are sold or services
are provided
b) Any recognised consumer association
c) One or more consumers with same interest
d) The central government or state government

104
 FILING OF COMPLAINTS
The Fee for filing the Complaint for the district forum is as under
Sr. Value of Goods / Service and Compensation Amount
No. of Fees
1) Upto Rs. 1 lakh rupees Rs. 100
2) Rs. 1 Lakh and above but less than Rs.5 lakhs Rs. 200
3) Rs. 5 Lakhs and above but less than Rs. 10 lakhs Rs. 400

4) Rs. 10 lakhs and above but less than Rs. 20 lakhs

The fees shall be paid by Cross demand Draft drawn on a nationalized bank or through
crossed Indian postal order drawn in favour of the Registrar of the Sate Commission and
payable at the place of the State Commission (w.e.f. 5.3.2004.)

105
 POWER OF CIVIL COURT TO DISTRICT FORUM

The District Forum shall have the powers of Civil Court

while trying a suit in respect of the following matters ;
a) The summoning and enforcing attendance of any defendant or witness
and examining the witness on oath.
b) The discovery and production of any document or other material object
producible as evidence.
c) The reception of evidence on affidavit
d) The requisition of the report of the concerned analysis or test from the
appropriate laboratory of from any other relevant source.
e) Any other matter which may be prescribed.

106
 RELIEF TO THE COMPLAINANT ?
IF THE COMPLAINT IS PROVED THE FORUM SHALL ORDER
a) to remove defect pointed out by the appropriate laboratory from the
goods in question;
b) to replace the goods with new goods of similar description which shall be
free from any defect;
c) to return to the complainant the price, or , as the case may be, the charges
paid by the complainant;
d) to pay such amount as may be awarded by it as compensation to the
consumer for any loss or injury suffered by the consumer due to negligence
of the opposite party;
e) To remove the defect in goods or deficiency in the services in question.

107
 RELIEF TO THE COMPLAINANT ?
f) to discontinue the unfair trade practice or the restrictive trade practice or
not to repeat them;
g) not to offer hazardous goods for sale;
h) to withdraw the hazardous goods from being offered for sale;
ha) to cease manufacture of hazardous goods and to desist from offering services
which are hazardous in nature;
hb) to pay such sum as may be determined by it, if it is of the opinion that loss or
injury has been suffered by a large number of consumers who are not
identifiable conveniently.
hc) to issue corrective advertisements to neutralize the effect of misleading
advertisement at the cost of the opposite party responsible for issuing such
misleading advertisement;
i) To provide for adequate cost to parties.

108
 APPEAL

 shall be filed within thirty days.

 Delay in filing appeal may be condoned if

there is sufficient cause.

109
 LIMITATION PERIOD
Within two years from the date on
which the cause of action has arisen.

110
 Types of bank account
• Bank accounts may have a positive,
or credit balance, where the bank owes money to
the customer; or a negative, or debit balance,
where the customer owes the bank money
• Broadly, accounts opened with the purpose of
holding credit balances are referred to as deposit
accounts; whilst accounts opened with the
purpose of holding debit balances are referred to
as loan accounts.
• A deposit account is a current
account, savings account, or other type
of bank account, at a banking institution that
allows money to be deposited and withdrawn
by the account holder. These transactions are
recorded on the bank's books, and the
resulting balance is recorded as a liability for
the bank, and represent the amount owed by
the bank to the customer. Some banks charge
a fee for this service, while others may pay the
customerinterest on the funds deposited.
• CURRENT DEPOSITS /ACCOUNTS: These
accounts are used mainly by businessmen and
are not generally used for the purpose of
investment. These deposits are the most
liquid deposits and there are no limits
for number of transactions or the amount of
transactions in a day. Most of the current
account are firm / company accounts.
• Cheque book facility is provided and the
account holder can deposit all types of the
cheques and drafts in their name or endorsed in
their favour by third parties.
• No interest is paid by banks on these
accounts. On the other hand, banks charge
service charges, on such accounts.
• SAVING DEPOSITS / ACCOUNTS
•
These deposits / accounts are one of the most
popular deposits for individual accounts. These accounts not only
provide cheque facility but also have lot of flexibility
for deposits and withdrawal of funds from the account. Most of
the banks have rules for the maximum number of withdrawals in
a period and the maximum amount of withdrawal, but hardly any
bank enforces these. However, banks have every right to enforce
such restrictions if it is felt that the account is being misused as a
current account. Till 24/10/2011, the interest on these accounts
was regulated by Reserve Bank of India and it was fixed at 4.00%
p.a. on daily balance basis. However, wef 25th October, 2011, RBI
has deregulated SF interest rates and banks are now free to decide
the same within certain conditions imposed by RBI
• RECURRING DEPOSITS / ACCOUNTS
• These kind of deposits are most suitable for people who do not
have lump sum amount of savings, but are ready to save a small
amount every month. Normally, such deposits earn interest on
the amount already deposited (through monthly installments) at
the same rates as are applicable for Fixed Deposits / TermDeposits
• Under these type of deposits, the person has to usually deposit a
fixed amount of money every month (usually a minimum of
Rs,100/- p.m.). Any default in payment within the month attracts
a small penalty. However, some Banks besides offering a fixed
installment RD, have also introduced a flexible / variable RD.
Under these flexible RDs the person is allowed to deposit even
higher amount of installments, with an upper limit fixed for the
same e.g. 10 times of the minimum amount agreed upon.
• Such accounts are normally allowed for
maturities ranging from 6 months to 120
months. A Pass book is
usually issued wherein the person can get the
entries for all the deposits made by him / her
and
theinterest earned. Premature withdrawal of
accumulated amount permitted is usually
allowed (however, penalty may be imposed for
early withdrawals). These accounts can be
opened in single or joint names. Nomination
facility is also available.
• . Home Safe Account (also known as Money Box Scheme): Small savers
a

find it convenient to deposit money under this scheme. For regular

savings, the bank provides a safe or box (Gullak) to the depositor. The safe
or box cannot be opened by the depositor, who can put money in it
regularly, which is collected by the bank’s representative at intervals and
theamount is credited to the depositor’s account. The deposits carry a
nominal rate of interest.
• b. Cumulative-cum-Sickness Deposit Account: Regular deposits made in
this type of account serve the purpose of having money to meet large
expenses in case there is sudden illness or other unforeseen expenses. A
certain fixed sum is deposited at regular intervals in this account. The
accumulated deposits over time along with interest can be used for
payment of medical expenses, hospital charges, etc.
• c. Home Construction deposit Scheme/Saving Account: This is also a type
of recurring deposit account in which money can be deposited regularly
either for the purchase or construction of a flat or house in future. The
rate of interest offered on the deposit in this case is relatively higher than
in other recurring deposit accounts.
• FIXED DEPOSIT ACCOUNTS / TERM DEPOSITS
• All Banks offer fixed deposits schemes with a wide
range of tenures for periods from 7 days to 10
years. The term "fixed" in Fixed Deposits (FD)
denotes the period of maturity or tenor. Therefore,
the depositors are supposed to continue such
Fixed Deposits for the length of time for which the
depositor decides to keep the money with the
bank. However, in case of need, the depositor can
ask for closing (or breaking) the fixed
deposit prematurely by paying paying a penalty
• MINORS' ACCOUNTS
•
i) The minor can open Savings Bank Account and the
same can be operated by the natural guardian or by
minor himself / herself, if he/she is above the age of 10
years. The account can also be opened jointly.
• ii) On attaining majority, the erstwhile minor should
confirm the balance in his/her account and if the
account is operated by the natural guardian / guardian,
fresh specimen signature of erstwhile minor duly
verified by the natural guardian would be obtained and
kept on record for all operational purposes.
• ACCOUNT OF ILLITERATE / BLIND PERSON
• The Bank may at its discretion open deposit accounts other than
Current Accounts of illiterate person. The account of such person
may be opened provided he/she calls on the Bank personally along
with a witness who is known to both the depositor and the Bank.
Normally, no cheque book facility is provided for such Savings Bank
Account. At the time of withdrawal/ repayment of deposit amount
and/or interest, the account holder should affix his / her thumb
impression or mark in the presence of the authorized officer who
should verify the identity of the person. The Bank will explain the
need for proper care and safe keeping of the passbook etc. given to
the account holder. The Bank official shall explain the terms and
conditions governing the account to the illiterate / blind perso
• A secured loan is a loan in which the
borrower pledges some asset (e.g. a car or
property) as collateral
• A subsidized loan is a loan that will not gain
interest before you begin to pay it. It is known
to be used at multiple colleges.
• An unsubsidized loan is a loan that gains
interest the day of disbursement.
• A mortgage loan
• Unsecured
• Unsecured loans are monetary loans that are
not secured against the borrower's assets.
These may be available from financial
institutions under many different guises or
marketing packages:
• credit card debt
• personal loans
• bank overdraft
• Demand
• Demand loans are short term loans (typically
no more than 180 days) that are atypical in
that they do not have fixed dates for
repayment and carry a floating interest rate
which varies according to the prime rate. They
can be "called" for repayment by the lending
institution at any time. Demand loans may be
unsecured or secured.
 Fixed deposits
• Opening and operation of fixed deposit
account
• Payment of interest
• Interest on overdue deposits
• Advance against fixed deposit
• Surrender of deposit receipt before maturity
date
• Not a negotiable instrument
• Cheques against FD
• Exemption from stamp duty
• Loss of FDR
• Change of names
• Repayment of deposits by cheque/draft
 Savings accounts
• Application on prescribed form
• Photographs
• Introduction or reference
• Specimen signature
• Mandate for operation
• Open an account
 Nomination
• nomination for payment of depositors’ money
sec 45 ZA
• When a deposit is held by banking company
to the credit of one or more persons, they can
nominate , in prescribed manner one person
to whom in event of death of depositor will
get the amount
• The nominee become entitled to all the rights
of sole depositor
• Where nominee is minor, then mane of
person is to be given who receive the money
during the minority of nominee.
• Full discharge to the banking company
 Notice of claim of other persons
• No notice of the claim of any person, other
than the person or persons in whose name a
deposit is held by a banking company, shall be
receivable by the banking company
 Nominations for return of article
• The person who have kept any article in safe
custody with a banking company, may
nominate, in prescribed manner
• Where nominee is minor then appointment
of a person to receive the article
• Banking company may prepare such inventory
of said articles as directed by RBI, and shall get
signed by the nominee.
• Notice of claim not receivable.
 Release of contents of safety lockers
• Every nomination is to be made in prescribed
manner.
• Prepare an inventory
• Bank is discharged
• Notice of claim not receivable.
 Insurance of bank deposits
• Introduced on 1st jan. 1962 by establishment
of deposit insurance corporation of India .
• The scheme covers all scheduled and non
scheduled commercial banks.
• The schemes provides insurance to every
depositor to the extent of rs.1,00,000.
• The insurance cover is available for all
deposits
• The depositor gets reimbursement in the
event of his losing money on account of
failure of the insured bank.
• The insured banks have to pay premium at the
rate of 10 paise per annum of every Rs.100 of
assessable deposits.
 Free Life Insurance cover to savings
bank account holders
• The scheme of free life insurance covers to the
saving bank account holders
• The insurance will be available to those account
holders who maintain minimum balance of
Rs.1000/-(urban) and Rs.500/-(rural)
• The premium is paid by banks
• No medical examination of account holders
• 18-40 yrs double of average balance max-10,000
• 41-49 yrs equal to average balance max-5000
 Talwar working group
recommendation
• Introduction have been accepted through
passports, paybook etc. indentity cards in case
of person from armed forces
• Overdraft facility in case of savings banks
account holders enjoying cheque book facility.
• Balance confirmation
• Advising customers in event of maturity of FD
 Goiporia committee
• Improving customer service by enlarging
scope of teller services, extending banking
hours, non cash transactions, devising
appropriate procedure to render
uninterrupted service
• Opening of specialized branches
• Making employees more responsive, customer
friendly.
• Technology upgradation
• Making bank deposits more attractive by
raising interest rates on savings.
• Compensating customers for delay in
collection of cheques etc
 Banking regulation act
• Applicable to three kinds of banks
• Private (except section 56)
• Public
• Cooperative
– Paid up capital and reserves 1 lakh or more
– State and central co-operative bank
 Does not apply to:
• All primary agricultural credit societies.
• Non agricultural primary credit society.
• All cooperative credit societies whose
principal business is not banking but which
accept deposits only from members and
provide financial help only to them
• All co-operative societies not carrying on
banking business
• Land mortgage banks
Power to suspend operation of the
• Sec 4
• The central government (on reprensentation
of RBI) may be notification in the official
gazette suspend for such period, not
exceeding 60, as may be specified in the
notifacation.
Act to over-ride memorandum, article
• The provision of this act shall have effect
notwithstanding anything to the contrary
contained in the memorandum or articles of
banking company.
• 10[(a) "approved securities" means-
(i) securities in which a trustee may invest money under clause (a), clause
(b), clause (bb), clause (c) or clause (d) of section 20 of the Indian Trust
Act, 1882 (2 of 1882);
(ii) such of the securities authorised by the Central Government under
clause (f) of section 20 of the Indian Trust Act, 1882 (2 of 1882), as may be
prescribed];
(b) "banking" means the 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, order or otherwise.
(c) "banking company" means any company which transacts the business
of banking 11[in India];
Explanation: Any company which is engaged in the manufacture of goods
or carries on any trade and which accepts deposits of money from the
public merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business of
banking within the meaning of this clause;
• "banking policy" means any policy which is
specified from time to time by the Reserve
Bank in the interest of the banking system or
in the interest of monetary stability or sound
economic growth, having due regard to the
interests of the depositors, the volume of
deposits and other resources of the bank and
the need for equitable allocation and the
efficient use of these deposits and resources
• "branch" or "branch office", in relation to a
banking company, means any branch or
branch office, whether called a pay office or
sub-pay office or by any other name, at which
deposits are received, cheques cashed or
moneys lent, and for the purposes of section
35 includes any place of business where any
other form of business referred to in sub-
section (1) of section 6 is transacted;]
• "company" means any company as defined in
section 3 of the Companies Act, 1956
• "corresponding new bank" means a
corresponding new bank constituted under
section 3 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 (5 of
1970), or under section 3 of the Banking
Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980);]
• "demand liabilities" means liabilities which must be
met on demand, and "time liabilities" means liabilities
which are not demand liabilities;
• "Deposit Insurance Corporation" means the Deposit
Insurance Corporation established under section 3 of
the Deposit Insurance Corporation Act, 1961
• Development Bank" means the Industrial Development
Bank of India established under section 3 of the
Industrial Development Bank of India Act, 1964 (18 of
1964);
• Exim Bank" means Export-Import Bank of India
established under section 3 of the Export-Import Bank
of India Act, 1981
• Demand and time liabilities(sec 5 f): demand liabilities
which are met on demand and time liabilities which
are not demand liabilities.
• Gold (sec 5g): gold includes gold in the form of coin,
• Secured loan or advance (5 n): loan or advance made
on the security of assets the market value of which is
not at any time less than the amount of such loan
• Small scale industrial concern (5 na) industrial
concern in which the investment in plant and
machinery is not in excess rs. 60 lakhs/ 75
lakhs
• Form and business in which banking companies may engage
(1) In addition to the business of banking, a banking company may engage in any one or
more of the following forms of business, namely,-

(a) the borrowing, raising, or taking up of money; the lending or advancing of money
either upon or without security; and drawing, making, accepting, discounting, buying,
selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons,
drafts, bill of lading, railway receipts, warrants, debentures, certificates, scrips and
other instruments, and securities whether transferable or negotiable or not; the
granting and issuing of letters of credit, travellers' cheques and circular notes; the
buying, selling and dealing in bullion and specie; the buying and selling of foreign
exchange including foreign bank notes; the acquiring, holding, issuing on commission,
underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds,
obligations, securities and investments of all kinds; the purchasing and selling of bonds,
scrips or other forms of securities on behalf of constituents or others; the negotiating
of loan and advances; the receiving of all kinds of bonds, scrips or valuables on deposit
or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and
transmitting of money and securities;

(b) acting as agents for any government or local authority or any other person or
persons; the carrying on of agency business of any description including the clearing
and forwarding of goods, giving of receipts and discharges and otherwise acting as an
attorney on behalf of customers, but excluding the business of a 30[Managing Agent or
Secretary and Treasurer] of a company;
• c) contracting for public and private loans and negotiating and issuing the same;

(d) the effecting, insuring, guaranteeing, underwriting, participating in managing

and carrying out of any issue, public or private, of State, municipal or other loans
or of shares, stock, debentures or debenture stock of any company, corporation or
association and the lending of money for the purpose of any such issue;

(e) carrying on and transacting every kind of guarantee and indemnity business;

(f) managing, selling and realising any property which may come into the
possession of the company in satisfaction or part satisfaction of any of its claims;

(g) acquiring and holding and generally dealing with any property or any right, title
or interest in any such property which may form the security or part of the security
for any loans or advances or which may be connected with any such security;

(h) undertaking and executing trusts;

(i) undertaking the administration of estates as executor, trustee or otherwise;

• establishing and supporting or aiding in the establishment and support of
associations, institutions, funds, trusts, and conveniences calculated to benefit
employees or ex-employees of the company or the dependents or connections of
such persons; granting pension and allowances and making payments towards
insurance; subscribing to or guaranteeing moneys for charitable or benevolent
object or for any exhibition or for any public, general or useful object;
(k) the acquisition, construction, maintenance and alteration of any building or
works necessary or convenient for the purpose of the company;
(l) selling, improving, managing, developing, exchanging, leasing, mortgaging,
disposing of or turning into account or otherwise dealing with all or any part of the
property and rights of the company;
(m) doing all such other things as are incidental or conducive to the promotion or
advancement of the business of the company;
(o) any other form of business which the Central Government may, by notification
in the Official Gazette, specify as a form of business in which it is lawful for a
banking company to engage.
(2) No banking company shall engage in any form of business other than those
referred to in sub-section (1).
• 7. Use of words "bank", "banker", "banking" or "banking company"
(1) No company other than a banking company shall use as part of its
name 15[or, in connection with its business] any of the words "bank",
"banker" or "banking" and no company shall carry on the business of
banking in India unless it uses as part of its name at least one of such
words.
(2) No firm, individual or group of individuals shall, for the purpose of
carrying on any business, use as part of its or his name any of the words
"bank", "banking" or "banking company".
(3) Nothing in this section shall apply to-
(a) a subsidiary of a banking company formed for one or more of the
purposes mentioned in sub-section (1) of section 19, whose name
indicates that it is a subsidiary of that banking company;
(b) any association of banks formed for the protection of their mutual
interests and registered under section 25 of the Companies Act, 1956 (1 of
1956).]
• 8. Prohibition of trading
Notwithstanding anything contained in section 6
or in any contract, no banking company shall
directly or indirectly deal in the buying or selling
or bartering of goods, except in connection with
the realization of security given to or held by it, or
engage in any trade, or buy, sell or barter goods
for others otherwise than in connection with bills
of exchange received for collection or negotiation
or with such of its business as is referred to in
clause (i) of sub-section (1) of section 6:
• 9. Disposal of non-banking assets
Notwithstanding anything contained in
section 6, no banking company shall hold any
immovable property howsoever acquired,
except such as is required for its own use, for
any period exceeding seven years from the
acquisition thereof or from the
commencement of this Act, whichever is later
or any extension of such period as in this
section provided, and such property shall be
disposed of within such period or extended
period, as the case may be
• . Prohibition of employment of Managing Agents and restrictions
on certain forms of employment
(1) No banking company-
(a) shall employ or be managed by a Managing Agent; or
(b) shall employ or continue the employment of any person-
(i) who is, or at any time has been, adjudicated insolvent, or has
suspended payment or has compounded, with his creditors, or
who, is or has been, convicted by a criminal court of an offence
involving moral turpitude; or
(ii) whose remuneration or part of whose remuneration takes the
form of commission or of a share in the profits of the company:
• Banking companies
incorporated
outside india
• Place of business in • Rs. 20,00,000
bombay or calcutta
• If it has place of
business elsewhere • 15,00,000
 Incorporated in India
• Place of business in • 5,00,000
more than one
statenone of them
is in bombay or
calcutta
• Place of business in • 10,00,000
more than one state
one of them is in
bombay or calcutta
 Capital and voting right
• Regulation of paid-up capital, subscribed capital and authorised
capital and voting rights of shareholders
(1) No banking company shall carry on business in India, unless it
satisfies the following conditions, namely,-
(i) that the subscribed capital of the company is not less than one-
half of the authorised capital and the paid-up capital is not less than
one-half of the subscribed capital and that, if the capital is
increased, it complies with the conditions prescribed in this clause,
within such period not exceeding two years as the Reserve Bank
may allow;
(ii) that the capital of the company consists of ordinary shares only
or of ordinary shares or equity shares and such preferential shares
as may have been issued prior to the lst day of July, 1944:
• The voting right of any shareholder shall not
exceed ten percent
• A banking company can not pay by way of
commission, brokerage, discount or
remuneration in any form in respect of shares
issued by it,
• A banking company cannot create any charge
upon its unpaid capital
• Prohibition of floating charge on assets
(1) Notwithstanding anything contained in section 6, no banking
company shall create a floating charge on the undertaking or any
property of the company or any part thereof, unless the creation of
such floating charge is certified in writing by the Reserve Bank as
not being detrimental to the interests of the depositors of such
company.
Restrictions as to payment of dividend
49[(1)] No banking company shall pay any dividend on its shares
until all its capitalised expenses (including preliminary expenses,
organisation expenses, share selling commission, brokerage,
amounts of losses incurred and any other item of expenditure not
represented by tangible assets) have been completely written off.
• . Reserve Fund
(1) Every banking company incorporated in
India shall create a reserve fund and 50[* **]
shall, out of the balance of profit of each year,
as disclosed in the profit and loss account
prepared under section 29 and before any
dividend is declared, transfer to the reserve
fund a sum equivalent to not less than twenty
per cent of such profit.
• Cash reserve
(1) Every banking company, not being a scheduled bank, shall
maintain in India by way of cash reserve with itself or by way of
balance in a current account with the Reserve Bank or by way of net
balance in current accounts or in one or more of the aforesaid
ways, a sum equivalent to at least three per cent of the total of its
demand and time liabilities in India as on the last Friday of the
second preceding fortnight and shall submit to the Reserve Bank
before the twentieth day of every month a return showing the
amount so held on alternate Fridays during a month with
particulars of its demand and time liabilities in India on such Friday
or if any such Friday is a public holiday under the Negotiable
Instruments Act, 1881 (26 of 1881), at the close of business on the
preceding working day.
• . Restriction on nature of subsidiary companies
10[(1) A banking company shall not form any subsidiary company except a
subsidiary company formed for one or more of the following purposes,
namely.-
(a) the undertaking of any business which, under clause (a) to (o) of sub-
section (1) of section 6, is permissible for a banking company to
undertake, or
(b) with the previous permission in writing of the Reserve Bank, the
carrying on of the business of banking exclusively outside India, or
(c) the undertaking of such other business, which the Reserve Bank may,
with the prior approval of the Central Government, consider to be
conducive to the spread of banking in India or to be otherwise useful or
necessary in the public interest.
• Restrictions on loans and advances
(1) Notwithstanding anything to the contrary contained in section 77 of the
Companies Act, 1956 (1 of 1956), no banking company shall-
(a) grant any loans or advances on the security of its own shares, or
(b) enter into any commitment for granting any loan or advance to or on behalf of-
(i) any of its Directors,
(ii) any firm in which any of its Directors is interested as Partner, Manager,
Employee or Guarantor, or
(iii) any company (not being a subsidiary of the banking company or a company
registered under section 25 of the Companies Act, 1956 (1 of 1956), or a
government company, of which 15[or the subsidiary or the holding company of
which] any of the Directors of the banking company is a Director, Managing Agent,
Manager, Employee or Guarantor or in which he holds substantial interest, or
(iv) any individual in respect of whom any of its Directors is a partner or guarantor
• Restriction on employment
• A banking company shall not employ or continue
to the employment of any of the following
persons
• Insolvent
• Whose remuneration takes the form of
commission or of share in the profits of the
company.
• Whose remuneration is, in opinion of the RbI
excessive
• A banking company shall not be managed by a
person
• Who is director of any other company
• Who is engaged in any other business or
vocation
• Whose term or office as a person managing
the company is for period exceeding 5 years at
one time.
 Assests of banking company
• Every bank (scheduled/non-scheduled) is required
to maintain liquid assets in the form of cash, gold
or unencumbered approved securities which
should not be less than 25 per cent of the total of
its demand and time liabilities.
• ‰ The present stipulation is to maintain 25 per cent of its
demand and time liabilities in the form of cash, gold or
unencumbered approved securities
• The 25% of the amount shall be in addition to
the cash reserves maintained by a scheduled
bank under sec 42 of RBI
• The amount that shall be included in
calculating the amount
– The deposit required under section 11 to be made
with the RBI
• Any cash or balances maintained in India by
banking company other then scheduled bank
with itself or in current account with the
reserve bank or state bank of india with any
other bank which may be notified in this
behalf by the central government in excess of
the aggregate of the cash or balances or both
required to be maintained under section 18
 Assets in India
• The assets in India of every banking company
at the close of business on the last Friday of
every quarter, shall not be less than 75% of its
demand and time liabilities in India.
• Every banking company shall with in one
month from the end of every quarter, submit
to the reserve bank a return prescribed form
and manner of the assets and liabilities
 Return of unclaimed deposits
• Every banking company shall within thirty
days after the close of each calendar year,
submit a return in the prescribed form and
manner to the reserve bank as at the end of
each calendar year of all accounts not been
operated upon for ten years.
 Monthly returns
• Every banking company is required to submit
to reserve bank before the close of the month
a return in prescribed manner showing its
assets and liabilities.
 Powers of reserve bank
• Election of new director
• The rbi by order require any banking company to call a general
meeting to elect new director
• Cash reserve according to sec 18 every scheduled bank has to
maintain this cash reserve
• Licensing of banking companies
3.1 Section 22 of the Banking Regulation Act provides that a company
intending to carryon banking business must obtain a licence from
RBI except such of the banks (publicsector banks and RRBs), which
are established under specific enactments. The RBI issueslicence
only after “tests of entry” are fulfilled. These tests include minimum
capital,ownership structure, bank’s operating plans and controls,
ability of the bank to pay its present and future depositors in full,
quality of management and whether the licensing of the bank
would be in the public interest.
• Cancellation of license
• Opening of new and transfer of existing place of
business
• Power to call for information relating to the
business of any banking company
• Power of inspection the rbi may at any time, and
shall at the direction of the central government
inspect banking company and its books and
accounts to find out whether or not affairs of the
company conducted in the interest of depositors
• Power to give directions
• Reserve bank’s approval necessary for the
amendment of provision relating to
appointment of managing directors.
• Power of rbi to remove managerial and other
persons from office.
• Power to appoint additional directors
 Dahejia committee report
• In order to determine the extent to which
credit needs of industry and trade are likely to
be inflated and how such trends could be
checked.
• The committee was constituted in 1968 and
submitted its report in September in sep 1969
 findings
• The rise in bank credit to industry during each of
the year than the increase in value of industrial
output
• The ratio of short term borrowing to inventories
rose from 40% to 52%.
• There was tendency on the part of industry in
excess of the amount based on growth credit in
production.
• There was no similarity in fixing credit limits for
industrial borrowers
• With a view to prevent undue elongation of the
period of trade credit and tying up of resources of
bank for unproductive purposes, it is considered
than trade credit should not exceed 60 days and
in special circumstances 90 days.
• Tendency to utilize short term bank credit and
other current liabilities for acquisition of non
current assests can be due to
– Sluggish conditions in the capital market since 1962
– Appraisal of short term loans as compared to medium
term loan
– Stipulation of repayment schedule for medium term
loan
• The committee was of opinion that by and
large the lending by the commercial banks
was security oriented that’s why the system
was found convenient
• Banks hardly assess the overall financial
position of the borrower through cash flow
analysis.
 recommendations
• The appraisal of credit application should be
made with reference to the total financial
situation, existing and projected as shown by
cash flow analysis and forecasts submitted by
borrowers.
• Total cash credit requirement should be
distinguished as
– Hard core which would represent the minimum level
of raw material, finished goods and stores which the
industry is required to hold
– The strictly short term component which would be
the fluctuating part of the account.
• The committee further suggested that to
reduce double or multiple financing of stocks,
a customer should be generally be required to
route his entire business through one bank
• After this report the banks tightened the
appraisal procedure
 Tandon panel
• To suggest guidelines for commercial banks to
follow up and supervise credit from the point of
view of ensuring proper enduse of funds and
keeping a watch on safety of advances.
• To suggest the type of operational data and other
information that may be obtained by banks
periodically from the borrowers and by the
reserve bank from the lending banks.
• To suggest criteria regarding satisfactory capital
structure and sound financial basis.
• To make recommendations regarding
resources for financing the minimum working
capital requirement
• To suggest whether the existing pattern of
financing working capital requirement by cash
or credit/overdraft system requires to be
modified, if so to suggest any modification.
 Findings
• The panel found out the following as major
weaknesses:
• It is the borrower who decides how much he
would borrow. The banker cannot do any
credit planning as he does not decide how
much he would lend.
• Bank credit instead of being taken as
supplementary to other source of finance, is
treated as the first source of finance.
 Cont…
• Bank credit is extended on the amount of
security available and not according to the
level of operations.
• There is wrong notion that security by itself
ensures the safety of bank’s funds. As a matter
of fact safety essential lies in efficient follow
up of the industrial operations of the
borrower.
 Recommendations
• A proper financial discipline has to be observed by the
borrower. he should supply to the banker information
regarding his operational plans well in advance. The
banker must carry out a realistic appraisal of such
plans.
• The main function of a banker as a lender is to
supplement the borrower’s resources to carry an
acceptable level of current assest.
– The level of current assets must be reasonable and based
on norms, and
– A part of funds requirement for carrying out current assets
must be found from long term funds
• The bank should know the end-use of bank credit so that it is used only for
purpose for which it is made available.
• Working capital finance would be available to the borrowers on the basis
of industry wise norms (prescribe first by the Tandon Committee and then
by Reserve Bank of India) for holding different current assets, viz.
– Raw materials including stores and others items used in
manufacturing process.
– Stock in Process.
– Finished goods.
– Accounts receivables.
• 5. Credit would be made available to the borrowers in different
components like cash credit; bills purchased and discounted working
capital, term loan, etc., depending upon nature of holding of various
current assets.
• 6. In order to facilitate a close watch under operation of borrowers, bank
would require them to submit at regular intervals, data regarding their
business and financial operations, for both the past and the future
periods.
• the essence of Tandon Committee’s recommendations was
to finance only portion of borrowers working capital needs
not the whole of it. It was thought that gradually, the
borrower should depend less on banks to fund its working
capital needs. From this point of view the committee three
graduated methods of lending, which came to be known as
maximum permissible bank finance system or in short
MPBF system.
• For the purpose of calculating MPBF of a borrowing unit, all
the three methods adopted equation:
• Working Capital Gap = Gross Current Assets – Accounts
Payable
• …. as a basis which is translated arithmetically as follows:
• Gross Current Assets Rs. ………………
• Less: Current Liabilities
• other than bank borrowings Rs. ……………….
• Working Capital Gap Rs. ……………….
• First method of lending
• The contribution by the borrowing unit is fixed at a
minimum of 25% working capital gap from long-term
funds. In order to reduce the reliance of the borrowers
on bank borrowings by bringing in more internal cash
generation for the purpose, it would be necessary to
raise the share of the contribution from 25% of the
working capital gap to a higher level.
• The remaining 75% of the working capital gap would
be financed by the bank. This method of lending gives
a current ratio of only 1:1
• Second method of lending
• In order to ensure that the borrowers do enhance
their contributions to working capital and to
improve their current ratio, it is necessary to
place them under the second method of lending
recommended by the Tandon committee which
would give a minimum current ratio of 1.33:1.
The borrower will have to provide a minimum of
25% of total current assets from long-term funds.
However, total liabilities inclusive of bank finance
would never exceed 75% of gross current assets.
• Third method of lending
• Under the third method, permissible bank
finance would be calculated in the same manner
as the second method but only after deducting
core current assets from the gross current assets.
• Core portion current assets were presumed to be
that permanent level which would generally vary
with the level of the operation of the business.
This core level provides a safety cushion against
any sudden shortage of materials in the market
or lengthening of delivery time. This core level is
considered to be equivalent to fixed assets and
hence, was recommended to be financed from
long-term sources.
• Style of credit
– Loan component
– Demand cash credit
• Differential lending rates
– The committee recommended for charging a
slightly higher rate of interest on the demand cash
credit component as component to that on the
loan component. This approach would give the
borrower an incentive for better planning
– Cash credit will be higher than loan component
• Follow up and supervision
• Norms for capital structure
• Need for uniformity and co-operation
 Chore committee
• The committee was asked to review the
working of cash credit system in recent years.
• It was also asked to suggest alternative type of
credit facilities which should ensure greater
credit discipline and enable the bank to relate
credit limit to increase output or other
productive activities.
 Recommendations
• Submission of quarterly statements
• Periodical review of limits
• No bifurcation of cash credit accounts(demand
loan and cash credit)
• Separate limits for peak level and non peak level
requirements.
• Default in submitting quarterly returns etc.
• No frequent sanction of temporary limits.
• Reduction in over dependence of bank credit.
• Conversion of cash credit limits into bill limits.
Marathe committee report