Professional Documents
Culture Documents
• 1)
• This policy should be applicable
to all commercial banks other
than RRBs including local area
banks. Also, it has contained a
statutory guideline with the
respect to following areas: ---
• 2) For the purpose of this policy, the branch would include all the branches
such as full-fledged branches, satellite offices, specialized branches,
extension counters, mobile branches, administrative offices, off-site ATM,
service branches, etc. In the sense of call centres, it seems to provide only
account/product information to their customer through a telebanking
facility and it doesn’t want to provide banking transaction and direct
interface with their customers. Also, it should not be treated as a branch.
• 3) Domestic scheduled commercial banks other than RRB were permitted to
open branches in tier 1 to tier 6 centres without getting permission from
the Reserve bank of India.
• 4)For the purpose of uniform spatial distribution, banks were motivated to
open branches in underbanked centres, also in underbanked districts of
underbanked states. An underbanked centre would be referred to the
Average Population per Branch Office is more than the national average.
• 5) For the purpose of increasing banking penetration and financial
inclusion, this policy had mandated to open new branches in the unbanked
centres and also atleast 25% of all branches should be opened in a year at
this unbanked rural areas. Because these centres didn’t have any mortar and
brick structure of a scheduled commercial banks for customer based banking
transactions.
• 6)These kinds of branches could get general permission for the opening of
scheduled commercial banks in tier 1 to tier 6 centres across the country in
which these branches were encompassed specialized branches, extension
branches, services branches, central processing centre and all other offices of
the bank. So there was no requirement to approach the RBI for the
authorization purpose.
• 7) These banks would formulates their own annual plan for the financial year,
approved by the RBI as a part of their annual strategy for branch expansion in
which that plan must contain various factors such as the setting up of the low-
cost branches, innovative use of technology, including internet banking and
virtual banking to reduce physical footfalls, improving customer service, etc.
• 8) While opening new branches in various centres, the total number of
branches opened in tier 1 centres during the financial year should not exceed
the total number of branches opened in tier 2 to tier 6 centres during the
financial year.
• 9) Banks had ensured that all the branches opened in that year were in
compliance with the rules specified. In case banks were unable to open new
branches in that year, it could be eligible to open these branches in tier 1
centres for the next subsequent 2 years.
• 10) Banks with some other reasons for unable to open
branches in tier 2 to tier 6 centres or unbanked rural areas, it
would be rectified by way of opening new branches for the
next financial years.
• 11) Banks could open satellite branches where it doesn’t have
viability to open branches in rural areas.
• 12) Banks could also open extension counters for the purpose
limited type of business at the premises of the institutions such
as big offices/factory units/hospitals/military units/educational
institution, etc in which they were principal bankers.
• 13) An annual report of all the branches should be placed
before the bank's board at every year ending March 31st and
also forwarded to the Department of Banking Operations and
Development, RBI, Central office
• It is now a well-established fact that India is one of the fastest-
growing economies of the world. Hence, it didn’t come as a
surprise when India received the highest Foreign Direct Investment
(FDI) till date, from April to September 2020, amounting to a
whopping $500.12 billion. As one might expect, this boom in the
economy has led to the unparalleled growth of existing as well as
new financial institutions in the country. As a matter of fact, as
many as 46 foreign banks are operational in India in 2021.
• The country enjoys two-fold benefits owing to the presence of
these foreign entities; the first being boost in international
transactions, and the second being increased employment
opportunities for qualified nationals. For what they’re worth, the
foreign banks in India have also helped India establish a firmer
international presence while bringing in ease of business on a global
scale for the domestic enterprises
List of the top 10 foreign banks in India & their Headquarters in 2021
• 1. Citi Bank
• Citibank, formerly known as City Bank of New York, is a multinational bank
with its roots in New York (USA) from as early as 1812. Citibank India was
established back in the year 1902, with the objective of offering various
banking, investment, and advisory services, complete with risk management
solutions and transaction facilities. Serving over 25 Lakh customers across the
nation, the bank carries out its operations through as many as 43 branches
and 750 ATMs. With Mr. Ashu Khullar as its CEO, the bank now employs over
7,500 people in India.
• 2. HSBC India
• HSBC Bank India is a subsidiary of the HongKong and Shanghai Banking
Corporation. The Indian subsidiary headquartered in Mumbai offers
numerous services including but not limited to retail banking, personal
banking, debit and Credit Cards, loans, as well as foreign exchange amongst
others. With more than 24 branches across the nation, the bank is well-
known for offering India its first ATM, back in the year 1987.
• 3. Deutsche Bank
• As the name suggests, the Deutsche Bank has its roots in Frankfurt,
Germany. The Indian subsidiary of the bank was established in the year
1980 in the financial capital of the country – Mumbai! Today, the bank
enjoys as many as 17 branches across the country with a respectable
customer base of 5 Lakh. Offering all the elementary banking services, the
bank employs as many as 11,000 people.
• 4. Royal Bank of Scotland (NatWest Markets PLC)
• The Royal Bank of Scotland was established in India in the year 1921 with
the aim of offering a wide array of banking services. The bank, fairing
amongst the best foreign banks in India, currently operates in the country
through its 10 branches, strategically located in the leading metropolitan
cities and offers debt capital market services, financial advisory as well as
foreign exchange services amongst many others. In a recent change, it was
announced that the bank’s Indian subsidiary shall now be known as
NatWest Markets PLC.
• 5. DBS Bank
• Essentially a subsidiary of the Development Bank of Singapore, DBS
was established with the precise objective of encouraging financial
interaction between India and Singapore. Founded in the year 1994,
the bank’s Indian headquarters are located in Mumbai. With as many
as 12 branches in India, DBS Bank offers personal and Business
Banking Services, complete with Wealth Management.
• 6. Barclays Bank
• Enjoying a strong presence in India since the year 1990, the UK based
Barclays PLC employs over 23,000 people in its banking, technology,
and shared services verticals. Headquartered in Mumbai, the bank
has as many as 7 branches across the nation. Some of the leading
services offered by the bank include- Commercial Banking, Loans,
Credit Cards, and Treasury Solutions amongst others.
• 7. Bank of America
• Yet another foreign bank that enjoys its headquarters in the city of Mumbai, the Bank
of America, as the name suggests, finds its origins in the USA. With a total of 5
branches in India, the bank does an excellent job of supporting the international
transactions between India and America. Established back in the year 1964, the bank
has stood the test of time with over 5 decades of offering numerous services to its
patrons.
• 8. Bank of Bahrain and Kuwait
• With its roots in the Middle East, the Bank of Bahrain and Kuwait was founded in the
year 1971, in Bahrain. It was in the year 1986 that the bank was brought to India, in a
bid to serve both –Residents as well as Non-Resident Indians. Today, the bank boasts
of 4 branches in the country, located in Mumbai, Hyderabad, Aluva (Kerala) and New
Delhi.
• 9. Doha Bank
• Established quite recently, in the year 2014, Doha Bank has shown incredible promise.
Originally headquartered in Qatar, the bank enjoys a strong presence in India through
its 3 branches in the cities of Mumbai, Chennai, and Kochi. The bank is known for
offering a wide array of services including Corporate Banking, NRI Banking, Personal
Banking, Loans, Trade Services as well as Foreign Exchange amongst others.
• The RBI guidelines prescribe a policy framework for the ownership and
governance of private-sector banks. Under the BR Act, at present, a
single shareholder cannot exercise voting rights in excess of 15 per cent
of the total voting rights of all the shareholders. The Master Direction on
Ownership in Private Sector Banks, Directions 2016 (Ownership Direction
2016) further sets out caps on shareholding depending on the type of
entity in question. As per the Ownership Directions 2016, ownership
caps on all bank shareholders are ultimately based on categorising
shareholders under two broad categories:
• natural persons (individuals); and
• legal persons (entities or institutions).
• The objective is for a bank to hold broad ownership, and any ownership
above 5 per cent is subject to RBI approval.
• Additionally, no shareholder, irrespective of its shareholding, can have
voting rights in excess of 15 per cent of the total voting rights of all
shareholders.
• Foreign ownership
• Are there any restrictions on foreign ownership of
banks?
• Foreign investments in Indian banks are permissible
from all sources up to the higher limit of 74 per
cent of the bank’s paid-up equity share capital.
• Foreign banks can set up branches and wholly
owned subsidiaries in India.
• Since 30 September 2019, foreign investment in
banks constituted 21.3 per cent of banks’ paid-up
capital.
• Implications and responsibilities
• In the context of shareholders that control banks, other than ensuring
that the regulatory standards are met and that they are ‘fit and
proper’, there are no other specific requirements. A bank’s board of
directors are also regulated by ensuring a ‘fit and proper’ criteria.
• What are the legal and regulatory duties and responsibilities of an
entity or individual that controls a bank?
• From the outset, a bank’s shareholders appoint the bank’s board of
directors. For a bank, the most crucial aspect of corporate
governance is the presence of a professional board of directors that
retains full and effective control, and also monitors the executive
management. A bank’s director constantly has to satisfy the ‘fit and
proper’ criteria to continue in that role in India. The duties and
responsibilities of a board of directors include:
• the fiduciary duty towards the bank;
• the duty to act only within the powers as laid down by
the bank’s memorandum and articles of association;
• by applicable laws and regulations;
• the duty to maintain confidentiality and disclose their
interests in advance;
• the duty to comply with RBI and Indian government
monetary and credit policies;
• the duty to strengthen internal control systems and
proper maintenance of accounts’ books and periodical
reconciliation; and
• the duty to maximise the interests of stakeholders.
• Provisions regarding the winding-up of a banking company
are provided in the BR Act 1949. However, no special legal
provisions regarding the implications that will be faced by
controlling individual or entity in an insolvency scenario of a
bank have been provided.
• Changes in control
• Required approvals
• Prior approval of the RBI, as under the BR Act, is required for:
• shares acquisition or voting rights (to the extent of 5 per cent
or more of the paid-up share capital); and
• fresh shares acquisition or voting rights (in excess of 10 per
cent) by existing shareholders.
• Control is primarily voting arrangements for the purposes of
banking regulations.
• Foreign acquirers
• Yes. Indian regulatory authorities are receptive to foreign acquirers.
However, such acquisition is limited to private-sector banks, as per the
RBI directions on Ownership in Private Sector Banks, Directions 2016.
The acquisition of a shareholding in a private-sector bank is subject to
the extant foreign direct investment (FDI) policy, which states that the
aggregate foreign investment in private sector banks from all sources
(foreign direct investment, foreign institutional investors and non-
resident Indians) shall not exceed 74 per cent of paid-up capital of the
bank, and at all times, at least 26 per cent of the paid-up share capital
of the private sector banks shall be held by resident Indians.
• The requirement of RBI prior approval in the event where the
shareholding of a private-sector bank reaches or exceeds 5 per cent is
applicable to foreign investors as well. Furthermore, as for all other
types of banks and entities, the RBI will assess the ‘fit and proper’
status of foreign investors.
• A foreign bank can establish a branch in India in
accordance with the provisions of Master
Circular on Branch Authorisation dated 1 July
2014, issued by the RBI. As per the circular,
foreign banks are required to bring an assigned
upfront capital of US$25 million at the time of
opening of its first branch in India. Foreign
banks that already have one branch in India are
required to comply with the previous
requirement before their request for opening of
second branch is considered.
• A foreign bank can also open a wholly owned subsidiary in
India on the basis of the Scheme for Setting up of Wholly
Owned Subsidiaries by foreign banks in India released by the
RBI. The minimum paid-up voting equity capital for a wholly
owned subsidiary is 5 billion rupees. The newly set up wholly
owned subsidiary of the foreign bank is required to bring in the
entire amount of initial capital upfront, which should be funded
by free foreign exchange remittance from its parent.
• Further, as per the Consolidated FDI Policy Circular of 2017,
foreign banks are allowed to acquire a maximum of 74 per
cent of the paid-up capital of private bank. Except in regard to
a wholly owned subsidiary of a foreign bank a minimum of 26
per cent of the paid-up capital of a private bank is to be held
by residents.
• Factors considered by authorities
• The factors considered by the RBI for acquisition of control of a bank is
the ‘fit and proper’ test. For acquisition of 5 per cent or more of paid-up
share capital in the bank, the acquirer’s integrity, reputation, track record
in financial matters, compliance with tax laws, records of previous
business conduct, past offences under any legislation designed to protect
members of the public from financial loss due to dishonesty or
malpractice, record of any serious financial misconduct, the source of
fund for acquisition, past records of standards of good corporate
governance in case the body is a body corporate are reviewed by the RBI.
• Filing requirements
• As per the Acquisition Directions 2015, the following forms need to be
filed for acquiring major shareholding in a private sector bank:
• Form A: declaration to be submitted by the applicants intending to acquire
major shareholding in a private sector bank; and
• Form B: annual declaration to be furnished to the bank by all the existing
‘major shareholders’ of private banks.
• Timeframe for approval
• What is the typical time frame for regulatory
approval for both a domestic and a foreign acquirer?
• Section 12B of the BR Act and the Acquisition
Directions 2015 both regulate the acquisition of
share and voting rights of a private sector bank by
foreign and domestic entities alike. The decision of
the RBI on the application made for acquiring such a
stake in the bank shall be taken within a period of 90
days from the date of receipt of the application by the
RBI, provided that in computing the period of 90 days,
the period taken by the applicant for furnishing the
information called for by the RBI shall be excluded.
• The RBI guidelines prescribe a policy framework for the ownership and
governance of private-sector banks. Under the BR Act, at present, a
single shareholder cannot exercise voting rights in excess of 15 per cent
of the total voting rights of all the shareholders. The Master Direction
on Ownership in Private Sector Banks, Directions 2016 (Ownership
Direction 2016) further sets out caps on shareholding depending on the
type of entity in question. As per the Ownership Directions 2016,
ownership caps on all bank shareholders are ultimately based on
categorising shareholders under two broad categories:
• natural persons (individuals); and
• legal persons (entities or institutions).
• The objective is for a bank to hold broad ownership, and any ownership
above 5 per cent is subject to RBI approval.
• Additionally, no shareholder, irrespective of its shareholding, can have
voting rights in excess of 15 per cent of the total voting rights of all
shareholders.
• Foreign ownership
• Foreign investments in Indian banks are permissible from all
sources up to the higher limit of 74 per cent of the bank’s paid-
up equity share capital.
• Foreign banks can set up branches and wholly owned
subsidiaries in India.
• Since 30 September 2019, foreign investment in banks
constituted 21.3 per cent of banks’ paid-up capital.
• Implications and responsibilities
• In the context of shareholders that control banks, other than
ensuring that the regulatory standards are met and that they
are ‘fit and proper’, there are no other specific requirements.
A bank’s board of directors are also regulated by ensuring a
‘fit and proper’ criteria.
• From the outset, a bank’s shareholders appoint the bank’s board of directors.
For a bank, the most crucial aspect of corporate governance is the presence
of a professional board of directors that retains full and effective control,
and also monitors the executive management. A bank’s director constantly
has to satisfy the ‘fit and proper’ criteria to continue in that role in India. The
duties and responsibilities of a board of directors include:
• the fiduciary duty towards the bank;
• the duty to act only within the powers as laid down by the bank’s
memorandum and articles of association;
• by applicable laws and regulations;
• the duty to maintain confidentiality and disclose their interests in advance;
• the duty to comply with RBI and Indian government monetary and credit
policies;
• the duty to strengthen internal control systems and proper maintenance of
accounts’ books and periodical reconciliation; and
• the duty to maximise the interests of stakeholders.
• Provisions regarding the winding-up of a banking company are
provided in the BR Act 1949. However, no special legal
provisions regarding the implications that will be faced by
controlling individual or entity in an insolvency scenario of a
bank have been provided.
• Changes in control
• Required approvals
• Prior approval of the RBI, as under the BR Act, is required for:
• shares acquisition or voting rights (to the extent of 5 per cent or
more of the paid-up share capital); and
• fresh shares acquisition or voting rights (in excess of 10 per cent)
by existing shareholders.
• Control is primarily voting arrangements for the purposes of
banking regulations.
• Under what circumstances can a foreign bank establish
an office and engage in business? For example, can it
establish a branch or must it form or acquire a locally
chartered bank?
• A foreign bank can establish a branch in India in
accordance with the provisions of Master Circular on
Branch Authorisation dated 1 July 2014, issued by the
RBI. As per the circular, foreign banks are required to
bring an assigned upfront capital of US$25 million at the
time of opening of its first branch in India. Foreign banks
that already have one branch in India are required to
comply with the previous requirement before their
request for opening of second branch is considered.
• A foreign bank can also open a wholly owned subsidiary in India
on the basis of the Scheme for Setting up of Wholly Owned
Subsidiaries by foreign banks in India released by the RBI. The
minimum paid-up voting equity capital for a wholly owned
subsidiary is 5 billion rupees. The newly set up wholly owned
subsidiary of the foreign bank is required to bring in the entire
amount of initial capital upfront, which should be funded by
free foreign exchange remittance from its parent.
• Further, as per the Consolidated FDI Policy Circular of 2017,
foreign banks are allowed to acquire a maximum of 74 per cent
of the paid-up capital of private bank. Except in regard to a
wholly owned subsidiary of a foreign bank a minimum of 26 per
cent of the paid-up capital of a private bank is to be held by
residents.
• Factors considered by authorities
• Timeframe for approval
• What is the typical time frame for regulatory approval for both
a domestic and a foreign acquirer?
• Section 12B of the BR Act and the Acquisition Directions 2015
both regulate the acquisition of share and voting rights of a
private sector bank by foreign and domestic entities alike. The
decision of the RBI on the application made for acquiring such a
stake in the bank shall be taken within a period of 90 days from
the date of receipt of the application by the RBI, provided that
in computing the period of 90 days, the period taken by the
applicant for furnishing the information called for by the RBI
shall be excluded.
• Licensing of Banks in India
• For commencing banking business in India, every banking company
is required to obtain a licence from the Reserve Bank of India, under
the provisions of Section 22 of the Banking Regulation Act, 1949. No
company can carry on banking business in India unless it holds a
license issued by the Reserve Bank of India. Every banking company
inexistence on the commencement of this Act, before the expiry of
six months from such commencement, and every other company
before commencing banking business, shall apply in writing to the
Reserve Bank for a license. The Section 22 of the Banking Regulation
Act, 1949 deals with the Licensing of Banking Companies in India.
(Members referred to at 4 to 6 above, will hold office for a period of four years or until
further orders, whichever is earlier.)
• The MPC determines the policy interest rate
required to achieve the inflation target. The
first meeting of the MPC was held on October
3 and 4, 2016 in the run up to the Fourth Bi-
monthly Monetary Policy Statement, 2016-17.
• The Reserve Bank’s Monetary Policy Department
(MPD) assists the MPC in formulating the monetary
policy. Views of key stakeholders in the economy, and
analytical work of the Reserve Bank contribute to the
process for arriving at the decision on the policy repo
rate.
• The Financial Markets Operations Department (FMOD)
operationalises the monetary policy, mainly through
day-to-day liquidity management operations. The
Financial Markets Committee (FMC) meets daily to
review the liquidity conditions so as to ensure that
the operating target of the weighted average call
money rate (WACR) is aligned with the repo rate.
• Before the constitution of the MPC, a Technical
Advisory Committee (TAC) on monetary policy
with experts from monetary economics,
central banking, financial markets and public
finance advised the Reserve Bank on the
stance of monetary policy. However, its role
was only advisory in nature. With the
formation of MPC, the TAC on Monetary Policy
ceased to exist.
• Instruments of Monetary Policy
• There are several direct and indirect instruments that are used for
implementing monetary policy.
• Repo Rate: The (fixed) interest rate at which the Reserve Bank provides
overnight liquidity to banks against the collateral of government and other
approved securities under the liquidity adjustment facility (LAF).
• Reverse Repo Rate: The (fixed) interest rate at which the Reserve Bank
absorbs liquidity, on an overnight basis, from banks against the collateral of
eligible government securities under the LAF.
• Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as
term repo auctions. Progressively, the Reserve Bank has increased the
proportion of liquidity injected under fine-tuning variable rate repo auctions
of range of tenors. The aim of term repo is to help develop the inter-bank
term money market, which in turn can set market based benchmarks for
pricing of loans and deposits, and hence improve transmission of monetary
policy. The Reserve Bank also conducts variable interest rate reverse repo
auctions, as necessitated under the market conditions.
• Marginal Standing Facility (MSF): A facility under which scheduled
commercial banks can borrow additional amount of overnight
money from the Reserve Bank by dipping into their Statutory
Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of
interest. This provides a safety valve against unanticipated
liquidity shocks to the banking system.
• Corridor: The MSF rate and reverse repo rate determine the
corridor for the daily movement in the weighted average call
money rate.
• Bank Rate: It is the rate at which the Reserve Bank is ready to buy
or rediscount bills of exchange or other commercial papers. The
Bank Rate is published under Section 49 of the Reserve Bank of
India Act, 1934. This rate has been aligned to the MSF rate and,
therefore, changes automatically as and when the MSF rate
changes alongside policy repo rate changes.
• Cash Reserve Ratio (CRR): The average daily balance that a bank is
required to maintain with the Reserve Bank as a share of such per cent of
its Net demand and time liabilities (NDTL) that the Reserve Bank may
notify from time to time in the Gazette of India.
• Statutory Liquidity Ratio (SLR): The share of NDTL that a bank is required
to maintain in safe and liquid assets, such as, unencumbered government
securities, cash and gold. Changes in SLR often influence the availability of
resources in the banking system for lending to the private sector.
• Open Market Operations (OMOs): These include both, outright purchase
and sale of government securities, for injection and absorption of durable
liquidity, respectively.
• Market Stabilisation Scheme (MSS): This instrument for monetary
management was introduced in 2004. Surplus liquidity of a more enduring
nature arising from large capital inflows is absorbed through sale of short-
dated government securities and treasury bills. The cash so mobilised is
held in a separate government account with the Reserve Bank.
• Broad Classification of Products Offered by Banks
• The different products in a bank can be broadly classified into:
• Retail Banking.
• Trade Finance.
• Treasury Operations.
• Retail Banking and Trade finance operations are conducted at the
branch level while the wholesale banking operations, which cover
treasury operations, are at the head office or a designated branch.
• Retail Banking:
• Deposits
• Loans, Cash Credit and Overdraft
• Negotiating for Loans and advances
• Remittances
• Book-Keeping (maintaining all accounting records)
• Receiving all kinds of bonds valuable for safe keeping
• Trade Finance:
• Issuing and confirming of letter of credit.
• Drawing, accepting, discounting, buying, selling, collecting of
bills of exchange, promissory notes, drafts, bill of lading and other securities.
• Treasury Operations:
• Buying and selling of bullion, Foreign exchange.
• Acquiring, holding, underwriting and dealing in shares, debentures, etc.
• Purchasing and selling of bonds and securities on behalf of constituents.
• The banks can also act as an agent of the Government or local authority.
They insure, guarantee, underwrite, participate in managing and carrying
out issue of shares, debentures, etc.
• Apart from the above-mentioned functions of the bank, the bank provides a
whole lot of other services like investment counseling for individuals,
short-term funds management and portfolio management for individuals
and companies. It undertakes the inward and outward remittances with
reference to foreign exchange and collection of varied types for the
Government.
• Common Banking Products Available
• Some of common available banking products are explained below:
• 1) Credit Card: Credit Card is “post paid” or “pay later” card that draws from
a credit line-money made available by the card issuer (bank) and gives one a
grace period to pay. If the amount is not paid full by the end of the period,
one is charged interest. A credit card is nothing but a very small card
containing a means of identification, such as a signature and a small photo. It
authorizes the holder to change goods or services to his account, on which
he is billed. The bank receives the bills from the merchants and pays on
behalf of the card holder. These bills are assembled in the bank and the
amount is paid to the bank by the card holder totally or by installments. The
bank charges the customer a small amount for these services. The card
holder need not have to carry money/cash with him when he travels or goes
for purchasing. Credit cards have found wide spread acceptance in the
‘metros’ and big cities. Credit cards are joining popularity for online
payments. The major players in the Credit Card market are the foreign banks
and some big public sector banks like SBI and Bank of Baroda. India at
present has about 10 million credit cards in circulation.
• 2) Debit Cards: Debit Card is a “prepaid” or “pay now” card
with some stored value. Debit Cards quickly debit or
subtract money from one’s savings account, or if one were
taking out cash. Every time a person uses the card, the
merchant who in turn can get the money transferred to his
account from the bank of the buyers, by debiting an exact
amount of purchase from the card. To get a debit card
along with a Personal Identification Number (PIN). When
he makes a purchase, he enters this number on the shop’s
PIN pad. When the card is swiped through the electronic
terminal, it dials the acquiring bank system — either
Master Card or Visa that validates the PIN and finds out
from the issuing bank whether to accept or decline the
transaction.
• The customer never overspread because the amount spent is
debited immediately from the customers account. So, for the
debit card to work, one must already have the money in the
account to cover the transaction. There is no grace period for
a debit card purchase. Some debit cards have monthly or per
transaction fees. Debit Card holder need not carry a bulky
checkbook or large sums of cash when he/she goes at for
shopping. This is a fast and easy way of payment one can get
debit card facility as debit cards use one’s own money at the
time of sale, so they are often easier than credit cards to
obtain. The major limitation of Debit Card is that currently
only some shops in urban areas accepts it. Also, a person
can’t operate it in case the telephone lines are down.
• 3) Automated Teller Machine: The introduction of ATM’s has given the
customers the facility of round the clock banking. The ATM’s are used by banks
for making the customers dealing easier. ATM card is a device that allows
customer who has an ATM card to perform routine banking transaction at any
time without interacting with human teller. It provides exchange services. This
service helps the customer to withdraw money even when the banks ate closed.
This can be done by inserting the card in the ATM and entering the Personal
Identification Number and secret Password.
• ATM’s are currently becoming popular in India that enables the customer to
withdraw their money 24 hours a day and 365 days. It provides the customers
with the ability to withdraw or deposit funds, check account balances, transfer
funds and check statement information. The advantages of ATM’s are many. It
increases existing business and generates new business. It allows the customers.
• To transfer money to and from accounts.
• To view account information.
• To order cash.
• To receive cash.
• Advantages of ATM’s:
• To the Customers
• ATM’s provide 24 hrs., 7 days and 365 days a year service.
• Service is quick and efficient
• Privacy in transaction
• Wider flexibility in place and time of withdrawals.
• The transaction is completely secure — you need to key in Personal
Identification Number (Unique number for every customer).
• To Banks
• Alternative to extend banking hours.
• Crowding at bank counters considerably reduced.
• Alternative to new branches and to reduce operating expenses.
• Relieves bank employees to focus an more analytical and innovative work.
• Increased market penetration.
• 4) E-Cheques: The e-cheques consists five primary facts. They are the
consumers, the merchant, consumer’s bank the merchant’s bank and
the e-mint and the clearing process. This cheaqing system uses the
network services to issue and process payment that emulates real
world chaquing. The payer issue a digital cheaques to the payee ant
the entire transactions are done through internet. Electronic version
of cheaques are issued, received and processed. A typical electronic
cheque transaction takes place in the following manner:
• The customer accesses the merchant server and the merchant server
presents its goods to the customer.
• The consumer selects the goods and purchases them by sending an
e-cheque to the merchant.
• The merchant validates the e-cheque with its bank for payment
authorization.
• The merchant electronically forwards the e-cheque to its bank.
• The merchant’s bank forwards the e-cheque to the clearing
house for cashing.
• The clearing house jointly works with the consumer’s bank
clears the cheque and transfers the money to the merchant’s
banks.
• The merchant’s bank updates the merchant’s account.
• The consumer’s bank updates the consumer’s account with
the withdrawal information.
• The e-chequing is a great boon to big corporate as well as
small retailers. Most major banks accept e-cheques. Thus this
system offers secure means of collecting payments,
transferring value and managing cash flows.
• 5) Electronic Funds Transfer (EFT): Many modern banks have
computerized their cheque handling process with computer networks
and other electronic equipment’s. These banks are dispensing with the
use of paper cheques. The system called electronic fund transfer (EFT)
automatically transfers money from one account to another. This
system facilitates speedier transfer of funds electronically from any
branch to any other branch. In this system the sender and the receiver
of funds may be located in different cities and may even bank with
different banks. Funds transfer within the same city is also permitted.
The scheme has been in operation since February 7, 1996, in India.
The other important type of facility in the EFT system is automated
clearing houses. These are the computer centers that handle the bills
meant for deposits and the bills meant for payment. In big companies
pay is not disbursed by issued cheques or issuing cash. The payment
office directs the computer to credit an employee’s account with the
person’s pay.
• 6) Telebanking: Telebanking refers to banking on phone services.. a
customer can access information about his/her account through a
telephone call and by giving the coded Personal Identification
Number (PIN) to the bank. Telebanking is extensively user friendly
and effective in nature.
• To get a particular work done through the bank, the users may leave
his instructions in the form of message with bank.
• Facility to stop payment on request. One can easily know about
the cheque status.
• Information on the current interest rates.
• Information with regard to foreign exchange rates.
• Request for a DD or pay order.
• DeMat Account related services.
• And other similar services.
• 5) Mobile Banking: A new revolution in the realm of e-banking is
the emergence of mobile banking. On-line banking is now moving
to the mobile world, giving everybody with a mobile phone access
to real-time banking services, regardless of their location. But there
is much more to mobile banking from just on-lie banking. It
provides a new way to pick up information and interact with the
banks to carry out the relevant banking business. The potential of
mobile banking is limitless and is expected to be a big success.
Booking and paying for travel and even tickets is also expected to be
a growth area. According to this system, customer can access
account details on mobile using the Short Messaging System (SMS)
technology where select data is pushed to the mobile device. The
wireless application protocol (WAP) technology, which will allow
user to surf the net on their mobiles to access anything and
everything.
• 6) Internet Banking: Internet banking involves use of internet
for delivery of banking products and services. With
internet banking is now no longer confirmed to the branches
where one has to approach the branch in person, to
withdraw cash or deposits a cheque or request a statement
of accounts. In internet banking, any inquiry or transaction is
processed online without any reference to the branch
(anywhere banking) at any time. The Internet Banking now is
more of a normal rather than an exception due to the fact
that it is the cheapest way of providing banking services. As
indicated by McKinsey Quarterly research, presently
traditional banking costs the banks, more than a dollar per
person, ATM banking costs 27 cents and internet banking
costs below 4 cents approximately. ICICI bank was the first
one to offer Internet Banking in India.
Benefits of Internet Banking:
• Reduce the transaction costs of offering several banking
services and diminishes the need for longer numbers of
expensive brick and mortar branches and staff.
• Increase convenience for customers, since they can
conduct many banking transaction 24 hours a day.
• Increase customer loyalty.
• Improve customer access.
• Attract new customers.
• Easy online application for all accounts, including
personal loans and mortgages
• Financial Transaction on the Internet:
• Electronic Cash: Companies are developing electronic
replicas of all existing payment system: cash, cheque, credit
cards and coins.
• Automatic Payments: Utility companies, loans payments, and
other businesses use on automatic payment system with bills
paid through direct withdrawal from a bank account.
• Direct Deposits: Earnings (or Government payments)
automatically deposited into bank accounts, saving time,
effort and money.
• Stored Value Cards: Prepaid cards for telephone service,
transit fares, highway tolls, laundry service, library fees and
school lunches.
• Point of Sale transactions: Acceptance of ATM/Cheque at retail stores
and restaurants for payment of goods and services. This system has
made functioning of the stock Market very smooth and efficient.
• Cyber Banking: It refers to banking through online services. Banks
with web site “Cyber” branches allowed customers to check balances,
pay bills, transfer funds, and apply for loans on the Internet.
• 9) Demat: Demat is short for de-materialisation of shares. In short,
Demat is a process where at the customer’s request the physical stock
is converted into electronic entries in the depository system. In
January 1998 SEBI (Securities and Exchange Board of India) initiated
DEMAT ACCOUNT System to regulate and to improve stock investing.
As on date, to trade on shares it has become compulsory to have a
share demat account and all trades take place through demat.
• What Is Retail Banking?
• Retail banking, also known as consumer banking or personal
banking, is banking that provides financial services to individual
consumers rather than businesses. Retail banking is a way for
individual consumers to manage their money, have access to
credit, and deposit their money in a secure manner. Services
offered by retail banks include checking and savings accounts,
mortgages, personal loans, credit cards, and certificates of deposit
(CDs).
• KEY TAKEAWAYS
• Retail banking provides financial services to individual consumers
rather than large institutions.
• Services offered include savings and checking accounts,
mortgages, personal loans, debit or credit cards, and certificates
of deposit (CDs).
• Retail banks can be local community banks or the
divisions of large commercial banks.
• In the digital age, many fintech companies can
provide all of the same services as retail banks
through Internet platforms and smartphone
apps.
• While retail banking services are provided to
individuals in the general public, corporate
banking services are only provided to small or
large companies and corporate bodies.
• Understanding Retail Banking
• Many financial services companies aim to be the one-stop-
shop retail banking destination to their individual
consumers. Consumers expect a range of basic services from
retail banks, such as checking accounts, savings accounts,
personal loans, lines of credit, mortgages, debit cards, credit
cards, and CDs.
• Most consumers utilize local branch banking services, which
provide onsite customer service for all of a retail customer's
banking needs. Through local branch locations, financial
representatives provide customer service and financial
advice. Financial representatives are also the lead contact for
underwriting applications related to credit-approved products.
• Though a consumer may not use all of these retail banking
services, the primary service is a checking and savings account
to deposit money. This is a common, secure way for individuals
to store their cash. Furthermore, it allows them the ability to
earn interest on their money. Most savings accounts offer rates
based on the fed funds rate. Checking and savings accounts also
come with a debit card to allow for ease of withdrawal of funds
and payment for goods and services.
• Retail banks are also an important source of credit for
individuals. They offer consumers credit to purchase large-scale
items such as homes and cars. This extension of credit can take
the form of mortgages, auto loans, or credit cards. This
extension of credit is an important facet of the economy as it
provides liquidity to the everyday consumer, which helps the
economy grow.
• One of the biggest trends in retail banking today is the shift to mobile
and online banking. Specifically, banks are adding additional tools
and features, such as the ability to put temporary holds on cards,
view recurring charges, or scanning a fingerprint to log into an
account, in order to retain their existing customers and attract new
customers.
• How a Retail Bank Generates Income
• A retail bank stores the cash deposits of its retail clients. It then uses
these deposits to make loans to other clients. The Federal Reserve
requires that all banks keep 10% of their demand and checking
deposits in-house overnight. This is known as the
reserve requirement and is seen as a safety and liquidity measure.
This means that the remainder of the deposits is allowed to be loaned
out. The banks charge interest rates on these loans at a higher rate
than they pay on customer deposits, which is how banks earn income.
• What is Corporate Banking?
• Corporate banking is a subset of business banking that involves a
range of banking services that are offered only to corporates. The
services include the provision of credit, cash management facilities,
etc.
• Corporate Banking Services
• 1. Credit
• Loans and related credit products are offered to corporate customers.
Credit facilities form the largest share of profits for commercial banks.
The interest rates imposed on the loans are significantly high due to
the amount of risk prevalent in lending to corporate customers.
• 2. Treasury services
• Treasury services are used by companies to manage their working
capital requirements. Such services are extremely important for
multinational companies as they facilitate currency conversion.
• 3. Fixed asset requirement financing
• Fixed asset requirement financing services are important
for corporates involved in capital-intensive industries
such as transportation, information technology, and
heavy machinery manufacturing. Banks facilitate
customized loans and lease agreements for the
purchase of equipment, machinery, etc.
• 4. Employer services
• Commercial banks also provide services such as the
selection of retirement plans and healthcare plans, as
well as payroll facilities, for employees.
• 5. Commercial services
• Banks also provide services such as portfolio analysis, leverage analysis, debt
and equity restructuring, analyses of real assets, etc. Other services that are
of importance to corporate clients include asset management services and
underwriters for initial public offering (IPOs), etc.
• The services are undertaken by the investment banking arm of the
commercial bank. Investment banking and corporate banking were
separated under the provisions of the Glass-Steagall Act.
• Characteristics of Corporate Banking
• 1. Clientele
• A bank’s business banking unit usually serves small to middle-sized
businesses and large conglomerates.
• 2. Authority
• A company’s corporate banking accounts can only be opened after obtaining
consensus from the board of directors of the company. It means that they
must be authorized by an official vote or a corporate resolution. The
company’s treasurer usually opens corporate accounts.
• 3. Liability
• Since companies are recognized as separate legal entities under the law, all
contents of corporate accounts are the property of the company and not of
the individual board members. It means that there is a certain degree of
independence to corporate accounts. It also indicates that the personal
creditors of the board of directors are not entitled to the contents of the
corporate account of a company.
• 4. Credit rating
• The conduct or functioning of the corporate account forms part of the credit
history of the company. It affects the valuation and share prices of the
company, the interest rates applicable to loans extended to the company, etc.
• 5. Bankers
• Corporate banking requires a degree of expertise in the industry. Thus,
corporate bankers are extremely well paid. JP Morgan Chase, Bank of America
Merrill Lynch, and Goldman Sachs are some of the largest commercial banks in
the world.
• Merchant banking is a combination of banking and consultancy
services. It provides consultancy to its clients for financial,
marketing, managerial and legal matters. Consultancy means to
provide advice, guidance and service. It helps a business person to
start a business. It helps to raise (collect) helps finance .It helps to
expand and modernize the business .It help in restructuring of a
business . It helps to review sick business units. It also helps
companies to register, buy and sell share at the stock exchange.
• Definition
• Merchant banking can be defined as a skill-oriented professional
service provided by merchant banks to their clients, concerning
their financial needs, for adequate consideration, in the form of
fee.
• Merchant banks are a specialist in international trade and thus,
excel in transacting with large enterprises
• OBJECTIVES
• Here are some of the objectives of merchant banks:
• Provide funds to companies — this usually includes loans for
startup companies. They decide how much money a company
needs to function through proposals created by these
companies. They also help their clients raise funds through the
stock exchange and other activities. Merchant banks act as a
foundation for small scale companies in terms of their finances.
• Underwriting — this is like insurance where banks sign into
documents that agree to provide financial payment to their
clients in case of any damage or losses. This is very important
for clients to ensure that the bank will help them gain more
income. If not, in case they would incur losses, the bank will
pay them for the losses.
• Manage their portfolios — the bank will look into the
companies’ assets and will do the computation of their credits
and debits to ensure they are not incurring any losses. They
also provide other kinds of services to check on the liquidation
of assets to track the income made by these companies and
study how they can make it better.
• Offering corporate advisory — they offer advises especially to
starting companies and those that would want to expand. This
advice involves financial aid to ensure that the company will
be successful and will not have any problems along the way.
• Managing corporate issues — help incorporate securities
management, they also serve as an intermediary bank in
transferring capitals.
• CHARACTERISTICS OF • QUALITIES OF A GOOD
MERCHANT BANKING MERCHANT BANKERS
• High proportion of decision • Ability to analyse
makers as a percentage of total • Abundant knowledge
staff.
• Ability to built up relationship
• Quick decision process.
• Innovative approach
• High density of information.
• Integrity
• Intense contact with the
environment. • Capital Market facilities
• Loose organizational structure • Liaisoning ability
• Concentration of short and • Cooperation and friendliness
medium term engagements • contacts
• Emphasis on fee and • Attitude toward problem Solving
commission income.
• Innovative instead of repetitive
operations
• Sophisticated services on a
national and international level.
• Low rate of profit distribution.
• Mutual Fund
• A mutual fund is a type of financial vehicle
made up of a pool of money collected from
many investors to invest in securities like
stocks, bonds, money market instruments, and
other assets. Mutual funds are operated by
professional money managers, who allocate
the fund's assets and attempt to produce
capital gains or income for the fund's investors.
A mutual fund's portfolio is structured and
maintained to match the investment objectives
stated in its prospectus.
• Mutual funds give small or individual investors
access to professionally managed portfolios of
equities, bonds, and other securities. Each
shareholder, therefore, participates
proportionally in the gains or losses of the
fund. Mutual funds invest in a vast number of
securities, and performance is usually tracked
as the change in the total market cap of the
fund—derived by the aggregating performance
of the underlying investments.
• KEY TAKEAWAYS
• A mutual fund is a type of investment vehicle consisting
of a portfolio of stocks, bonds, or other securities.
• Mutual funds give small or individual investors access to
diversified, professionally managed portfolios at a low
price.
• Mutual funds are divided into several kinds of
categories, representing the kinds of securities they
invest in, their investment objectives, and the type of
returns they seek.
• Mutual funds charge annual fees (called expense ratios)
and, in some cases, commissions, which can affect their
overall returns.
• The overwhelming majority of money in employer-
sponsored retirement plans goes into mutual funds.
Bank Deposits
• Types Of Deposit and Accounts
• Money and banking are part of everyday life. Banks offer all
sorts of financial products to help you manage your money
on a day-to-day basis. The bank is such a place where once
we deposit money, it remains safe and also earns interest
over some time. This is known as the deposit and to each
deposit, the bank assigns a unique identity which is known
as the account. Each deposit corresponds to a unique
account and vice versa.
• Sometimes we use numbers to uniquely identify an account.
This is what we call the account number. It may also be a
combination of alphanumeric letters. Bank deposits serve
different purposes for different people. Some people
cannot save regularly. They deposit money in the bank only
when they have extra income.
• The purpose of deposit then is to keep money safe for
future needs. Some may want to deposit money in a bank
for as long as possible to earn interest or to accumulate
savings with interest so as to buy a flat, or to meet
hospital expenses in old age, etc. Some, mostly
businessmen, deposit all their income from sales in a bank
account and pay all business expenses out of the deposits.
Types of Deposits
• On the basis of purpose they serve, bank deposit accounts
may be classified as follows:
• Savings Bank Account
• Current Deposit Account
• Fixed Deposit Account
• Recurring Deposit Account
• Let us see all of these in detail now!
Savings Bank Account
• As the name suggests this type of account is suitable for
people who have a definite income and are looking to
save money. For example, the people who get salaries or
the people who work as laborers. This type of account can
be opened with a minimum initial deposit that varies from
bank to bank. Money can be deposited at any time in this
account.
• Withdrawals can be made either by signing a withdrawal
form or by issuing a cheque or by using an ATM card.
Normally banks put some restriction on the number of
withdrawal from this account. Interest is allowed on the
balance of deposit in the account. The rate of interest on
savings bank account varies from bank to bank and also
changes from time to time. A minimum balance has to be
maintained in the account as prescribed by the bank.
• Current Deposit Account
• Big businessmen, companies, and institutions such as schools,
colleges, and hospitals have to make payment through their
bank accounts. Since there are restrictions on the number of
withdrawals from a savings bank account, that type of account
is not suitable for them. They need to have an account from
which withdrawal can be made any number of times.
• Banks open a current account for them. Like a savings bank
account, this account also requires a certain minimum amount
of deposit while opening the account. On this deposit, the bank
does not pay any interest on the balances. Rather the account
holder pays a certain amount each year as an operational charge.
• These accounts also have what we call the overdraft facility. For
the convenience of the accountholders banks also allow
withdrawal of amounts in excess of the balance of the deposit.
This facility is known as an overdraft facility. It is allowed to
some specific customers and up to a certain limit subject to
previous agreement with the bank concerned.
• Fixed Deposit Account
• Some bank customers may like to put away money for a
longer time. Such deposits offer a higher interest rate. If
money is deposited in a savings bank account, banks allow a
lower rate of interest. Therefore, money is deposited in a
fixed deposit account to earn interest at a higher rate.
• This type of deposit account allows the deposit to be made
of an amount for a specified period. This period of deposit
may range from 15 days to three years or more during which
no withdrawal is allowed. However, on request, the
depositor can encash the amount before its maturity. In that
case, banks give lower interest than what was agreed upon.
The interest on a fixed deposit account can be withdrawn at
certain intervals of time. At the end of the period, the deposit
may be withdrawn or renewed for a further period. Banks
also grant a loan on the security of the fixed deposit receipt.
• Recurring Deposit Account
• While opening the account a person has to agree to
deposit a fixed amount once in a month for a certain
period. The total deposit along with the interest
therein is payable on maturity. However, the
depositor can also be allowed to close the account
before its maturity and get back the money along
with the interest till that period.
• The account can be opened by a person individually,
or jointly with another, or by the guardian in the
name of a minor. The rate of interest allowed on the
deposits is higher than that on a savings bank
deposit but lower than the rate allowed on a fixed
deposit for the same period.
• The Recurring Deposit Accounts may be of the following
types:
• Home Safe Account or Money Box Scheme: For regular
savings, the bank provides a safe or box (Gullak) to the
depositor. The safe or box cannot be opened by the
depositor, who can put money in it regularly, which is
collected by the bank’s representative at intervals and the
amount is credited to the depositor’s account. The deposits
carry a nominal rate of interest.
• Cumulative-cum-Sickness deposit Account: A certain fixed
sum is deposited at regular intervals in this account. The
accumulated deposits over time along with interest can be
used for payment of medical expenses, hospital charges, etc.
• Home Construction deposit Scheme/Saving Account: In this
account, we can deposit the money regularly either for the
purchase or construction of a flat or house in future. The rate
of interest offered on the deposit, in this case, is relatively
higher than in other recurring deposit accounts.
What is Nomination for a Bank Account?
• A nomination in banking terms refers to an account holder’s
right to appoint one or more persons who are entitled to
receive the money in case of the death of the account holder.
If there is a nominee the bank will simply transfer the funds
to the nominee/s account without insisting on a court order,
succession certificate or letter of administration.
• Here are a few points to keep in mind when it comes to
nomination:
• 1. Make sure you submit a nominee’s name when you open a
new savings or fixed deposit account in a bank. In fact, today,
most banks insist on a nominee at the time of opening the
account.
• 2. A nomination facility is only available for accounts opened
in an individual capacity (single or joint accounts or sole
proprietorship accounts). They are not available for a
representative account.
• 3. A new nomination can be added by the account
holder during their lifetime. If the account holder has
not made any nomination yet or has cancelled a
nomination, he/she can simply add another
nomination by filling up form DA1. The account
holder’s details, account details and the nominee’s
information have to be filled up in this form. This form
requires details of all account holders.
• 4. A nomination can be cancelled or deleted by the
account owner anytime during their life. The account
holder must fill up form DA2 in order to cancel the
nomination. This form will require details of the
account holder/s, the account, and the name and
address of the nominee who is going to be cancelled.
This form must be signed by all the account holders. To
change the nominee DA3 form can be utilized.
• 5. A minor can be a nominee. In this case, all the details
of the legal guardian (who must be an adult) of the
minor have to be mentioned in the nomination form.
The legal guardian of the nominee will receive the
amount on the minor’s behalf until the minor reaches the
age of maturity.
• 6. One account can only have one nominee.
• 7. A nominee can only receive the funds from an
account on death of the account holder and the death of
all account holders in case of joint accounts.
• 8. In most cases, a nominee is a legal heir of the account
holder. However, it might not be the same in all cases. A
nominee is a ‘trustee’ of the funds of the account
holder. He/she is a custodian of the funds until the legal
heir can legally claim them.
• Deposit insurance or deposit protection is a measure
implemented in many countries to protect bank depositors,
in full or in part, from losses caused by a bank's inability to
pay its debts when due. Deposit insurance systems are one
component of a financial system safety net that promotes
financial stability. India introduced Deposit Insurance in
1962. The Deposit Insurance Corporation commenced
functioning on January 1, 1962 under the aegis of the
Reserve Bank of India (RBI). 1971 witnessed the
establishment of another institution, the Credit Guarantee
Corporation of India Ltd. (CGCI). In 1978, the DIC and the
CGCI were merged to form the
Deposit Insurance and Credit Guarantee Corporation
(DICGC).Deposit insurance was hiked from ₹100,000 (one
lakh rupees, approximately $1,325 as of March 2020) to
₹500,000 (5 lakh rupees, approximately $6,625 as of March
2020) in 2020.
Features of Financial Services
• Financial services are Intangible
• Financial services are customer oriented
• The production and delivery of a service are
simultaneous functions therefor areinseparable
• They are perishable in nature and cannot be
stored
• They are dynamic in nature as a nancial service
varies with the changing requirements of the
customer and the socio-economic environment.
– must bedynamic socio economic changes,
disposable income
• They are proactive in nature and help to visualize the
expectations of the market
• They acts as link between the investor and borrower
• They aid in distribution of risks
• Types of Financial Services
• Capital market Services – It consists of consist of term
lending institutions whichmainly provide long term funds.
• Money market Services – It consists of commercial
banks, financial institutions,co-operative banks which
providing short term funds agencies
• Retail Service – Services provided to individuals for direct
consumption.
• Wholesale Service – Services provided to corporate
institutions which may bedirectly or indirectly converted
into retail services.
• Fund Based Services – It
refers to services that are • Factoring
used to acquire assets or
fundsfor a customer. It • Forfeiting
consists of – • Mutual funds
• – Primary market • Bill discounting
activities • Credit Financing
• – Secondary market • Housing Finance
activities • Venture capital
• – Foreign exchange
activities
• – Specialized Financial
Services
• Important fund based
services include –
• Fee based services – When FInancial
institutions operate in specialised fields to
earn income in form of fees, commission,
brokerage or dividends it is called a Fee
basedService. They include –
• Bank Guarantee
• Letter of Credit
• Debt Restructuring
• Types of Financial Activities
• Fund based Activities –
• Underwriting or investment in shares,
debentures, bonds, etc. of new issues(Primary
Market Activities)
• Dealing in secondary market activities
• Participating in money market instruments eg.
Discounting bills, treasury bills,certicate of
deposit etc.
• Involving in equipment leasing, hire purchase,
venture capitals
• Dealing in foreign exchange activities
• Fee based Activities –
• Managing the capital issue in accordance with
SEBI guidelines enabling promotersto market
their issue
• Making arrangements for placement of capital
and debt instruments withinvestment
institutions
• Arrangement of funds from nancial institutions
for clients project cost or workingcapital
• Assisting in getting all Government and other
clearances
What Is a Credit Monitoring Service?
• A credit monitoring service tracks changes in
borrower behavior to notify consumers of
potential fraud, as well as changes to their
creditworthiness. For example, credit
monitoring services can guard against identity
theft, when an individual's personal
information is stolen and used without the
person's permission for nefarious purposes. If a
credit card is stolen and used, a credit
monitoring service should detect the different
buying patterns and alert the credit card
account holder.
How Credit Monitoring Works
• Although consumers primarily use credit
monitoring services to guard against identity theft,
a credit monitoring service also tracks a
consumer’s credit report and credit scores.
Criminal activity related to identity theft can range
from illegal purchases at retail or online outlets
using a stolen credit card number to filing
fake Social Security or Medicare claims. Since
thieves use this information without the victim’s
knowledge, such criminal activity can be difficult to
detect until well after the fact, by which time an
individual’s credit could be utterly destroyed.
• KEY TAKEAWAYS
• A credit monitoring service guards against
identity theft.
• Credit monitoring services also track changes
in borrower behavior to notify consumers of
potential fraud.
• Without credit monitoring services, if an
individual's personal information is
compromised and used without their
knowledge, their ability to access credit could
be destroyed.
• The best credit monitoring services notify consumers of
changes to their credit activity; for example, if a new
account has been opened or if a large purchase is made,
such as a car. Some credit monitoring services also offer
more comprehensive tracking of credit scores, which
keeps consumers up to date on the quality of their
credit. Fraudsters use social engineering techniques to
obtain the personal information of individuals with which
to commit identity theft. These techniques include
phishing, cat fishing, tailgating, and baiting.
• This type of monitoring allows the account holder to plan
ahead and repair any issues that might inhibit major
credit-based activities, such as applying for an automobile
loan or a mortgage.
• The top three credit monitoring services for
2019 were Privacy Guard, Credit Karma, and
Identify Force.
• Special Considerations
Choosing Credit Monitoring Services
• Pricing and features vary from service to
service. Some financial institutions offer free
services that track credit scores on a limited
basis, while other paid services offer more
comprehensive scans that collect data across
the internet on a consumer’s bank account,
credit card, or Social Security number. When
choosing a credit monitoring service, consumers
should note the service limitations.
• Paid services may offer more comprehensive
coverage than free services, but a higher cost
does not automatically translate to superior
services. While many services offer access to a
consumer’s credit score, they may not track
that score across all providers. For example,
some credit card issuers provide free access to
a consumer’s credit scores, which means there
is no need to pay a second provider for that
service.
• While credit monitoring services can provide
early warnings of identity theft or fraud, for the
most part, such warning occurs after the fact.
These services work best as part of a broader
strategy to protect and monitor personal
information. In particular, consumers should
be vigilant before disseminating important
personal information including Social Security
numbers, bank account numbers, and credit
card numbers
• In many cases, an awareness of the
social engineering techniques used by
criminals to obtain such information can
provide substantial protection against
identity theft. Checking the accuracy of credit
card statements and
reliable credit monitoring services offer a
useful second line of defense.
Money Remittance Services
• Remittances are a growing and an important area for India Post. India Post
offers various remittance services to meet the demands of various
sections of the society. The India Post has introduced web-enabled
remittances tremittance services of India Post are available for both
domestic and international locations.
• offer faster services.
• Here are the remittance services offered by India Post:
Money Order
• This is a domestic money transfer facility through post office. Money send
through money order is paid at the door-step of the payee and this
service is available in all post offices . Maximum amount which can be
remitted through a single money order is Rs.5000/-. Remitter can pay the
amount in cash or Cheque at the booking office and the charges for the
service is 5% of the value of money to be transmitted. Remitter gets
acknowledgement signed by the Payee. There is a provision for sending
short communication also along with the money order.
Electronic Money Order
• Introduced on 10.10.2008. eMO system aims to simplify
the transmission process of money orders by ensuring
quick and secure electronic transmission. Time taken for
Transmission is very less & amount is paid within a day
of booking . the amount of money order is paid in cash at
the door step of the payee. Facility for remitting money
from one to one, one to many and many to one is
available under this service. eMO can be booked at
authorized PO's, but paid through all delivery POs in the
country. commission for eMO is same as applicable to
money order. The eMOs can be tracked through Indiapost
website.
Instant Money Order
• India Post provides instant Money Order service, which is
Instant, Safe, Reliable & Convenient. Amount from
Rs.1000/- to Rs.50000/- can be remitted through designated
iMO Post Offices. It is an instant web based money transfer
service. Remitter has to fill-up prescribed form & should
produce valid photo identity. Money Order Commission
varies based on the amount of remittance. There are 33
standard messages for selection by the remitter. Payee has to
visit the post office, fill up the prescribed form and produce
the identity proof to receive the money. Amount received can
also be credited to the savings bank account of the payee.
MO Videsh
• This is an international remittance service offered
by Indiapost to most foreign destinations.
Outward remittance is payable to beneficiaries by
crediting the payment to the bank account of
beneficiaries in the destination countries. Each
outward remittance shall not exceed 5000 USD &
maximum 12 outward remittances are allowed in a
year. This facility is available in all computerized
post offices. The commission for MO Videsh vary
with the amount to be transferred.
International Money Transfer Service
• Indiapost is also offering inward international money transfer
through collaboration with western union money transfer and
Money gram. The service is safe, fast & reliable. It is a quick and
easy way of transferring personal remittance from abroad to
beneficiaries in India. Money can be received from 195
countries through identified post offices. Recipients can receive
money in minutes after the remitter remits money. A maximum of
2500 USD can be received at a time. 12 transactions can be
received by a single beneficiary in a calendar year. Amount up to
Rs.50000/- in cash and more than that in Cheque or credited to
savings accounts in PO. Recipient to provide sufficient information
to establish his identity and proof of residence. The facility for
receipt of WUMT is available in 7212 Post Offices and money
gram facility is available in 500 post offices.
Electronic Clearance Services (ECS)
• ECS scheme provides alternative method for bulk
payment, payment of interest/salary/pension/dividend.
The scheme was introduced on 9th August 2003. ECS is
offered by India Post in c/w payment of monthly
interest in Monthly Income Scheme. Under ECS,
depositors of MIS accounts get their interest
automatically transferred and credited into their
accounts on due dates at designated Bank of their
choice. Currently the service is available in the
Department of Posts 15 RBI locations and 21 SBI
locations.
Customer finance
• Features
• Loans up to ₹ 15 lakhs - From televisions to smartphones, from
furniture to washing machines– buy products on easy EMIs across
several partner stores. Click here for store list.
• Choose your own payback period - Choose the payment period that
you are most comfortable with. You can divide your purchases into
easy EMIs with terms ranging from six months to 24 months (6, 8, 9,
10, 12, 18, 24 months available).
• Instant loan approvals - It’s very simple – provide your basic details to
our representative at the nearest partner store, receive an instant
loan approval, and the product you liked is yours!
• Minimal documentation - All you need is a PAN, KYC (ID and address
proof), NACH (National Automated Clearing House) Form and a
cancelled cheque – and that’s it! Click here to check the documents
required.
• Minimal processing fees - For most of the products that we offer
EMIs for, there are minimal or no processing fees. You just pay for
your purchase, divided into monthly EMIs, wherever processing fee
is not applicable.
• Minimal down payment - For most products that we offer on EMI,
there are various down payment schemes available including nil
down payment option.
• Pre-approved offers - Once you are our customer, you receive the
advantage of exclusive, pre-approved offers from us periodically,
subject to meeting the credit norms.
• Clear and transparent policy - We are absolutely committed to
clarity, accuracy, and transparency, with no room for errors or
misunderstandings. Our representatives will ensure that you are
well aware of all the details related to your loan.
• Appliances covered under the • Inverters and batteries
consumer-finance scheme • Air fryers
• Air conditioners • Air coolers
• Microwaves • Geysers
• Cameras • Domestic flour machines
• LEDs / LCDs / Plasma TVs • And many more
• Washing machines • Digital products covered
• Home theatres under the consumer-finance
• Refrigerators scheme
• RO water purifiers • Android phones
• Chimneys • Android notes
• Dishwashers • Android tabs
• Oil heaters • Laptops
• Vacuum cleaners • Apple iPhones
• HOB / Stoves • Apple iPads
• Audio / Video players • Mac books
• Lifestyle products covered under the consumer-
finance scheme
• Furniture / Furnishing
• A credit card is a payment card issued to users
(cardholders) to enable the cardholder to pay a
merchant for goods and services based on the
cardholder's promise to the card issuer to pay
them for the amounts plus the other agreed
charges. The card issuer (usually a bank) creates
a revolving account and grants a line of credit to
the cardholder, from which the cardholder can
borrow money for payment to a merchant or as a
cash advance.
• A credit card is different from a charge card, which requires
the balance to be repaid in full each month or at the end of
each statement cycle. In contrast, credit cards allow the
consumers to build a continuing balance of debt, subject to
interest being charged. A credit card also differs from a
cash card, which can be used like currency by the owner of
the card. A credit card differs from a charge card also in that a
credit card typically involves a third-party entity that pays the
seller and is reimbursed by the buyer, whereas a charge card
simply defers payment by the buyer until a later date. In 2019,
there were 1.5 billion credit cards in circulation in the U.S.
Banker
• The term banking may define as accepting of deposit of
money from the public for the purpose of lending or
investing investment of that money which are repayable on
demand or otherwise and with a draw by cheque, draft or
order.
• Features of Banking
• The definition of banking describes the following features
of banking.
– A banking company must perform both of the essential
functions.
– Accepting of deposit.
• Lending or investing the same: The phrase deposit of
money from the public is significant. The bankers accept a
deposit of money and not of anything else. The world
public implies that a banker accepts a deposit from
anyone who offers his/her money from such purpose.
• The definition also implies the time and made to
withdraw the deposit. The deposit money should be
repayable to the depositor on demand made by the
letter or according to the agreement reached between
the two parties.
• Customer
• A person who has a bank account in his name and for
whom the banker undertakes to provide the facilities
as a banker is considered to be a customer.
• To constitute a customer the following requirements
must be fulfilled;
• The bank account may be savings, current or fixed
deposit must be operated in his name by making a
necessary deposit of money.
• The dealing between the banker and customer must
be of the nature of the banking business. The general
relationship between banker and customer:
Types of the Relationship between Banker and Customer
• Thanks
Management of NPAs: Securitization
NPAs, simply defined, are those loans and advances in respect of which interest and/or
principal installment have not been paid for 180 days from the due date. From April 1,
2004, however, any loan on which interest or principal installment is not paid for more
than 90 days would be reckoned as NPA. The banking system is, therefore, sure to see a
swelling NPA portfolio in the coming years. This poses a serious liquidity and credit risk
on the banking system, which unless managed effectively would jeopardize the same.
• Thus, to prevent the collapse of the whole system due to non-payment of loans by the borrowers,
there ought to be some mechanism in place. Two major steps were taken in this regard -
• 1. The RBI directed the banks to maintain compulsory provisions for different types of NPAs;
2. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 was enacted.
• The SARFAESI Act allowed the banks and financial institutions to take possession of the collateral
security given by the defaulting borrowers and sell these assets without having to go through
protracted legal procedures.
• 2. Securitization
Securitization is the process of conversion of existing assets or future cash flows into marketable
securities. For the purpose of distinction, the conversion of existing assets into marketable
securities is known as asset-backed securitization and the conversion of future cash flows into
marketable securities is known as future-flows securitization.
• A typical securitization transaction consists of the following steps: -
• • Creation of a special purpose vehicle (SPV) to hold the financial assets underlying the securities;
• Sale of the financial assets by the originator or holder of the assets to the SPV, which will hold the
assets and realize the assets;
• Issuance of securities by the SPV, to investors, against the financial assets held by it.
• The purpose of the Securitization Act is to promote the setting up of asset reconstruction /
securitization companies to take over the Non Performing Assets (NPA) accumulated with the
banks and public financial institutions. The Act provides special powers to lenders and
securitization / asset reconstruction companies, to enable them to take over of assets of borrowers
without first resorting to courts.
• The Act was welcomed by the banking community, but resisted by the borrower community. The
validity was challenged in various courts on the ground that it was predominantly in favor of
lenders. Hence, lenders were unable to enforce the provisions in full. But the crux of the issue was
whether the Act would be an effective tool to make a drastic difference to the NPA menace.
• 3. Securitization - Relevance to the Banking Sector
Other than freeing up the blocked assets of banks, securitization can transform banking in
other ways as well.
• The growth in credit off take of banks has been the second highest in the last 55 years.
But at the same time the incremental credit deposit ratio for the past one-year has been
greater than one. Thus, for every Rs 100 worth of deposit coming into the system more
than Rs 100 is being disbursed as credit. The growth of credit off take though has not
been matched with a growth in deposits. So, the mismatch between the credit given
and the funds received creates an issue of proper management of increased credit off-
take.
• One of the measures adopted by the banks to cater to this credit boom is by selling their
investments in government securities and giving the amount raised as loans. But there is
a limit to such credit funding due to minimum SLR requirements of 25% in government
and semi government securities.
• As a result of selling government paper to fund credit off take their investment in
government paper has been declining. Once the banks reach this level of 25 per
cent, they cannot sell any more government securities to generate liquidity. And
given the pace of credit off take, some banks could reach this level very fast. So
banks, in order to keep giving credit, need to ensure that more deposits keep
coming in.
• One option is to increase interest rates. Another alternative is Securitization.
Banks can securitize the loans they have given out and use the money brought in
by this to give out more credit. A. K. Purwar, Chairman of State Bank of India, in a
recent interview to a business daily remarked that bank might securitize some of its
loans to generate funds to keep supporting the high credit off take instead of raising
interest rates.
• Securitization also helps banks to sell off their NPAs to asset reconstruction companies
(ARCs). ARCs, which are typically publicly / government owned, act as debt aggregators and
are engaged in acquiring bad loans from the banks at a discounted price, thereby helping
banks to focus on core activities. On acquiring bad loans ARCs restructure them and sell
them to other investors as 'Pass Through Certificates' (PTCs), thereby freeing the banking
system to focus on normal banking activities.
• 4. Managing NPAs through Securitization - Facilitating Banks
An interesting shift is noticed in the case of private sector banks. It is common knowledge that
these banks have been notably driving the retail banking revolution in the country in the
last few years. The Supreme Court verdict would help these banks in a limited manner in
respect of their corporate NPAs.
• However, in case of defaults by retail borrowers, the banks would have to weigh the costs
and benefits of tracing each delinquent retail borrower, seizing his assets and trying to sell
them off to realize the dues. The lenders may prefer to create homogeneous pools of these
assets and securitize them with an asset reconstruction company (ARC) instead.
• Security is something of value given to a lender by a
borrower to support his or her intention to repay.
• In the case of a mortgage, the security is the property that
the loan is being used to purchase.
• Oxford Dictionary of Finance and Banking defines security
as “an asset or assets to which a lender can have recourse
if the borrower defaults on any loan repayments”.
• Hence security is what the borrower puts up to guarantee
repayment of the loan. It may include tangible, intangible
assets or even a personal guarantee.
Types of Securities for Bank Credit
• Personal Security
• Personal security refers to the guarantee given by the borrower or
by a third party in the lead of pledging a tangible asset.
• Since advancing loan against personal guarantee is very risky banks
rarely grant a loan against such security unless the borrower has a
special and long relationship with the bank.
• The character, integrity, financial solvency, and social status are
important factors that are looked into before sanctioning of loan
against personal security.
• Non-personal Security
• Non-personal security refers to movable and immovable tangible properties against
which loans are granted. This type of security may include land, building, commodities
etc.
• Non-personal security is safer than personal security.
• In case the borrower defaults a tangible property can be sold in the market to realize the
unpaid amount.
• Non-personal security can be charged in the Conn of lien, pledge, mortgage,
hypothecation, or assignment.
• Collateral Security
• When the lender feels the security provided by the borrower is not sufficient or it may
be difficult to recover the dues smoothly, the lender may ask for additional security to
be provided by the borrower himself or by others on behalf of the borrower.
• In case of any default by the borrower, the collateral securities will come in hand to
service and recover the loan.
Features of Good Security/ Canons of a Good Banking Security/ Conditions for
Acceptable Securities
• While accepting securities bankers need to consider certain factors.
Otherwise, the odds of getting the loan repaid will be very little and the
security will not serve the intended purpose.
• These factors are considered to be the essentials of an acceptable security.
• Types of Security for Bank Credit In the case of Non-personal Security
• Acceptability
• Asset accepted as security must be acceptable in the eyes of the law. Any
asset considered illegal to own or possess will put the bank in difficulty at
the time of disposing of.
• Moreover, the bank may face legal consequences for possession of illegal
items.
• Marketability
• The security must have a ready market. The bank has not taken
the asset to keep it in its possession for an indefinite period but
rather to sell it in the market and realize the loan amount.
• Hence, no matter how valuable the asset maybe it is of no use if
it does not have a broad market.
• Liquidity
• Liquidity refers to how quickly an asset can be converted into
cash or other assets with little or no diminution in value.
• Ideally, a security should be liquid which will enable the banker to
sell l he properly at a known price as soon as the default occurs.
• Ownership
• Before accepting a security the banker must ensure the ownership of the
property. An asset which is not owned by the lender may render difficulty
in getting the loan repaid.
• Moreover, if the title of the property is defective the lender may face the
problem.
• Adequacy
• The value of the security must be adequate to cover the full amount of
the loan. Moreover, a reasonable margin over the (loan is to be maintained.
• The margin is the difference between the market value of the security
offered and the loan granted.
• Stability of Price
• The price of the goods and commodities which are necessaries of life are
relatively stable over a short period, though not necessarily over a long
period.
• But wide variations in the prices of luxury goods take place due to changes
in demand, fashions, and tastes of the people.
• Bankers are generally reluctant to accept the commodities the prices of
which are uncertain and fluctuate too widely and frequently.
• Documentation
• The banker should see that proper documents such as a mortgage deed
or the pledge agreement containing all terms and conditions of the
mortgage or pledge are executed. This should be done in order to avoid all
future disputes.
• Non-encumbrance
• A property or asset which has already been charged against a prior loan
from some other lender should be avoided as a security.
• Because in that case, the banker will have a secondary claim on that
particular security.
• Possession
• Mere ownership of an asset without its possession may lead to unwanted
circumstances for the banker.
• Unless the property is considered as a security is in the possession of the
borrower (though he is the owner) that property should not be accepted as
a security.
• If goods are taken as security the banker should take the possession
before advancing the loan.
• Quality
• If a commodity has been used as a security it should be of good quality. A commodity
which is perishable and may deteriorate in quality or quantity with the passage of time
should not be accepted as security.
• Free from disabilities
• A banker should disqualify securities crippled with certain disabilities like partly paid up
shares, life insurance policy without surrender value and so on. He should see before
accepting that the security is free from such disabilities.
• Meld generating security
• An asset which generates earnings during the period in which the loan is outstanding is
a better security than those which do not and are preferred by the bankers.’
• Easy store ability and low maintenance cost
• A security should not create a headache or be a burden for the banker. It must be easy to
store with low maintenance cost.
• Types of Security for Bank Credit In case of Personal Security
• Financial Ability
• The banker must inquire into the financial condition of the guarantor.
• If the guarantor does not have the financial solvency to repay the loan in case the
principal debtor defaults the existence of a guarantee will be futile.
• Honesty
• The ability of the guarantor to repay the loan is of use only if the guarantor also
has the willingness and integrity.
• So in addition to the financial solvency of the surety, his honesty is of immense
importance in case of personal guarantee.
• Social status
• The social status of the borrower and that of the guarantor must be ensured
before granting a loan.
• A person who holds esteemed kudos in the society is more likely to be conscious
about fulfilling his promises.
• Thanks