Banking Fundamentals

Banking Fundamentals
August 2010
Activity
Getting to know each other
August 2010
Activity: Getting to know each other

Play Guide
Everyone takes off one of your shoes and throw it into a big pile Each person pick up a different shoe from the pile and find the person it belongs to Find creative ways to find the owner of the shoe you have picked! (shout, call whatever you do best)
When you return the shoe to its owner

introduce yourself and ask them to introduce themselves to you Tell them what you expect to learn from the training program and how you think it will help you
August 2010
Program Agenda
Module 1
Banking Infrastructure
Module 2
Banking Regulatory Environment
Module 3
Fiscal & Monetary Policies
Module 4
The Business of Banking
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Banking Infrastructure
Module 1
August 2010
Scope of the Module

Principles of Banking Banking Industry in India
Banking Functions
Emerging Trends In Banking
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What are the Principles of Banking?
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Principles of Banking
They are values which are adopted and honoured by all banks because without such coherence of values, it is not possible to have orderly, smooth and positive developments
Principle Of Intermediation
Principle Of Liquidity Principle Of Profitability
Principle Of Solvency
Principle Of Trust
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How is the Banking Industry organized in India?
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Banking Industry in India

Banking Industry
The Reserve Bank Of India Types Of Banking Groups In India
Scheduled Banks
Public Sector Banks Private Sector And Foreign Banks
Cooperative Banks
Non-Scheduled Banks
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Reserve Bank of India

It is the Central Bank of India The Indian banking system is regulated by the Reserve Bank Of India The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India
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Types of Banking Groups
SCHEDULED BANKS
Co-operative Banks
State Co-op Banks Urban Co-op Banks
NON-SCHEDULED BANKS
Commercial Banks
Indian Scheduled Banks
Private Sector Scheduled Banks Public Sector Scheduled Banks
State Bank and its seven subsidiaries Nationalised Banks Regional Rural Banks
Foreign Scheduled Banks
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Scheduled Banks
SCHEDULED BANKS Are listed in the 2nd schedule of the Reserve Bank Of India Act, 1934 Have a paid up capital and reserves of not less than 5 lakhs Have successfully convinced the RBI that their affairs are not conducted in a manner detrimental to their depositors Are required to maintain a certain amount of CRR against which the banks enjoy the facility of financial accommodation and remittance facilities at concessionary rates from RBI
Co-operative Banks State and Urban Co-op Banks

Maharashtra State Co-operative Bank Janakalyan Sahakari Bank Ltd.
Commercial Banks 1. Indian Scheduled Banks

a. Private Sector Scheduled Banks ING Vysya Bank Axis Bank b Public Sector Scheduled Banks i. Nationalised Banks: State Bank and its 7subsidiaries ii. Regional Rural Banks: Manipur Rural Bank
2. Foreign Scheduled Banks

Citibank HSBC Standard Chartered Bank
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Non-Scheduled Banks
NON-SCHEDULED BANKS
Are not listed in the 2nd schedule of the Reserve Bank Of India Act, 1934 All banks with a deposit base < or = Rupees. 200 Cr are non-scheduled banks Since May 1997, there does not exist any non-scheduled commercial bank there are only non-scheduled co-operative banks Example: Dahod Urban Co-op Bank Ltd
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What are the functions performed by banks when conducting their business?
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Banking Functions
Traditional / Core Functions
Performed by almost every bank irrespective of their size, ownership pattern and operational area
Modern Functions
Mostly performed by large sized/ modern banks, situated in commercial centers or metros
Accepting deposits Current Accounts (Non-interest bearing accounts) Savings Accounts, Fixed Deposits, Recurring Deposits (interest bearing accounts) Bank lending Funds Remittance Miscellaneous services
Cross-Border Banking Merchant Banking
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What are the emerging trends in banking?
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Emerging Trends In Banking

Universal Banking: those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc
Electronic Banking: Use of computers and telecommunications to enable banking transactions to be done by telephone or computer rather than through human interaction
Globalisation Of Banking: growth beyond geographic and product-centric boundaries
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Universal Banking
Range of financial services under one roof
Commercial Banking Merchant Banking Or Investment Banking Mutual Funds Insurance
Can be done
In-house Through Separately Capitalized Subsidiaries
Through A Holding Company
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Electronic Banking
Automatic Teller Machines (ATMs) Telephone Banking (CitiPhone)
Internet Banking (CBoL)

Cell Phone Banking (Citi Mobile)
****The Citi Tap and Pay service from Citibank lets the customer use the cell phone as his/ her credit cards
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Banking Regulatory Environment

Module 2
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Scope of the Module

RBI: Constitution And Objectives RBI: Major Functions
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RBI: Constitution
The Reserve Bank of India
Established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934
The Central Office in Mumbai since inception

The seat of the RBI Governor Where policies are formulated
Since nationalization in 1949, the Reserve Bank is fully owned by the Government of India under the Reserve Bank (Transfer of Public Ownership) of India Act,1948
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RBI: Objectives
Promote growth and maintaining price stability Maintain monetary stability Maintain financial stability and ensuring sound ensuring sound health of financial institutions Maintain a stable payments system Ensure credit allocation by the financial system broadly reflects the national economic priorities and social concerns Regulation of overall volume of money and credit in the economy
Promotion of the development of financial markets and systems

Ensure orderly conditions in the foreign exchange market and that exchange rate is not subject to excess volatility
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RBI: Major Functions

Supervisory & Regulatory Promotional & Developmental
Refinance Activities
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Supervisory & Regulatory Functions
ISSUANCE OF CURRENCY NOTES
CREDIT CONTROL
EXCHANGE CONTROL
TRANSFER OF FUNDS
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Promotional & Developmental Functions
BANKER TO THE GOVERNMENT
BANKER TO BANKERS
FINANCE
TRAINING
AGRICULTURE INDUSTRY EXPORTS
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Refinance Activities
Lender of the last resort Refinance operations
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Fiscal and Monetary Policies

Module 3
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Scope of the Module

Tools Of Monetary Control
Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Selective Credit Control (SCC) Other Tools
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Fiscal & Monetary Policies

Fiscal & Monetary Role of RBI
Tools Of Monetary Control
Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Selective Credit Control (SCC) Other Tools
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Cash Reserve Ratio (CRR)

It is the cash that all banks (scheduled and non- scheduled) are required to maintain with RBI as a certain percentage of their demand and time liabilities (DTL)
CRR can be varied by the RBI from 3% to 15% of banks DTL
CRR is currently 6% of DTL (as of 24/4/2010)
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Statutory Liquidity Ratio (SLR)

It is the liquid reserve requirements of banks in addition to CRR SLR is maintained by all banks in the form of
cash in hand (exclusive of minimum CRR) current account balances with SBI and other public sector commercial banks unencumbered approved securities and gold
RBI can prescribe SLR from 25% to 40% of banks DTL
SLR is currently 25% of DTL (w. e. f. 7/11/2009)
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Tools of Monetary Control
Banks Demand And Time Liabilities (DTL) DEPOSITS
6% Of DTL
25% Of DTL
BALANCE
CRR Deposit with

RBI
SLR investment in gilt and Approved Securities
Profit generating Investments, Loans and Advances
*CRR as of 24th April 2010

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Selective Credit Control (SCC)

RBI issues Selective Credit Control directives with an objective to prevent speculative holding of essential commodities which results in a rise in their prices
The RBI has laid down some general guidelines on SCC
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Other Tools of Monetary Control

Credit Rationing/ Allocation Credit Authorization Scheme
Credit Planning
Inventory And Credit Norms
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Business of Banking
Module 4
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Scope of the Module

Banker /Customer Relationship Types of Customers
Fee Based Banking Services

Deposit Accounts Loan Accounts Banking Operation
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Banker /Customer Relationship
Why do we need to understand who our customer is?
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We need to understand who our customer is because
Banks are only obliged to honour cheques of a customer and the valuable privileges afforded to banks only apply if the person is a customer
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Who is our customer at Citibank?

A person or an entity that maintains an account and/or has a Business relationship with the Bank. One on whose behalf the account is maintained i.e. the beneficial Owner Beneficiaries of transactions conducted by professional Intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law and Any person or entity connected with a financial transaction
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Features of Banker/ Customer Relationships

The state of the account A bank- customer relationship may subsist between two banks A customer
Is one who maintains some kind of deposit account with a bank
May be a natural person or legal entity

A customer of one branch of a bank does not become a customer of another branch of the same bank where he does not maintain any bank account
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Forms of Banker /Customer Relationships

Bank as Debtor Bank as Creditor
Bank as Trustee
Bank as Agent Bank as Bailee
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Bank as Debtor
The customer when making a deposit, is making a loan to the bank
Customer is the creditor Bank is the debtor
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Bank as Creditor
The bank is a Creditor when it grants a loan or gives credit to customers
Demand Loans
Working Capital Finance Cash Credit Overdraft
Term Loans
Fixed Term Loans
Retail Loans Consumer Loans Home Loans
Others
Non-fund Based Finance Bills Finance
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Implications of Bank being a creditor

The bank can demand money with the agreed interest from the customer (debtor) in accordance with the loan terms and conditions
In case of refusal or default by the customer The bank can file a suit in the court of law on the basis of the documents submitted by the customer for procuring the loan
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Bank as Trustee
Bank is a Trustee when
The customer deposits securities and other valuables with the bank for safe-keeping
The customer continues to be the owner of the securities

The bank is supposed to only deal with them as per the customers instructions
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Bank as Agent
The customer becomes the Principal and the bank an Agent
When the bank collects cheques/ bills of exchange, other instrument on behalf of the customer Buys/ sells securities on behalf of customer
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Bank as Baliee
The bank is a bailee
When the bank accepts a sealed box item for safe custody from the customer (Safe Deposit Lockers, Loans against security, etc.) As a bailee the bank is bound to take as much care of the goods bailed to it as a man of ordinary prudence would do under similar circumstances
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What are the duties of a bank in a bank/ customer relationship?
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Banks Duties
Duty of secrecy Duty of reasonable care
Garnishee or Attachment Order
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Duty of Secrecy
The Duty of Non-Disclosure is contractual and legal. Though not absolute it is yet qualified A bank would be protected only if it discloses the affairs of the customers under certain legally permissible compulsions or circumstances
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Duty of Secrecy
The banks duty of secrecy is not absolute
Where disclosure is under compulsion of law
Under bankers books evidence act, 1891 Summons by civil/ criminal courts to produce documents or tender evidence Documents called for under section 133 of income tax act, 1961
Where there is a duty to the public to disclose Where the interests of the bank require disclosure Where the disclosure is made with the express or implied consent of the customer
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Duty of Reasonable Care

It is the banks duty to exercise reasonable care or diligence while discharging its duty as agent/ bailee/ trustee of a customer
If a customer suffers loss due to improper care or negligence of the bank, he may claim specific damages from the bank for making good the loss A bank may also be held liable for wrongful dishonour of cheques when there is sufficient balance in the customer account (Section 31 of Negotiable Instruments Act)
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Garnishee or Attachment Order

Debtor who owes money is called a GARNISHEE Bank is a DEBTOR in respect of deposit accounts with credit balance
When a court issues an order attaching the credit balance in the account of a customer
The bank on receipt of such an order is prohibited from honouring cheques drawn by the customer on the account
On receipt of a garnishee order from a court or attachment order from Income Tax Authorities
The bank should immediately stop debit operations in the account And intimate the customer of the order and the resultant stoppage of operation in the account
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What are the rights of a bank in a bank/ customer relationship?
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Banks Rights
Banks lien Right of set-off
Right of appropriation of accounts

Right to charge interest/ commission
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Banks Lien
Lien refers to the right of a creditor to retain in his possession the securities owned by the debtor, until the debt has been discharged, but it should be noted that the bank has no right to sell the securities Lien could be
A general lien
A particular lien
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Right of set-off
When the customer has two or more accounts with the bank
When some accounts have a credit balance Some accounts have a debit balance
The bank has the right to set-off between two or more accounts
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Right of appropriation of accounts

When the bank has two or more debts owing from a borrower and the borrower makes a payment, the bank has the right to appropriate the payment across the loans taken by the customer
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Right to charge interest/ commission

The bank has the right to charge interest on loans and overdrafts The bank can charge commission for collection of instruments and other services provided to the customer Interest/ commission chargeable by a bank should be as per terms agreed by the customer while granting the facilities
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What are the different types of customers for a bank?
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Types of Customers
Individuals Illiterate Persons Hindu Undivided Family (HUF) Firms Companies Trusts Clubs Local Authorities
Cooperative Societies
Non-Resident Indians
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What are the different types of accounts that a bank can open for customers?
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Type of Accounts
TYPE OF ACCOUNTS
DEPOSIT ACCOUNTS
Demand Deposits Current Savings Call Deposits Term Deposits Fixed Cumulative Recurring Other Certificate of Deposit Flexi Deposit Special Accounts
LOAN ACCOUNTS
Demand Loans Working Capital finance Cash Credit Overdraft Term Loans Fixed Retail Consumer Home Loans Others Non-fund based finance Bills finance
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Citibank Domestic Deposit Accounts

Citibank Savings Account Citibank Current Account Term Deposits
Vanilla Deposits Multi-Deposits Protect & Grow Deposits Recurring Deposits Tax Saver Deposits
Senior Citizens Deposits

Unfixed Deposits
Special Accounts
Minor Accounts FCRA (Foreign Contribution Regulation Act ) Accounts
EEFC (Exchange Earners Foreign Currency) Accounts

Public Figure Accounts
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Citibank NRI Accounts

The Preferred Rupee Checking Account The Citibank Rupee Checking Savings Account
FCNR Deposits
Dollar Checking Account Global Investments
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What are the different types of fee based banking services that a bank can offer to customers?
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Fee Based Banking Services

FEE BASED BANKING SERVICES
FUNDS REMITTANCE OR TRANSFER Intra-bank transfer of funds Inter-bank transfer of funds Demand Drafts AGENCY SERVICES Government business Currency Chest Agency arrangements with other banks Sale of products of other institutions Miscellaneous agency services SAFE CUSTODY OF VALUABLES AND MAINTAINING SAFE DEPOSIT LOCKERS
L/Cs & GUARANTEES Irrevocable LC Revocable LC Revolving LC Financial Guarantees Performance Guarantees Deferred Payment Guarantees
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What are the different banking operations that need to be performed by a bank?
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Banking Operations
Interest Fundamentals Negotiable Instruments Act
Funds Transfer
Clearing EFT
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Interest Fundamentals
Basis of classification
Frequency if interest calculation
Daily Quarterly Half yearly Annual
Methods of calculating interest

Simple Interest Compound Interest
Types of interest rates

Fixed Rate Variable Rate
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Negotiable Instruments Act

Features Of Negotiable Instruments Types Of Negotiable Instruments
Bankers Responsibilities
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What is a Negotiable Instrument?

An instrument is Negotiable when it is (by a legally recognized custom trade or law) Transferable by Delivery or by Endorsement & Delivery without notice to the party liable in such a way that the holder of it may sue upon it in his own name and the property in it passes to a bonafide transferee for value free from any defect in the title of the person from whom he obtained it
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Law on Negotiable Instruments

Governing law on Negotiable Instruments
Negotiable instrument are governed by the negotiable instruments act 1881. With the influence of considerable case law and usage , practice and custom
Note:
The negotiable instruments act does not define what a negotiable instrument is
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Characteristics of Negotiable Instruments

It must be in writing It must contain a promise or an undertaking to pay
Such undertaking or promise must be unconditional

It must be signed by the maker The person signing must be a certain person The promise must be to pay a certain sum The promise must be money and money only The payee must be a certain person
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Types of Negotiable Instruments

The negotiable instruments act does not define a negotiable instrument and merely state that:
A promissory note A bill of exchange A cheque
Are negotiable instruments. The act does not prohibit other instruments from being considered negotiable instruments
Sec 4 NIA
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Transfer of a Negotiable Instrument

By endorsement and delivery By mere delivery
Without notice to the party liable

With absolute good title to the transferee, provided the transferee took it in good faith
For value without notice of defect in title

Such a transferee is a holder in due course
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Negotiable Instruments: Endorsements

Generally a notation made on the reverse of a negotiable instrument for purpose of transferring title may be done by any holder in due course.
Could convey an indemnity or discharge other than transfer of title

General vs specific endorsement Multiple endorsements have limited acceptance
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Negotiable Instruments: Endorsements Essentials of a valid endorsement

Must be on the instrument or a allonage (paper slip) Must be made either by maker, holder, payee or endorsee Must be signed Must be completed by delivery of the instrument Types of endorsements
Endorsement in blank Special or specific endorsement Sans recourse
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Parties to an Instrument
Drawer Drawee
Acceptor
Payee Holder Holder in Due Course
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Parties to an Instrument: Rights

A holder can convert endorsements in blank to endorsements in full Cross a cheque generally or specially and with the words not negotiable Negotiable to a third person if such negotiation is not prohibited in the instrument Claim payment A holder in due course enjoys the rights of a holder and possesses a title from all defects, has all prior parties (maker, acceptor, endorser) liable to him
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Negotiable Instruments: Cheque A cheque is

A bill of exchange Drawn upon a bank Payable on demand
3 parties to a cheque are

Drawer
Drawee Payee
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Details of Cheque
Cheque Number
City Code
Bank Code
Branch Code
MICR Number
Transaction Code
Encoding
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What is crossing a cheque?

Crossing a cheque is a way of making even more certain that the money is paid to the correct person and not to someone else. By crossing the cheque in various ways the drawer gives extra instructions about how it is to be paid. This is called limiting its negotiability
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Different forms of crossing
General Crossings
5 1
Special Crossings
6 2
4
8
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Material Alterations to a Cheque

Material Alterations
Any alteration which alters the operation of the check and the liabilities of the parties thereto.
Who can make a material alteration ?
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Funds Transfer
Is the movement of funds from one person to another
The person who remits the funds is called the Remitter The person who receives the funds is called the Beneficiary
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Payments Through Banks

Payments can be made in the form of
Cash
Cheques Demand Drafts
Credit Cards Debit Cards
Electronic Payments
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Instruments for funds transfer

Bankers/Managers Cheques Personal Cheques (from the Customer Account)
Crossed Cheques
A/C Payee Cheques

Intracity Cheques Intercity Cheques High Value Cheques
Demand Draft (DD)

Citibank Drafts Correspondent Bank Drafts (DAO) PayAnyone
Correspondent Bank Drafts (DAO) Telegraphic Transfer

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What is Clearing ?
Clearing is a Payment Mechanism Effects transfer of funds from Payer to Beneficiary
Without involvement of Cash.

Closely monitored by Clearing House / RBI
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Cheque Payments
Cash
Electronic Payments
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Cheque Payment: Parties Involved

Mr. A Mr. B
Mr. B Issues ICICI Bank Cheque to Mr. A.
Citibank presents the cheque to ICICI Bank
Mr. A has an account with Citibank Mr. B has an account with ICICI Bank. Mr B has issued the Cheque to Mr A. So Mr. A deposits the check in Citibank, and that check needs to go to ICICI Bank for clearing Who is Who? Mr. A Mr. B Citibank ICICI Bank Reserve Bank Beneficiary / Payee of the Cheque. Drawer of the Cheque. Presenting Bank. Drawee Bank. MICR Centre / Clearing House.
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Cheques: Clearing Cycles

Inward Clearing
Drawer : Citibank A/c Holder Drawee: Citibank Payee : Other Bank A/c holder
Outward Clearing
Payee : Citibank A/c Holder
Drawee : Other Bank Drawer : Other Bank A/c holder
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Cheque Clearing Cycle
Local Clearing
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Cheque Clearing: Time Taken

Cheque to be paid within the same city (local cheque): 2-3 days Large cities - High Value Clearing which facilitates completion of cheque clearing cycle on the same day** Outstation cheques - The time taken would vary from 3-10 days
**High Value clearing is being phased out by RBI to promote electronic payments
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Payments Through Banks

Cash
Electronic Payments
Electronic Funds Transfer (NEFT) Electronic Clearing Service (ECS) for small value repetitive payments Real Time Gross Settlement (RTGS) System for large value payments A few banks offer banking services through Internet that facilitate transfer of funds electronically
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Electronic Clearing
Electronic Clearing Electronic Clearing Service (ECS)
National Electronic Funds Transfer (NEFT)

Real Time Gross Settlement.
Please note that only ECS will be handled by the Clearing Unit. NEFT and RTGS are processed by the concerned units in CGSL
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Systems Used by Clearing

eICS Oasis
Cards System
Flexcube CPC DDE
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Payment Systems: Role of RBI

The RBI is the regulator and supervisor of payment systems It plays the role of a Settlement Bank apart from being a catalyst, an operator and a user
The RBI has also been constantly ensuring that the existing systems are upgraded / refined to increase their efficiency and to meet the requirements of customers
Besides operating the various components of payments systems, RBI also participates in these systems as a user. RBI acts as a service provider and after the system stabilises, the responsibility is handed over to other banks / institutions for further development.
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Activity
Learning Quiz
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Activity: Learning Quiz

QUESTION 1
It is the cash that all banks (scheduled and non- scheduled) are required to maintain with RBI as a certain percentage of their demand and time liabilities (DTL) It can be varied by the RBI from 3% to 15% of banks DTL It is currently 6% of DTL (as of 24/4/2010)
What is it?
Statutory Liquidity Ratio Cash Reserve Ratio SCC None of the above
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ANSWER 1
CASH RESERVE RATIO is the cash that all banks (scheduled and non- scheduled) are required to maintain with RBI as a certain percentage of their demand and time liabilities (DTL) It can be varied by the RBI from 3% to 15% of banks DTL It is currently 6% of DTL (as of 24/4/2010)
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QUESTION 2 Interest that has accumulated in accordance with the terms of a deposit (either savings account or fixed deposit), but which has not yet been paid by the bank to the account holder. What is this called?
Interest Paid
Accrued Interest
Interest Applied None of the above
ANSWER 2
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Accrued Interest
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QUESTION 3 When the amount due by way of interest is actually credited to the customer account. What is this called?
Interest Paid Interest Given None of the above
ANSWER 3
Interest Paid
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QUESTION 4 Is quoted as a percentage and a compounding period. In bonds, notes, or other fixed income securities, it is the stated percentage rate of interest, usually paid twice a year. What is this called?
Yield
Effective Rate of Interest

Nominal Interest Rate None of the above
ANSWER 4
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Nominal Interest Rate

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QUESTION 5 It is the annual rate at which an investment grows in value when interest is credited more often than once a year. What is this called?
Yield Effective Rate of Interest Both the above
ANSWER 5
Both the above
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QUESTION 6 I have taken a personal loan from the bank. Does that make me your customer?
YES NO
ANSWER 6
YES. A individual who avails a loan from the bank becomes a customer of the bank.
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QUESTION 7 A minor account is opened for my ward in your bank. I am either the parent or the legal guardian. Does that make me you customer? Is my ward who is the account holder your customer too?
YES
NO
ANSWER 7
YES. Both the Guardian and the minor account holder are customers of the bank.
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QUESTION 8: Match the following
Bounced Cheque
A cheque issued by a bank, drawn on its own funds rather than on one of its depositor's funds A cheque that a bank has refused to cash or pay because the customer has no funds to cover it in the account The drawer and the bearer of a cheque may prohibit its payment in cash by writing on the face of the cheque the provision "account payee" or another phrase of equivalent meaning Cheques with the amount of at least Rs. 1 Lac and above. Within a specific area of each city. The customer gets clear (ready to use) funds on the same day by the evening. Deposit at 11:00 am, clear funds at 5:30 pm (same day) A cheque explicitly made out to 'bearer' or 'cash', and which can therefore be exchanged by anyone who has possession of it. A cheque that is made out to a specific person, can be exchanged for cash only by the person it is made out to
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High Value Cheque
Bankers Cheque/ Managers Cheque
A/c Payee Cheques
Bearer Cheques
August 2010

ANSWER 8: Match the following
Bounced Cheque
A cheque that a bank has refused to cash or pay because the customer has no funds to cover it in the account Cheques with the amount of at least Rs. 1 Lac and above. Within a specific area of each city. The customer gets clear (ready to use) funds on the same day by the evening. Deposit at 11:00 am, clear funds at 5:30 pm (same day)
High Value Cheque
Bankers Cheque/ Managers Cheque
A cheque issued by a bank, drawn on its own funds rather than on one of its depositor's funds
The drawer and the bearer of a cheque may prohibit its payment in cash by writing on the face of the cheque the provision "account payee" or another phrase of equivalent meaning A cheque explicitly made out to 'bearer' or 'cash', and which can therefore be exchanged by anyone who has possession of it. A cheque that is made out to a specific person, can be exchanged for cash only by the person it is made out to
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A/c Payee Cheques
Bearer Cheques
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QUESTION 9 eICS , Oasis, Cards System, Flexcube, CPC, DDE are all systems used by Clearing
TRUE FALSE
ANSWER 9
TRUE
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QUESTION 10 Which of the following are account opening controls?
Photograph and Address is verified through ID proof CPV (Contact Point Verification) In case of address mismatch, address proof (telephone bill / electricity bill / water bill / bank statement / credit card statement) is collected in original and verified For all corporate accounts, the signature of the authorized signatory is verified with Company Letter Upload reports are used to control accuracy of accounts uploaded 100% I-sign verification for all accounts opened Post account opening QA check for data entry and KYC
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ANSWER 10 All of the following are account opening controls
Photograph and Address is verified through ID proof CPV (Contact Point Verification) In case of address mismatch, address proof (telephone bill / electricity bill / water bill / bank statement / credit card statement) is collected in original and verified For all corporate accounts, the signature of the authorized signatory is verified with Company Letter Upload reports are used to control accuracy of accounts uploaded 100% I-sign verification for all accounts opened Post account opening QA check for data entry and KYC
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Thank You
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Principle Of Intermediation
Makes a deposit with the bank
DEPOSITOR
Bank pays interest on deposit
FINANCIAL INTERMEDIARY
Assumes credit risk & mediate between the Depositor & the Borrower
Bank loans money
FINANCIAL INTERMEDIARY
Expertise and ability to manage risks
Interest Paid= Interest paid to depositor + Additional Interest

Borrower pays interest on loan
BORROWER
Additional Interest = interest spread = reward for risk taking, meeting administrative expenses and making provision for bad debts
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Principle Of Liquidity
LIQUIDITY MANAGEMENT
Accept deposits
DEPOSITOR
Repay funds on demand Or maturity
BORROWER
Give loans
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Principle of Liquidity
The RBI requires that every bank
Maintains deposits with the RBI as Cash Reserve Ratio (CRR) Maintains the Statutory Liquidity Ratio (SLR), wherein every bank has to invest in gilts/ govt. and other approved securities
Only after meeting the minimum CRR and SLR requirements can a bank invest/ lend its remaining Demand and Time Liabilities
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Principle of Profitability
INTEREST SPREAD
VOLUME OF ITS DEPOSITS AND LOANS
TOTAL NET INTEREST INCOME OF A BANK INTEREST INCOME NON INTEREST/ FEE BASED INCOME
PROFITS
August 2010 118
Principle of Solvency
Long term financial soundness of the bank is achieved by adhering to
Prudent policies of lending Retention of some part of the profits for business growth Implementation of professional management systems Following the mandatory rules and procedures in day to day operations
August 2010
119
Principle of Solvency
A banks financial soundness is judged by analyzing
Its financial graph of a couple of years And comparing the relevant ratios (For example: Capital Adequacy Ratio, Standard Assets Ratio and Provisions to NonPerforming Assets Ratio)
with other banks
August 2010
120
Principle of Trust
Trustworthiness for a bank
Reflects the governance quality of the bank
Trust reposed by other banks in the country and globally, would vary, according to the parameters of evaluation applied by each For customers and public trust indicates dependability and safety Reflected in the rate of growth of its deposits and profits on a sustained basis
August 2010
121
Accepting Deposits
Deposits are LIABILITIES of the Bank They consist of
Current Accounts (Non-interest Bearing)

Repayable on demand
Savings Accounts (Interest Bearing)

Repayable on demand
Fixed Deposits, Recurring Deposits (Interest Bearing)

Repayable on specific maturity dates
August 2010
122
Banking Lending
Loans are ASSETS of the Bank They consist of
Loans and advances of various kinds
Credit Cards
Interest on loans and advances forms a sizeable chunk of the banks operating profits Non-performing loans become the cause for loss of income and sometimes capital to the bank
August 2010
123
Funds Remittance
Funds Remittance
Banks remit customer funds from one place to another
Through their branches Through Correspondent Banks
Funds are remitted

By mail/ telegraphic/ electronic transfer or by issuing bank drafts In the same country or overseas
August 2010
124
Miscellaneous Services
Credit/ Debit Cards Safe Deposit Lockers
Safe Custody Of Valuables

Issuance Of Travellers Cheques Issuance Of Letters Of Credit And Guarantees Collection Of Outstation Cheques, Bills, Hundies Furnishing Opinion Reports On Their Customers Acting As Agency Services For Government Business, Correspondents, Trusteeship And Executors Business
August 2010 125
Cross-Border Banking
Cross Border Fund Raising Services
External Commercial Borrowing (ECB) Global Depository Receipts (GDRS) / American Depository Receipts (ADRS)/ International Depository Receipts (IDRS) Non - Resident External/ Foreign Currency Non Resident (FCNR) Accounts
Syndication Of Foreign Currency Loans
Cross Border Banking Services

Import Financing/ Leasing Export Financing/ Forfeiting/ Leasing
August 2010
126
Merchant Banking
Involves financial advice and services for large corporations and wealthy individuals Banks invest their own capital in client companies and
Provide fee-based advice services for Mergers and Acquisitions Take care of needs of commercial international finance, stock underwriting, and long-term company loans, redit syndication, portfolio management, mergers and acquisitions counselling, and acceptance credit, etc.
Banks deal with securities on fee basis without outlay of funds to the clients
August 2010
127

Banking Fundamentals

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Banking Fundamentals

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Banking Fundamentals

Activity: Getting to know each other

When you return the shoe to its owner

Scope of the Module

What are the Principles of Banking?

How is the Banking Industry organized in India?

Banking Industry in India

Reserve Bank of India

Types of Banking Groups

Foreign Scheduled Banks

Co-operative Banks State and Urban Co-op Banks

Commercial Banks 1. Indian Scheduled Banks

2. Foreign Scheduled Banks

Cross-Border Banking Merchant Banking

What are the emerging trends in banking?

Emerging Trends In Banking

Through A Holding Company

Internet Banking (CBoL)

Banking Regulatory Environment

Scope of the Module

The Central Office in Mumbai since inception

Promotion of the development of financial markets and systems

RBI: Major Functions

Supervisory & Regulatory Functions

ISSUANCE OF CURRENCY NOTES

Promotional & Developmental Functions

BANKER TO THE GOVERNMENT

AGRICULTURE INDUSTRY EXPORTS

Fiscal and Monetary Policies

Scope of the Module

Fiscal & Monetary Policies

Cash Reserve Ratio (CRR)

Statutory Liquidity Ratio (SLR)

RBI can prescribe SLR from 25% to 40% of banks DTL

SLR is currently 25% of DTL (w. e. f. 7/11/2009)

Tools of Monetary Control

Banks Demand And Time Liabilities (DTL) DEPOSITS

CRR Deposit with

SLR investment in gilt and Approved Securities

Profit generating Investments, Loans and Advances

*CRR as of 24th April 2010

Selective Credit Control (SCC)

The RBI has laid down some general guidelines on SCC

Other Tools of Monetary Control

Scope of the Module

Fee Based Banking Services

Banker /Customer Relationship

Why do we need to understand who our customer is?

Banker /Customer Relationship

Who is our customer at Citibank?

Features of Banker/ Customer Relationships

May be a natural person or legal entity

Forms of Banker /Customer Relationships

Implications of Bank being a creditor

The customer continues to be the owner of the securities

What are the duties of a bank in a bank/ customer relationship?

Garnishee or Attachment Order

Duty of Reasonable Care

Garnishee or Attachment Order

What are the rights of a bank in a bank/ customer relationship?

Right of appropriation of accounts

Right of appropriation of accounts

Right to charge interest/ commission