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Welcome to IIBF’s - JAIIB Virtual Classes. PRINCIPLES OF BANKING Module A & B April 15/2008. Financial System in India . Financial Sector consists of three main segments viz., 1) Financial institutions -banks, mutual funds, insurance companies 2) Financial markets -money market,

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welcome to iibf s jaiib virtual classes

Welcome toIIBF’s - JAIIB Virtual Classes

PRINCIPLES OF BANKING

Module A & B

April 15/2008

financial system in india
Financial System in India
  • Financial Sector consists of three main segments viz.,
  • 1) Financial institutions -banks, mutual funds, insurance companies
  • 2) Financial markets -money market,

debt market,capital market, forex market

  • 3) Financial products -loans, deposits, bonds, equities
banking in india5
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 regulation act 1949 br act 1
Banking Regulation Act,1949 (BR Act)-1

- BR Act covers banking companies and

cooperative banks, with certain modifications.

- BR Act is not applicable to

a) primary agricultural credit societies b) land development banks

  • BR Act allows RBI (Sec 22) to issue

licence for banks

reserve bank of india act 1934 rbi act 1
Reserve Bank of India Act,1934(RBI Act)-1
  • RBI Act was enacted to constitute the

Reserve Bank of India

  • RBI Act has been amended from time to

time

  • RBI Act deals with the constitution,

powers and functions of RBI

reserve bank of india act 1934 rbi act 2
Reserve Bank of India Act,1934(RBI Act)-2
  • RBI Act deals with:
  • incorporation, capital management and

business of banks

  • central banking functions
  • financial supervision of banks and

financial institutions

  • management of forex/reserves
  • control functions : bank rate,audit,accounts
  • penalities for violation
reserve bank of india 1
Reserve Bank of India - 1
  • 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
money market instruments
Money Market Instruments
  • Inter bank call money/deposit
  • Inter bank notice money/deposit
  • Inter bank term money/deposit
  • Certificates of Deposit
  • Commercial Paper
  • Treasury Bills
  • Bill rediscounting
  • Repos
certificates of deposit
Certificates of Deposit
  • CDs are short-term borrowings in the form of UPN issued by scheduled commercial banks and are freely transferable by endorsement and delivery.
  • Introduced in 1989
  • Minimum period 7 days and maximum period one year. FIs are allowed to issue CDs for a period between 1 year and up to 3 years
  • Minimum amount is Rs 1,00,000.00
  • Subject to payment of stamp duty under the Indian Stamp Act, 1899
  • Issued to individuals, corporations, trusts, funds and associations
  • Issued at a discount rate freely determined by the market/investors
commercial paper
Commercial Paper
  • Short-term borrowings by corporates, financial institutions, primary dealers from the money market
  • Can be issued in the physical form (Usance Promissory Note) or de mat format
  • Introduced in 1990
  • When issued in physical form are negotiable by endorsement and delivery and hence, highly flexible
  • Maturity is 7 days to 1 year
  • Unsecured and backed by credit rating of the issuing company
  • Issued at discount to the face value
repos
Repos
  • Repo (repurchase agreement) instruments enable collateralised short-term borrowing through the selling of debt instruments
  • A security is sold with an agreement to repurchase it at a pre-determined date and rate
  • Reverse repo is a mirror image of repo and reflects the acquisition of a security with a simultaneous commitment to resell
indian capital market
INDIAN CAPITAL MARKET
  • Indian Capital Market plays an important role in the economic development of the country
  • It provides opportunities for investors to invest in the market and also to earn attractive rate of return.
  • It also creates source of funds for the various sectors
  • National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the major stock exchanges in India
securities exchange board of india sebi
Securities & Exchange Board of India (SEBI)
  • SEBI was constituted on April 12/1988, and obtained the statutory powers in March,1992
  • SEBI’s functions:
  • To protect the interests of investors
  • To recognize the business in stock exchanges and other security markets
  • To supervise and regulate work of intermediaries, such as stock brokers

merchant bankers/custodians

depositories/bankers to the issues

association of mutual funds in india amfi
Association of Mutual Funds in India (AMFI)
  • AMFI is an association as a non profit organization.
  • AMFI represents mutual funds in India and working for healthy growth of the Mutual Funds.
  • AMFI conduct examinations for MF executives as part of their training

activities

insurance regulatory development authority irda
Insurance Regulatory & Development Authority (IRDA)
  • The regulator for insurance business in India is IRDA.
  • IRDA was established in 2000
  • IRDA’s functions:
  • To regulate, promote and ensure orderly growth of the insurance business and reinsurance business in India
  • To protect the interests of policy holders
insurance sector
Insurance Sector
  • Insurance Sector in India can be divided into two main sections
financial intermediaries 1
Financial Intermediaries (1)
  • Mutual Funds- As financial intermediary promote savings and mobilise funds which are invested in the stock market and bond market
  • MFs are associations or trusts of public members and assist them in making investments in the financial instruments of the business/corporate sector for the mutual benefit of its members.
  • MFs aims to reduce the risks in investments

Mutual funds help their investors to enhance their value by investing the funds in capital market.

  • Mutual funds offer various schemes: growth fund, income fund, balanced fund,sector wise funds, etc.,
  • Regulated by SEBI
financial intermediaries 2
Financial Intermediaries (2)
  • Merchant banking- Another important financial intermediary which manages and underwrites new issues, undertake syndication of credit, advise corporate clients on fund raising
  • Subject to regulation by SEBI and RBI
  • SEBI regulates them on issue activity and portfolio management of their business.
  • RBI supervises those merchant banks which are subsidiaries or affiliates of commercial banks
indian banking significant events 1
Indian Banking - Significant events 1
  • Three presidency banks were established in Calcutta (1806) in Bombay (1840) and in Madras (1843)
  • In the early part of 20th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and Central Bank of India.
  • In 1921 the three presidency banks were merged and the Imperial Bank of India was created.
  • During the period 1900 to 1925 many banks failed, and the Government appointed in 1929 a Central Banking Enquiry Committee to trace the reasons for the failure of banks.
  • The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949
  • The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India
indian banking significant events 2
Indian Banking -Significant events 2
  • In 1955 State Bank of India became the successor to the Imperial Bank of India ,under the State Bank of India Act,1955.
  • In 1959 State Bank of India (Subsidiary Banks) Act was passed to enable SBI to take over State Associated banks as SBI’s subsidiaries
  • In 1969 the Government of India nationalised 14 major commercial banks having deposits of Rs.50 crore or more
  • In 1975 Regional Rural Banks were established under RRB Act 1976, which was preceded by RRB Ordinance in 1975
  • In 1980 six more commercial banks were nationalised, with a deposit of Rs.200 crore or more
progress of banking in india
Progress of banking in India
  • In the liberalised, privatised and globalised environment, banks opeating

in India have diversified their banking activities by offering Para Banking facilities like

    • Merchant banking/Mutual funds
    • ATMs/Credit Cards/Internet banking
    • Venture capital funds
    • Factoring
    • Bancassurance
classification of banks 3
Classification of Banks-3
  • Public Sector Banks =State Bank of India+SBI’s associate banks+

Nationalised banks

  • Private Sector Banks=Indian Private Sector Banks (Old/New generation banks)+Foreign banks in India
  • Other Banks=Regional Rural Banks(RRB)
reserve bank of india
RESERVE BANK OF INDIA
  • SUPERVISORY & REGLATORY
  • Issuance of currency notes
  • Banker’s Banker
  • Lender of the last resort
  • Credit Control & Monetary Policy
  • Exchange Control & Forex Management
  • Funds Transfer
credit control
CREDIT CONTROL
  • QUANTITATIVE CREDIT CONTROL
  • QUALITATIVE CEDIT CONTROL’
  • CRR & SLR
  • BANK RATE
  • OPEN MARKET OPERATIONS
functions of banks 2
Functions of Banks - 2
  • 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 3
Functions of Banks-3
  • 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
foreign currency non resident deposit accounts fcnr b
Foreign Currency Non-residentDeposit Accounts –FCNR (B)
  • FCNR (B) accounts
  • NRIs,PIOs,residing outside India can open FCNR (B) accounts
  • FCNR (B) accounts are maintained as fixed deposits in certain designated currencies
  • The designated currencies are:
  • US$, GBP, Japanese Yen, Euro, Cad$, Aus $
  • Maintained in Banks in India in the above

mentioned foreign currencies and interest is also earned in such foreign currencies

  • Repatriation of funds (principal, interest) is allowed
know your customer kyc 1
Know Your Customer (KYC) -1
  • KYC: Know Your Customer
  • Know your customer (KYC) norms are applicable to all types of customer a/cs.
  • It deals with not only to identify the customer but also to understand the activities of the customer, and to ensure that the operations in the customer

account/s is/are for genuine purpose

know your customer kyc 2
Know Your Customer (KYC) -2
  • Application of KYC norms have become

important due to various reasons.

  • In view of many issues on account of drugs smuggling, money laundering, terrorist activities, arms dealing,etc.,

banks need to be careful in dealing with their clients.

banker customer relationship
BANKER-CUSTOMERRELATIONSHIP
  • DEBTOR-CREDITOR
  • CREDITOR-DEBTOR
  • AGENT-PRINCIPAL
  • LESSOR-LESSEE
  • BAILEE-BAILOR
negotiable instruments
NEGOTIABLE INSTRUMENTS

BANKER’S DUTIES

&

RESPONSIBILITIES

C0LLECTING

BANKER

COLLECTION OF

CHEQUES

six cs
Six Cs
  • Character
  • Capital
  • Capacity
  • Collateral
  • Condition
  • Compliance
charges
CHARGES
  • HYPOTHECATION
  • PLEDGE
  • MORTGAGE
  • ASSIGNMENT
  • LIEN
  • SET OFF
srfaesi act 2002
SRFAESI Act,2002

- Securitisation and Reconstruction of

Financial Assets and Enforcement of

Security Interest Act (SRFAESI) was

enacted in 2002

_ Securitisation Company/Reconstruction

Company (SCRC) can finance the

acquistion from own resources or rise

sources from Qualified Institutional

Buyers (QIBs)

small medium enterprises smes
Small & Medium Enterprises (SMEs)
  • SMEs are classified based on Small & Medium Enterprises Development Act,2006
  • SMEs are divided into micro,small & medium sized entities.
  • SMEs are classified based on two categories

viz., manufacturing units and service companies.

  • In case of manufacturing units investments

in plant and machinery and for service companies investments in equipment are

considered for classification as SMEs

documentation 1
Documentation 1

- Loan documents are classified as

primary and secondary

- Documents are obtained based on the

type of credit facility/constitution of the borrower/nature of securities offered by the borrowers

- Documents should have a clear title

and can be valid to be enforced in a

court of law

- Wherever required documents need to be

stamped appropriately

  • Documents should be properly filled up and duly

executed by authorised persons.

documentation 2
Documentation 2
  • Documentary evidence as per Sec 61

of Evidence Act :

  • Primary: original documents needs to

be produced for inspection of court

b) Secondary:

- certified copies

- copies made from or compared with

original

all the best thank you
ALL THE BEST & THANK YOU
  • T.M.C.VARADARAJAN
  • TEL : 022-25638965 (R)
  • 022-66364206 (O)
  • e.mail: t.varadarajan@scotiabank.com
  • tmc_varadarajan@yahoo.co.in
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