Banking System
Prof.B.B. Bhattacharyya
Welingkar Institute of Management
Development & Research
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QUESTIONS
1. How would you define Bank ?
2. What is a Banks role and importance for an
economy ?
3. What is a legal relationship between a Bank
and its customers ?
4. What is P2P Lending ?
5. What is Capital Adequacy Ratio?
6. What is KYC ? Why Banks need to follow KYC
Rules ?
7. What is Marginal Cost of Lending?
8. What do you understand by Liquidity Risk for
Banks?
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Questions
9. What is Capital Account Convertibility?
10. What is differentiated Bank?
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DEVELOPMENT & RESEARCH
Money lending activity in India dates back
to Vedic Age 2000 to 1400 B.C.
Professional Banking 500 B.C.
Kautilyas Arthashastra
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First Presidency Bank Bank of Bengal,
June 2, [Link] Rs.50 lakh
Second Presidency Bank Bank of
Bombay, 1840..Capital Rs.52 lakh
New Bank of Bombay, Jan 1868
Third Presidency Bank Bank of Madras,
July 1843..Capital Rs.30 lakh
1906-1913 Expansion of Commercial
banks
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1913 Total Banks 56
Presidency 3
Class A 18
Class B 23
Exchange Banks 12
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Failure of banks Post World War
Low Capital
Low Liquidity
Speculation
Presidency Banks Imperial Bank
1930 1258 banking companies under
Companies Act, 1913
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1947 1969
1967 1991
1991 onwards
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DEVELOPMENT & RESEARCH
What is banking?
The accepting for the purpose of lending and
investment, of deposits from the public,
repayable on demand or otherwise and
withdrawal by cheque, draft or otherwise.
Banking essentially covers
Acceptance of deposits from public repayable on
demand or otherwise and withdrawable by cheque, draft
or otherwise.
Utilise the deposits for lending or investment.
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DEVELOPMENT & RESEARCH
Banks also engage in
Remittances
Issuing letters of credit & guarantees
Collection of cheques, bills of exchange
Discounting and purchase of bills
Sales and purchase of foreign exchange
Offering custodial services and investment
services
Hiring out safe deposit lockers
Selling of Third Party Products
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Subsidiaries
Banks may form subsidiaries after getting
prior approval of regulator for:
Undertaking any business permitted for a
banking company.
Conducting such business as may be conducive
in spreading banking.
Transacting leasing business, HP business,
factoring services or investing in shares of
equipment leasing companies.
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Who is a Customer ?
Not defined in any Act.
Judicial pronouncement
Is a person who has an account irrespective of
debit or credit balance.
Can be a person or a legal entity.
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Relationship
Debtor-Creditor or vice versa
Depositor an unsecured creditor.
Customer must raise a demand.
Within normal business hours.
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Relationship
Trustee-Beneficiary eg. Managing
properties of customers.
Agent-Principal eg. Sale purchase of
securities/shares on behalf of customer
Bailee Bailor eg. Safe Custody
Lessor-Lessee eg. Safe deposit vault
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Obligation of a Banker
Obligation to honour cheques subject to
conditions.
Maintain secrecy about customers
account.
Liability for embezzlement by employee.
Obliged to provide service
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Bankers Rights
Right of general lien implied pledge
Right of set off
Right of Appropriation
Right to charge interest, service charges,
etc..
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Termination of Relationship
When customer closes the account
When bank closes the account
When bank has express knowledge of
death of customer
When bank has express knowledge of
lunacy /bankruptcy of the customer.
Not affected by reason of
Arrest of the customer
Imprisonment of the customer
Migration of customer to any foreign country.
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DEVELOPMENT & RESEARCH
Different Types of Bank
Customers
Individual
Illiterate person/ Lunatics
Firms
Companies
Trusts
Clubs
Co-operative Societies
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Banking Services
Basic Services Expanded Services
Savings/Current A/Cs Cash Management
Commercial Loans Credit/Debit Cards
Foreign Exchange Consumer loans
Miscellaneous
Priority Sector Advances
Non-Fund based
Derivatives
E-banking
Mutual Funds
Trade Finance
Leasing
Others
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Overview of Banks Divisions:
Bank
Wholesale Retail Banking Treasury
Banking
Audit
Financial Credit & Market Risk
Control
Support & Control Functions
Operations Human Resources & Admin. Information Technology
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Retail Liabilities
Savings A/C
Current A/C
Fixed Deposits
Recurring Deposits
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Retail Assets
Cash Credit
Overdraft
Demand Loan
Bills Purchase /Discount
Term Loan
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Payment and Settlement
System
RTGS
NEFT
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RTGS
Transfer of money from one bank to
another on real time and on gross
basis.
Settlement facility in the books of central
bank on a real time basis.
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NEFT
Facilitates transfer of funds from any bank
branch to any other bank branch.
Major Clearing System for all retail
electronic payments.
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DEVELOPMENT & RESEARCH
ECS
A retail payment system used to make bulk
payments / receipts of a similar and repetitive
nature.
ECS credit company make payments to a
number of recipients by direct credit to their bank
accounts e.g. payment of dividend / interest /
salary
ECS debit used by utility compense to receive
bill payment directly from accounts of customers.
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THANK YOU !!!!
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