OVERALL BANKING AWARENESS

8/18/2019 OVERALL BANKING AWARENESS

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पदोनि साऺातकार

के लऱए

अधययन सामगी Study Material

Promotion Interview

2016


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Andhra bank Apex College, Hyderabad

2

िावना

FOREWORD

इस प ुिका को ि िु कि ेह ुए हम बह ुि सिना है ।

पदोनि साऺातका म बठैनवेाऱ ेअधकाय के ऱाभाथ

इसिे यैा कया गया है ।

स चूना क वश ुिा को स ुनिच

कन ेिहे ुयासॊभव यास कये गय ेह । िाप , इस प ुिका का योग कने वाऱ,े जहा कहॊ

अपेिऺ हो , पप , मैय अुऱ औ पोरथऱ वाा

स चूना को समय -समय प अियन क ऱ ।

हम अधकाय के यास म सफिऱा क कामना किे ह।

We are delighted to present this Study Material aimed to help the Officersappearing for the for promotion interview. While all

precautions are taken to

ensure accuracy of theinformation, to the extentpossible, there may be some omissions

and commissions crept in for which neither theFaculty nor the Bank will be liable in any manner. As such, the

users are advised to update the information from the circulars, manuals,

portal issued from time to time. We wish the Officers all success in their efforts.

ाचायथ व सॊकायसदय ,Principal & Members of Faculty

आा बक एपेस कॉऱजे ,Andhra Bank Apex College,

दनाॊक 11.04.2016 हैदराबाद Hyderabad-500032


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INDEX

S.no. Topic Page no.1 Important Financial Indicators 4

2 Latest concepts in Banking & Finance 43 Key Financial Developments in last year till Feb. 2016 5-84 Banking Network in India 95 Monitory Policy of RBI 10-126 Capital Market & Money Market 13-147 Banking Regulation Act 1949 158 RBI Act 1934 169 NI Act 1881 17-1910 Types of constituent 20-2211 Banker Customer relationship 23-2512 Types of charges, securities & Mortgages 26-27

13 Right of setoff, lien, Appropriation & Garnishee order & Attachment order 28-29

14 Limitation act, Stamp Act & other legal aspets 30-3115 Right to Information Act 2005 3216 BCSBI 3317 Banking Ombudsman scheme / COPRA 34-3518 KYC & AML Guidelines 36-3819 Our Bank Deposit guidelines 39-4120 NR Accounts 42-4321 Foreign Exchange - pre & Post shipment finance 4422 Priority Sector Lending 45-4723 SHG finance 48-49

24 MSME, CGTMSE, SMERA 50-5525 Financial Inclusion 56-6026 Govt. Sponsored schemes 61-6527 Loan Policy guidelines, Working capital assessment,

Term loan66-70

28 Finance to traders, LTF 71-7229 Retail credit 73-7730 Agriculture credit 78-8331 Derivatives 8432 Risk Management 8533 Non Fund based business 86

34 Computer awareness 8735 e-Products 88-9836 Credit cards 9937 Latest news related to Banking & Finance 100-130


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Important Financial Indicators

PARAMETERS Effective Indicator PARAMETER

S

Effective Indicator

Bank Rate /MSF 05.04.2016 7.00% REPO Rate 05.04.2016 6.50%

C.R.R. 09.02.2013 4.00%

Reverse

REPO 05.04.2016 6.00%

S.L.R. 07.02.2015 21.50%

Forex

Reserves as on29-01-2016

349.152

US$ bn

LATEST CONCEPT IN BANKING & FINANCE

LTV is a ratio of Loan to Value. It is calculated by dividing Mortgage amount by

appraised value of the property.

RBI directive on LTV on Housing loans under Priority Sector is not to exceed

90%.

Provisioning Coverage Ratio (PCR) for NPA has to be maintained by banks at

70% as per RBI guidelines.

The usual credit period for Transactions under FACTORING is 180 days.

Financing under FORFEITING is done always without recourse.

A Factoring Company should derive at least 75% of income from factoring

activity as per Factoring regulation Act 2011.

The financial assistance by the Factoring Company is secured by

Hypothecation and assignment of receivables.

As per the revised guidelines of RBI on treatment of ‗Floating provisions,banks can deduct them from Gross NPAs to arrive at Net NPAs or reckon

them as part of Tier-II capital (ceiling-1.25% of total (RWA).

The existing cheques issued to customers are to be replaced by ‘CTS-2010‘

cheques to ensure to cater to payable at par, Speedy clearing & Image based

cheque processing and to have security features to prevent frauds &

standardization of fields for straight thru‘ process in CTS/MICR.

New York Stock Exchange is the world‘s largest bourse (stock exchange) by

market capitalization.


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Loans under Multiple banking/ consortium and loans under syndication to

multiple banks are eligible for Corporate Debt Restructuring.

Corporate Debt Restructuring-CDR can be initiated when75% of the creditors

by value and 60% of the creditors by number agree.

The objectives of Corporate Debt Restructuring are - timely transparent

mechanism for restructuring corporate debt for viable units and to provide

succor for viable units which were declared sick/ NPA outside BIFR.

Fund based & Non-Fund limit of Rs.10 Cr or above are eligible for Corporate

Debt Restructuring under CDR mechanism.

CDR Forum is on top of the 3-tier structure, a policy making body having

Chairmen of banks as its members.

Large value BIFR cases can be taken up on the basis of specific

recommendations of CDR core group.

Preliminary restructuring plan to be prepared by lead institution within one

month for submission to CDR cell.

Decision criteria under CDR include that the unit should become viable in 5

years and restructured debt should be paid within 10 years.

Key Financial Developments in the last year till Feb 2016

June 2015 The Reserve Bank, on June 8, 2015, advised all scheduled commercial banks

(excluding regional rural banks), all-India term lending and refinancinginstitutions (Exim Bank, NABARD, NHB and SIDBI) that under the ―Frameworkfor Revitalising Distressed Assets in the Economy – Guidelines on JointLenders‘ Forum (JLF) and Corrective Action Plan (CAP)‖, issued on February26, 2014, the Joint Lenders‘ Forum (JLF) should actively consider change inownership, in cases of restructuring of accounts when the borrower companies

are not able to come out of stress due to operational/ managerial inefficienciesdespite substantial sacrifices made by the lending banks.

Further, with a view to ensuring more stake of promoters in reviving stressedaccounts and provide banks with enhanced capabilities to initiate change ofownership in accounts which fail to achieve the projected viability milestones,banks may, at their discretion, undertake a ‗Strategic Debt Restructuring(SDR)‘ by converting loan dues to equity shares.

July 2015 The Reserve Bank advised scheduled commercial banks (excluding regional

rural banks) to make use of the information available in Central Repository ofInformation on Large Credits (CRILC) and not limit their due diligence to


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seeking no-objection certificate (NOC) from the bank with whom the customer

is supposed to be enjoying the credit facilities as per the declaration. Further

banks may also seek ‗No Objection Certificate‘ from the drawee bank where

the initial deposit to current account is made by way of a cheque. The Reserve

Bank has set up CRILC to collect, store, and disseminate data on allborrowers‘ credit exposures. Banks / Financial Institutions are required to

report their credit information to CRILC. (DBR.Leg.BC.25./09.07.005/2015-16

dated July 2, 2015).

October 2015

The Reserve Bank, on September 24, 2015 allowed scheduled commercial

banks (excluding RRBs), all-India term-lending and refinancing institutions

(Exim Bank, NABARD, NHB and SIDBI) to upgrade the credit facilities

extended to borrowing entities whose ownership has been changed outside

Strategic Debt Restructuring Scheme (SDR), to ‗Standard‘ category uponsuch change in ownership, subject to the certain conditions laid down in the

Guidelines, including change in ownership of the borrowing entities.

November 2015 The Reserve Bank, on October 20, 2015 placed on its website the Report of

the Working Group on the Implementation of Indian accounting standards (Ind

AS) by Banks in India (Chair: Shri Sudarshan Sen, Principal Chief General

Manager, Department of Banking Regulation).

December 2015 The Reserve Bank advised banks to follow the guidelines, released on December17,2015, for computing interest rates on advances based on marginal cost of funds,with effect from April 1,2016.

January 2016Operationalisation of Central Fraud Registry:

The Reserve Bank has operationalised a Central Fraud Registry (CFR) with

effect from January 20, 2016. Operational instructions on its use have been

issued to banks. The Central Fraud Registry was created in pursuance of the

announcement made by Governor in his Fourth Bimonthly Monetary Policy

Statement, 2014-15 stating: ―Along with early detection mechanisms for

frauds, a Central Fraud Registry is also proposed to be created

simultaneously as a searchable centralised database for use by banks.‖

Non-Fund Based Facility to Non-constituent Borrowers

In view of recent developments in strengthening the system of collection and

maintenance of credit information, the Reserve Bank on January 7, 2016,

permitted scheduled commercial banks to grant nonfund based facilities

including Partial Credit Enhancement (PCE) to those customers, who do not

avail any fund based facility from any bank in India, subject to the followingconditions:


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a) Board Approved Policy - Banks shall formulate a comprehensive Boardapproved loan policy for grant of non-fund based facility to such borrowers.

b) Verification of Customer Credentials - The banks shall ensure that theborrower has not availed any fund based facility from any bank operating in

India. However, at the time of granting non-fund based facilities, banks shallobtain declaration from the customer about the non- fund based creditfacilities already enjoyed by them from other banks.

c) Credit Appraisal and Due Diligence - Banks shall undertake the samelevel of credit appraisal as has been laid down for fund based facilities.

d) Compliance with KYC Norms / AML Standards / CFT / Obligation ofbanks

Banks can now offer Products through their ATMs

With a view to providing operational freedom to banks, the Reserve Bank on

January 14, 2016, allowed banks to offer all their products and services

through the ATM channels provided the technology permits offering the

product and service, and adequate checks are put in place to prevent the

channel from being misused to perpetuate frauds on the banks/other genuine

customers. Earlier, the Reserve Bank had imposed certain restrictions on the

facilities, which can be provided through off site ATMs of banks.

February 2016

Modified Guidelines on Revitalising Stressed Assets

On a review and based on feedback received from stakeholders, the Reserve Bankhas partly modified and also clarified, some aspects of its Prudential Guidelines forRevitalising Stressed Assets in the Economy. The salient features of the Review areas follows:

a. SDR:

• Reduction in the minimum percentage of shareholding to be initially divested by thelenders;

• Lenders to build up adequate provisions for possible loss in value of the equityacquired in lieu of debt and residual loan exposures;

b. Framework to Revitalise the Distressed Assets in the Economy

• Reduction in the percentage of lenders, by number, required to approve theCorrective Action Plan;

• Revised composition of the Joint Lending Forum- Empowered Group (JLF-EG) forenhancing the quality of decision making;

• A scheme of incentives for adherence to timelines for decision-making by JLFmembers to facilitate timely implementation of the Corrective Action Plan;

c. Restructuring of Advances

• Permitting restructuring and benefits of asset classification in cases of borroweraccounts, which were involved in fraud, where the promoters have beensubsequently replaced by new promoters and the borrower is totally delinkedfrom the erstwhile promoters;

• Clarifying that Flexible Structuring of Project Loans is also permitted for ECBs;


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It may be recalled that the Reserve Bank had issued various guidelines aimed atrevitalising the stressed assets in the economy. These include: Strategic DebtRestructuring (SDR) Mechanism, Framework to Revitalise the Distressed Assets inthe Economy, Revisions to the Guidelines on Restructuring of Advances by Banks,Flexible structuring of Long Term Project Loans and amendments to guidelines on

Sale of Financial Assets to Securitisation Companies (SC)/ReconstructionCompanies (RC).Implementation of Indian Accounting Standards

The Reserve Bank on February 11, 2016 advised the scheduled commercial banks(excluding regional rural banks) to follow the Indian Accounting Standards (Ind AS)as notified under the Companies (Indian Accounting Standards) Rules, 2015, subjectto any guideline or direction issued by the Reserve Bank in this regard, in thefollowing manner:• Banks shall comply with the Indian Accounting Standards (Ind AS) for financialstatements for accounting periods beginning from April 1, 2018 onwards, withcomparatives for the periods ending March 31, 2018 or thereafter. Ind AS shall beapplicable to both standalone financial statements and consolidated financialstatements.Banks shall apply Ind AS only as per the above timelines and shall not be permitted

to adopt Ind AS earlier.

March 2016

MCLR guidelines: RBI has introduced a new Lending Rate system called Marginal

Cost of Fund based Lending rate (MCLR) for all fresh loans wef 01.04.2016. It isinternal benchmark for pricing of loans and advances. The actual lending rate

applicable to the borrower will be determined by adding spread to MCLR. It is

applicable to all fresh rupee loans sanctioned on or after 01.04.2016 and working

capital advances renewed on or after 01.04.2016.

MCLR is tenor specific lending rate and rate will depend on the tenor of the loan.

Banks will have five different MCLRS for Overnight, One month, Three month, Six

month and one year tenors.

No loans can be sanctioned at a rate below MCLR.


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BANKING NETWORK IN INDIA (All Scheduled Commercial Banks) (As on 31.03.2015)

Scheduled Commercial Banks148RRBs-56

PSBs-27 Deposits (SCB)

94351.10

billion

Nationalized Banks + SBI

Group 19 + 5 Advances (SCB)

73881.80

billion

Private Sector Banks Old +

New

13 + 7 CD Ratio

78.31%

Foreign Banks in India

43

GNPA

3243

billion

(4.3%)

Scheduled Com. Bank

Branches

125863

NNPA

1761

billion

(2.4%)

Rural Branches 48033 ROA 0.80%

Semi Urban Branches 33523 ROE 10.4%

Urban Branches 23522 CRAR for Basel

II

12.9%

Metro Branches 20785 NIM 2.60%

ATMS 189279

Net Profit 890.10

billion

Total employees in bankingsector

1171426 Wages to totalexp.

54%

Payments to and provisions for

employees

1102921 million1102.921 billion

Business per

employee

0.1436billion14.36 Cr

Total Expenditure 2032587.526million2032.588 billion

Profit per

employee

7.598

Lacs


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MONITORY POLICY OF RBILIQUIDITY ADJUSTMENT FACILITYIt is a mechanism for liquidity management through combination of repooperations, export credit refinance facilities and collateralized lending facilities,

supported by open market operations of the RBI at set interest rates.RBI manages its liquidity in the market through the operation of LAF as part of itsmonetary policy and money supply targets.It undertakes reverse repo transactions to mop up liquidity and repos to supplyliquidity in the market. The LAF transactions are currently being conducted onovernight basis.New Liquidity Management FrameworkRBI adopted a new liquidity management framework following the guidelines ofUrjit Patel Committee. In this new method, RBI is gradually moving fromproviding liquidity at Constant REPO rate to market based Term Repos. Atpresent RBI is providing liquidity in the form of REPO (0.25% of NDTL) and Term

REPO (0.75% of NDTL).Term Repo rates are market determined as opposed to fixed rate offered onREPOs.MARGINAL STANDING FACILITY:Marginal Standing Facility is the rate at which Scheduled Bank could borrowfunds overnight from RBI against approved Govt. securities. Banks can borrowfunds through Marginal Standing Facility during acute shortage (considerableshortfall of liquidity) of cash. This measure has been introduced by RBI toregulate short term asset liability mismatches more effectively. MarginalStanding Facility is pegged 100 bps or 1% above the Repo Rate.To provide greater liquidity cushion RBI has introduced the Marginal StandingFacility on 03.05.2011 and it was effective from 09.05.2011.Under the facility, theeligible entities can avail overnight, up to one per cent of their respective NetDemand and Time Liabilities (NDTL) outstanding at the end of the secondpreceding fortnight. But for the intervening holidays, the MSF facility will be forone day except on Fridays when the facility will be for three days or more,maturing on the following working day. In the event, the banks‘ SLR holdings fallbelow the statutory requirement up to one per cent of their NDTL, banks will nothave the obligation to seek a specific waiver for default in SLR compliancearising out of use of this facility in terms of notification issued under sub section(2A) of Section 24 of the Banking Regulation Act, 1949.

Current MSF is 7.75% (29.09.2015)BANK RATE:

Bank Rate is the rate at which central bank of the country (in India it is

RBI) allows finance to commercial banks.

Bank Rate is a tool, which central bank uses for short-term purposes.

Any upward revision in Bank Rate by central bank is an indication that

banks should also increase deposit rates as well as Base Rate / BMPLR.

Current Bank Rate is 7.75% (29.09.2015)

CASH RESERVE RATIO (CRR):Consequent upon amendment to sub-Section 42(1), RBI, having regard to the needs of securing the monetary

stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) forscheduled banks without any floor rate or ceiling rate.


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RBI uses CRR either to drain excess liquidity or to release funds needed

for the growth of the economy from time to time.

Increase in CRR means that banks have less funds available and money

is sucked out of circulation. Thus we can say that this serves duel purposes

i.e.(a) ensures that a portion of bank deposits is kept with RBI and is totallyrisk-free,(b) enables RBI to control liquidity in the system, and thereby, inflation bytying the hands of the banks in lending money. Current CRR is 4.00%

STATUTORY LIQUIDITY RATIO (SLR): Every bank is required to maintain at the close of business every day, a

minimum proportion of their NDTL as liquid assets in the form of cash, gold

and un-encumbered approved securities.

RBI is empowered to increase this ratio up to 40%. Increases in SLR also restrict the bank‘s leverage position to pump more

money into the economy.

Current SLR is 21.5% (15.01.2015).

REPO : Repo (Repurchase) rate is the rate at which the RBI lends shot-term

money to the banks against securities.

When the repo rate increases borrowing from RBI becomes more

expensive. Therefore, we can say that in case, RBI wants to make it more

expensive for the banks to borrow money, it increases the repo rate;

similarly, if it wants to make it cheaper for banks to borrow money, it reducesthe repo rate

Thus, we can conclude that Repo Rate signifies the rate at which liquidity

is injected in the banking system by RBI.

Current Repo Rate is 6.50% (05.04.2016)

REVERSE REPO: Reverse Repo rate is the rate at which banks park their short-term excess

liquidity with the RBI.

The banks use this tool when they feel that they are stuck with excess

funds and are not able to invest anywhere for reasonable returns.

An increase in the reverse repo rate means that the RBI is ready to

borrow money from the banks at a higher rate of interest. As a result, banks

would prefer to keep more and more surplus funds with RBI.

Thus, we can conclude that Reverse repo rate signifies the rate at which

the central bank absorbs liquidity from the banks

Current Reverse Repo Rate is 6% (05.04.2016)

The GENERAL Rate Structure w.e.f. 05.04.2016

REPO Rate : 6.50% Reverse Repo Rate: 6%


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Marginal Standing Facility and Bank Rate: 7% CRR 4% of NDTL SLR 21.5% of NDTL w.e.f 07.02.2015.


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MONEY MARKET AND CAPITAL MARKETReserve Bank of India manages liquidity through Liquidity Adjustment Facility (LAF)in the market through Open Market operations which include resetting repo rates,Collateralized Lending Operations.

Repo is a ready forward arrangement through which Banks can draw moneyfrom Reserve Bank of India to meet their liquidity requirements. The present

repo rate is 6.75% and the reverse repo rate is 5.75%. These rates are

normally declared during bi-monthly monetary policy review.

In addition to repo arrangements Banks can also borrow funds overnight from

RBI against approved Government Securities. This facility is called Marginal

Standing Facility. The present MSF is 7.75%.

Bank Rate is rate declared by RBI. It means the rate at which RBI rediscounts

eligible bills of athe commercial Banks. This rate is used by RBI for imposing

penalty for non compliance of CRR/SLR requirements. The present rate is7.75%.

Cash Reserve Ratio (CRR) has to be maintained in terms of Section 42(1) of

RBI Act on the net demand and time liabilities of the Bank on daily average

basis. The present rate is 4%. It has to be maintained in the form of Cash,

Bank balances with RBI.

Statutory Liquidity Ratio (SLR) has to be maintained in terms of Section 24(1)

of Banking Regulation Act on the net demand and time liabilities of the bank

on fortnightly basis. The present rate is 21.5%. It has to be maintained in the

form Government Securities, Approved securities and cash with RBI.

Banks are allowed to participate in money market, capital market and forex

markets to invest their surplus funds and/or borrow in case of need. They can

also participate in these markets for profit by investing in shares, securities

and other markets.

Money market is exclusively for commercial banks and the market is

completely regulated by RBI. The short term instruments available in money

market are Call Money, Notice Money, Term Money. These instruments are

used for short term borrowing, lending from one day to maximum 3 months.

Other instruments available are Treasury Bills, Interbank Participation

Certificates, Commercial Papers, Certificate of Deposits, and Repooperations.

Treasury Bills are short term instruments issued by RBI for a period of 91, 182

and 364 days at discount rates to the par value. These qualify for SLR

investments approved by RBI.

Certificate of Deposits are negotiable money market instruments issued in

demat form by Banks at a discounted price for a period from 7 days to one

year. The minimum amount is Rs. One lac and multiples thereof. Individuals,

Corporates, Banks can contribute to these instruments.

Commercial papers are unsecured money market instruments issued byCoporates for raising short term funds. The minimum period is seven days


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and maximum period is one year. The corporate issuing the Commercial

paper must be having a credit rating of P2.

Capital Markets are controlled by SEBI. Banks invest in both primary markets

and secondary markets.

LIBOR is rate quotes in London Market for all forex transactions in variouscurrencies.

Forex Markets are controlled by Reserve Bank of India.


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BANKING REGULATION ACT 1949

Banking means accepting for the purpose of lending or investment of deposits

of money from public repayable on demand or otherwise and withdrawable by

cheque, drafts order or otherwise. (Sec.5-b)

Demand liabilities are the liabilities which must be met on demand and time

liabilities mean liabilities which are not demand liabilities.(Sec.5-f)

Secured loan or advance means a loan or advance made on the security of

asset, the market value of which is not at any time less than the amount of

such loan or advances and unsecured loan or advances means a loan or

advance, not secured.(Section 5-n)

A Banking company may be engaged in accepting deposits , borrowing

money, lending money, dealing in bills, collection of bills, buying/selling

foreign exchange, lockers, issuing letter of credit , travellers‘ cheques,

mortgages, insurance business, acting as trustee etc or any other businesswhich Central Govt may notify in the Official Gazette.(Sec.6-1)

No business company shall engage in any form of business other than those

referred in sub-section 6(1). (Section6-2)

Section 8 deals with restrictions on business of trading of goods except

realisation of securities held by it.

Banks are prohibited from holding any immovable property howsoever

acquired except as acquired for its own use for a period exceeding 7 years

from acquisition of the property. RBI may extend this period by five years.

(Sec.9) Section 14/14A prohibits a Banking company from creating a charge upon any

unpaid capital of the company.Section14(A) prohibits a banking company

from creating a floating charge on the undertaking or any property of the

company without RBI permission.

Section 15 prohibits payment of dividend by any Bank until all of its capitalised

expenses have been completely written off.

Banks cannot grant loan against security of their own shares.(Sec.20)

Section 45 ZA –ZF deals with Nomination facilities on bank deposits, safe

deposit of articles and lockers. Section 45 Z provides for returning the paid instruments to a customer by

keeping a true copy. Customers obtaining original instruments have to

undertake to preserve the instruments as prescribed by Central Govt u/s 45 Y.

RBI can impose penalty for various kinds of violations.(Section 47A)


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RESERVE BANK OF INDIA ACT 1934

Scheduled Bank means a Bank whose name is included in the 2nd schedule of

RBI Act, 1934.

A Bank that is not included in the 2nd schedule of RBI is called Non-scheduled

Bank.

RBI is Banker to Government (Section 20). It performs various functions for

the Govt. It transacts Govt business and manages public debt of the Central

Govt.

RBI has got sole right to issue Bank notes (Sec.22). Bank notes shall be

issued by Issue Dept (Sec.23)

Bank notes issued by RBI shall be legal tender and shall be guaranteed by

Central Govt.(Sec.26)

RBI can frame rules for refunding value of mutilated, soiled or imperfect notes

as a matter of grace. Rupee coin and one rupee note shall not be a currency

note for any purposes of this act (Sec. 28)

Bank note shall be exempted from Stamp duty under the Indian Stamp

Act.(Sec 29)

This act prohibits issue of note payable to bearer. No person in India other

than RBI or Central Government shall draw, accept, make or issue any bill of

exchange, Hundi or promissory note for the payment of money payable to

bearer on demand.(Sec.31)

Section 42 deals with Cash Reserve Ratio(CRR) of scheduled Banks to be

kept with RBI as a daily balance. This act empowers RBI to add or delete the name fo any Bank in 2nd schedule

of RBI Act 1934. (Sec.42(c ))

RBI is to publish every fortnight a statement showing aggregate liabilities/

assets of all SCBs.(Sec.43)

Section 45-A to F empowers RBI to collect credit information.

Section 48 provides for exemption to RBI from paying Income Tax.

As per section 49 of this act, Bank Rate is the standard rate at which RBI is

prepared to buy or rediscount bills of exchange or other commercial papers

eligible for purchase under this act.


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NEGOTIABLE INSTRUMENTS ACT 1881

Negotiable Instrument has not been defined directly in the NI Act as per

Section 3, an NI means and include promissory note, bill of exchange and

cheque payable to order or bearer. As per Indian Currency Act(Sec 21), a

Currency note is not a Negotiable instrument.

Under Section 137 of Transfer of Property Act, the documents of Title to

goods are negotiable, which include Bill of lading, railway Receipts , Dock

warrant, Warehouse Receipt, GRs approved by IBA.

Negotiabbility means transfer of right in a negotiable instrument to another

person so as to constitute him the holder. Elements of Negotiation are:

1.Further transfer without any restriction. 2. Transferee getting the instrument

for value and in good faith , gets defect-free and absolute title despite any

defect in the title of the transferor.

Negotiation of Bearer cheque (instruments) is completed by delivery(Sec47)and that of Order cheque by delivery and endorsement (Sec48).

As per section 9, a holder in due course is a person (payee, endorsee or

bearer) who must have the instruments in his possession. Such possession

is obtained for valuable and lawful consideration (not as a gift) before its

maturity (in case of bill).Another condition is that he obtains it in good faith

without sufficient reason to believe that any defect existed in the title of the

person from whom he obtained it.

Promissory note is an instrument in writing, containing an unconditional

undertaking (or promise), signed by the maker, to pay a certain sum of moneyto or to the order of a certain person or to the bearer of the instrument .

(Section 4)

A Bill of Exchange is an instrument in writing, containing an unconditional

order signed by the maker, directing a certain person to pay a certain sum of

money only to or to the order of a certain person or to the bearer of the

instrument. (Section 5)

A bill of exchange drawn or made in India payable in or drawn upon any

person resident in India is an inland instrument( Inland bill).Any bill which is

not an inland bill is a foreign bill. Accommodation bill one which is not a genuine trade bill. It is drawn to

accommodate a known party without actual sale of goods. Such bill drawn by

seller and accepted by another person purporting to be buyer, it becomes an

accommodation Bill. This is also called kite-flying.

Demand bill is payable on demand while the Usance bill is payable in future

on a pre-decided date.

Under section 22, every usance promissory note or bill of exchange is to be

allowed 3 days after the day on which it is expressed to be payable. For

instruments payable in instalments, the days of grace are to be allowed for

each instalment.


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When maturity date is a public holiday, such instrument shall be payable on

the next preceding business day (ie the previous business day).

A bill of exchange is said to dishonoured either by non-acceptance (when

drawee defaults in acceptance) or by non-payment (when the acceptor /

drawee makes default in payment. Similarly where the drawee is incompetentto contract or acceptance is qualified, the bill is said to be dishonoured.

Noting is a process of creating legal evidence of dishonour through the notary

public.

Protest is a certificate from a Notary Public containing the facts of the

dishonour.

As per Section 6, a cheque is a bill of exchange drawn on a specified bank

and not expressed to be payable otherwise than on demand. It includes

electronic image of a truncated cheque and also an electronic cheque.

Electronic cheque is a cheque which contains the exact mirror image of a

paper cheque and is generated, written and signed in a secured system

ensuring the minimum safety standards with the use of digital signature.

Truncated cheque is a cheque the physical movement of which is stopped in

the process of collection/ clearing. In its place, its electronic image (confirmed

by electronic signatures of the collecting bank) is used for collecting the

payment.

Where amount of a cheque differs in words and figures, as per section 18,

amount written in words should be paid irrespective of the fact, which amount

is less or more.

As per section 20, an inchoate instrument is an incomplete instrument , which

is legally valid(it bears signatures of the drawer but some other particulars say

date or amount or place are missing). The holder can complete such

instruments.

As per section15, endorsing means signing on the face or backside of an

instrument ( or even on a paper called allonge or stamped paper) for the

purpose of negotiating a negotiable instrument.

General crossing is where a cheque bears across its face two parallel

transverse lines (with or without words such as ―&Co‖ or any abbreviation.

Where a cheque bears across its face , name of the Bank, either with orwithout the words not-negotiable (lines are not important , but the addition of

name of the Bank is important), that addition shall be deemed as special

special crossing and the cheque shall be considered to be crossed specially

to that Banker.

As per section 130, a person taking a cheque crossed generally or specially

bearing the words ―not negotiable‖ shall not have and not capable of giving a

better title to the cheque than that, which the person from whom he took it,

had.

As per section 10, a payment would be considered in due course, if (a)payment is made in accordance with the apparent tenor of the instrument (b)


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payment is made in good faith and without negligence (3) payment is made to

the person in possession of the instrument (4) payment is made under

circumstances which do not afford a reasonable ground to believe that he is

not entitled to receive the payment of the amount mentioned therein (5)

payment is made in money only. Material Alteration- Alteration would be taken as material when it relates to (a)

change in date, sum payable; time of payment; place of payment; rate of

interest (b) addition of new party (c)tearing material part of the NI (d)

conversion of an order cheque to bearer or cancellation of crossing.

Alterations which are not material- Alteration is not material if it relates to (a)

crossing an uncrossed cheque (b) filling the date, amount or name of the

payee (c) converting a general crossing to a special crossing etc (d) alteration

is confirmed by the drawer.

Demand draft is defined as per section 85 (a) of NI Act 1881 as an order to

pay money drawn by one office of a Bank upon another office of the same

Bank for a sum of money payable to order on demand.


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TYPES OF CONSTITUENTS

There are two types of customers for the banks. 1. Individual customers, 2.

Non life customers

Individual Customers: These include minors, illiterates, Pardanashin ladies,

Blind persons, Married women, POA/Mandate holders etc.

MINORS: are those who have not attained the age of 18 years. In case of

court appointed guardians, the customer will be considered as minor till the

age of 21.

A Special minor is one who is aged 10 years and above.

He can operate Savings Bank account on his own within limits Guardian

backed accounts can be opened for minor.

Guardians are of 3 types: 1. Natural guardian (Father or Mother) 2.

Testamentary (appointed through will) guardian, 3. Legal Guardian (Appointedby Court)

ILLITERATE PERSONS: are those who don‘t know reading or writing. Cannot

open current account. Photos and Thumb impressions should be taken for

identification. Rules and regulations regarding the operation of the account

must be explained to him before opening an account.

BLIND PERSONS: are those whocannot see. Photos, signature, Thumb

impressions, To be taken for identification., All banking services including

cheque books, lockers, ATM/Debit cards should be provided upon request to

a blind person. PARDANASHIN LADIES: Are those who wear Burkha (purda). On their

heads. They belong to a religious sect and live in seclusion. Photo and

signature are taken for identification.

MARRIED WOMEN: It is good if the husband is informed about opening the

account. Loans can be considered with the guarantee signed by her husband.

She cannot be arrested as per section 56 of CPC. Only Sthreedhan can be

attached

POWER OF ATTORNEY (POA) HOLDER:POA is an instrument in writing signed by

donar (Principal) delegating some or specific powers to a donee (Agent) to performcertain functions on his behalf. POA needs registration and stamping. It Can berevoked by the Principal at any time. Banker should preserve a copy of POA and itscontents must be scrupulously followed without fail.

MANDATE HOLDERS: Mandate is an instrument in writing signed by the

principal delegating some or specific functions to be performed on his behalf.

It needs no registration or stamping.

PROFFESSIONAL INTERMEDIARIES: the Chartered accountants,lawyers, Stock brokers will be opening accounts on the behalf of theirclients. Banker must ensure the real requirement of opening the account

in the name of the professional intermediary and the client. It must beensured that the Identity and the address proof of both the intermediary


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and the client should be taken. Bankers should open such accountsonly when they are convinced about the genuinity of transactionbetween the intermediary and the client.

NON LIFE CUSTOMERS:

Banks‘ Non Life Customers include, Proprietary Concerns, Hindu Undivided

Family (HUF), Partnerships, Companies, Trusts, Administrators, Liquidators,

Clubs; societies; Associations, Government accounts, SHGs, etc.

PROPRIETORY CONCERN: is an entity formed by a single person called

proprietor 2 carry out a business. Registered with Registrar of Proprietary

concerns in the state.

Hindu Undivided Family (HUF): is a Hindu family with 3 to 4 generations

(lineal descendency) live under the same roof and undertake a common

family business. The head of the family Who manages the affairs of the HUFis called as Kartha and the members of the family are called coparceners.

Partnership: "the relationship between persons, who have agreed to share the

profits of a business carried on by all or any of them acting for all". Partnership

is a mutual agency. Each partner is jointly and severally liable. Maximum

number of partnership is 10 in case of banking business and 20 in other

cases. Registration is not mandatory to open an account for partnership firm.

(Partnership act, 1932)

Partnership deed is the document through which a partnership is formed. It

records the rights and obligations of the partners. Company: Companies limited by shares can be classified into three

categories viz., (i) Private Limited Company, (ii) Public limited Company, and

(iii) Government Company.

A Private Limited Company is a company which has a minimum paid-upcapital of Rs.1 lakh and by its articles (a) restricts the right to transfer itsshares, (b) limits the number of members/shareholders to FIFTY, (c) prohibitsitself from inviting subscription of shares/debentures from public, and (d)prohibits acceptance of deposits from persons other than its members,directors and their relatives.

A Public Limited Company should have a minimum paid-up capital of Rs. 5lakh and should not have the above mentioned restrictions. Further, a privatelimited company which is a subsidiary of a public limited company is treatedas a public limited company.

A Government Company is a company where not less than 51% of the

share capital is held by government (Central/State/both).

Company is an artificial person with perpetual. Succession brought in to

existence under the provisions of the company act 1956. Legally a Company

is considered is an entity separate from it‘s members and hence it po ssesses

all power to enter into valid contract.

TRUST: a trust is said to be created when the ownership of a property istransferred (by donar or settler), to somebody with an obligation to hold and


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manage the same (trustees) for the benefit of another (beneficiary).

Trust Deed: Trust Deed is the document through which a trust is formed. Itrecords the rights and obligations of the trustees. A trust deed should beregistered.

TYPES OF TRUSTS A trust can be a private trust or a public trust.

Private Trust: It is formed for the benefit of one or more specific individuals.Law relating to private trust is codified in Indian Trust Act 1882.Public Trust: Public Trusts are formed for the benefit of public. They are alsoknown asCharitable Trusts.They are formed as per the Public Trust Act of the state concerned. Thesetrusts are registered with Charity Commissioner of state and are controlled byhim.

EXECUTORS AND ADMINISTRATORS: AN EXECUTOR or ADMINISTRATOR is a person who is appointed to administer the assets of adeceased. HE is appointed by a will. He can open an account only if he holdsa probate.

An ADMINISTRATOR is appointed by Court through Letter of Administration.

REGISTERED CLUBS/ASSOCIATIONS: Clubs can be registered orunregistered. A club can be registered under (i)The Societies Registration Act, 1860 or (ii)

Companies Act, 1956 (Sec. 25, non-profit making company. The Registrar ofSocieties, after registering the bye-law of the society, issues a RegistrationCertificate. While opening account in the name of a registered association,

UNREGISTERED ASSOCIATIONS: Examples of unregistered associationsare: (i) Private schools, (ii) some clubs, (iii) other associations notregistered.Should be opened only in case of very reliable persons.

CO-OPERATIVE SOCIETIES: co-operative society is an associationregistered under the provisions of the Cooperative Societies Act of the Stateconcerned. Therefore, all formalities required for opening the account of aregistered association must be complied with by the bank. Generally co-operative societies are not permitted to open accounts in banks other than co-operative banks unless specifically permitted by Registrar of CooperativeSocieties. Banks, therefore, should ask for this permission before opening theaccount.

GOVERNMENT DEPARTMENTS: Obtain Copy of the GovernmentNotification/order authorising the concerned person to open and operateaccount. Obtain copy of the letter signed by the Head of the Department,

authorising the official to open and operate bank account. Also obtain certified


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copy of rules and regulations framed by the department for opening andoperation of such account


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Banker -Customer Relation

ऱनेदने का कार

Type of Transaction

बक

Bank

गाहक

Customer

1. ायी अन दुशे का अन पुाऱन Standing instructions -Compliances

एजर Agent

वामी / मालऱक Principal

2. राक जि कना Seize of stocks

यासी Trustee

िहाधका Beneficiary

3. सामाय ाणाधका / ऱयन General Lien

ऱनेदा /ऋणिदाा Creditor

देनदा /ऋणी Debtor

4. वनयोग

Appropriation ऱनेदा /ऋणिदाा Creditor


5. वि ओुॊ क स ुिऺ अलभऺा Safe custody of Articles

न ेऺिपी ,

अमािनदा Bailee

न ेऺपक ,

अमािनिकाथ Bailor

6. म ुा कोष का खखाव (भा बक क सपि )Maintaining Currency Chest (RBI Property)

एजर Agent


7. मचर बक ॊग , ाहक क आिय का खखाव Merchant Banking, Maintenance of assets of

Customers



8. िभ ूिय का वय या य Sale or purchase of Securities

एजर Agent


9. िभ ूिय का बॊक Mortgage of Securities

बॊकाह Mortgagee

बॊकिकाथ Mortgagor

10. िभ ूिय का टरबॊन / हेन Hypothecation of Securities

टरबॊकाह Hypothecatee

टरबॊकिकाथ

Hypothecator

11. िभ ूि / शये क धगवी Pledge of Securities / Shares

धगवीदा Pledgee

धगवीिकाथ Pledger

12. पसैा / चके जमा कया गया ,जसके नपरान के अन दुेश ाि

नह ह ुए ह. Money /Cheques deposited pending




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instruction for disposal there of

13. डाक या िा िण Mail or Telegraphic Transfer

एजर Agent


14. जमा

िखा (नाम े

शषे )Deposit Accounts (with debit balance)



15. जमा िखा (जमा शषे )Deposit Accounts (with Credit balance)



16. चके क वस ऱू Collection of cheques

एजर Agent


17. ाहक वाा माॊग ाफर क खद Purchase of Demand Draft by customer


ऱेनदा /ऋणिदाा Creditor

18. ाहक को बक गाॊर जा कना Issue of Bank guarantee for customer

गाॊरिकाथ Guarantor


19. गै िखाााक को वलभन सवेाएॊ Providing various services to Non A/c holders

एजर Agent


20. गानशी

आदशे Garnishee Order



21. गिऱी स े ाहक के िखा े म ालश जमा क गई

Wrong credit given by Bank to customers accounted



22. क ु क आदशे Attachment order



23.

काये

प

ऱॉक

Leasing of Lockers पािकाथ

Lessor पेदा

Lessee

24. ओ डी सी सी ऋण (नामे शषे )O D C C Loan (with debit balance),



25. ओ डी सी सी ऋण (जमा शषे )O D C C Loan (with credit balance)



26. ऋण िखाा Loan Account




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27. अदािकाथ शाखा प ार का आिदाा Payee of Draft at paying Branch



28. अचऱ सॊपिय का बॊक

Mortgage of immovable properties

बॊकाह

Mortgagee

बॊकिकाथ

Mortgagor


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TYPES OF CHARGES, SECURITIES AND MORTGAGES

Fixed charge: It is created on properties such as land and buildings, plant &

machinery, plant & machinery, whose identity does not change during the

period of loan. The debtor has no right to dispose of the assets after creation

of charge without the consent of the creditor.

Floating charge: It is created on assets which undergo change(stocks). It is an

equitable charge on the assets of a going concern (ex: cash credit against

hypothecation of stocks). In floating charge, the security is allowed to be used

in the ordinary course of business until the charge crystallizes.

Pari Passu Charge: Pari Passu charge is created in favour of several

creditors, with the condition that they have priority on proportionate basis in

the ratio of their loans. It is generally created in case of consortium accounts.

Exclusive Charge: Only one creditor having the charge on the assets without

intervention of any other creditor, is called to have exclusive charge. First Charge: Where the assets are charges to a creditor on first basis, that

creditor has the first charge.

2nd charge: Where assets are already charged to a creditor on first basis and

subsequently the charge is created in favour of another creditor, the 2nd

creditor is called to have the 2nd charge.

Hypothecation: As per SARFAESI Act, 2002 (Sec2 (n) ), hypothecation has

been defined as ―a charge in or upon any movable property, existing or future,

created by a borrower in favour of a secured creditor without delivery of

possession of the movable property to such creditor, as security for financialassistance and includes floating charge and crystallization of such charge into

fixed on movable property‖.

Pledge: U/s 172 of Indian contracts Act, pledge is bailment of goods as

security for payment of a loan. Only goods(movable assets excluding

actionable claims(Sec2(7) of Sales of Goods Act) can be pledged.

Assignment: Assignment is transfer of an actionable claim (such as Life

Insurance Policy), which may be existing or future, as a security for loan.

The transferor of such claim is called the assignor and the transferee is called

the assignee. Actionable claim: As per section 3 of Transfer of Property Act, an actionable

claim means a claim to any debt other than a debt secured by mortgage of

immovable property or by hypothecation or pledge of movable property not in

the possession, either actual or constructive, of the claimant , which the civil

courts recognise as affording grounds for relief, whether such debt or

beneficial interest be in existence , accruing , conditional or contingent.

Mortgage: As per Section 58 of Transfer of Property Act 1882, mortgage is

transfer of interest in specific immovable property for the purpose fo securing

the payment of money advances or to be advanced by way of loan , an


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existing or future debt or the performance of an engagement which may give

rise to pecuniary liability.

Simple mortgage: When mortgagor without delivering the possession , binds

himself personally to pay the mortgage money and agrees that in the event of

his failure to pay the mortgage money, the mortgagee shall have a right tocause the property to be sold. Registration of the mortgage is compulsory.

Mortgage by conditional sale: In this, the mortgagor ostensibly sells the

mortgaged property on conditions that on default of payment of the mortgage

money, the sale shall become void or the buyer shall transfer the property to

the seller.

Usufructuary mortgage: Where the mortgagor delivers the possession and

authorises the mortgagee to retain possession until payment of the mortgage

money and to receive the rents and profits accruing from property or any part

of such property to appropriate the same in lieu of interest or the mortgage

money.

English Mortgage: Where the mortgagor binds himself to repay the mortgage

money on a certain date and transfers the mortgaged property absolutely to

the mortgagee , but subject to the condition that mortgagee will re-transfer the

property to the mortgagor upon payment of the mortgage money, as agreed.

Equitable mortgage: Where a person delivers to a creditor (say a Bank) or his

agent document sof title to immovable property , with the intent to create a

security thereon , the transaction is called a mortgage by deposit of title deed

or equitable mortgage.

Right of redemption: On liquidation of the debt, the mortgagor has the right toget back (redeem) the document relating to mortgaged property , where

possession has been given, to get back the possession and where title has

been transferred , to get retransferred. This right is known as right of

redemption , which can be exercised at any time before the decree for sale or

foreclosure has been passed by the court.

Right of foreclosure: On default by the mortgagor, the mortgagee in certain

types of mortgages has right to obtain a decree (before decree has been

made or money has been paid) from a court to the effect that the former be

debarred for ever to redeem the mortgage (get back the mortgage property).Such a right is called the Right of Foreclosure. A suit for foreclosure must be

filed within 30 years from date of mortgage money becomes due.


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Banker’s rights- Lien, set-off, appropriation , Garnishee order &Attachment Order

Lien has been defined as the right of a creditor to retain the possession of the

goods and securities owned by the debtor until the debt has been paid. Liendoes not include the right of sale of goods and securities.

Particular lien: In case of a particular lien the creditor gets the right to retain

possession only of goods or securities for which the dues have arisen and not

for other dues.

General Lien: A general lien gives the right to the creditor to retain the

possession till all amounts due from debtor are paid or discharged.

No Lien or negative Lien: When the borrower does not create any charge on

assets in favour of the Bank but gives an undertaking to the Bank stating (a)

that he is owner of a particular asset which is free from charges and (b) he willeither not dispose off the asset or will not create charge on the asset , without

concurrence of the Bank, such undertaking is known as no-lien or negative

lien.

Implied pledge and right of sale: To create general lien, no special contract is

required. It is always implied unless there is contract to the contrary. The right

to sell is also available under Bank‘s right of lien because a Banker‘s general

lien tantamounts to an implied pledge.

Banker‘s right to set-off: The set-off refers to ― combining of two or more

accounts for final settlement of accounts‘ (say an overdraft and a fixeddeposit). In other words, set-off is a process where the Bank recovers its due

loan to the debit of deposit account fo the borrower. The essential condition is

that one of such accounts must show a debit balance and the other , a credit

balance.

The right of set-off can be exercised only after sending a prior notice to the

depositor, expressing the intention to exercise the right. The notice will be of a

reasonable period.

The right of set-off can be used for those loans which have become due for

payment and the customer has defaulted. Where the customer has been

paying the loan as per agreed terms, the right is not available.

Time barred loans: Time barred loans can be recovered by use of right of set-

off, since such loans continue to be lawful.

Partners/ partnership: Where a partner‘s account shows credit balance, the

right of set-off can be exercised for the dues of the partnership firm. But

where the firm‘s account shows credit balance , the Bank cannot set off the

credit balance against the debts due from the individual partner.

Right of appropriation: Where a debtor has several debts with a creditor,

Sections 59,60 and 61 of the Indian Contract Act, 1872 deal with the

appropriation of payments made by the debtor to the creditor.


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Time of appropriation and combining of accounts:Right can be exercised only

at the time of a payment. Bank cannot unilaterally combine all the accounts of

customer.

Notice before appropriation: Where the Bank decides to appropriate the

payment under section 60, it has to send a notice to the customer. Whenappropriation comes to the notice of the customer , it becomes irrevocable.

Rule in Clayton‘s case: The rule is applicable in case of accounts such as

Cash Credit and Overdraft where the customer deposits and withdraws

money from the account frequently. As per this rule, the order in which the

credit entry will set-off the debit entry is the chronological order (ie the first

item on the debit side will be the item to be discharged or reduced by a

subsequent item on the credit side).

Garnishee order: Garnishee order is an order issued by a court on the request

of a judgement creditor for attachment of funds of the judgement debtor

available with his bank. The bank (Judgement debtor‘s debtor) on whom this

order is issued, is called Garnishee.

Order nisi: Through order nisi, court seeks the bank to advise as to why the

funds in teh account of judgement debtor should not be attached for meeting

the obligation towards the judgement creditor.

Order absolute: After the Bank clarifies its position, the court may issue the

absolute order. This order attaches amount of judgement debtor deposited

with the Garnishee bank. On receipt of this order, the bank remits funds of

judgement debtor to the court without production of any passbook or issuing

any receipt. Attachment order: Attachment order is issued by Govt authorities for recovery

of Govt dues. Income tax attachment order is issued by the Income Tax

Authorities under section 226 of the Income Tax Act, 1961. Attachment order

can be issued under other acts such as Wealth Tax Act, Sales Tax Act, DRT

Act, ESI Act , PF Act Etc.


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Limitation Act, Stamps Act & other Legal aspectsLoan Account –wise Limitation period:

Demand loans 3 years from date of loan

Demand promissory note 3 years from date of DPN Temporary overdraft 3 years from date of loan

Term Loan 3 years from due date of eachinstalment

Cash Credit Hyp 3 years from date of document

Bills discounting 3 years from due date of therespective bill

Bills purchasing 3 years from date of bill

Loans secured by mortgage Instead of 3 years, the periodwould be 12 years

Recovery of loss caused by fraud 3 years from date of frauddetection

Suit by State/ Central Govt 30 years from the period whenlimitation begins

Right of foreclosure & right ofredemption in case of mortgages

30 years after money becomesdue & when right to recoveraccrues , respectively

For balance due on a mutual ,open and current account / cashcredit a/c

3 years from close of financialyear in which last item is admitted

Deposit accounts like SB, CA ormatured FDRs

3 years from date of demand

Appeal to High Court againstLower Court

90 days from date of decree

Appeal to other courts on thedecree at Lower court

30 days from date of decree

Execution of decree 12 years from date of decree

Revival of Limitation , which has expired: Even after the expiry of limitation,

the liability can be enforced of there is a fresh promise to pay (express

agreement) the outstanding debt already barred by limitation, because u/s

25(3) of the contract Act , a time barred debt is a valid consideration for a

fresh promise to pay.

The stamp Act extends to whole of India except in J&K.

There are 3 kinds of stamps ie Judicial (used as per Court Fees Act for filing

of suits etc), non-judicial (used as per provision of Indian stamp Act for

commercial transactions) and postal stamps.

Time of stamping: The documents must bear the current stamp and must be

stamped before or at the time of execution.

Effect of non-stamping or under-stamping: Earlier 3 documents ( promissory

note, usance bill of exchange and acknowledgement of debt) if unstamped or


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inadequately stamped, could not be validated even after payment of duty. But

now all documents can be validated. Before filing the suit, the duty should be

paid so that they may be admitted in evidence on payment of duty including

deficit , with a penalty.

Cancellation of stamps: The adhesive stamps affixed on a document orinstrument should be cancelled by the executants by writing on or across the

stamp his name or initials or any other effectual manner, so that the stamp

can not be used again.

Effect of non-cancellation: Any instrument bearing adhesive stamps which

have not been effectively cancelled shall be deemed to be unstamped.

Special adhesive stamps or embossed or impressed stamps should not be

cancelled while executing documents. Nothing should be written across these

stamps.

Double signatures of the borrowers , one across the stamp and other without

stamp, should be obtained on the pronote or any other document requiring

adhesive stamps.

Execution outside India: Any document other than bill of exchange or

promissory note executed out of India and stamped at the time of execution is

subsequently brought to India , will have to be stamped again by the first

holder within 3 months of its arrival in India (in case of Negotiable Instruments

it should be before negotiation by 1st holder ( (Sec 18)

Penalty: It may be minimum Rs.5 and maximum upto 10 times of such duty or

deficient portion. Further any person executing a document which is not duly

stamped is committing an offence which is punishable with fine which mayextend to Rs.500/-.

Printed forms: Loan documents should preferably be obtained on the

prescribed printed forms of the Bank embossed with stamp. In case the

embossed printed forms are not available , teh instrument may be typed on

the non-judicial stamped paper of requisite value. At the time of execution,

care should be taken to ensure that stamp paper does not bear the date of

execution earlier than the date of purchase. Where two or more stamp

papers are used to make up the total duty payable , a portion of instrument

should be written on each paper.


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RIGHT TO INFORMATION ACT FOR BANKS

The President of India gave assent to the Right to Information Act, 2005 on15th June 2005. All Public Sector Banks are Public Authorities for the purpose

of the Act. Under the Act the Bank is supposed to answer the queries raised by the

citizens of Indian Union as well as customers. A General Manager at Head Office is designated as Central information

Officers (CPIO). Regional/Zonal Heads are the Public Information Officers ofthe Bank (PIO).

If the citzen is not satisfied with the information provided by the PublicInformation Officer of the bank he/ she may prefer an appeal to the Appellate Authority of the bank (CPIO).

A person, who desires to obtain any information under this Act, shall make a

request in writing or through electronic media in English or Hindi or in theofficial language of the area in which the application is being madeaccompanying such fee as may be prescribed by the Bank from time to time.

An applicant making request for information shall not be required to give anyreason for requesting the information or any other personal details exceptthose that may be necessary for contacting him.

All the members of the public are entitled to raise queries about the following:Particulars of Organization Structure Policies Grievance RedressalMechanismPay Structure Products. One may also raise queries on the other ones whichare not listed. The information about other customers of the bank doesn‘t

come under the scope of this act. The Public Information Officer will have to reply within 30 days after receiving

the application from the citizen. If the information seeker is not satisfied with the information provided by the

PIO, he has the right to appeal to the Central Information officer within 30

days after receiving the reply.

If he is not satisfied even with the information provided by the CPIO, the

citizen has the right to approach the chief information commissioner,

NewDelhi.


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Banking Code & Standard Board of India (BCSBI)

Based on the recommendations of Committee on Procedures and

Performance Audit on public Services (tarapore Committee), banking Codes

and Standards Board of India (BCSBI) was set up on the lines of a similar set

up in UK to oversee the Fair Practice Code evolved by the Bankers.

Objectives: The main objective of the BCSBI is to plan, evolve, prepare ,

develop, promote and publish voluntary comprehensive codes and standards

for banks for providing fair treatment to the customers. It shall carry out

activities on the basis of contract entered into with individual banks(the

process of registration)

Banking Codes and standards Board of India (on july 03,2006) released the

Banks‘ code for customer service which is a voluntary code. The code sets

minimum standards of banking practices for Banks to follow when Banks are

dealing with individual customers. It provides protection to the customers andexplains how banks are expected to deal with the customers for their day-to-

day operations.

Application of Code:

a.Current accounts/ saving accounts, term deposits, recurring deposit , ppf

accounts and all other deposit accounts.

b.Payment services such as pension, payment orders, remittances by way

of Demand Drafts and wire transfers.

c.Banking services related to Govt transactionsd.Demat accounts , equity , Govt Bonds.

e.Indian currency notes exchange facility

f.Collection of cheques , safe custody eservices, safe deposit locker facility

g.Laons and overdrafts

h.Foreign exchange services including money changing

i.Third party insurance and investment products and through branches

j.Card products including credit cards including credit cards, debit cards,

ATM cards and services (including credit cards offered by our subsidiaries/

companies promoted by us).


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Banking Ombudsman scheme & COPRA

Banking Ombudsman Scheme:

RBI notified the Banking Ombudsman Scheme 2006 ( on Dec26,2005), inpartial modification of its Banking Ombudsman Scheme 2002 to enlarge the

extent and scope of the authority and functions of the Ombudsman, u/s 35 A

of Banking Regulations Act, 1949. The scheme that came into force wef Jan

01, 2006 covers all commercial Banks, regional rural banks and schedules

primary co-op banks.

Objective: To facilitate resolution of complaints through conciliation and

mediation between Bank and customer OR by passing an Award.

Ombudsman: CGM /GM of RBI (not exceeding 3 years at a time). The cost is

borne by RBI. Who can file a complaint: A person himself / his authorised representative

(other than an advocate), on paper or through electronic media (e mail) OR

forwarded by RBI or Central Govt.

For Credit card, the jurisdiction is with reference to Ombudsman having

jurisdiction over the billing address of the card holder. For other accounts, it is

as per location of the Branch.

Process of redressal of grievance: By sending copy of the complaint to the

Bank, endeavour shall be made for a settlement by agreement through

conciliation or mediation. The proceedings shall be summary in nature. Award by the Ombudsman: Where a complaint could not be settled by

agreement within one month from the date of receipt of the complaint,

Ombudsman may pass an Award or reject the complaint , on the basis of

evidence , the principles of banking law and practice and RBI directions and

guidelines.

Award & Compensation: Award shall specify the amount of compensation, if

any, to be paid by Bank, not more than actual loss suffered as direct

consequence of act of omission or commission of the Bank or Rs.10 Lac,

whichever is lower. A copy of the Award shall be sent to the complainant and

the Bank.

Effect of Award: Award shall be binding on a Bank only if the complainant

sends acceptance of in full and final settlement, within 30 days from the date

of receipt of the Award.

Implementation: Consumer is to send acceptance of the award within 30 days

of date of receipt of the award. Bank is to implement the award within one

month from the date of receipt of the acceptance from the complainant and

intimate the compliance to the Banking Ombudsman.

Appeal: The customer can file an appeal to Appellate Authority (Dy Governor,

RBI), within 30 days of date of receipt of Award (which could be extended by30 days by Appellate Authority). The Appeal by Banks should be filed with


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sanction of CMD/ED/CEO. For Banks 30 days period for filing appeal begins

from the date of receipt of customer‘s acceptance. The Appellate Authority

may dismiss/allow the appeal ; OR set aside the Award; OR remand the

matter to Ombudsman for fresh disposal OR modify the order or pass any

order as it may deem fit. Internal Ombudsman: RBI advised ( May 11,2015) all public sector banks and

some private sector and foreign banks to appoint an internal Ombudsman, to

be designated as Chief Customer Service Officer (CCSO). The CCSO should

not have worked in the bank in which he/she is appointed as CCSO.

CONSUMER PROTECTION ACT(COPRA):

Consumer protection Act was initially enacted during 1986 and implemented

wef April 15,1987 to enable the customer to enforce his rights as consumer

through a simple legal procedure (not applicable in J&K). Who can file a complaint: A consumer individually or jointly , any voluntary

consumer organisation, central or state Govt.

Limitation Period: 2 years from the date of cause of action.

Pecuniary (financial) jurisdiction of different authorities: a) Dist Forum: upto

Rs.20 Lac; b) State Commission: Upto Rs.100 Lac; c) National Commission:

Above Rs.100 Lac

Penalty for non-compliance of orders: Imprisonment for not less than one

month and upto 3 years or fine not less than Rs.2,000/- and upto Rs.10,000/-

or both. Frivolous complaints: cost can be awarded upto Rs.10,000/- against the

complainant.

Appeal: The period for appeal is limited to 30days from date of order in all

cases. The party liable to make the payment , as per decision, to deposit the

following at the time of appeal:

Appeal to State Commission against Dist Forum: 50% or Rs.25,000/-

whichever is lower

Appeal to National Commission against State Commission: 50% or

Rs.35,000/- whichever is lower. Appeal to Supreme Court against State National Commission: 50% or

Rs.50,000/- whichever is less.


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KYC & AML GUIDELINES: Section 3 of PMLA 2002 defined Money laundering ― as: ―Whosoever directly

or indirectly attempts to indulge or knowingly assists or knowingly is a partyor is actually involved in any process or activity connected with the proceeds

of crime and projecting it as untainted property shall be guilty of offence ofmoney laundering‖.

Officially Valid Documents are: ii) PAN Card iii) Voter‗s Identity Card iv)Driving License v) Job Card issued by NREGA duly signed by an officer of theState Govt vi) The letter issued by the Unique Identification Authority of India(UIDAI) containing details of name, address and Aadhaar number.Information made available from UIDAI as result of e-KYC process can alsobe treated as OVD‗.

Observance of policy guidelines is a a)Regulatory Requirement – RBI Under

Sec. 35 A of BR act.& b)statutory requirement – PML Act 2002 with effect

from 01st July, 2005.

Three Stages of Money Laundering are a)PlacementStage,b)Layering Stage

and c)Integration Stage.

For the purpose of KYC Norms, a ‗Customer‘ is defined as a person who is

engaged in a financial transaction or activity with a reporting entity and

includes a person on whose behalf the person who is engaged in the

transaction or activity, is acting.

In terms of PML Act a ‗person‘ includes:(i) an individual,(ii) a Hindu undivided

family,(iii) a company,(iv) a firm,v) an association ofpersons or a body of

individuals, whether incorporated or not,(vi)every artificial juridical person, not

falling within any one of the above persons (i to v), and(vii) any agency, office

or branch owned or controlled by any of the above persons (i to vi).

Key elements of KYC &AML Policy of our Bank are Customer cceptance

Policy (CAP) Customer Identification Procedure (CIP)Customer Duediligence (CDD) Monitoring of transactions (MT)&Risk Management (RM).

OVD – In Case of Simplified Measures are a) Identity card with applicant‘s

Photograph issued by Government Departments, Statutory/ Regulatory

Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and

Public Financial Institutions; b)Letter issued by a gazetted officer, with a duly

attested photograph of the person.

For Simplified Measures proof od address can be Utility bill which is not more

than two months old of any service provider (electricity, telephone, post-paid


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mobile phone, piped gas, water bill);Property or Municipal Tax receipt;Bank

account or Post Office SB a/c statement;PPOs & Family PO s issued to

retirees, letter of allotment of accommodation from employer issued by State

or Central Government departments/ PSUs/SCBs/Fis/Listed Cos/Foreign

Offices.

Beneficial Owner/Key Person Who has controlling ownership interest (>25%

Shares or Capital or Profits).

Designated Director is: a person designated by the reporting authority to

ensure overall compliance is called Designated Director.

If an individual do not possess OVD even under simplified Measure, he/she

can open a Small Account, wherein a) the credits does not exceed Rs.1 lac.

b)withdrawals and transfers in a month does not exceed rupees ten thousandc) balance at any point of time not to exceed Rs.50000/- & d) no inward

remittance will be accepted.

Since introduction is not necessary for opening of accounts under PML Actand Rules or the Reserve Bank‗s extant instructions, bank should not insist

on introduction for opening of bank accounts.

Small account maybe opened on the basis of a self-attested photograph and

affixation of signature or thumb print.Thumb Print has to be obtained in the

presence of an authorised official of the branch duly attesting.

In respect of Foreign students:Open a Non Resident Ordinary (NRO) account

On the basis of his/her passport (with appropriate visa & immigrationendorsement) And a letter offering admission from the educationalinstitution.Obtain address proof giving local address with in 30 days - rentagreement/ Educational Institute.

For Foreign students,During the 30 days period: Allow foreign remittances

not exceeding USD 1,000 into the account Cap of monthly withdrawal to be

Rs. 50,000/-, pending verification of address.

High risk customers are:Customers in professions like antique dealers,

dealers in arms, money services bureau etc,Customers living in high risk

countries ,PEPs (Politically Exposed Persons) resident outside India/ of

foreign origin living in India,Individuals of Net worth of 1 crore and above

where source is not specified, Organizations receiving donations under

FCRA,Non face –to-face customers,All NR accounts etc.

Reporting of transactions to FIU-India:Cash Transactions report CTReach

month should be submitted by 15th of the succeeding month,Counterfeit

Currency Report –

CCR:for each month should be submitted by 15th of the

succeeding month,SuspiciousTransaction Reports (STR):should be furnished


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within seven days & Cross Border Wire Transfer: >Rs.5L by 15 th of

succeeding month.

Customer Acceptance Policy (CAP): Bank should obtain prescribedapplicationfrom the applicant along with the documents/information that isrequired as perconstitution, risk perception, banking practices, legal

requirements and RBIguidelines. Customer Identification Procedure (CIP): It means collecting information

relating to identity, activity, location of the person desiring to open an accountin single name or in joint names and verifying the information collected usingreliable,independent source documents, data or information.

E-KYC: In order to reduce the risk of identity fraud, document forgery and tohave paperless KYC verification, Unique Identification Authority of India(UIDAI) has launched its e-KYC services. The information containingdemographic details and photographs made available from UIDAI as a resultof e-KYC process is treated as an ―Officially Valid Document‖ under PMLRules.

Due Diligence: All the forms and documents submitted by the applicant whileopening of the account are to be verified by the officer with the originals toensure that the identification and address of the applicant is correct. Further,the officer should satisfy with the identity and legal existence of the applicantand note the same in the interview cum due diligence form.

Bank has introduced automated scanning system in our CBS environmentfrom 01.08.2015 for identification of illegal entities or individuals listed in the

UNSCR list before opening of accounts by the branches as per Section 51 Aof Unlawful Activities Prevention Act (UAPA)1967.

As per amendment to PML Rules 2005,in respect of OVD: ―A document shallbe deemed to an officially valid document even if there is a change in thename subsequent to its issuance provided it is supported by a marriagecertificate issued by the State Government or a Gazette notification, indicatingsuch a change of name‖.

Correspondent Banking: Correspondent banking is the provision of bankingservices by one bank (the correspondent bank) to another bank (the

respondent bank). These services may include cash/funds management,international wire transfers, drawing arrangements for demand drafts and mailtransfers etc.

Wire Transfer : Bank use wire transfers as an expeditious method fortransferring funds between bank accounts. Wire transfers include transactions occurring within the national boundaries of a country or from onecountry to another.

Cross-border Wire Transfer: Cross-border Wire Transfer Report (CWTR) isrequired to be filed with FIU-IND by 15th of succeeding month for all cross

border wire transfers of the value of more than five lakh rupees or its


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equivalent in foreign currency where either the origin or destination of fund isin India.


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OUR BANK DEPOSITS GUIDELINESWho can make fixed deposits

i) a single personii) two or more persons payable to

all of them jointly, or ―e or s‖ or ―a or s‖ or ―f or s‖ or ―L or s‖

iii) minors represented by their guardiansiv) a major on behalf of a minor with the stipulation that the deposit is to berepaid tothe latter on attaining majority.v) a sole proprietary concern or a partnership firm.vi) a joint stock company, a club, a society or an association or a chartableinstitutionvii) a Government/Quasi Government department et