The document provides a history of banking in India from the establishment of the earliest banks in the late 19th century through nationalization efforts in the 20th century. It discusses key events and institutions including: 1) The establishment of early presidency banks in the 1870s which laid the foundations for modern banking. These were later amalgamated into the Imperial Bank of India in 1921. 2) The passage of the Reserve Bank of India Act in 1934 which established RBI as the central bank and the Banking Regulation Act of 1949 which brought banks under greater government control and empowered RBI for regulation and supervision. 3) The nationalization of the State Bank of India in 1955 and additional nationalization efforts of 14

1. Prof K.S.RAMACHANDRA RAO
CEO, VCG

2. Banking History
 Bank of Hindustan was set up in 1870; it was the earliest
Indian Bank.
 Later, three presidency banks under Presidency Bank's act 1876
i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras
were set up, which laid foundation for modern banking in
India.
 In 1921, all presidency banks were amalgamated to form the
Imperial Bank of India. Imperial bank carried out limited
number of central banking functions prior to establishment of
RBI. It engaged in all types of commercial banking business
except dealing in foreign exchange.

3.  Reserve Bank of India Act was passed in 1934 & Reserve
Bank of India (RBI) was constituted as an apex body
without major government ownership. Banking
Regulations Act was passed in 1949.
 This regulation brought RBI under government control.
Under the act, RBI got wide ranging powers for
supervision & control of banks.
 The Act also vested licensing powers & the authority to
conduct inspections by RBI.

4.  In 1955, RBI acquired control of the Imperial Bank of India,
which was renamed as State Bank of India. In 1959, SBI took
over control of eight private banks floated in the erstwhile
princely states, making them as its 100% subsidiaries. It was
1960, when RBI was empowered to force compulsory merger
of weak banks with the strong ones.
 It significantly reduced the total number of banks from 566 in
1951 to 85 in 1969.
 In July 1969, Government nationalised 14 banks having
deposits of Rs. 50 crores & above.
 In 1980, Government acquired 6 more banks with deposits of
more than Rs.200 crores.

5. Banking Regulation ACT 1949
 The Reserve Bank of India was nationalized on January 1,
1949 under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948. 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.

6. STRUCTURE OF
INDIANFINANCIAL SYSTEM
Reserve Bank Of India
Banks
Commercial
Banks
Coop
Banks
NBFC
RRBs
Pvt Banks
Foreign
Banks
PSBs LABS
DFIs

7. PSBS
 SBI
 ASSOCIATE BANKS 5 SBH, SBM,SBT,SB OF Bikaner
and Jeypore, SB of Patiala (SB of SAURASHTRA and
SB OF Indore merged with SBI)
 Nationalised Banks 19
 TOTAL 25

8. Aggregate Business of
scheduled Banks in India as on
June 2012(237 banks)
 AGGREGATE DEPOSITS AS ON JUNE 2012
 Rs 64,02,080 crores
 Aggregate credit 49,06,840 cr
 Investments 19,17520 cr
 Cash Reserve Ratio 5.9%
 Investment Deposit ratio 30%
 Credit Deposit ratio 76.6%

9. Monetary Policy of RBI
 CRR 4.75%
 SLR 23% reduced from 24%
 Bank Rate 9%
 Repo Rate 8%
 Reverse Repo Rate 7%

10.  CRR: Cash Reserve Ratio
 CD Ratio: Credit Deposit Ratio
 SLR: Statutory Liquidity Ratio
 REPO: Repurchase option rate
 BANK RATE: It is a reference rate

11. Functions of Central Bank
 Monopoly of Note Issue
 Monetary Management of country
 Control and supervision of Financial system including Banks, NBFCs etc.,
 Monetary and credit policy will be dictated by RBI
 Regulation of Forex markets and Custody Of FOREX RESERVES and Exchange control
regulation
 Giving policy prescriptions of Reserve requirements like CRR and SLR
 Credit monitoring and regulation
 Open Market Operations
 Selective credit control and credit rationing
 Acting as Bankers’ Bank and Govt.’s Bank as lender of last resort like Allowing
OVERDRAFTS and LAF
 Branch licensing
 Bank rate policy
 Refinancing and Developmental role
 As Central Bank of Clearance
 Custodian of Nation’s Reserves

12. Instruments of Monetary Policy
 Bank Rate policy
 Open Market Operations
 Variable Reserve System
 Selective Credit Controls
 Credit Rationing
 Moral Suasion
 Direct Action

13. Banking Regulation Act 1949
 Section 6 lays down the forms of business in which banking companies
may engage. This section prohibits banking companies from taking part in
speculative trade
 Section 7 prohibits the use of any of the words “bank”, “banking” or
Banking company other than a banking company
 This act lay down the minimum capital norms
 This act requires banking co to transfer 20 percent of its profits to reserves
 It prohibits loans and advances on the security of its shares
 It confers powers to RBI to determine the policies of lending to be followed
by banks
 It requires every banking co to obtain license from RBI to carry business
 It confers powers to RBI to inspect any banking co at any time
 It requires the Banks to obtain permission from RBI to Amalgamation of
banks

14. Role of Commercial Banks
 Mobilisation of deposits and lending
 Agency services like collection of instruments, bills etc.,
 Forex transactions
 Services like issuance of BGs and LCs
 Investment advisory services
 Portfolio management services
 Third party services like Insurance and Mutual Funds
 Safe custody services
 Investment portfolio
 Credit cards, travellers cheques, gift cheques etc.,

15. NABARD
 National Bank for Agriculture and Rural development
 Set up in 1982 and the paid up capital is Rs 1000 cr
 Credit functions: it provides through the banking systems all
kinds of productive and investment credit to agriculture and
allied activities
 It provides different types of refinance to Coop banks,
Commercial banks, RRBs etc.,
 It coordinates the operations of Rural Credit agencies and
develops expertise to deal with agrl and rural problems, assists
Govts,
 It undertakes inspections of RRBs, Cooperative banks

16. EXPORT IMPORT BANK(EXIM
BANK)
 SET UP IN 1982 AND PAID UP CAPITAL IS 500 CR
 Main functions of EXIM Bank
 1.Financing of exports from and imports not only to India but also
third countries
 Financing joint ventures in foreign countries
 Financing of export and imports of machinery and equipment on
lease basis
 It also undertakes limited merchant banking activities such as
underwriting of shares, bonds, debentures etc.,
 It also takes up rediscounting and guarentees
 It also provides loans to Foreign Govts, relending to banks overseas,
refinance to banks of export finance
 It also undertakes developmental role for the Govt , EXPORTERS,
in developing export trade

17. ECGC
 It is established by GOVT OF INDIA which plays an important
role in the field of Export promotion and trade
 It offers protection to the exporters and banks from risks
inherent in selling goods and extending credit to foreign buyers
 Standard policies issued by ECGC are going to cover the risks
in an export trade
 Commercial risks including Insolvency of the importer, default,
failure to accept the goods
 Political risks include restriction placed on transfer of
payments
 It pays the exporter a specified percentage of loss

18. SIDBI (Small Industries
Development Bank of India)
 Set up in 1990 as wholly owned subsidiary of IDBI with share
capital of 450 cr
 Major activities are
 Refinancing of term loans granted by banks
 Direct discounting as well as rediscounting of bills arising of
sale of machinery and capital equipment by SSI units on
deferred basis
 Provides seed capital assistance to entrepreneurs
 Rediscounting of short term trade bills
 Resource support to NBFCs, SEB, Factoring companies and
other institutions concerned to Small scale industries

19. Foreign Banks
 These are the branches in India incorporated abroad
 These banks have the option of converting their branches
in India as wholly owned subsidiaries or to continue as
branches from 2005 to 2009
 New banks entering India can be permitted to operate as
branches or wholly owned subsidiaries
 Foreign banks are permitted to do all normal banking
business in India

20. RRBs
 These are added to the Indian Banking scene from 1975
 These banks are established as per the provisions of RRBs ACT 197
 It is felt by the Govt that the existing credit agencies like coop banks
and commercial banks are not able to cater to the needs of rural
areas fully
 Share capital of RRBs is 5 cr 50% will be by the Central Govt, 15%
by the State Govt concerned and 35% by the commercial banks
which sponsors RRBs
 Main functions of RRBs to grant loans and advances to Small and
marginal farmers, artisan, small entrepreneurs
 RRBs avail refinance facility from NABARD
 RRBs as on 31.3.2009 are 86 after amalgamations permitted by
Govt

21. LOCAL AREA BANKS
 in 1996, GOVT OF INDIA decided to allow Local area
banks with the twin objective of
 1.providing an institutional mechanism for promoting
rural and semi urban savings
 2. for providing credit to viable economic activities
 Minimum paid up capital will be 5 cr
 Its operations are restricted to 3 districts

22. INVESTMENT INSTITUTIONS
 Insurance companies : LIC was the monopoly before
2000. MALHOTRA committee was appointed for
 Suggesting reforms in Insurance sector
 IRDA was set up in 1999 with the IRDA act 1999
 There was entry of private players in Life and General
insurance as Govt allowed private participation with
allowing foreign players to have joint ventures with local
players
 MUTUAL FUNDS: Mutual funds have been established
as Trusts under the Indian Trusts act and function. These
are regulated by SEBI

23. SEBI and SEBI ACT 1992
 SEBI : established in 1998 SEBI act was passed in 1992 with the reforms announced by Govt of India taking capital market
reforms into consideration
 1. REGULATORY FUNCTION
a). Registration of brokers and sub-brokers and other players in the market
b). Registration of collective investments schemes and Mutual Funds
c). Regulation of stock exchanges and other self-regulatory organisations (SRO) merchant banks etc
d) Prohibition of all fraudulent and unfair trade practices
e) Controlling Insider Trading and take over bids and imposing penalties for such practices
2. DEVELOPMENT FUNCTIONS
a) Investor education
b) Training of intermediaries.
c) Promotion of fair practices and Code of conduct for all S.R.O.s
d). Conducting Research and Publishing information useful to all market participants

24. SEBI AND CAPITAL MARKETS
 SEBI works like a watch Dog. It tries to regulate the
capital market both primary market and secondary market
 It protects investor by adopting stringent measures in
controlling and monitoring the capital market in India
 Disclosure norms have become mandatory and every
corporate before going for any public issue have to be
transparent and disclose the information as directed by
SEBI so that investor gets to know sufficiently about the
company before making investment decision
 SEBI is following strict norms in controlling price rigging
and regulating merchant bankers

25. Types of Liabilities in a Bank
 Net worth : Capital and Reserves
 Demand Deposits like SB, CD
 Term Deposits
 Short term Borrowings
 Other concepts pertaining to Liabilities
 NDTL : Net Demand and Time Liabilities
 Capital Adequacy Ratio
 Asset Liability Management
 Contra items
 Profit

26. Bank Balance Sheet-Assets
 Cash
 Bank Balances
 Investments
 Loans(short term and long term)
 Over drafts and Cash Credits
 Bills purchased and Bills discounted
 Fixed assets
 Sundry Debtors
 Loss
 Contra items

27. Employment of Bank Funds
 Cash in Hand
 Money at Call and Short notice
 Bills Discounted
 Loans and advances
 Investment
 Fixed Assets

28. Branch Banking vs Unit Banking
 Unit banking is localised and they transact with others with
correspondent system
 Branch banking is bank having a head quarters operate through
various branches of the banks and operations will take place
intra branch.
 Universal banking : it refers to a Bank which offers a wide
variety of financial services beyond the strict boundaries of a
commercial bank. It is a combination of commercial banking,
investment banking and various other activities including
insurance. An universal bank offers this entire range of
financial services with in the bank or through subsidiaries

29. Virtual Banking
 Customers are increasingly moving away from the
traditional banking services. Broadly speaking Virtual
banking denotes the provision of banking and related
services through extensive use of information technology
with out direct recourse to the bank by the customer.
Order of the day today is ATMs, Shared ATM network,
Smart cards, Internet banking, Phone Banking etc.,The
relative advantages are 1. lesser operational costs, 2.
Speed of service 3. convenience and comfort

30. Investment Banking and
Universal Banking
 Investment Bankers :These organizations will not be like
Banks and they concentrate on working as intermediaries
for fund mobilisation and their investments and they will
not undertake normal operations of a bank like lending
and other services. They act like underwriters, merchant
bankers etc.,
 Universal Banking: these organizations undertake wide
range of financial services and thus they are beyond
traditional commercials banks. They will be like Financial
services super market

31. Merchant Banking
 Merchant banking activities are as follows
 Corporate financial advisory services
 Loan syndication
 Underwriting services
 Issue management
 Fund management services
 Portfolio management services
 Corporate restructuring services etc.,

32. Lead Bank Scheme 1969
 After introduction of Social control in 1969, 14 Banks were
nationalised in 1969 and the Act was passed in parliament in
1970
 Lead Bank Scheme was introduced in 1969 as per the
recommendations of National Credit Council under the
chairmanship of DR Gadgil and also Committee of Bankers
under the chairmanship of Nariman
 Banks are allotted certain districts to take the lead in surveying
the potential of banking development in extending branch
banking and expanding credit facilities
 All the districts in the country are allotted to SBI group,
nationalised banks and few private sector banks

33. Lead Bank scheme contd
 Main role of banks in this scheme is
 . to survey the resources and potential for banking development
 .to survey the no of industrial and commercial units which do
not have banking accounts
 To examine the facilities of marketing for agrl produce
 To survey the facilities for stocking fertilisers
 To assist other primary lending agencies
 To maintain contact and liaison with Govt departments
 To prepare bankable schemes
 Forming SLBC, District level and Mandal level
 Service area approach is introduced and preparing service area
plans in 88-89

34. Bank Nationalisation in 1969
 14 Banks were Nationalised in 1969 with an ordinance
and an ACT was passed in Parliament in 1970 which is a
land mark in the history of Banks in India. Later six more
banks were nationalised in 1980
 The objectives of Nationalisation
 Broad aims of nationalisation of banks as stated in the
Preamble to the Banking companies(Acquistion and
Transfer of Undertakings) Act 1970 “ are to control the
heights of the economy and to meet progressively and
serve better the needs of development of the economy in
conformity with national policy and objectives”

35. Objectives of Nationalisation
 The removal of control by a few
 Provision of adequate credit for agriculture and small
industry and exports
 The giving of a professional bent to bank management
 The encouragement of new classes of entrepreneurs
 The provision of adequate training as well as reasonable
terms of service for bank staff

36. Criticism of Banks’
nationalisation
 The scheme of social control over banks has not been
given a fair trial
 Foreign banks and the smaller banks are left out of the
purview of nationalisation
 Public ownership w2ill lead to inefficiency in the
working of banks
 Public ownership will mean elimination of healthy
competition and initiative

37. Retail banking and whole sale
banking
 RETAIL BANKING AND WHOLESALEBANKING
 The concept of retail banking
 The retail banking means products and services offered to individuals and
households sector for personal use and consumption like loans for housing,
vehicle, for consumer durable, loans for enjoying vacations etc.It not only
means lending but also involves whole of the banking services provided to
individuals and house hold sector.
 The products to tap their savings and other services are included in retail
banking.The retail banking concept has been expanded to include services
provided to small and medium sized business and also high net worth
individuals .
 The concept of wholesale banking
 In the whole sale banking the focus is on corporate, i.e. companies, firms,
proprietorship concerns, Public Sector, Institutions, societies, Trusts, clubs
etc

38. Types of deposits
 Current deposits
 SB
 RD
 FIXED DEPOSITS
 REINVESTMENT DEPOSITS
 SPECIAL DEPOSIT SCHEMES
 NR DEPOSITS

39. CURRENT DEPOSITS
 CURRENT ACCOUNT is a running account which can be
operated any number of times .They are called demand
deposits
 No interest is payable on current accounts. How ever if the
account holder is deceased, then interest will be paid to the
legal heirs as per SB interest rates
 Third party cheques can be deposited in current accounts
 Over draft facility is available
 Loans and advances granted for business activities will be
routed through current accounts
 It is suitable for all types of customers

40. SAVING BANK DEPOSITS
 This is meant for normal customers whose savings can be
routed through these SB accounts
 Restrictions will be there on no of transactions
 Interest will be paid taking into account daily balances in
the accounts
 Recently RBI has advised the banks to start NO FRILLs
Accounts with zero balance or minimum balances
 Restrictions are there to open SB accounts for business
people, trading organisations, companies etc.,

41. RECURRING DEPOSITS
 These are mainly aimed for regular savings on regular basis.
Every month there will be fixed amounts deposited in the
accounts for a specified period of time. Interest will be
calculated on cumulative balances in the account. It is like a
term deposit and it is payable on maturity date
 It is highly useful for salaries class and fixed income groups so
that they can save for a period of time like 12 months, 24
months, 36 month etc., for a maximum period of 10years as
generally term deposits are required for a period for 10 years
only excepting in special circumstances like court orders etc.
 These deposits can be cancelled any time during the tenure
with the discretion of the Bank by applying rate of interest
applicable for that period of existence

42. FIXED DEPOSITS and
Reinvestment deposits
 Fixed deposits are accepted by banks for a fixed term with applicable
rate of interest for different period of time declared by the banks
from time to time. Maximum period is 10 years. It is term deposit .
Interest is usually paid quarterly, half yearly or yearly . But monthly
interest can be paid at a discounted price as interest is calculated
quarterly
 It can be cancelled in between at the discretion of banks
 Loans can be allowed during the pendency of the term by charging 1
percent extra rate
 Nomination facility is available. Joint accounts can be allowed with
payable jointly or either or survivor or former or survivor basis
 In the case of death amount will be paid to the nominee of the
account holder

43. Fixed deposits contd
 For senor citizens there will be higher rate of interest
compared to general depositors and higher rate of interest can
be allowed by banks for a deposit of 15 lakh and above
 REINVESTMENT DEPOSITS : In this case, interest will be
added to the principal every quarter and thus maturity will be
calculated and will be paid on the due date. There will not be
any interest payment in between
 TDS: Tax deduction at Source will be deducted on interest
payable by the banks as per IT rules from time to time
 If TDS deduction has to be avoided, depositor can give a
declaration under 15H declaring that there is no taxable income
for him

44. Special deposit schemes
 Daily deposit schemes
 Capital gains deposit schemes : These accounts are opened
in designated Banks . These are specialised deposit
schemes where in Sale proceeds of housing property can
be deposited which are tax free
 PPF These accounts are maintained by SBI to attract
savings from public which are tax free under IT act up to
ceilings stipulated from time to time by Govt of India like
80C BENEFIT

45. NR DEPOSITS
 NRI: Indian citizen who stays abroad for employment or
for carrying business indicating an indefinite period of
stay or indian citizen working abroad with international
organisations like UNO or an official of Govt who is on
deputation abroad for temp assignments
 FCNR(B)
 NRE
 NRO
 RFC
 EEFC

46. TYPES OF ACCOUNT
HOLDERS
 INDIVIDUALS
 JOINT ACCOUNTS
 Pardanashin woman
 ILLITERATE PERSONS
 HUFs
 MINOR ACCOUNTS
 SOLE PROPRIETORY ACCOUNTS
 PARTNERSHIP ACCOUNTS
 TRUSTS/ASSOCIATIONS
 COMPANY ACCOUNTS
 SOCIETIES
 GOVT BODIES
 EXECUTORS AND ADMINISTRATORS
 NOMINATION FACILITY
 CLAIMS

47. Company accounts
 Certification of incorporation and certificate of commencement
of business ; issued by the Registrar of companies
 Memorandum of association : it is the main document which
embodies its constitution and is called the charter of the
company: its authorised capital, registered office details, the
objects of the company ,liability of its members, etc.,
 Articles of Association: Rules and regulations of the company,
internal management, powers of directors, borrowing clause,
etc.,
 Copy of Board resolution to open the account, borrowal clause
etc.,

48. Clubs, societies and charitable
institutions
 Society must be incorporated under Societies Registration
act 1860
 Rules and by laws of the society
 A registered society is governed by the provisions of the
act and copy of the by laws of the society should be
submitted to the bank
 Resolution of the Managing committee indicating the
Bank name and branch to open the account
 In case of borrowings, bank should ascertain the
borrowing power from its charter of memorandum

49. KYC( KNOW YOUR
CUSTOMER)
 RBI has the bankers to exercise due diligence in understanding
the customer
 RBI has issued detailed guidelines under KYC
 KYC Policies
 Customer acceptance policy
 Customer Identification procedure through proper documents
 Monitoring transactions closely
 Risk Management
 If the banks comply with KYC guidelines it will facilitate
Identification of depositors, control of financial frauds,
identification of money laundering and monitoring of large value
cash transactions

50. BANKER AND CUSTOMER
 Definition of a customer: broadly speaking a customer is a
person who has the habit of resorting to the same place to do
business. So far as banking business is concerned he is a person
whose money has been accepted on the footing that the banker
will honour up to the amount standing to his credit
irrespective of being of short or long standing A person who
does not deal with the banker in regard to the essential
functions of banking but avails other services rendered by the
bank is not called a customer Thus to constitute a customer the
following essential requisites must be fulfilled
 1. a Bank account: SB, CD, FIXED
 2. dealing between the banker and the customer must be the
nature of banking business

51. General relationship between
banker and customer
 1.Debtor and creditor : The moment customer opens an account
and deposits, banker becomes debtor and customer becomes a
creditor The relationship is reversed if the balance in the
become debit balance and money due from the customer
Basic duties for this relationship
 1. creditor must demand payment
 Proper place and time of demand
 Demand must be made in a proper manner
 2. Banker as Trustee: Banker acts as a trustee also in some
cases. Suppose customer asks the bank to purchase some
securities from his balances in the account, he acts as a trustee
for the securities

52. BANKER-CUSTOMER contd
 BANK AS AGENT:
 Bank Collects cheques, Bills etc., for his customer, the
relationship becomes as AGENT
 Lessor and Lessee:
 In the case of Safe deposit lockers, bank gives its locker
for lease for the customer and in that case it becomes
Lessor and customer becomes lessee
 Pledgor and pledgee : Bank finances the customer as
borrower against pledge of goods like Gold loans, in that
case Banker becomes pledgee and Customer becomes
Pledgor

53. NI ACT1881
 Negotiable instrument means a promissory note, bill of exchange or
cheque payable either to order to bearer (section 13). This does not
indicate the characteristics of a negotiable instrument but only states
that three instruments are negotiable instruments
 A negotiable instrument is a transferable document either by the
application of law or by customs of trade
 The special feature of this instrument is the privilege it confers on
the person who receives it bonafide and for value and to possess
good title there on even if the transferor had not title or defect title
 These instruments are transferable from person to person and
ownership is passed on mere delivery in case of bearer instrument or
by endorsement in the case of order instrument

54. Types of negotiable instruments
 By statute : cheque, bill of exchange, promissory note
 By custom or usage like Delivery orders, Railway receipts etc.,
 Promissory note : is an instrument in writing containing an
unconditional undertaking signed by the maker to pay a certain sum
of money only to or to the order of certain person or to the bearer of
the instrument (section 4)
 Bill of exchange: a bill of exchange is an n instrument in writing
containing an un conditional order signed by the maker directing
certain person to pay a certain sum of money only
 To the order of a certain person or to the bearer of the instrument
(Secion 5)
 Cheque: a cheque is a bill of exchange drawn on a specified banker
and not expressed to be payable otherwise than on demand

55. Payment in due course
 Section 10 states payment in due course means payment in
accordance with the apparent tenor of the instrument in good
faith and with out negligence to any person in possession there
of under circumstances which do not afford a reasonable
ground for believing that he is not entitled to receive payment
of the amount there in mentioned
 Payment should be made in accordance with the apparent tenor
of the instrument
 Payment should be made in good faith and with out negligence
 Payment must be made to the person in possession of the
instrument

56. Endorsements
 By delivery
 By endorsement and delivery
 Endorsement in Blank
 Endorsement in full
 Conditional endorsement
 Restrictive endorsement
 Endorsement Sans recourse

57. Crossing of cheques
 General crossing
Special crossing
Account payee crossing
Holder of a cheque can cross
 Banker to whom the cheque is crossed may again cross it to another
bank, his agent for collection
 Liability of the paying banker on crossed cheques
 Where a cheque is crossed generally the banker on whom it is drawn
shall not pay it otherwise to a banker and where a cheque is crossed
specially the banker on whom it is drawn shall not pay it otherwise
than to the banker to whom it is crossed or his agent

58. Obligations of Banker to the
customer
 Obligation to honor the cheques provided the cheque is in due course in all
aspects and subject to sufficient funds, funds must be properly applicable to
the payment of the cheque and it is duly to be presented to the banker with
in the stipulated period, properly dates, with out any alterations, duly signed
etc.,
 Banker is liable to compensate the drawer for any loss or damage caused by
default on his part for dishonouring the cheques with out sufficient reason
 Garnishee order : the obligation of a banker to honour his customer’s
cheques is extinguished on receipt of court order which is known as
garnishee order If a debtor fails to pay the debt owed by him to his creditor,
the latter may apply to the court for the issue of a Garnishee order on the
banker of his debtor.. This order given by the court is known as Garnishee
Order. Account becomes suspended
 Garnish order may attach either the entire amount or a specified amount
which is sufficient to meet the creditor’s claim
 Garnishee order attaches the amount outstanding in the account at that time
It is not applicable for the amounts of cheques sent for collection and
clearance amounts deposited after receipt of the order can not be attached

59. Obligations of banker contd
 Obligation to maintain secrecy of account
 Exceptions:
 When the law requires such disclosure like IT DEPT,
order of the court, RBI ACT, under FEMA rules, under the
credit information act, Public authority as per RTI act
 When the practices and usages amongst the bankers
permit such disclosure

60. Bank’s rights
 1.Right of General Lien
 It confers upon the creditor the right to retain the security but not the right to
sell the securities as per the contract ACT. But the Banker’s lien is
tantamount to an implied pledge .It confers him the power to sell the goods
and securities in case of default
 Exceptions
 Safe custody deposits
 Documents deposited for special purpose
 Securities left with the banker negligently
 Securities held in trust
 2. Right of set off
 3.. Banker’s right of appropriation
 4..Right to charge interest, incidental charges
 5.period of limitation

61. Collection of cheques
 While collecting his customer’s cheques a banker acts
either as a holder for value or as an agent of the customer
 If the collecting banker pays the amount of the cheque or
credits the account before sending for realisation, the
banker holds the cheque for value
 If he merely sends the cheque for collection, he acts as an
agent
 If bank collects the cheque not to the true owner banker is
charged with a charge of CONVERSION
 Statutory protection is available for the banker as a
collecting banker subject to fulfilling certain conditions

62. Collecting banker contd
 1.Cheque must be a crossed cheque
 2.Payment must be received for the customer
 3 P ayment must be received in good faith and with out
negligence

63. ALM-Asset Liability
Management
 ALM is very important for Banks Every Bank is supposed
to have ALM committee to monitor this and fix interest
rates from time to time
 ALM will over see to see Asset liability mismatch will not
happen to avoid Liquidity crisis
 All the Liabilities and assets are segregated into different
time buckets

64. Principles of lending
 Safety
 Liquidity
 profitability
 Security
 Character
 Risk diversification
 Capacity
 Capital

65. Bank Loan Policy
 Bank will declare Bank loan policy with the approval of
their Boards
 As per the policy lending will be administered
 Bank loan policy will be taking into consideration RBI
norms related Exposure Norms, Priority sector guidelines ,
Past performance in various sectors, lending norms,
security norms, Exposure to Non funded limits etc.,
 Exposure norms to unsecured advances, Consortium
advances
 Monitoring of advances, Recovery Management etc.,

66. Credit Appraisal
 Managerial appraisal
 Technical Appraisal
 Financial Appraisal
 Commercial Appraisal
 Economic Appraisal

67. Types of credit
 Cash Credit
 Over drafts
 Loans
 Purchase and discounting of bills
 Non Funded limits

68. Cash credits
 Cash credits are sanctioned by the Banks seeing the need
of the borrower for working capital purposed
 These are considered demand loans
 Though borrower will be charged interest on the actual
drawings though bank is supposed to keep adequate
balances to meet the requirement
 Banks will charges commitment charges for undrawn
limits
 1% will be charged on the unutilised portion of working
capital sanctioned keeping 15% tolerance limit

69. CASH CREDITS contd.,
 Advantages to the borrower: borrower has flexibility to
draw actual requirements and interest can be minimised by
efficiently handling the operations
 Operative convenience compared to loans as it is a single
account for all operations
 Weaknesses: limits are fixed yearly once
 Banks will not able to ensure end use especially in open
cash credits
 Lack of proper management of funds as they are dictated
by the borrowers’ drawings

70. CASH CREDITS CONTD.
 Types of Cash credits
 Open Cash credits: it is based on hypothecation of goods and the custody of goods
will be with the borrower where security will be changing always either place or
same goods will move
 Ex Cotton mills, Rice mills etc.,
 If necessary hypothecated goods can be taken control of goods by the bank by
giving a reasonable notice
 Charge created is known as HYPOTHECATION It is not in statutory acts but it
has become a charge by practice
 Key Cash Credits:
 Goods will be kept under locker and it will be with the custody of the Bank
 Ex :Key loans or loans against warehouse receipts
 The relations between Banker and Borrower is that of Pledge and Pledgor and the
charge is Known as PLEDGE It is based on Indian Contacts Act
 O

71. Term Loans
 Term loans are given by banks for Investment credit . They are given
with different time durations like 36 months, 48 months, 60 months
etc., Excepting housing loans and Infrastructure loans, normally term
loans are given for a maximum period of 8 to 9 years with some
gestation period for fixing the repayment schedule
 Term loan can be given for acquiring machinery, equipment,
furniture, vehicles, Land and buildings purposes
 Viability study will be made by taking into consideration surplus
income generated from the unit under consideration so that the
entire loan can be repaid in 7 to 8 years.
 For housing loans, infrastructure loans longer repayment schedule
considering their surpluses generated and longevity of the assets for
which loans are given

72. Assessment of Term loan –an
example
 Type of asset cost Margin Bank loan ( in lakhs)
 Land 50 40% 20 30
 Building 50 40% 20 30
 Machinery 100 25% 25 75
 Electrical and
 Other fittings 20 25% 5 15
 Vehicles 20 25% 5 15
 WC margin 10 100% 10 --
 Total project cost 250 85 165 lakhs
 Repayment schedule will be fixed by taking into consideration
of DSCR (Debt service coverage ratio)

73. DSCR
 DSCR= Net profit after tax and dep+ depreciation+ interest on
term loan
 ___________________________________
 Interest on TL and TL Installment
 Normally accepted DSCR is minimum 1.5: 1 Higher is
acceptable but not lower. In case of lower DSCR repayment
period can be increased if feasible
 Ex : Net Profit : 30 lakhs Dep : 30 lakhs Interest @14%
 20 lakhs repayment 4 years
 DSCR= 30+30+ 41 / 20+41 = 101/61=1.6:1
 It is acceptable


74. Break even point
 Break even point is a point where it is no profit and no loss stage at
that point of production. Once it crosses the production of BEP,
Profits will result and before this point losses will occur. When we
are appraising a proposal for term loan we should know at which
percentage of production , break even point occurs, Earlier that
chances are good for that proposal to be considered. Normally we
expect that the unit should break even in the first year itself and
second year onwards it should get into profits
 Fixed costs = 5 lakhs Selling price is 50 Rs per unit and Variable
cost is 30 Rs
 BEP= Fixed costs/ selling price-variable cost
 = 5,00,000/ 50-30 = 5,00,000/20= 25000 units
 For example capacity for the unit is 100000 units and if 25%
production is reached, it results in BEP AND from this point it goes
into profits

75. Working capital assessment
 Tandon committee methods
 First method of lending
 Second method of lending

76. Inventory method/ RBI method
 Operating cycle or working capital cycle
 Each and every stage of the working capital cycle, funds
are blocked, In this method actual requirement will be
calculated for each and every stage and the total
requirement is calculated. That is why it is named as
Scientific method based on inventory system taking into
consideration of working capital cycle

77. Nayak committee turn over
method
 Turn over method based on Nayak committee
recommendations

78. Analysis of Financial statements
 Net worth :
 Capital
 Reserves
 Tangible net worth: Net worth- Intangible Assets
 Intangible Assets: Good will, Patents, Trade Marks etc.,

79. Ratio Analysis
 Liquidity Ratios:
 Current Ratio
 Current Assets/ Current Liabilities
 Quick Ratio/ Acid Test Ratio:
 Quick Assets/ Quick Liabilities
 Operating Ratios
 Debtors turn over ratio
 Creditors turn over ratio

80. Analysis of Financial statement
contd.,
 Profitability Ratios:
 Gross profit Ratio: Gross profit / Net Sales
 Net profit Ratio : Net profit/ net sales
 Operating Ratios:
 Inventory turn over ratio:
 Sales/ average inventory
 Fixed assets turn over ratio: Sales/ Fixed Assets

81. Leverage Ratios
Debt : Equity ratio
Long term Debt/ Net worth
Tangible net worth plus term liabilities /
Net Fixed assets Ratio
Total outside liabilities/ Tangible Net
worth

82. Funds flow statement
 Statement of Sources and Uses
 Sources:
 Increase in liabilities
 Decrease in Assets
 Profit from operations
 Uses/ applications:
 Increase in Assets
 Decrease in Liabilities

83. Types of Securities
 `Advances against goods: Industrial Raw material,
Products, agrl. Produce, food articles etc.,
 Advances against Documents of Title to goods
 Bill of lading
 Ware house receipts
 Railway receipt
 Trust Receipt
 Advances against STOCK EXCHANGE
SECURITIES

84. CREATION OF CHARGE
 Lien: section 171 of Indian Contracts Act confers the general
lien on the banker
 Negative lien: banker will not have any right to retain the assets
 Pledge: Section 172 of Indian Contracts act
defines pledge as bailment of goods as security for
payment of a debt or performance of a promise
 Essentials in pledge: 1.Delivery of goods2.
Bailment of goods with the object of securing the
payment of a debt or the performance of promise
 Goods can be pledged by the owner of the goods

85. Duties of Pledgee
 Pledgee is bound to return the goods upon receipt of payment
 Pledgee is responsible for any loss, destruction of goods
 Pledgee is bound to take all the precautions and care during the time of
pledgement of goods
 Hypothecation
 It is the charge created in case of movable goods. Neither the
ownership nor possession of goods is transferred to the
creditor but an equitable charge is created in favour of the
latter. Hypothecation is a convenient device to create a
charge over the movable assets where transfer is
inconvenient
 RBI has issued guidelines to Banks to be cautious for
hypothecation as there is a chance of double finance

86. Mortgage
 As per Section 58 of the Transfer of property Act 1882
 Mortgage is created on immovable property to secure
loan
 Section 58 defines mortgage as “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, an existing or future debt
 The transferor is called Mortgagor , the transferee is
Mortgagee

87. Forms of Mortgages
 Simple Mortgage
 Mortgage by conditional sale
 Usufructuary Mortgage
 English Mortgage
 Mortgage by Deposit of Title deeds
 Anomalous Mortgage

88. ASSIGNMENT
 Assignment means transfer of a right, property or a debt
existing or future.
 Borrowers generally assign the actionable claims to the
banker. Section 130 of the Transfer of property act 1882
permits such assignment
 Ex: BOOK DEBTS, Money due from Govt , LIC policies
etc.,

89. Documentation
 Types of documents
 Demand promissory note
 Letter of continuing Security
 Letter of waiver
 Agreement of pledge
 Agreement of Hypothecation
 Letter of lien and set off
 Personal guarentee
 Term loan agreement
 Mortgage deed
 Letter of Negative lien

90. Letters of Credit
 A Letter of Credit is a letter issued by the banker of the foreign
buyer, at the latter’s request, in favour of the exporter informing him
that the issuing banker undertakes to accept the bills drawn in respect
of exports made to the foreign buyer specified there in.
 Parties to the letter of Credit
 Importer is called the applicant
 Banker who issues letter of credit is opening Bank or Issuing Bank
 Exporter is the Beneficiary
 Advantages of LC:
 Certainity of payment
 Security against exchange restrictions

91. Types of LCs
 Documentary LC and Clean letter of credit
 Fixed credit and Revolving credit
 Revocable and Irrevocable letters of credit
 Confirmed and unconfirmed letters of credit
 With or with out recourse credits
 Transferable and Nontransferable letters of credit
 Back to Back letters of credit
 Red clause letter of credit

92. guarentees
 Section 126 defines a contract of guarentee as a contract to
perform the promise or discharge the liability of a third
person in case of his default

93. Documentation contd.,
 Blank Transfer deed
 Letter of appropriation
 Letter of assignment
 Letter of undertaking
 Loan agreement
 Valuation certificate

94. Select Operational Data
 Monthly statements to be submitted to the bank by the
industrial borrowers on select operations.
 This includes SALES, INVENTORY, ETC.,
 QIS : QUARTELY INFORMATION SYSTEM
 I AND II will be submitted quarterly indicating projections and
performance of various parameters
 III will be submitted half yearly which gives uses and
application of funds
 These statements will have to be submitted by the borrowers
whose working capital limits are more than 1 crore

95. Priority sector lending
 Agriculture
 SSI
 Service sector advances like Retail Trade, Professional
 and self employed, Business Enterprises, Housing Finance, Education
loans, Consumption loans, Tiny Sector, Small and Road Transport
Operators, Loans to SHGs etc.,
 40% of the advances should go to PRIORITY SECTOR and out of this 45%
should go to Agrl Finance and 25% of the priority sector should go to
weaker sections
 Indirect finance to agrl finance should not be more than 25% of the total
agrl credit ( i.e. 4.5% of net bank credit)
 Targets for Foreign banks operating in India
 Priority sector advances : 32% of total advances
 Advances to SSI 10%
 Export credit 12%

96. Micro, Small and Medium
enterprises
 Manufacturing enterprises service Enterprises
Plant and Machinery investment in equip
 Micro 25 lakhs 10 lakhs
 Small enter 25 to 5 cr above 10 L to 2 cr
 Medium Above 5 cr to 10 cr above 2 cr to 5 cr
 As per RBI , Banks should give 40% of total advances to SSI to
micro enterprises with investements upto 5 lakhs and 2 lakhs
respectively
 20% should go to units with 5to 25 lakhs in micro and 2 to 10 lakhs
in service enterprises
 40% will go to other enterprises
 CGTMS: CREDIT GUARENTEE FUND TRUST FOR MICRO
AND SMALL ENTERPRISES Upto 100 lakhs limit

97. Agriculture and other priority
sector
 Direct finance and Indirect finance
 Production loans like crop loans
 Development loans for Minor Irrigation,Land improvement
,farm machinery etc.,
 Other priority sector:
 Small Road and Water transport operators : UPTO 10 vehicles
including the one to be financed now
 Retail Trade:loans upto 10 lakhs will be qualified under priority
sector
 Small business: Credit limit upto 20 lakhs will be under PS
 Professional and self employed :10 lakhs limits and 15 lakhs
for doctors in rural and semi urban areas

98. PS contd.,
 Educational loans: 10 lakhs for domestic studies and 20
lakhs for studies abroad
 Housing loans : 5 lakhs in rural areas and 20 lakhs in
urban areas
 DRI loans: 4% RATE OF INTEREST
 1% OF THE ADVANCES should go to DRI
 Eligibility : income 18000 in rural area and 24000 in semi
urban and urban areas
 Maximum loan is 20000 for housing loan and other loans
it will be 15000

99. Prudential norms
 Performing assets
 Non performing assets
 Non performing assets:
 Substandard assets NPA less than one year ie 12 months
 Doubtful assets
 Loss assets
 Provisioning requirements
 For Standard assets 0.4% is the requirement and for agrl
advances it is 0.25%

100. Prudential norms contd.,
 Substandard assets” 15% of the total outstanding on secured
portion and 25% on unsecured portion
 Doubtful assets:
 On unsecured portion it is 100% and on secured portion
 Up to one year it is 25%
 Above one year and up to 3 years 40%
 More than 3 years 100%
 Loss Asset : 100%
 Capital adequacy requirement 9% of risk weighted assets
 Tier I capital
 Tier II capital

101. Prudential norms contd.,
 Advances against Deposits, NSCs, KVPs, IVPs and LIC
policies need not be treated as NPAS.
 Interest during the moratorium period has to be recovered
only after that period. Those interests will not be treated
as overdue
 In case of agrl advances if the installment and interest is
due for one crop season
 Government guarenteed accounts will not be treated as
NPAs unless the guarentee is with drawn

102. BASEL NORMS
 Basel is a city in Switzerland. It is the headquarters of Bureau of
International Settlement (BIS), which fosters co-operation among
central banks with a common goal of financial stability and common
standards of banking regulations.. Currently there are 27 member
nations in the committee. Basel guidelines refer to broad supervisory
standards formulated by this group of central banks - called the Basel
Committee on Banking Supervision (BCBS). The set of agreement by
the BCBS, which mainly focuses on risks to banks and the financial
system are called Basel accord. The purpose of the accord is to ensure
that financial institutions have enough capital on account to meet
obligations and absorb unexpected losses. India has accepted Basel
accords for the banking system. In fact, on a few parameters the RBI has
prescribed stringent norms as compared to the norms prescribed by
BCBS.


103. Basel III
 It is widely felt that the shortcoming in Basel II norms is what led to
the global financial crisis of 2008. That is because Basel II did not
have any explicit regulation on the debt that banks could take on
their books, and focused more on individual financial institutions,
while ignoring systemic risk. To ensure that banks don’t take on
excessive debt, and that they don’t rely too much on short term
funds, Basel III norms were proposed in 2010.

Basel III establishes tougher capital standards through more
restrictive capital definitions, higher risk-weighted assets (RWA),
additional capital buffers and higher requirements for minimum
capital ratios. It also introduces new strict liquidity requirements.


104. Ancillary services and new
products
 Remittances:
 Mail transfers, TTs, Bank Drafts, Travellers’ cheques
 New methods: Electronic transfers, Real Time Gross
settlement system, internet banking , NEFT
 50000 and more amount DDs will be issued not against
cash and only through account transfers
 ECS: This facility is meant for companies, Govt
Departments etc., for regular remittances or payments
like Loan installments, or monthly insurance etc., can be
done through ECS

105. contd
 IFSC ;Indian Financial system code
 Travellers cheques:
 Denominations of 50,100, 500 can be issued and they can be
encashed at any branch
 Safe Custody of Valuables: Safe deposit vaults
 They are of different sizes with different rentals and there will
be agreement between the Bank and the customer
 In case of loss of key, it has to be broken open and new key
will be delivered by the supplier and it will be opened in the
presence of the customer and necessary charges will have to be
paid by the customers

106. Credit cards
 Credit card is an instrument which provides instantaneous
credit facilities to its holder to avail a variety of goods and
services at the merchant outlets
 There will be agreement between Banks and Merchant
establishments
 Merchant establishments will pay commission to the banks on
the transactions at the agreed rates
 Advantage for the merchant establishments is higher sales due
to accepting credit cards
 Debit cards: the main difference between credit card and debit
card is through debit card account is debited and there is no
extension of credit

107. Financial inclusion
 USE of Business Facilitators and correspondents
 With the objective of ensuring a greater financial inclusion
and increasing outreach of the banking sector, RBI has
decided to enable banks to use the services of
NGOs/SHGs, Micro finance institutions as intermediaries

108. BANKING TECHNOLOGY
 Need for Computerisation:
 Four major objectives of computerisation to improve
 Customer service
 House keeping
 Decision making
 Productivity and profitability
 Types of Systems
 Stand alone computer system
 Multi user systems
 Multi User computer Networking

109. Contd.,
 Major advantage of installing single user systems are numerous
such as low equipment cost, no complicated soft ware
required, easier to impart training etc.,
 Multiuser systems
 Several people can work at the same time.
 Multi user computer networking
 In such a system computers are based on the centralised
processing concept. All the information is kept and processed
at the main central machines and various terminals are attached
to the main computer
 Most of the banking systems are developed using the
centralised computing concept

110. Banking technology contd.
 Branch level computerisation:, This can be used to provide
better and speedy customer service, to improve the house
keeping , generation of various reports for decision making
etc.,
 Total Branch automation
 With total branch computerisation all the cusomer and business
transactions are done with the help of computers. This is a real
time on line banking.It is possible to provide single window
transaction concept
 EFT transactions can take place and off side ATMs are linked
to the branch system to enable the customer to bank any time
and any where

111. LAN and WAN
 LAN: Local area net work
 THE computer network that links computers and
peripherals with in a localised area say, with in a building
is known as LAN. Computers and related equipment can
be connected through nodes placed any where in the
network
 Advantages of Lan in Banks are
 Expensive resources can be shared by several users to
bring down the cost
 Information stored in the host computer is available to all
users

112. WAN
 WIDE AREA NETWORK
 Wide area networks are defined as a large scale computer
network spread over a span of sizeable geographic area
normally utilising the telecommunication network
 Computers can be linked by using ordinary telephone
lines which is called dial up network. Connectivity can be
also established by using satellite links
 Branch computer can be linked to RO/ZO/HO through
WAN

113. CORE BANKING
 Core banking has a centralised branch computerisation model
where the branches are connected to a central host which
incorporates branch automation modules and one line multiple
delivery channels like ATM, Debit card etc.,
 Business components
 Retail customer modules
 Deposits, loans, bills, remittances etc.,
 Trade finance, forex modules
 Corporate finance
 Enhanced MIS modules
 Integrating with the existing ATMS etc.,

114. Benefits of core banking
 Enables the establishment of a reliable centralised
repository
 Facilitates data warehousing and data mining
 Enables centralised management information
 Facilitates Business process re engineering etc,
 Essentials for Core Banking
 Creation of Data centre
 Disaster recovery site
 Business process reengineering

115. Electronic payment systems
 ATMs
 They are used for performing some of the banking functions like
withdrawals, statement of account, balance enquiry etc.,
 Advantages of ATMs
 24x7 access
 Less time for transaction
 Privacy in transactions
 Any branch/bank enabled
 Lesser cost for setting up ATMs
 PIN: Personal identification number this strip is fixed on the back
of the cards once the PIN is entered by the card holder, matches the
the one recorded in the computer, customer will be allowed to have
access with the account

116. Different types of cards
 Charge card: Transactions are accumulated over a period
of time, generally a month and the total amount charged
debited to the account
 Credit card: Credit card holder has the option to pay or to
pay a minimum amount or paying in installments of
course with service charges
 Debit card: It is issued to the account holder and the
amount debited is automatically debited to the account
 Smart cards: it looks like a debit card or credit card but an
integrated circuit chip is installed .

117. Corporate banking
 Remote banking has become popular with the corporate
customers especially big business and industrial houses are
already automated.More and more banks are providing their
terminals at the office. Through this terminal corporate
customers are able to get their statement of accounts, order
inter and intra bank transfers, international remittances,
opening LCs etc.,
 Personal banking: By using tele banking facility customers can
dial up the branch’s designated telephone number which is
connected to the computer and by dialing his identification
number will be able to get connectivity . Customer can have
access to his account through the tele banking

118. Internet banking
 With the popularity of PCs and easy access to internet and
world wide web (www), banks use internet as a channel
for receiving instructions and delivering their products
and services to their customers.
 The levels of banking services offered by Internet banking
 Basic level services
 Simple transactional websites
 Internet banking services by fully transactional websites

119. Cheque truncation
 It is defined by the new section 6(b) of NI Act as a cheque
which is truncated during the course of a clearing cycle either
by a clearing houses or by the bank whether paying or
receiving payment immediately on generation of an electronic
image for transmission, substituting the further physical
movement of the cheque in writing
 Advantages:
 It truncates the flow of cheque in physical form
 Microfiche: Normally banks use catridges for data storage but
their longevity in data recovery over a period is doubtful. For
such ticklish data storages, microfilm or microfiche come in
handy because they can retain voluminous information and the
relative inability to readily ascertain their contents

120. RTGS
 RTGS is an electronic payment environment where payment
instructions processed on a continuous or REAL TIME Basis
and settled on a Gross or individual basis with out netting the
debits against credits payments so effected are final and
irrevocable settlement is done
 Each bank will have a single gate way interface called
participant interface or PI for the RTGS system
 The payment message originates from the participant’s host
system
 The message is passed on by the participant and clearing
 System interface to inter bank funds transfer processor which
acts as a banker

121. INET
 INET was set u by the department of telephones in 1991. it is
a fast, reliable, flexible and quite cost effective data
communication net work
 Typical applications of INET
 Electronic mail services, information retrieval, corporate
communications, Remote login , Electronic fund transfers,
credit card verification etc.,
 INET allows both way connectivity to
 Remote Area Business Message Network
 High speed VSAT Net work
 Gate way packet switching system of VSNL

122. BANKNET
 RBI commissioned the BANKNET in 1991. This I a
packet switched X 25 based network with nodes at
Mumbai, Delhi, Chennai and kolkata and a switching
centre at Nagpur. In addition Bangalore and Hyderabad
are connected to Chennai through remote connection.
 User banks access BANKNET through leased lines at the
respective local centres with COMET(Computerised
Message Transfer and File Transfer) software.

123. RBI Net
 RBI Net, A communication soft ware allows for free
messaging and file transfer on the existing BANKNET
infrastructure with the help of servers installed at four
metros……
 RBI net is being by several departments of the bank for
various applications such as Transaction of section 42 of
the RBI act data by commercial banks to regional offices
of department of banking operations

124. Impact of IT on Banks
 Technology has helped the Banks to strategically look at
the customer needs to offer newer and more efficient
banking services
 Changes in ORGANISATION STRUCTURE and
orientation
 Impact on service quality
 Impact on Human Resources
 Role transition
 Training needs

125. Information system Audit
 It has gained importance in the context of accelerated pace
of computerisation taking place in banking sector
 The audit is carried out through the IT systems with the
aid of Computer Aided Audit Tools and Techniques
 CMTT is a readily available user friendly soft ware and
various types are used with relevance to the purpose of IS
audit
 Controls to be looked into IS Audit
 Control consists of a set of inter related components that
function together to achieve some overall purpose

126. IS Audit contd.,
 Controls to be evaluated in IS Audit
 Deterred Controls: to deter people internal and external
from doing undesirable activities
 Preventive controls: preventive controls prevent the cause
of exposure from occuring or atleast minimise the
probability of unlawful event taking place
 Detective controls: when a case of exposure has occurred,
detective controls report its existence in an effort to arrest
the damage further or minimise the extent of damage
 Corrective controls: Corrective controls are designed for
recovery from a moss situation

127. Benefits of IS Audit
 It would identify the risks of exposure to an existing
computerised environment
 It would deter people from indulging in corruption/
manipulation of data, frauds, etc.,

128. Information system security
 Need: It is much more complicated with respect to IT security
compared to normal physical security
 Information security is something which is best experienced than
explained
 Security in payment systems cannot be addressed in isolation and it
requires the integration of work processes, communication linkages
and integrated delivery systems and should focus on stability,
efficiency , and risk control
 Objectives: to prevent unauthorised disclosure of information stored
o or processed (confidentiality)
 To prevent the accidental or unauthorised deliberate alteration or
delition of information (integrity)
 To ensure that information is available to authorised persons when
required (AVAILABILITY)

129. Disaster Recovery
management
 Main objective of Disaster recovery management is to safe guard the
information
 To maintain business continuity at the optimum level with in shortest
possible time
 Any even which results in direct denial or stoppage of essential
business functions for a considerable period of time may be defined
as a disaster
 Disaster recovery planning
 The following are some of the threats
 Natural disasters, such as fire and earth quake(external factors)
 Hard ware and soft ware failures
 Virus attack
 Acts of terrorism

130. Marketing of Bank Services
 Definition of Marketing:
 Marketing is the business function that identifies the
current unfulfilled needs and wants, defines and measures
 Their magnitude,determines which target markets the
organisation can best serve and decides an appropriate
products, services and programmes to serve these
markets,. Thus marketing serves as a link between a
society’s needs and its pattern of industrial response-
Kotler

131. Marketing of services
 Marketing Mix for products
 Product
 PRICE
 PLACE
 PROMOTION
 Marketing mix for services
 In addition to the above for services we have
 Process
 People
 Physical evidence

132.  PRODUCT Customer needs and wants
 PRICE cost
 PLACE Convenience
 PROMOTION Communication
 PROMOTION MIX
 Advertising
 Sales promotion
 Distribution channels
 Tele marketing

133. 4 A’s
 ACCESSIBILITY PLACE
 ACCEPTABILITY PRODUCT
AFFORDABILITY PRICE
 AWARENESS PROMOTION

134. Characteristics of services
 Intangibility
 Heterogeneity
 Inseparability
 Perishability

135. Marketing triangle
 Internal Marketing
 External Marketing
 Interactive marketing

136. Marketing of Banking services
 Bank Marketing is the aggregate of functions, directed at
providing services to satisfy customers’ financial needs and
wants, more effectively and efficiently than the competitors
keeping in view the organisational objectives of the bank
 Commercial objectives: to make profits
 Social objective: developmental role to serve the rural areas
 Bank cannot exist with out customers
 Purpose of the bank is to create, win and keep a customer or
retain the customer
 Ultimate aim of the bank should be to satisfy the customer
totally

137. Consumer behaviour
 Maslow’s Hierarchy of needs
 Physiological needs
 Safety needs
 Social needs
 Esteems needs
 Self actualisation

138. Family life cycle concept
 Bachelor stage ; few financial burdens
 Newly Married : Better off financially
 Full Nest I : Child under six : concerned with savings
 Full Nest II : Two children :Better financial position
 Full Nest III: Older couples: Purchase durables
 Empty Nest I ; Head working : High Level of savings
 Empty Nest II: Head Retired : Possible cut in income
Interested in travel and leisure

139. CRM
 Activities under CRM
 Establish and maintain customer information database
 Planning customer contact points
 Analysing customer feed back
 Conducting customer satisfaction survey
 Managing communication programmes
 Hosting special events

140. Product development
 Typically banking products combine product with service
for ex SB, Vehicle loan etc.,
 Product planning comprises the process of developing and
maintaining a portfolio of products, which satisfy the
needs and wants of customers from different segments
 Such product planning has to ensure optimum utilisation
of skills and resources of an organsiation
 Product mix consists of Product differentiation,
Packaging, Managing brands and developing brand equity,
New product development , Managing product life cycle
of products/ brands

141. Product Life cycle
 Products have a limited life span
 Sales of a product passes through distinct stages
 Each of stage will have different challenges
 Profits rise or fall at different stages
 Different marketing strategies are required for different
stages
 Introduction
 Growth
 Maturity
 Decline

142. Product development
 Process of product development comprises of five main
stages
 Idea screening
 Concept testing
 Product development
 Test marketing
 Commercial launch

143. Product strategies
 Strategies based on Product Mix
 Strategies based on product life cycle
 Product mix is range of products or PRODUCT LINE
Product Modification:
 Quality improvement
 Feature improvement
 Style improvement
 PRODUCT ELIMINATION
 In the decline stage drop a weak product

144. Product diversification
 Concentric diversification: technological synergy with
existing product lines
 Horizontal diversification: for the existing customers, new
products are developed with no relation with the existing
products
 Conglomerate diversification:
 Totally no relationship with the existing product, market,
business

145. Packaging and branding of
banking products
 A brand is a name, term, sign, symbol or design or combination
of these. Branding has become very important for a product for
both sellers and buyers
 Brands represent consumers’ perception and feelings about a
product and its performance and the value of a brand is the
power to capture customer preference and loyalty
 Building a brand involves brand positioning, brand name
selection and brand development
 Options for brand development are 1. Line extension 2. brand
extension 3. multi brands 4 new brands 5 cobranding

146. packaging
 Products need to reach the consumer in a convenient
manner and for this purpose they need to be packaged
 Primary package : ex shampoo bottle
 Secondary package: Tooth paste
 Shipping package
 Labelling: label is an integrated part of packaging and it is
of vital importance

147. Pricing of Bank products and
services
 Objectives of pricing
 Profit
 Survival
 Market share
 Cash flow
 Status quo
 Product quality
 Communication image

148. Pricing methods
 Low prices
 Floor pricing
 Orienting point competitors’s prices
 Ceiling price
 High price
 Consideration for selling prices
 Cost based pricing
 Value based pricing
 Competition based pricing

149. Pricing strategies
 Geographical pricing
 Price discounts and allowances
 Psychological pricing
 Promotional pricing
 Discriminatory pricing
 Market skimming pricing
 Market penetration pricing


150. Distribution channels
 The goods reach from the producers through a chain of entities
 Functions of distribution channels
 Market information
 Promotion
 Contact
 Matching
 Negotiation
 Product information
 Physical distribution
 Financing

151. Channels for banks
 Branches
 Telephone banking and call centres
 ATMs
 Virtual branches
 DSAs
 Plastic cards

152. Promotion mix and role of
promotion
 Promotion mix
 Advertising
 Personal selling
 Sales promotion
 Public relations
 Direct marketing

153. Tele marketing and mobile
phone banking
 Tele calling a prospect
 Leaving message and contacting the person other than the
prospect
 No misleading statement or misrepresentation
 Tele marketing etiquettes
 No calls prior to 930 am or post 1900hours
 During call lot of etiquettes to be followed
 Gifts or bribes should not be accepted by DSAs

154. Marketing information system
 Functions of MKIS
 Collecting and assembling data
 Processing data
 Analysing the data
 Storaging the data
 Dissemination of information
 Components of MKIS
 Internal Marketing information
 Marketing Intelligence system
 Marketing research system

155. Portfolio and wealth
management