BA5008

BANKING
FINANCIAL
SERVICES
MANAGEMENT
 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.
 ELEMENTS OF INDIAN FINANCIAL
SYSTEM

Indian
financial
system

Financial Financial Financial Financial

institutions markets instruments services
 FINANCIAL INSTITUTIONS
Financial Institutions

Banking Non- Banking

Commercial Non-Banking
Banks Non- Banking
Co-operative financial
Financial
Banks intermediaries
Companies
Public Private
sector sector Foreign
Banks
Co-operative Co-operative Chit funds
State Co- urban banks land
SBI and its operative development
subsidiaries banks banks Nidhi
Companies

Other Central Co- Benefit

Nationalized operative Societies
Banks Banks
Finance
Primary Co- Co.'s
operative
Banks
Leasing Co.'s

Hire purchase
finance co.'s

Factoring
co.'s
 FINANCIAL MARKETS

Financial
markets
Foreign Govt.
Capital Money
exchange Securities
market market
market market

Primary Organized Unorganized Indigeneous Money Authorized Treasury

market sector markets bankers Lenders dealers Bills

Secondary Commercial Promissory Foreign

Hundis Bonds
market banks Note Banks

Co-operative Money
banks Changers

R.R.B Importers
&
exporters

NABARD

Foreign
banks
 FINANCIAL INSTRUMENTS

Financial
Instruments

Commercial Letter of Bill of Traveler

Negotiable credit lading 's
instrument paper
cheque

Promissory Bill of
Cheque
note exchange
Place Purpose Time Payee Document
Forei Usan Deman Against
ce bill d bill acceptanc Against
gn
Inlan bill Order e Payment
Accomm Bearer
d bill Trade
odation
bill
bill
 FINANCIAL SERVICES
Factoring

Leasing

HP financing

Credit card

Merchant banking

Book building

Asset liability
Financial services management

housing finance

Portfolio finance

Underwriting

Credit rating

Mutual fund

Interest & credit

rate swap
 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”.
GENERAL FUNCTIONS OF BANKS
 Accepting deposits
 Lending money
 Investment
 Transferring money
 Doing government transactions
 Providing safety locks for valuables
 Act as trustees
 PRIMARY FUNCTIONS OF BANK

Accepting Granting loans &

deposits advances

Saving banks a/c Overdraft

Fixed deposits Cash credit

Current deposits Loans

Recurring deposits Discounting the bills
 SECONDARY FUNCTIONS OF BANKS
General utility
Agency services services

Transfer of funds
Issue of draft/ letter of credit
Periodic payments
Locker facility
Collection of Cheque
Project report
Other agency services
Other utility services
Cash management services

Electronic clearing system

 FUNCTIONS OF RBI
TRADITIONAL CENTRAL
BANKING FUNCTIONS SUPERVISORY
(MONETARY FUNCTIONS) 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

NATURE AND
FUNCTIONS OF
CENTRAL BANK

MISCELLANEOUS PROMOTIONAL FUNCTIONS

FUNCTIONS
• INTEREST RATE INTERVENTION
• MONETARY POLICY
INSTRUMENTS
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
 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

 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

Cash at Bank Money at
 2. Issued XXXX XXXX 08 XXXX XXXX
call & short notice
 3. Subscribed XXXX XXXX Investments 09 XXXX XXXX
1.Government
 4. Paid-up XXXX XXXX XXXX XXXX
Securities
2.Shares,
Reserves & Surplus 02 XXXX XXXX debentures and XXXX XXXX
Bonds
Deposits 03 XXXX XXXX 3. Gold XXXX XXXX

Borrowings 04 XXXX XXXX Advances 10 XXXX XXXX

Other Liabilities &
05 XXXX XXXX Fixed assets 11 XXXX XXXX
Provisions
Contingent Liability XXXX XXXX Other Assets 12 XXXX XXXX

Loss (if any) XXXX XXXX

XXXX XXXX XXXX

 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

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
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
KEY ACTS GOVERNING INDIAN BANKING
SYSTEM

 Reserve Bank of India Act, 1934

 Negotiable Instruments Act, 1881

 Banking Regulations Act, 1949

RESERVE BANK OF INDIA ACT, 1934
(CONTD.,)
Ch. II– Incorporation,
Ch. III- Central
Capital Management Banking
Ch. I - Preliminary and business Functions

Short titles, extent and Establishment Right to issue

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

Ch. III (C) – Prohibition

Ch. III (A)- Collection and Ch. III (B)- Provisions related of Acceptance of Deposits
Furnishing of Credit to Non-banking Institutions
receiving Deposits by unincorporated bodies
Information

Not to apply in Interpretation

Definitions
certain cases
•Banking company
•Credit information
Power of bank to collect Power to issue
Credit Information Definitions
•Business of NBFCs search warrants
•Company
Power to call for returns •Corporation
containing credit
information

Procedure for furnishing

credit information to
banking companies

Disclosure of information
prohibited
RESERVE BANK OF INDIA ACT, 1934
(CONTD.,)
Ch. IV - General Ch. V – Penalties
Provisions

Failure of persons to
Contribution by Central Govt. to produce books,
the reserve fund
accounts, documents,
etc.,
Contribution to National rural
credit fund
In case of contravenes
Application of surplus profits
of provision

Exemption of banks from IT Disclosure of prohibited

Publication of bank rates credit information

Powers & duties of auditors Failure to comply with

directions by auditor
Returns

Rural credit & development

Liquidation of the banks

NEGOTIABLE INSTRUMENTS ACT, 1881

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

Common Characteristics
of Negotiable Instruments

Negotiability

Writing a& signature

Money

Title

Notice

Presumptions
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
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
NEGOTIABLE INSTRUMENTS ACT, 1881
(CONTD.,)

Payment in Dishonour of
Endorsement Crossing of
due course, Negotiable
Sec 15 cheque
Sec 10 Instruments

The payment
This is the A direction to
must be
signature of the drawee
made Dishonoured
the banker not to
according to by non
maker/holder pay the
apparent acceptance/
made with money over
tenor of the
the object of the counter,
instrument
negotiating/ should pay Dishonoured
in god faith
transferring, only through by non-
to the
not as a specified payment
possessor of
maker of the banker or his
the
instrument. agent.
instrument.
BANKING REGULATIONS ACT, 1949

• Short title, extent and

commencement
Part I: • Application of other loans
Preliminary • Power to suspend
operation of Act

• Form of business in which

Part II: banking company may
Business of engage
Banking • Prohibition of trading
• Disposal of Non-Banking
Companies Assets
BANKING REGULATIONS ACT, 1949
(CONTD.,)
• Power of Central |Govt. to make
Part III: Provisions rules for the presentation of
relating to certain records
operations of • Return of paid instruments to
Banking company’s customers

•Penalties
•Application of fines
•Cognizance of offences
•Special provisions for banking
Part IV: companies
Miscellaneous •Restriction on acceptance of deposits
•Change of name by a banking
company
•Certain claims for compensation
barred
BANKING REGULATIONS ACT, 1949
(CONTD.,)

Part V:
Application • Act to apply to Co-operative
societies for modification
of the Act • Power to exempt
to Co- • Restriction on loans &
advances
operative
Banks