Classification and Characteristics of All Banks - Unitedworld School of Business
CHARACTERS&CLASSIFICATIONSOFCOMMERCIAL BANKSCHEDULED BANKCOOPERATIVE BANKFOREIGN BANK
The Banking Regulation Act, 1949, defines banking as accepting for thepurpose of lending or investment, of deposits of money from the public,repayable on demand or otherwise and withdraw able by cheque, draft,order otherwise. Commercial banks are like other financial institution (e.g. ,money lenders,Indigenous bankers, cooperative societies, agricultural and industrial creditinstitution). Which are in the business of lending and borrowing of moneyor credit.
The operations of all these banks are regulated by the Reserve Bank ofIndia, which is the central bank and supreme financial authority in India.The main source of income of a commercial bank is the difference betweenthese two rates which they charge to borrowers and pay to depositors.
Commercial banks are the primary vehicle through which credit andmonetary policies are transmitted to the economy. Credit and monetarypolicies are implemented through action on bank reserves (cash andstatutory liquidity ratios), margin requirements and the rate atwhich scheduled banks can borrow from the RBI. These affect the supply,availability and cost of credit at banks. The nature of lending and investing by commercial banks is multi-functional.
They deal in a wide variety of assets and accommodate different types ofborrowers. They facilitate the spread of the impact of monetary policy to non-banklenders and to other sections of the economy. The operations of commercial banks are highly flexible since they providefacilities for financing different types of borrowers which enables them tochannel funds according to specified priorities and purposes
Scheduled banks :- Banks which have been included in the SecondSchedule of RBI Act 1934. Public Sector Banks :- are those banks in which majority of stake is heldby the government. E.g.. SBI, PNB, Syndicate Bank, Union Bank of Indiaetc. Private Sector Banks :- are those banks in which majority of stake is heldby private individuals. E.g.. ICICI Bank, IDBI Bank, HDFC Bank, AXISBank etc. Foreign Banks :- are the banks with Head office outside the country inwhich they are located. E.g.. Citi Bank, Standard Chartered Bank, Bank ofTokyo Ltd. etc.
Scheduled Banks in India constitute those banks which have been includedin the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI inturn includes only those banks in this schedule which satisfy the criteria laiddown vide section 42 (6) (a) of the Act.The banks included in this schedule list should fulfil two conditions.1. The paid capital and collected funds of bank should not be less than Rs. 5lakh.2.Any activity of the bank will not adversely affect the interests ofdepositors.
Every Scheduled bank enjoys the following facilities.1. Such bank becomes eligible for debts/loans on bank rate from the RBI2. Such bank automatically acquire the membership of clearing house.
“A Co-operative bank, as its name indicates is an institution consisting of anumber of individuals who join together to pool their surplus savings for thepurpose of eliminating the profits of the bankers or moneylenders with aview to distributing the same amongst the depositors and borrowers”.
Co-operative banks in India came into existence with the enactment of theAgricultural Credit Co-operative Societies Act in 1904. Co-operative bankform an integral part of banking system in India. Under the act of1904, a number of co-operative credit societies were started. Owing to theincreasing demand of co-operative credit, anew act was passed in1912, which was provided for establishment of co-operative central banksby a union of primary credit societies and individuals.
The Co-operative banking structure in India comprises of: 1. Urban Co-operative Banks 2. Rural Co-operativesSome co-operative banks are scheduled banks, while others are non-scheduled banks. For instance, State Co-operative banks and some UrbanCo-operative banks are scheduled banks but other co-operative banks arenon-scheduled banks
The term Urban Co-operative Banks (UCBs), though not formally defined,refers to primary cooperative banks located in urban and semi-urban areas.These banks, till 1996, were allowed to lend money only for non-agriculturalpurposes. This distinction does not hold today. These banks were traditionallycentred around communities, localities work place groups. They essentially lentto small borrowers and businesses. Today, their scope of operations has widenedconsiderably. The origins of the urban cooperative banking movement in India can be tracedto the close of nineteenth century when, inspired by the success of theexperiments related to the cooperative movement in Britain and the cooperativecredit movement in Germany such societies were set up in India. Cooperativesocieties are based on the principles of cooperation, - mutual help, democraticdecision making and open membership. Cooperatives represented a new andalternative approach to organisaton as against proprietary firms, partnershipfirms and joint stock companies which represent the dominant form ofcommercial organisation.
Rural Cooperative Banking and Credit Institutions play animportant role in meeting the growing credit needs of rural India. Thevolume of credit flowing through these institutions has increased. Theperformance of these institutions, however (apparent in the share oftotal institutional credit and the indicators of their financial health),has been less than satisfactory and is deteriorating rapidly. Of late, anumber of Committees have gone into the reasons for this situationand suggested remedial measures, but there has been little progressin implementing their recommendations.
Foreign Banks in India always brought an explanation about the promptservices to customers. After the set up foreign banks in India, the bankingsector in India also become competitive and accurative.New rules announced by the Reserve Bank of India for the foreign banks inIndia in this budget has put up great hopes among foreign banks whichallows them to grow unfettered. Now foreign banks in India are permitted toset up local subsidiaries. The policy conveys that forign banks in India maynot acquire Indian ones (except for weak banks identified by the RBI, on itsterms) and their Indian subsidiaries will not be able to open branches freely.Please see the list of Foreign banks in India till date.
Commercial banks engage in the following activities: Processing of payments by way of telegraphic transfer, EFTPOS(electronicfund transfer point of sale), internet banking, or other means. Issuing bank drafts and bank cheques. Accepting money on term deposit. Lending money by overdraft, installment loan, or other means. Providing documentary and standby letter of credit, guarantees,performance bonds, securities underwriting commitments and other formsof off balance sheet exposures.
Safekeeping of documents and other items in safe deposit boxes. Sales, distribution or brokerage, with or without advice, of: insurance, unittrusts and similar financial products as a “financial supermarket”. Cash management and treasury. Merchant banking and private equity financing. Traditionally, large commercial banks also underwrite bonds, and makemarkets in currency, interest rates, and credit-related securities, but todaylarge commercial banks usually have an investment bank arm that isinvolved in the mentioned activities.
A bill of exchange is an instrument in writing containing an unconditionalorder, signed by the maker, directing a certain person to pay a certain sum ofmoney only to, or to the order of , a certain person or to the bearer of theinstrument. ESSENTAIL ELEMENTS OF A BILL OF EXCHANGE Writing: It must be in writing and may be in any language, and in any form. Parties: The must be three parties to the bill of exchange, forexample, Drawer, Drawee and Payee. The person who draws a bill is calleda “Drawer” or “Maker”. The person on whom the bill is drawn is called a“Drawee” and the person to whom the money is paid is called “Payee”.
Payee: section 7 defines “Payee” as the person named in the instrument, towhom or to whose order the money is, by the instrument directed to be paid.It is not necessary that the three parties should be three distinct persons. Oneperson can play the role of two, for example, one person can be the drawerand payee or drawee and payee acting in two different capacities. However,drawer and drawee cannot be the same person as the person cannot orderhimself the payment. There should, therefore, be at least two distinctpersons. In any case, three parties must be pointed out in the bill withreasonable certainty. There may be joint drawers or joint payees, but billcannot be addressed to two or more drawees in the alternative.
Order to pay: The bill of exchange must contain an order by the drawer todrawee to pay under any circumstances. Only excessive politeness will notconstrue an order to pay and the instrument would not be a bill of exchange. Unconditional: The order in the bill must be unconditional, forexample, payable under all events and circumstances. A promise or order topay is not conditional simply because the time for payment of the amount orany instalment thereof being expressed to be payable on the lapse of acertain period after the happening of a specified event which, according tothe ordinary expectation of mankind, is certain to happen although the timeof its happening may be uncertain. Conditional bill is invalid. Signed: The bill must be signed by the drawer.
Person directed, for example, the drawee must be certain: The order topay must be directed to a certain person. Certainty of the drawee helps thepayee to present the bill for acceptance or payment to a certain person andalso helps the drawee to know whether it is addressed to him or not. Draweemust be designated with reasonable ceetainty. Money: The order must be to pay money only. Payee must be certain: It must be payable to a definite person or his order.The payee must be certain. Bill may be made payable to two or more payeesjointly or in the alternative. Certain sum: The sum payable must be certain. The sum payable must becertain although it includes future interest or is payable at an indicated rate ofexchange, or is according to the course of exchange. What the sectionindicates is that the principal sum payable must be certain. Stamping: Bill of exchange is chargeable
Order to pay: The bill of exchange must contain an order by the drawer todrawee to pay under any circumstances. Only excessive politeness will notconstrue an order to pay and the instrument would not be a bill of exchange. Unconditional: The order in the bill must be unconditional, for example,payable under all events and circumstances. A promise or order to pay is notconditional simply because the time for payment of the amount or anyinstalment thereof being expressed to be payable on the lapse of a certainperiod after the happening of a specified event which, according to theordinary expectation of mankind, is certain to happen although the time ofits happening may be uncertain. Conditional bill is invalid. Signed: The bill must be signed by the drawer.
Person directed, for example, the drawee must be certain: The order topay must be directed to a certain person. Certainty of the drawee helps thepayee to present the bill for acceptance or payment to a certain person andalso helps the drawee to know whether it is addressed to him or not. Draweemust be designated with reasonable ceetainty. Money: The order must be to pay money only. Payee must be certain: It must be payable to a definite person or his order.The payee must be certain. Bill may be made payable to two or more payeesjointly or in the alternative. Certain sum: The sum payable must be certain. The sum payable must becertain although it includes future interest or is payable at an indicated rateof exchange, or is according to the course of exchange. What the sectionindicates is that the principal sum payable must be certain. Stamping: Bill of exchange is chargeable with stamp duty.
A promissory note is a negotiable instrument, wherein the one party (theissuer or maker) make an unconditional promise to pay a determined sum ofmoney to the other (the payee), either at a fixed or determined future time,or on the demand of the payee under specific terms.
Writing: The promissory note must be in writing. Oral engagements orpromise is excluded. Undertaking to pay: It is not necessary to use the word “promise” but theintention must clearly show an „unconditional undertaking‟ to pay theamount.Eg: “I owe you Rs. 3500.” This is not a promissory note. UNCONDITIONAL: Promise to pay should be unconditional. Aconditional instrument is invalid. It must be certain of payment. Eg:- I promise to pay you Rs.2500 when you will score 85% in your exams.(conditional promissory note)-I will pay you Rs.2500 on 28 october,2012(unconditional promissory note)
SIGNED: The instrument must be signed by the maker thereof. Person mustsign with his free consent. It should not only be a physical act but also amental act with an intention to sign. CERTAIN PERSON: Two different persons should fill in the role of makerand payee. A note cannot be made payable to the maker himself. Eg: Apromissory note payable to“ my own son living in london”… is a valid promissory note. SPECIFIC SUM: The sum promised to be paid must be certain and specific.Eg: “I promise to pay you Rs. 1 lakh and all other sum due to you.” Stamping: Promissory notes are chargeable with stamp duty.it is advisableto cancel the stamps with maker‟s signature or initials.
A „cheque‟ is a „bill of exchange‟ drawn on a specified bankerand not expressed to be payable otherwise than on demand. It includes theelectronic image of a truncated cheque and a cheque in the electronic form. A cheque is drawn on a banker only, while bill of exchange can be drawn onany one. Cheque has three parties:drawer, drawee, payee A bill of exchange is wider than cheque. Therefore, all cheques are bills ofexchange but all bills of exchange are not cheques.
A cheque does not require acceptance. There is no privity of contract between the payee and the banker. The banker is liable only to the drawer. Drawing of a cheque is simplya direction to pay. A cheque is not invalid because it is post-dated or anti-dated. A cheque is payable only on demand and on presentation. Vaild for period of six months. It may be drawn on Sunday or holiday.
1. Bearer or open cheques: These cheques are payable at the counter of draweebanker on presentment. As the bearer cheques carry risk of being lost orstolen and the finder may be able to get it encashed, crossing of chequesavoids such a contigency and secure payments.2. Crossed cheques: crossing of cheques is of different typescheques crossed generally: (SEC 123) when It has two transverse parallel lines marked across its face; or It bears an abbreviation “& Co.” between the two parallel lines; or It bears the word “not negotiable” between the two parallel lines.
CHEQUE CROSSED SPECIALLY: (SEC 124 & 126) Where a cheque is crossed by two parallel transverse lines andthe name of the banker is written between the two parallel lines,with orwithout the words, „not negotiable‟ it is called “Special crossing” (Sec. 124) It may be noted that two transverse parallel lines are notnecessary in special crossing. The banker on whom it is drawn shall not pay it otherwise than to thebanker to whom it is crossed, or his agents for collection. (Sec.126)
Cheque bearing „not negotiable‟: (Sec.130)A cheque bearing „not negotiable‟ is deprived of the main featureof „negotiability.‟it, however, does not render the instrumentnon-transferable. Such cheques can be transferred but theTransferee dose not acquire the right of a holder in due course.The object of „not negotiable‟ crossing is to afford protection tothe drawer against dishonesty, loss or theft in the course oftransit.
Hundis are negotiable instruments written in an original language. They aresometimes bills of exchange and sometimes promissory notes, and are notcovered under the Negotiable Instruments Act,1881. Generally, they are governed by the customs and usages in the locality but ifcustom is silent on the point of dispute before the court, this Act applies to theHundis. The term “Hundi” was formerly applicable to native bills of exchange. Thepromissory notes were then called “teep”. The hundis were in circulation in India even before the present NegotiableInstrument Act,1881 came into operations. Its usage varies with the locality inwhich they were in circulation.
SHAH JOG HUNDI“SHAH” means a respectable and responsible person or a man of worthin the bazar. Shah Jog Hundi means a hundi which is payable only to arespectable holder, as opposed to a hundi payable to bearer.JOKHMI HUNDIA “JOKHMI” hundi is always drawn on or against goods shipped on thevessel mentioned in the hundi. It implies a condition that money will bepaid only in the event of arrival of the goods against which the hundi isdrawn. It is in the nature of policy of insurance. Thedifference, however, is that money is paid before hand and is to berecovered if the ship arrives safely.
NAM JOG HUNDIIt is a hundi payable to the party named in the bill or his order. The nameof the payee is specifically inserted in the hundi. It can also be negotiatedlike a bill of exchange. Its alteration into a Shah Jog hundi is a materialalteration and renders it void.DARSHANI HUNDIthis is a hundi payable at sight. It is freely negotiable and the price isregulated by demand and supply. They are payable on demand and must bepresented for payment within a resonable time after they are received by theholder.
MIADI HUNDIThis is otherwise called “MUDDATI” hundi, that is payable after aspecified period of time. Usually money is advanced against these hundis byshroffs after deducting the advance for the period in advance. There areother forms of hundis also like:DHANI HUNDI- A hundi that is payable to the „dhani‟ (owner)FIRMAN HUNDI- which is payable to order if can be negotiated byendrosment and delivery.