Financial Services

• Types of banks in India – their services Acceptance of deposits

• Banks’ obligations to various stake holders

• Bank lending activities – fund based and non fund based lending

• Fee based services of banks

Types of banks in India:1. Body corporate constituted special

statutes2. Company registered under Companies

act, 19563. Cooperative societies registered under

Cooperative societies ActPublic Sector Banks:• All nationalised banks• State Bank of India• Regional Rural Banks

• 88 scheduled commercial banks in India• 29 private sector banks• 31 foreign banks• No of bank branches – 53000• No of ATMs 17000

Public sector banks: banking companies( acquisition and transfer of undertakings act 1970 and 1980)

Regional rural banks act, 1974 Banking companies: A banking company is a company which transacts the business of banking ( section 5(e) of the banking regulation act 1949). Such company may be a company under 3 of Companies act or a foreign bank within the meaning of section 591 of companies act

e

Cooperative banks: is a cooperative society regd either under the central Act, multi-Units cooperative societies act or under a State act governing co operative societies

governed by: a) the banking laws( application to cooperative societies) act

b) provisions of Bkg Reg act 1949 c) provisions of RBI act 1934

Reserve Bank of India act, 1934: 1) to regulate issue of bank notes 2) for keeping and managing the reserves for

securing monetary stability 3) to operate the currency and credit ststem in

the country

RBI act deals with the following:• Incorporation, capital management and

business of banks• Issue and management of bank notes • Managing foreign exchange business of banks• Collection and furnishing of credit information• Financial supervision of banks• Regulating acceptance of deposits by NBFCs• Audit and supervision of banks in IndiaPowers of RBI:• Power to licence• Appointment and removal of banking boards

and personnel• Power to regulate the business of banks• Power to give directions

• Power to inspect and supervise the banks• Powers regarding moratorium, amalgamation

and winding up• Power to impose penaltiesServices rendered by banks in India:Section 6 of banking Regulation Act 1949 lays down

the types of business banking companies may undertake

a) Acceptance of depositsb) Granting of loans and advances c) Discounting of bills and promissory notes In addition to these banks engage themselves

in a variety of activities under two groups1. Agency services2. Miscellaneous or general utility services

Agency services:Buying and selling stock exchange securities on behalf of customersExecuting standing instructionsCollection of interest and dividends on stocks and shares ( on securities left with banks for that purpose)Collection of rents or other dues on behalf of customersCollection of cheques, drafts and billsOffering remittance facilitiesActing as trustees, executors and attorneys

General utility services:• Providing specialised services to customers• Renting out lockers, accepting securities, deeds

and other valuables for safe custody• Underwriting loans floated by Governments,

quasi Government bodies, public bodies• Dealing in foreign exchange• Serving as referees as to the financial

standing , business reputation an respectability of their customers

• Issuing letters of credit, travellers cheques• Note exchange and refund as per Note refund

rules of RBI• Collection of various bills and utilities such as

telephone bills, electricity bills, water bills and so on

• Merchant banking services

Trustees:A trustee is a person in whose care the control of an estate generally by a deceased person under a will or trust deed is placedTrustees have no individual powers. They cannot delegate their authority to any other person even to one of their own co-trustees

Executors:Executor is one to whom execution of a trust is entrusted by a testatorBanks have to take extreme care in the matter of opening accounts in the name of executors and administrators. Accounts can be opened in the personal names of the executors/administrators with the addition of the words’ executors/administrators to the estate of …….’’

Bank’s obligations to various stake holders:Debtor – creditor relationship: relative rights and obligationsTrustee-beneficiary relationship: Banks when called upon to act as trustees have to act as such( when a customer asks a bank debit or credit his account for a particular purpose, and the bankers takes upon himself that role, he is said to act as a trustee Section 31 of Negotiable instruments act, 1881 banks are under obligation to honour the customer’s cheques subject to certain conditionsSection 10 of NI act casts responsibility on the part of banks to make payment in due course( what is payment in due course?)

• Section 131 of NI act gives protection to collecting banker only if collection is made in good faith and without negligence

• Bankers should refrain from making payment with material alterations

• Banks duty while returning the customers’ cheques( section 138 to 142)

- payee to give notice within 30 days of receiving information of dishonour on account of insufficiency of funds

- drawer of the cheque can make payment within 15 days of the receipt of notice

- the complaint is to be made within one month of the cause of action arising

• Duty to maintain secrecy about the customer account status

• Issuance of duplicate demand drafts, deposit receipts

• Duty of furnishing credit information to fellow bankers

• Duty of returning the securities upon settlement of loans as a bailee

• Agent-principal relationship• KYC : obligation to verify the veracity of

customer information and whereaboutsWho are the stakeholders: Depositors Borrowers General public Fellow

bankers shareholders RBI FIs Intermediaries Govts

Various superintending agencies such as NHB, IDBI, NABARD, EXIM Bank

Loans and advances by banks: Demand loans Term loans Overdraft/cash credit Bill finance Supply bills Packing credit Bank Guarantee Letter of creditTypes of borrowers: Individuals Sole proprietorship Partnership firm Corporates

What are the general precautions banks need to take while granting loans and advances?

Is it within my goals and my objectives? Is it helpful to the borrowers? Is it beneficial to the society? Is it in terms of RBI guidelines? Is it in tune with my credit policy? Is it in terms of Government guidelines? Is it market oriented? Is it liquid enough? Is it profitable to me? Is it well secured? Is the Management capable of handling the

project/purpose

Is the project technically feasible? Is it financially viable? Is the associated Risk manageable?Steps banks need to take: Pre sanction appraisal Documentation Post sanction follow up Recovery measures – legal and non legal

Fund based and non fund based limits:a) Term loansb) Over draftc) Bills discounting

Non fund based:a) Bank guaranteeb) Letter of creditList the fee based services offered by banks:a) Credit card businessb) Merchant banking activitiesc) FX servicesd) Treasury management servicese) Insurance businessf) Investment banking servicesg) Project counsellingh) Technology tie upsi) Subsidiary servicesj) Rehabilitation of sick unitsk) Mergers and amalgamationsl) Cash management servicesm) And many more --- find out them.