SBI CBO Banking Knowledge PDF by Ambitious Baba

ambitiousbaba.
com Online Test Series
Best Online Test Series Site for Bank | JAIIB | CAIIB | RRB NTPC | SSC and State Government 1
Jobs
ambitiousbaba.com Online Test Series
Banking Knowledge PDF For SBI CBO

Financial & Banking Awareness (Static Part)
Number of Chapter Topics Name
Chapter 1 RBI, Subsidiaries of RBI, NABARD, NHB, ECGC
Chapter 2 Banks in India Commercial Bank, Exim Bank of India,

Payment Bank, Co-operative Banks, Regional Rural
Banks, Small Finance Banks
Chapter 3 Banking Ombudsman, National Income
Chapter 4 Money Market, Capital Market
Chapter 5 Inflation
Chapter 6 Negotiable Instrument, Mutual Fund, Money

Laundering
Chapter 7 Types of Cheque & Types of Account
Chapter 8 Types of Payment Cards, Fund transfer service
Chapter 9 Basel I, II and III
Chapter 10 NPA & SARFAESI Act, 2002
Chapter 11 LIBOR & MIBOR, SWIFT Codes for banks
Chapter 12 CIBIL, Priority Sector lending & Banks Merger
Chapter 13 Important Terms
Chapter 14 Micro, Small and Medium Enterprise in India
Chapter 15 KYC & AML
Chapter 16 Preventive Vigilance In Banks
Chapter 17 Legal Issue
Jobs
Financial Market
Financial system
Financial system a network of financial institutions (COMMERCIAL BANKS,
BUILDING SOCIETIES, etc.) and markets (MONEY MARKET, STOCK MARKET),
dealing in a variety of financial instruments BANK DEPOSITS, STOCKS and SHARES,
etc.), which are engaged in money transmission activities and the provision of LOAN
and CREDIT facilities. The financial institutions and markets occupy a key position in
the economy as intermediaries in channelling savings and other funds to borrowers
and investors. In doing this one of their main roles is to reconcile the different
requirements of savers and borrowers, thereby facilitating a higher level of saving and
investment in the economy than would otherwise be the case.
Financial System
Insurance and Pension Regulators

Central Banking Authority Capital Market
Regulatory Authority
Central Bank (RBI) Capital Market (SEBI) Insurance and Pension

Regulators (IRDA)
Jobs
1)Monetary Control 1)Equity market and debt 1)Regulatory framework

market supervision and including rules and
2)Supervision Over
control regulations for running
Commercial Bank insurance business
2)Supervision over
Primary Dealers 2)Supervising all
Stoke exchange
insurance companies both
Financial Institutions
Brokers in general and life
Cooperative Banks insurance business
Equity and Debt raiser
Clearing and Settlement 3)Regulating pricing,
Investment bankers
System investments and cost
(Merchant Bankers)
structure of insurance
3)Management of companies
Foreign institutional
Government debt
investors
4)Regulation insurance
4) Banker to Government brokers including agencies
Custodians
5) Regulating monetary both individual and Bank
Depositories
instruments (CRR, SLR, PENSIONS
BANK RATE, REPO RATE, Mutual Funds
MSF) 1)Framing rules for
Listed companies pension funds
Service providers to 2)Regulating all pension
capital funds
Markets like registrars
Chapter 1: RBI, Subsidiaries of RBI, NABARD, NHB,

ECGC
Reserve Bank of India (RBI)
History of RBI
• The Reserve Bank of India was established following the Reserve Bank of India
Act of 1934.
• Though privately owned initially, it was nationalised in 1949 and since then
fully owned by Government of India (GoI).
• It commenced its operations on 1 April 1935 in accordance with the Reserve
Bank of India Act, 1934.
• The Hilton-Young Commission, therefore ended by setting-up of a central bank
— called the Reserve Bank of India
Management
Jobs
• One Governor (5years Term)

• Four Deputy Governors (5years Term)
• Fifteen Directors
Branches and support bodies
• RBI Headquarters in Mumbai

• The RBI has four zonal offices at Chennai, Delhi, Kolkata and Mumbai.
• It has 21 regional offices and 11 sub-offices throughout India.
Functions of RBI
• The central bank of any country executes many functions such as overseeing
monetary policy, issuing currency, managing foreign exchange, working as a
bank for government and as a banker of scheduled commercial banks. It also
works for overall economic growth of the country.
Subsidiaries of RBI
Fully owned:
• Deposit Insurance and Credit Guarantee Corporation of India (DICGC),

• Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
• Reserve Bank Information Technology Private Limited (ReBIT)
• Indian Financial Technology and Allied Services (IFTAS)
Note: NABARD and NHB further. Both were the subsidiaries of RBI before 26 Feb
2019.
About BRBNMPL
• Bharatiya Reserve Bank Note Mudran Private Limited

• Prints banknotes for Reserve Bank of India (RBI)
• Established in 1995 to address the demand for banknotes
• It has two presses in Mysore and Salboni
• Mysore -The machinery at Mysore Site has been supplied by Switzerland.
• Salboni.- The machinery at Salboni has been supplied by Japan.
About DICGC
• DICGC (Deposit Insurance And Credit Guarantee Corporation )

• Established under the DICGC act 1961, on 15th July 1978
• All commercial bank including branches of a foreign bank in India, local area
bank and RRB are insured by DICGC
• NBFC and primary cooperative society are not insured by RBI
• DICGC insures all types of account i.e. (Current, fixed, saving, recurring )
• The maximum amount insured by DICGC is 5 lakh
National Bank for Agriculture and Rural Development (NABARD)
Jobs
NABARD is a development bank focussing primarily on the rural sector of the country. It
is the apex banking institution to provide finance for Agriculture and rural
development.
• Headquartered- Mumbai
• Chairman: Govinda Rajulu Chintala
• NABARD was established on the recommendations of B.Sivaraman Committee,
(by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National
Bank for Agriculture and Rural Development Act 1981.
• The initial corpus of NABARD was Rs.100 crores. Consequent to the revision
in the composition of share capital between Government of India and RBI, the
paid up capital as on 31 May 2017, stood at Rs.6,700 crore with Government of
India holding Rs.6,700 crore (100% share). The authorized share capital is
Rs.30,000 crore
National Housing Bank (NHB)
• A Government of India owned entity

• Founded: 9 July 1988 (under the National Housing Bank Act, 1987)
• Headquarters: New Delhi, India
Aims
• To promote a sound, healthy, viable and cost effective housing finance system to
cater to all segments of the population and to integrate the housing finance
system with the overall financial system.
• To promote a network of dedicated housing finance institutions to adequately
serve various regions and different income groups.
• To augment resources for the sector and channelise them for housing.
• To make housing credit more affordable.
ECGC (Export Credit Guarantee Corporation of India)
• Type: State-owned enterprise Public

• Industry: Insurance
• Founded: 30 July 1957
• Headquarters: Mumbai, Maharashtra
• It was transformed into Export Credit and Guarantee Corporation Limited
(ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983.
Functions
• Provides a range of credit risk insurance covers to exporters against loss in

export of goods and services as well.
• Offers guarantees to banks and financial institutions to enable exporters to
obtain better facilities from them.
• Provides Overseas Investment Insurance to Indian companies investing in joint
ventures abroad in the form of equity or loan and advances.
Jobs
Chapter 2: Banks in India Commercial Bank, Exim

Bank of India, Payment Bank, Co-operative Banks,
Regional Rural Banks, Small Finance Banks
Commercial Bank
Functions of Commercial Bank
A commercial bank is a type of bank that provides services such as accepting deposits,
making business loans, and offering basic investment products that is operated as a
business for profit.
Public Sector Banks– These can be further classified into Nationalized Banks and Non
Nationalized banks. These are the banks which are owned and controlled by the
Jobs
government. In these the majority of stake is held by the government. Their main aim is
to provide service to the public. These include State Bank of India and its associates,
Dena bank, Punjab National Bank, Canara bank, etc.
Private Sector Banks– These are the banks which are owned and controlled by the
private individuals. So their main aim is to earn profit like any other businessman does.
These include ICICI Bank, HDFC Bank, Axis Bank, Yes Bank, etc
Foreign Banks– These are the banks which are owned and controlled by the foreign
companies. They have their headquarters in other countries and open their branches in
India. Examples are Citi Bank, HSBC Ltd.
Non-Scheduled Banks– The banks which are not included in the list of the scheduled
banks are called the Non- Scheduled Banks. At present there are only 3 such banks in
the country. Non- Scheduled Banks have to follow CRR conditions. These banks can have
CRR fund with themselves as no compulsion has been made by the RBI to deposit it in
the RBI. Non- Scheduled Banks are also not eligible for having loans from the RBI for
day to day activities but under the emergency conditions RBI can grant loan to them.
EXIM Bank
Export–Import Bank of India is a finance institution in India, established in 1982 under

Export-Import Bank of India Act 1981.
Payments Bank
• On 23 September 2013, Committee on Comprehensive Financial Services for
Small Businesses and Low Income Households, headed by Nachiket Mor, was
formed by the RBI. On 7 January 2014, the Nachiket Mor committee submitted its
final report. Among its various recommendations, it recommended the formation
of a new category of bank called payments bank. On 17 July 2014, the RBI
released the draft guidelines for payment banks, seeking comments for
interested entities and the general public. On 27 November, RBI released the
final guidelines for payment banks.
• In February 2015, RBI released the list of entities which had applied for a
payments bank licence. There were 41 applicants. It was also announced that an
external advisory committee (EAC) headed by Nachiket Mor would evaluate the
licence applications. On 28 February 2015.
• Payments banks is a new model of banks conceptualised by the Reserve Bank of
India (RBI). These banks can accept a restricted deposit, which is currently
limited to ₹100,000 per customer and may be increased further. These banks
cannot issue loans and credit cards. Both current account and savings accounts
can be operated by such banks. Payments banks can issue services like ATM
cards, debit cards, net-banking and mobile-banking. Bharti Airtel set up India’s
first live payments bank.
Jobs
• The RBI will grant full licenses under Section 22 of the Banking Regulation
Act, 1949, after it is satisfied that the conditions have been fulfilled.
• The minimum capital requirement is 100 crore.
• Foreign share holding will be allowed in these banks as per the rules for FDI in
private banks in India.
• For the first five years, the stake of the promoter should remain at least 40%.
Cooperative banking
• Cooperative banking is retail and commercial banking organized on a
cooperative basis. Cooperative banking institutions take deposits and lend
money in most parts of the world.
Note: Co-operative banks have more than one head like the RBI, the Registrar of Co-
operative Societies (RCS) and NABARD.
Small finance bank

They are established as public limited companies in the private sector under the
Companies Act, 1956.
They are governed by the provisions of Reserve Bank of India Act, 1934, Banking
Regulation Act, 1949 and other relevant statutes.
Important Point
• Existing non-banking financial companies (NBFC), microfinance institutions

(MFI) and local area banks (LAB) can apply to become small finance banks.
• They can be promoted either by individuals, corporate, trusts or societies.
• They are established as public limited companies in the private sector under the
Companies Act, 1956.
• They are governed by the provisions of Reserve Bank of India Act, 1934, Banking
Regulation Act, 1949 and other relevant statutes.
• The banks will not be restricted to any region.
• They were set up with the twin objectives of providing an institutional
mechanism for promoting rural and semi urban savings and for providing credit
for viable economic activities in the local areas.
• 75% of its net credits should be in priority sector lending and 50% of the loans
in its portfolio must in ₹25 lakh (US$38,000) range.
• The firms must have a capital of at least ₹100 crore (US$15 million).
• The promoters should have 10 years’ experience in banking and finance. The
promoters stake in the paid-up equity capital will be at least 40% initially but
must be brought down to 26% in 12 years. Joint ventures are not permitted.
Jobs
Foreign share holding will be allowed in these banks as per the rules for FDI in
private banks in India.
• At net worth of ₹500 crore (US$77 million), listing will be mandatory within
three years. Small finance banks having net worth of below ₹500 crore (US$77
million) could also get their shares listed voluntarily.
• They can accept any deposit (savings, current, fixed deposits, recurring deposits)
like commercial banks.
• Unlike payment banks, small finance banks will be allowed to lend money also.
• For the initial 3 years, prior approval will be required for branch expansion.
• To give the feel of local bank, their area of operation will be restricted.
• They are not allowed to lend the deposited money to big businesses or
industries.
Chapter 3: Banking Ombudsman, National Income
Banking Ombudsman Important Point
• The Banking Ombudsman Scheme was introduced under Section 35 A of the

Banking Regulation Act, 1949 by RBI with effect from 1995.
• The Banking Ombudsman Scheme was first introduced in India in 1995 and it
was revised in 2002
• Current Banking Ombudsman Scheme introduced in 2006.
• From 2002 until 2006, around 36,000 complaints have been dealt by the Banking
Ombudsmen.
• Banking Ombudsman is appointed by Reserve Bank of India.
Jobs
• There are 21 regional offices of Banking Ombudsmen in India.

• Banking Ombudsman is a senior official appointed by RBI
• All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary
Co-operative Banks are covered under the Banking Ombudsman Scheme.
Type of complaints resolved by banking ombudsman
• Non-payment or inordinate delay in the payment or collection of cheques, drafts, bills,

etc.;
• Non-acceptance, without sufficient cause, of small denomination notes tendered
for any purpose, and for charging of commission for this service;
• Non-acceptance, without sufficient cause, of coins tendered and for charging of
commission for this service;
• Non-payment or delay in payment of inward remittances ;
• Failure to issue or delay in issue, of drafts, pay orders or bankers’ cheques;
• Non-adherence to prescribed working hours;
• Failure to honour guarantee or letter of credit commitments;
National Income
Jobs
Chapter 4: Money Market, Capital Market

Financial markets
• Financial markets in every economy have two separate segments.

• Short-term funds are for a period of 364 days (Money market).
• Long term funds are for above 364 days (Capital Market).
Note : Chakravarthy committee (1985) for first time underlined the need of an
organised money market and Vahul Committee (1987) laid the blueprint for that.
Money Market
Instruments of Money Market
• Treasury Bills
• Commercial Paper
• Commercial Bill
• Call Money
• Certificate of Deposits
• Cash Management Bills (CMBs)
Treasury Bills
• Issued by RBI on behalf of govt.

• Govt uses them to meet their short-term liquidity crunch.
• T-bills are sovereign zero risk instruments.
• At present, 3 types of T-bills are there: 91-day, 182-day, 364-day.
• State govt. cannot issue T-bills.
• They are issued by Market Stabilization Scheme (MSS).
Jobs
• Available for a minimum amount of Rs. 25000 or in multiples of that.
Call Money
• Interbank market where funds are borrowed and lent for 1 day or less.
• The money that is lent for one day in this market is known as "Call Money", and
if it exceeds one day (but less than 15 days) it is referred to as "Notice Money".
• Duration varying from 1 to 14 days, it is called Call money Market.
• Mutual funds, scheduled commercial & cooperative banks act as both borrowers
and lenders.
• LIC, GIC, NABARD, IDBI act only as lenders.
Certificate of Deposit (CDs)
• Issued by scheduled commercial banks and other financial institutions.

• RRBs and local area banks can not issue CDs.
• Issued at a discount to face value, the discount rate is negotiated between issuer
and investor.
• Minimum amount to be Rs. 1 lac.
• CDs issued by banks have a maturity period: 15 days to 1 year.
• CDs issued by selected FIs have maturity period: 1 year to 3 years.
• Can be issued to individuals or firms.
Commercial Paper (CP)
• These are unsecured promissory* notes issued by large corporates, primary

dealers, satellite dealers and all India FIs.
• Maturity period is between 7 days up to 1 year from date of issue.
• Minimum amount to be invested is Rs. 5 lacs or multiples of that.
• CPs need to have a credit rating from a credit rating agency.
Commercial Bills (CBs)
• Negotiable instruments which are issued by all India FIs, NBFCs, SCBs, Merchant
banks & Mutual funds.
• Drawn by seller on the buyer (buyer gives seller), hence also called trade bills.
Cash Management Bills (CMBs)
• It's a comparatively new short-term instrument issued by RBI on behalf of Govt.

• Issued to meet temporary mismatches in cash flow of Govt.
• They resemble T-bills in character but are issued for less than 91 days only.
Capital Market
Jobs
Capital Market 2 types
• Primary Market: Otherwise called as New Issues Market, it is the market for the
trading of new securities, for the first time. It embraces both initial public
offering and further public offering. In the primary market, the mobilisation of
funds takes place through prospectus, right issue and private placement of
securities.
• Secondary Market: Secondary Market can be described as the market for old
securities, in the sense that securities which are previously issued in the primary
market are traded here. The trading takes place between investors, that follows
the original issue in the primary market. It covers both stock exchange and over-
the counter market.
Chapter 5: Inflation
Inflation
Inflation is a quantitative measure of the rate at which the average price level of a
basket of selected goods and services in an economy increases over a period of time.
Simply, inflation is rise in the prices of goods and services caused by the devaluation of
currency.
Jobs
There are three major types of inflation

• Demand-pull inflation – This increase in liquidity and demand for consumer
goods results in an increase in demand for products. As a result of the increased
demand, companies will raise prices to the level the consumer will bear in order
to balance supply and demand.
• Cost-push inflation- Cost-push inflation, also called “supply shock inflation,” is
caused by a drop in aggregate supply (potential output). This may be due to
natural disasters, or increased prices of inputs, increases in corporate taxes,
rising wages.
• Built-in inflation – Built-in inflation is induced by adaptive expectations, and is
often linked to the “price/wage spiral”. It involves workers trying to keep their
wages up with prices (above the rate of inflation), and firms passing these higher
labor costs on to their customers as higher prices, leading to a ‘vicious circle’.
Deflation
• Deflation is a decrease in the general price level of goods and services. Deflation
occurs when the inflation rate falls below 0% (a negative inflation rate).
Deflation is the exact opposite of inflation. Inflation reduces the value of currency
over time, but deflation increases it. This allows one to buy more goods and
services than before with the same amount of currency.
Stagflation
• Stagflation is a condition of slow economic growth and relatively high
unemployment, or economic stagnation, accompanied by rising prices, or
inflation. It can also be defined as inflation and a decline in gross domestic
product (GDP).
Galloping Inflation
• Galloping inflation also called as hopping inflation, jumping inflation, and
running or runaway inflation is basically a very high inflation, which can be in
the range of ‘double-digit’ or ‘triple-digit’ (for example: 50 % or 200% in a year).
Causes of Inflation
Factors on Demand Sides –
• Increase in money supply
• Increase in Export
• Increase in disposable income
• Deficit financing
• Foreign exchange reserves
Jobs
Factors on Supply Side –

• Rise in administered prices
• Erratic agriculture growth
• Agricultural price policy
• Inadequate industrial growth
Measurement of Inflation
• The Consumer Price Index (CPI)

• Producer Price Index (PPI)
Measures of Inflation
Monetary policy
• Credit Control
• Demonetization of Currency
• Issue of New Currency
Fiscal policy
• Reduction in Unnecessary Expenditure
• Increase in Taxes
• Increase in Savings
• Surplus Budgets
• Public Debt
Other Measures
• To Increase Production
• Rational Wage Policy
• Price Control
Chapter 6: Negotiable Instrument, Mutual Fund,

Money Laundering
What is Negotiable Instrument
Jobs
A negotiable instrument is a document guaranteeing the payment of a specific amount

of money, either on demand, or at a set time, with the payer usually named on the
document.
Types of Negotiable Instruments
• Promissory Note
• Bills of Exchange
• Promissory note
• Demand Draft
• Letter of credit
• Cheque
Bill of Exchange
A bill of exchange is a written order used primarily in international trade that binds one
party to pay a fixed sum of money to another party on demand or at a predetermined
date.
Features of Bill of Exchange:
• Bills of exchange must be in writing.
• Bills of exchange are not a request to pay and an order to pay.
• The order must be signed by the drawer, i.e. the maker.
• The order must be for the payment of money only.
• The money payable not vague and must be certain.
• The bills of exchange must be payable to a certain person mentioned in the
instrument or to his order or to the bearer of the document.
Promissory note
Promissory note may be a negotiable instrument if it is an unconditional promise in
writing made by one person to another, signed by the maker, engaging to pay on
demand to the payee, or at fixed or determinable future time, certain in money, to order
or to bearer.
Cheque
A Cheque is a document which orders a bank to pay a particular amount of money from
a person’s account to another individual’s or company’s account in whose name the
cheque has been made or issued. The person writing the cheque, known as the drawer.
Demand Draft
Jobs
Demand Draft is a negotiable instrument used for the transfer of money from one place
to another. It making payment to the bank. Demand Draft can’t be dishonored as the
amount is paid beforehand.
Demand Draft is issued by a bank. The amount in cash not exceeding Rs 50,000. In case
of amount exceeding Rs 50,000, the payment is to be made by cheque along with giving
the PAN No. It can be cleared at any branch of the same bank. The payment of a draft
cannot be stopped.
Letter of credit
A letter of credit (LC), also known as a documentary credit or bankers commercial
credit, is a payment mechanism used in international trade to provide an economic
guarantee from a creditworthy bank to an exporter of goods.
Maker/ Drawer
The maker of a promissory note or cheque, the drawer of a bill of exchange until
acceptance, and the acceptor are, in the absence of a contract to the contrary,
respectively liable thereon as principal debtors, and the other parties thereto are liable
thereon as sureties for the maker, drawer or acceptor, as the case may be.
Drawee
Drawee is a legal and banking term used to describe the party that has been directed by
the depositor to pay a certain sum of money to the person presenting the check or draft.
Payee
A payee is the party in an exchange who receives payment. A payee is paid by cash,
check or other transfer medium by a payer.
Holder
The Holder is either the payee or some other person to whom he may have endorsed
the promissory note or bill of exchange or cheque. A person cannot be a holder unless
he is the payee or indorsee there of.
Money Laundering
Money laundering is the process of making large amounts of money generated by
a criminal activity, such as drug trafficking or terrorist funding, appear to have come
from a legitimate source. The money from the criminal activity is considered dirty, and
the process “launders” it to make it look clean. Money laundering is itself a crime.
Money Laundering on International Basis
On international Basis Financial action task force was established (FATF) to combat
with money laundering cases and terrorism financing.
• Established in 1989
• Headquarters – Geneva
Jobs
• Total member countries – 36

Introduction of Mutual Fund
A mutual fund is a professionally managed investment fund that pools money from
many investors to purchase securities. These investors may be retail or institutional in
nature.
Chapter 7: Types of Cheque & Types of Account
Cheque
A Cheque is a document which orders a bank to pay a particular amount of money
from a person’s account to another individual’s or company’s account in whose
name the cheque has been made or issued. The cheque is utilised to make safe, secure
and convenient payments. It serves as a secure option since hard cash is not involved
during the transfer process; hence the fear of loss or theft is minimised.
Number of Parties involved with a Cheque
Under the cheque mode of fund payment, there are three parties which are involved for
on-track movement of money through a written paper source.
• Drawer or Maker: He/she is the customer or account holder who issues the
cheque.
• Drawee: It is basically the bank on which the cheque is drawn and is called the
“Drawee”. Always remember that a cheque is always drawn on a particular
banker.
• Payee: The individual who is named in the cheque for getting the payment is
known as the “Payee”. Interestingly, the drawer and the payee can be the same
individual in a particular case.
Types of Cheque
• Bearer Cheque: Bearer cheques are the cheques which withdrawn to the
cheque's owner. These types of cheques normally used for a cash transaction.
• Order Cheque: Order cheques are the cheques which are withdrawn for the
payee(the person whose name is written on the cheque). Before making
payment to that payee,cross-checks check the identity of the payee.
• Crossed Cheque: On the Crossed cheques, two lines are made on the top right of
the cheque. Amount mentioned on the cheque is only transferred to the bank
account of the payee. No cash payment is made.
• Account Payee Cheque: On the Account payee cheque, two lines are made with
the word "account payee" on the top right of the cheque. Amount mentioned on
the cheque is only transferred to the bank account of the payee whose name is
mentioned on the cheque. No cash payment is made. This cheque can not be
endorsed to the third party.
Jobs
• Stale Cheque: In India, if a cheque is not presented to the bank within 3 months
from the date written on the cheque is known as a stale cheque.
• Post Dated Cheque: If any cheque issued by a holder to the payee for the
upcoming withdrawn date, then that type of cheques are called post-dated
cheque.
• Ante Dated Cheque: If date entered on the cheque is prior to the current date,
that type of cheque is known as Ante-dated cheque.
Demand Draft
• Demand Draft is a negotiable instrument used for the transfer of money from one
place to another. It making payment to the bank. Demand Draft can’t be
dishonoured as the amount is paid beforehand.
• Demand Draft is issued by a bank. The amount in cash not exceeding Rs.
50,000. In case of amount exceeding Rs. 50,000, the payment is to be made
by cheque along with giving the PAN No. It can be cleared at any branch of
the same bank. The payment of a draft cannot be stopped.
Letter of credit (LC)
• A letter of credit (LC), also known as a documentary credit or bankers
commercial credit, is a payment mechanism used in international trade to
provide an economic guarantee from a creditworthy bank to an exporter of
goods.
Bank Account
A bank account is a financial account maintained by a bank or other financial institution
in which the financial transactions between the bank and a customer are recorded.
Savings Account
Jobs
A savings account is a deposit account held at a retail bank that pays interest. Any
individual either single or jointly can open a savings account. Most of the salaried
persons, pensioners and students use Savings Account.
Current Account
The current account is a country’s trade balance plus net income and direct payments.
The trade balance is a country’s imports and exports of goods and services. The current
account also measures international transfers of capital.
Basic Savings Bank Deposit Accounts (BSBDA)
• A person having savings account can open a BSBDA in the same bank. But he will
have to close the savings account within 30 days from the date of opening of
BSBDA.
• With the introduction of BSBDA, ‘no-frills’ account with ‘nil’ or very low
minimum balances have been converted to BSBDA
• Total credits in such accounts should not exceed one lakh rupees in a year.
• Maximum balance in the account should not exceed fifty thousand rupees at
any time.
• In a month, the total of cash withdrawals and transfers cannot exceed Rs
10,000.
Recurring Deposit Account
• Recurring Deposit is a special kind of Term Deposit offered by banks in India

which help people with regular incomes to deposit a fixed amount every month
into their Recurring Deposit account and earn interest
• Recurring Deposit schemes allow customers with an opportunity to build up
their savings through regular monthly deposits of fixed sum over a fixed period
of time. Minimum Period of RD is 6 months and maximum is 10 years.
• There are no limits for number of transactions or the amount of transactions in
a day.
• There is no interest paid on amount held in the account, banks charges certain
service charges, on such accounts.
Fixed Deposit Account
• A fixed deposit (FD) is a financial instrument provided by banks or NBFCs which

provides investors a higher rate of interest than a regular savings account, until
the given maturity date. It may or may not require the creation of a separate
account. It is known as a term deposit or time deposit.
Important Feature
• Customers can avail loans against FDs up to 80 to 90 percent of the value of

deposits. The rate of interest on the loan could be 1 to 2 percent over the rate
offered on the deposit.
• Residents of India can open these accounts for a minimum of 3 months.
Jobs
• Investing in a fixed deposit earns you a higher interest rate than depositing your
money in a saving account.
• The tenure of an FD can vary from 7, 15 or 45 days to 1.5 years and The longest
permissible term for FDs is 10 years.
Demat Account
• The full form of Demat Account is Dematerialized account. A Demat Account is an

account that allows investors to hold their shares in an electronic form. Demat
account functions like a bank account, where you hold your money and
respective entries are done in bank passbook.
CASA Account
• CASA stands for current and savings account ratio. CASA ratio of a bank is the
ratio of deposits in current and saving accounts to total deposits.
RAFA Account
• RAFA stands for Recurring Deposit Account Fixed Deposit Account. The RAFA
ratio shows how much deposit a bank has in the form of Recurring and fixed
deposits.
NRI ACCOUNTS
• NRO ( Non-Resident Ordinary Rupees) Account

• NRE ( Non-Resident External Rupees) Account
• FCNR ( Foreign Currency Non-Resident ) Account NRO ( Non-Resident Ordinary
Rupees) Account
Different Between NRE and NRO account
Basis NRE Account NRO Account

Acronym Non Resident External Non Resident Ordinary Account
Account
Meaning It is an account of an NRI to It is an account of an NRI to manage the
transfer foreign earnings to income earned in India
India
Taxability Interest earned is tax free Interest earned is taxable
Repatriability Can repatriate Can repatriate the interest amount, the
principle amount can be repatriated
within the set limits
Joint Account Can be opened by two NRIs Can be opened by an NRI along with an
Indian citizen or another NRI
Deposits and Can deposit in foreign Can deposit in foreign as well as Indian
Withdrawals currency, and withdraw in currency, and withdraw in Indian
Indian currency currency
Jobs
Exchange Rate Prone to risk Not prone to risk

Risk
Chapter 8: Types of Payment Cards, Fund transfer

service
Plastic money is a term used to represent the hard plastic cards used in day to day life
in place of actual banknotes. They come in several forms such as debit cards, credit cards,
store cards and pre-paid cash cards. The plastic cards began to be used widely after 1970
when the specific standards were set for a magnetic strip. In 1981, the concept of Credit
cards was introduced in India and was on the verge of an exceptional boom.
Today the domestic card industry is applied with different types of cards from gold, silver,
global, smart to secure, co-branded credit cards, etc. the list is endless. There is enormous
growth potential in the domestic card industry.
Types Of Plastic Money
Charge Card: A charge card has similar features of credit cards. However, after using a
charge card, it is necessary to pay the whole amount of bill till the due date. If the person
defaults to pay the amount of the charge card, then he has to pay the late payment
charges.
Visa & MasterCard: Visa & MasterCard are international non-profit organizations. They
are dedicated to promoting the growth of the business of cards across the globe. They
Jobs
have designed a wide network of merchant institutions by keeping in mind that the
customers might use their credit cards to make several transactions worldwide.
Debit Cards: The debit card is an encoded plastic card which is issued by banks and has
replaced with the cheques. It allows the customers to pay in exchange for goods and
services without carrying cash. It is a multipurpose card, as it can be used as an ATM to
withdraw the money and check the balance of the bank account. It is issued by bank free
of cost with the savings or current account. It is one of the best online-payment tools
where the amount of purchase is immediately subtracted from the account of the
customer and credited to the merchant’s account. It has overcome the delay in the
payment process.
There are presently two ways in which debit cards transactions are processed:
i)Online debit (also known as a PIN)
ii)Offline debit (also known as signature debit
ATM Cards: These cards are typically used at ATMs to withdraw money, transfer funds
and make deposits. ATM cards are used by inserting the card into a machine and enter a
PIN or personal number for security purpose. The system checks the account for
sufficient funds before allowing any transaction.
Fund transfer services
• National Electronic Funds Transfer (NEFT)

• Real-time gross settlement (RTGS)
• Immediate Payment Service (IMPS)
Jobs
Chapter 9: Basel I, II and III
Basel Accords
The Basel Accords refer to the banking supervision Accords (recommendations on

banking regulations)—Basel I, Basel II and Basel III—issued by the Basel Committee
on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS
maintains its secretariat at the Bank for International Settlements in Basel, Switzerland
and the committee normally meets there. The Basel Accords is a set of
recommendations for regulations in the banking industry.
Basel I
Basel I is the round of deliberations by central bankers from around the world, and in
1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland,
published a set of minimum capital requirements for banks. This is also known as the
1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in
1992. Basel I norms set a minimum capital requirements for banks. It defined capital
requirement and structure of risk weights for banks. The goal was to minimize credit
risk i.e. the defaults on a credit or loan when the borrower is unable to pay back to the
bank.
Basel-II
The Basel II Accord was published initially in June 2004 and was intended to amend
international banking standards that controlled how much capital banks were
required to hold to guard against the financial and operational risks banks face. These
regulations aimed to ensure that the more significant the risk a bank is exposed to, the
greater the amount of capital the bank needs to hold to safeguard its solvency and
overall economic stability.
Basel II was implemented in the years prior to 2008, Basel II uses a “three pillars”
concept – (1) minimum capital requirements (addressing risk), (2) supervisory review
and (3) market discipline.
Jobs
Basel-III
Basel III (or the Third Basel Accord or Basel Standards) is a global, voluntary
regulatory framework on bank capital adequacy, stress testing, and market liquidity
risk. This third installment of the Basel Accords (see Basel I, Basel II) was developed
in response to the deficiencies in financial regulation revealed by the financial
crisis of 2007–08. It is intended to strengthen bank capital requirements by increasing
bank liquidity and decreasing bank leverage.
Basel III was agreed upon by the members of the Basel Committee on Banking
Supervision in November 2010, and was scheduled to be introduced from 2013 until
2015; however, implementation was extended repeatedly to 31 March 2019. it has
now been decided to extend the dispensation of enhanced HTM of 22 per cent up
to March 31, 2023 to include securities acquired between April 1, 2021 and March
31, 2022
Jobs
Chapter 10: NPA & SARFAESI Act, 2002

What is NPA
NPA Meaning (Non-performing Assets) - All those assets which don't generate regular
income are known as NPA.
Types of assets
• Standard assets :- Assets which are generating regular income to the bank
• Sub-standard assets :- An asset which is overdue for a period of more than 90
days but less than 12 months
• Doubtful assets :- An asset which is overdue for a period of more than 12
months.
• Loss assets :- Assets which are doubtful and considered as non-recoverable by
bank, internal or external auditor or central bank inspectors
• Sub-standard assets, Doubtful assets and Loss assets are NPA.
SARFAESI Act, 2002
Narasimham Committee I and II and Andhyarujina Committee was constituted by

the Central Government for the purpose of examining banking sector reforms have
considered the need for changes in the legal system in respect of these areas. Amongst
the other committees, these Committees have made suggestions to form new legislation
Jobs
for securitization and empowering banks and financial institutions to gain possession of
the securities and to sell them without any intervention of the court here.
Applicability Of SARFAESI Act, 2002
The amendment to this Act is “an act to regulate securitization and reconstruction of
financial assets and enforcement of security interest and to provide for a central
database of security interests created on property rights, and for matters connected
therewith or incidental thereto.”
The Act deals with the following:
• Registration and regulation of Asset Reconstruction Companies (ARCs) by the

Reserve Bank of India
• Facilitating securitization of financial assets of banks and financial institutions
with or without the benefit of underlying securities
• Promotion of seamless transferability of financial assets by the ARC to acquire
financial assets of banks and financial institutions through the issuance of
debentures or bonds or any other security as a debenture
• Entrusting the Asset Reconstruction Companies to raise funds by issue of
security receipts to qualified buyers
• Facilitating the reconstruction of financial assets which are acquired while
exercising powers of enforcement of securities or change of management or
other powers which are proposed to be conferred on the banks and financial
institutions
• Presentation of any securitization company or asset reconstruction company
registered with the Reserve Bank of India as a public financial institution
• Defining ‘security interest’ to be any type of security including mortgage and
change on immovable properties given for due repayment of any financial
assistance given by any bank or financial institution
• Classification of the borrower’s account as a non-performing asset in accordance
with the directions given or under guidelines issued by the Reserve Bank of India
from time to time
• The officers authorized will exercise the rights of a secured creditor in this
behalf in accordance with the rules made by the Central Government
• An appeal against the action of any bank or financial institution to the concerned
Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery
Tribunal
• The Central Government may set up or cause to be set up a Central Registry for
the purpose of registration of transactions relating to securitization, asset
reconstruction and creation of the security interest
• Application of the proposed legislation initially to banks and financial
institutions and empowerment of the Central Government to extend the
application of the proposed legislation to non-banking financial companies and
other entities
• Non-application of the proposed legislation to security interests in agricultural
lands, loans less than rupees one lakh and cases where eighty per cent, of the
loans, is repaid by the borrower
Jobs
Objectives of SARFAESI Act, 2002
• Efficient or rapid recovery of non-performing assets (NPAs) of the banks and FIs.
• Allows banks and financial institutions to auction properties (say,
commercial/residential) when borrower fail to repay their loans.
Chapter 11: LIBOR & MIBOR, SWIFT Codes for

banks
Jobs
Jobs
Chapter 12: Banking Ombudsman Scheme (India) &

CIBIL
Bank Credit
What Is Bank Credit?
Bank credit is the total amount of credit available to a business or individual from a
banking institution. It consists of the total amount of combined funds that financial
institutions provide to an individual or business. A business or individual's bank credit
depends on the borrower's ability to repay the loan and the total amount of credit
available in the banking institution.
How Bank Credit Works
Bank credit is the total borrowing capacity banks provide to borrowers. The credit
allows borrowers to buy goods or services. Bank Credit requires a fixed minimum
monthly payment for a certified period
Priority Sector lending

Priority Sector refers to those sectors of the economy which may not get timely and
adequate credit.
Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to
the banks for providing a specified portion of the bank lending to few specific sectors.
The sectors may be agriculture and allied activities, micro and small enterprises, poor
people for housing, students for education and other low income groups and weaker
sections.
Jobs
This is essentially meant for an all round development of the economy as opposed to
focusing only on the financial sector.
As per the RBI circular released in 2016, there are eight broad categories of the
Priority Sector Lending.
They are: (1) Agriculture (2) Micro, Small and Medium Enterprises (3) Export Credit
(4) Education (5) Housing (6) Social Infrastructure (7) Renewable Energy (8) Others.
The others category includes personal loans to weaker section, loans to distressed
persons, loans to state sponsored organisations for SC/ST.
Banks Mergers
Banking order (Largest to Smallest)
• State Bank of India

• PNB +OBC +United Bank:- Punjab National Bank
Jobs
• Bank of Baroda + Vijya Bank+ Dena Bank:- Bank of Baroda

• Canara + Syndicate Bank:- Canara Bank
• Union Bank + Andhra Bank +Corporation Bank: Bank of India
• Indian Bank + Allahabad Bank:- Indian Bank
• Central bank of India
• Indian Overseas Bank
• UCO Bank
• Bank of Maharashtra
• Punjab and Sind Bank
Chapter 13: Important Terms
Retail banking
Retail banking, also known as consumer banking, is the provision of services by a bank
to the general public, rather than to companies, corporations or other banks, which are
often described as wholesale banking. Banking services which are regarded as retail
include provision of savings and transactional accounts, mortgages, personal loans,
debit cards, and credit cards. Retail banking is also distinguished from investment
banking or commercial banking.
Call money
Call money is money loaned by a bank that must be repaid on demand. The money that
is lent for one day in this market is known as “Call money“.
Notice Money
In the call money is usually availed for one day. If the bank needs funds for more days, it
can avail money through notice market. Here, the loan is provided from two days to
fourteen days. This is called notice money.
Green Banking
Green banking aims at improving the operations and technology along with making the
clients habits environment-friendly in the banking business.
It is like normal banking i. e. in addition to financing social activities does business in
environmental activities including its financing.
Skimming
Skimming is a tactic used predominantly for credit-card fraud. Credit card fraud is a
wide-ranging term for theft and fraud committed using or involving a payment card,
such as a credit card or debit card, as a fraudulent source of funds in a transaction. The
purpose may be to obtain goods without paying, or to obtain unauthorized funds from
an account.
Proportional reserve system
Jobs
Under the proportional reserve system, certain proportion of currency notes (40%) are
backed by gold and silver reserves and the remaining part of the note issue by approved
securities.
Minimum Reserve System
RBI is required to maintain a Gold and Foreign Exchange Reserves of Rs. 200 Crore of
which at least Rs. 115 Crore should be in Gold. This is called Minimum Reserve system.
Camels rating
The CELS ratings or Camels rating is a supervisory rating system originally developed in
the U.S. to classify a bank’s overall condition. It is applied to every bank and credit union
in the U.S. It also implemented outside the U.S. by various banking supervisory
regulators.
Each factor is assigned a weight as follows:
• Capital adequacy -20 %
• Asset quality -20%
• Management- 25%
• Earnings -15%
• Liquidity- 10%
• Sensitivity -10%
Core banking Solution
Core (Centralized Online Real-time Exchange) banking is a banking service provided by
a group of networked bank branches where customers may access their bank account
and perform basic transactions from any of the member branch offices.
Unified Payments Interface
Unified Payments Interface (UPI) is an instant real-time payment system developed by
National Payments Corporation of India facilitating inter-bank transactions. UPI is a
payment system that allows money transfer between any two bank accounts by using a
smartphone.
UPI allows a customer to pay directly from a bank account to different merchants, both
online and offline, without the hassle of typing credit card details, IFSC code, or net
banking/wallet passwords.
The Balance of Trade
The difference of the country’s exports and the value of its imports are known as the
Balance of Trade.
Important features:
• The cost of production (land, labor, capital, taxes, incentives, etc.) in the
exporting economy vis-à-vis those in the importing economy;
• Currency exchange rate movements;
Jobs
• Multilateral, bilateral and unilateral taxes or restrictions on trade;

• The availability of adequate foreign exchange with which to pay for imports; and
Prices of goods manufactured at home (influenced by the responsiveness of
supply).
A Balance of Payments
The balance of payments, also known as balance of international payments and
abbreviated B.O.P. or BoP, of a country is the record of all economic transactions
between the residents of the country and the rest of the world in a particular period of
(generally 1 year).
Cheque Truncation System (CTS)
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a
project of the Reserve Bank of India (RBI), commenced in 2010, for faster clearing of
cheques. CTS is based on a cheque truncation or online image-based cheque clearing
system where cheque images and magnetic ink character recognition (MICR) data are
captured at the collecting bank branch and transmitted electronically.
Cheque truncation means stopping the flow of the physical cheques issued by a drawer
to the drawee branch.
Shadow banking system
The shadow banking system is a term for the collection of non-bank financial
intermediaries that provide services similar to traditional commercial banks but
outside normal banking regulations. Likes Non-banking financial companies (NBFCs)
The shadow banking sector plays an important role in promoting financial inclusion.
The main Benefits of shadow banks lie in their ability to reduce transaction costs, their
quick decision making ability, and customer orientation and prompt delivery of
services. But there is also a risk in shadow banking practice in any economy because
they can take their own decisions.
Special drawing rights
Special drawing rights are supplementary foreign-exchange reserve assets defined and
maintained by the International Monetary Fund (IMF).The SDR is the unit of account for
the IMF, and is not a currency per se. SDRs instead represent a claim to currency held by
IMF member countries for which they may be exchanged. The SDR was created in 1969
to supplement a shortfall of preferred foreign-exchange reserve assets, namely gold and
the U.S. dollar.
Participatory Notes
Participatory Notes commonly known as P-Notes or PNs are instruments issued by
registered foreign institutional investors (FII) to overseas investors, who wish to invest
in the Indian stock markets without registering themselves with the market regulator,
the Securities and Exchange Board of India – SEBI.
Jobs
Participatory notes are instruments used for making investments in the stock markets.
However, they are not used within the country. They are used outside India for making
investments in shares listed in the Indian stock market.
Liabilities of A Bank
In the simplest of terms, the bank’s liabilities are deposits, money that people deposit
with the bank, because the banks owes that money to the depositors.
Below are some of the products
• Capital and Reserves

• Savings account, current account, salary account
• Fixed deposits
• Recurring deposits
• Insurance
Assets of a Bank
The asset products are those in which the customer is liable to pay to the bank.
In banking term Assets are loans the banks makes to borrowers.
Any type of loans like
• Cash
• Money at Call at Short Notice
• Investments
• Loans, Advances and Bills Discounted-or Purchased
• Demand Loans
• Term Loans
• personal loan, car loan, education loan Etc
• Credit card
Initial Public Offering (IPO)

Initial public offering (IPO) or stock market launch is a type of public offering in which
shares of a company are sold to institutional investors and usually also retail
(individual) investors; an IPO is underwritten by one or more investment banks, who
also arrange for the shares to be listed on one or more stock exchanges. Through this
process, colloquially known as floating, or going public, a privately held company is
transformed into a public company. Initial public offerings can be used: to raise new
equity capital for the company concerned; to monetize the investments of private
shareholders such as company founders or private equity investors; and to enable easy
trading of existing holdings or future capital raising by becoming publicly traded
enterprises.
Advantages of IPO
• Enlarging and diversifying equity base

• Enabling cheaper access to capital
Jobs
• Increasing exposure, prestige, and public image

• Attracting and retaining better management and employees through liquid
equity participation
• Facilitating acquisitions (potentially in return for shares of stock)
• Creating multiple financing opportunities: equity, convertible debt, cheaper bank
loans, etc.
Mortgage
A loan used to buy real estate. A mortgage is secured by the property it is used to
purchase. One must make monthly payments on a mortgage, and there is a set term
before full payment is due, often 15, 20, or 30 years. Some mortgages have fixed interest
rates, while others have variable interest rates. If one defaults on a mortgage, the bank
making it may take possession of the real estate and sell it to recover its investment.
Some banks, notably savings and loans, specialize in making mortgage loans.
Chapter 14: Micro, Small and Medium Enterprise in

India
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,
governs the coverage and investment ceiling of MSMEs in India.
According to the Act, there are two categories of MSMEs in the country –
Manufacturing: Manufacturing Enterprises-he enterprises engaged in the

manufacture or production of goods pertaining to any industry specified in the first
schedule to the industries (Development and regulation) Act, 1951) or employing
plant and machinery in the process of value addition to the final product having a
distinct name or character or use. The Manufacturing Enterprise are defined in terms of
investment in Plant & Machinery.
Service Enterprises:-The enterprises engaged in providing or rendering of

services and are defined in terms of investment in equipment.. The limit for investment
in plant and machinery / equipment for manufacturing / service enterprises, as
notified,vide S.O. 1642(E) dtd.29-09-2006 are as under
Composite Criteria: Investment in Plant & Machinery/equipment and

Annual Turnover
Classification Micro Small Medium
Manufacturing Investment in Investment in Investment in

Enterprises and Plant and Plant and Plant and
Jobs
Enterprises Machinery or Machinery or Machinery or

rendering Equipment: Equipment: Equipment:
Services Not more than Not more than Not more than
Rs.1 crore and Rs.10 crore Rs.50 crore
Annual and Annual and Annual
Turnover ; not Turnover ; not Turnover ; not
more than Rs. more than Rs. more than Rs.
5 crore 50 crore 250 crore
Performance & Credit Rating Scheme

This scheme seeks to establish independent, trusted third party opinion on capabilities
and credit-worthiness of MSEs, and makes credit available at attractive interest rates
and will ensure better productivity. Under this scheme (as per the turnover of the MSE)
a percent of Rating Agency charges are reimbursed by Ministry of SSI.
Scheme Benefits & Highlights
The fee to be paid to the rating agencies shall be based on the turnover of the Small-
Scale Units which has been categorized into three slabs. The slabs of the Turnover and
the Share of Ministry of SSI towards the fee charged by the Rating Agency is as follow:
Turnover of MSE Re-imbursement of fee through NSIC:
• Up to Rs. 50 lakh - 75% of the fee or INR25,000 (whichever is less)

• Above Rs. 50 to 200 lakh - 75% of the fee or INR30,000 (whichever is less)
• More than Rs. 200 lakh - 75% of the fee or INR40,000 (whichever is less)
Credit Guarantee
Any collateral / third party guarantee free credit facility (both fund as well as non fund
based) extended by eligible institutions, to new as well as existing Micro and Small
Enterprise, including Service Enterprises, with a maximum credit cap of of 200 lakh
(Rupees Two Hundred lakh only) are eligible to be covered. Recently, guarantee
coverage made eligible to select NBFCs and Small Finance banks.
The guarantee cover available under the scheme is to the extent of 50%/ 75% / 80% &
85% of the sanctioned amount of the credit facility. The extent of guarantee cover is
85% for micro enterprises for credit up to 5 lakh. The extent of guarantee cover is 50%
of the sanctioned amount of the credit facility for credit from 10 lakh to 100 lakh per
MSE borrower for retail trade activity.
The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or
owned by women; and (ii) all credits/loans in the North East Region (NER) for credit
facilities upto 50 lakh. In case of default, Trust settles the claim up to 75% of the
Jobs
amount in default of the credit facility extended by the lending institution for credit
facilities upto 200 lakh.
Category Maximum extent of Guarantee where credit facility is
Upto 5 lakh Above 5 lakh Above 50 lakh
upto 50 lakh upto 200 lakh
Micro Enterprises 85% of the 75% of the amount 75% of the amount
amount in in default subject to a in default subject to a
default subject maximum of 37.50 maximum of 150
to a maximum lakh lakh
of 4.25 lakh
Women entrepreneurs/ 80% of the amount in default subject
Units located in North East to a maximum of 40 lakh
Region (incl. Sikkim) (other
than credit facility upto 5
lakh to micro enterprises)
All other category of 75% of the amount in default subject

borrowers to a maximum of 37.50 lakh
Activity From 10 lakh upto 100 lakh
MSE Retail Trade 50% of the amount in default subject to a maximum of 50 lakh
Chapter 15: KYC & AML
Anti- Money Laundering (PMLA Act 2002)
• The offence of money laundering has been defined in Section 3 of

the Prevention of Money Laundering Act,2002 (PMLA) as
“whosoever directly or indirectly attempts to indulge or knowingly
assists or knowingly is a party or is actually involved in any process
or activity connected with the proceeds of crime and projecting it as
untainted property shall be guilty of offence of money laundering”.
Stages of Money laundering
• Placement: Placement is the first stage in the money laundering

process. It refers to the physical disposal of proceeds of criminal
activity.
• Layering: “Layering” refers to the separation of illicit proceeds from
their sources by creating complex layers of financial transactions.
Layering conceals the audit trial and provides anonymity.
Jobs
• Integration: The third phase is integration, which means placing

laundered proceeds into the legitimate economy as normal funds.
The act was amended in the year 2005, 2009 and 2012.
• On 24 Nov 2017, In a ruling in favour of citizens’ liberty, the

Supreme Court has set aside a clause in the Prevention of Money
Laundering Act, which made it virtually impossible for a person
convicted to more than three years in jail to get bail if the public
prosecutor opposed it. (Section 45 of the PMLA Act, 2002,
provides that no person can be granted bail for any offence
under the Act unless the public prosecutor, appointed by the
government, gets a chance to oppose his bail. And should the
public prosecutor choose to oppose bail, the court has to be
convinced that the accused was not guilty of the crime and
additionally that he/she was not likely to commit any offence while
out on bail- a tall order by any count.) (It observed that the
provision violates Articles 14 and 21 of the Indian Constitution)
•
Any person who directly or indirectly:
• Attempts to indulge.
• Assists the person who is actually involved in any process.
• Is a party to the activity connected with the proceeds of crime.
As the supply of illegal arms, drug trafficking, and prostitution, which can
generate huge amounts of money and projecting or claiming it as untainted
property; shall be guilty of the offence of Money Laundering.
The Act was formulated for the following objectives:
• Prevent money-laundering.
• Combat/prevent channelising of money into illegal activities and
economic crimes.
• Provide for the confiscation of property derived from, or
involved/used in, money-laundering.
• Provide for matters connected and incidental to the acts of money
laundering.
Special Court
• Section 43 of Prevention of Money Laundering Act, 2002

(PMLA) says that the Central Government, in consultation with the
Jobs
Chief Justice of the High Court, shall, for trial of offence

punishable under Section 4, by notification, designate one or
more Courts of Session as Special Court or Special Courts for such
area or areas or for such case or class or group of cases as may be
specified in the notification.
List of Offences
• Under PMLA, the commission of any offence, as mentioned in Part A

and Part C of the Schedule of PMLA will attract the provisions of
PMLA.
• Some of the Acts and offences, which may attract PMLA, are
enumerated below:
• Part A enlists offences under various acts such as:
• Indian Penal Code, Narcotics Drugs and Psychotropic Substances
Act, Prevention of Corruption Act, Antiquities and Art Treasures Act,
Copyright Act, Trademark Act, Wildlife Protection Act, and
Information Technology Act.
• Part B specifies offences that are Part A offences, but the value
involved in such offences is Rs 1 crore or more.
• Part C deals with trans-border crimes and reflects the dedication to
tackle money laundering across global boundaries.
Obligations Under Prevention of Money Laundering Act, 2002
• Section 12 of PMLA, 2002 casts the following reporting

obligation of banking companies to the Director, Financial
intelligence Unit- India (FIU-IND), besides obligations of record
keeping and preservation of information.
Authorities Entrusted for Investigation
The Enforcement Directorate in the Department of Revenue, Ministry of

Finance, the Government of India is responsible for investigating the offences
of money laundering under the PMLA.
Financial Intelligence Unit – India (FIU-IND) under the Department of

Revenue, Ministry of Finance is an independent body reporting directly to the
Economic Intelligence Council (EIC) headed by the Finance Minister. FIU-IND
is the central national agency responsible for receiving, processing,
analysing, and disseminating the information relating to suspect financial
transactions. It is also responsible for:
Jobs
Coordinating and strengthening the efforts of national and international

intelligence,
Investigations for pursuing the global efforts against money laundering and
related crimes.
The scheduled offences are separately investigated by agencies mentioned

under respective acts, for example, the local police, CBI, customs
departments, SEBI, or any other investigative agency, as the case may be.
Actions that can be Initiated Against the Person Involved in Money Laundering
(i)Seizure/freezing of property and records and attachment of property

obtained with the proceeds of crime.
(ii)Any person who commits the offence of money laundering shall be

punishable with –
• Rigorous imprisonment for a minimum term of three years and this

may extend up to seven years.
• Fine (without any limit).
(iii)If the proceeds of crime involved in money laundering related to Part A
(offence specified under the Narcotic Drugs and Psychotropic Substances Act,
1985, then the punishment shall be –
• Rigorous imprisonment for a term which shall not be less than three
years but which may extend up to 10 years.
• Fine (without any limit).
Over the past decades, several anti-money laundering policies have been
adopted to overcome laundering. Financial institutions and governments are
constantly looking for new approaches to fight against the money launderers.
The banks and financial institutions play a pivotal role in the world of
financial crime. It is important that they are properly trained on how to
identify and handle money laundering. Almost every bank employee receives
training in anti-money laundering, and all financial institution and banks are
legally required to report any suspicious activity.
With the help of technology such as special compliance platforms, companies

are now able to easily research their customers and ensure that they are not
doing business with criminals.
Cash Transaction Report (CTR):
Jobs
• All cash transactions of the value of more than Rs 10 lakhs or its

equivalent in foreign currency.
• All series of cash transactions integrally connected to each other,
which have been valued below Rs 10 lakhs or its equivalent in
foreign currency where such series of transactions have taken place
within a month and the aggregate value of such transactions
exceeds Rs 10 lakhs.
• All cash transaction where forged or counterfeit currency notes or
banknotes have been used as genuine and where any forgery of a
valuable security has taken place. However, individual
transactions for below Rs 50000 are not to be included in CTR.
Suspicious Transactions Report (STR)
• If there are reasonable grounds to believe that the transaction

involves proceeds of crime. Suspicious Transaction Report
(STR) should be furnished within 7 days of arriving at a
conclusion that any transaction, whether cash or non-cash, or a
series of transactions integrally connected are of suspicious nature.
Know your Customer
What is KYC?
• KYC is an acronym for “Know your Customer”, a term used for

customer identification process. It involves making reasonable
efforts to determine true identity and beneficial ownership of
accounts, source of funds, the nature of customer’s business,
reasonableness of operations in the account in relation to the
customer’s business, etc which in turn helps the banks to manage
their risks prudently. The objective of the KYC guidelines is to
prevent banks being used, intentionally or unintentionally by
criminal elements for money laundering.
Is there any legal backing for verifying identity of clients?
• Yes. Reserve Bank of India has issued guidelines to banks

under Section 35A of the Banking Regulation Act, 1949 and
Rule 7 of Prevention of Money-Laundering (Maintenance of
Records of the Nature and Value of Transactions, the Procedure and
Manner of Maintaining and Time for Furnishing Information and
Verification and Maintenance of Records of the Identity of
Jobs
the Clients of the Banking Companies, Financial Institutions

and Intermediaries) Rules, 2005.
What are the features to be verified and documents required to be

obtained from customers?
• The features to be verified and documents that may be obtained

vary dependingupon the type of customers. The same are
furnished below:
Features Documents
Accounts of individuals (i)Passport (ii) PAN card (iii) Voter’s

Identity Card (iv) Driving License
o Legal name and any other names (v) *Job Card issued by NREGA
used duly signed by an officer of the
State Govt (vi) The letter issued by
the Unique Identification Authority
of India ( UIDAI) containing details
of name, address and Aadhaar
number (vii) Identity card (subject
to the bank’s satisfaction) (viii)
Letter from a recognized public
authority or public servant verifying
the identity and residence of the
customer to the satisfaction of
bank.
(i) Telephone bill (ii) Bank account
statement (iii) Letter from any
recognized public authority (iv)
Electricity bill (v) Ration card (vi)
Letter from employer (subject to
o Correct permanent address satisfaction of the bank) ( any one
document which provides customer
information to the satisfaction of
the bank will suffice )
Accounts of companies (i) Certificate of incorporation and

o Name of the company Memorandum & Articles of
Association (ii) Resolution of the
Board of Directors to open an
Jobs
o Principal place of business account and identification of those

who have authority to operate the
o Mailing address of the company account (iii) Power of Attorney
granted to its managers, officers or
employees to transact business on
o Telephone/Fax Number its behalf (iv) Copy of PAN
allotment letter (v) Copy of the
telephone bill
Accounts of partnership firms (i) Registration certificate, if
o Legal name registered (ii) Partnership deed (iii)
Power of Attorney granted to a
o Address partner or an employee of the firm
to transact business on its behalf
(iv) Any officially valid document
o Names of all partnersand their identifying the partners and the
addresses persons holding the Power of
Attorney and their addresses (v)
o Telephone numbers of the firm and Telephone bill in the name of
partners firm/partners
Accounts of trusts & foundations (i) Certificate of registration, if

o Names of trustees, settlors, registered (ii) Power of Attorney
beneficiaries and signatories granted to transact business on its
behalf (iii) Any officially valid
o Names and addresses of the document to identify the trustees,
founder, the managers/directors and settlors, beneficiaries and those
the beneficiaries holding Power of Attorney,
founders/managers/ directors and
their addresses
o Telephone/fax numbers (iv) Resolution of the managing
body of the foundation/association
(v) Telephone bill
Accounts of Proprietorship Concerns Proof Registration certificate (in the case

of the name, address and activity of the of a registered concern)
concern • Certificate/licence issued by the
Municipal authorities under Shop &
Establishment Act,
• Sales and income tax returns
• CST/VAT certificate
Jobs
• Certificate/registration document
issued by Sales Tax/Service
Tax/Professional Tax authorities
• Licence issued by the Registering

authority like Certificate of Practice
issued by Institute of Chartered
Accountants of India, Institute of
Cost Accountants of India, Institute
of Company Secretaries of India,
Indian Medical Council, Food and
Drug Control Authorities,
registration/licensing document
issued in the name of the
proprietary concern by the Central
Government or State Government
Authority/ Department, etc. Banks
may also accept IEC (Importer
Exporter Code) issued to the
proprietary concern by the office of
DGFT as an identity document for
opening of the bank account. etc.
• The complete Income Tax return

(not just the acknowledgement) in
the name of the sole proprietor
where the firm’s income is
reflected, duly authenticated/
acknowledged by the Income Tax
Authorities.
• Utility bills such as electricity,

water, and landline telephone bills
in the name of the proprietary
concern. Any two of the above
documents would suffice. These
documents should be in the name
of the proprietary concern.
1. What is KYC? Why is it required?

KYC means “Know Your Customer”. It is a process by which banks obtain information
about the identity and address of the customers. This process helps to ensure that
banks’ services are not misused. The KYC procedure is to be completed by the banks
while opening accounts and also periodically update the same.
2. What are the KYC requirements for opening a bank account?
To open a bank account, one needs to submit a Aadhaar/enrolment number and PAN as
‘proof of identity and proof of address’ together with a recent photograph.
Jobs
3. If I refuse to provide requested documents for KYC to my bank for opening an

account, what may be the result?
If you do not provide the required documents for KYC, the bank may not be able to open
your account.
4. Do I have to furnish KYC documents for each account I open in a bank even
though I have furnished the documents of proof of identity and address?
No, if you have opened an account with a bank, which is KYC compliant, then for
opening another account with the same bank, furnishing of documents is not necessary.
5. Whether KYC is applicable for Credit/Debit/Smart/Gift cards?
Yes. Full KYC exercise is necessary for Credit/Debit/Smart/for purchaser of Gift Cards
and also in respect of add-on/ supplementary cards.
6. I do not have a bank account. But I need to make a remittance. Is KYC applicable
to me?
Yes. KYC exercise needs to be done for all those who want to make domestic
remittances of Rs. 50,000 and above and all foreign remittances.
7. Can I purchase a Demand Draft/Payment Order/Travellers Cheque against cash
without KYC?
Demand Draft/Payment Order/Travellers Cheques for Rs.50,000/- and above can be
issued only by way of debiting the customer's account or against cheques.
8. Do I need to submit KYC documents to the bank while purchasing third party
products (like insurance or mutual fund products) from banks?
Yes, all customers who do not have accounts with the banks (known as walk-in
customers) have to produce proof of identity and address while purchasing third party
products from banks if the transaction is for Rs.50,000 and above. KYC exercise may not
be necessary for bank’s own customers for purchasing third party products. However,
instructions to make payment by debit to customers’ accounts or against cheques for
remittance of funds/issue of travellers’ cheques, sale of gold/silver/platinum and the
requirement of quoting PAN number for transactions of Rs.50,000 and above would be
applicable to purchase of third party products from banks by bank’s customers as also
to walk-in customers.
9. My KYC was completed when I opened the account. Why does my bank insist on
doing KYC again?
Banks are required to periodically update KYC records. This is a part of their ongoing
due diligence on bank accounts. The periodicity of such updation would vary from
account to account or categories of accounts depending on the bank’s perception of risk.
Periodical updation of records also helps prevent frauds in customer accounts.
10. Are banks required to categorise their customers based on risk assessment?
Yes, banks are required to classify the customers into ‘low’, ‘medium’ and ‘high’
categories depending on their AML risk assessment.
11. Do banks inform customers about this risk categorisation?
No
12. What are the rules regarding periodical updation of KYC?
• Different periodicities have been prescribed for updation of KYC records

depending on the risk perception of the bank. KYC is required to be done once in
every two years for high risk customers, once in every eight years for medium
risk customers and once in every ten years for low risk customers. This exercise
would involve all formalities normally taken at the time of opening the account.
• During the process, the following are carried out.
Jobs
o PAN verification from the verification facility available with the issuing
authority and
o Authentication, of Aadhaar Number already available with the RE with the
explicit consent of the customer in applicable cases.
o In case identification information available with Aadhaar does not contain
current address an Officially Valid Documents (OVDs) containing current
address may be obtained.
o Certified copy of OVD containing identity and address shall be obtained at
the time of periodic updation from individuals not eligible to obtain
Aadhaar, except from individuals who are categorised as ‘low risk’. In case
of low risk customers when there is no change in status with respect to
their identities and addresses, a self-certification to that effect shall be
obtained.
• Customers who are minors have to submit fresh photograph on becoming major.
• REs may not insist on the physical presence of the customer for the purpose of
furnishing OVD or furnishing consent for Aadhaar authentication/Offline
Verification unless there are sufficient reasons that physical presence of the
account holder/holders is required to establish their bona-fides. Normally,
OVD/Consent forwarded by the customer through mail/post, etc., shall be
acceptable.
13. Is there any difference between such ‘small accounts’ and other accounts
Yes. The ‘Small Accounts’ have certain limitations such as:
• Balance in such accounts at any point of time should not exceed Rs 50,000
• Total credits in one year should not exceed Rs.1,00,000
• Total withdrawal and transfers should not exceed Rs.10,000 in a month.
• Foreign remittance shall not be allowed to be credited into the account
Such accounts remain operational initially for a period of twelve months and thereafter,
for a further period of twelve months, if the holder of such an account provides evidence
to the bank of having applied for any of the officially valid documents within twelve
months of the opening of such account. The bank will review such account after twenty
four months to see if it requires such relaxation.
14. Is introduction necessary while opening a bank account?
No, introduction is not required.
15. For which banking transactions do I need to quote my PAN number?
PAN number needs to be quoted for transactions, such as, account opening, transactions
above Rs.50,000 (whether in cash or non-cash), etc. A full list of transaction where PAN
number needs to be quoted can be accessed from website of Income Tax Department at
the following
16. What is the validity of cheques/drafts/pay orders/banker’s cheques ?
Payment of cheques/drafts/pay orders/banker’s cheques, if they are presented beyond
the period of three months from the date of such instruments, shall not be made.
E-KYC
What is e-KYC? How does e-KYC work?
Jobs
e-KYC refers to electronic KYC. e-KYC is possible only for those who have Aadhaar
numbers. While using e-KYC service, you have to authorise the Unique Identification
Authority of India (UIDAI), by explicit consent, to release your identity/address through
biometric authentication to the bank branches/business correspondent (BC). The UIDAI
then transfers your data comprising name, age, gender, and photograph of the
individual, electronically to the bank/BC. Information thus provided through e-KYC
process is permitted to be treated as an ‘Officially Valid Document’ under PML Rules
and is a valid process for KYC verification.
Accounts opened using OTP based e-KYC, in non-face-to-face mode are subject to the
following conditions:
1. There must be a specific consent from the customer for authentication through
OTP.
2. the aggregate balance of all the deposit accounts of the customer shall not exceed
rupees one lakh. In case, the balance exceeds the threshold, the account shall
cease to be operational, till CDD as mentioned at (v) below is complete.
3. the aggregate of all credits in a financial year, in all the deposit accounts taken
together, shall not exceed rupees two lakh.
4. As regards borrowal accounts, only term loans shall be sanctioned. The
aggregate amount of term loans sanctioned shall not exceed rupees sixty
thousand in a year.
5. Accounts, both deposit and borrowal, opened using OTP based e-KYC shall not be
allowed for more than one year within which identification as per Section 16 is
to be carried out.
6. If the CDD procedure as mentioned above is not completed within a year, in
respect of deposit accounts, the same shall be closed immediately. In respect of
borrowal accounts no further debits shall be allowed.
7. A declaration shall be obtained from the customer to the effect that no other
account has been opened nor will be opened using OTP based KYC in non-face-
to-face mode with any other RE. Further, while uploading KYC information to
CKYCR, REs shall clearly indicate that such accounts are opened using OTP based
e-KYC and other REs shall not open accounts based on the KYC information of
accounts opened with OTP based e-KYC procedure in non-face-to-face mode.
8. REs shall have strict monitoring procedures including systems to generate alerts
in case of any non-compliance/violation, to ensure compliance with the above
mentioned conditions.
Procedure to be followed in respect of foreign students
Banks should follow the following procedure for foreign students studying in India:
• Banks may open a Non Resident Ordinary (NRO) bank account of a foreign student
on the basis of his/her passport (with visa & immigration endorsement) bearing
the proof of identity and address in the home country together with a photograph
and a letter offering admission from the educational institution in India.
• Banks should obtain a declaration about the local address within a period of 30
days of opening the account and verify the said local address.
• During the 30 days period, the account should be operated with a condition of
allowing foreign remittances not exceeding USD 1,000 or equivalent into the
Jobs
account and a cap of monthly withdrawal to Rs. 50,000/-, pending verification of

address.
• The account would be treated as a normal NRO account, and will be operated in
terms of instructions contained in the Reserve Bank of India’s instructions on Non-
Resident Ordinary Rupee (NRO) Account, and the provisions of Schedule 3
of FEMA Notification 5/2000 RB dated May 3, 2000.
• Students with Pakistani and Bangladesh nationality will need prior approval of the
Reserve Bank for opening the account.
Topic 16: Preventive Vigilance In Banks

Vigilance Function In Banks
The dictionary defines Vigilance as being watchful and cautious to detect danger,
being ever awake and alert. While being vigilant is important in all walks of life, the
observance of vigilance becomes more critical in the financial sector and particularly for
institutions like banks, which deal with public money.
Banks, which act as an intermediary between depositors and lenders, are duty bound to
observe the highest standards of safeguards to ensure that money accepted from
depositors are not mis-utilized and are put to gainful use or are available with them to
be paid on demand. To ensure this, banks are not only required to do due diligence on
the borrowers but are also expected to put in place appropriate safeguards to ensure
that the transactions being undertaken by the staff are as per laid down guidelines. The
watchfulness enforced by the vigilance function is required to ensure that public money,
which banks hold in fiduciary capacity is not allowed to be misused by the delinquent
elements in any manner.
Types of Vigilance in banks: There are mainly three types of vigilance in banks;
• Preventive Vigilance: It plays an important role in strengthening the vigilance

set up of any organisation. Preventive Vigilance sets up procedure and systems
to restrain the acts of wrong doing and misconduct in the various areas of the
functioning of department.
• Detective Vigilance: Effective use and scan of Complaints, Inspection Reports,
Audit Reports etc. Detection of Corrupt Practices, Malpractices, Negligence,
Misconduct and better surveillance of public contact points. Close watch on
officers at sensitive posts of doubtful integrity and detect fraud and scrutiny of
decision taken by officials having discretionary powers.
• Punitive Vigilance: It includes investigation and collection of evidence and
speedy departmental inquiries. Swift and deterrent action against the real
culprit.
Aim of Vigilance in Banks:
Jobs
Preventive vigilance is aimed at reducing the occurrence of a lapse (violation of a

law, a norm, or, broadly speaking, a governance requirement). Detective vigilance
is aimed at identifying and verifying the occurrence of a lapse. Punitive vigilance is
aimed at deterring the occurrence of a lapse. Detective and punitive vigilance are
strategic complements. The greater the punishment, the more useful it is to detect.
Conversely, having a high penalty is ineffective when the quality of detection is poor.
Preventive vigilance takes a central role in vigilance organized at the Reserve Bank of
India (RBI). The overall responsibility for vigilance work at the RBI vests with the
Central Vigilance Cell (C.V.Cell or Cell), which exercises its jurisdiction over all
employees of the Bank and co-ordinates the activities of the various vigilance units. The
Cell maintains liaison with the Central Vigilance Commission (CVC) and the Central
Bureau of Investigation (CBI). Vigilance guidelines issued by the CVC are aimed at
greater transparency, promoting a culture of honesty and probity in public life, and
improving the overall vigilance administration in the organizations within its purview.
RBI has taken several preventive measures to maintain high standards of integrity.
Preventive Vigilance is adoption of various measures to improve systems and
procedures to eliminate or reduce corruption. Organisations keep a watch over their
staff & customers to avoid any untoward happening, incident or accident. Vigilance
refers to the process of paying close and continuous attention.
Objective of Preventive Vigilance: The objective of Preventive Vigilance in banks
are as under;
• Exercising watchfulness and diligence by all employees so as to prevent

happening of any untoward incidents that may adversely affect financial or
reputational implications for the organization.
• To ensure strict adherence to integrity by all employees and bank’s laid down
policies, systems and procedures so that bank’s interest is protected.
• Preventive vigilance sets up procedures and systems to restrain the acts of
wrongdoing.
• Restrain the misconduct in the various areas of the functioning of any
organization.
Preventive Vigilance In Electronic Banking
Phishing Attack: Phishing is a type of social engineering attack often used to steal user
data, including login credentials and credit card numbers. It occurs when an attacker,
masquerading as a trusted entity, dupes a victim into opening an email, instant message,
or text message. The recipient is then tricked into clicking a malicious link, which can
lead to the installation of malware, the freezing of the system as part of a ransomware
attack or the revealing of sensitive information.
Jobs
An attack can have devastating results. For individuals, this includes unauthorized
purchases, the stealing of funds, or identify theft.
Phishing Attack Examples: The following illustrates a common phishing scam attempt:
• A spoofed email ostensibly from myuniversity.edu is mass-distributed to as many

faculty members as possible.
• The email claims that the user’s password is about to expire. Instructions are given to
go to myuniversity.edu/renewal to renew their password within 24 hours.
Phishing Techniques:
Email phishing is a numbers game. An attacker sending out thousands of fraudulent

messages can net significant information and sums of money, even if only a small
percentage of recipients fall for the scam. As seen above, there are some techniques
attackers use to increase their success rates.
For one, they will go to great lengths in designing phishing messages to mimic actual
emails from a spoofed organization. Using the same phrasing, typefaces, logos, and
signatures makes the messages appear legitimate.
In addition, attackers will usually try to push users into action by creating a sense of
urgency. For example, as previously shown, an email could threaten account expiration
and place the recipient on a timer. Applying such pressure causes the user to be less
diligent and more prone to error.
Spear Phishing:
Spear phishing targets a specific person or enterprise, as opposed to random

application users. It's a more in depth version of phishing that requires special
knowledge about an organization, including its power structure.
An attack might play out as follows:
• A perpetrator researches names of employees within an organization’s marketing

department and gains access to the latest project invoices.
• Posing as the marketing director, the attacker emails a departmental project manager
(PM) using a subject line that reads, Updated invoice for Q3 campaigns. The text,
style, and included logo duplicate the organization’s standard email template.
• A link in the email redirects to a password-protected internal document, which is in
actuality a spoofed version of a stolen invoice.
• The PM is requested to log in to view the document. The attacker steals his
credentials, gaining full access to sensitive areas within the organization’s network.
• By providing an attacker with valid login credentials, spear phishing is an effective
method for executing the first stage of an APT.
Phishing Protection:
Jobs
Phishing attack protection requires steps be taken by both users and enterprises. For
users, vigilance is key. A spoofed message often contains subtle mistakes that expose its
true identity. These can include spelling mistakes or changes to domain names, as seen
in the earlier URL example. Users should also stop and think about why they’re even
receiving such an email.
For enterprises, a number of steps can be taken to mitigate both phishing and
spear phishing attacks:
• Two-factor authentication (2FA) is the most effective method for countering phishing
attacks, as it adds an extra verification layer when logging in to sensitive applications.
2FA relies on users having two things: something they know, such as a password and
user name, and something they have, such as their smartphones. Even when
employees are compromised, 2FA prevents the use of their compromised credentials,
since these alone are insufficient to gain entry.
• In addition to using 2FA, organizations should enforce strict password management
policies. For example, employees should be required to frequently change their
passwords and to not be allowed to reuse password for multiple applications.
• Educational campaigns can also help diminish the threat of phishing attacks by
enforcing secure practices, such as not clicking on external email links.
Chapter 17: Legal Issues

• Chapter 17.1: Legal Framework of Regulation of Banks
• Chapter 17.2: Reserve Bank of India Act 1934
• Chapter 17.3: Banking Regulation Act, 1949
• Chapter 17.4: RBI as a Central Bank and Regulator of Banks
• Chapter 17.5: Provisions of Information and Technology Act, 2000
• Chapter 17.6: Provisions of Indian Penal Code, 1860
• Chapter 17.7: Case Laws on Responsibility of Paying Bank
• Chapter 17.8: Case Laws on Responsibility of Collecting Bank
• Chapter 17.9: Different types of Borrowers
• Chapter 17.10: Indemnities
• Chapter 17.11: Bank Guarantees
• Chapter 17.12 : Letters Of Credit
• Chapter 17.13: Deferred Payment Guarantee
• Chapter 17.14: Law Relating to Bill finance
• Chapter 17.15: Law Relating to Securities and Modes of Charge- 1
Jobs
• Chapter 17.16: Law Relating to Securities and Modes of Charge 2

• Chapter 17.17: Registration and Satisfaction of Charges
• Chapter 17.18: SARFAESI ACT, 2002
• Chapter 17.19: Enforcement of Security Interest
• Chapter 17.20 : Offences and Penalties
• Chapter 17.21: Procedure Of Tribunals
• Chapter 17.22: The Legal Services Authorities Act, 1987: Lok Adalats
• Chapter 17.23: Consumer Disputes Redressal Agencies
• Chapter 17.24: Information Technology Act, 2000
It is an accepted fact that despite having strict and specific statutes like
Information and Technology Act, 2000 and Indian Penal Code, 1860 for curbing the
Cyber Crimes, they are increasing day by day very rapidly and acting like a silent killer
in our society. The present situation widely forecasts that there is still a lacuna in the
present legal system and structure for tackling the Cyber Crimes and Criminals more
strictly and perfectly.
It must be noted that the E-Banking is not a separate business among the Banking
Channels, but it is only an additional facility provided by the Banks to its customers on
an additional monthly charges like SMS, Annual Membership, etc. which is completely
optional i.e. is dependent on the Customers to avail it or not. The Reserve Bank of
India is regulated by the RBI Act, 1934 and for Electronic Records and System
according to the provisions of Information and Technology Act, 2000.
It can be widely seen that despite having all this set of regulations and Hon’ble
Authorities for the regulation and maintenance of E-Banking, even then we are not
having any specific provisions for curbing the E-Banking Frauds and Cyber Frauds in
India, rather than the traditional ones. Even if some of my able readers disagrees with
me then too they must accept the fact that the enforcement structure and personnel
involved in the same is too timid and un-trained which is the main reason behind the
rapid increment in the Cyber Crimes in India, since the past decade. The Legal
Framework of the Indian Banking System is governed by the following set of
statutes which are as follows:
• The Banking Regulation Act, 1949
• The Reserve Bank of India (RBI) Act, 1934
• Foreign Exchange Management Act, 1999
• Indian Evidence Act, 1872
• Indian Contract Act, 1872
Jobs
• Information and Technology (IT) Act, 2000

• Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act (SARFAESI) Act, 2002
• Negotiable Instruments Act, 1881
Chapter 17.1: Legal Framework of Regulation of

Banks
Business of Banking
Banking: Banking is defined in section 5(b) of the Banking Regulation Act as the
acceptance of deposits of money from the public for the purpose of lending or
investment.
Deposits Withdrawable by cheque: Under section 49A of the Banking Regulation
Act, no organization other than a bank is authorized to accept deposits withdrawable by
Cheque.
Acceptance of Deposits by Non-banking entities: The Reserve Bank of India (the
Bank), having considered it necessary in the public interest and being satisfied that for
the purpose of enabling the Bank to regulate the credit system to the advantage of the
country, it is necessary to give the directions set out below, hereby, in exercise of the
powers conferred by sections 45J, 45JA, 45K, 45L and 45MA of the Reserve Bank of
India Act, 1934 (Act 2 of 1934) (the RBI Act) and of all the powers enabling it in this
behalf, and in supersession of the earlier directions contained in Notification
No.DFC.118/DG (SPT)-98 dated January 31, 1998 issues the following Non-Banking
Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016
(the Directions) applicable to every non-banking financial company hereinafter
specified.
Licence for Banking: In India, it is necessary to have a licence from the RBI under
Section 22 of the Banking Regulation Act for commencing or carrying on the
business of banking.
Permitted Business: Main business of banks is acceptance of deposits and lending, the
banks have now spread their wings far and wide into many allied and even unrelated
activities. The forms of business permissible under section 6(1) of the Banking
Regulation Act, apart from banking business,
1. Borrowing, raising or taking up of money

2. Lending or advancing of money either against security or without
security
Jobs
3. Drawing, making, accepting, discounting, buying, selling, collecting

and dealing in bills of exchange.
4. Granting and issuing of letter of credit
5. Buying and selling of foreign exchange and foreign bank notes
6. Negotiating of loans and advances
7. Providing of safe deposit
8. Undertake and execute trust ETC, ETC
Prohibited Business: Section 8 of the Banking Regulation Act prohibits a banking

company from engaging directly or indirectly in trading activities and undertaking
trading risk. Buying or selling or bartering of goods directly or indirectly is prohibited.
Constitution of Banks
Banks in India fall under one of the following categories:
• Body corporate constituted under a special statute;

• Company registered under Companies Act, 1956 / foreign company
• Cooperative Society registered under a central and state enactment
on cooperative societies.
Public sector bank

A Public Sector bank is one in which, the Government of India holds a majority stake.
These banks are constituted under special statue. The State Bank of India was
constituted under The State Bank of India Act, 1955. The six subsidiaries of State
Bank of India were constituted under the State Bank of India (Subsidiary Banks) Act,
1959. The government further nationalized 14 commercial banks through Banking
Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 on 19th
July 1969. It later nationalized six more commercial banks through Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980 on 15th April
1980. The State Banks (Repeal and Amendment) Bill 2017 merges five associate banks
of SBI and Bharatiya Mahila Bank with SBI.
Banking Companies
A banking company, as defined in section 5(c) of the Banking Regulation Act is a
company which transacts the business of banking. Such company may be a company
constituted under section 3 of the Companies Act, 1956 or incorporated under the
Companies Act, 2013 or foreign company within the meaning of section 591 (u/s
379 of companies Act, 2013) of that Act. All the private sector banks are banking
companies. These banks are governed by the Companies Act, 1956 or Companies Act
2013 in respect of their constitution and by the Banking regulation Act.
Jobs
Co-operative bank
A Cooperative bank is essentially a cooperative Society. There are two types of Co-
operative banks: Multi-state cooperative society and State Cooperative society. Multi-
state cooperative societies are registered under the cooperative society’s act of the
Centre. State cooperative societies are registered under the state cooperative act. The
Banking laws (Application to Co-operative Societies) Act, 1956 extended certain
provisions of the Banking Regulation Act and Reserve Bank of India Act to the Co-
operative banking sector.
Chapter 17.2: Reserve Bank of India Act 1934

The Reserve Bank of India Act 1934 is an Act to constitute a Reserve Bank of India
(RBI) and provide the central bank (RBI) with various powers to act as the central
bank of India. RBI Act 1934.
There are total 61 Sections in the RBI Act 1934.
Some important sections are listed below:
• Section 3: Establishment and incorporation of Reserve Bank.

• Section 4: Capital of the Bank. The capital of the Bank shall be five crores of
rupees.
• Section 6: Establishment of Offices, branches and agencies
• Section 8: The composition of central board of Reserve Bank of India
• Section 17: The business that RBI can carry out
• Section 18: Provides for direct discount of bills of exchange and promissory
notes
• Section 20: Obligation of the Bank to transact Government business.
• Section 21: Bank to have the right to transact Government business in India.
• Section 21A: Bank to transact Government business of States on agreement.
• Section 22: Right to issue bank notes.
• Section 24: Denominations of notes. (1) Subject to the provisions of sub-
section (2), bank notes shall be of the denominational values of two rupees,
five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five
hundred rupees, one thousand rupees, five thousand rupees and ten thousand
rupees or of such other denominational values, not exceeding ten thousand
rupees.
• Section 27: Re-issue of notes. The Bank shall not re-issue bank notes which
are torn, defaced or excessively soiled.
Jobs
• Section 26 (1): Defines legal tender of notes

• Section 26(2): Withdrawal of legal tender of notes
• Section 42: Cash reserves of scheduled banks to be kept with the Bank.
• Section 45(U): Defines repo, reverse repo, derivative, money market
instruments and securities.
Chapter 17.3: Banking Regulation Act, 1949

The Banking Regulation Act 1949 is a legislation in India that regulates all banking firms
in India. Initially, the law was applicable only to banking companies. But, 1965 it was
amended to make it applicable to cooperative banks and to introduce other changes.
There are total 55 Sections in the Banking Regulation Act, 1949. Some important
sections are listed below:
• Section 18: Cash reserve

• Section 17: Reserve fund
• Section 8: Prohibition on trading
• Section 9: Disposal of Non Banking assets
• Section 6: Business allowed for a banking company
• Section 10BB: Power of Reserve Bank to appoint [chairman of the Board of
directors appointed on a whole-time basis or a managing director] of a
banking company.
• Section 11: Requirement as to minimum paid-up capital and reserves
• Section 12: Regulation of paid-up capital, subscribed capital and authorised
capital and voting rights of shareholders
• Section 21: Power of Reserve Bank to control advances by banking
companies
• Section 21A: Rates of interest charged by banking companies
• Section 22(1): Licensing of banking companies
• Section 23: Restrictions on opening of new, and transfer of existing, places of
business
• Section 29: Accounts and balance-sheet
• Section 30: Auditing of Banking Company
• Section 36AE : Power of Central Government to acquire undertakings of
banking companies in certain cases
• Section 44A: Procedure for amalgamation of banking companies.
Jobs
1. Amalgamation of two banking companies is under the provisions of Section

44A of the Banking Regulation Act, 1949.
2. Amalgamation of a banking company with a non-banking company is
governed by sections 391 to 394 of the Companies Act, 1956.
• Section 47A: Power of Reserve Bank to impose penalty

• Section 49A: Restriction on acceptance of deposits withdrawable by cheque.
Chapter 17.4: RBI as a Central Bank and Regulator

of Banks
The Reserve Bank was constituted under Section 3 of the RBI Act, 1934 for taking
over the management of currency from the central government and carrying on the
business of banking in accordance with the provisions of the Act.
The Major powers of the RBI in the different roles as regulator and supervisor can
be summed up as under:
• Power to issue banking licence

• Power of appointment and removal of banking boards/ Personnel
• Power to regulate the business of banks
• Power to gives directions
• Power to inspect and supervise banks
• Power regarding audit of banks
• Power to collect, collate and furnish credit information
• Power to impose penalties
Chapter 17.5: Provisions of Information and

Technology Act, 2000
The Provisions of the Act, widely deals regarding the Management in offering of E-
Banking Services by the Bank Channels along-with dealing to specific provisions for
curbing the E-Banking Frauds and other ancillary Cyber Crimes.
• The Section 3(2) of the Information and Technology Act, 2000 provides
specific provisions for a particular technology as a means of authenticating the
records, like the Servers of Banks and other virtual platforms by virtue of which
the Banks provide us the E-Banking Services.
• The Section 4 of the Information and Technology Act, 2000 further says
regarding the security and privacy of a customers information that any matter
which shall be in writing or in a type-written form/printed form, then
Jobs
notwithstanding anything contained in such law, such requirement shall be

deemed to have been satisfied as true, if such information is rendered and
certified in an electric form and is accessible so as to be usable for the
subsequent references.
• The Section 72 and Section 79 of the Information and Technology Act, 2000
further provides the liability for Breach of Privacy of the Customers on the
Service Providing Agency or the Intermediary which is responsible for providing
the Data Service travelling through their servers on certain terms and conditions.
Note: For improving the quality and status of the E-Banking services G. Gopalkrishna
Working Group (GCWG) in 2011 has released a Report on the Security of E-Banking in
India with some amendments on 29 April, 2009 which presently constitutes the current
regulatory guidelines as an extension of IBG 2001.
Chapter 17.6: Provisions of Indian Penal Code,

1860
The main provisions relating to dealing with the E-Banking Frauds in India are as
follows:
• Section 383: Punishment of Extortion- Whosoever intentionally and illegally
puts a person in fear to deliver any property or valuables to him, otherwise he
will defame that person by posting some defamatory statement or Article against
the said person shall be punished with imprisonment which may extend to three
years, or fine, or both.
• Section 379: Punishment of Theft- Whosoever dishonestly take away the

goods or any electronic record illegally from the possession of it’s rightful owner
without his express consent shall be punished with imprisonment which may
extend to three years or with fine or both.
• Section 406: Punishment of Criminal Breach of Trust- Whosoever mis-
appropriates any movable property like computer device or any electronic
device which was entrusted to him for a lawful purpose, causing wrongful
damages to it’s owner shall be punished with imprisonment which may extend to
three years or with fine or both.
• Section 417: Punishment of Cheating- Whosoever impersonates some other
person which he is not or knowingly substitutes such person, and causes
wrongful losses to the innocent victim shall be punished with imprisonment
which may extend to one year, or fine or both.
• Section 471: Using as genuine a forged document or electronic record-
Whosoever fraudulently or dishonestly uses as genuine any document or
electronic record which he knows to be forged shall be punished with an
imprisonment which may extend to two years or fine, or with both.
Jobs
• Section 500: Punishment of Defamation- Whosoever knowingly publishes

without any justification or reasonable cause any statement, image or document
on social platforms, believing and knowing it to be false against any person, firm,
company were such imputation will definitely lower the image and intellect of
him in front of the general public, shall be punished with simple imprisonment
which may extend to two years or fine or with both.
• Section 506: Punishment of Criminal Intimidation- Where a persons
threatens other person to harm his reputation, life or property via an electronic
means which induces that person to commit an illegal act or prevent him doing
an act which is legally obligatory on him shall be punished with imprisonment
which may extend to two years, or fine or both.
Chapter 17.7: Case Laws on Responsibility of Paying Bank
Negotiable Instruments Act and Paying Banks

Section 31 Negotiable Instruments Act, 1881: Liability of drawee of cheque. —The
drawee of a cheque having sufficient funds of the drawer in his hands properly
applicable to the payment of such cheque must pay the cheque when duly required so to
do, and, in default of such payment, must compensate the drawer for any loss or damage
caused by such default.
Note: Section 10, 85, 85A, 89 and 128 of the Negotiable Instrument Act, 1881,
grant protection to a paying banker.
Section 31 Applies Only a Bankers: This is because as per Section 6 of the
Negotiable Instruments Act, 1881 “Cheque” has been defined as a “Bill of exchange
drawn on a specified banker and not expressed to be payable otherwise than on
demand”.
Section 10 Negotiable Instruments Act, 1881: ''Payment in due course” means
payment in accordance with the apparent tenor of the instrument in good faith and
without negligence to any person in possession thereof under circumstances which do
not afford a reasonable ground for believing that he is not entitled to receive payment of
the amount therein mentioned.
Section 85 Negotiable Instruments Act, 1881: "Cheque payable to order"
Where a cheque payable to order purports to be indorsed by or on behalf of the payee,
the drawee is discharged by payment in due course.
Where a cheque is originally expressed to be payable to bearer, the drawee is
discharged by payment in due course to the bearer thereof, notwithstanding any
indorsement whether in full or in blank appearing thereon, and notwithstanding that
any such indorsement purports to restrict or exclude further negotiation.
Jobs
Section 85A Negotiable Instruments Act, 1881: "Drafts drawn by one branch of a
bank on another payable to order"
Where any draft, that is, an order to pay money, drawn by one office of a bank upon
another office of, the same bank for a sum of money payable to order on demand,
purports to be indorsed by or on behalf of the payee, the bank is discharged by payment
in due course.
Section 89 Negotiable Instruments Act, 1881: a promissory note
Where a promissory note, bill of exchange or cheque has been materially altered but
does not appear to have been so altered, or where a cheque is presented for payment
which does not at the time of presentation appear to be crossed or to have had a
crossing which has been obliterated, payment thereof by a person or banker liable to
pay, and paying the same according to the apparent tenor thereof at the time of
payment and otherwise in due course, shall discharge such person or banker from all
liability thereon; and such payment shall not be questioned by reason of the instrument
having been altered or the cheque crossed.
Where the cheque is an electronic image of a truncated cheque, any difference in
apparent tenor of such electronic image and the truncated cheque shall be a material
alteration and it shall be the duty of the bank or the clearing house, as the case may be,
to ensure the exactness of the apparent tenor of electronic image of the truncated
cheque while truncating and transmitting the image.
Any bank or a clearing house which receives a transmitted electronic image of a
truncated cheque, shall verify from the party who transmitted the image to it, that the
image so transmitted to it and received by it, is exactly the same.
Section 128 Negotiable Instruments Act, 1881: Payment in due course of crossed
cheque.—Where the banker on whom a crossed cheque is drawn has paid the same in
due course, the banker paying the cheque, and (in case such cheque has come to the
hands of the payee) the drawer thereof, shall respectively be entitled to the same rights,
and be placed in the same position in all respects, as they would respectively be entitled
to and placed in if the amount of the cheque had been paid to and received by the true
owner thereof.
Jobs
Chapter 17.8: Case Laws on Responsibility of Collecting

Bank
Statutory Protection to Collecting Bank
Section 131 of the Negotiable Instruments Act grants protection to a

collecting banker
• Non-liability of a Banker Receiving Payment of Cheque: A Banker, who

has , in good faith and without negligence, received payment for a customer of
cheque crossed generally or specially to himself shall not, in case the title to
the cheque proves defective, incur any liability to the true owner of the
cheque by reason only of having received such payment.
• Conditions for Protection: Though Section 131 grants protection to a
collecting banker, the protection is conditional. For the collecting banker
to claim the protection under section 131, he has to comply with certain
conditions and they are:
1. The collecting banker should have acted in good faith

2. He should have acted without negligence
3. He should receive payment for a customer
Jobs
4. The cheque should be crossed generally or specially to himself.
Duties of Collecting Bank
• Duty to open account with references

• Duty to follow up the reference where the referee is not known
• Duty to Ensure Crossing: It is duty of the banker to ensure that the cheque is
crossed specifically to himself and if the cheque is crossed to some other
banker they should refuse to collect it. Similarly where the cheque is crossed
to a specific account then crediting the same to another account without
necessary enquiry’s would make him liable on the grounds of negligence.
• Duty to verify the instruments / any apparent defect in the Instruments
• Duty to take into account the state of customers account
• Negligence of Collecting Bank in Collecting Cheques Payable to Third parties.
Chapter 17.9: Different types of Borrowers

Types of Borrowers
• Individual
• Partnership Firm
• Hindu Undivided Family
• Companies
• Statutory Corporations
• Trusts and Cooperative Societies
Individual
• If the banker lent money to an individual who is not competent to contract then
the lended money cannot be recovered under following cases.
• If Individual is Minor who has not attained the age of 18 years under Indian
Majority Act and 20 years if he is a ward under the Guardian and ward's
Act.
• If an individual is not of sound mind then he is incompetent to enter into
contract.
• If statutory disqualification imposed on certain person in respect of their to
contract.
Partnership Firm
Jobs
• Legal Position Of Partnership: Under Indian Partnership Act 1932 which

provides for partnership so it is necessary that a banker dealing with a
partnership firm should verify whether firm registered or not.
• Authority Of The Partners: Section 19 of the Partnership Act, 1932 deals
with the implied authority of a partner as an agent of the firm and Section 22
deals with the mode of doing acts to bind the firm.
• Insolvency Of Partner: If at the time of insolvency of one of the partner the
firm's account is in credit then the other partner can operate the same but the
banker should obtain a fresh mandate and all previous cheque issued by the
insolvent partner may be paid provided the partner confirm the same.
• Death Of Partner: As the death of partner dissolves the Partnership firm upon
receipt of such information bank's are required to stop the transaction of firm in
a running credit facility like Cash credit, bank allow the transaction in a
separate account so that the business of firm is not adversely affected.
Hindu Undivided Family
• A banker dealing with Hindu Undivided Family should known the 'karta' who
is the senior most member of family.
• Banker should ensure that 'karta' of family deal's with the bank and borrows
only for the benefit of family business.
• The application to open an account must be signed by all members and all adult
members should be made jointly.
Powers and duties of the manager

A manager or ‘Karta’ of a joint family has the following powers and duties:
Power
• Right to possession and management of the joint family property

• Right to income from the joint family property
• Right to represent the joint family
• Right to sell the joint family property for purpose
Duties
• Duty to run the family business and manage the property for the benefit of the
family.
• Duty to account for the income from the joint family business and property.
Companies
A company is another type of borrower, which a banker deals with in his business of
lending.
Jobs
Basic laws governing company

In India, now companies are governed by the Companies Act, 2013. Companies as per
the Companies Act, 1956 are required to be registered under the Act. Section 11 of the
Companies Act 1956 provides that an association or partnership consisting of more
than 10 in the case of banking business and more than 20 in the case of other business.
Incorporation of Company
Section 12 of the Companies Act, 1956 provides that any 7 or more persons or
where a company are known by two document called “Memorandum of Association”
and “Articles of Association”.
Memorandum of Association: It contains name of the Company, its authorised capital,
registered office and liability of shareholders, objects of the company etc.
Articles of Association: Articles of Association rules and regulations governing the
internal management of the company. Ex: NO. of directors, Borrowing powers of the
company, Procedure for transfer and transmission of shares ETC.
Statutory Corporations
Companies are Registered under companies Act 1956 , There may be corporation
established by an Act of Parliament.These are called Statutory Corporations. For
example state Bank of India is established under state Bank Act 1955.
Trust and co-operative societies
• Club, societies, schools and other non trading association such bodies if not
incorporated under the laws governing them cannot enter into any transactions.
These bodies are usually governed by companies Act or Co-operative
societies Act.
• Trust are governed by Indian Trust Act 1882. A banker dealing with trust
should acquaint himself with the respective laws applicable to them.
• Trustee manages trust, the powers and duties of trustee are provided in trust
deed and are also regulated by the respective laws applicable to such trust's.
Banker dealing with a trust should ensure that all the permission required for
taking a loan is obtained from respective Government authorities.
Chapter 17.10: Indemnities

Contract of Indemnity Defined
Section 124 of the Indian Contract Act, 1872 defines contract of indemnity as
follows:
Contract of indemnity” defined: A contract by which one party promises to save the
other from loss caused to him by the conduct of the promisor himself, or by the conduct
of any other person, is called a “contract of indemnity.” —A contract by which one
party promises to save the other from loss caused to him by the conduct of the
Jobs
promisor himself, or by the conduct of any other person, is called a “contract of

indemnity.”"
Illustration A contracts to indemnify B against the consequences of any proceedings
which C may take against B in respect of a certain sum of 200 rupees. This is a contract
of indemnity. A contracts to indemnify B against the consequences of any proceedings
which C may take against B in respect of a certain sum of 200 rupees. This is a contract
of indemnity."
Differentiate between Indemnity and Guarantee.
INDEMNITY GUARANTEE
It refers to reimbursement of loss. It is merely a security to Creditor.
It is explained in Section 124 of Indian It comes under Section 126 of Indian
Contract act, 1872. Contract Act, 1872.
Only two parties i.e. Indemnifier and Includes three parties- surety, principal
Indemnified. debtor and creditor.
Only 1 contract is done. Includes 3 contracts between the 3 parties.
Primary liability. Secondary liability
Right of An Indemnity Holder

Section 125 of the Contract Act lays down the rights of an indemnity Holder.
Rights of indemnity-holder when sued.—The promisee in a contract of indemnity,
acting within the scope of his authority, is entitled to recover from the promisor— —
The promisee in a contract of indemnity, acting within the scope of his authority, is
entitled to recover from the promisor—"
• All damages which he may be compelled to pay in any suit in respect of any
matter to which the promise to indemnify applies;
• All costs which he may be compelled to pay in any such suit if, in bringing or
defending it, he did not contravene the orders of the promisor, and acted as it
would have been prudent for him to act in the absence of any contract of
indemnity, or if the promisor authorized him to bring or defend the suit;
• All sums which he may have paid under the terms of any compromise of any
such suit, if the compromise was not contrary to the orders of the promisor, and
was one which it would have been prudent for the promisee to make in the
absence of any contract of indemnity, or if the promisor authorized him to
compromise the suit.
Chapter 17.11: Bank Guarantees

Bank Guarantees
Guarantee is defined in section 126 of Indian Contract Act.
Jobs
There are three parties to a contract of guarantee

A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability,
of a third person in case of his default.
• Surety: The person who gives the guarantee is called the ‘surety’
• Principal debtor: The person in respect of whose default the guarantee is given
is called the ‘principal debtor’
• Creditor: The person to whom the guarantee is given is called the ‘creditor’
Types of Bank Guarantees
• Financial Guarantee: These are guarantees issued by banks on

behalf of the customers, in lieu of the customer being required to
deposit cash security or earnest money.
• Performance Guarantee: These are guarantees issued by banks
on behalf of its customers whereby the bank assures a third party
that the customer will perform the contract entered into by the
customer as per the conditions stipulated in the contract, failing
which bank will compensate the third party up to which the amount
specified in the guarantee.
• Deferred Payment Guarantee: Under this type of the guarantee,
the banker guarantees payment of installments over a period of
time. This type of the guarantee is required when the customer on
credit purchases goods/machinery and payment is to be made in
installments on specified dates. A deferred payment guarantee
constitutes an undertaking on the part of the bank to make payment
of deferred installments to the seller (beneficiary) on due dates in
the event of default by the customer (buyer).
Issuance of Bank Guarantee – Precautions to be taken

The liability of the bank under a guarantee depends on two fundamental criteria’s, the
amount guaranteed and the period of the guarantee.
• Amount Guaranteed
• Period of Guaranteed
Jobs
Claim period in a guarantee: In a guarantee, it is necessary to provide for a period

slightly longer than the validity period, for the beneficiary to make a claim. The claim
period is usually a few months more than the validity period of the guarantee. Since if
the debtor were to commit a default on the last day of the validity period, then the
beneficiary, at the earliest, invokes the same only on the next day.
Amendment to Section 28 of Indian Contact Act and its effect on Bank Guarantee:
Prior to the amendment of Section 28 of the Indian Contract Act, 1872 most bank
guarantees had a standard clause at the end of their guarantee agreements. As per this
clause, the beneficiary was required to enforce his claims within a period of three to six
months, failing which, the bank’s liability was extinguished and hence the rights of the
beneficiary.
Chapter 17.12 : Letters Of Credit

Letters Of Credit
An Letters Of Credit can be compared to guarantee given by a bank on behalf of its
customer to the effect that the bank would make payment to the beneficiary when
the beneficiary presents the documents as it required in the LC. They are not
negotiable instrument.
Parties to a Letter of Credit
• Applicant-Buyer-Importer-Opener: He is the person who applies to bank for

Letter of Credit. Ex: Mr. Srivastav & Co.
• Issuing Bank: The bank which opens the Letter Of Credit on the request of
applicant/Buyer. Ex: Bank of Baroda
• Beneficiary-Exporter-Seller: The person who is entitled to receive the benefit
under Letter of Credit. Ex: M.s jha & Co.
• Advising Bank / Notifying Bank: The bank in the Beneficiary/Exporters
Country through which the letter of credit is advised to the beneficiary. Ex: The
UK Bank
• Negotiating Bank: The bank in the Beneficiary/Exporters Country which
negotiate the bills (i.e. make payments on the bills drawn by the seller and
accepts the documents.) If the LC specifies a bank then that bank is the
Negotiating Bank and is also called the Nominated Bank / Paying Bank. If the LC
however does not specify the bank, than any bank can be negotiating bank.
• Confirming Bank: The advising bank is only required to advise the credit to the
beneficiary. If however in addition to advising the credit the advising bank were
to confirm it, then the advising bank will also become confirming Bank.
• Reimbursing Bank: It is the bank which is appointed by the Issuing Bank to
make reimbursement to the Negotiating, Paying or confirming Bank.
Types of Letters of Credit
• Acceptance Credit: Ordinary Letters of Credits are usually sight credits, i.e.
immediate payment should be made of the bills drawn by the beneficiary. Such
Jobs
letters of credit under which usance bills can be drawn is an Acceptance Credit
or Time Credit.
• Revocable Credit: A revocable LC is a credit that can be amended / cancelled by
the issuing bank without prior notice to the beneficiary. However, if any
negotiating bank has acted on the credit prior to receipt of the notice of
amendment/cancellation then the issuing bank is bound to reimburse the
negotiating bank.
• Irrevocable Credit: is a credit that can neither be amended nor cancelled
without the consent of the beneficiary.
• Confirmed Credit: If a bank advising the credit to beneficiary adds its own
confirmation to the credit, then the credit would be called a confirmed credit.
Only irrevocable credit can be confirmed With Recourse and without Recourse
Credits : when beneficiary draws a bill under a LC he is liable if the drawee fails
to make payment. These kind of bills are called recourse LCs. The beneficiary can
exclude liability by adding to the bill following words “without recourse”
• Transferable Credits: As such the rights under an LC cannot be transferred and
is vested in the beneficiary. A transferable credit is one under which the
beneficiary can transfer his rights to third parties. Unless specifically stated an
LC is not transferable.
• Back-To-Back Credits: The beneficiary in whose favour an LC is issued uses the
same to obtain another credit from his (beneficiary’s ) bank in favor of the
supplier. There are three banks involved in this type of LC. (Issuing Bank,
Advising Bank, Third bank which issued an ancillary credit against the security of
the original credit.
• Anticipatory Letter of Credit
1. Red Clause Letter of credit - In a usual LC transaction the beneficiary will be

entitled to receive payment only on his handing over the documents and bills
drawn under the LC to the negotiating bank. However in certain credits the
beneficiary will be entitled to get and advance of the price. These credits
contains a “Red Clause” which authorises an intermediary bank to make an
advance to the beneficiary before shipment.
2. Green Clause Letter Of Credits –This is refinement of the “Red Clause”. This
type of LC not only permits preshipment advance but also permits advances to
the exporter to cover storage at the port of shipment.The Red Clause and Green
Clause credit are called Anticipatory Credits.
3. Revolving Letter of Credit: In this type of credit though amount is fixed, it can
be renewed as soon as the earlier bills have been paid.
Documents Under a Letter Of Credit

• Bill of Exchange
• Invoice
• Transport Documents
• Bills of Lading
• Airway Bill
Jobs
• Post Parcel Receipt and Courier Receipt

• Insurance Document
• Other Documents: Certificate of origin, Certificate of Weight or quality or
analysis, Health authorities certificate etc.
Uniform Customers and Practices for Documentary

Credits- UCPDC 600
The ICC Banking Commission approved the UCP 600, ICC’s new on documentary credits,
on 25 October 2006. UCP 600, which come into effect in 1 July 2007, contains significant
changes, including:
• A reduction in the number of articles from 49 of UCP 500 to 39.

• New articles on “Definitions” and “Interpretations” provide more
clarity and precision in the rules.
• The replacement of the phrase “reasonable time” for acceptance or
refusal of documents by a definite period of five banking days.
• New provisions which allows for the discounting of deferred payment
credits.
• A definitive description of negotiation as “purchase” of drafts of
documents.
Chapter 17.13: Deferred Payment Guarantee

Deferred Payment Guarantee
A third Party, mostly banks and financial institutions, guarantee the payment of
the instalments. This guarantee ensure timely payment of the instalments to the
seller/exporter, failing which, the guarantee can be invoked and payment received. To
understand better the deferred payment guarantee, it is necessary to understand how a
payment is made in a deferred payment contract and how the same is guaranteed by a
bank.
Method of Payment
In a contract for import of goods on deferred payment terms, the importer is required to
make payments in instalments over a period of time which may range from 1 to 7
years, in a normal deferred payment contract. The payment is usually done on the
following terms:
• Advance payment of 10% to 15% of the price of the goods is made by the buyer.
• Another 10% to 15% on receipt of document under letter of credit.
Jobs
• The balance amount is paid in instalments spread over a period of 1 to 7 years,

which is secured by a ‘Deferred Payment Guarantee’.
In a deferred payment guarantee, which as stated earlier, issued by banks and financial
institutions , what is guaranteed, is the timely payment of instalments and interest if
provided. This is done by issuing a deferred payment guarantee in which the following
terms are mandatory:
• The supply of goods by the seller to the buyer and the seller agreeing to
postpone the payment of the price, this being the consideration of the guarantee;
• The Payment schedule of both the instalment and the interest;
• The unconditional and irrevocable assurance of the bank that it would make
payments on the invocation of the guarantee.
Chapter 17.14: Law Relating to Bill finance

Bill Financial
Bill finance is one of the modes of lending by a banker. A compared to other modes of
financing, Bill finance offers a banker an easy mode of lending. Bill finance involves
discounting or purchase of commercial bills arising out of sale of goods.
Bill finance, as compared to cash credit and overdraft, has the following
advantage;
• The underlying transactions are easily identifiable
• There is definite data of repayment
• The bill will carry more than one signature if it on usance basis
• It represents an easily transferable asset and in case of need the same can be
rediscounted to improve the liquidity of the bank.
Classification of Bills
• Inland Bills: Bills drawn or made in India and made payable in, or drawn upon
any person resident in India. It may be made payable in a foreign country.
• Foreign Bills (Section 12 NI Act): Bills drawn outside India and made payable
in or drawn upon any person resident in any country outside India / resident in
India
• Demand Bills (Section 19): It is an instrument payable on demand and no time
for payment is specified therein. Demand Bill is otherwise called sight bill.
• Usance Bills: Bill Payable after sight : a bill payable otherwise than on demand.
It specifies normally a time for payment of the value it represents.
Jobs
• Clean Bills: is a bill of exchange drawn as per requirements of NI Act and is not
supported by documents of title of goods.
• Documentary Bills: A bill of exchange accompanying documents of title of
goods. These bills are drawn to claim price of goods supplied.
1. Bills drawn with an instruction to deliver against payment/D.P. Bills – In a
transaction of supply of goods, a seller draws a bill on the buyer and sends the
same to his banker along with document of title of goods like bill of lading etc.
The seller instructs the banker to deliver the bill and documents of title of goods
only when buyer pays the price of goods.
2. Bills drawn with instruction to deliver against acceptance / D.A.Bills – An
usuance bill supported by document of title of goods bearing an instruction that
the documents can be delivered, if the buyer accept the bill of exchange
Negotiable Instrument Act 1881
Section Description
5 “Bill of exchange is defined” as “ instrument in writing containing an
unconditional order signed by maker directing a certain person to pay
certain sum of money only to, or to the order of a certain person or to the
bearer thereof
7 Drawer, Drawee and Payee
8 Holder of Bill of exchange means a person entitled in his name to possess

the bill and recover the amount presented by Bill.
9 “Holder in Due Course” means any person who for consideration become
the possessor of the bill
10 “Payment in Due Course” means payment in accordance with tenor of the
bill of
exchange to the holder or holder in due course in good faith and without
negligence
14 “Negotiation” : When a bill is transferred to any person so as to entitle him
to claim the amount represented by bill, then such transfer is called
Negotiation
Jobs
15 “Endorsement” : If the holder of instrument signs the bill of exchange for

the purposeof transferring it, such signing is called Endorsement.
19 Demand Bills
30 Liability of Drawer
32 Liability of Acceptor/Drawee of Bill
35 Liability of Endorser
79 Interest rate specified
80 Interest when no rate is specified
Various types of Bill Finance

• Bill Purchase: When the bank negotiate bills on demand, whether clean or
documentary, the facility is known as bill purchase.
• Bill Discount: This facility is extended by banker when the bills of exchange are
payable after a particular period that is bills payable otherwise on demand.
• Advance against Bills for Collection: When the bank advance against the bills,
which are in course of collection, the facility is known as advance against bills for
collection.
Chapter 17.15: Law Relating to Securities and Modes of

Charge- 1
Mortgage
Section 58 of the Transfer of Property Act, 1882 defines “ A mortgage is the transfer
of interest in specific immoveable property, for the purpose of securing the payment of
money advanced or to be advanced by way of loan, on existing of future debt or the
performance of an engagement which may give rise to a pecuniary liability”.
The transferor is called the “mortgagor” and the transferee a “mortgagee”. The
principal money and interest of which payment is secured is called “mortgage money”
and the instrument by which the transfer is effected is called “mortgage deed”.
Six Different kinds of mortgage

1. Simple Mortgage: Section 58(B) Transfer of Property Act
Jobs
• The mortgagee has no power to sale without Court Intervention

• No right to get any payments out of the rents
• Not in possession of the property
• Registration is mandatory.
2. Mortgage by conditional sale: Section 58 (c) Transfer of Property Act
• The sale is ostensible and not real
• If the money is not paid on the agreed date, the ostensible sale will become
absolute upon the mortgagor applying to the court and getting a decree in his
favour.
• The mortgagee can sue for foreclosure, but not for sale of the property.
• There is no personal covenant for repayment of the debt and therefore bankers
do not prefer this type of the mortgage.
3. Usufructuary Mortgage: Section 58(d) Transfer of Property Act
• The mortgagee is put in possession of the mortgaged property. Here by

possession means legal possession not a physical possession.
• The mortgagee has the right to received rents and profits accruing from the
property.
• He mortgagee cannot sue the mortgagor for repayment of the debt., sale or
foreclosure of the mortgaged property.
• If the mortgagor fails to bring a suit for redemption within 30 years, the
mortgagee becomes absolute owner of the property.
• Banker do not prefer this form of mortgage for the following reasons
• There is no personal covenant to repay the debt.
• It will take very long time to recovery money through this process
4. English Mortgage : Section 58(e) Transfer of Property Act
• It provides personal covenant to pay on a specified date notwithstanding the
absolute transfer of the property to the mortgagee.
• There is an absolute transfer of the property in favour of the mortgagee.
Property shall be re-conveyed to the mortgagor in the event of repayment of
mortgage money.
• The mortgagee can sue the mortgagor for the recovery of the money and can
obtain a decree for sale.
5. Mortgage by deposit of title deeds / Equitable Mortgage: Section 58(f) Transfer
of Property Act
Jobs
• Where a person in any of the towns notified by the govt. concerned may, delivers
to a creditor or his agent documents of title to immoveable property, with intent
to create a security thereon, the transaction is called a mortgage by deposit of
title deeds.
6. Anomalous Mortgage – Section 58(g) Transfer of Property Act
• A mortgage which is not a simple mortgage, a mortgage by conditional sale and
unufructuary mortgage and English mortgage or a mortgage by deposit of title
deeds within the meaning of this section, is called an “Anomalous Mortgage”.
• It is negatively defined and should not be anyone of the mortgages listed above.
• It is combination of two mortgages: Simple and usufructuary mortgage
• usufructuary mortgage accompanied by conditional sale
Difference between Equitable Mortgage and Pledge

Pledge Mortgage
Pledgee acquires only a limited interest in the Here the legal ownership passes to mortgagee
property and ownership remains with the of course, subject to the mortgagor to redeem
pledger. the property.
The Pawnee has ‘special property’ in the goods The mortgagee, as a rule, takes decree of a Court
pledged and can sell the same in the event of of Law before having recourse against the
default by the pledger, of course, after giving property mortgaged.
reasonable notice.
Pawnee has no right foreclosure. He can only In certain cases, the mortgagee can foreclose the
sell the property to realize his dues. property.
Chapter 17.16: Law Relating to Securities and Modes of

Charge 2
Pledge
Pledge means bailment of goods for purpose of providing security for payment of debt
or performance of promise (as per the Section 172 of Contract Act 1872).
The Requirements are to be satisfied:
• There must be bailment of goods (bailment means delivery of goods);

• The bailment must be, by or on behalf of the debtor; and
• The bailment, must be for the purpose of providing security for the payment of a
debt or performance of promise.
Jobs
• Pawnor – The person whose goods are bailed

• Pawnee – The person who takes the goods for security
Advantages of Pledge:
• The goods are in the custody of the pawnee and, therefore, it is easy to sell in
case of default. If the banker takes proper precautions, through periodical
inspections, it will not be possible for the pawnor to create subsequent charges
against the same goods.
• Because of close supervision, it will not be possible for the pawnor to manipulate
the stocks.
• Even if the goods are lost, the banker can recover the amount under the
insurance policy.
• The formalities connected with the pledge are simpler then in the case of
Mortgage.
Difference Between Hypothecation and Mortgage
BASIS FOR MORTGAGE HYPOTHECATION

COMPARISON
Meaning Mortgage implies a legal Hypothecation refers to an

process wherein the title of real arrangement, wherein a person
estate property passes from the borrows money from bank by
owner to the lender, as a collateralizing an asset, without
collateral for the amount transferring title and possession.
borrowed.
Applicable to Immovable asset Movable asset
Legal Mortgage deed Hypothecation agreement

Document
Defined under Transfer of Property Act, 1882 SARFAESI Act, 2002
Indicates Transfer of interest in the asset. Security for payment of an amount.
Loan amount High Comparatively low
Tenure Long Comparatively short
Chapter 17.17: Registration and Satisfaction of Charges
Types of Charges
Jobs
“Charges” registered under the Companies Act can be classified into two types:
Fixed Charge: ‘Fixed Charge’ is also called ‘specific Charge’. It extends over a specific
property or properties of the company.
Floating Charge: A floating charge is a security interest over a fund of changing assets
of a company or other legal person. Unlike a fixed charge, which is created over
ascertained and definite property, a floating charge is created over property of an
ambulatory and shifting nature.
Provisions of Law Relating to Registration of Charges

Section 77, Companies Act 2013: This section provide that ‘charge’ means and
includes mortgage/charge over any or all properties of the company within or outside
India.
Section 77(1), Companies Act 2013: This section provides that the charge created
over the properties of the company shall be registered with the Registrar of
Companies within 30 Days of creation of charge.
Section 77(2), Companies Act 2013: This section provide that the Registrar shall give
a certificate under his hand of the Registration of any charge registered, stating the
amounts thereby secured.
Section 78, Companies Act 2013: This section provides that in case the charges is not
registered by the Company, the charge holder may apply for filling of charge in the
prescribed manner within a period 14 Days after giving the Company a notice in this
regard.
Section 79, Companies Act 2013: This section provide that if a company acquires a
property charged under Section 77, then the company shall declare the same by filling
the particulars of the property, so acquired, subject to charge.
Section 80, Companies Act 2013: This section provides that after registration of
charge created, any other person acquiring such property charged or any party thereof,
shall be deemed to have notice to the charge registered and shall take property subject
to such charge.
Section 82, Companies Act 2013: This section provide that the Company shall
intimate the Registrar of any payment/satisfaction in full of any charge registered
within a period 30 days.
Section 83, Companies Act 2013: Power of Registrar to Make Entries of Satisfaction
and Release in Absence of Intimation from Company.
Section 84, Companies Act 2013: This section provides that in case an order for
appointment of receiver or manager is obtained by any person, then such person shall
give notice of such appointment of receiver/ manager within a period of 30 days
from the date of such order.
Jobs
Section 85, Companies Act 2013: This section requires the company shall maintain at
its registered office, a register of charges in prescribed form and manner.
Section 86, Companies Act 2013: This section provides that contravention of any the
aforesaid provision shall be punishable with a fine not less than Rs 100000 but which
may extend to Rs 1000000 and every officer in default shall be punishable with
imprisonment for a term of upto 6 months.
Section 86, Companies Act 2013: This section provides that the Central Govt may
direct that the time for filing charge may be extended upon being satisfied of a few
conditions mentioned in the section.
Chapter 17.18: SARFAESI ACT, 2002
SARFAESI Act
The SARFAESI Act gives detailed provisions for the formation and activities of Asset
Securitization Companies (SCs) and Reconstruction Companies (RCs). Scope of their
activities, capital requirements, funding etc. are given by the Act. RBI is the regulator for
these institutions.
As a legal mechanism to insulate assets, the Act addresses the interests of secured
creditors (like banks). Several provisions of the Act give directives and powers to
various institutions to manage the bad asset problem. Following are the main
objectives of the SARFAESI Act.
• The Act provides the legal framework for securitization activities in India
• It gives the procedures for the transfer of NPAs to asset reconstruction companies for
the reconstruction of the assets.
• The Act enforces the security interest without Court’s intervention
• The Act give powers to banks and financial institutions to take over the immovable
property that is hypothecated or charged to enforce the recovery of debt.
Major feature of SARFAESI is that it promotes the setting up of asset

reconstruction (RCs) and asset securitization companies (SCs) to deal with NPAs
accumulated with the banks and financial institutions. The Act provides three
methods for recovery of NPAs, viz:
• Securitization;
• Asset Reconstruction; and
• Enforcement of Security without the intervention of the Court.
Definition of SARFAESI Act, 2002

In SARFAESI Act, 2002, the definitions are given in Section 2 of the Act.
Jobs
1. Preamble – An act to regulate Securitisation and reconstruction of financial assets

and enforcement of security interest and for matters connected therewith or incidental
thereto.
2. Appellate Tribunal – Any person aggrieved by the order passed by “Debt Recovery
Tribunal” can file an appeal to the authority called as Appellate Tribunal.
3. Asset Reconstruction - An asset reconstruction means acquisition by an ARC of any
right or interests of any Bank or Financial Institution in any financial assistance for the
purpose of realisation of such financial assistance.
4. Bank – SARFAESI Act, All the banking companies, Nationalised banks, Cooperative
banks and RRBs.
5. Board – The Word ’Board’ is used SEBI under SEBI Act 1992.
6. Borrower – Any person, who has been granted financial assistance, given guarantee.
7. Central Registry – Under this Act, ‘Central Registry’ All the transactions of asset
Securitisation, reconstruction as well as transactions of creating security interest will
have to be registered with this authority.
8. Debt Recovery Tribunal – SARFAESI Act, Debts Recovery Tribunal are those
tribunals established under the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993, to deal with the cases of recovery of debts above Rs. 10lacs due
to the banks and financial institutions.
9. Default: Default is failure to meet the legal obligations of a loan, for example when a
home buyer fails to make a mortgage payment, or when a corporation or government
fails to pay a bond which has reached maturity.
10. Financial Assistance: Whenever any bank or financial institution grants a loan or
advance or makes subscription of debenture or bonds or gives guarantee or issues
letters of credit or extends other credit facility, it is called financial assistance.
11. Financial Asset - a claim to any debt or receivables and includes :
• A claim to any debt or receivables or part thereof whether secured or unsecured,
or
• Any debt or receivable secured by mortgage of or charge on immovable property
or
• A mortgage, charge, hypothecation or pledge of moveable property, or
• Any right of interest in the security, whether full or part, securing debt, or
12. Financial Institution: Financial Institution means
• A public financial institution within the meaning of the Companies Act, 1956
(now ICA 2013)
• Any institution specified by the Central Government under the Recovery of Debts
due to Bank and Financial Institutions Act, 1993.
Jobs
• The ‘International Finance Corporation’ established under the International

Finance Corporation (Status, Immunities and Privileges) Act, 1958.
13. Hypothecation: Hypothecation means
• A change in or upon any moveable property
• Existing or future
• Created by a borrower
• In favour of a secured creditor
14. Non-Performing Asset: A non-performing loan is a loan that is in default or close to
being in default. Many loans become non-performing after being in default for 90 days,
but this can depend on the contract terms.
15. Originator: Originator is the owner of a financial asset that is acquired by a
securitization company or reconstruction company for the purpose of securitization or
asset reconstruction.
16. Obligor – Borrower or any other person liable to pay to the bank
17. Property: Property means
• Immovable property;
• Movable property;
• Any debt or any right to receive payment of money, whether secured or
unsecured;
• Receivables, whether existing or future;
• Intangible assets, being know-how, patent, copyright, trade mark, licence,
franchise or any other business or commercial right of similar nature;
18. Qualified Institutional Buyer: Means a financial institution, insurance company,
bank, state financial corporation, state industrial development corporation, 4[trustee of
securitisation company or reconstruction company which has been granted a certificate
of registration under sub‑section (4) of section 3 or any asset management company
making investment on behalf of mutual fund] or a foreign institutional investor
registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or
regulations made thereunder, or any other body corporate as may be specified by the
Board.
19. Reconstruction Company: Means a company formed and registered under the
Companies Act, 1956 (1 of 1956) for the purpose of asset reconstruction;
20. Scheme: Means a scheme inviting subscription to security receipts proposed to be
issued by a securitisation company or reconstruction company under that scheme;
21. Securitisation: Means acquisition of financial assets by any securitisation company
or reconstruction company from any originator, whether by raising of funds by such
securitisation company or reconstruction company from qualified institutional buyers
by issue of security receipts representing undivided interest in such financial assets or
otherwise;
Jobs
22. Securitisation Company : The minimum capital requirement is Rs.200 Crore at the
time of registration, and these companies are required to maintain minimum capital
adequacy ratio of 15% of total asset acquired or Rs.100 crore whichever is less. It is
company registered under companies act 1956 for the purpose of securitisation. The
company also needs registration with RBI.
23. Security Agreement: Means an agreement, instrument or any other document
under which security interest is created.
24. Secured Asset means property on which security interest is created. The powers
given by SARFAESI Act for enforcement of securities are against secured assets only.
25. Secured Creditor: Means any bank or financial institution or any consortium or
group of banks or financial institutions and includes—
• debenture trustee appointed by any bank or financial institution; or 5[(ii)
securitisation company or reconstruction company, whether acting as such or
managing a trust set up by such securitisation company or reconstruction
company for the securitisation or reconstruction, as the case may be; or]
• any other trustee holding securities on behalf of a bank or financial institution, in
whose favour security interest is created for due repayment by any borrower of
any financial assistance;
26. Secured Debt means a debt which is secured by any security interest.
27. Secured Interest – Any right, title and interest of any kind whatsoever upon the
property created in favour of any secured creditor is called as secured Interest.
28. Security Receipt: Means a receipt or other security, issued by a securitisation
company or reconstruction company to any qualified institutional buyer pursuant to a
scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided
right, title or interest in the financial asset involved in securitization.
29. Sponsor is a person holding not less than 10% of the paid up equity capital of
securitisation company.
• When any bank or financial institutions creates a charge against property, with
which authority the transaction will have to be registered under the SARFAESI
Act, 2002 – With the Central Registry
• When the provisions of SARFAESI Act, 2002 can be invoked for proceeding
against the charged property – When there is default in repayment and the bank
declares the account as NPA.
• Acquisition of financial asset from the originator is the main function of
securitisation company.
• If the borrower does not pay within 60 days after notice by the secured creditor
the creditor can take possession of the security.
• Enforcement of SARFAESI Act only if security is not in possession of the bank and
financial institution.
Jobs
Chapter 17.19: Enforcement of Security Interest

Right to Prefer Application to DRT
• Any person, including borrower, aggrieved by the any of the measures taken by
the SC or his authorised officer for taking possession of the security may apply to
the DRT with prescribed fees within 45 Days.
• If application by borrower, he has to deposit 50% of the amount claimed in the

notice under Section 13(2) of the SARFAESI Act.
• The DRT has to dispose of the application within 60 Days. If not possible,
then DRT has to record reasons for delay but such delay should not be beyond 4
Months. If any such application is not disposed within 4 Months, the aggrieved
party can prefer an application to the Appellate Tribunal for seeking early
disposal of the application.
Appeal to Appellate Authority
Any person aggrieved by any order by the DRT under can prefer appeal along with the
prescribed fees to the Appellate Tribunal within 30 Days from the date of the receipt of
the order of the DRT. Different fees for borrower? appeal and appeal by any other than
borrower. The borrower has to deposit 50% of the debt claimed by the SC. The Tribunal
has power to reduce this amount up to 25%.
Right of Borrower for Compensation and Costs

1. If the DRT /AT as the case may be, on the appeal holds that
• The possession of secured asset by the SC is not in accordance with the
provisions of the Acts or Rules
• The SC should return such secured asset to the concerned borrower, with
compensation and cost as may be determined by DRT/AT.
2. No pecuniary limit is fixed by the Act for the Appellate Jurisdiction.
• If any Person contravenes or attempts to contravenes provisions of the
SARFAESI Act or rules there under he shall be punishable with imprisonment for
a term which may extend to one year or with fine or with both.
Section 12 : RBI is statutorily empowered to issue directions to the SC/RC. If any such
company fails to comply with any of the directions issued by the RBI then such company
is punishable with fine not exceeding 5 Lakh rupees for the default. In case of further
continuation of the offence additional fine is up to Rs. 10 thousand per day of default
can be imposed.
Section 31: Exclusions of possessory securities to which act is NOT APPLICABLE
Jobs
• A Lien on any goods, money or security given by or under the Indian Contract
Act, 1872.
• A pledge of moveable within meaning of Section 172 of the Indian Contract Act,
1872.
• Any conditional sale, hire-purchase or lease or any other contract in which
security interest has been created.
• Any rights of unpaid seller.

• Any security interest for securing repayment of any financial asset not exceeding
Rs. 1 Lakh rupees.
• Any security interest created on agricultural land.

Note: Section 20, 21 to 27 that provide for registration of security interest created,
satisfaction of charge created.
Chapter 17.20 : Offences and Penalties

PENALTIES
Section 23 of the Act provides for filing of the particulars of charge created. Section
24 has provides for modification of the charge filed and the Section 25 has provides
that the satisfaction of the charge has to be intimated to the central registrar. If
the securitisation or reconstruction company or the secured creditor fails to perform
any of the duties as stated above, the company and the officers concerned for the
default, as per provisions of this section, are punishable with a fine that may extend to
five thousand rupees for each day during which the default continues.
Penalties For Non-Compliance Of Directions Of Reserve

Bank Of India
Under the Section 12 or 12A of the SARFAESI Act, the Reserve Bank of India is
statutorily empowered to issue directions to the securitisation or reconstruction
company. If any such company fails to comply with any of the directions issued by the
Reserve Bank of India, then such company is punishable with a fine not exceeding Rs.
5 lakh for the default. In case of further continuation of the offence, an additional fine
up to Rs. 10,000 per day of the default can be imposed.
OFFENCES
If any person:
1. contravenes, or
2. attempts to contravene, or
Jobs
3. abets the contravention of the provisions of the SARFAESI Act or rules made
thereunder, he shall be punishable with imprisonment for a term, which may extend to
one year or with a fine or both.
Cognisance Of Offences
Section 30 provides that no court shall take cognizance of any offence punishable
under section 27 in relation to non-compliance with the provisions of section 23,
section 24 or section 25 or under section 28 or section 29 or any other provisions
of the SARFAESI Act, except upon a complaint in writing made by an officer of the
Central Registry or an officer of the RBI, generally or specially authorized in writing in
this behalf by the Central Register or, as the case may be, the Reserve Bank and
congnisance of the offence under the SARFAESI Act shall be taken by the
Metropolitan Magistrate or the Judicial Magistrate of First class only. No Court below
the rank than this can take cognizance of such offences.
Chapter 17.21: Procedure Of Tribunals

Application to the Tribunal
The Purpose for filing application is for Recovery of the debt due to them.
DRT Act About

Section19(1) Application for recovery to Tribunal within local limits of whose
jurisdiction
Section19(2) Recovery of the debt is from same person, any other bank also has
to recover debt,
they may join.
Section19(3) No need to pay the fee, if Case is transferred from Civil Court to
Tribunal
Section19(4) On receipt of application under sub-section(1) or (2) the Tribunal
has to issue summons to the defendant requiring him to show
cause within 30 days of the service of summons as to why the
relief prayed for should not be granted
Section19(5) The Defendant has to present written statement at or before first
hearing or within such time as the Tribunal may permit.
Section19(6) defendant has to claims any amount on first hearing from the
applicant and to have
setoff against the applicant’s demand with ascertained sum of
money
Section19(7) When written statement contains claim and set off, the written
statement has the same effect as a plaint in a cross-suit.
Section19(8) Counter claim
Section19(9) Counter claim has the same effect as a plaint in cross-suit so as to
enable the Tribunal to pass a final order in respect of both the
original and Counter Claim.
Jobs
Section19(10) The applicant is at liberty to file a written statement to the counter

claim of the
defendant within such period may be fixed by the Tribunal
Section19(11) Counter Claim to be disposed as an Independent action.
Section19(12) The Tribunal may pass interim order against the defendant to
debar him from transferring, alienating, or otherwise dealing with
or disposing of any property/asset
without the permission of the Tribunal
Section 19(13 A Tribunal Dispose of the property, Damage to the property,
and B) remove/whole any part of the property
Section19(14) When the applicant wants that the properties of the defendant
should be attached.
Section19(15) The Tribunal can pass conditional attachment order.
Section19(16) If any attachment order is passed without complying the
requirements of Subsection (13), then such order is void.
Section19(17) The Tribunal has power to pass interim orders, attachment orders
etc. If there is any breach of the orders, the Tribunal may order
that the properties of the person guilty of the breach of the order
be attached and person be detained in civil prison for a term not
exceeding 3 months.
Section19(18) appoint a receiver of any property
• remove any person from the custody/possession of
property
• confer powers to receiver.
• appoint a commissioner for preparation of an inventory of
the property of the defendant or for sale thereof
Section19(19) If the recovery certificate is granted against a company, the
Tribunal may order that the sale proceeds of such company be
distributed among the Secured Creditors as provided in Section
529A of the Companies Act.
Section19(20) Pass interim or final order for payment of amount including
interest thereon
Section19(21) The tribunal is required to send copy of every order by it to the
applicant and the defendant.
Section19(22) Issue a Certificate of Recovery to the recovery officer for recovery
of the amount of debts.
Section19(23) Sending Certificate of Recovery to other tribunals if it is local limits
of other jurisdiction
Section19(24) Application received by the tribunal for recovery of debt shall be
disposed of finally within 180 days
Section19(25) The tribunal may make such orders and give such directions as
may be necessary
Jobs
Appeal to the Appellate Tribunal

• Any person aggrieved by the order passed by Under DRT Act, may appeal to an
Appellate Tribunal.
• The appeal is required to be filed within 45 days from the date on which copy of
the order is received. At the time of filing appeal Section 21 of the DRT Act 75%
of the amount shown as due in the order required to be deposited by the
appellant.
• Appellate Tribunal should disposed off the appeal within 6 months.
• These is no provision in the Act for further appeal against the order passed by
the Appellate Tribunal. However writ Jurisdiction of High Court under Article
226 and Supervisory jurisdiction of High Court as well as Special Leave Petition
before the Supreme Court are not Barred.
Chapter 17.22: The Legal Services Authorities Act,

1987: Lok Adalats
Organisation of lok Adalats
Lok Adalts are organized by the State Authority, the Distt. Authority, the Supreme
Court Legal Service Committee or High Court Legal Services Committee or Taluk
legal Services committee, at such intervals and places as deemed appropriate. The
Lok Adalts are created under Legal Services Authority Act 1987.
Jurisdiction of Lok Adalats

A Lok Adalt has jurisdiction to determine and arrive at a compromise or settlement
between the parties to the dispute.
Types of Cases
It deals with the cases where

(a) The parties to the dispute agree to refer the issue to Lok Adalt;
(b) One of the parties approaches the Lok Adalt and Lok Adalt is satisfied that there are
chances of settlement. In such case, the Adalt issues notice to the other party;
(c) In the opinion of the Lok Adalt, the cognizance of the dispute can be taken.
Note: The Monetary ceiling of amounts regarding which civil disputes can be settled
under this mechanism is presently Rs 20lacs. The repayment period should be
within one to three years.
Nature of Award of The Lok Adalats
Jobs
The Award of Lok Adalat shall be deemed to be a decree of a civil court or an order of
any other court. In case of compromise or settlement arrived at by a Lok Adalat the
court fee paid in the case shall be refunded in the manner provided under the Court
fees Act, 1870. Every award shall be binding on all the parties to the dispute. No appeal
shall lie in any court against the award.
Chapter 17.23: Consumer Disputes Redressal

Agencies
Composition of Forum
District State National

Established by State Govt State Govt Central Govt
Composition of Under Section 10 of Under Section Under Section 20

Forum the Consumer 15 of the of the Consumer
Protection Act, 1986 Consumer Protection Act
Protection Act
President District Judge High Court Supreme Court
(Qualified to
be)
Minimum 2 2 4
Other
Members
(One Woman)
Member Minimum 35 Minimum 35 Minimum 35

Qualification years of age years of age years of age
Bachelor’s Bachelor’s Bachelor’s Degree
Degree Degree
Term For a term of 5 For a term of 5 For a term of 5
years or up to the years or up to years or up to the
age of 65 years the age of 67 age of 70 years
years
Jurisdiction of Forum
Established State Govt State Govt Central Govt

by
Jobs
Jurisdiction Under Section 11 of Section 12,13 Section 12,13 and 14

of Forum the Consumer and 14 of of District forum
Protection Act, 1986 District forum
Claimed Does not exceed Rs.20 Lakhs to Exceeds Rs. 1 Crore

Amount Rs. 20 Lakhs. Rs.1 Crore Appeal against the
Appeal against order of the
the order of State Commission
District Forum
with in State
Form of Complaint

Established by State Govt State Govt Central Govt
Act Section 12 of the

Consumer protection
Act
Admissibility within 21 days from Application of Application of
the date of receipt complainant or on complainant or on its
Once the complaint its own motion the own motion the state
admitted to District state commission commission may
forum, cannot be may transfer any transfer any
transferred to any proceeding at any proceeding at any
other court or stage from one Dist stage from one Dist
tribunal forum to another forum to another Dist.
Dist if in the And State Commission
interest of justice it to another
requires Commission if in the
interest of justice it
require
Appeal
Jobs
Established State Govt State Govt Central Govt

by
Act Under Section 15 Under Section Under Section
of the Consumer 19 of the 24 of the
Protection Act. Consumer Consumer
Protection Act. Protection Act.
Transfer 30 30
Appeal Time
Appeal Appeal to state Appeal to Appeal to

(50% commission: National Supreme Court :
amount or Payment of Commission : Payment : Rs.
whichever is amount : 25,000 Payment of 50,000
less)
amount:
Rs. 35,0000
Other Important Point

• Dismissal of Frivolous complaints: If the district forum, state commission,
national commission finds that complaint instituted before it is frivolous, it shall
dismiss the complaint. And order the complainant to pay Rs. 10,000.
• Penalties: Where trader or a person against the whom the complaint is made
fails or omits to comply with any order made by the commissions, he shall be
punishable with imprisonment for a term 1 month to 3 years or with fine Rs.
10,000 or with both
Chapter 17.24: Information Technology Act, 2000

Cyber Law in India is based on Information Technology Act 2000 which extends to
whole of India. The Act has been drawn on the lines of Model Law on Electronic
Commerce adopted in 1996 by UN Commission on International Trade Law
(UNCITRAL). The Act has been amended wef Oct 27, 2009.
The major provisions of the Act are:
• Adjudicating officer: Appointed Under Section (1) of Section 46.

• Certifying Authority: Means a person who has been granted a licence to issue a
Digital Signature Certificate under section 24.
• Controller: Means the Controller of Certifying Authorities appointed under the
sub-section (1) of Section 17.
• Cyber Appellate Tribunal: Means the Cyber Regulation Appellate Tribunal

Established under the sub-Section (1) of Section 48.
Jobs
• Digital Signature: Means authentication of any electronic record by a

subscriber by means of an electronic method or procedure in accordance with
provisions of Section 3.
• Digital Signature Certificate: Means a Digital Signature Certificate issued under
the sub-section (4) of Section 35.
• Licence: Means a licence granted to a certifying Authority under the Section 24.
• Penalties: The Penalties for damage to computers, computer system, etc, has
been fixed as damages by way of compensation not exceeding Rs 1 cr. to affected
person.
• Hacking - Hacking is an offence and one will have to pay a fine of up to Rs.2 lac
or undergo imprisonment up to three years for hacking.
Click here to Buy SBI CBO Online Test Series

• Click here to Join Telegram Group
Jobs

SBI CBO Banking Knowledge PDF by Ambitious Baba

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SBI CBO Banking Knowledge PDF by Ambitious Baba

Uploaded by

Copyright:

Available Formats

ambitiousbaba.

com Online Test Series

Banking Knowledge PDF For SBI CBO

Chapter 1 RBI, Subsidiaries of RBI, NABARD, NHB, ECGC

Chapter 2 Banks in India Commercial Bank, Exim Bank of India,

Chapter 3 Banking Ombudsman, National Income

Chapter 4 Money Market, Capital Market

Chapter 6 Negotiable Instrument, Mutual Fund, Money

Chapter 7 Types of Cheque & Types of Account

Chapter 8 Types of Payment Cards, Fund transfer service

Chapter 9 Basel I, II and III

Chapter 10 NPA & SARFAESI Act, 2002

Chapter 11 LIBOR & MIBOR, SWIFT Codes for banks

Chapter 12 CIBIL, Priority Sector lending & Banks Merger

Chapter 13 Important Terms

Chapter 14 Micro, Small and Medium Enterprise in India

Chapter 15 KYC & AML

Chapter 16 Preventive Vigilance In Banks

Chapter 17 Legal Issue

Insurance and Pension Regulators

Central Bank (RBI) Capital Market (SEBI) Insurance and Pension

1)Monetary Control 1)Equity market and debt 1)Regulatory framework

Chapter 1: RBI, Subsidiaries of RBI, NABARD, NHB,

• One Governor (5years Term)

Branches and support bodies

• RBI Headquarters in Mumbai

• Deposit Insurance and Credit Guarantee Corporation of India (DICGC),

• Bharatiya Reserve Bank Note Mudran Private Limited

• DICGC (Deposit Insurance And Credit Guarantee Corporation )

National Bank for Agriculture and Rural Development (NABARD)

National Housing Bank (NHB)

• A Government of India owned entity

ECGC (Export Credit Guarantee Corporation of India)

• Type: State-owned enterprise Public

• Provides a range of credit risk insurance covers to exporters against loss in

Chapter 2: Banks in India Commercial Bank, Exim

Export–Import Bank of India is a finance institution in India, established in 1982 under

Small finance bank

• Existing non-banking financial companies (NBFC), microfinance institutions

Chapter 3: Banking Ombudsman, National Income

Banking Ombudsman Important Point

• The Banking Ombudsman Scheme was introduced under Section 35 A of the

• There are 21 regional offices of Banking Ombudsmen in India.

Type of complaints resolved by banking ombudsman

• Non-payment or inordinate delay in the payment or collection of cheques, drafts, bills,

Chapter 4: Money Market, Capital Market

• Financial markets in every economy have two separate segments.

• Issued by RBI on behalf of govt.

• Available for a minimum amount of Rs. 25000 or in multiples of that.

Certificate of Deposit (CDs)

• Issued by scheduled commercial banks and other financial institutions.

Commercial Paper (CP)

• These are unsecured promissory* notes issued by large corporates, primary

Commercial Bills (CBs)

Cash Management Bills (CMBs)

• It's a comparatively new short-term instrument issued by RBI on behalf of Govt.

Capital Market 2 types

There are three major types of inflation

Factors on Supply Side –

• The Consumer Price Index (CPI)

Chapter 6: Negotiable Instrument, Mutual Fund,

A negotiable instrument is a document guaranteeing the payment of a specific amount

Types of Negotiable Instruments

• Total member countries – 36