Professional Documents
Culture Documents
A Summer Training Report On Banking Operations (Punjab & Sind Bank)
A Summer Training Report On Banking Operations (Punjab & Sind Bank)
On
Banking Operations
Of
Roll No.:06612201709
Semester- 5
I, Ms. Shweta Kaushik, Roll No. 06612201709 certify that the Summer Training Report
work carried out by me at Punjab & Sind Bank. The matter embodied in this has not been
submitted earlier for the award of any degree or diploma to the best of my knowledge and
belief.
Date:
Certified that the Summer Training Report (Paper Code 311) entitled “Banking
guidance.
Date:
Designation:
Countersigned
Director
Acknowledgement
I have taken efforts in this project. However, it would not have been possible without the
kind support and help of many individuals. I would like to extend my sincere thanks to all
of them.
I am highly indebted to my mentor Mr. Deepak Rastougi, Sr. Manager of Punjab & Sind
Bank for their guidance and constant supervision as well as for providing necessary
information regarding the project & also for their support in completing the project. I
would like to express my gratitude towards my parents for their kind co-operation and
special gratitude and thanks to industry persons for giving me such attention and time.
My thanks and appreciations also go to my Faculty guide Ms. Yamini Soi in developing
the project and people who have willingly helped me out with their abilities.
I thanks Prof. (Dr.) J.P.Varshney (Director) of Delhi College Of Advance Studies for
(Shweta Kaushik)
Contents
1 Certificate
2 Acknowledgement
3 List of Tables
4 List of Abbreviations
About PSB
History of PSB
Introduction of PSB
Deposit Schemes
Guidelines of KYC
Limitations
Recommendations/Suggestions
Conclusion
9 Bibliography
List of Tables
2. Current Account
4. Rate of interest
List of Abbreviations
3. CA Current account
Punjab and Sind Bank (A Govt. Of India Undertaking), 24 west Patel Nagar,
New Delhi-28
email: cmd@PSB.co.in
Website: www.PSBindia.com.
It was in the year 1908, when a humble idea to uplift the poorest of poor of the land
culminated in the birth of Punjab & Sind Bank with the far-sighted vision of luminaries
like Bhai Vir Singh, Sir Sunder Singh Majitha and Sardar Tarlochan Singh. They enjoyed
The bank was founded on the principle of social commitment to help the weaker section
Decades have gone by, even today Punjab & Sind Bank stands committed to honor the
April, 1980. This provides banking services to their customers like loan, lockers
and other facilities. This organization performs all financial activities. This operates the
Banking and Finance sector. The bank was founded on the principle of social
commitment to help the weaker section of the society in their economic endeavors
Service.
Corporate Vision
Corporate Mission
Systems.
as non-financial risks.
prudential guidelines.
The product range of the bank or services provided by the bank are:
2. Current account
5. Deposit schemes: Saving bank (SB), Recurring deposit (RD), Fixed deposit
(FD)
6. RTGS
7. NEFT
The basic objective of the project is to study the patterns of respondents. Both primary
A project methodology tells us what we have to do, to manage our projects from start to
finish. It describes every step in the project life cycle in depth, so we know exactly which
tasks to complete, when and how. Whether we are an expert or a novice, it helps us to
In Primary data collection, we collect the data our self using methods such as interviews
and questionnaires. The key point here is that the data we collect is unique to us and our
Secondary data is data taken by the researcher from secondary sources, internal or
external. The researcher must thoroughly search secondary data sources before
commissioning any efforts for collecting primary data. Secondary data is of two kinds,
internal and external. Secondary data – whether internal or external – is data already
collected by others, for purposes other than the solution of the problem on hand.
Secondary data is data which has been collected by individuals or agencies for purposes
sources (also termed desk research). There are several grounds for making such a bold
statement.
Secondary data may be available which is entirely appropriate and wholly
adequate to draw conclusions and answer the question or solve the problem.
It is far cheaper to collect secondary data than to obtain primary data. For the
yield a great deal more information than can be had through a primary data
collection exercise.
The time involved in searching secondary sources is much less than that needed to
Secondary sources of information can yield more accurate data than that obtained
through primary research. This is not always true but where a government or
international agency has undertaken a large scale survey, or even a census, this is
likely to yield far more accurate results than custom designed and executed
It should not be forgotten that secondary data can play a substantial role in the
exploratory phase of the research when the task at hand is to define the research
problem and to generate hypotheses. The assembly and analysis of secondary data
problem, the various lines of inquiry that could or should be followed and the
Secondary sources help define the population. Secondary data can be extremely
useful both in defining the population and in structuring the sample to be taken.
For instance, government statistics on a country's agriculture will help decide how
to stratify a sample and, once sample estimates have been calculated, these can be
SWOT Analysis
Strengths:
2. Tie-ups with Auto sector firms like TATA Motors and Maruti.
4. Have around 1000 branches across India and 400 branches in India.
Weaknesses:
Opportunities
Competitors
1. Indian Bank
2. Andhra Bank
3. Canara Bank
4. SBI
5. Allahabad Bank
6. IDBI
Fair Banking Practices
We request you as our customers to please note the following duties to enable us
Check the details of the cheque, namely, date, amount in words and
figures, crossing, etc., before issuing it. As far as possible, issue cheques
courier.
Bring pass book while withdrawing cash from Saving Bank account
through withdrawal slip. Get pass book updated from time to time.
separately.
Inform loss of demand draft, fixed deposit receipt, cheque leave(s) /book,
Not to introduce any person, who is not personally known to you for the
Conceptual Framework
Table no.1:
(i) These accounts are designed to help the individuals (personal customers) to inculcate habit of
saving money and to meet their future requirement of money. The amount can be
deposited / withdrawn from these accounts by way of cheques / withdrawal slips. The
(ii) Saving Bank accounts are very popular. These accounts can be opened by eligible
person(s) and certain organization(s) / agencies as approved by the Reserve Bank of India
(RBI).
(iii) These accounts are designed to help the individuals (personal customers) to inculcate habit of
saving money and to meet their future requirement of money. The amount can be
deposited / withdrawn from these accounts by way of cheques / withdrawal slips. The
(iv) We are required to obtain two recent photographs of the person(s) opening the account,
(v) We are required to obtain Permanent Account Number (PAN) or alternatively obtain
declaration in Form No. 60 or 61 as per the Incom e Tax Act (vide Section 139 A) from
the person(s) opening the account.
(vi) We provide to the prospective customers details of the documents required for
Documents normally accepted are the current, gas / telephone / electricity bill / ration card
(vii) You are required to maintain certain minimum balance in the account, as specified by
the Bank from time to time, separately for computerized and non-computerized Branches
and also depending on, whether account holder wants to avail the cheque book facility
processed rate, as perpresently paid on half yearly basis depending on minimum balance
between the 10th day and last day of the months, provided it works out to minimum
Re. 1/-
(viii) Cheques, dividend warrants drawn in the name of account holder(s) will only be
collected through this account. Financial instruments endorsed in favour of the account
(ix) Get your passbook updated on presentation legibly with full entries. If the number of
entries to be made is large, kindly leave the passbook against receipt showing the date
when it can be collected back. You can obtain the statement of account indicating full
details by 5th of every month in case you have not been issued a passbook.
(x) You can obtain a new cheque book when your requisition slip appears next in the
(xi) For more details, please contact our Branch to serve you better.
2. Current account
Table no.2:
(ii) As required by law, while opening this account, we satisfy ourselves about
account by a person acceptable to the Bank and will require to obtain two
RBI directives.
(iv) You are required to give Permanent Account Number (PAN) or alternatively
obtain declaration in Form No. 60 or 61 as per the Income Tax Act (vide
Section 139A) from the person(s) opening the account (i.e. including partners
/ companies).
licence/passport, etc.
account.
(viii) For opening special types of current accounts like for Executors
(ix) As per RBI directives, the applicant (i.e. account opener) should declare in
the account opening form or separately that he is not enjoying any Credit
facility with any Bank and if he does enjoy any facility/facilities he should
declare full particulars therefore indicating the name of the Bank and name
Table no.3:
(i) We have tailored various deposit schemes to suit the needs and expectations
for investing in every walk of life, which are prominently displayed at our
branches for your convenience. We welcome you to seek more details and
(iii) As required by law, while opening this account, we satisfy ourselves about
the public and ourselves against fraud and other misuses of the banking
system.
by a person acceptable to the Bank and will obtain two recent photographs
obtain declaration in Form No. 60 or 61 as per the Income Tax Act (vide
(vi) Premature withdrawals are allowed, unless specified otherwise, at the rate of
interest applicable for the period, for which the deposit has run or the
contracted rate whichever is lower, subject to penalty, if any prescribed by
which has remained with the Bank for less than 15 days. For more details
paid , if the deposit is renewed, as decided by the Bank from time to time.
deposit scheme.
(ix) Interest on Bank deposit is exempted from Income Tax upto a limit,
specified by Income Tax authorities from time to time, as per Govt. norms.
tax.
(xi) We issue TDS Certificate for tax deducted, within time schedule as per law.
The facility of Safe Deposit Lockers is an ancillary service offered by our Bank.
prominent place.
different sizes.
Lockers are rented out for a minimum period of one year as per bank's
policy. In case of overdue rent, the Bank will charge penalty as decided
With standing instruction, the rent may be paid from the deposit account
of the hirer.
We reserve our right to break open the locker if the rent is not paid
inspite of giving notices as per the Bank rules and recover charges thereof.
Deposit Schemes:
1. Saving Bank
Under the RBI direction to achieve greater financial inclusion Bank has since
that would make accessible banking to vast section of society, which has been
deprived of the banking facilities till date. Basic feature of the account shall be
as under :-
1. Such accounts shall remain operative even when these have Zero balance &
"Saral Savings Account" can be opened with the initial deposit of Rs100/- and
thereafter the balance may go below Rs 100/- and will continue to be operative
with even zero balance, unless the account holder request to close the account.
2. Target Customers
Landless labour / Artisans in the rural areas / House wives not having
regular income.
This product is not for Non Resident Indians, Trusts, Societies etc.
Or
Any other evidence as to the identity and address of the customer to the
4. Operational Stipulation:
half year.
branch.
Persons above the age of 15 and below 18, who is able to read and write
may open such account only in his / her own name or jointly with any
person / guardian. In such account guidelines shall be same as applicable on
Exception
may be allowed up to Rs 3000/- per instrument but not more than six
educational institutions.
Table no.3:
the RBI from time to time. product basis from 1st April 2010
2. Recurring Deposit Schemes
or jointly.
A minor can open Saving bank Account and the same can be operated by
his / her account and if the account is operated by the natural guardian /
natural guardian / guardian would be obtained and kept on record for all
operational purpose.
As per rate applicable to fixed Deposit for the respective maturity period.
Periodicity of Interest
or jointly.
A minor can open Saving bank Account and the same can be operated by
his / her account and if the account Is operated by the natural guardian /
natural guardian / guardian would be obtained and kept on record for all
operational purpose.
Senior Citizens
amount over and above the mentioned rates for deposits with maturity
please note that if the Ex-Staff Member is also a Senior Citizen, he will
above.
Various Fixed Deposit Schemes of the Bank
Under this scheme any sum can be placed for any fixed period ranging from 15
days to 120 months and the interest accrued can be withdrawn at the quarterly
intervals.
paid.
Any amount of deposit shall be accepted under this scheme for a minimum
It is a reinvestment deposit scheme under which the depositor can place the
funds for short period and still can reap the benefits of compound interest.
Any amount of deposit shall be accepted under this scheme for a minimum
This is a scheme under which the tax payers can avail of benefits of exemption from
Capital gains, only if the amount of Capital gains or the net consideration is deposited in
Public Sector Banks on or before their due date of filling the income tax return. (Subject
time to time.
Harhi savni (Rabi Kharif) Jama Yojna is a unique scheme offered by Punjab &
The scheme is specially designed to help the farmers to invest their surplus funds
The scheme also provides flexibility in depositing the installments with minimum
The deposit of installments is correlated with the harvesting of Hari (Rabi) / Savni
Kharif) crops and is required to be deposited each year before 30th June and 31st
Bank has formulated Fixed Deposit Scheme for Tax Saving under Section 80 C (2) of the
Table no.5:
RBI has introduced this funds transfer systems called RBI-NEFT System.
secure, economical, reliable and expeditious transfer of funds and clearing in the
Banking sector in India. The account holders with the branch can use the NEFT
facility which is available between all the Cities and the designated branches of
Banks in India.
NEFT settlement takes place 11 times a day during the week days (9.00 am, 10.00
am, 11.00 am, 12.00 noon. 1.00 pm, 2.00 pm, 3.00 pm and 4.00 pm, 5.00 pm,
6.00 pm, 7.00 pm) and 5 times during Saturdays (9.00 am, 10.00 am, 11.00 am,
At present this facility is available at the following branches whose IFSC codes
Table no.6:
Rs.25/-
Above Rs 2.00 Lac
(Service tax & Education Cess extra)
Know Your Customer (KYC) is the due diligence and bank regulation that financial
institutions and other regulated companies must perform to identify their clients and
ascertain relevant information pertinent to doing financial business with them. In the
program mandated under the Bank Secrecy Act and USA PATRIOT Act. Know your
customer policies are becoming increasingly important globally to prevent identity theft
customer against their recorded profile, history on the customers account(s) and with
peers.
Banks doing KYC monitoring for anti-money laundering (AML) and checks relating
monitoring software, particularly names analysis software and trend monitoring software.
The generated alerts identify unusual activity which is then subject to due
diligence or enhanced due diligence (EDD) processes that use internal and external
sources of information on the subject, including the internet. This helps to determine
the US, it would require Suspicious Activity Reporting (SAR) filing to Financial Crimes
the Financial Transactions and Reports Analysis Centre of Canada also known
as FINTRAC
an AML/CFT perspective.
Know Your Customer processes are also employed by regular companies of all sizes, for
bribery compliance. Banks, insurers and export credit agencies are increasingly
Measures
The objective of KYC guidelines is to prevent banks from being used, intentionally or
also enable banks to know/understand their customers and their financial dealings better
which in turn help them manage their risks prudently. Banks should frame their KYC
one on whose behalf the account is maintained (i.e. the beneficial owner);
beneficiaries of transactions conducted by professional intermediaries, such as
Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law,
and
any person or entity connected with a financial transaction which can pose
significant reputational or other risks to the bank, say, a wire transfer or issue of a
Banks should develop a clear Customer Acceptance Policy laying down explicit criteria
for acceptance of customers. The Customer Acceptance Policy must ensure that explicit
guidelines are in place on the following aspects of customer relationship in the bank.
ii. Parameters of risk perception are clearly defined in terms of the nature of business
turnover, social and financial status etc. to enable categorization of customers into
low, medium and high risk (banks may choose any suitable nomenclature viz.
level I, level II and level III ); customers requiring very high level of monitoring,
mind the requirements of PML Act, 2002 and guidelines issued by Reserve Bank
apply appropriate customer due diligence measures i.e. bank is unable to verify
the identity and /or obtain documents required as per the risk categorization due to
account may be taken at a reasonably high level after giving due notice to the
person/entity, should be clearly spelt out in conformity with the established law
vi. Necessary checks before opening a new account so as to ensure that the identity
of the customer does not match with any person with known criminal background
Banks may prepare a profile for each new customer based on risk categorization. The
status, nature of business activity, information about his clients‟ business and their
location etc. The nature and extent of due diligence will depend on the risk perceived by
the bank. However, while preparing customer profile banks should take care to seek only
such information from the customer which is relevant to the risk category and is not
intrusive. The customer profile will be a confidential document and details contained
therein shall not be divulged for cross selling or any other purposes.
For the purpose of risk categorization, individuals ( other than High Net Worth) and
entities whose identities and sources of wealth can be easily identified and transactions in
whose accounts by and large conform to the known profile, may be categorized as low
risk. Illustrative examples of low risk customers could be salaried employees whose
salary structures are well defined, people belonging to lower economic strata of the
society whose accounts show small balances and low turnover, Government departments
& Government owned companies, regulators and statutory bodies etc. In such cases, the
policy may require that only the basic requirements of verifying the identity and location
of the customer are to be met. Customers that are likely to pose a higher than average risk
background, nature and location of activity, country of origin, sources of funds and his
client profile etc. Banks may apply enhanced due diligence measures based on the risk
assessment, thereby requiring intensive „due diligence‟ for higher risk customers,
especially those for whom the sources of funds are not clear. Examples of customers
requiring higher due diligence may include (a) non-resident customers, (b) high net worth
individuals, (c) trusts, charities, NGOs and organizations receiving donations, (d)
companies having close family shareholding or beneficial ownership, (e) firms with
'sleeping partners', (f) politically exposed persons (PEPs) of foreign origin, (g) non-face
to face customers, and (h) those with dubious reputation as per public information
available, etc.
It is important to bear in mind that the adoption of customer acceptance policy and its
implementation should not become too restrictive and must not result in denial of
banking services to general public, especially to those, who are financially or socially
disadvantaged.
The policy approved by the Board of banks should clearly spell out the Customer
banking relationship; carrying out a financial transaction or when the bank has a doubt
identification data. Customer identification means identifying the customer and verifying
satisfaction, the identity of each new customer, whether regular or occasional, and the
purpose of the intended nature of banking relationship. Being satisfied means that the
bank must be able to satisfy the competent authorities that due diligence was observed
based on the risk profile of the customer in compliance with the extant guidelines in
place. Such risk based approach is considered necessary to avoid disproportionate cost to
banks and a burdensome regime for the customers. Besides risk perception, the nature of
corporate etc.). For customers that are natural persons, the banks should obtain sufficient
identification data to verify the identity of the customer, his address/location, and also his
recent photograph. For customers that are legal persons or entities, the bank should (i)
verify the legal status of the legal person/ entity through proper and relevant documents
(ii) verify that any person purporting to act on behalf of the legal person/entity is so
authorized and identify and verify the identity of that person, (iii) understand the
ownership and control structure of the customer and determine who are the natural
persons who ultimately control the legal person. Customer identification requirements in
respect of a few typical cases, especially, legal persons requiring an extra element of
caution are given in Annex-I for guidance of banks. Banks may, however, frame their
own internal guidelines based on their experience of dealing with such persons/entities,
normal bankers‟ prudence and the legal requirements as per established practices If the
bank decides to accept such accounts in terms of the Customer Acceptance Policy, the
bank should take reasonable measures to identify the beneficial owner(s) and verify
his/her/their identity in a manner so that it is satisfied that it knows who the beneficial
owner(s) is/are. An indicative list of the nature and type of documents/information that
4. Monitoring of Transactions
effectively control and reduce their risk only if they have an understanding of the normal
and reasonable activity of the customer so that they have the means of identifying
transactions that fall outside the regular pattern of activity. However, the extent of
monitoring will depend on the risk sensitivity of the account. Banks should pay special
attention to all complex, unusually large transactions and all unusual patterns which have
no apparent economic or visible lawful purpose. The bank may prescribe threshold limits
for a particular category of accounts and pay particular attention to the transactions which
exceed these limits. Transactions that involve large amounts of cash inconsistent with the
normal and expected activity of the customer should particularly attract the attention of
the bank. Very high account turnover inconsistent with the size of the balance maintained
may indicate that funds are being 'washed' through the account. High-risk accounts have
to be subjected to intensified monitoring. Every bank should set key indicators for such
accounts, taking note of the background of the customer, such as the country of origin,
sources of funds, the type of transactions involved and other risk factors. Banks should
put in place a system of periodical review of risk categorization of accounts and the need
for applying enhanced due diligence measures. Banks should ensure that a record of
12 of the PML Act, 2002. It may also be ensured that transactions of suspicious nature
and/ or any other type of transaction notified under section 12 of the PML Act, 2002, is
Banks should ensure that its branches continue to maintain proper record of all cash
transactions (deposits and withdrawals) of Rs.10 lakh and above. The internal monitoring
system should have an inbuilt procedure for reporting of such transactions and those of
5. Risk Management
The Board of Directors of the bank should ensure that an effective KYC programme is
explicitly allocated within the bank for ensuring that the bank‟s policies and procedures
are implemented effectively. Banks may, in consultation with their boards, devise
procedures for creating Risk Profiles of their existing and new customers and apply
various Anti Money Laundering measures keeping in view the risks involved in a
Banks‟ internal audit and compliance functions have an important role in evaluating and
ensuring adherence to the KYC policies and procedures. As a general rule, the
compliance function should provide an independent evaluation of the bank‟s own policies
and procedures, including legal and regulatory requirements. Banks should ensure that
their audit machinery is staffed adequately with individuals who are well-versed in such
policies and procedures. Concurrent/ Internal Auditors should specifically check and
verify the application of KYC procedures at the branches and comment on the lapses
observed in this regard. The compliance in this regard may be put up before the Audit
Banks must have an ongoing employee training programme so that the members of the
staff are adequately trained in KYC procedures. Training requirements should have
different focuses for frontline staff, compliance staff and staff dealing with new
customers. It is crucial that all those concerned fully understand the rationale behind the
customers which may be of personal nature or which has hitherto never been called for.
This can sometimes lead to a lot of questioning by the customer as to the motive and
purpose of collecting such information. There is, therefore, a need for banks to prepare
specific literature/ pamphlets etc. so as to educate the customer of the objectives of the
KYC programme. The front desk staff needs to be specially trained to handle such
cards
Banks should pay special attention to any money laundering threats that may arise from
new or developing technologies including internet banking that might favour anonymity,
and take measures, if needed, to prevent their use in money laundering schemes.
Many banks are engaged in the business of issuing a variety of Electronic Cards that are
used by customers for buying goods and services, drawing cash from ATMs, and can be
used for electronic transfer of funds. Further, marketing of these cards is generally done
through the services of agents. Banks should ensure that appropriate KYC procedures are
duly applied before issuing the cards to the customers. It is also desirable that agents are
04 dated November 24, 2003, December 16, 2003 and June 21, 2004 respectively to
apply the KYC norms advised vide our circular DBOD. No. AML.BC.18/ 14.01.001/
2002-03 dated August 16, 2002 to all the existing customers in a time bound manner.
While the revised guidelines will apply to all new customers, banks should apply the
same to the existing customers on the basis of materiality and risk. However, transactions
in existing accounts should be continuously monitored and any unusual pattern in the
operation of the account should trigger a review of the CDD measures. Banks may
consider applying monetary limits to such accounts based on the nature and type of the
account. It may, however, be ensured that all the existing accounts of companies, firms,
trusts, charities, religious organizations and other institutions are subjected to minimum
KYC standards which would establish the identity of the natural/legal person and those of
the 'beneficial owners'. Banks may also ensure that term/ recurring deposit accounts or
accounts of similar nature are treated as new accounts at the time of renewal and
Where the bank is unable to apply appropriate KYC measures due to non-furnishing of
information and /or non-cooperation by the customer, the bank may consider closing the
account or terminating the banking/business relationship after issuing due notice to the
customer explaining the reasons for taking such a decision. Such decisions need to be
The above guidelines shall also apply to the branches and majority owned subsidiaries
located abroad, especially, in countries which do not or insufficiently apply the FATF
Recommendations, to the extent local laws permit. When local applicable laws and
Principal Officer shall be located at the head/corporate office of the bank and shall be
responsible for monitoring and reporting of all transactions and sharing of information as
required under the law. He will maintain close liaison with enforcement agencies, banks
and any other institution which are involved in the fight against money laundering and
The term „loan‟ refers to the amount borrowed by one person from another. The amount
is in the nature of loan and refers to the sum paid to the borrower. Thus. from the view
point of borrower, it is „borrowing‟ and from the view point of bank, it is „lending‟. Loan
may be regarded as „credit‟ granted where the money is disbursed and its recovery is
made on a later date. It is a debt for the borrower. While granting loans, credit is given
for a definite purpose and for a predetermined period. Interest is charged on the loan at
agreed rate and intervals of payment. „Advance‟ on the other hand, is a „credit facility‟
granted by the bank. Banks grant advances largely for short-term purposes, such as
purchase of goods traded in and meeting other short-term trading liabilities. There is a
sense of debt in loan, whereas an advance is a facility being availed of by the borrower.
However, like loans, advances are also to be repaid. Thus a credit facility- repayable in
instalments over a period is termed as loan while a credit facility repayable within one
year may be known as advances. However, in the present lesson these two terms are used
interchangeably.
Loans and advances granted by commercial banks are highly beneficial to individuals,
firms, companies and industrial concerns. The growth and diversification of business
activities are effected to a large extent through bank financing. Loans and advances
granted by banks help in meeting short-term and long term financial needs of business
enterprises. We can discuss the role played by banks in the business world by way of
for day to day financial needs availing of the facility of cash credit, bank
within a short period to suit the convenience of the borrower. Thus business may
be run efficiently with borrowed funds from banks for financing its working
capital requirements.
Loans and advances are utilized for making payment of current liabilities, wage
Loans and advances from banks are found to be „economical‟ for traders and
loans/advances. For loans from money lenders, the rate of interest charged is very
high. The interest charged by commercial banks is regulated by the Reserve Bank
of India.
Banks generally do not interfere with the use, management and control of the
borrowed money. But it takes care to ensure that the money lent is used only for
business purposes.
Bank loans and advances are found to be convenient as far as its repayment is
concerned. This facilitates planning for future and timely repayment of loans.
Loans and advances by banks generally carry element of secrecy with it. Banks
are duty-bound to maintain secrecy of their transactions with the customers. This
People make their funds available to the banks by depositing their „savings‟ in various
types of accounts. In other words, bank funds mainly consist of deposits from the public,
though banks may also borrow money from other institutions and the Reserve Bank of
India. Banks, thus mobilizes funds through its deposits. On public deposits the banks pay
interest at and the rate of interest vary according to the type of deposit. The borrowing
rate refers to the rate of interest paid by a bank on its deposits. The rates which the banks
allow depend upon the nature of deposit account and the period for which the deposit is
made with the bank. No interest is generally paid on current account deposits. The rate is
relatively lower on savings account deposits. Higher rates ranging from 6% to 12% per
annum are paid on Fixed deposit accounts according to the period of deposit.Loans and
Advances: 63 Banks also borrow from other institutions as well as from the Reserve
Bank of India. When the Reserve Bank of India lends money to commercial banks, the
The rate at which commercial banks make funds available to people is known as
„Lending-rate‟. The lending rates also vary depending upon the nature of loans and
advances. The rates also vary according to the purpose in view. For example if the loan is
sanctioned for the purpose of activities for the development of backward areas, the rate of
purposes. Similarly for smaller amounts of loan the rate of interest is higher as compared
to larger amounts. Again lending rates for consumer durables, e.g. loans for purchase of
two-wheelers, cars, refrigerators, etc. are relatively higher than for commercial
borrowings.
However, the Reserve Bank of India from time to time announces changes in the interest-
rate structure to regulate the lending of funds by banks. Different rates of interest are
prescribed for various categories of advances, such as advances to agriculture, small scale
industries, road transport, etc. Graded rates of interest are prescribed for backward areas.
Lower rate is normally charged from agencies selling food-grains at fixed price through
Govt. approved outlets. Lastly, lower rate of interest is charged for loans granted to
Lending of Money
You have noted in the earlier lessons that commercial banks lend money in four different
ways: (a) direct loans, (b) cash credit, (c) overdraft, and (d) discounting of bills. These
1. Loans
Loan is the amount borrowed from bank. The nature of borrowing is that the money is
disbursed and recovery is made in instalments. While lending money by way of loan,
credit is given for a definite purpose and for a pre-determined period. Depending upon
the purpose and period of loan, each bank has its own procedure for granting loan.
However the bank is at liberty to grant the loan requested or refuse it depending upon its
own cash position and lending policy. There are two types of loan available from banks:
it is repayable at short-notice. The entire amount of demand loan is disbursed at one time
and the borrower has to pay interest on it. The borrower can repay the loan either in lump
sum (one time) or as agreed with the bank. For example, if it is so agreed the amount of
loan may be repaid in suitable installments. Such loans are normally granted by banks
against security. The security may include materials or goods in stock, shares of
companies or any other asset. Demand loans are Loans and Advances:: 65 raised
normally for working capital purposes, like purchase of raw materials, making payment
of short-term liabilities.
(b) Term Loans: Medium and long term loans are called term loans. Term loans are
granted for more than a year and repayment of such loans is spread over a longer period.
The repayment is generally made in suitable installments of a fixed amount. Term loan is
required for the purpose of starting a new business activity, renovation, modernization,
expansion/ extension of existing units, purchase of plant and machinery, purchase of land
immovable assets. These loans are generally secured against the mortgage of land, plant
2. Cash credit
Cash credit is a flexible system of lending under which the borrower has the option to
withdraw the funds as and when required and to the extent of his needs. Under this
arrangement the banker specifies a limit of loan for the customer (known as cash credit
limit) up to which the customer is allowed to draw. The cash credit limit is based on the
borrower‟s need and as agreed with the bank. Against the limit of cash credit, the
borrower is permitted to withdraw as and when he needs money subject to the limit
sanctioned.
It is normally sanctioned for a period of one year and secured by the security of some
tangible assets or personal guarantee. If the account is running satisfactorily, the limit of
cash credit may be renewed by the bank at the end of year. The interest is calculated and
charged to the customer‟s account. Cash credit, is one of the types of bank lending
Business Studies bailment of goods as security for payment of debt. Its primary purpose
is to put the goods pledged in the possession of the lender. It ensures recovery of loan in
goods remain in the possession of the borrower, who binds himself under the agreement
to give possession of goods to the banker whenever the banker requires him to do so. So
hypothetication is a device to create a charge over the asset under circumstances in which
3. Overdraft
Overdraft facility is more or less similar to „cash credit‟ facility. Overdraft facility is the
result of an agreement with the bank by which a current account holder is allowed to
draw over and above the credit balance in his/her account. It is a short-period facility.
This facility is made available to current account holders who operate their account
through cheques. The customer is permitted to withdraw the amount of overdraft allowed
as and when he/she needs it and to repay it through deposits in the account as and when it
is convenient to him/her.
Overdraft facility is generally granted by a bank on the basis of a written request by the
customer. Sometimes the bank also insists on either a promissory note from the borrower
customer. The interest rate on overdraft is higher than is charged on loan. The following
(i) Cash credit and overdraft allow flexibility of borrowing,which depends upon the need
of the borrower.
(ii) There is no necessity of providing security and documentation again and again for
borrowing funds.
(iii) This mode of borrowing is simple and elastic and meets the short term financial
(iv) Discounting of Bills Apart from sanctioning loans and advances, discounting of bills
of exchange by bank is another way of making funds available to the customers. Bills of
obligations to the creditors. Such Bills of exchange arise out of commercial transactions
both in inland trade and foreign trade. When the seller of goods has to realise his dues
from the buyer at a distant place immediately or after the lapse of the agreed period of
time, the bill of exchange facilitates this task with the help of the banking institution.
Banks invest a good percentage of their funds in discounting bills of exchange. These
bills may be payable on demand or after a stated period. In discounting a bill, the bank
pays the amount to the customer in advance, i.e. before the due date. For this purpose, the
bank charges discount on the bill at a specified rate. The bill so discounted , is retained
by the bank till its due date and is presented to the drawee on the date of maturity. In case
the bill is dishonoured on due date the amount due on bill together with interest and other
Commercial banks grant loans for different periods-long, short and medium term for
different purposes.
1. Short-term loans
Short term loans are granted by banks to meet the working capital needs of business. The
working capital needs refer to financial needs for such purposes as, purchase of raw
materials, payment of wages, electricity bill, taxes etc. Such loans are granted by banks to
its borrowers to be repaid within a short period of time not exceeding 15 months. Short
term loans are normally granted against the security of tangible assets like goods in stock,
shares, debentures, etc. The rate of interest charged on short term loans ranges from 12%
to 18% p.a.
2. Long-term Loans
Medium and long term loans are generally known as „term loans‟. These loans are
granted for more than 15 months. In case of medium term loan, the period ranges from 15
months to less than 5 years. Medium term loans are generally granted for heavy Loans
Such loans are sanctioned against the security of immovable assets. The normal rate of
interest ranges between 12% to 18% depending upon the period, purpose, nature and
amount of the loan. Though banks may grant long term loans, they avoid granting loan
Lessons Learnt
mobilization of funds, and lending these funds to people who require it for various
purpose. On the deposits received the bank pays interest to the depositors at a specified
rate. This is known as the „Borrowing Rate‟. When the Reserve Bank of India lends
money to commercial banks, the rate of interest it charges is known as „Bank rate‟. The
other important activity of a bank is that of granting loans and advances to the public.
The rate of interest at which commercial banks lend money to the people is known as
„Lending rate‟. The borrowing rates and lending rates are subject to change from time to
time.
There are four different ways of lending money by banks; viz. (a) Direct loans; (b) Cash
credits; (c) Overdraft, and (d) discounting of bills. Bank loans may also be classified into
3 categories i.e. Shortterm loan, medium term loan and Long-term loan. Short-term loans
are granted by banks to meet the working capital needs of business. Medium term loans
These loans are granted for more than one year for heavy repairs, expansion of units,
by the owner, both in the case of short-term and term loans. Unsecured loans are those
granted against the personal 74 :: Business Studies security of the borrowers. There are
various types of securities which are acceptable by banks against loans and advances. For
getting a loan sanctioned by any bank, one has to apply for it with relevant documents.
The bank verifies the application and determines the creditworthiness of the applicant. If
it is feasible, the loan is sanctioned. After the sanction of loan the borrower has to enter
into an agreement with the bank regarding terms and conditions of the loan.
The last step is to arrange for the security for the loan granted by bank. After completing
these formalities the borrower is allowed to draw money against the loan.
Limitations of PSB
During the early years it was not very easy for an Indian bank to open overseas branches,
though the Reserve Bank of India was vested with the powers to allow them to open
overseas branches. Policymakers took into account a number of factors and not all of
The process required RBI to consult a number of departments within its own organisation
Given the multiple considerations, RBI did not attempt to frame any definitive policy or
guidelines in regard to the opening of branches or offices abroad by Indian banks till
almost the onset of the 1980s, according to the notings in the third volume of the Reserve
Bank‟s history.
Many banks which attempted to open offices overseas did not get the regulator‟s nod. In
1963–64, Punjab National Bank as well as Bank of India applied for opening offices in
the United States but RBI did not grant them permission on the ground that requests
In 1964, Bank of India sought permission to open offices at Hamburg, Dusseldorf and
Milan but these requests too were turned down on the ground of possible application of
the reciprocity principle, which, at that time, was considered undesirable from the
exchange control angle, i.e., having to permit remittance of profits by branches of foreign
banks as well as from the point of view of its adverse effect on the expansion of business
Three major elements influenced the Reserve Bank‟s policy towards Indian banks
opening offices abroad till the early 1970s. First, there was the question of foreign
exchange for meeting the capital requirements and other expenses connected with the
setting up of an overseas offices. Given the scarcity of foreign exchange reserves, RBI
Second, there was the issue of business potential. This was related to the number of
persons of Indian origin residing in the country in question. The perception was that the
branch or office abroad would grow in size if it was supported by a large number of
This project would start with understanding the basic financial structure of the bank. It
would then go on understanding the working capital in detail. This project would also
highlight the practical aspects, my experience and key learning derived from it. Key
issues found in this practical exposure will be analyzed and discussed. This project will
help one understand the basic aspects of corporate finance. The readers will come to
know about Punjab and Sind Bank. The various product and services offered by the bank
that the appraisals of the operation management can be used for identify areas
It will also be required to find out the operation management capability and
So, the students should be sent to the PSB for the summer training in the future. It helps
People form an integral part of the organization. The efficiency and quality of its people
determines the fate of the organization. Hence choice of right people and placing them at
right place becomes essential. Hiring comes at this point of time in the picture. Hiring is a
strategic function for HR department. Recruitment and selection form the process of
qualified applicant for organization job. The process includes the step like HR planning
attracting applicant and screening them. This step is affected by various factors, which
can be internal as well as external. The organization makes use of various methods and
sources for this purpose. Selection is carried from the screen applicant during the
recruitment process. There is also some specific process is involved. By the way of
conducting preliminary interview and conducting the various tests, if required reference
check and further final interview is conducted. During the process there are certain
difficulties and barriers that are to be overcome. Different organization adopts different
Books:
Websites:
www.psbindia.com
www.rbi.org.in
www.training-classes.com
www.greenwood.com
www.referenceforbusiness.com