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IBA’S CODE FOR BANKING PRACTICE
• INTRODUCTION • Indian Banks' Association (IBA) introduced a formal system of self-discipline in the Indian Banking Industry in the year 1973, by recommending a ceiling rate of interest on inter-bank borrowings in call money market. In the year 1977, the Ground
Rules and Code of Ethics (GRACE) were evolved. In a highly regulated environment, GRACE served its purpose for the last over 20 years, in bringing about a standard of ethical behaviour among Member Banks in certain focal areas of interest to the banking public. GRACE also served as a tool defining the boundaries for interpretation of the directives of the Regulatory Authority in key areas. However, the framework of GRACE was predominantly suited to a fully regulated environment.
• The environment has undergone transformation following liberalisation and in the context of financial sector reforms. It was, therefore, felt that there was a need for comprehensively revising GRACE.
therefore. The environment has undergone transformation following liberalisation and in the context of financial sector reforms. is an attempt towards fulfilling the above need under the liberalized and deregulated environment.IBA’S CODE FOR BANKING PRACTICE • Keeping the above need in view. 1999 for adoption by all Member Banks. It was. . The final draft after incorporating suggestions from Member Banks and our legal consultant was approved by the IBA Managing Committee. The Code was then forwarded to the Reserve Bank of India (RBI) for its concurrence. This IBA Code for Banking Practice shall replace the extant GRACE with effect from 1st September. felt that there was a need for comprehensively revising GRACE. The Working Group drafted a code for banking practice for uniform adoption by the banks. RBI advised that the IBA Code for Banking Practice is in order for uniform adoption by the Member Banks. aiming to promote a healthy relationship between the banks. • The IBA Code for Banking Practice thus evolved. the IBA Committee to Monitor Code of Ethics set up a working group to revise the GRACE.
1999 and would also be subject to review/revision from time to time. It covers specifically banking services such as current accounts. It is to be observed by the Member Banks in dealing with their personal customers. savings and other deposit accounts. • The Code becomes effective from 1st September. principles of the Code will apply to overall relationship between the Member Banks themselves and their customers. To foster customer confidence in the banking system. advances (loans and overdrafts). . To inculcate self-discipline amongst Member Banks with a view to promoting healthy competition and ethical practices in respect of banking services. However.IBA’S CODE FOR BANKING PRACTICE • Objectives To promote good banking practices by setting out the minimum standards which Member Banks will follow in their dealings with customers. • This is a non-statutory Code issued on a voluntary basis. at least once in every three years.
• Interest on deposits where the terminal period (month/ quarter/half year etc. as the case may be) is incomplete shall be paid on maturity. by discounting the quarterly interest accrued (refer to the Association's Master Charts). transferred or reinvested with frequency not less than the quarterly rests.. . However. banks may accept deposits for periods exceeding 10 years in terms of orders of competent courts or in the case of minors where interests of minors are involved. However. payment of monthly interest may be allowed. provided banks are convinced that it is necessary to do so.IBA’S CODE FOR BANKING PRACTICE • GENERAL CONVENTIONS FOR DOMESTIC DEPOSITS • Member Banks may not accept any deposits for a period longer than 10 years. interest would be paid for the actual number of days on the basis of 365 days in a year. if required. • On deposits repayable in less than three months or where the terminal quarter is incomplete. credited. Interest on deposits for fixed term may be paid.
• In case of Reinvestment Plan Deposit. banks shall also mention the maturity value and periodical rest at which the interest shall be compounded.IBA’S CODE FOR BANKING PRACTICE • TERMS OF ACCEPTANCE OF DEPOSITS • Member Banks shall not issue an incomplete term deposit receipt which does not clearly mention the amount actually deposited. Recurring Deposit and Cash Certificate in addition to the particulars stated in the above para. . period for which the deposit is placed/accepted and the rate of interest payable as also periodical rest at which interest is payable. • MONITORING • The Committee constituted by the Association to ensure the observance/compliance of the Code by the banks shall be empowered to investigate and follow up the cases of violation of the Code by Member Banks that may be brought to its notice.
Different types of Accounts Deposits Accounts Loans Accounts .
Different types of Accounts • Deposit can be classified into : • Demand Deposit : “Demand deposits” means a deposit received by the Bank which is withdraw able on demand • Saving Deposit : “Savings deposits” means a form of demand deposit which is subject to restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the Bank during any specified period • Term Deposit : “Term deposit” means a deposit received by the Bank for a fixed period withdrawable only after the expiry of the fixed period and include deposits such as Recurring / Double Benefit Deposits / Short Deposits / Fixed Deposits /Monthly Income Certificate /Quarterly Income Certificate etc. • . Notice Deposit : Notice Deposit means term deposit for specific period but withdrawable on giving at least one complete banking day’s notice.
Different types of Deposit Accounts Current Account • Current account is a form of demand deposit where from withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts which are neither Savings Deposit nor Term Deposit. Etc. As per IBA’s Model Deposit Policy. • It can be opened by individuals / partnership firms / Private and Public Limited Companies / HUFs / Specified Associates / Societies / Trusts. No interest is to be paid on the balance of current account. Banks to attract deposits from customer gives certain benefits to customers for keeping certain minimum balance. • • • . an Illiterate or a blind person can not open a current account. Departments of Authority created by Government (Central or State Limited Liability Partnership).
00 lac per quarter PNB PLATINUM 10.000 150 100 5 nos (Max.000 600 200 10 nos (Max. upto Rs.5. upto Rs.00.00 lacs) Free Free 5.000 500 30 nos (Max.0.00. Particulars Minimum Quarterly Average Balance (QAB) Non Maintenance of QAB Charges (per quarter) Free Cheque Leaves (per quarter) Issue of Free Demand Drafts per quarter Stop Payment instruction charges Account Statements PNB SILVER 50.10.00 lac per quarter Different types of Deposit Accounts PNB DIAMOND 5.• PNB SMART BANKING CURRENT ACCOUNT with four variants. upto Rs. upto Rs.2.00 lacs) Free Free 10.00 lac per quarter Free Collection of outstation Cheque per quarter max.000 3. Amt. Amt.00 lacs) Free Free 2. Amt.00. Amt. .50 lacs) Free Free 0.000 1500 300 15 nos (Max.50 lac per quarter PNB GOLD 2. Upto Rs.
1961. provided it is not a trading or business concern. trust. “Savings Bank Account”. A savings account may be opened by an individual singly or jointly. Savings Fund Account can also be opened by a minor jointly with natural guardian or with mother as the guardian. by a minor of the age of 10 years or above on his/her furnishing a satisfactory proof of age. in their joint names.Different types of Deposit Accounts Saving Deposit • It is a form of demand deposit which is a deposit account whether designated as “Savings Account”. which are not liable to pay income tax under the Income Tax Act. club. in the name of a minor by his/her guardian. Savings Fund accounts can be opened for eligible person / persons and certain organizations / agencies (as advised by RBI)from time to time). “Savings Deposit Account” or other account by whatever name called which is subject to the restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the bank during any specified period. • • • • . By two or more persons. association. charitable/educational institution. By the societies/institutions/associations. payable to either or any one or more or all of them or survivor or survivors. former or survivor(s) By a society.
subject to the following two conditions: First. at any of its offices. 2010. each bank will have to offer a uniform interest rate on savings bank deposits up to Rs. Second. The above revised Guidelines would be applicable to savings bank deposits of resident Indians only. between one deposit and another of similar amount. RBI advised that payment of interest on saving account should be on daily product basis with effect from April 1.1 lakh. irrespective of the amount in the account within this limit. • . if it so chooses. for savings bank deposits over Rs.Different types of Deposit Accounts Saving Deposit • • Rates of interest payable on Savings deposits. Banks are free to determine their savings bank deposit interest rate.1 lakh. subject to the condition that banks will not discriminate in the matter of interest paid on such deposits. a bank may provide differential rates of interest. accepted on the same date.
the existing account holders any change in the prescribed minimum balance and the charges that may be levied if the prescribed minimum balance is not maintained. All banks should give wide publicity to the facility of such no frills account including in the local media indicating the facilities and charges in a transparent manner. The nature and number of transactions in such accounts could be restricted. Any charge levied subsequently should be transparently made known to all depositors in advances with one month’s notice. . but made known to the customer in advances in a transparent manner.Different types of Deposit Accounts Saving Deposit • • Minimum Balance At the time of opening the accounts. banks should inform their customers in a transparent manner the requirement of maintaining minimum balance and levying of charges etc.. The banks should inform. balances as well as charges that would make such accounts accessible to vast sections of population. • • No frills account With a view to achieve the objective of greater financial inclusion all banks should make available a basic banking ‘no frills’ account either with ‘nil’ or very low min. if the minimum balance is not maintained. at least one month in advance.
"Recurring Deposits" are deposits where the input is in equal monthly installments and the output. • • • Period of deposit • . However. is in one lump sum. provided banks are convinced that it is necessary to do so. on maturity. Individual banks may decide in this matter based on asset liability management policies being followed. banks may accept deposits for periods exceeding 10 years in terms of orders of competent courts or in the case of minors where interests of minors are involved. the interest on the deposit is payable at simple rate either periodically or at maturity. IBA has made it clear that no deposit will be accepted for less than 7 days and more than 10 years. "Special Recurring Deposits" are deposits accepted in quarterly/half-yearly/yearly installments from the institutional/corporate investors for their special needs such as sinking/amortization funds or from individuals for any of their special needs.Different types of Deposit Accounts Term Deposit • "Term Deposits" or "Fixed Deposits" are deposits where the depositor makes a lump sum deposit at one time for a fixed term and receives payment thereof on maturity.
which are directly observable and transparent to the customer. banks should not use internal or derived rates while offering floating rate deposit products. as per terms of contract. should be used by banks for pricing their floating rate deposits. on completion on which.Different types of Deposit Accounts • Floating Rate Deposits • On Domestic Term Deposits. interest at applicable rate on the corpus built is paid monthly (discounted) or quarterly (actual). • "Permanent Income Plan" or "Perennial Pension Plan" is a scheme under which deposits are accepted in lump sum or in installments for a specific period. sum and the output is in installments. • Annuity Deposits are deposits where the input is either in installments or in lump • . Only market-based rupee benchmark rates. on maturity of which the principal plus interest compounded at quarterly intervals are repaid to the depositor as a lump sum. In order to ensure transparency. a bank may offer floating rate clearly linked to an anchor rate. "Reinvestment Deposits" and "Cash Certificates" are deposits which are accepted in lump sum for a fixed period.
Different types of Loan Accounts • Loan can be classified into : • Demand Loan : “Demand Loan” means a loan given by the Bank which is payable on demand or bullet repayment. . • Term Loan : “Term Loan” means a form of loan which is given by the banker to acquire a fixed asset like plant & machinery and payable in installment. Can be classified into following categories Short Term Loan Medium Term Loan Long Term Loan • Cash Credit Loan : “Cash Credit Loan “ or usually called as working capital loan given to any borrower to meet their day to day needs.
Securities Against which we can give demand loan: Bank deposit. A fresh loan account must.e. Life Insurance policies Gold coins or gold ornaments Govt.Different types of Loan Accounts • Demand Loan : A demand loan account is an advance for a fixed amount which is repayable on demand and in one shot i. any further drawings permitted in the account will not be secured by the demand promissory note taken to cover the original loan. As an amount credited to a loan account has the effect of permanently reducing the original advance. An existing demand loan must be liquidated when further loans are granted against the same security. securities or company’s share/debenture • • . bullet repayment and no debits to the account may be made subsequent to the initial advance except for interest. be opened for every new advance granted and a new demand promissory note taken as security. therefore. insurance premia and other sundry charges.
The basic difference between short-term facilities and term loans is that shortterm facilities are granted to meet the gap in the working capital and are intended to be liquidated by realisation of assets. building and plant and machinery. i.• Term Loans are generally granted to finance capital expenditure. As per the extant guidelines Short Term Loans are allowed for maximum tenor upto one year.e. Term Loans are normally granted for periods varying from 3 to 7 years and in exceptional cases beyond 7 years. required for setting up a new industrial undertaking or expansion/diversification of an existing one and also for acquisition of movable fixed assets. renovation. to improve the product quality or increase the productivity and profitability. for acquisition of land. The exact period for which a particular loan is sanctioned depends on the circumstances of the case. Term Loans are also given for modernisation. whereas term loans are given for acquisition of fixed assets and have to be liquidated from the surplus cash generated out of earnings. etc. Term loan would be a loan which has a specified maturity which may be payable in instalment or in bullet form. Different types of Loan Accounts • • • . Short Term Loans with maturity upto one year be treated as demand loan and classified accordingly. Further.
• • Further a bank cannot hold shares. Also. section 19(2) & (3). provide that a Bank cannot hold shares in any company. mortgagee or absolute owner. • IMPORTANT STATUTORY & REGULATORY PROVISIONS • Banking Regulation Act. as and when required. whether as pledgee. trust receipt etc. in any company in the management of which any Managing Director or Manager of the bank is in any manner concerned or interested. whether as pledgee. 1949.Different types of Loan Accounts • Cash Credit is a facility granted against hypothecation and pledge of goods or produce. bills. . book debts. when the advance is secured by the pledge or hypothecation of goods. Section 20(1) (a) provides that a Bank cannot grant any loans or advances on the security of its own shares. the security may be deposited/withdrawn by the borrower from time to time to suit his business requirements. mortgagee or absolute owner of an amount exceeding 30% of the paid-up share capital of the company or 30% of the own paid up share capital and reserves. In cash credit accounts a borrower is allowed to draw on account within the prescribed limit/drawing power. whichever is less.
or other term deposits. the following commodities are covered under stipulations of Selective Credit Control: Buffer Stock of sugar with Sugar Mills Unreleased stocks of sugar with Sugar Mills representing levy sugar and free sale sugar. RBI has restricted Banks from providing loans to companies for buy back of shares/securities. RBI has advised that Banks should desist from sanctioning advances against FD`. credit limits will be sanctioned to borrowers dealing in sensitive commodities. of other banks. subject to various conditions. RBI has restricted grant of loans against partly paid shares and also grant of loans to partnership/proprietorship concerns against the primary security of shares and debentures. companies are permitted to purchase their own shares or other specified securities out of their free reserves or securities premium account or the proceeds of any shares or other specified securities. Presently.• IMPORTANT STATUTORY & REGULATORY PROVISIONS • Different types of Loan Accounts In terms of Section 77A(1) of the Companies Act. Selective Credit Control : Based on the guidelines issued by RBI from time to time. • • • • . RBI guidelines prohibit Banks from granting advance against bullion / Primary gold. 1956.
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