Brief about Structure on Indian banking system

1. DBA5006
INDIAN
BANKING FINANCIAL
SYSTEM

2. FINANCIAL SYSTEM
It can be defined as the market in which
financial assets are created or transferred as
against a real transaction that involves
exchange of money for real goods or
services, a financial transaction involves
creation or transfer of a financial asset.
Financial asset or instrument
represents a claim to the payment of a sum of
money in the future or a periodic payment in
the form of interest or dividend.

3. ELEMENTS OF INDIAN FINANCIAL SYSTEM
Indian
financial
system
Financial
institutions
Financial
markets
Financial
instruments
Financial
services

4. FINANCIAL INSTITUTIONS
Financial Institutions
Banking
Commercial
Banks
Public
sector
SBI and its
subsidiaries
Other
Nationalized
Banks
Private
sector Foreign
Banks
Co-operative Banks
State Co-
operative
banks
Central Co-
operative
Banks
Primary Co-
operative
Banks
Co-operative
urban banks
Co-operative
land
development
banks
Non- Banking
Non- Banking
Financial Companies
Non-Banking
financial
intermediaries
Chit funds
Nidhi
Companies
Benefit
Societies
Finance Co.'s
Leasing Co.'s
Hire purchase
finance co.'s
Factoring co.'s

5. FINANCIAL MARKETS
Financial
markets
Capital
market
Primary
market
Secondary
market
Money
market
Organized
sector
Commercial
banks
Co-operative
banks
R.R.B
NABARD
Foreign banks
Unorganized
markets
Indigeneous
bankers
Hundis
Money
Lenders
Promissory
Note
Foreign
exchange
market
Authorized
dealers
Foreign
Banks
Money
Changers
Importers &
exporters
Govt.
Securities
market
Treasury
Bills
Bonds

6. FINANCIAL INSTRUMENTS
Financial
Instruments
Negotiable
instrument
Cheque Promissor
y note
Bill of
exchange
Place
Inlan
d bill
Forei
gn
bill
Purpose
Trade
bill
Accom
modati
on bill
Time
Usanc
e bill
Demand
bill
Payee
Order
Bearer
Document
Against
acceptance
Against
Payment
Commercial
paper
Letter of
credit
Bill of
lading
Traveler's
cheque

7. FINANCIAL SERVICES
Financial services
Factoring
Leasing
HP financing
Credit card
Merchant banking
Book building
Asset liability
management
housing finance
Portfolio finance
Underwriting
Credit rating
Mutual fund
Interest & credit rate
swap

8. BANKING
 Under the Banking Regulation Act of India,1949,
Under Sec 5(b)
 “Accepting, for the purpose of lending
or investment of deposits of money
from the public, repayable on demand
or otherwise and withdrawal by
cheque, draft and order or otherwise”.

9. GENERAL FUNCTIONS OF BANKS
Accepting deposits
Lending money
Investment
Transferring money
Doing government transactions
Providing safety locks for valuables
Act as trustees

10. PRIMARY FUNCTIONS OF BANK
Accepting
deposits
Saving banks a/c
Fixed deposits
Current deposits
Recurring deposits
Granting loans &
advances
Overdraft
Cash credit
Loans
Discounting the bills

11. SECONDARY FUNCTIONS OF BANKS
Agency services
Transfer of funds
Periodic payments
Collection of Cheque
Other agency services
Cash management services
Electronic clearing system
General utility
services
Issue of draft/ letter of credit
Locker facility
Project report
Other utility services

12. FUNCTIONS OF RBI
TRADITIONAL CENTRAL BANKING
FUNCTIONS (MONETARY FUNCTIONS)
• BANK OF ISSUE – The minimum reserve system
• BANKER TO GOVERNMENT
• BANKER’S BANK AND LENDER OF LAST RESORT
• CONTROLLER OF CREDIT
• CUSTODIAN OF FOREIGN EXCHANGE RESERVES
SUPERVISORY FUNCTIONS
MISCELLANEOUS
FUNCTIONS
• INTEREST RATE INTERVENTION
• MONETARY POLICY
INSTRUMENTS
PROMOTIONAL FUNCTIONS
NATURE AND
FUNCTIONS OF
CENTRAL BANK

13. RIGHTS AND OBLIGATIONS OF A
BANKER
RIGHTS OF A BANKER
• Bankers Lien
• Right of Set-off
• Right of Appropriation
• Termination of
relationship
• Garnishee order and
attachment order
• Right to change interest,
commission and incidental
charges
• Right to get service
charges
OBLIGATIONS OF A
BANKER
• To honour Cheque
• Erroneous credit
• Pass book / statement
of account
• Maintain secrecy
• Bank is responsible for the
fraud committed by its
employees
• Instrument with forged
signature cannot debit
customer accounts
• Give standing instructions
for sufficient balance

14. OVERVIEW OF FINANCIAL STATEMENTS OF
BANKS
An annual report is a comprehensive report on a bank’s
activities throughout the preceding year. Annual repots are
intended to give shareholders and other interested persons
information about the bank’s activities and financial
performance. It is an audited corporate document that details the
business activity and financial status of a bank over the previous
year.
An annual report contains the two main financial statements
 The income statement (Profit and Loss account)
 The balance sheet

15. DETAIL OF ITEMS/ ACCOUNTS UNDER SOME
BALANCE-SHEET HEADS
LIABILITIES Sch. No Prev. Yr. Curr. Yr. ASSETS Sch. No Prev. Yr. Curr. Yr.
Share capital 01 XXXX XXXX Cash in hand 06 XXXX XXXX
 1. Authorized XXXX XXXX Cash with RBI 07 XXXX XXXX
 2. Issued XXXX XXXX
Cash at Bank Money at
call & short notice
08 XXXX XXXX
 3. Subscribed XXXX XXXX Investments 09 XXXX XXXX
 4. Paid-up XXXX XXXX
1.Government
Securities
XXXX XXXX
Reserves & Surplus 02 XXXX XXXX
2.Shares,
debentures and
Bonds
XXXX XXXX
Deposits 03 XXXX XXXX 3. Gold XXXX XXXX
Borrowings 04 XXXX XXXX Advances 10 XXXX XXXX
Other Liabilities &
Provisions
05 XXXX XXXX Fixed assets 11 XXXX XXXX
Contingent Liability XXXX XXXX Other Assets 12 XXXX XXXX
Loss (if any) XXXX XXXX
XXXX XXXX XXXX

16. INCOME STATEMENT
PARTICULARS Sch. No Prev. Yr. Curr. Yr.
I. INCOME
• Interest Earned 13 XXXX XXXX
• Other Incomes 14 XXXX XXXX
I XXXX XXXX
II. EXPENDITURES
• Interest Expended 15 XXXX XXXX
• Operating Expenses 16 XXXX XXXX
II XXXX XXXX
III. PROFIT/ LOSS (CURR.YR I-II) XXXX XXXX
• P & L (B/F) (Prev. Yr. Balance) XXXX XXXX
Allocation to Statutory Reserves XXXX XXXX
Transfer at any other reserves XXXX XXXX
Balance Transfer to B/s XXXX XXXX

17. DETAILS OF ITEMS
 Sch-13: Interest Earned
 Interest on advances and bills
 Discount in the bills
 Income on investments, overdraft
 Interest on balance bill RBI & Inter- Bank Funds
 Sch-14: Other Incomes
 Commission, exchange, brokerage transactions
 Profits on sale of investments, land and buildings and other
fixed assets.
 (-) loss on sale of investments, land and buildings and other
fixed assets.
 Profit on revaluation of investments
 (-) loss on revaluation of investments
 Income earned by way of dividend from subsidiaries / joint
ventures / abroad / in India
 Miscellaneous income

18. DETAILS OF ITEMS (CONTD.,)
 Sch-15: Interest Expended
 Interest on deposits
Interest on RBI & other Bank borrowings
 Sch-16: Operating Expenses
 Payment to provisions for employees
 Rent, taxes and lightening
 Printing and stationary
 Advantage and publicity
 Depreciation on bank property
 Director’s fees, allowances and other expenses
 Law charges, auditor’s fees
 Postage and telegrams
 Repair and maintenance, insurance and other
expenditures

19. KEY ACTS GOVERNING INDIAN BANKING
SYSTEM
 Reserve Bank of India Act, 1934
 Negotiable Instruments Act, 1881
 Banking Regulations Act, 1949

20. RESERVE BANK OF INDIA ACT, 1934 (CONTD.,)
Right to issue
bank notes
Issue department
Denomination of
notes
Form of bank
notes
Re-issue notes
Bank exempt from
stamp duty on
bank notes
Ch. III- Central
Banking
Functions
Establishment and
incorporation of
the bank
Capital of the bank
• Five crore of rupees
Increase and
reduction of share
capital
Offices, branches
and agencies
• Offices – Mumbai,
Kolkata, Delhi, Chennai
• Branches – any places of
India
Meetings of the
Central Board
Ch. II– Incorporation,
Capital Management and
business
Short titles, extent and
commencement
• This act is called as reserve bank
of India act,. 1934
• It extends to whole India
• This section shall come into force
at once while remaining provisions
may come on such date or dates as
the central government’s / Gazette
of India’s notification
Definitions
• Bank, The Central Board, Rupee
coin, State Financial Corporation
etc.,
Ch. I - Preliminary

21. RESERVE BANK OF INDIA ACT, 1934 (CONTD.,)
Interpretation
Power to issue
search warrants
Ch. III (C) – Prohibition of Acceptance of
Deposits by unincorporated bodies
Not to apply in
certain cases
Definitions
•Business of NBFCs
•Company
•Corporation
Ch. III (B)- Provisions related to Non-banking
Institutions receiving Deposits
Definitions
•Banking company
•Credit information
Power of bank to collect Credit
Information
Power to call for returns
containing credit information
Procedure for furnishing
credit information to banking
companies
Disclosure of information
prohibited
Ch. III (A)- Collection and Furnishing of
Credit Information

22. RESERVE BANK OF INDIA ACT, 1934 (CONTD.,)
Failure of persons to
produce books, accounts,
documents, etc.,
In case of contravenes of
provision
Disclosure of prohibited
credit information
Failure to comply with
directions by auditor
Ch. V – Penalties
Contribution by Central Govt. to the
reserve fund
Contribution to National rural credit
fund
Application of surplus profits
Exemption of banks from IT
Publication of bank rates
Powers & duties of auditors
Returns
Rural credit & development
Liquidation of the banks
Ch. IV - General Provisions

23. NEGOTIABLE INSTRUMENTS ACT, 1881
Important Definitions
Negotiable
Instrument, Sec
13(1)
• “A negotiable
instrument means a
Promissory note, Bill
of Exchange or
Cheque payable
either to order or to
bearer”
Promissory Note,
Sec 4
• “ A Promissory Note
is an instrument in
writing (not being a
bank note containing
an unconditional
undertaking signed
by the maker, to pay
a certain some of
money only to, or to
order of a certain
person or to the
bearer”
Bill of Exchange,
Sec 5
• “ A bill of exchange is
an instrument in
writing containing an
unconditional
undertaking signed
by the maker, to pay
a certain some of
money only to, or to
order of a certain
person or to the
bearer”
Cheque, Sec 6
• “ A cheque is a bill of
exchange drawn
upon a specified
banker and payable
on demand

24. NEGOTIABLE INSTRUMENTS ACT, 1881 (CONTD.,)
Common Characteristics
of Negotiable Instruments
Negotiability
Writing a& signature
Money
Title
Notice
Presumptions

25. NEGOTIABLE INSTRUMENTS ACT, 1881 (CONTD.,)
Parties to Negotiable
Instruments
Promissory Note: a) Maker b)
Payee
Bill of Exchange: a) Drawer b)
Drawee c) Payee
Cheque: a) Drawer b) Drawee bank
c) Payee

26. NEGOTIABLE INSTRUMENTS ACT, 1881 (CONTD.,)
Types of Negotiable Instruments
Ambiguous instrument
Bearer/ order instrument
Inland/ Foreign instrument
Demand/ sight and Usance bills
Fictitious bills
Clean and documentary bills
Escrow bill
Bills in sets
Hundis
Khokha

27. NEGOTIABLE INSTRUMENTS ACT, 1881
(CONTD.,)
Endorsement
Sec 15
This is the
signature of
the
maker/holder
made with
the object of
negotiating/
transferring,
not as a
maker of the
instrument.
Payment in
due course,
Sec 10
The payment
must be
made
according to
apparent
tenor of the
instrument in
god faith to
the
possessor of
the
instrument.
Crossing of
cheque
A direction to
the drawee
banker not to
pay the
money over
the counter,
should pay
only through
specified
banker or his
agent.
Dishonour of
Negotiable
Instruments
Dishonoured
by non
acceptance/
Dishonoured
by non-
payment

28. BANKING REGULATIONS ACT, 1949
• Short title, extent and
commencement
• Application of other loans
• Power to suspend
operation of Act
Part I:
Preliminary
• Form of business in which
banking company may
engage
• Prohibition of trading
• Disposal of Non-Banking
Assets
Part II:
Business
of Banking
Companies

29. BANKING REGULATIONS ACT, 1949
(CONTD.,)
• Power of Central |Govt. to make
rules for the presentation of records
• Return of paid instruments to
customers
Part III: Provisions
relating to certain
operations of
Banking
company’s
• Penalties
• Application of fines
• Cognizance of offences
• Special provisions for banking companies
• Restriction on acceptance of deposits
• Change of name by a banking company
• Certain claims for compensation barred
Part IV:
Miscellaneous

30. BANKING REGULATIONS ACT, 1949
(CONTD.,)
• Act to apply to Co-operative
societies for modification
• Power to exempt
• Restriction on loans &
advances
Part V:
Application
of the Act
to Co-
operative
Banks