Banking and Insurance

Banking and Insurance

Module No. 1

Module No. 1
1. 2. 3. 4. 5. 6. 7. Introduction to Indian Banking System RBI Legal Framework and main functions Different types of Accounts Banker Customer relationship Customer Services in Banks KYC Norms Anti-Money Laundering

Introduction to Indian Banking System

Introduction to Indian Banking System

Imperial Bank of India formed in 1921 Later recognised as a government Bank, SBI RBI which is central bank of the country takes care of overall India banking System. For economic growth and welfare, government nationalised all large banks in 1969 by paying off the owners

Introduction to Indian Banking System

IDBI and ICICI provided Financial assistance with the help of World bank, later became commercial bank In 1994, GOI decided to permit Private sector banks From 2004, various foreign banks started expanding aggressively

BANKING
Banking Regulations Act, 1949 defines Banking as Accepting for the purpose of lending and investments, deposits of money from the public, repayable on demand and withdraw able by order.

Banks Functions Principal Ancillary

Accepting Deposits

Granting Advances

Discounting Bills Foreign Remittance Safe Custody Safe deposit Lockers Issue of LOC Guarantees

Indian Banking System

Public Sector Banks in India

Private Banks in India Local Area Banks (LAB) Lead Bank Scheme Co-operative Banks Regional Rural Banks

Role of Banks
Financial Intermediary

Constituent of the payment Systems Financial Services Providers

Reserve Bank of India

RBI Organizational Structure

Governor Deputy Governor Exe. Director General Manager Deputy GM Manager Support Staff

Reserve Bank of India

The Reserve Bank of India Act 1934 provides the statutory basis of the functioning of the bank, which commenced operations on April, 1935

RBI owns 4 Subsidiaries

National Housing Bank (NHB) National bank for Agriculture and Development (NABARD) Deposit Insurance and Credit Guarantee Corporation of India (DICGC) Bharatiya Reserve Bank Note Mundran Private Ltd. (BRBNMPL)

RBI Legal Framework

1. 2. 3. 4. Umbrella Acts Acts Governing Specific Functions Acts Governing Banking Operations Acts Governing Individual Institutions

1. Umbrella Acts Reserve Bank of India Act 1934 governing RBI Functions Banking regulation Act 1949 which governs the financial sectors

2. Acts Governing Specific Functions Public Debt Act 1944 / Government Securities Securities Contract Act, 1956 Indian Coinage Act, 1906 Foreign Exchange Regulation Act, 1973

3. Acts Governing Banking Operation Companies Act 1956 which governs banks as companies Banking companies Act 1970 Banking Secrecy Act Negotiable Instrument Act 1881

4. Acts governing Individual Institutions SBI Act, 1954 The Industrial Development Act, 1954 The Industrial Finance Corporation Act, 1993 National Bank for Agriculture and Rural Development Act National Housing Bank Act Deposit Insurance and Credit Guarantee Corporation Act

Main Functions of Reserve Bank of India

1. Maintenance of Price Level RBI formulate, implement and monitor appropriate monetary policy Provision of appropriate Liquidity Interest rate maintenance Controlling Inflation

2. Regulator and Supervisor of the Financial System Monitor and guide Financial System Inspection System for all Commercial Banks Protects the interest of Public

3. Manager of Foreign Exchange RBI monitors movement of Foreign Exchange as per provisions of Foreign Management Act, 1999.

4. Issuance and Replacement of Currency Forecast demand for fresh bank notes and coins Exchanging torn, mutilated or soiled bank notes Reduce cost of bank notes

Different Types of Accounts

1. Hindu Undivided Family Hindus, Sikhs & jains can form HUF Karta have unlimited while coparceners have limited liability In case of death, insolvency or insanity of a copancener/karta, fresh HUF declaration should be taken

2. Married Woman Solvency not related to her husband Can be executor without any help Sec 14 of Hindu Succession act provides Property of Hindu female is her absolute property

3. Pardanashin Lady Contract with her is not free from defects Absolute care to be taken while dealing with her as her identity cannot be ascertained.

4. Illiterate Persons Get Introduction and witness Take identification marks Payment only to person through cashier only Noting ILLETERATE A/C in A.O.F.

5. Blind Persons Get Introduction and witness Take identification marks Payment/ Receipt to be got witnessed Noting BLIND PERSON in A.O.F. Advised to open joint account

6. Insolvent Persons Cannot obtain credit for more than Rs. 50 Account of a person declared insolvent should be stopped and balance disposed as per instructions of the official receivers.

7. Insane Person Incapable of entering into contract In case of temporary disorder, payment to be made after obtaining certificate from 2 approved doctors certifying soundness

8. Intoxicated Payment to an intoxicated person is to be made only after taking 2 independent witness.

9. Executors and Administrators The person named in the will of the deceased person is the executor and account can be opened. Payment can be stopped by any one but withdrawal is possible when both join.

10. Liquidator, Receiver/Assignee Liquidator is appointed in case a company in liquidation Receiver/Assignee to manage the property of an insolvent person

11. Trusts Trust deed to be examined Trustees must act jointly unless specifically mentioned.

12. Societies and Clubs Registration certificate required Resolution passed regarding opening and conduct of account

13. Minors Minor accounts can be opened under the guardianship of mother/father/ legal guardian

14. Agent / Attorney Attorney has the authority to transact on behalf of principal un till the death/insolvency/ insanity of the principal.

15. Joint Accounts Any one can sign the cheque or stop payment Operations to be stopped in case of death, insolvency/insanity of any one.

16. Partnership Firms Maximum no of partners 20 (10 in banking) Death of a partner/admission of a partner dissolves the partnership firms.

17. Joint Stock Company Documents required for opening A/c 1. 2. 3. 4. Memorandum of Association Articles of Association Certificate of incorporation Certificate of Commencement (Public Ltd. only)

BANKER CUSTOMER RELATIONSHIP

Banker-Customer Relationships 1. 2. 3. 4. 5. Debtor Creditor Trustee Beneficiary Agent Principal Bailee Bailor Lessor - Lessee

Debtor Creditor When a bank accepts deposits, it becomes debtor and the customer a creditor irrespective of the fact bank pays interest or not. Retail Assets & Retail Liability

Trustee - Beneficiary The Customer instruct a bank to manage his money and remit to other branch, the banker becomes trustee and customer beneficiary Bankers manages properties of its customers.

Agent - Principal When the banker accepts bills etc. for collection on behalf of his customers, he acts as an agent.

Bailee - Bailor When a bank accepts articles for safe custody, its legal position is that of bailee, and the customer is Bailor

Lessor - Lessee On hiring out of locker, bank becomes lessor, and the customer a lessee and the relationship is that of landlord and tenant.

CUSTOMER SERVICES IN BANKS

Product / Services offered by Banks 1. Deposit Accounts Single Joint A/C No Frills A/C Current Term Deposits Special Accounts Dormant Accounts Closing of Accounts

Product / Services offered by Banks 2. Clearing Cycles / Collection Services 3. Cash Transactions 4. Direct Debits and Standing Instruction 5. Stop Payment Facility 6. Safe deposit lockers

Product / Services offered by Banks 7. Foreign Exchange Services 8. Remittances within India 9. Loans and Advances 10.Guarantee 11.Credit cards

IMPLEMENTATION OF VARIOUS MEASURES BY BANKS

Customer Service in Banks 1. Opening and closing of Bank Counters 2. May I help You Counter? 3. Nomination Facility 4. Updating of Passbook 5. Credit of Outstation cheques

Customer Service in Banks 6. MICR cheque clearing System 7. Collection of Local cheques 8. Proper receipt for the instruments tendered for Clearance / Collection or cash receipt 9. Interest for delays of outstation cheques

Customer Service in Banks 10.Prompt issuance of drafts / cash orders 11.Value dating 12. Settlement of claim cases 13. Customer service Committee 14. Premium saving / Current Customers

Customer Service in Banks 15. Time Norms Encashment of Cheque Receipt of cash Issue of DD/TC Payment of DD/TDR Opening of A/C Completion of Passbooks Statement of account 3 to 8 Minute 10 to 20 Min 15 to 25 Min 10 to 20 Min 20 to 25 Min 5 to 15 Min
7 days from due date

Customer Service in Banks 15. Time Norms Collection of cheques Local Outstation Issue duplicate draft Cheque book issue 1 to 3 days 10 to 14 days 5 days 15 minutes or
7 days from due date

KNOW YOUR CUSTOMER (KYC) Norms

YC Guidelines Identify the Identity of the customer Identify the location of the customer Manage Risks associated with customers in a prudent manner Prevent unintentional introduction of anti-social, criminal, or terrorist elements to the Banking System.

KYC Elements Customer Acceptance Policy Customer identification Procedure Monitoring of Transaction Risk management

KYC Documentation Identity Proof Proof of Communication address Self-cheque or cash deposit for which customer has to personally visit the branch PAN Card or Form 60 / 61

KYC Documentation
Documents Identity Proof . . . . . . . . . . . . . Address Proof

Introduction from bank Driving License Voter ID Card Employee ID Card PAN Card Defense Dependents Card Ex-Service Mans Card Council/Medical Association Utility Bills Postal Certificate Consumer Gas Connection Post office Saving passbook Domicile certificate

KYC Documentation
Documents Identity Proof . . . . . . . Address Proof . . . . . . .

Passport Arms license Freedom Fighters Pass Pension Payment Order Printer Ration Card Passbook issued by SBI or Nationalised Banks Identity card issued by State Government

Anti Money Laundering

Money Laundering Money Laundering is the process whereby proceeds of crimes such as drugs, trafficking, smuggling etc are converted into legitimate money through a series of financial transactions making it impossible to track back the origins of funds.

Money Laundering Risk Perception Reputation Risk Severe impact on banks reputation Compliance Risk Risk of loss due to failure of compliance of operations Legal Risk Lawsuits, fines, criminal liabilities and special penalties

Reporting AML Transactions Identification of Customer according to KYC Norms Recognition, handling and disclosure of suspicious transactions Appointment of a Money Laundering Reporting officer (MLRO)

Reporting AML Transactions Staff Training Maintenance of records Audit of transactions

END OF UNIT 1

Revision

Practice Questions 1. Which of the following is NOT a major aim of KYC A. Social Relationship B. Customer Identification C. Transaction Mapping D. Proof of address

Practice Questions 2. Which of the following statement is NOT True A. KYC applies to a person B. KYC applies to an entity C. KYC applies to politicians only D. KYC applies to beneficiaries of professional intermediaries

Practice Questions 3. Money laundering refers to A. Removing the creases in a crumpled note B. Paying a premium over the stapled Price C. Secretly put away money obtained illegally in a bank D. A game played by children involving use of game currency

Practice Questions 4. Which one of the following represents the basic relationship between a banker and customer in a deposit account 5. Which one of the following represents the basic relationship of the banker with the locker hirer

Practice Questions 6. Which one of the following is not a negotiable instruments A. Cheque B. Promissory note C. Agreement to sell property D. Bill of exchange

Practice Questions 7. Whom will you pay a crossed cheque A. To the payee B. To the drawer only C. To another banker in clearing D. Any person who is in possession

Practice Questions 8. What do you mean by MICR 9. Full form of ATM 10.Full form of EFT 11.Full form of RTGS 12.Full form of URL

Practice Questions 13.A cheque becomes stale when A. B. C. D. A year passes 3 Months passes 4 Months passes 6 Months passes

Practice Questions 14. A change in bearer cheque into order cheque will require A. Drawers full signature B. Drawers initial C. Payees full signature D. Both signature

Practice Questions 15. The accidental mutilation of a cheque should be confirmed by A. The payee B. The drawer C. The payees banker D. Either the drawer or Payee

Practice Questions 16.The following is not a material alteration A. Alteration of date B. Alteration In amount C. Alteration from order to bearer D. Alteration from general crossing to special crossing

Practice Questions 17. A currency note missing its number on either of the side is called ________ note 18. RBI commenced its operation on__________. 19. Printer ration card is used as ______________ Proof.

Practice Questions 20. Which Acts comes under Umbrella Act of RBI ?