Prepared by

Abhishek kumar
Department of management studies
Kumaun university, Nainital
 Banking Regulation Act of India, 1949 defines
Banking as accepting, for the purpose of lending or
of investment of deposits of money from the public,
repayable on demand or otherwise or withdrawable
by cheque, draft order or otherwise. The Reserve
Bank of India Act, 1934 and the Banking Regulation
Act, 1949, govern the banking operations in India.
 A well-regulated banking system is a key comfort for local
and foreign stake-holders in any country. Prudent banking
regulation is recognized as one of the reasons why India
was less affected by the global financial crisis.
Banks can be broadly categorized as Commercial Banks
or Co-operative Banks.
Banks which meet specific criteria are included in the
second schedule of the RBI Act, 1934. These are called
scheduled banks. They may be commercial banks or co-
operative banks. Scheduled banks are considered to be
safer, and are entitled to special facilities like re-finance
from RBI. Inclusion in the schedule also comes with its
responsibilities of reporting to RBI and maintaining a
percentage of its demand and time liabilities as Cash
Reserve Ratio (CRR) with RBI.
1) The RBI: The RBI is the supreme monetary and banking authority
in the country and has the responsibility to control the banking
system in the country. It keeps the reserves of all scheduled banks
and hence is known as the Reserve Bank.
2) Public Sector Banks:
State Bank of India and its Associates (8)
Nationalized Banks (19)
Regional Rural Banks Sponsored by Public Sector Banks (196)
3) Private Sector Banks:
Old Generation Private Banks (22)
Foreign New Generation Private Banks (8)
Banks in India (40)
4) Co-operative Sector Banks:
State Co-operative Banks
Central Co-operative Banks
Primary Agricultural Credit Societies
Land Development Banks
State Land Development Banks

5) Development Banks: Development Banks mostly provide long term

finance for setting up industries. They also provide short-term finance
(for export and import activities)
Industrial Finance Co-operation of India (IFCI)
Industrial Development of India (IDBI)
Industrial Investment Bank of India (IIBI)
Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture and Rural Development (NABARD)
Export-Import Bank of India
 Commercial banks comprising public sector banks,
foreign banks, and private sector banks represent the
most important financial intermediary in the Indian
financial system.
The changes in banking structure and control have
resulted due to wider geographical spread and
deeper penetration of rural areas, higher
mobilization of deposits, reallocation of bank credit
to priority activities, and lower operational
autonomy for a bank management. Public sector
commercial banks, dominate the commercial
banking scene in the country. The largest
commercial Banks in India is SBI 7
A ) Acceptance of deposits
Fixed deposit account
Saving bank account
Current account

B ) Advancing of loan
Cash credit
Call loans
Over draft
Bills discounting
C) Agency function
Collecting receipts
Making payments
Buy and sell securities
Trustee and executor

D ) General utility function

Issuing letters of credit, travelers cheques
Underwriting share and debentures
Safe custody of valuables
Providing ATM and credit card facilities
Providing credit information
 These banks play a vital role in mobilizing savings
and stimulating agricultural investment. Co-operative
credit institutions account for the second largest
proportion of 44.6% of total institutional credit. The
co-operative sector is very much useful for rural
people. The co-operative banking sector is divided
into the following categories.
State co-operative Banks
Central co-operative banks
Primary Agriculture Credit Societies

10
 A development bank may be defined as a financial
institution concerned with providing all types of
financial assistance to business units in the form of
loans, underwriting, investment and guarantee
operations and promotional activities-economic
development in general and industrial development in
particular
A development bank is basically a term lending
institution. It is a multipurpose financial institution
with a broad development outlook.
The industrial finance corporation of India, the first
development bank was established in 1948.
Subsequently many other institutions were set-up. Ex.
IDBI, IFCI, SIDBI etc. 11
 Fostering industrial growth
Providing Long term assistant
Balanced development
Providing Promotional services
Infrastructure building
Entrepreneur Development
Fulfilling Socio economic objectives

12
 Meaning: Financial intermediaries that acquire the
savings of people and direct these funds into the business
enterprises seeking capital for the acquisition of plant
and equipment and for holding inventories are called
investment banks.
Features: Long term financing, Security, merchandiser,
Security middlemen, Insurer, Underwriter
Functions: Capital formation, Underwriting, Purchase of
securities, Selling of securities, Advisory services,
Acting as dealer.

13
 Meaning: Institution that render wide range of services
such as the management of customers securities,
portfolio management, counseling, insurance, etc are
called Merchant Banks.
Functions: Sponsoring issues, Loan syndication,
Servicing of issues, Portfolio, management, Arranging
fixed deposits, Helps in merger& acquisition

14
State Bank of India Punjab & Sind Bank
Dena Bank Bank of Maharashtra
Allahabad Bank Punjab National Bank
Indian Bank Canara Bank
Andhra Bank Syndicate Bank
Indian Overseas Bank Central Bank of India
Bank of Baroda Union Bank of India
Oriental Bank of Commerce Corporation Bank
Bank of India United Bank of India
IDBI Bank UCO Bank
Vijaya Bank
*Axis Bank *IndusInd Bank
*Bank of Rajasthan *ING Vysya Bank
*Bharat Overseas Bank *Jammu & Kashmir Bank
*Catholic Syrian Bank *Karnataka Bank Limited
*Centurion Bank of Punjab *Karur Vysya Bank
*City Union Bank *Kotak Mahindra Bank
*Development Credit Bank *Lakshmi Vilas Bank
*Dhanalakshmi Bank *Nainital Bank
*Federal Bank *Ratnakar Bank
*Ganesh Bank of Kurundwad *SBI Commercial and International Bank
*HDFC Bank *South Indian Bank
*ICICI Bank *Tamilnad Mercantile Bank Ltd.
*YES Bank
 ABN-AMRO Bank
Abu Dhabi Commercial Bank Ltd
American Express Bank Ltd
Citibank
DBS Bank Ltd
Deutsche Bank
HSBC Ltd
Standard Chartered Bank
 The Reserve Bank of India (RBI) is the central bank of
India, and was established on April 1, 1935 in accordance
with the provisions of the Reserve Bank of India Act,
1934. Since its inception, it has been headquartered in
Mumbai. Though originally privately owned, RBI has
been fully owned by the Government of India since
nationalization in 1949.
RBI is governed by a central board (headed by a
Governor) appointed by the Central Government.RBI has
22 regional offices across India. The Reserve Bank of
India was set up on the recommendations of the Hilton
Young Commission.
 Monetary Authority
Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring adequate
flow of credit to productive sectors
Regulator and supervisor of the financial system
Prescribes broad parameters of banking operations within
which the countrys banking and financial system functions.
Objective: Maintain public confidence in the system, protect
depositors interest and provide cost-effective banking services
to the public. The Banking Ombudsman Scheme has been
formulated by the Reserve Bank of India (RBI) for effective
redressal of complaints by bank customers
 Manager of Foreign Exchange and Control
Manages the foreign exchange through Foreign
Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and
promote orderly development and maintenance of
foreign exchange market in India.
Issuer of currency
Issues and exchanges or destroys currency and coins
not fit for circulation.
Objective: to give the public adequate quantity of
supplies of currency notes and coins and in good
quality
 Developmental role
Performs a wide range of promotional functions to
support national objectives
Related Functions
Banker to the Government: performs merchant
banking function for the central and the state
governments; also acts as their banker.
Banker to banks: maintains banking accounts of all
scheduled banks.
Owner and operator of the depository (SGL) and
exchange (NDS) for government bonds
 Supervisory Functions:
In addition to its traditional central functions, the Reserve bank
has certain non-monetary functions of the nature of supervision
of banks and promotion of sound banking in India.
The Reserve Bank Act, 1934, and the Banking Regulation Act,
1949 have given the RBI wide powers of supervision and
control over commercial and cooperative banks, relating to
licensing and establishments, branch expansion, liquidity of
their assets, management and methods of working,
amalgamation, reconstruction and liquidation.
The RBI is authorized to carry out periodical inspections of the
banks and to call for returns and necessary information from
them.. The supervisory functions of the RBI have helped a
great deal in improving the standard of banking in India to
develop on sound lines and to improve the methods of their
 Promotional Functions:
The Reserve Bank now performs a variety of developmental
and promotional functions. The Reserve Bank promotes
banking habit, extend banking facilities to rural and semi-urban
areas, and establish and promote new specialized financing
agencies.
The Reserve bank has helped in the setting up of the IFCI and
the SFC: it set up the Deposit Insurance Corporation of India in
1963 and the Industrial Reconstruction Corporation of India in
1972. These institutions were set up directly or indirectly by
the Reserve Bank to promote saving habit and to mobilize
savings, and to provide industrial finance as well as agricultural
finance.
The RBI set up the Agricultural Credit Department in 1935 to
provide agricultural credit. The Bank has developed the co-
operative credit movement to encourage saving, to eliminate
money-lenders from the villages and to route its short term
credit to agriculture. The RBI has set up the Agricultural
Refinance and Development Corporation to provide long-term
finance to farmers
 The different products in a bank can be broadly
classified into:
Retail Banking
Trade Finance
Treasury Operations.
Retail Banking and Trade finance operations are
conducted at the branch level while the wholesale
banking operations, which cover treasury operations,
are at the hand office or a designated branch.
Retail Banking:
Deposits
Loans, Cash Credit and Overdraft
Negotiating for Loans and advances
Remittances
Book-Keeping (maintaining all accounting records)
Receiving all kinds of bonds valuable for safe keeping
Trade Finance:
Issuing and confirming of letter of credit.
Drawing, accepting, discounting, buying, selling,
collecting of bills of exchange, promissory notes,
drafts, bill of lading and other securities.
 Treasury Operations:
Buying and selling of bullion. Foreign exchange
Acquiring, holding, underwriting and dealing in shares,
debentures, etc.
Purchasing and selling of bonds and securities on behalf of
constituents.
The banks can also act as an agent of the Government or local
authority. They insure, guarantee, underwrite, participate in
managing and carrying out issue of shares, debentures, etc.
Apart from the above-mentioned functions of the
bank, the bank provides a whole lot of other services like
investment counseling for individuals, short-term funds
management and portfolio management for individuals and
companies. It undertakes the inward and outward remittances
with reference to foreign exchange and collection of varied
types for the Government
 Credit Card: Credit Card is post paid or pay later
card that draws from a credit line-money made available
by the card issuer (bank) and gives one a grace period to
pay. If the amount is not paid full by the end of the period,
one is charged interest
Debit Cards: Debit Card is a prepaid or pay now card
with some stored value. Debit Cards quickly debit or
subtract money from ones savings account, or if one were
taking out cash.
Every time a person uses the card, the merchant who in
turn can get the money transferred to his account from the
bank of the buyers, by debiting an exact amount of
purchase from the card. To get a debit card along with a
Personal Identification Number (PIN).
 Automatic Teller Machine: The ATMs are used by
banks for making the customers dealing easier. ATM card
is a device that allows customer who has an ATM card to
perform routine banking transaction at any time without
interacting with human teller. It provides exchange
services. This service helps the customer to withdraw
money even when the banks ate closed. This can be done
by inserting the card in the ATM and entering the Personal
Identification Number and secret Password. It allows the
customers
To transfer money to and from accounts.
To view account information.
To order cash.
To receive cash.
 Electronic Funds Transfer (EFT):. The system called
electronic fund transfer (EFT) automatically transfers
money from one account to another. This system
facilitates speedier transfer of funds electronically from
any branch to any other branch. In this system the sender
and the receiver of funds may be located in different cities
and may even bank with different banks. Funds transfer
within the same city is also permitted. The scheme has
been in operation since February 7, 1996, in India.
Telebanking: Telebanking refers to banking on phone
services. A customer can access information about his/her
account through a telephone call and by giving the coded
Personal Identification Number (PIN) to the bank.
Telebanking is extensively user friendly and effective in
nature.
 Mobile Banking: A new revolution in the realm of e-
banking is the emergence of mobile banking. On-line
banking is now moving to the mobile world, giving
everybody with a mobile phone access to real-time
banking services, regardless of their location. It provides a
new way to pick up information and interact with the
banks to carry out the relevant banking business. The
potential of mobile banking is limitless and is expected to
be a big success. Booking and paying for travel and even
tickets is also expected to be a growth area. This is a very
flexible way of transacting banking business.
 Internet Banking: Internet banking involves use of internet
for delivery of banking products and services. Banking is no
longer confined to the branches where one has to approach the
branch in person, to withdraw cash or deposits a cheque or
request a statement of accounts. In internet banking, any
inquiry or transaction is processed online without any reference
to the branch (anywhere banking) at any time.
Benefits of Internet Banking:
Reduce the transaction costs of offering several banking
services and diminishes the need for longer numbers of
expensive brick and mortar branches and staff.
Increase convenience for customers, since they can conduct
many banking transaction 24 hours a day.
Increase customer loyalty.
Improve customer access.
Attract new customers.
Easy online application for all accounts, including personal
loans and mortgages
 Banking covers many services, these basic services have
always been recognized as the hallmark of the genuine banker.
These are
The receipt of the customers deposits
The collection of cheques drawn on other banks
The payment of the customers cheques drawn on himself
There are other various types of banking services like:
Advances Overdraft, Cash Credit, etc.
Deposits Saving Account, Current Account, etc.
Financial Services Bill discounting etc.
Foreign Services Providing foreign currency, travelers cheques,
etc.
Money Transmission Funds transfer etc.
Savings Fixed deposits, etc.
Services of place or time ATM Services.
Status Debit Cards, Credit Cards, etc.
 Banks extend credit to different categories of borrowers for a
wide variety of purposes. Bank credit is provided to
households, retail traders, small and medium enterprises
(SMEs), corporates, the Government undertakings etc. in the
economy.
Retail banking loans are accessed by consumers of goods and
services for financing the purchase of consumer durables,
housing or even for day-to-day consumption. In contrast, the
need for capital investment, and day-to-day operations of
private corporates and the Government undertakings are met
through wholesale lending.
Loans for capital expenditure are usually extended with
medium and long-term maturities, while day-to-day finance
requirements are provided through short-term credit (working
capital loans). Meeting the financing needs of the agriculture
sector is also an important role that Indian banks play.
 Safety: Banks need to ensure that advances are safe and money
lent out by them will come back. Since the repayment of loans
depends on the borrowers' capacity to pay, the banker must be
satisfied before lending that the business for which money is
sought is a sound one. In addition, bankers many times insist
on security against the loan, which they fall back on if things
go wrong for the business. The security must be adequate,
readily marketable and free of encumbrances.
Liquidity: To maintain liquidity, banks have to ensure that
money lent out by them is not locked up for long time by
designing the loan maturity period appropriately. Further,
money must come back as per the repayment schedule. If loans
become excessively illiquid, it may not be possible for bankers
to meet their obligations vis--vis depositors.
 Profitability: To remain viable, a bank must earn
adequate profit on its investment. This calls for adequate
margin between deposit rates and lending rates. In this
respect, appropriate fixing of interest rates on both
advances and deposits is critical. Unless interest rates are
competitively fixed and margins are adequate, banks may
lose customers to their competitors and become
unprofitable.
Risk diversification: To mitigate risk, banks should lend
to a diversified customer base. Diversification should be
in terms of geographic location, nature of business etc.
 Based on the general principles of lending stated above, the Credit
Policy Committee (CPC) of individual banks prepares the basic
credit policy of the Bank, which has to be approved by the Bank's
Board of Directors.
The loan policy outlines lending guidelines and establishes operating
procedures in all aspects of credit management including standards
for presentation of credit proposals, rating standards and
benchmarks, delegation of credit approving powers, prudential limits
on large credit exposures, asset concentrations, portfolio
management, loan review mechanism, risk monitoring and
evaluation, pricing of loans, provisioning for bad debts, regulatory/
legal compliance etc
The loan policy typically lays down lending guidelines in the
following areas:
Level of credit-deposit ratio
Targeted portfolio mix
Ratings
Loan pricing
Collateral security
 Credit Deposit (CD) Ratio: A bank can lend out only a certain
proportion of its deposits, since some part of deposits have to be
statutorily maintained as Cash Reserve Ratio (CRR) deposits, and an
additional part has to be used for making investment in prescribed
securities (Statutory Liquidity Ratio or SLR requirement). It may be
noted that these are minimum requirements. Banks have the option
of having more cash reserves than CRR requirement and invest more
in SLR securities than they are required to.
Targeted Portfolio Mix: The CPC aims at a targeted portfolio mix
keeping in view both risk and return. Toward this end, it lays down
guidelines on choosing the preferred areas of lending (such as
sunrise sectors and profitable sectors) as well as the sectors to avoid.
Banks typically monitor all major sectors of the economy. They
target a portfolio mix in the light of forecasts for growth and
profitability for each sector. If a bank perceives economic weakness
in a sector, it would restrict new exposures to that segment and
similarly, growing and profitable sectors of the economy prompt
banks to increase new exposures to those sectors. This entails active
 Ratings: There are a number of diverse risk factors
associated with borrowers. Banks should have a
comprehensive risk rating system that serves as a single
point indicator of diverse risk factors of a borrower. This
helps taking credit decisions in a consistent manner.
Pricing of loans: Risk-return trade-off is a fundamental
aspect of risk management. Borrowers with weak financial
position are placed in higher risk category and are provided
credit facilities at a higher price (that is, at higher interest).
The higher the credit risk of a borrower the higher would be
his cost of borrowing. To price credit risks, banks devise
appropriate systems, which usually allow flexibility for
revising the price (risk premium) due to changes in rating. In
other words, if the risk rating of a borrower deteriorates, his
cost of borrowing should rise and vice versa
 Collateral security: As part of a prudent lending policy, banks
usually advance loans against some security. The loan policy
provides guidelines for this. In the case of term loans and working
capital assets, banks take as 'primary security' the property or
goods against which loans are granted. In addition to this, banks
often ask for additional security or 'collateral security' in the form
of both physical and financial assets to further bind the borrower.
This reduces the risk for the bank
Capital adequacy: The amount of capital they have to be backed
up by depends on the risk of individual assets that the bank
acquires. The riskier the asset, the larger would be the capital it
has to be backed up by. A key norm of Capital Adequacy Ratio
(CAR) known as Capital Risk Weighted Assets Ratio, is a simple
measure of the soundness of a bank. The ratio is the capital with
the bank as a percentage of its risk-weighted assets. Given the
level of capital available with an individual bank, this ratio
determines the maximum extent to which the bank can lend.
 Credit Exposure Limits: As a prudential measure aimed at better
risk management and avoidance of concentration of credit risks, the
Reserve Bank has fixed limits on bank exposure to the capital market
as well as to individual and group borrowers with reference to a
bank's capital. Limits on inter-bank exposures have also been placed.
Banks are further encouraged to place internal caps on their sectorial
exposures, their exposure to commercial real estate and to unsecured
exposures. These exposures are closely monitored by the Reserve
Bank.
Lending Rates: Banks are free to determine their own lending rates
on all kinds of advances except a few such as export finance; interest
rates on these exceptional categories of advances are regulated by the
RBI. The concept of benchmark prime lending rate (BPLR) was
introduced in November 2003 for pricing of loans by commercial
banks with the objective of enhancing transparency in the pricing of
their loan products. Each bank must declare its benchmark prime
 Advances can be broadly classified into Fund-based lending and Non-
fund based lending
Fund based lending: This is a direct form of lending in which a loan
with an actual cash outflow is given to the borrower by the Bank. In
most cases, such a loan is backed by primary and/or collateral security.
The loan can be to provide for financing capital goods and/or working
capital requirements etc.
Non-fund based lending: These are services, where there is no outlay
of funds by the bank when the commitment is made. At a later stage
however, the bank may have to make funds available. Since there is no
fund outflow initially, it is not reflected in the balance sheet. However,
the bank may have to pay. Therefore, it is reflected as a contingent
liability in the Notes to the Balance Sheet. Therefore, such exposures
are called Off Balance Sheet Exposures. When the commitment is
made, the bank charges a fee to the customer. Therefore, it is also
called fee-based business..
 Working Capital Finance: Working capital finance is utilized for
operating purposes, resulting in creation of current assets (such as
inventories and receivables). Banks carry out a detailed analysis of
borrowers' working capital requirements. Credit limits are
established in accordance with the process approved by the board of
directors. The limits on Working capital facilities are primarily
secured by inventories and receivables (chargeable current assets).
Working capital finance consists mainly of cash credit facilities,
short term loan and bill discounting.
Project Finance: Project finance business consists mainly of
extending medium-term and long-term rupee and foreign currency
loans to the manufacturing and infrastructure sectors. Banks also
provide financing by way of investment in marketable instruments
such as fixed rate and floating rate debentures. Lending banks
usually insist on having a first charge on the fixed assets of the
borrower. The project finance approval process entails a detailed
evaluation of technical, commercial, financial and management
factors and the project sponsor's financial strength and experience.
 Loans to Small and Medium Enterprises: A
substantial quantum of loans is granted by banks to
small and medium enterprises (SMEs). While granting
credit facilities to smaller units, banks often use a
cluster-based approach, which encourages financing
of small enterprises that have a homogeneous profile
such as leather manufacturing units, chemical units, or
even export oriented units
Bank Overdraft : A facility where the account holder
is permitted to draw more funds that the amount in his
current account.
 Bill Purchase / Discount When Party A supplies goods to Party B, the
payment terms may provide for a Bill of Exchange (traditionally called
hundi). A bill of exchange is an unconditional written order from one person
(the supplier of the goods) to another (the buyer of the goods), signed by the
person giving it (supplier), requiring the person to whom it is addressed
(buyer) to pay on demand or at some fixed future date, a certain sum of
money, to either the person identified as payee in the bill of exchange, or to
any person presenting the bill of exchange.
When payable on demand, it is a Demand Bill
When payable at some fixed future date, it is a Usance Bill.
The supplier of the goods can receive his money even before the buyer
makes the payment, through a Bill Purchase / Discount facility with his
banker.
It would operate as follows:
The supplier will submit the Bill of Exchange, along with Transportation
Receipt to his bank.
The suppliers bank will purchase the bill (if it is a demand bill) or discount
the bill (if it is a usance bill) and pay the supplier.
The suppliers bank will send the Bill of Exchange along with
Transportation Receipt to the buyers bank, who is expected to present it to
the buyer:
For payment, if it is a demand bill
For acceptance, if it is a usance bill.
The buyer will receive the Transportation Receipt only on payment or
acceptance, as the case may be.
 Credit Card : The customer swipes the credit card to
make his purchase. His seller will then submit the details
to the card issuing bank to collect the payment. The bank
will deduct its margin and pay the seller. The bank will
recover the full amount from the customer (buyer). The
margin deducted from the sellers payment thus becomes a
profit for the card issuer.
Personal Loans: These are often unsecured loans
provided to customers who use these funds for various
purposes such as higher education, medical expenses,
social events and holidays. Sometimes collateral security
in the form of physical and financial assets may be
available for securing the personal loan
 Vehicle Finance : This is finance which is made available for
the specific purpose of buying a car or a two-wheeler or other
automobile. The interest rate for used cards can go close to the
personal loan rates. However, often automobile manufacturers
work out special arrangements with the financiers to promote
the sale of the automobile. This makes it possible for vehicle-
buyers to get attractive financing terms for buying new
vehicles.
Home Finance: Banks extend home finance loans, either
directly or through home finance subsidiaries. Such long term
housing loans are provided to individuals and corporations and
also given as construction finance to builders. The loans are
secured by a mortgage of the property financed. These loans
are extended for maturities generally ranging from five to
fifteen years and a large proportion of these loans are at
floating rates of interest
 Letter of Credit : When Party A supplies goods to Party B, the
payment terms may provide for a Letter of Credit.
In such a case, Party B (buyer, or opener of L/C) will approach
his bank (L/C Issuing Bank) to pay the beneficiary (seller) the
value of the goods, by a specified date, against presentment of
specified documents. The bank will charge the buyer a
commission, for opening the L/C.
The L/C thus allows the Part A to supply goods to Party B,
without having to worry about Party Bs credit-worthiness. It
only needs to trust the bank that has issued the L/C. It is for the
L/C issuing bank to assess the credit-worthiness of Party B.
Normally, the L/C opener has a finance facility with the L/C
issuing bank.
The L/C may be inland (for domestic trade) or cross border (for
international trade).
 Guarantee: In business, parties make commitments.
The beneficiary of the commitment wants to be sure
that the party making the commitment (obliger) will
live up to the commitment. This comfort is given by a
guarantor, whom the beneficiary trusts.
Banks issue various guarantees in this manner, and
recover a guarantee commission from the obliger. The
guarantees can be of different kinds, such as Financial
Guarantee, Deferred Payment Guarantee and
Performance Guarantee, depending on how they are
structured
Loan Syndication: This investment banking role is
performed by a number of universal banks
 Sale of Financial Products such as mutual funds and
insurance is another major service offered by universal
banks.
Financial Planning and Wealth Management are offered
by universal banks.
Executors and Trustees: a department within banks help
customers in managing succession of assets to the
survivors or the next generation.
Lockers: a facility that most Indian households seek to
store ornaments and other
valuables
 Demand Draft / Bankers Cheque / Pay Order
National Electronic Funds Transfer (NEFT):National
Electronic Funds Transfer (NEFT) is a nation-wide system that
facilitates individuals, firms and corporates to electronically
transfer funds from any bank branch to any individual, firm or
corporate having an account with any other bank branch in the
country.
In order to issue the instruction, the transferor should know not
only the beneficiarys bank account number but also the IFSC
(Indian Financial System Code) of the concerned bank.
IFSC is an alpha-numeric code that uniquely identifies a bank-
branch participating in the NEFT system. This is a 11 digit
code with the first 4 alpha characters representing the bank, and
the last 6 numeric characters representing the branch. The 5th
character is 0 (zero). IFSC is used by the NEFT system to route
the messages to the destination banks / branches
 Real Time Gross Settlement (RTGS): RTGS transfers are
instantaneous unlike National Electronic Funds Transfer
(NEFT) where the transfers are batched together and effected at
hourly intervals. RBI allows the RTGS facility for transfers
above Rs1lakhs. The RBI window is open on weekdays from 9
am to 4.30 pm; on Saturdays from 9 am to 12.30 pm
Society for Worldwide Interbank Financial
Telecommunications (SWIFT): SWIFT is solely a carrier of
messages. It does not hold funds nor does it manage accounts
on behalf of customers, nor does it store financial information
on an on-going basis. As a data carrier, SWIFT transports
messages between two financial institutions. This activity
involves the secure exchange of proprietary data while
ensuring its confidentiality and integrity.
SWIFT, which has its headquarters in Belgium, has developed
an 8-alphabet Bank Identifier Code (BIC). The BIC helps
identify the bank
 An asset of a bank (such as a loan given by the bank) turns into
a non-performing asset (NPA) when it ceases to generate
regular income such as interest etc for the bank.
In other words, when a bank which lends a loan does not get
back its principal and interest on time, the loan is said to have
turned into an NPA
Banks have to classify their assets as performing and non-
performing in accordance with RBI's guidelines. Under these
guidelines, an asset is classified as non-performing if any
amount of interest or principal installments remains overdue
for more than 90 days, in respect of term loans. In respect of
overdraft or cash credit, an asset is classified as non-
performing if the account remains out of order for a period of
90 days and in respect of bills purchased and discounted
account, if the bill remains overdue for a period of more than
90 days.
 Standard assets: Standard assets service their interest and
principal installments on time although they occasionally
default up to a period of 90 days. Standard assets are also
called performing assets. They yield regular interest to the
banks and return the due principal on time and thereby
help the banks earn profit and recycle the repaid part of
the loans for further lending.
Sub-standard assets: Sub-standard assets are those assets
which have remained NPAs (that is, if any amount of
interest or principal installments remains overdue for more
than 90 days) for a period up to 12 months
 Doubtful assets: An asset becomes doubtful if it remains
a sub-standard asset for a period of 12 months and
recovery of bank dues is of doubtful
Loss assets: Loss assets comprise assets where a loss has
been identified by the bank or the RBI. These are
generally considered uncollectible. Their realizable value
is so low that their continuance as bankable assets is not
warranted. They should be entirely written off. If this is
not done, provisioning should be made for 100% of the
amount shown as outstanding
 Banks utilize the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) as an effective tool
for NPA recovery. It is possible where non-performing assets are backed by
securities charged to the Bank by way of hypothecation or mortgage or
assignment. Upon loan default, banks can seize the securities (except
agricultural land) without intervention of the court.
The SARFAESI Act, 2002 gives powers of "seize and desist" to banks.
Banks can give a notice in writing to the defaulting borrower requiring it to
discharge its liabilities within 60 days. If the borrower fails to comply with
the notice, the Bank may take recourse to one or more of the following
measures:
Take possession of the security for the loan
Sale or lease or assign the right over the security
Manage the same or appoint any person to manage the same
The SARFAESI Act also provides for the establishment of asset
reconstruction companies regulated by RBI to acquire assets from banks
and financial institutions.
The Act provides for sale of financial assets by banks and financial
institutions to asset reconstruction companies (ARCs). RBI has issued
guidelines to banks on the process to be followed for sales of financial
assets to ARCs.
 Hypothecation:Hypothecation is defined under the
SARFAESI Act, 2002, (which will be discussed in the
next chapter) as follows:
Hypothecation means a charge in or upon any
movable property, existing or future, created by a
borrower in favour of a secured creditor, without
delivery of possession of the moveable property to
such creditor, as a security for financial assistance,
and includes floating charge and crystallization of
such charge into fixed charge on moveable property.
 The act addresses the regulation of three distinct areas:
Securitization
Reconstruction of Financial Assets
Enforcement of Security Interest
Securitization
This is a process where financial assets (say, dues from a
borrower) are converted into marketable securities (security
receipts) that can be sold to investors.
In the first stage of a securitization transaction, an originater sells
the financial asset to the securitization company. This can be done
as follows:
The securitization company / asset re-construction company
issues a debenture or bond or any other security in the nature of a
debenture, for the agreed consideration, and as per the agreed
terms and conditions, to the originator; or
Entering into an agreement for transfer of the financial asset as
per the agreed terms and conditions
On acquisition of the financial asset, the securitization or
 In the second stage, against the security of the financial asset, the
securitization company can mobilize money by issuing security
receipts to QIB investors.
Thus, securitization makes it possible to transfer loans secured by
mortgage or other charges.
Asset Re-construction
Here, the right or interest of any bank or financial institution in any
financial asset is acquired by the asset re-construction company for
the purpose of realization of dues.
Asset re-construction might entail taking several measures such as:
Takeover the management of the business of the borrower or bring
about any such change.
To sell or lease a part or whole of the business of the borrower.
Reschedule debts of the borrower.
Take possession of secured asset
Enforce security interest
Settle dues payable by the borrower
 Enforcement of Security Interest
SARFAESI gives another window for banks and financial
institutions to enforce their security interest without the
intervention of Civil Court or the Debt Recovery Tribunal
(DRT).
If the lender also holds security through a pledge of any
moveable assets, or the guarantee of any person, then it
can sell the pledged goods or proceed against the
guarantor without initiating any action against the secured
assets.
Under SARFAESI, the bank or financial institution needs
to give 60-day notice to the defaulter, giving details of the
amount payable and the secured asset intended to be
enforced by the secured creditor, in the event of non-
payment of the secured debt. The effect of this notice is
that the borrower is barred from transferring the property
mentioned in the notice.
 If the dues are not paid during the notice period, then
the secured creditor gets the following rights:
Take possession of the secured assets, and transfer it
by lease, assignment or sale for realization of money.
Appoint a manager to manage the secured assets that
have been re-possessed.
Takeover management of the secured assets, and
transfer it by lease, assignment or sale for realization
of money.
Give notice to any person who has acquired the
secured asset from the borrower, and from whom any
money is due or may become due to the borrower, to
pay the moneys to the secured creditor. Such payment
to the secured creditor will be a valid discharge of the
persons dues to the borrower
 International banking relates to financial
intermediaries that bid for time deposits and make
loans in the offshore market
It is an unregulated market involving greater risk
It is a wholesale segment of lending and deposit
activity
International banking brings together borrowers and
lenders from same country or different countries
They are substitutes for the domestic banking
system
1. Facilitate imports and exports of their clients trade
financing
2. Arrange for foreign exchange cross-border
transactions and foreign investments
3. Assist in hedging exchange rate risk
4. Trade foreign exchange products for their own account
5. Borrow and lend in the Eurocurrency market
6. Participate in international loan syndicate lending to
MNCs- project financing and to sovereign governments
economic development
7. Participate in underwriting of Eurobonds and foreign
bonds issues.
8. Provide consultancy and advice on hedging strategies,
interest rate and currency swap financing and
international cash management services
 Bank for International Settlements (BIS)
Established on 17 May 1930, the BIS is the world's oldest
international financial organization. It has its head office in
Basel, Switzerland.
BIS fosters co-operation among central banks and other
agencies in pursuit of monetary and financial stability. It
fulfills this mandate by acting as:
A forum to promote discussion and policy analysis among
central banks and within the international financial
community
A centre for economic and monetary research
A prime counterparty for central banks in their financial
transactions
Agent or trustee in connection with international financial
operations
 Every two months, the BIS hosts in Basel, meetings of
Governors and senior officials of member central banks. The
meetings provide an opportunity for participants to discuss the
world economy and financial markets, and to exchange views
on topical issues of central bank interest or concern.
BIS also organizes frequent meetings of experts on monetary
and financial stability issues, as well as on more technical
issues such as legal matters, reserve management, IT systems,
internal audit and technical cooperation.
BIS is a hub for sharing statistical information among central
banks. It publishes statistics on global banking, securities,
foreign exchange and derivatives markets.
Through seminars and workshops organized by its Financial
Stability Institute (FSI), the BIS disseminates knowledge
among its various stake-holders
 Banking environment has become highly competitive today. To
be able to survive and grow in the changing market
environment banks are going for the latest technologies, which
is being perceived as an enabling resource that can help in
developing learner and more flexible structure that can respond
quickly to the dynamics of a fast changing market scenario.
It is also viewed as an instrument of cost reduction and
effective communication with people and institutions
associated with the banking business.
Information Technology enables sophisticated product
development, better market infrastructure, implementation of
reliable techniques for control of risks and helps the financial
intermediaries to reach geographically distant and diversified
markets.
 Many banks have modernized their services with the
facilities of computer and electronic equipments.
The electronics revolution has made it possible to provide
ease and flexibility in banking operations to the benefit of
the customer.
The e-banking has made the customer say good-bye to
huge account registers and large paper bank accounts
 The e-banks, which may call as easy bank offers the
following services to its customers
Credit Cards Debit Cards
ATM
E-Cheques
EFT (Electronic Funds Transfer)
D-MAT Accounts
Mobile Banking
Telephone Banking
Internet Banking
EDI (Electronic Data Interchange)
To the Customer
Anywhere Banking no matter wherever the customer is in
the world. Balance enquiry, request for services, issuing
instructions etc., from anywhere in the world is possible.
Anytime Banking Managing funds in real time and most
importantly, 24 hours a day, 7days a week.
Convenience acts as a tremendous psychological benefit all
the time.
Brings down Cost of Banking to the customer over a
period a period of time.
Cash withdrawal from any branch / ATM
On-line purchase of goods and services including online
payment for the same.
To the Bank:
Innovative, scheme, addresses competition and present the bank as

technology driven in the banking sector market .

Reduces customer visits to the branch and thereby human

intervention
Inter-branch reconciliation is immediate thereby reducing chances of

fraud and misappropriation

On-line banking is an effective medium of promotion of various

schemes of the bank, a marketing tool indeed.

Integrated customer data paves way for individualized and
customized services.