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Welcome to JAIIB Classes PRINCIPLES OF BANKING FUNCTIONS OF BANKS.

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Presentation on theme: "Welcome to JAIIB Classes PRINCIPLES OF BANKING FUNCTIONS OF BANKS."— Presentation transcript:

1 Welcome to JAIIB Classes PRINCIPLES OF BANKING FUNCTIONS OF BANKS

2 BANKER-CUSTOMER RELATIONSHIP DEBTOR-CREDITOR CREDITOR-DEBTOR AGENT-PRINCIPAL LESSOR-LESSEE BAILEE-BAILOR

3 KNOW YOUR CUSTOMER- KYC Know your customer norms are applicable to all customer accounts. It deals with not only to identify the customer but also to understand the activities of the customer, to ensure that the operations in the customer account/s is/are for genuine purpose

4 KYC RULES The main rules are – 1.Customer identification 2.Ceiling and monitoring of cash transactions 3. Internal Control Systems 4.Prevention of Terrorism Finance 5.Identification and Reporting of Suspicious Transactions 6.Adherence to Foreign Contribution Regulation Act (FCRA), 1976 7.Record Keeping 8.Training of staff and management

5 BANKER - CUSTOMER RELATIONSHIP Deposit Accounts

6 Indian Banking - Significant events 1 Three presidency banks were established in Calcutta (1806) in Bombay (1840) and in Madras (1843) In the early part of 20 th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and Central Bank of India. In 1921 the three presidency banks were merged and the Imperial Bank of India was created. During the period 1900 to 1925 many banks failed, and the Government appointed in 1929 a Central Banking Enquiry Committee to trace the reasons for the failure of banks. The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949 The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India

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8 Indian Banking - Significant events 1 Three presidency banks were established in Calcutta (1806) in Bombay (1840) and in Madras (1843) In the early part of 20 th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and Central Bank of India. In 1921 the three presidency banks were merged and the Imperial Bank of India was created. During the period 1900 to 1925 many banks failed, and the Government appointed in 1929 a Central Banking Enquiry Committee to trace the reasons for the failure of banks. The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949 The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India

9 Progress of banking in India In the liberalised, privatised and globalised environment, banks opeating in India have diversified their banking activities by offering Para Banking facilities like – Merchant banking/Mutual funds – ATMs/Credit Cards/Internet banking – Venture capital funds – Factoring – Bancassurance

10 Rupee accounts Non-resident Ordinary account (NRO) Non-resident External account (NRE) Non-Resident Accounts - 1

11 Foreign Currency Non-resident Deposit Accounts –FCNR (B) FCNR (B) accounts NRIs,PIOs,residing outside India can open FCNR (B) accounts FCNR (B) accounts are maintained as fixed deposits in certain designated currencies The designated currencies are: US$, GBP, Japanese Yen, Euro, Cad$, Aus $ Maintained in Banks in India in the above mentioned foreign currencies and interest is also earned in such foreign currencies Repatriation of funds (principal, interest) is allowed

12 Loan Products – Fund Based LOANS & ADVANCES CASH CREDIT OVERDRAFT RETAIL FINANCE TERM FINANCE BILLS FINANCE

13 Loan Products –Non Fund Based Letters of Credit Bank Guarantee Co- Acceptance Of Bills

14 SERVICES OFFERED BY BANKS Over and above the traditional role of a bank to take deposits and offer credit facilities Banks today offer the following services- 1.Internet Banking 2.Telephone Banking 3.Mobile Banking 4.On-line trading in shares 5.Bills payment on- line 6.Booking air/ railway tickets on- line 7.Bills payment on-line 8.Cash Management Services

15 SERVICES OFFERED BY BANKS - contd 9 On-line remittance facility-RTGS/NEFT etc 10 Sale of third party products – Mutual fund schemes/insurance 11Safe Custody 12 Safe deposit vault 13 Depository Services 14 tax payments on-line 15 Counseling Services

16 CASH MANAGEMENT SERVICES In today's competitive market place, effective management of cash flows can make the difference between success and failure The cash management product usually offers corporate customers fast track cheque collections, speedier release of funds and profitable funds management, at a reasonable cost Payments received from buyers and made to suppliers of a corporate client are efficiently processed to optimise cash flow position and to ensure the effective management of business' operating funds The flow of receivables and payables can also usually be seen on-line.

17 DEPOSITORY SERVICES With a view to adding value to banking services and making available the numerous benefits of depository system to clients, banks in India offer Demat services through either Depositories viz.National Securities Depository Limited (NSDL) or Central Depository Services (India) Ltd. (CDSL) or both by becoming a sub-participant. Services offered are usually at par with those offered by specialized organizations like Integrated etc

18 COUNSELLING SERVICES The following are the usual objectives of counselling services provided by some banks. Advising on gaining access to structured financial system including banking Creating awareness among the public about financial management Counseling people who are struggling to meet the repayment obligations and helping debt resolution Helping in rehabilitation of borrowers in friendly and timely guidance not only to mitigate the immediate stress of the trapped individuals and their households, but also to help to infuse confidence in others who are in distress.

19 POWER OF ATTORNEY Power of attorney (POA) also called letter of attorney is an authorization to act on someone else's behalf in a legal or business matter. The person authorizing the other to act is the principal, granter or donor (of the power), and the one authorized to act is the agentagent A power of attorney may be special or limited to one specified act or type of act, or it may be general, and whatever it defines as its scope is what a court will enforce as being its scope. It may also be limited as to time. The POA is usually stamped and notarised The POA can be cancelled or amended by the donor at any time.However is responsible for all acts till he gives notice

20 MANDATE Usually an unstamped letter Addressed to a particular bank Authorises a third party to act on his/her behalf Issued for short/ temporary period Not acceptable from limited companies/ cooperative societies

21 CHARGES HYPOTHECATION PLEDGE MORTGAGE ASSIGNMENT LIEN SET OFF

22 LIEN & SET OFF A lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. It is a right to retain possession of specific goods or securities or other movables of which the ownership vests in some other person and the possession can be retained till the owner discharges the debt or obligation to the possessor. The right of set off is also known as the right of combination of accounts.A bank has a right to set off a debt owing to a customer against a debt due from him. Both the claim and the set-off must be mutual debts, due from and to the same parties, under the same right A claim by a person in a representative capacity cannot be set off against a personal claim

23 Garnishee Order A garnishee order is an attachment order issued by a court Example : A borrows money from B.A fails to repay the loan. B files a suit under Civil Procedure Code and the Court issues a decree and attaches the funds in As bank account with Bank XYZ Ltd. The order issued by the Court on bank XYZ Ltd is called aGarnishee Order B is called the judgement creditor. A is the Judgement debtor. Bank XYZ Ltd is Judgement debtors debtor It has 2 parts order nisi, and order absolute

24 CHEQUES BEARER ORDER CROSSED OPEN

25 NEGOTIABLE INSTRUMENTS Paying Banker: Payment in Due Course Apparent Tenor In good faith Without Negligence

26 NEGOTIABLE INSTRUMENTS BANKERS DUTIES & RESPONSIBILITIES C0LLECTING BANKER COLLECTION OF CHEQUES HOLDER IN DUE COURSE CONSIDERATION TITLE BEFORE MATURITY

27 Six Cs Character Capital Capacity Collateral Condition Compliance

28 Working Capital Cycle Cash Raw material Semi finished goods Finished goods sales Bills receivables

29 FUND BASED FINANCE LOANS & ADVANCES CASH CREDIT OVERDRAFT RETAIL FINANCE TERM FINANCE BILLS FINANCE

30 Non-Fund Based Finance BANK GUARANTEE CO- ACCEPTANCE OF BILLS LETTERS OF CREDIT

31 Credit Management in Banks Capital adequacy norms Risks-ALM Exposure norms Prudential norms Credit appraisal system

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