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PRINCIPLES PRACTICES OF BANKING nd Edition u) INSTITUTE OF BANKING & FINANCE MACMILLAN ij © INDIAN INSTITUTE OF BANKING & FINANCE, MUMBAI, 2005, 2008 (This book has been published by Indian Institute of Banking & Finance. Permission of the Institute is essential for reproduction of any portion of this book. The views expressed herein are not necessarily the views of the Institute.) Al rights reserved. No part of this publication may be reproduced or transmitied, in any form or by any means, without permission. Any person who does any unauthorised act in relation to this publication ‘may be liable to criminal prosecution and civil claims for damages. First edition, 2005 Second edition, 2008 Reprinted, 2008, 2009 (Thrice). MACMILLAN PUBLISHERS INDIA LIMITED Chennai Kolkata Bangalore Bhopal Chandigarh NewDelhi Coimbatore Cuttack Hubli Hyderabad Jaipur Lucknow Madurai Mumbai Nagpur Patna Pune. Siliguri Thiruvananthapuram Viskhapatanam, Companies and representatives throughout the world ISBN 10: 0230-63611-X ISBN 13: 978-0230-63611-8 Published by Rajiv Beri for Macmillan Publishers In ited and Printed by SM Yogan at Macmillan India Press, Chennai — 600 04) PRINCIPLES & PRACTICES OF BANKING | Originally prepared by A.M. Arundekar (Module A), O.P. Agarwal (Module B), Dr. Onkar Nath (Module C), PS. Khandelwal (Module D) under the guidance of T'S. Radhakrishnan, Revised and updated by D. Srinivasan (Module A), R. Malayarasan (Module B), V. Radhakrishnan & Y. Suresh (Module C), Praveen Kumar & H.M. Prathiba (Module D) all faculty at IMAGE, Chennai under the guidance of N.C, Rao, Asst. General Manager, Indian Bank, Chennai & Dr. U.A. Balasubramanian, Faculty, IMAGE, Chennai. Glossary prepared by Mr. B.S. Khubchandani; Former Chief Manager, Bank of India. ‘Thisbook is meant for educational and leaning purposes. The author(s) of the book hashave taken all reasonable care to ensure thatthe contents ofthe hook donot vielate any existing copyright or other intellectaal property right of any person in any anner whasoever. Inthe event he authors) hashhave ‘been unable otrack any source adif any copyright has been inadvertenly infringed, please notify the publisher in writing for comectve action. PAPER 1 — PRINCIPLES & PRACTICE OF BANKING The candidates would be able to acquire an in-depth knowledge of the following: + Various functions associated with banking. + Practice and procedures relating to deposit and credit, documentation, monitoring and control. *__An insight into marketing of banking services and banking technology. MODULE A — INDIAN FINANCIAL SYSTEM Recent Developments in the Indian Financial System; Market Structure and Financial Innovation. RBI, SEBI, IRDA, etc. — their Major Functions. Role and Functions of Banks — Regulatory Provisions/ Enactments Governing Banks. Retail Banking: Approach, Products, Marketing, etc. Wholesale Banking; International Banking Role and Functions of Capital Markets Role and Functions of Mutual Funds Role and Functions of Insurance Companies ~ Bancassurance Importance of Risk Management in Banks ~ Types of Risk ~ Impact and Management Factoring & Forfaiting Alliances/Mergers/Consolidation ADR/GDR/Off Balance Sheet Items Participatory Notes Credit Information Bureau (India) Ltd. Basel Il Banking Codes and Standards Board MODULE B — FUNCTIONS OF BANKS Deposits Banker-Customer Relations - Know Your Customer [K YC] Guidelines — Different Deposit Products — Services Rendered by Banks — Mandate and Power of Attorney Banker’s Lien — Right of Set-off — Garnishee Order ~ Income Tax Attachment Order, etc. Payment and Collection of Cheque — Duties and Responsibilities of Paying and Collecting Banker- Protection Available to Paying and Collecting Banker under NI Act — Endorsements ~ Forged Instruments — Bouncing of Cheques and their Implications