FUNCTIONS OF BANK

INTRODUCTION
Basic function of a bank is to accept money from the public by
way of deposit and deploying the same by means of loans and
investments.
Apart from this, Bank provides varieties of other services like,
locker facilities, keeping articles in safe custody, collecting bills,
cheques and so on.
REQUIREMENT TO BE CALLED A BANK
Banking means accepting of deposits from public for the purpose
of lending or investment.
Only a firm or company and not an individual are permitted to act
as bank.
A firm consisting of not more than ten partners or a company
incorporated under Indian Companies Act 1956 can be a Bank
under section 5( c ) of a Banking Regulation Act.

FUNCTIONS OF BANK
Money lenders are not Bankers.
Every institution carrying out the business of Banking must
accept deposits from public.
Deposits should be accepted to the purpose of lending and or
investment only.
Deposits accepted should be repayable on demand or
otherwise.
Important Banking functions covered u/s 6 are
Discounting of bills
Remittances
Hiring of safe deposit lockers Conducting foreign
exchange transactions
Issuing LCs/BGs
Safe custody
Collection of cheques Govt. Transactions

FUNCTIONS OF BANK
BANKER CUSTOMER RELATIONSHIP
01.Debtor Creditor Relationship:
When a customer deposits money with his Bank, the customer
becomes a lender and the Banker becomes a borrower. Money
handed over to the Bank is a debt. Hence the relationship is
Debtor Creditor between a Banker and customer.
02.Creditor Debtor Relationship
When a Banker lends money to the customer, the relationship
becomes Creditor Debtor between a Banker and a Customer.
03.Bank as a trustee:
If a customer keeps certain valuables or securities with the
Bank for safe keeping or deposits a certain amount of money
for a specific purpose, the Banker besides becoming a bailee,
is also becoming a trustee.

FUNCTIONS OF BANK
04.Agent Principal Relationship
One of the ancillary services rendered by Bank is collection of
cheques, bills etc. on behalf of the customers. It further
undertakes to pay regularly, electricity, telephone, water bills,
insurance premium, club fees etc.. In all such cases the Bank
acts as an agent to the customer, customer being the principal.
05.Lessor and Lessee ( Bank as a lessor and customer as a
lessee)
Bank provides safe deposit lockers to the customers, who hire
them on lease basis. The relationship therefore is that of lessor
and lessee. Bank leases out the space to the customer for use.
06.Indemnifier and indemnified:
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
any other person is called a contract of indemnity.

FUNCTIONS OF BANK
ANTI MONEY LAUNDERING:
Money laundering is a process by which the origin of funds
generated by illegal means is concealed( drug trafficking, gun
smuggling, corruption etc.)
The operation takes place in several layers, consists in making the
capital and assets that are illegally gained seem as though they are
derived from a legitimate source and inserting them into economic
circulation.
STAGES OF MONEY LAUNDERING
PALCEMENT; This is the first step. It refers the physical disposal of
proceeds of criminal activity.
LAYERING: Separating the illicit proceeds from their source by
creating complex layers of financial transactions. Layering conceals
audit trails and provides anonymity.
INTEGRATION: Placing the laundered proceeds into the legitimate
economy.

FUNCTIONS OF BANK
OBJECTIVES OF PREVENTION OF MONEY LAUNDERING:
To prevent criminal elements from using the banking system for
money laundering activities.
To enable Banks to understand the customers and their
financial dealings better.
To put in place the appropriate controls for early detection and
reporting of suspicious transactions in accordance with the
appropriate laws and regulatory guidelines.
To take necessary steps to ensure that the concerned staff are
adequately trained in know your client and Anti Money
Laundering procedures.
KNOW YOUR CUSTOMER
A person or an entity that maintains an account or has a
business relationship with the Bank is a customer.

FUNCTIONS OF BANK
One on whose behalf the account is maintained.
Beneficiary of a transaction conducted by a professional
intermediaries such as stock brokers, Chartered Accountants,
Solicitors etc.
KEY ELEMENTS OF KYC
Customer Acceptance Policy
Classify customers into various risk categories and based in risk
perception
Decide on acceptance criteria for each category of customers
Accept customers after verifying their identity as per the customer
identification procedures.
Not to open accounts in the name of anonymous/fictitious persons.
Strive not to inconvenience the general public who desires to
transact banking business.

FUNCTIONS OF BANK
CUSTOMER IDENTIFICATION PROCEDURES
Identifying the customer by using reliable, independent source documents
date or information.
Verifying customer identity not only at the time of establishing a banking
relationship but also at the time of executing a transaction or when the bank
has a doubt about the authenticity/veracity about the previously obtained
identification data.
Wherever applicable information on the nature or business activity, location,
mode of payments, volume of turnover, social and financial status etc. will
be collected for completing the profile of the customer.
Customers will be classified into three categories namely high, medium and
low risk categories based on the risk perception.
Customer identification will be obtained for non account holders,
approaching bank for high value one-off transaction or entity connected with
a financial transaction, which can pose significant reputational or other risks
to the bank.

FUNCTIONS OF BANK
Indicative list of documents/information to verify the identity,
address and other features suggested is given below.
For Individuals
For legal name and any other name used in any of the following
1.Pass Port
2.PAN card 3.Voter Identity
4.Driving
Licence 5.Identity Card (Subject to banks satisfaction)
6.Letter from recognised public authority
For correct permanent address
1.Telepohone bill 2.Bank account statement 3.EB Bill
4.Letter from recognised authority
5.Ration card
6.Letter from employer (subject to the banks satisfaction)

FUNCTIONS OF BANK
FOR COMPANIES:
1.Certificate of incorporation and MOA & AOA Principal Place
and mailing address of company
2.Resolution of board of directors to open an account and
identification of those who have authority to operate the
account.
3.Power of attorney granted to its Managers, Officers or
employees etc. to transact business on its behalf.
4.PAN allotment letter- Telephone Number- Fax Number
5.Telephone Bill

FUNCTIONS OF BANK
FOR PARTNERSHIP FIRMS
1.Registration certificate if registered Address
2.Partnership deed
3.Power of attorney granted to a partner or employee of the
firm to transact business on its behalf.
4.Any officially valid document identifying the partners and the
persons holding pow4e of attorney and their addresses,
telephone no. of the firm and
5.Telephone bill

FUNCTIONS OF BANK
FOR TRUSTS AND FOUNDATION
1.Certificate of registration, if registered.
2.Power of attorney granted to transact business on its behalf Names and addresses of the founder, the managers/directors
and the beneficiaries
3.An officially valid document to identify the trustees, settlers,
beneficiaries and those holding power of attorney,
founders/managers/directors and their addresses
4.Resolution of the managing body of the
foundation/association Telephone/Fax No.
5.Telephone bill

FUNCTIONS OF BANK
RELAXATION FOR SMALL CUSTOMERS
If a person is unable to produce documents mentioned, a
relaxation is extended if
balance is not exceeding Rs.50000 in all their accounts
not expected to exceed Rs.1 Lac in a year
However the above is subject to introduction by a customer
who have a satisfactory dealing with the bank for a minimum
period of six months and who has been verified of KYC.
RBI has suggested stopping of transaction when it reaches
Rs.40000 and when the turnover reaching Rs.80000/ by
notifying the customer.

FUNCTIONS OF BANK
MONITORING TRANSACTIONS :
Taking the risk profile into account special attention will be paid
to all complex and unusually large transactions and all unusual
patterns which have no apparent economic or visible lawful
purpose. These will be subject to detailed scrutiny.
OBLIGATIONS UNDER AML:
1.Cash Transaction Report: a) All cash transactions of value
more than Rs.10 Lacs or its equivalent in foreign currency
b) all series of transactions which are integrally connected ;put
together exceeds Rs.10 Lacs value
c) all cash transactions counterfeit or forged notes have been
used.
Suspicious Transactions Report: Strict implementation of KYC
guidelines will prevent the money launderers from using the
Banking channels for their money laundering activities.

FUNCTIONS OF BANK
DIFFERENT DEPOSIT PRODUCTS OR SERVICES
Deposits are normally classified as demand and time deposits.
Demand Deposits
1.Payable on demand
2.Low interest rates or no interest
3.It includes current, savings, overdue deposits and unclaimed
deposits
4.Intrerest is paid on half yearly basis in savings account.
Time Deposits
1.Repaid after expiry of the deposit period.
2.High interest rate varying according to the period of deposit
3.Deposits from 7days to 120 months with or without reinvestment
4.Interest is paid on quarterly basis.

FUNCTIONS OF BANK
FEATURES OF DEMAND DEPOSITS:
Current Deposits: Opened for meeting business needs and
hence not entitled for interest
On the contrary for the service rendered Bank will levy per
page fees basing on transactions, cheque leaves used, keeping
of minimum balance etc.
Savings Deposit: To inculcate the savings habit. It is opened by
individuals/trusts etc. Interest is paid as decided by individual
bank. Amount can be withdrawn by the customers by cheque or
withdrawal form. Nomination facility is available. Return of
cheques will invite charges and frequent return of cheques
bank may close the account after giving due notice to the
customer. Number of withdrawals are restricted by each bank
and beyond such limit, the charges will be levied.

FUNCTIONS OF BANK
FEATURES OF TIME DEPOSITS
1.Can be opened by individuals/companies/firms/designated
institutions.
2.Amount is repayable on maturity.(7 days to 120 months)
3.ROI is fixed by individual banks.
4.Deposits can be withdrawn before maturity at a reduced
interest rate.
5.Interest is cumulative on quarterly basis.
6.TDS is to be deducted by Banks, where the interest paid
exceeds Rs.10000 or more in a year.
7.Term deposits are not transferable.
8.If maturity date is a holiday, the deposit will be paid for such
days also along with the contracted date.

FUNCTIONS OF BANK
9.Cash payment of deposit will be made if the total amount with
interest does not exceed Rs.20,000/
10.Term deposits are classified under various schemes
Fixed Deposits (with simple interest payable every 6
months)
Monthly interest deposits
Quarterly interest deposits
Short term deposits (less than one year)
Reinvestment deposits (interest is reinvested)
Recurring Deposit

FUNCTIONS OF BANK
SERVICES TO CUSTOMERS AND INVESTORS
MERCHANT BANKING.
Financial intermediaries who act to transfer capital from those
who own it (investors/bond subscribers) to those who use it
(Corporates / Government)
Assists in selecting or appointing outside technical consultants
in addition to in house technical personnel for preparation of
detailed project report, market survey report, feasibility studies
etc. If the company has already prepared the project the
viability study will be done.
Obtaining regulatory clearances such as RBI, SEBI,
Ministry of Finance, Stock exchanges and ROC.
Printing and timing of IPO
Underwriting of IPO by financial institutions or brokers.

FUNCTIONS OF BANK
Selection and appointment of principal broker and sub brokers
Appointment of registrars for the issue
Appointment of advertising consultants or agencies for publicity
campaign, investor conferences etc
Printing and distribution of prospectus
Making applications to stock exchanges for listing of the security.
LEASE FINANCING
This means leasing out the capital purchase of assets to another
company against monthly rents for assets consumption.
Finance is arranged by lessor
Lessor is entitled to write off a certain amount against taxable
profits

FUNCTIONS OF BANK
.Lessees benefit is that he is not investing any capital
Lease expenses are permitted as revenue expense
PLASTIC MONEY
Cash in bulk cannot be paid
Cheque some times not accepted
Cards are preferred mode.
Moving towards cashless transactions.
CHARGE CARD
Transactions are accumulated and debited to account
Card holder given time of 25 to 50 days
CREDIT CARD
Card holder gets a credit period for payment
No fee is levied if full amount is paid within due date

FUNCTIONS OF BANK
Card holder need not maintain account with the card issuing bank
Credit card pose risk to the issuing bank.
DEBIT CARDS:
Amount due for each and every transaction is debited to the
account immediately.
No credit period involved.
Less or no risk to issuing bank
Suitable for those who like to avoid debt trap
ATM CARDS
Cards issued to savings account holders.
ATM can be at branch or off site.
Debit/Credit cards are used as ATM cards
Need not visit branch for small transactions.

FUNCTIONS OF BANK
ADVANTAGES OF CREDIT CARD SYSTEM
TO CARD HOLDERS

Convenient to carry against wallet

Inculcates financial discipline
Proof of purchase is available
Members can be added on
Additional benefits like insurance cover and discounts
TO MEMBER ESTABLISHMENTS
Increase in sales
Preferred locations by card holders due to acceptance
Can avoid providing of direct credit to customers
Systematic accounting as sale vouchers are routed through
Banking channels.

FUNCTIONS OF BANK

Advertising and promotional support nation wide.

Development of clientele base
Assured and immediate settlement/payment
Avoidance of cost and security related problems involved in
handling cash
TO BANKS

Scope and potential for better profitability

Relationship with new customers.

Additional service to the existing customers

Higher popularity and image of bank

Savings of expenses on cash holding/stationery printing and

manpower etc.

FUNCTIONS OF BANK
BANKERS SPECIAL RELATIONSHIP

Normally the account is operated by the customer himself.

There are occasions the account holder gives authority to somebody else to
operate the account
MANADATE

Authority given by the account holder to a third party to do certain

acts on his behalf.
Customer to inform the banker that he has authorised a person to
operate his account
Signature of the mandatory is obtained and verified by the account
holder in the mandate letter.
Mandate is normally issued for a short term
Mandate is not acceptable from institutions, they have to issue only
power of attorney.
In case of joint account all have to sign the mandate
Mandate ceases when the a/c holders death, insanity,

FUNCTIONS OF BANK
Insolvency and bankruptcy.
Mandate can be withdrawn by the a/c holder at any time.
POWER OF ATTORNEY
Executed by one person called donor (principal in favour of
donee agent) to act on his behalf as per the authority given in the
document.
Two types of P/A are generally granted
General or universal
Special or limited
General P/A to act in more than one transaction
Special or limited given only for specific purpose and normally for
one transaction
General P/A gives power to sign cheque, stop payment, to sign
borrowal documents on behalf of principal

FUNCTIONS OF BANK
It is stamped and executed before notary public/magistrate
P/A holder must sign as
Per pro____________
sd/ Constituted Attorney
Principal can revoke the P/A at any time for future transactions.
P/A stands revoked on the death, insolvency, insanity of principal.
DELEGATION OF POWER:
Holders of a joint a/c want to empower a third party
The authority should be signed by all
Fiduciaries such as executors, administrators and legal guardians
cannot appoint agents.
Attorney cannot delegate his power unless P/A specifically
provides

FUNCTIONS OF BANK
GARNISHEE ORDER
It is a court order obtained by the judgment creditor attaching the funds
belonging to the judgment debtor.
Includes his bank a/c Bank is called garnishee
Bank advised not to release the credit balance
Issued under Indian Civil Procedure Code Order 21 rule 46
Bank attaches the credit balance to the extent specified in the order
nishi is the preliminary proceedings.
The order can only relate to the present balance in the a/c
DOS AND DONTS UNDER GARNISHEE ORDER
Payment of cheque:
If order received after debit to the a/c but before payment of cash, better course is
to refuse payment. If it is received in clearing

FUNCTIONS OF BANK
BANKERS SPECIAL RELATIONSHIP

and the order is received subsequently but before the stipulated

time for returning clearing the cheque should not be paid. If the
amount is transferred to another a/c the same should be
cancelled provided the other customer is not advised of the
same.
Right to set off:
When a bank has a prior right to set off, Bank is not bound by
the order. Where lien is marked on the fixed deposit, it cannot be
attached by order. Court should be intimated about the lien
order vacated. Any amount excess over the lien should be
attached.
Uncleared effects and subsequent credits in a/c: Credits
received subsequent to the order is not attachable.

FUNCTIONS OF BANK
JOINT ACCOUNTS:
If the a/c is joint one (husband, wife, two brothers, mother and
daughter) with the operation clause either or survivor, the a/c
cannot be attached. If the operation is former or survivor the a/c
can be attached.
TRUST ACCOUNT:
Outstanding amount In the trust a/c cannot be attached, if the
judgment debtor has deposited the money as a trustee.
PARTNERSHIP ACCOUNTS:
Personal a/c of the partner can be attached for firms debt,
because partners are jointly and severally liable. Nevertheless
partnership a/c cannot be attached for individual debt.
LIQUIDATION: Order cannot be attached as the money belongs to
liquidator not of the company.

FUNCTIONS OF BANK
BANKERS SPECIAL RELATIONSHIP

When the order does not name the customer correctly or with
sufficient accuracy to enable the bank to identify the account in
the books, bank is not bound to act upon the order.
If customer is having more than one a/c, one is in debit and the
other is in credit, only the net credit will be attached.
Bank cannot adjust the credit balance to the contingent liability
of the customer.
Balance held outside India cannot be attached.
The Order of the ITO may attach
a. any debt due and payable
b. debts due but not payable on the date of oredr
c. any amount received subsequently.

FUNCTIONS OF BANK
BANKERS LIEN:
Lien is the right of the banker to retain possession of the goods
and securities owned by the debtor until the debts due from the
later is cleared.
Bankers lien is an implied pledge.
U/s 171 of the Indian Contract Act 1872 Banker get an absolute
right to retain the goods he comes into possession during the
ordinary course of business.
When a customer inadvertently leaves a packet containing FD
receipts of other Banks, L I Policy, Share certificates in the
Bank premises, Bank cannot hold them as they are not
received in the ordinary course of business.
Where a right can apply?
General lien gives right to bank to sell the debtors properties.

FUNCTIONS OF BANK
Right is exercised on the goods and securities of the customer only.
Right cannot be exercised when the debtor has a joint account.
Where a right cannot apply?
When a customer deposits securities, ornaments and other valuables
for safe custody, Banker acts as a trustee/bailee and cannot exercise
the general lien unless specifically an agreement exists.
Documents/money deposited for specific purpose cannot be taken
under lien.
Articles left negligently in the bank premises cannot be taken under
lien.
Lien can not be exercised against immature debts.
If a customer has stolen the goods of the real owner and delivers it to
bank, lien cannot be exercised as it is not received in normal course
of business.

FUNCTIONS OF BANK
RIGHT OF SET OFF:
Set off is a right of a debtor to take into account a debt owing to him by a
creditor, when claiming a debt due from him to the creditor. Bank can
adjust any amount due from a customer against any money due to him.
Set off is a statutory right.
There should be mutual debts and the debts should be for a certain sum
and the cross claim should be for a certain sum.
For the purpose of set off all the branches of a bank are treated as
single entity.
Set off can be applied only to those debts which are recoverable on the
date of exercising set off.
Indebtedness should arise in the same rights. When the amount in the
customer account is held under trust, the same cannot be adjusted.

FUNCTIONS OF BANK
BANKERS SPECIAL RELATIONSHIP

A deceaseds credit amount and customers debit amount

cannot be combined.
Automatic right to set off arises in the following cases.
Death / insanity / insolvency of a customer.
Receipts of garnishee order
Receipt of notice of assignment of customers credit
balance
Receipt of notice of secured mortgage over the security
charged to bank.
A/c of a sole proprietor and his individual a/c can be combined
A customer does not have a right of set off against various
accounts of various branches.