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! , Senior Lecturer
KCC ± Kodaikanal ± 624 104.

 

 
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"
´To constitute a customer there
must be some recognizable
course or habit of dealing in
the nature of regular banking
businessµ
- Sir John Paget

It is known as ´Duration theoryµ


#     "

å ave an account in a bank


å Dealing with a bank
å Dealing must be in the nature of
banking business
å Dealing may be of short or long
duration
 

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å Demand for payment
å Demand at proper time
å Demand in proper manner
-   


.     

  

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 /( +"
å ›ankers does not get ownership
å It does not compensate the creditors at
the time of bank·s liquidation
å Deposits carry any standing instruction ²
(trustee & beneficiary) and vice versa
å cheque deposits for collection (trustee &
beneficiary) and vice versa
versa..
¦. '   

  

"
å Jollection of bills of exchange on customer
behalf..
behalf
å Purchase or sale of securities on customers
behalf..
behalf
å Payments of customers dues like insurance
premium, telephone & electricity bills etc.
etc. on
customers behalf
behalf..
- 
  




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ë(

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Ô. Obligation to honour the Jheques:


å Sufficiency of funds
å Applicability of funds
å Proper requirements for payment
å No garnishee or attachment order
¦. ë(

  

    
"

.     
 

 
 
 




 &
  (3
å Income tax act
å Jompanies act
å R›I act
å ›anking regulation act
å Gift tax act
å Order to court
å Foreign regulation act
(. 
 
 "
Ô   

   

å        


å      
¦       


å 
     
    

 
å  
   

    


å 

   
å      
 &     
 :

0 @iability to the customer:


›anker should compensate the loss due
to the wrong disclosure

0 @iability to the third party:


›anker should compensate the loss for
the wrong disclosure

   ( 

Ô. Right of lien:
lien:
å @ien is a right of the person who can retain
the goods of another in his position until a
debt due to him is paid.
paid.
å Particular lien ² on particular property.
property.
å General lien ² Any property can be
retained..
retained


  ( 


 
"

å ›anker must possess the


property/security..
property/security
å Property/security must be in the name
of the customer alone
alone..
å The possession obtained by banker
legally..
legally
4  
   
  
"
å üaluable accepted for safe custody
custody..
å ›ill of exchange/other documents deposited for other
purposes..
purposes
å Money deposited for special purposes like purchase of
securities
å Documents/valuables left with the banker by mistake
å Trust a/c operated by the customer against his
personal a/c.
a/c.
å Securities lodged with a banker for getting a loan
before sanctioning such loan
¦. 
  -  ë"
å ›anker can exercise the right
by setting off a debit balance in
one a/c with the credit balance
in another a/c maintained by
the same customer
customer..

     (5    



"

å No agreement contrary to this right


right..
å Formal notice to the customer
customer..
å Japacity of the customer must be same in
all the a/c·s
a/c·s..
å Different branches of bank will constitute
one entity
entity..
å ›anker has the option (customer can·t
compel the banker)
banker)..
å ›anker can do this even after the receipt
of garnishee order
order..
î. 
  '

"

å Appropriation of amount will arise


when a customer
customer;;
å Owes several debts to a banker and

å is payment is not sufficient to


discharge all his debts
debts..
½. 
  
  1

 
  "
å ›anker has the right to charge interest
on due from customers
å It has the right to charge incidental
charges on customers a/c
   
  '"

å Fixed Deposit
å Saving ›ank Deposit
å Jurrent Deposit
å Recurring Deposit
#
 
"

Features:
å Deposit accepted for fixed period
å Period mentioned
å cash reserve not required
å Jan be used by bank in more
profitable manner
å Rate of interest is comparatively
high
ë 
  #
  
 '6

å Filling of an Application
å Name, Age, Sex, Address, Period,
Nominee if any etc
etc..,
å If it is joint a/c (who is the payee)
å Specimen signature of the depositors
å üerification of application
å Jollecting of money
å Issuing FD Receipt
Jontents of FDR:

ë
  ë
 (
w   
     
      
        

  
   
    
    
  
      w      
w   
  

   (  
   # 

å Premature withdrawals [interest Ô less]


å Advance against FDR
å Interest 3 more than FD interest
å 75 value of FD
å Payment of interest
å Monthly or Quarterly or alf yearly or Annually
å Repayment of FD [on surrender of FDR]
å Repayment of third person [authorised person]

å Donatio mortis causa [Gift ² death of donor ² donee]

å @oss of FDR [Duplicate FDR]


å Jhange in the name of the depositors
å Fixed deposits in joint names
¦. -/
  ( '
Features:
å Restriction of Deposits
å Minimum balance
å Jheques payable to others can not be deposited
å Restriction on withdrawals
å Through cheques /withdrawal forms
å Total withdrawals < 500 in half year
å Interest
å Interest 3 ² 4.5 p.a.
å Jalculated once in 46 days (varies)
å It is transferable form one branch to another
î.   '
Features:
å Suitable for business and big
organisations
å No interest
å Incidental charges ² [Min ›al..
›al not
maintained]
å Privileges
å OD facility
å Third party cheques can be deposited
å Granted loans are credited in the a/c
ë 
    '"
å Application
å @etter of introduction ² if not
å ›ankers loose their statutory protection
å OD will be irrecoverable
å Fraud or misrepresentation occur
å Specimen signature
å Mandate for operation by agent
å üerification of documents
å Opening of an account
å Issue of pay in slip, cheque book & passbook
½.  
 6
/ 
"
Features:
å Features of saving/fixed deposits are applicable
å It can also transferable
Special features:
features:
å Depositors can select the amount period
å Amount in multiples of Ô00
å Period ² Ô to Ô0 years
å Any person including minor can open
å Passbook will be given
å At the end interest and principal

    (   #  - 6

# '6 - '6
Repayment on certain date On demand
No need of cash reserve JR is needed
Introduction not necessary It is necessary
igh rate of interest @ow rate of interest
Suitable for investors Suitable for small savers
@oans available on FDR No loan facility
Practically he is not a e is a customer
customer
Only deposit receipt is given Jheque book, passbook &
pay in slip will be given if
necessary

    (   #    6"

# '6   '6


Time deposit Demand deposit
No need of cash reserve JR is needed
Introduction not necessary It is necessary
igh rate of interest No interest
Suitable for investors Suitable for business
people
@oans available on FDR OD facility available
Practically he is not a e is a customer
customer
Only deposit receipt is given Jheque book, passbook &
pay in slip will be given if
necessary

    (   -    6"

- '6   '6


Object to promote the habit Provide convenience to
of savings customers
Third party can not be Jan be
deposited
OD not available Available
Reasonable rate of interest No interest

Withdrawals are restricted No restriction

Jomparatively lesser cash More JR required


reserve
w       

Ô. Super savings packages:
Ô. Monthly deposit
2. Ô5 ² 40 years
3. @ump sum at the end
2. Jash certificate
Ô. igher face value (IüP/KüP) (8 ¾ years)
2. Period should be mentioned
3. Maturity time will be mentioned
Annuity deposits:
å Provide regular monthly income
å Period 36, 60, 84 or Ô20 months
å Only one Initial investment
å Monthly payment of interest
4. Jash certificate
Development of FD schemes
Ô.Development
Ô.
2.Interest
2. Interest calculated periodically
3.Interest
3. Interest is reinvested
Perennial premium plan:
å Regular monthly payment for fixed period
å After that regular monthly pension scheme for some
years or will be given
6. Jash certificate:
Development of FD schemes
Ô.Development
Ô.
2.Interest
2. Interest calculated periodically
3.Interest
3. Interest is reinvested
7. Educational Plans:
elps to meet children education expenses
Ô.elps
Ô.
2.It
2. It encourages the parents
3.Monthly
3. Monthly deposit ² specified period
4.Sum
4. Sum assured ² on maturity
Types of Justomers"
‡ Minor ƒ 
‡ Married woman ƒ    
‡ Lunatic ƒ !  
‡ Drunkard ƒ " 
 
‡ Illiterate person ƒ "åå
"
‡ Trustees  
‡ Executors & ƒ #  
Administrators
Ô. Minor"

0 @ess than Ô8
0 @ess than 2Ô ² Guardian
0 e/She can not enter into a
contract
0 ›anker can open
bank"
Precautions to be taken by bank"

Ô. Type of Account
2. Date of ›irth
3. Death of minor or guardian
4. @oans to minor
5. @oan to minor on the guarantee of
3rd person
6. @iability regarding negotiable
instrument
7. Minor as a partner
8. Minor as an agent
)
"

0 Natural guardian
0 Testamentary guardian
0 Appointed by the court
2. Married woman"
0 Jan enter into a valid
contract
0 usband can·t liable except
she act as agent for her
husband
purchase of necessaries not
provided by her husband
bank"
Precautions to be taken by bank"

Ô. Any type of A/J


Ô.Any
2.Enquire
2. Enquire about her personal
estate
3.usband
3. usband assets can be taken as
collateral
  !
"
î. 
 
î. 


0 Jan·t enter ² valid contract


0 Jan·t open ² A/c
0 If an A/c holder become lunatic
 
  (   ( ( "

Ô. Suspend the operation of A/c


2. Jonfirm with proper evidence
3. Acceptance of any bill etc ² he
will not be liable
4. Operation ² after court order
½.  "

0 @egal position of a person


disturbed by liquor or drugs
0 Jontract ² void
0 Jan·t open an A/c
 
  (   ( ( "

Ô. Dishonour the presented cheque

2. Dishonour the 3rd party cheques


*. 
   "

0 Allowed to open account

0 Thump impression - Signature


 
  (   ( ( "

Ô. @eft hand thump impression


2. Identification marks ² 2
3. Photographs ² 2
4. Explain the operational
Jonditions
5. Withdrawal ² In person with
passbook
.  "

0 Trust ² for the properties of a


deceased person
0 Manager ² Trustee
0 ›eneficiary ² for whom the trust
is formed.
 
  (   ( ( "

Ô. Jareful study of trust deed


2. Authorized person to operate a/c
3. Death or retirement of trustee
4. Insolvency of trustee
5. @oan to trustee
Ô. Not allowed
2. Jan·t sell the property
3. Special provision in the deed
deed..
â. 4   '

"

0 Executor ² Appointed by the will of a


deceased person to settle his accounts.
0 Jourt permission is required
0 Official confirmation of the will ²
¶probate·.
0 Administrator ² Appointed by court when no
executor is appointed or he is not willing to act
act..
0 Duties are same
0 Realize the assets & pay off the
liabilities.
 
  (   ( ( "

Ô. Examination of documents
2. Style of account
3. Operation of the account
4. Misappropriation of funds
5. ›orrowing powers of executor/
administrator
'. ' "

0 Attorney ² a person appointed by a


document called ´Power of attorneyµ to
act on behalf of another person
person..
0 In writing, stamped and registered
Attorney

general Special
(All Transactions) (Particular
Transaction)
 
  (   ( ( "

Ô. Examination of power of
attorney
2. Time period of power
3. No loan/OD unless ² special
power
A. ,
 7
 #
"

0 It is governed ² indu law


 
  (   ( ( "

Ô. Knowledge of law & customs


2. Dealing with ¶karta· ²
3. Karta personally liable
4. Members liable to the extend of
their share
5. Purpose of loan
6. Incase of trading JF ² manager ²
karta ² pledge & borrow.
borrow.
8.  
 #
"

0 It is governed ² Partnership act


Ô32
 
  (   ( ( "

Ô. Study - partnership deed


2. Opening of account
3. @etter or mandate from partners
4. Revocation of authority and stop
payment of cheque
5. Firm·s cheque endorsed in favour of a
partner
6. Implied authority of a partner
7. Power to borrow
8. Order of payment of firms debt and
personal debts
. Reconstruction of a firm
. ,
 - "

0 Artificial person ² by companies


Act Ô56
0 Separate existence
0 It can sue & be sued by others
 
  (   ( ( "

Ô. üerify the certificate of incorporation


2. üerify the certificate of the
commencement of the business
business..
3. üerify the MOA
4. üerify the AOA
5. Obtain a copy of MOA & AOA
6. Obtain a copy of financial statements
7. Obtain a copy of board of resolution
8. ›orrowing powers of the company
. Registration of charges
¦. -

  ë  w2
 w2 

'

"
0 Artificial person ² by societies
registration act or the
cooperative societies act Act
Ô56
0 Educational institutions,
hospitals clubs etc
etc..,
 
  (   ( ( "

Ô. üerify the registration of


association
2. Obtain the copies of memorandum
& Articles.
Articles.
3. Jheck the objectives
4. Jheck the rules & by-
by-laws
5. Jopy of resolution
6. Person to operate the a/c
7. ›orrowing powers
î.  '

"

0 Artificial person ² by
government provisions
provisions..
0 Municipality, corporation etc
etc..,
 
  (   ( ( "

Ô. Study the special act


2. Jan have different a/c for each
section
3. Jopy of resolution
4. ›orrowing power for OD

     
   
(
 "

å Withdrawal slips/forms

å DD forms

å S› A/c deposit forms (pay in slips)

å Jurrent A/c deposit forms (pay in slips)

å Recurring A/c deposit forms (pay in slips)

å Multiple purpose forms

å A/c opening forms


'
  
"

0     



0  !  
0   


         


      

 
      

    

#   
 "

›anking Theory - Sundaram Varshney


›anking theory law
and practice - S.M. Sundaram
›anking Theory - E. Gorden & Natarajan
Practical ›anking - M. Radhaswamy

 

Jommercial ›anks
State ›ank of India
Regional Rural ›anks
Reserve ›ank of India
recent development in banking sector
 
   ë

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.
.  

  
  

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¦. 

  

    

 

î. 

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½. 

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7

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#
   
  

Functions

- 6


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#

!
   
'   /

)   


 !"#$%!u #!%
0 Payment of subscription, premium,
rent etc
0 Jollection of promissory note,
dividends, salaries, pension etc
0 Purchase and sale of stocks and
shares
0 Acting as Trustee, Executor,
Administrator or Attorney
º       &

%

‡ -    


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‡      

‡ /    &
‡  
  
‡ !  (

‡ 

 
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‡ 7
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 !       
 !     
      
     
    
       
        
Modern Services Rendered by
Jommercial ›anks

. #

   "
" # 
#  w$  
%&'&  %&()
 # *
¦. Merchant ›anking
Service to entrepreneurs
0 Jommencement of business
0 Project Jounselling
0 Feasibility Reports ² Economic ² Technical ²
Financial ² Market survey
survey..
0 Raising of loans ² new issues of shares &
debentures
0 Financial planning ² modification &
restructuring of capital
0 Organisational restructuring ²
Amalgamation, Absorption, conversion of
partnership into PvtPvt.. ltd Jo, Pvt.
Pvt. @td
@td.. Jo
into Public ltd Jo
Jo..
î. Factoring
0 Jontinuing arrangement between
banker and trader
0 Purchase of traders books
0 Administration of traders sales
ledger
0 Making prepayments for the debts
purchased
0 Jollection of debts purchased
0 Meeting the credit risk involved
½. Tele-
Tele-banking Facility
0 Ordering for DD
0 Faxing of annual statements
0 Payment of bills
0 ›ooking tickets
*. Stock ± Invest
0 Justomers can pay subscription to
capital issues
0 ›anks will issues
0 Money will be in the investor·s A/c
0 Interest will be paid till allotment
. ATM
0 Draw cash
0 Deposit cash
0 Get mini statement
0 üiew the balance
0 Request for cheque book
0 Transfer of funds ² (one a/c to another
in the same branch)
0 Deposit of cheque for collection
â. Jredit cards
0 For reputed customers
0 Purchase of goods & services
0 Jredit limit fixed by banks
0 Sales voucher given after purchase
0 Justomer signature is must
0 Signature verification
0 Jharges will be applicable
'. Debit Jards
0 Similar to credit cards
0 Purchase all over the world
0 Purchase by Debiting bank account
0 ATM cum Debit card
0 Jharges is applicable
A. Internet banking
0 Using E-
E-mail ID

0 Instruction to bank officials


Anywhere ›anking
0 Withdrawal of cash
0 Deposits of cash
0 Transfer of funds
0 Jollection of local Jheques
0 Issue mini statement
0 ›alance enquiry
"+,åå 
"+,
0 Established in Ôst July Ô55
0 ›y an separate Act
0 ›y taken over Imperial bank of
India
0 Ô5 ² 8 state owned banks were
constituted as subsidiaries
subsidiaries..
0 Among 8 two of them merged in
Ô63
0 All together called State ›ank
group.
0 First bank under public sector
0 @argest commercial bank in;
›ranch network
Resources
Man power
0 It holds major portion of banking
of public & private sector
undertakings
"+, " 

0 Started with an authorised capital
of Rs
Rs.. 20 Jrores
Jrores.. (20,
20,00
00,,000
000x
xÔ00)
Ô00)
0 It has grownup to 200 crores
0 A major portion of shares with R›I
0 The Japital of its subsidiary was
ÔÔ4 crores
crores..
"+,   
0 Managed by central board of directors
directors;;
A Jhairman & üice--Jhairman
üice ² Jentral
Government
2 Managing directors ² Jentral Government
6 directors ² Elected by share holders other than
R›I
8 directors ² Nominated by central Government
with the consultation R›I
Ô director nominated by Jentral Government
Ô director nominated by R›I
2 directors ² Appointed to represent the officers
& Staff of the bank
0 Apart from this there are local boards at
at::
Kolkota
Mumbai
Jhennai
New Delhi
Kanpur
yderabad
Ahmedabad
›hopal
Patna
"+,  
- 
!       

Ô. Agent of R›I
Act as an agent where there is no
branch for R›I
elps in implementing the monetary
& credit policy
2. Jlearing operations

Jlearing operation are managed by


S›I where there is no branch for
R›I
For this purpose it maintains all
other commercial banks accounts
3. Finance to industry
Finance to large scale industries
Finance to SSI schemes
Finance towards
0 Working capital
0 Expansion
0 Modernisation
4. Advance to priority sector
5. Finance to small business
6. Merchant ›anking
0 Financial advise to new projects
0 elps in technical feasibility
studies
0 Organises different types of
financial assistance
0 elps the small, medium and new
entrepreneurs
7. Finance to foreign trade
0 Finance to Export & Import projects
0 Finance to Indian companies doing
construction abroad
0 Obtaining status report of overseas
buyers
0 Providing information about overseas
development
0 Attracting NRI funds
8. International banking
0 Started off
off--shore banking units
0 First Indian organisation to enter
into the international Euro ² Yen
bond market
0 ›uilt branches & offices in many
countries
. Innovative ›anking
0 Jommunity service banking
0 S›I cards ² Debit & Jredit
0 Justomer councils
0 S›I capital market @td
0 S›I mutual funds

   *+
0 Started to strengthen the banking
system in rural areas
0 Jombination of the following
following::-
Rural atmosphere
@ocal feeling
Knowledge of cooperative institutions
Modern banking practices
0 First RR› ² October Ô75

0 RR› Act ² Ô76


#  
0 Formation of Regional Rural ›anks
"   +
       
 $  ,
   $   

   .   
/$   
   .     0"    1
"    $   
   
0 Area of operation
/$     

 $  
,  2    *%


,  *3

,    *%

 +

R›I conducted a survey on RR›s in Ô8Ô

-/ 
: w
 ! 


 
 

3husro Jommittee

0 The weakness of RR›s were endemic.


endemic.
0 Non
Non--viability was built in their structure
0 They had huge accumulated losses
0 Some case losses erode the deposits
0 RR›s were not able to serve the larger
group
0 There was no place for RR›s in the
country·s rural system
w   

0 Due to many restriction on RR›s,
earning capacity was low
0 Wages & salary is almost close to
commercial banks ² no growth like
like..
0 Sponsored banks have rural branches
near by RR›
0 No restriction on targeted group
0 Interest rate structure of RR›s in the
same line like commercial banks
*
+  

0 "      
+ *
0   
0 They are;
0          
 
0 w+   4
! $

  
$   
$ 
0 w    
0       
0         
    
0     $    w
 
,$ ! + 
"5
0 "5
0     
,$ 
0 ,$         

0         
    
0       $
0     
 
0 / 
0 $  
0 ,w#-
w"65
,     
 
!$     
/ !   
/,$ ! 

" 
#.  !  
" 

›anker can not ignore any one of


this. ›ecause they are inter related
" " 
0     
0 ,$       
0 !    $  
        åå
 
0 ,$     $
 
0 "        

0 w    
#. 
0     

5
,   $ .  
   . 
Ratio of @iquid Asset to Total
Jurrent Assets

 $ %78

   978

  .  )78

,$  97 938

$  '3 378 :78


 %778

Profitability
+,åå  
+,
Introduction:
Amalgamation of 3 presidency banks
& function as central bank upto Ô35
Ô25 ² ilton young recommended a
separate central bank
bank..
Ô27 ² R›I bill introduced in
assembly
Ô34 ² Act was passed
Ô35 ² April R›I formally inaugurated
Initially functioned as private bank
with share capital of 5 crores
crores..
Nationalised in Ô48 by R›I
(transferred to public ownership) Act.
Act.
Private share holders were paid @
ÔÔ8..Ô0 per share.
ÔÔ8 share.
Operation ² (›ombay, Jalcutta,
Madras, Delhi and Rangoon) ² (Myanmar)
Ô47 ² Rangoon office was closed.
closed.
R›I - Management


    
!(
 

w  
: 
Jentral ›oard
Governor ² J.G US 8 (Ô) (a) R›I Act
Ô34 (5 years)
Not more than 4 deputy directors ²
J.› US 8 (Ô) (a) R›I Act Ô34 (5 years)
4 directors nominated by J.G (Ô/local
board) US 8 (Ô) (b) (4 years)
Ô0 Directors nominated by J.G US 8
(Ô) (c) (4 years)
Ô Government official nominated by
the J.G US 8 (Ô) (d)
@ocal ›oards
Each board ² 5 members
Appointed by central Government
Appointment ² 4 years & eligible for
re--appointment.
re appointment.
Duties
Advising on central board
Performing other duties delegated by
the central board from time to time
+,åå 
+,
Ô. Issue of ›ank Notes:
Sole right to issue currency notes
(except coins and subsidiary coins)
It has separate department known as
issue department
department..
Makes adequate arrangements for
distribution of notes & coins.
coins.
Issue department has offices in
important cities.
cities.
2. ›anker to Government:
Accepting & maintaining money on account
of central & state Governments
Governments..
Making payments on their behalf
behalf..
Jarrying out their exchange, remittance &
their banking operations
operations..
Managing the public debt including new
loans & Treasury bills of central
government..
government
Advances to central & state governments
Advising the government in all financial
matters..
matters
3. ›anker·s ›ank:
Act as banker to scheduled banks in
India..
India
Maintain cash reserves of scheduled
banks.. ( on their liabilities)
banks
Servers as lender of last resort.
resort.
(rediscounting the bill of exchange etc)
4. Justodian of Foreign Exchange
Reserve:
Responsible for maintaining the
external stability of rupee value.
value.
Jontrolling & regulating the foreign
exchange..
exchange
5. Jontroller of Jredit:
As per the Acts (Ô34 & Ô4
Ô4)) have
powers to control & regulate the
credit..
credit


   

6. Jollection & Publication of
Information:
Jollects & publishes information on
on::
0 General economic.
economic.
0 Financial & banking developments
developments..
Ô. Issue Department:
Issue & management of bank notes
Ô4 branches in the country
Each branch has
has::
0 Jash department ² Jurrency
transactions
0 General department ² Managing
supply
2. Exchange control department:
Jontrol foreign exchange & maintain
stable exchange rate
3. Department of ›anking operation
and development:
Jontrol & supervise the working of
banks in India
India..
üisits banks periodically
4. Department of Financial
Jompanies:
Jontrol & supervise the non banking
financial companies
companies..
Jentral office in Kolkota
Four regional offices in ›angalore,
Mumbai, Kolkota and New Delhi.
Delhi.
Method of Jredit Jontrol
Ô.›ank Rate
0 Rate at which R›I grants loans to
commercial banks
0 Jhanges in this rate ² reflect on the
lending rate of Jommercial ›anks
2. Open Market Operation
0 Purchase & sale of securities in the
market..
market
0 Sells the securities ² reduces the money
supply..
supply
0 ›uys the securities ² increases the
money supply (credit).
(credit).
3. üariable Reserve Ratio

0 Increase the ratio ² reduce the credit


credit..

0 Decrease the ratio ² increase the credit


credit..
4. Statutory liquidity
Requirement

0 As per Se.
Se. 24 of ›.R.Act banks have to
maintain the liquid assets like cash,
gold and approved securities.
securities.

0 Any change in the ratio will have a


reflection in the credit
credit..
5. Jredit Authorization Scheme

0 ›anks get permission from R›I before


releasing loans exceeding certain limit
limit..
6. Moral Suasion

0 Advising the banks to follow the


guidelines of R›I
0 Maintaining good relation by having
meetings etc
etc..
7. Fixing of @ending Rate

0 R›I has the right to fix the lending rate

0 Increase or decrease in the rate and


interest
Jurrency Jhest
ùuantitative Vs ùualitative
Jredit Jontrol
Quantitative Qualitative
It is in indirect control It is a direct control
Objective is to control Objective is to control
the amount of credit & the purpose & flow of
expenses on credit credit

Doest not control the Jontrols the flow of


flow of credit credit to various purposes
(unproductive purpose) like socially relevant and
economically useful

Eg. ›ank rate, open Eg.


Eg. Eg. Rationing of credit,
market operation, direct action, regulation
variable reserve ratio
ratio.. of consumer credit, moral
suasion and publicity
publicity..
+, +   "

Dealing in short
short--term bills generally
of 3 months duration
Dealt with ² bill of exchange, trade
bills, finance bills or promissory notes
and treasury bills
Ideal source of investment
Easily realisable
+   "%&39

0   +,
0     .    
  
0    5
0 R›I release advance to commercial
banks against the trade bills &
promissory notes (maturity ² 0 days)
0 It was introduced initially for 4 years
0 Initially, offered to banks who had
had::
Deposits ² > Ô0 crores
Advances - > 25 lakhs
Ô53 ² Extended to all scheduled commercial
banks..
banks
0 R›I will consider;
consider;
Financial soundness of the banks
banks..
Mannerism in conducting business
business..
0 Ô58 ² Extended to export bills
w+   "%&:7
0 Introduced in Ôst November Ô70
0 Features are
are::
0 All scheduled banks are eligible for
rediscounting the bills with R›I
0 Rediscounts Trade bills and not
accommodation bills
0 Drawn on and accepted by purchaser·s
bank..
bank
0 Maturity period is < Ô20 days
days..
0 Maturity period for rediscounting is < 0
days
0 ›ill should bear two or more good
signatures;; one must be scheduled banks
signatures
0 ›ill value for rediscount is > 5000
5000/bill
/bill
0 Total bill value for rediscount is > 50
50,,000
at a time
JANGES MADE AFTER INTRODUJTION
0 The scheme extended to Government
departments and quasi
quasi--Government
bodies, statutory corporations and
government companies
companies..
0 Procedure for rediscounting was
liberalised
0 Exempted bills value was < 2 lakhs from
actual lodgement
0 Ô73 ² This lodgement value increased
to Ô0 lakhs
lakhs..
0 Minimum amount of bill for rediscount
was reduced to Rs
Rs.. Ô000
0 ›ills drawn and accepted by IJIJI @td
was covered under this scheme
scheme..
!  +  
 %&'&
Ô. @icensing of ›anks
›anks::
Every commercial bank must obtain
the license from R›I
Jancellation of license
license::
If the company ceases to carry on
banking business in India
If the company fails to comply with
any of the conditions imposed by
the R›I
R›I..
3. Inspection of ›anks
›anks::
Inspect the banks in the best
interest of the depositors
4. Power to issue directions
directions::
R›I can issue directions at any
time when it requires.
requires.
5. Jontrol over Management
Management::
If Private sector banks ² R›I has to
approve for appointment,
reappointment and remuneration
of director or JEO
JEO..
If Public sector banks ² R›I has to
consult with the government for
the same
same..
6. Jontrol over investment &
advances::
advances
The purposes for which the
advance granted
granted..
The margins for secured advances
Maximum limit of the advances for
company, firms or individuals
individuals..
@imit for guarantee of advances
Interest rate & other terms and
conditions..
conditions
7. Jollection of information
information::
Jan collect any information
relating to commercial banks
banks..
8. Power incase of amalgamation &
& @iquidation
@iquidation::
R›I has the power to examine or
sanction the amalgamation
It can recommend or supervise the
liquidation
. Power to advise banks

Ô0.. Power to advise to the Jentral


Ô0
Government
. Other Powers:
Powers:
It may call for a meeting of a
commercial banks at any time
time..
It may require any officer of a
commercial bank to meet with an
officer of R›I
R›I..
It may depute one or more officers
to monitor either the board
meeting or the proceedings of any
commercial banks at times
times..
    /  

(
  
Ô. Diversified Activities:
Activities:
Merchant banking
üenture capital
Mutual funds
ousing finance
Equipment leasing
Other financial services
services..
2. Innovative ›anking
›anking::
Phone banking
Internet banking
ATM, etc
etc..,
3. Adoption of capital:
capital:
R›I introduced capital
adequacy accounting norms
since Ô2 ² 3 in respect of;
of;
income recognition
Asset classification and
Provisioning for bad debts
etc..,
etc
4. Privatisation of banks:
banks:
@icensing for new private
banks disinvestment policy
clearly shows the Privatisation
of commercial banks in the
near future
future..
5. Reduction in S@R & JRR
JRR::
Pave the way for more
investment in various
sector..
sector
6. Decontrol and reduction of
interest rate
rate::
Encourage the healthy
competition among the
banks..
banks
7. Recovery of debts
debts::
Recovery of debts due to
banks and financial
institutions Act Ô3 helps
them in speedy recovery
recovery..
'
  
"
0  
0   
0   
0  
0     
 


         


        

 
      

    

#   
 "

›anking Theory - Sundaram Varshney


›anking theory law
and practice - S.M. Sundaram
›anking Theory - E. Gorden & Natarajan
Practical ›anking - M. Radhaswamy
nit III
Jheques
Jrossing
Endorsement
Jheques
Jrossing
Endorsement
Jheque

Meaning:
å Negotiable instrument
å Transferable from one to another
Definition

å Se 6 of NI Act ´A bill of exchange


drawn on specified banker and not
expressed to be payable otherwise
than demandµ
.    $ . 
Ô. It must be an instrument in writing
writing..
2. It must be an order
order..
3. The order must be unconditional
4. It must be drawn on specific banker
5. Payee must be a certain person
6. Amount must be certain
7. It must be dated
8. It must be signed by the drawer
. Payable on demand
 
. 

Ô. Drawer ² writer

2. Drawee ² banker

3. Payee ² to whom the payment


   . 
According to Se
Se.. Ô38 of NI Act ²
punishable under criminal offence.
offence.

but the following conditions to be


satisfied..
satisfied

   
Ô. Issued to settle debt / consideration
consideration..
2. Presented with in the valid time
3. Dishonoured due to insufficiency of
funds..
funds
4. Payee demand payment < Ô5 days
5. No payment by drawer < Ô5 days
days..
 

Jheque Draft

Drawn by customer on a ›anker on other


bank banker

Facility only to customer To all

Payable to bearer or order Payable only on order

May be dishonoured Always be honoured


 
Jheque ›ills of exchange
Drawn on bank Drawn on any person

No acceptance Requires acceptance


Payable on demand Expiry on a fixed period
No grace days 3 days Grace days
Stamp may be required Jompulsory
Jan be crossed Jan·t be crossed
Intended for immediate Not intended for
payment immediate payment
Easy discount not Possible
possible
 . 
Ô. Antedated cheque

2. Postdated cheque

3. Stale cheque

4. Order cheque

5. ›earer cheque
Jrossing of cheque
0 Jheques which has 2 parallel transverse
lines across its face with or with out any
words..
words

0 Payment done only through bank


account and not at counter
counter..

0 Jrossing does not affect its negotiability

0 It can be hand written, stamped, printed


or perforated on its face.
face.
   




[    
 
   
Essential of G.J.
Ô. Two parallel lines

2. Jrosswise direction

3. Words are ´& coµ ² ´and companyµ ²


´not negotiableµ ² ´Account payeeµ
payeeµ..

4. Effects ² Not at counter ² If so banker


will loose their statutory protection
protection..
Essential of S.J.
Ô. Specify the banker name
name..

2. General words may be required


required..

3. Words may be ´Indian bankµ ² not


negotiable Indian bankµ
bankµ..

In addition ² other types of crossing


Ô. Not Negotiable Jrossing
Ô. Word ´not negotiableµ

2. Jan be transferred
transferred..

3. Transferee will not get better title


title..

4. To get a better title


title«««
«««
Jonditions to be satisfied
Ô. Received the cheque for
consideration..
consideration

2. There should not be any prior bad


title..
title
2. Account Payee Jrossing

Ô. General crossing with the words


´Account payee onlyµ
onlyµ..

2. ›anker have to accept for the person


only..
only

3. @aw does not restrict the


endorsement..
endorsement
3. Double Jrossing
Ô. ›anker in whose favour a cheque is
drawn may cross it again in favour of
another banker being his agent for
collection..
collection
2. Allowed When there is no branch ²
otherwise double crossing is invalid
according se Ô27 of NAI
NAI..
´union bank
To
S›I
as agent for
collectionµ
collection µ
Obliterating a Jrossing

Ô. Erasing the crossing


crossing..

Ô. If the obliteration is not apparent &


Payment made in due course

2. ›anker will not be liable


liable..
Opening of Jrossing

Ô. Jancellation of the crossing


crossing..

Ô. Only the drawer can

2. Striking off the crossing, Writing


´pay cashµ & his full signature
Alteration of Jheques

Ô. Making some correction


correction..
   ' 


' 


º   


Material Alteration

an alteration which affects the


fundamental characters of cheques
Examples of Material Alteration

Ô. Altering the date


date..

2. ,, ,, place of payment

3. ,, ,, name of the payee

4. ,, ,, amount

5. ,, ,, word order as bearer

6. ,, ,, crossing
Effects of Material Alteration
Ô. Generally it is void.
void.

2. Do not pay
pay..

3. Required drawers signature


signature..

4. If the alteration not apparent &


payment made in due course ²
banker will not be liable
liable..
Immaterial Alteration

an alteration is immaterial and will


not make a cheque as void if
if;;
Ô. It does not affect the fundamental
character of the cheque
2. It is allowed by law
3. It is made before the issue of the
cheque
4. It is made for the purpose of correcting
the mistake
5. It is made to carry out the common
intention of the original party
6. It is made with the consent the parties
of the cheque
cheque..
Example of immaterial Alteration

0 Jonversion of a endorsement in
blank into an endorsement in full
full..
0 Jrossing of an opening cheque
cheque..
0 Jonversion of GJ into SJ
0 Jonversion of ¶bearer· into ¶order·
0 Fill up the blank in an instrument
instrument..
Endorsement

Meaning:
å Transferring the instrument
å ›earer instrument - delivery
å Order instrument - Endorsement delivery
å Endorser ² Who transfers
å Endorsee ² To whom the transfer
made
å Endorsement ² On its back
Allonge

å If there is no space on its face.


face.

å A piece of paper attached to it


it..
Definition

å According to Se
Se.. Ô5 of NIA ´when the
maker or holder of a negotiable
instrument signs the same,
otherwise than such maker, for the
purpose of negotiation, on its back
or face thereof, or on a slip of paper
annexed thereto ««««
««««.. .. he is said
to have endorsed the same and is
called the endorserµ
endorserµ..
Significance of
Endorsement

Ô. Ownership transferred to endorsee


endorsee..

2. Endorsee will get the right to sue


sue..

3. Endorsee will get the right to recover


the money
money..

4. Endorsee will get the right of further


negotiation..
negotiation
Rules Regarding
Endorsement
Ô. Done by endorser or an agent with
signature..
signature
2. Payee or endorsee must sign on its face.
face.
3. Endorsement should be in ink
ink..
4. Incase of married women ² usband name
5. Illiterate person ² Thump impression
impression..
6. Joint stock company ² Authorised person
7. Partnership ² Authorised person
8. Deceased person ² @egal representative
. Endorsement completed by delivery of the
instrument..
instrument
Types of Endorsement

Ô. ›lank or General Endorsement:


Endorsement:

Endorser simply sign on the back with


mentioned anything
anything..
2. Full or Special Endorsement:
Endorsement:

Endorser mention the name of the


person to whom to pay
pay;;

Pay to Alagu Sundaran

¶Endorser·
3. Partial Endorsement:
Endorsement:

endorsed only for the part of the


amount

cheque ² Not possible

bill ² Possible
4. Restrictive Endorsement:
Endorsement:

Restrict the endorsee from further


negotiation

Pay Grocery Rashith only

´Endorserµ

Pay Gundu Dinesh for my use

´Endorserµ
5. Jonditional or Qualified Endorsement:
Endorsement:
0 It limits the liability of the endorser
0 It imposes certain condition
condition..
Pay to Rabit ›inil or order on his
marriage with Mouse üanitha
´Endorserµ
0 This may done two forms;
forms;


  ;

 4  

6; 4  

  


Sans Recourse Endorsement
Endorsement::
0 Endorser free from liability.
liability.

Pay to Trouser ›enson


without recourse to me

´Endorserµ
Sans Frais Endorsement
Endorsement::
Endorsee free from liability.
liability.

Pay to Fraud Price


Without expenses to me

´Endorserµ
6. Per Pro Endorsement
Endorsement::
Endorsement done by an agent
inform the banker regard the delegation
of authority

Pay to Regular Rajasekar or order

´Povendrarajaµ
Per Pro M. Som
'
  
"

0 


0   
0    


         


        

 
      

    

#   
 "

›anking Theory - Sundaram Varshney


›anking theory law
and practice - S.M. Sundaram
›anking Theory - E. Gorden & Natarajan
Practical ›anking - M. Radhaswamy

 <

   
  
Jollecting banker
Paying banker
Paying ›anker

Meaning:

å ›anker to whom the cheque is


drawn & presented for payment
Precautions to be taken by
Paying ›anker

Ô. Form of cheque:
2. Date of cheque
3. Amount of cheque
4. Sufficiency of funds
5. Material alteration
6. Drawers signature
7. Mutilation
8. Payment during the banking hours
. Open or crossed cheque
Endorsement if any
Ô0.Endorsement
Ô0.
@egal restriction if any
ÔÔ.@egal
ÔÔ.
Jountermanding order
Ô2.Jountermanding
Ô2.
Ô3.Notice of death or insanity or
Ô3.Notice
insolvency of customer.
Dishonouring of cheques

Ô. Jountermanding of payment
2. Death of the drawer
3. Insolvency of the drawer
4. Insanity of the drawer
5. Receipt of garnishee order
6. Receipt of notice of assignment
7. ›reach of trust
8. Post dated or stale cheque.
. Insufficiency of funds.
In proper format.
Ô0.In
Ô0.
Materially altered cheque.
ÔÔ.Materially
ÔÔ.
Forged signature.
Ô2.Forged
Ô2.
Statutory protection to the paying banker:
banker:

Ô. Protection incase of order cheque Se


Se..
85 (Ô):
Ô. üerify the endorsement

2. Payment made in due course

2. Protection incase of bearer cheque Se


Se..
85 (2):
Ô. Payment at the counter

2. No need to verify the endorsement


endorsement..
3. Protection incase of crossed cheque [Se
[Se..
Ô28]]:
Ô28
Ô. Payment through A/c

2. Payment made in due course


Payment made by mistake
mistake::

 / (  / (

Received malafide Mistake of law

Paid on a negotiable
Mistake of fact
instrument

Mistake between banker Paid by mistake to an


& receiver agent
Forgery of drawers signature
signature::
Ô. Don·t pay for the cheque
cheque..

2. Even the payment made in due


course ² banker will be liable
liable..

3. @ewes sanitary @aundry Jo üs


›arclays ›evan & Jo
Jo.., (secretary)

4. Green wood üs Martins ›anks @td


@td..,
(usband & Wife)
older::
older
Ô. e must be acquired legally
legally..

2. A thief or finder of an instruments


can not be considered as a holder
holder..

3. Entitled to receive the money


Rights of a older
older::
Ô. Jonvert the blank endorsement into
full

2. Jross a open cheque

3. Jlaim & sue

4. Jan obtain the duplicate copy of a


lost cheque.
cheque.
older in due course
course::
Ô. Se.
Se.  of NIA ´Any person who become
the possessor of a negotiable
instrument payable to bearer or
endorsee or payee thereof for
considerationµ..
considerationµ
Jonditions to be satisfied
satisfied::
Ô. e must obtain the possession

2. Obtain by payment of consideration


not by way of a gift

3. Must be a holder before the maturity


period..
period

4. Must become the holder in good


faith..
faith
Rights of a older in due course
course::
Ô. e can get better title

2. e can recover the amount form


previous parties

3. e can sue
  
     

7 
 
7 

Need not pay Must pay some
consideration consideration
Need not take care about
Must care
the transferors titles
He takes the instrument Takes free from all
subject to all defects defects
Obtain the possession at Jan obtain only before
any time the due date
# 
› 

! 
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"

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#   
 "

›anking Theory - Sundaram Varshney


›anking theory law
and practice - S.M. Sundaram
›anking Theory - E. Gorden & Natarajan
Practical ›anking - M. Radhaswamy

 <
 
  '/ 
‡  

‡ 

     

‡    / 
‡ '/  ' 
 /
  




     

% 


  
  


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-    
  
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- <      

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¦. Liquidity

. -      /


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î. Profitability

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‡ w  

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.
Types of Loans and Advances

(
% & 

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*
   

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#  

u   

Loan or Advances
‡ Secured
Secured:: ‡ nsecured:
According to Se *
Opposite
n) of the ›R Act
1A½A
1A½A
$a loan or
advance made on
the security of
assets the market
value of which is
not at any time
less than the
u es of L & A
Forms/style)
1. Loans
.  

¦.    

  

î.       


¦. Jash credit

. '  (  
 #. ' 

¦.     


 
î. Overdraft
. #   '6  

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î.     


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½. Purchase & discounting of bills

.   (

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..

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.
Other Forms
of
Secured Advances
1. Advances against life policies

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Precautions to be taken by banker
.   


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¦. Advances against document of title of
goods
‡  
     
 
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‡  
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Risk involved
.    
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Precaution to be taken by banker
.     ( 
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î. Advances Against bill of Exchange

‡   

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.

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Merits
‡ -  


 ..
‡ 

  
..
‡ 
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Precautions to be taken by banker

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½. Advances against land & buildings
‡ 7
 
‡  
‡ ë  /    (


Precautions to be taken by banker
‡   

‡ #  ( 
‡ < (  
‡ 
‡   

   
   .
*. Advances against security of goods

‡ '/   

± # 
 
± 
   

± 
 
± !  
Merits

‡ 4  
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‡ 

  
Demerits

‡  
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Precaution to be taken by the banker
. 4 

     




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›anking Theory - Sundaram Varshney


›anking theory law
and practice - S.M. Sundaram
›anking Theory - E. Gorden & Natarajan
Practical ›anking - M. Radhaswamy