Merchant Banking and Financial Services - MBFS Mod -1 Banking and Finance - Overview Financial Sector - Regulators Banking

in India Banking in India - Banking in India is governed by BR Act,1949 and RBI Act,1934 - Banking in India is controlled/monitored by RBI and Govt of India - The controls for different banks are different based on whether the bank/s is/are a) statutory corporation b) a banking company c) a cooperative society Banking Modern banking in India is said to be developed during the British era. In the first half of the 19th century, the British East India Company established three banks the Bank of Bengal in 1809 the Bank of Bombay in 1840 the Bank of Madras in 1843. But in the course of time these three banks were amalgamated to a new bank called Imperial Bank and later it was taken over by the State Bank of India in 1955. Allahabad Bank was the first fully Indian owned bank. The Reserve Bank of India was established in 1935 followed by other banks like Punjab National Bank, Bank of India, Canara Bank and Indian Bank. In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks were taken over by the government. Today, commercial banking system in India is divided into following categories. Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, order or otherwise." Chronology of Salient steps by the Government after Independence to Regulate Banking Institutions in the Country 1949 : Enactment of Banking Regulation Act. 1955(Phase I) : Nationalisation of State Bank of India 1959(Phase II) : Nationalisation of SBI subsidiaries 1961 : Insurance cover extended to deposits 1969(Phase III) : Nationalisation of 14 major banks 1971 : Creation of credit guarantee corporation 1975 : Creation of regional rural banks 1980(Phase IV) : Nationalisation of seven banks with deposits over 200 crores. Composition of the Banking System as at the Beginning of New Millennium

At present the number of nationalised banks are 20. Several Foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories: Types of Banks PUBLIC SECTOR BANKS Reserve Bank of India State Bank of India and its 7 associate Banks Nationalized Banks (20 in number) Regional Rural Banks sponsored by Public sector Banks PRIVATE SECTOR BANKS Old Generation Private Banks New Generation Private Banks Foreign Banks in India Scheduled Co-operative Banks Non Scheduled Banks CO-OPERATIVE SECTOR BANKS State Co-operative Banks Central Co-operative Banks Primary agriculture Credit Societies Land Development Banks Urban Co-operative Banks State Land Development Banks DEVELOPMENT BANKS Industrial Finance Corporation of India (IFCI) Industrial Development bank of India (IDBI) Industrial Credit & Investment corporation of India (ICICI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture & Rural Development (NABARD) Export-Import Bank of India EXIM The law governing Banking Activities in India is called "Negotiable Instruments Act 1881". The banking activities can be classified as : Accepting Deposits from public/others (Deposits) Lending money to public (Loans) Transferring money from one place to another (Remittances) Acting as trustees Acting as intermediaries Keeping valuables in safe custody Collection Business Government business The listing is available in 125 sub categories like

Project Report Consultants, Accountants & Account Consultants, Technical Consultants, Valuers & Valuation Consultants, Project Report Consultants, Financing Managers/ Consultants, Property Search Report & Legal Consultants /Advocates, Management Consultants, Banking Advocates, Chartered Accountants, Business & Financial Consultants, Wealth Management Consultants, Tax Consultants, Export Import Consultants, Marketing Consultants, Financial Consultants, Investment Consultants, Security Services, Cash Shifting Services, Computer Maintenance Services, Courier Services, Tour Operators, Website Maintenance Services, Ad Agencies, Web Promotion & SEO Services, Computers Hardwares, Networking Equipments, CCTV Suppliers/ Mfgrs, ATM Machine Suppliers/ Mfgrs, Fire Extinguishers Suppliers/ Mfgrs, Fire Alarm Suppliers/ Mfgrs, Cash Transaction Solutions, Biometric & Ultra Modern Eqpts Suppliers/ Mfgrs, Security Devices Suppliers/ Mfgrs, Networking Solutions, Banking Operation Softwares, Financial Educational Institutions, Banking Stationary Suppliers, Banking Books Shops ,Space Available for Bank Branch, Space Available for ATM, Flat Available For banking officials residential accommodation etc. Introduction Types of Banks Services Banking in India is so convenient and hassle free that one (individual, groups or whatever the case may be) can easily process transactions as and when required. The most common services offered by banks in India are as follow: Bank accounts: It is the most common service of the banking sector. An individual can open a bank account which can be either savings, current or term deposits. Loans: You can approach all banks for different kinds of loans. It can be a home loan, car loan, personal loan, loan against shares and educational loans. Money Transfer: Bnaks can transfer money from one corner of the globe to the other by issuing demand drafts, money orders or cheques. Credit and debit cards: Most banks offer credit cards to their customers which can be used to purchase products and services,or borrow money.

Lockers: Most banks have safe deposit lockers which can be used by the customers for storing valuables, like important documents or jewellery. Types of Accounts DEMAT Account NRE a/c Non-Resident External NRO a/C Non Resident Ordinary FCNR a/c Foreign Currency Non-Resident SB a/c Savings bank account CC a/c Cash credit account CA a/c Current account Salary Account Recurring deposit account OD a/c Overdue account Fixed deposit account Proprietorship account Partnership account Firm account Company account Types of Accounts The simplest one is the Non Resident Ordinary (NRO) account, which is your savings account re designated, once you have informed the bank about your changed residential status. The balance in the NRO account cannot be repatriated outside India. Types of Accounts If you want the funds in your account to be freely repatriable, an NRE (NonResident External) account would be ideal. This account is maintained in rupees and any debit or credit of foreign exchange will be converted into rupees. Banks also allow NRIs to invest in deposits through FCNR(B) (Foreign Currency Non-Resident (Banks) accounts. These are term deposits and can be maintained in some currencies such as the dollar, pound sterling and yen. The funds in this account can also be repatriated. Types of Accounts Non-Resident Ordinary (NRO) Accounts An existing rupee account, opened prior to one's departure from India will be designated as NRO A/C, or one can also open NRO A/C by fresh remittance from abroad or by transfer of funds from own NRE/FCNR (B) Accounts. All legitimate dues arising in India can be credited to this account. Proceeds of remittances received from abroad in any permitted currency can be credited to this account. -cont.. Debits for all local payments in rupees are freely permitted. Interest earn on NRO balances is subject to deduction of Income Tax at source.

Remittance upto USD 10,00.000.00 (USD One Million) per Financial Year permitted out of balances held in NRO accounts, subject to deduction of Income Tax and other RBI guidelines. Non-Resident External (NRE) Rupee Account Account is opened with initial deposit of remittance from place of stay abroad. NRE accounts can be opened in any of the bank's deposits schemes. Funds are fully repatriable No Income Tax is applicable on interest earned. Balance is exempt from Wealth Tax. Debits for local payments are freely permissible. Gifts, out of balance in NRE accounts, to close relatives in India are free of gift tax. Foreign Currency(Non-Resident) Accounts( Banks) Schemes(FCNRB). Account is opened with initial deposit by remittance from place of stay abroad. Funds earn competitive interest rates Funds are fully repatriable, whenever desired. No Income Tax is payable on interest earned by individuals Accounts can be opened under term deposits scheme only. Accounts can be opened in six currencies viz.Stg. Pounds, US dollars,Euro, Japanese, Yen,Australian Dollars and in Canadian Dollars. Exchange risk on funds kept under the scheme is borne by the bank. Interest on deposits is payable in currencies in which the account is maintained. Inter Changeability of funds between NRE& FCNR(B) accounts is permitted. Gifts to close relatives in India out of balance in FCNR(B) accounts are free from gift tax. Bank Accounts for Non Resident Indians Returning to India Resident Foreign Currency (RFC) Accounts Scheme. Scheme is available for NRIs returning to India, who have been resident outside India for a continuous period of not less than one year and who became resident in India on or after 18-4-1992. Accounts can be opened with remittance from outside India out of the NRI's eligible assets aboard or transfer of funds from his NRE/FCNR(B) accounts without penal provisions of premature withdrawal. Accounts can be opened in any foreign currency and in any scheme i.e Saving/current/Time Deposits. Exchange risk is borne by the Bank. The Deposit earns higher interest than what is earned abroad. Funds are repatriable outside India for bonafide needs of the depositors and their close relatives. Reserve Bank of India Reserve Bank of India was established in 1935, after the enactment of the Reserve

Bank of India Act 1934 (RBI Act). Banking Regulation Act,1949 (BR Act)gave wide powers to RBI as regards to establishment of new banks/mergers and amalgamation of banks,opening of new branches,etc BR Act,1949 gave RBI powers to regulate,superivse and develop the banking system in India Reserve Bank of India RESERVE BANK OF INDIA SUPERVISORY & REGLATORY Issuance of currency notes Bankers Banker Lender of the last resort Credit Control & Monetary Policy Exchange Control & FOREX Management Funds Transfer CREDIT CONTROL QUANTITATIVE CREDIT CONTROL QUALITATIVE CEDIT CONTROL CRR & SLR BANK RATE OPEN MARKET OPERATIONS Functions of Banks Commercial Banks-Core Banking Functions - Acceptance of deposits from public - Lending funds to public/corporates - Investing funds in various opportunities - Collecting cheques/drafts and other Negotiable Instruments - Remitting funds Functions of Banks Commercial Banks Para Banking Services Providing safe deposit lockers Acceptance of safe custody items Acceptance of standing instructions Offering internet banking facilities Issuance of credit and other cards including ATM cards Offering various products like Mutual funds,insurance products, merchant banking services Acting as executors and trustees Commercial Banks Deposit Products BANKER-CUSTOMER RELATIONSHIP DEBTOR-CREDITOR CREDITOR-DEBTOR AGENT-PRINCIPAL LESSOR-LESSEE BAILEE-BAILOR

CHEQUES NEGOTIABLE INSTRUMENTS Paying Banker: Six Cs Character Capital Capacity Collateral Condition Compliance Interest rate related Banks responsibility Explain these in writing; give examples How is interest calculated? Fixed interest - what is the reset clause? Floating rate - what is the benchmark used? Clearly state terms/conditions in loan document Customers responsibility Read before you sign! Do not ignore your doubts - Get them clarified Never sign blank documents If DSAs have contacted you, check with the bank Penal Interest Banks responsibility Explain clearly when penal interest will be levied Concept of service charges when penal interest is levied Customers responsibility Remember Defaults/delayed payments, cheque returns etc. attract penal interest and service charges Funds need to be set aside for repayment of loan on due dates Seek banks advice, if in difficulty Service Charges Banks responsibility Display service charges Extend concessional rates to special category persons Have a cap on all charges, incl. interest rates & penal charges Inform customers of changes; offer option to discontinue facility Customers responsibility Read all the material sent to you by the bank Remember banks have freedom to set interest rates/service charges you have option to choose the bank which offers best rate Compare rates - make informed choice Loan Documents; Return of Securities

Banks responsibility Give customer a complete set of loan agreements and enclosures at time of sanction /disbursement Return the securities as soon as the loan is repaid Customers responsibility Get a complete set of loan documents from banker Read the MITC- Most Important Terms and Conditions Get securities back, as soon as loan is repaid Recovery of Bank Dues Banks responsibility Place list of recovery agents on web site Train & sensitize recovery agents Ensure recovery agents follow code of conduct Record all conversations with customers Customers responsibility Remember : All loans have to be repaid Not to borrow beyond your repaying capability Conversation you have with the recovery agent is recorded Seek assistance of your bank if in problem Insurance linked products Banks responsibility Avoid offering bundled products Explain and get explicit written consent Ensure Insurance policy is obtained & active Customers responsibility Understand components of your loan product If insurance is part of it, ensure policy is in force Credit cards Banks responsibility Do not issue unsolicited cards - if activated & charged, pay prescribed compensation without demur. Do not issue unsolicited products on cards If DSAs are sourcing credit card, ensure card holder has signed & understands his responsibility Delivery of Cards & PINs only to person concerned Stop lost cards immediately on report of loss Consider insurance on lost cards Send statements on time; use e-statements, SMS alerts etc to keep the card holder informed of payments, due dates etc Credit Cards Customers responsibility Keep your credit card safely Be present when card is used by merchant estab.

Do not use public computers for internet purchase through credit cards Keep credit card number & help line detail handy Report immediately loss of card Opt for card statements by email or / and SMS If you do not want a card, cut it and send it back to the credit card issuing authority ATMs Banks responsibility Ensure ATMs are in working mode at all times Have CCTV in all ATMs Check audit trails periodically Check cash handling processes and procedures Check for quality of notes stacked in the ATMs Customers responsibility Keep ATM cards safely Do not keep the PIN with the Card Inform discrepancy immediately, if possible with the witness of the security guard Cheque Drop Facility Banks responsibility Remember - Cheque drop facility is only an alternate mode of cheque collection Box should bear legend indicating that it is an alternate mode and that customers can get acknowledgement if required Install automatic cheque acknowledging machines which give receipt on dropping the cheque Customers responsibility Insist & obtain acknowledgment for cheques if you want them TDS Banks responsibility Apprise account holders, specially senior citizens -need to submit 15G/15H forms, if tax is not to be deducted TDS certificate is to be issued immediately to the account holder in person or by post Customers responsibility Remember: TDS is banks statutory obligation If you are not an income tax assess; give 15G/15H form to the bank If you failed to keep your bank informed & TDS has been deducted, than claim refund from Tax authorities and not the bank Cheque Collection Banks responsibility Display banks cheque collection policy Adhere to the displayed policy

Levy charges as per RBI stipulations Compensate customer without waiting for request for any delay Customers responsibility Read the cheque collection policy Insist & obtain admissible compensation for delay Some quotes for banks to ponder! Customer service is not a department, it's an attitude! Workshop on The Future of Banking organized by HMA & ISB (October 30, 2004) Vepa Kamesam Former Deputy Governor, RBI Currently Chairman, IDRBT/BRBNML Many Benefits of Technology Increased operational efficiency, profitability & productivity Superior customer service Multi-channel, real-time transaction processing Better cross-selling ability Improved management and accountability Efficient NPA and risk management Minimal transaction costs Improved financial analyses capabilities Technology A Differentiator Technology is indeed a differentiator not only in terms of competitive advantage, but also in terms of administrative and back-end processes. Butdue to rapid technology deployment in Indian banking sector, the haves and have-nots gap is all set to narrow quickly. How Long a Differentiator? Then.can technology be enough of a differentiator? Any new technology or technology-enabled process can act as a differentiator or a competitive edge for some level of time. After that time, the technology still has to be adopted as a necessity and as a cost of doing business Thanks to shortening technology life cycles, it would be short sighted to assume that technology would be a long term differentiator Issues with Customers Not only employees, there are problems for customers too when a new technology arrives The major challenges Comfort levels

Security and trust issues Convenience factor Getting rid of myths Migration from existing to new systems Changing the habits Technology Acquisition Inappropriate technology purchases can be the root of all problems The Bank management has to: Give thought to the utilization rate Avoid knee-jerk reactions (they have done itI should also do it) Be impartial in technology decisions (I like that technologyI want it) Understand where the solution will fit AND where it wont! Assess the strengths & weakness of solution And seek answer to are we ready for it? Technology & Monetary Systems Technology has: Transformed the conduct of the payment and settlement system Set the stage for an unprecedented growth in financial activity across the globe Rendered more vulnerable the domestic payment system and financial stability to international shocks making the conduct of monetary policy more complex and prone to implementation and operational risks RTGS Scenario 90 banks have implemented it 3-4 more to implement in a fortnight Customer transactions have already started Total volumes Transactions on average Rs.20,000 crores per day settled continuously from the time of opening of markets Guarantee settlement fund Smart Cards The Future Multi-application Smart Card Channel of the future Pilot project started Pilot Project funded by MCIT, Govt. of India The project is in progress in partnership with IDRBT, IIT Bombay, and Banks in India Need for Training All these developments call for extensive, continuous training Current and future technology implementations call for at least 20% of officers specialise in IT Hence need for specially skilled people a mix of: System administrators Application managers (knowledgeable about both banking and technology) Technology managers (who form the core team of technology professionals). Technology Initiatives

Branchless Banking State-wise Distribution