Banking cocept series - I

                                                                 BANKING CONCEPTS   series -1

• Banks in India   SBI and its 5 associates  (6) Nationalised banks (19) Other Public sector banks like IDBI and Bhartiya Mahila bank (2) Private sector banks (20) Foreign banks (43)  These constitute  All Scheduled commercial banks (6+19+2+20+43=90) . Then there are, scheduled RRBs (61) and  Scheduled  cooperative banks (51).  All other cooperative banks (around 1500) are Unscheduled or Non scheduled banks.
• A scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. The banks included in this schedule list should fulfil two conditions. 1. The paid capital and collected funds of bank shouldnot be less than Rs. 5 lac. 2.Any activity of the bank will not adversely affect the interests of depositors. Every Scheduled bank enjoys the following facilitiess. 1. Such bank becomes eligible for debts/loans on bank rate from the RBI 2. Such bank automatically acquire the membership of clearing house.
• Development financial institutions are those which are created for technical and financial support of a particular sector of economy like agriculture, small industries, housing, etc. Such institutions are SIDBI, IDBI, EXIM bank , NABARD,NHB.
• DICGC and ECGC Deposit insurance and credit guarantee corporation and Export credit guarantee corporation are created by RBI to provide insurance to deposits , loans and exim finances of banks. Fees or insurance charges are borne by banks.
• DICGC guarantees to return maximum up to Rs. 100000/- one lac per depositor , in case of banks failure.
• Foreign investments (both FII+FDI) limit for public sector bank is 20% and 74% for Private sector banks.

Banked Centre is a centre, which has at least one branch or office of commercial or co-operative bank. Unbanked Centre is a centre in which no branch of any commercial/ co-operative bank is functioning.

For free branching policy criterion of tier wise and population group wise centres is given below.

Details of tier-wise classification of centres based on population

i) Classification of centres (tier-wise) Population (as per 2001 Census)

Tier 1 - 1,00,000 and above

Tier 2 - 50,000 to 99,999

Tier 3 - 20,000 to 49,999

Tier 4 - 10,000 to 19,999

Tier 5 - 5,000 to 9,999

Tier 6 - Less than 5000

ii) Population-group wise classification of centres

Rural Centre - Population upto 9,999

Semi-urban centre - 10,000 to 99,999

Urban centre - 1,00,000 to 9,99,999

Metropolitan centre - 10,00,000 and above

Current RBI rates  effective from 29/10/2013 second quarter review of monetary policy.

·        POLICY RATES - REPO  7.75   REVERSE REPO 6.75  MSF AND BANK RATE 8.75

·        RESERVE RATIOS – SLR 23% CRR 4%

·        Treasury bills are govt. securities issued for less than a year up to 364 days and treated as money market insruments. Other instruments of money market are call/notice money, certificate of deposits, commercial papers , repo , term repo (recently introduced by RBI for 7 and 14 days term) , commercial bills.

·        Money market instruments give businesses, financial institutions and governments a means to finance their short-term cash requirements.

·        Govt. securities are sold and purchased throuth Open market operations to control liquidity.

·         Participants in call/notice money market currently include scheduled commercial banks (excluding RRBs), co-operative banks (other than Land Development Banks) and Primary Dealers (PDs), both as borrowers and lenders.

·         But Money market as whole comprises all financial institutions , government, banks, RBI and large business houses.

·         CDs Certificate of deposits issued by banks whereas Commercial papers are issued by private business houses / companies.

·         CDs can be issued by all scheduled commercial banks(excluding RRBs and local area banks) and any other Financial institution authorized by RBI. Minimum issue 1 lac or multiple no maximum limit. Maturity 7 days to 1 year.

·         Commercial papers are unsecured money market instruments, issued by corporates, Financial institution ,primary dealers. May be issued 5 lacs or its multiple , period same to CDs.

RBI regulates     

• Banks , foreign exchange transactions, NBFCs Non banking financial companies, chit fund companies .Primary dealers in Govt. securities,, money market

RBI Functions

• Monetary control , monetary and credit policy making , interest rate signaling.
• Supervision of banking system,
• Sole authority for note issue. Minimum reserve system 200 crore out of which 115 crore should be Gold security. Coins issued by Govt. of India Finance ministry.
• Management of Govt. debts, bonds,t-bills etc. through open market operation.
• Banker to the Govt.
• Banker’s bank
• Lender of last resort to banks.
• Payment and settlement system ( Since formed NPCI National payment corporation of India).
• Development and research in banking and credit development.
• Creation and supervision of development financial institutions.

Regulator of credit rating agencies -  SEBI

·        Indian credit rating agencies- CRISIL, ICRA,CARE, Fitch India pvt.ltd.

·        International credit rating agencies- Standard and Poor’s Moody’s, Fitch

Regulator of Credit information bureaus- RBI through The Credit Information Companies (Regulation) Act, 2005

·        Indian credit information companies---CIBIL( Credit Information Bureau (India) Ltd, ), Equifax Credit Information Services Pvt. Ltd, Experian Credit Information Co. of India Pvt. Ltd, and Highmark CreditInformation Services Pvt. Ltd.

Banking Ombudsman

·        The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.

·        The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals.

·        Complainant has to first submit his complaint to the concerned bank , if he doesn’t get a reply or not satisfied with reply , he can go to ombudsman.

·        Banking ombudsman have the powers to award financial punishments up to 10 lacs.

·        If not satisfied with ombudsman’s decision, one can appeal to CGM Reserve bank of India or file an appeal in court.

No frills accounts with zero balance is replaced with BSBDA by RBI

Purpose of such account is to facilitate financial inclusion.

·        BSBDA , Basic savings bank deposit accounts , free services ATM Cards, maximum four withdrawals in a month(all types cash,atm, electronic means) , credits through electronic and cheques and cash, no initial balance requirement,  No concession in KYC norms .

• BSBDA – Small account.  Simiplified  KYC self attested photograph , no ID proof required, maximum balance Rs.50,000/- withdrawal not more than 10,000 per month, total deposits 100,000 Rs. In a year. Foreign credit not allowed, account valid for 12 months thereafter KYC ID proof and address proof required. The validity can be extended for further 12 months.

Base rate and Bank rate

• Base rate is the minimum lending rate declared by individual banks, below which they can not finance .
• Base rate is replacement for BPLR OR PLR Benchmark Prime lending rate . Old loan accounts will be continued on BPLR until they are closed/renewed or shifted to base rate with due consent of borrower.
• Bank rate is bill discounting rate charged by RBI from banks it is normally one percent above repo rate. . currently it is 8.75.

Kisan credit card

• Kisan credit card is a single point credit facility card issued to Farmers , covering  crop loan and allied activites requirements for a year. Limit is fixed on the basis of operational land holding, cropping pattern and scale of finance. Farmer can withdraw at his convenience  to purchase agricultural inputs such as seeds, fertilisers, pesticides, etc. and also draw cash for their production needs. One time assessment and documentation. Validity 3-5 years. Every withdrawal of money should be repaid within 12 months.
• Electronic kisan credit cards have now been introduced , which will replace passbook format in due course.

IFSC

• Indian Finacial system code is 11 digit unique code allotted to each branch of the bank. This facilitates inter bank fund transfer like RTGS, NEFT , ECS etc. It is to be compulsorily mentioned on the cheque book.

RTGS

• Real Time Gross Settlement-  a real time , fast  inter bank fund transfer scheme. Amount 200000/- two lacs and above can be sent from one bank’s branch to other bank’s branch. Fund settlement between banks is on gross basis means settlement is done for every transaction instantly. Possible only in banks working hours.
•  Charges ---Outward transactions – ` 2 lakh to ` 5 lakh - not exceeding ` 30 per transaction;
  Above ` 5 lakh – not exceeding ` 55 per transaction., inward free

NEFT

• National electronic fund transfer – Another interbank fund transfer scheme where transactions are settled in batches. Presently, NEFT operates in hourly batches - there are twelve settlements from 8 am to 7 pm on week days (Monday through Friday) and six settlements from 8 am to 1 pm on Saturdays. No minimum or maximum amount limit for NEFT remittance.

charges applicable for the remitter
-  For transactions up to Rs  10,000 : not exceeding Rs 2.50 (+ Service Tax)
- For transactions above Rs 10,000 up to Rs  1 lakh: not exceeding Rs 5 (+ Service Tax)
-  For transactions above Rs 1 lakh and up to Rs 2 lakhs: not exceeding Rs 15 (+ Service Tax)
-  For transactions above Rs 2 lakhs: not exceeding Rs 25 (+ Service Tax)

• Remitter don’t need to have account with the bank but receiver should have a bank account. Remitter can deposit cash  up to 50000 /- for sending through NEFT.

Cheque truncation scheme CTS-2010

• Cheque truncation means stopping the flow of physical cheque at the branch where customer has deposited the cheque and sending a electronic scanned image of the cheque to payment branch. Clearance of the cheque will be fast and movement of cheque will not be required.
• CTS standards for new cheques - certain benchmarks towards achieving standardisation of cheques issued by banks across the country have been prescribed like – quality of paper, watermark, bank’s logo in invisible ink, void pantograph, etc., and standardisation of field placements on cheques.
• Void pantograph is a blank strip which on scanning will display a  word “void” on it,  as a security feature.
• Country has been divided in three grids – south, west and north (including NE) for implementation.
• Under the new CTS system,  alteration , corrections on the cheques will not be allowed even if issuer of the cheque confirms it under his signature.  

 

The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits.

·        A high CASA ratio indicates that a higher portion of the banks deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

NDTL , Net demand and time liabilities –

·        For banks it represents deposits from public. CASA current and savings accounts are demand deposit or demand liablilities and term deposits are time liabilities.

·        SLR and CRR percentage are calculated of this NDTL figure.

Priority sector :

• Reserve Bank of India in August 2011 set up a Committee to re-examine the existing classification and suggest revised guidelines with regard to Priority Sector lending classification and related issues (Chairman: M V Nair). The revised guidelines are operational with effect from July 20, 2012.

 Categories under priority sector

(i) Agriculture and allied activities like dairy, poultry, Fisheries , sericulture etc.

(ii) Micro and Small Enterprises . Manufacturing units micro (below 25 lacs) small (25 to less than 5 crores). Service sector enterprises Micro <10 lacs and small 10 to <two crore.

(iii) Education loans up to 10 lacs for studies in india and 20 lacs for studies abroad.

(iv) Housing loans up to 25 lacs in Metro and 15 in other places .

(v) Export Credit provided to agriculture and MSE produce only.

(vi) Others – small loans not > 50000 to weaker section of society, financing to Micro finance institutions for onward lending,  Self Help Groups

• Priority sector finance targets.

           

Sector	Domestic commercial banks and foreign banks >= 20 branches	Foreign banks below 20 branches
Total priority sector	40% of total loans	32% of total loans
Agriculture	18% of total loans (counted as part of 40% as above)	No separate target

Retail Banking  is doing banking business with individual customers and Micro and small enterprises. Retail products are Savings bank, current account, Recurring deposits, term deposits , Home loans to individual, education loand, consumer, personal ,auto loans (vehicle loan,car loan) Agriculture crop loans, credit cards,  safe deposit lockers, selling insurance , mutual funds etc.

Cross selling and Mis-selling :   Cross selling means selling a different product or service to an existing customer.

Misselling is the deliberate, reckless or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product/service is unsuitable for the customer's needs. For example, selling life insurance to someone with no dependents is regarded as misselling. A type of sales practice whereby the sales person misrepresents or misleads an investor with regard to the features of a particular product or service

Dematerialisation  means converting Physical securities in to electronic form for storing , negotiating and transferring it .

ABSA means Application supported by blocked amount. Amount in the current / savings bank account of customer is blocked during share allotment process. If allotted this amount is transferred to the company , if not block is released .

DMAT account. This is the share account opened in the banks where an investor can hold his shares in electronic or dmat form and make regular trading in them.
Nomination facility is provided in most of the financial products like bank deposits, provident fund, mutual fund, insurance proceeds etc. to facilitate payment of such products to nominee , in the event of death of  investor.  Nomination does not require nominee to sign or remain physically present at the time of  nomination process. No Identification proof or KYC for nominee is needed. Nominee can be any person , a close relative or friend. Consent of nominee is not required.

KYC -  These guidelines are issued by RBI under Section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.

Banks should frame their KYC policies incorporating the following four key elements:

·        Customer Acceptance Policy;

·        Customer Identification Procedures;

·        Monitoring of Transactions; and

·        Risk Management.

Any fund transfer , remittance of money by draft or other means , of amount 50000/- fifty thousand or above should not  accepted in cash from the customer having account with that bank. In case a walk in customer (not having an account with your bank) wants to send remittance in cash of 50,000/- or more , his identity and residential proof should be verified .

STR and FIU-India – banks are required to submit Suspicious Transaction report  to Financial Intelligence unit –India.

with effect from April 1, 2012, banks should not make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument.