This document provides an overview of banking laws and regulations in India. It discusses key acts that govern banking, including the Reserve Bank of India Act of 1934 and the Banking Regulation Act of 1949. It also outlines the regulatory bodies that oversee different segments of the financial sector, such as the Reserve Bank of India, Securities and Exchange Board of India, and Insurance Regulatory and Development Authority. Additionally, it covers various types of banks and financial institutions in India as well as priority sectors, credit policies, and risk management practices in banking.

1. Laws and Regulations for Bankers
PRESENTATION BY :
PROF (DR) NARINDER KUMAR BHASIN

2. Module 1
BANKING REGULATIONS - RESERVE BANK OF
INDIA ACT 1934, BANKING REGULATION ACT
1949, INFORMATION TECHNOLOGY ACT

3. Financial System in India
Financial Sector consists of three main segments viz.,
1) Financial institutions -banks, mutual funds, insurance
companies
2) Financial markets -money market,
debt market, capital market, forex market
3) Financial products -loans, deposits, bonds, equities

4. Financial Sector - Regulators
Regulators
Reserve Bank of
India
(RBI)
Securities Exchange
Board of India
(SEBI)
Insurance Regulatory
and Development
Authority
(IRDA)
Banks
Capital Markets/
Mutual Funds
Insurance
Companies

5. Banking in India
Legal frame work
of
Banks
Banking Regulation
Act,1949
Reserve Bank of India
Act,1934

6. Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society

7. Banking Regulation Act,1949
(BR Act)-1
 BR Act covers banking companies and
cooperative banks, with certain modifications.
 BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks

8. Banking Regulation Act,1949 (BR
Act)-2
Regulation
Control over
management
Penalities
Suspension
&
Winding up

9. Reserve Bank of India
Act,1934(RBI Act)-1
 RBI Act was enacted to constitute the
Reserve Bank of India
 RBI Act has been amended from time to time
 RBI Act deals with the constitution,
powers and functions of RBI

10. Reserve Bank of India
Act,1934(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex/reserves
control functions : bank rate,audit,accounts
penalities for violation

11. Reserve Bank of India - 1
 Reserve Bank of India was established in
 1935, after the enactment of the Reserve
 Bank of India Act 1934 (RBI Act).
 Banking Regulation Act,1949 (BR Act) gave
wide powers to RBI as regards to
establishment of new banks/mergers and
amalgamation of banks, opening of new
branches, etc
 BR Act,1949 gave RBI powers to regulate,
supervise and develop the banking system in
India

12. Reserve Bank of India – 2
CENTRAL BANK
RBI
REGULATOR SUPERVISOR FACILITATOR

13. Money Market Instruments
 Inter bank call money/deposit
 Inter bank notice money/deposit
 Inter bank term money/deposit
 Certificates of Deposit
 Commercial Paper
 Treasury Bills
 Bill rediscounting
 Repos

14. Certificates of Deposit
 CDs are short-term borrowings in the form of UPN issued by
scheduled commercial banks and are freely transferable by
endorsement and delivery.
 Introduced in 1989
 Minimum period 7 days and maximum period one year. FIs
are allowed to issue CDs for a period between 1 year and up
to 3 years
 Minimum amount is Rs 1 Lac.
 Subject to payment of stamp duty under the Indian Stamp
Act, 1899
 Issued to individuals, corporations, trusts, funds and
associations
 Issued at a discount rate freely determined by the
market/investors

15. Commercial Paper
 Short-term borrowings by corporates, financial
institutions, primary dealers from the money market
 Can be issued in the physical form (Usance Promissory
Note) or demat format
 Introduced in 1990
 When issued in physical form are negotiable by
endorsement and delivery and hence, highly flexible
 Maturity is 7 days to 1 year
 Unsecured and backed by credit rating of the issuing
company
 Issued at discount to the face value

16. Repos
 Repo (repurchase agreement)
instruments enable collateralised short-
term borrowing through the selling of
debt instruments
 A security is sold with an agreement to
repurchase it at a pre-determined date
and rate
 Reverse repo is a mirror image of repo
and reflects the acquisition of a security
with a simultaneous commitment to
resell

17. INDIAN CAPITAL MARKET
 Indian Capital Market plays an important role in the
economic development of the country
 It provides opportunities for investors to invest in the
market and also to earn attractive rate of return.
 It also creates source of funds for the various sectors
 National Stock Exchange (NSE) and Bombay Stock
Exchange (BSE) are the major stock exchanges in India

18. Securities & Exchange Board of India
(SEBI)
 SEBI was constituted on April 12/1988, and
obtained the statutory powers in March,1992
 SEBI’s functions:
 To protect the interests of investors
 To recognize the business in stock exchanges
and other security markets
 To supervise and regulate work of
intermediaries, such as stock brokers
merchant bankers/custodians
depositories/bankers to the issues

19. Association of Mutual Funds
in India (AMFI)
 AMFI is an association as a non profit organization.
 AMFI represents mutual funds in India and working for
healthy growth of the Mutual Funds.
 AMFI conduct examinations for MF executives as part of
their training
activities

20. Insurance Regulatory &
Development Authority (IRDA)
 The regulator for insurance business in India is IRDA.
 IRDA was established in 2000
 IRDA’s functions:
 To regulate, promote and ensure orderly growth of the
insurance business and reinsurance business in India
 To protect the interests of policy holders

21. Insurance Sector
 Insurance Sector in
India can be divided
into two main
sections
General Insurance
Life Insurance

22. Financial Intermediaries (1)
 Mutual Funds- As financial intermediary, promote savings and
mobilise funds which are invested in the stock market and
bond market
 MFs are associations or trusts of public members and assist
them in making investments in the financial instruments of
the business/corporate sector for the mutual benefit of its
members.
 MFs aims to reduce the risks in investments
Mutual funds help their investors to enhance their value by
investing the funds in capital market.
 Mutual funds offer various schemes: growth fund, income
fund, balanced fund, sector wise funds, etc
 Regulated by SEBI

23. Financial Intermediaries (2)
 Merchant banking- Another important
financial intermediary which manages and
underwrites new issues, undertake syndication
of credit, advise corporate clients on fund
raising
 Subject to regulation by SEBI and RBI
 SEBI regulates them on issue activity and
portfolio management of their business.
 RBI supervises those merchant banks which are
subsidiaries or affiliates of commercial banks

24. Indian Banking - Significant events 1
 Three presidency banks were established in Calcutta (1806) in
Bombay (1840) and in Madras (1843)
 In the early part of 20th century, on account of the Swadeshi
movement a number of join stock banks were established by
Indians like Bank of India, Bank of Baroda and Central Bank of India.
 In 1921 the three presidency banks were merged and the Imperial
Bank of India was created.
 During the period 1900 to 1925 many banks failed, and the
Government appointed in 1929 a Central Banking Enquiry
Committee to trace the reasons for the failure of banks.
 The Reserve Bank of India Act was passed in 1934 and the RBI
came into existence in 1935 and RBI was nationalised in 1949
 The Banking Regulation Act,1949 gave wide powers to RBI to act as
the regulator for banks in India

25. Indian Banking -Significant events
2
 In 1955, State Bank of India became the successor
to the Imperial Bank of India ,under the State Bank
of India Act,1955.
 In 1959, State Bank of India (Subsidiary Banks) Act
was passed to enable SBI to take over State
Associated banks as SBI’s subsidiaries
 In 1969, the Government of India nationalised 14
major commercial banks having deposits of Rs.50
crore or more
 In 1975 Regional Rural Banks were established
under RRB Act 1976, which was preceded by RRB
Ordinance in 1975
 In 1980, six more commercial banks were
nationalised, with a deposit of Rs.200 crore or more

26. Progress of banking in India
 In the liberalised, privatised and globalised environment, banks opeating
in India have diversified their banking activities by offering Para Banking
facilities like
 Merchant banking/Mutual funds
 ATMs/Credit Cards/Internet banking
 Venture capital funds
 Factoring
 Bancassurance

27. Classification of Banks-1
Central
Bank
RBI
Public Sector
Banks
New Private
Sector
Banks
Old
Private
Sector
Foreign Banks
Co-operative
Banks
Regional
Rural
Banks

28. Classification of Banks-2
PUBLIC SECTOR
BANKS
STATE BANK OF
INDIA
SBI
SBI ASSOCIATE
BANKS
NATIONALISED
BANKS

29. Consolidation of Banks

30. Classification of Banks-3
 Public Sector Banks =State Bank of India+SBI’s associate banks+
Nationalised banks
 Private Sector Banks=Indian Private Sector Banks (Old/New generation
banks)+Foreign banks in India
 Other Banks=Regional Rural Banks(RRB)

31. Functions of Banks - 1
CENTRAL BANK
RBI
REGULATOR SUPERVISOR FACILITATOR

32. RESERVE BANK OF INDIA
 SUPERVISORY & REGLATORY
 Issuance of currency notes
 Banker’s Banker
 Lender of the last resort
 Credit Control & Monetary Policy
 Exchange Control & Forex Management
 Funds Transfer

33. CREDIT CONTROL
 QUANTITATIVE CREDIT CONTROL
 QUALITATIVE CEDIT CONTROL’
 CRR & SLR
 BANK RATE
 OPEN MARKET OPERATIONS

34. Functions of Banks - 2
 Commercial Banks-Core Banking Functions
Acceptance of deposits from public
Lending funds to public/corporates
Investing funds in various opportunities
Collecting cheques/drafts and other Negotiable Instruments
Remitting funds

35. Functions of Banks-3
 Commercial Banks – Para Banking Services
 Providing safe deposit lockers
 Acceptance of safe custody items
 Acceptance of standing instructions
 Offering internet banking facilities
 Issuance of credit and other cards
including ATM cards
 Offering various products like Mutual
funds,insurance products, merchant banking
services
 Acting as executors and trustees

36. Commercial Banks
DEPOSIT PRODUCTS
CERTIFICATE
FLEXI
RECURRING
FIXED
SAVINGS
CURRENT
DEPOSITS

37. Non-Resident Accounts - 1
Rupee accounts
Non-resident
Ordinary account
(NRO)
Non-resident
External account
(NRE)

38. Foreign Currency Non-resident
Deposit Accounts –FCNR (B)
 FCNR (B) accounts
 NRIs,PIOs,residing outside India can open FCNR (B)
accounts
 FCNR (B) accounts are maintained as fixed deposits in
certain designated currencies
 The designated currencies are:
 US$, GBP, Japanese Yen, Euro, Cad$, Aus $
 Maintained in Banks in India in the above
mentioned foreign currencies and interest is also earned
in such foreign currencies
 Repatriation of funds (principal, interest) is allowed

39. Loan Products – Fund Based
BILLS
FINANCE
TERM
FINANCE
RETAIL
FINANCE
OVERDRAFT
CASH CREDIT
LOANS
&
ADVANCES

40. Loan Products –Non Fund Based
Letters of
Credit
Bank Guarantee
Co-Acceptance
Of
Bills

41. Know Your Customer (KYC) -1
 KYC: Know Your Customer
 Know your customer (KYC) norms are applicable to all
types of customer a/cs.
 It deals with not only to identify the customer but also to
understand the activities of the customer, and to ensure
that the operations in the customer
account/s is/are for genuine purpose

42. Know Your Customer (KYC) -2
 Application of KYC norms have become
important due to various reasons.
 In view of many issues on account of drugs smuggling,
money laundering, terrorist activities, arms dealing,etc.,
banks need to be careful in dealing with their clients.

43. Know Your Customer (KYC) -3
Customer
Acceptance
Policy
Monitoring of
Transactions
Risk Management
Customer
Identification
Procedure

44. Bank Customers - 1
Power of
Attorney
Holders
Executors/Trustees
Illiterate
Perons
Minors
Joint account
hoders
Individuals
Bank Customers

45. Bank Customers - 2
Sole
Proprietor
Clubs/
Socities
Corporates
Hindu
Undivided
Family
Partnership

46. BANKER-CUSTOMER
RELATIONSHIP
 DEBTOR-CREDITOR
 CREDITOR-DEBTOR
 AGENT-PRINCIPAL
 LESSOR-LESSEE
 BAILEE-BAILOR

47. CHEQUES
OPEN
CROSSED
ORDER
BEARER

48. NEGOTIABLE INSTRUMENTS
Paying Banker:
Payment in
Due
Course
Apparent
Tenor
In good faith
Without
Negligence

49. NEGOTIABLE INSTRUMENTS
BANKER’S DUTIES
&
RESPONSIBILITIES
C0LLECTING BANKER
COLLECTION OF
CHEQUES
HOLDER IN
DUE
COURSE
CONSIDERATION
TITLE
BEFORE
MATURITY

50. Six Cs
 Character
 Capital
 Capacity
 Collateral
 Condition
 Compliance

51. Working Capital Cycle
Cash
Raw material
Semi finished goods
Finished goods
sales
Bills receivables

52. CHARGES
 HYPOTHECATION
 PLEDGE
 MORTGAGE
 ASSIGNMENT
 LIEN
 SET OFF

53. Risk Management
Credit
Risk
Liquidity
Risk
Operations
Risk
Price
Risk
Interest Rate
Risk

54. SRFAESI Act,2002
Securitization and Reconstruction of
Financial Assets and Enforcement of
Security Interest Act (SRFAESI) was
enacted in 2002
Securitization Company/Reconstruction
Company (SCRC) can finance the
acquisition from own resources or rise
sources from Qualified Institutional
Buyers (QIBs)

55. SRFAESI Act,2002
Enforcement of
Security interest
Transfer of NPA
Legal framework

56. Priority Sector 1
Priority Sector
Primay Secondary Teritary

57. Priority Sector – 2
Primary Sector
Agriculture Allied Activities
Direct Indirect

58. Priority Sector – 3
Secondary Sector
SSI/SME SSSBE

59. Priority Sector 4
Tertiary Sector
Small road/water
Transport operator
Small business/business
enterprises
Professional/self
employed
Educational loans
Housing finance
Others

60. Small & Medium Enterprises (SMEs)
 SMEs are classified based on Small & Medium
Enterprises Development Act,2006
 SMEs are divided into micro,small & medium
sized entities.
 SMEs are classified based on two categories
viz., manufacturing units and service companies.
 In case of manufacturing units, investments
in plant and machinery and for service units,
investments in equipment are considered for
classification.

61. Credit Management in Banks
Capital adequacy
norms
Prudential
norms
Credit appraisal
system
Exposure
norms
Risks-ALM

62. Documentation 1
- Loan documents are classified as
primary and secondary
- Documents are obtained based on the
type of credit facility/constitution of the borrower/nature of
securities offered by the borrowers
- Documents should have a clear title
and can be valid for enforcement in a
court of law
- Wherever required, documents need to be
stamped appropriately
- Documents should be properly filled up and duly
executed by authorised persons.

63. Documentation 2
 Documentary evidence as per Sec 61
of Evidence Act :
a) Primary: original documents needs to
be produced for inspection of court
b) Secondary:
- certified copies
- copies made from or compared with
original

64. E banking
E Banking
Credit
Cards
Internet
Banking
Core
Banking
Solutions

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