Banking and insurance short note by fasil PDF

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full note and short Note of banking and insurance of calicut university...

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Definition of a Bank Banking Regulation Act of 1949 defines banking as “accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise”. Characteristics / Features of a Bank 1. Dealing in Money 2. Individual / Firm / Company 3. Acceptance of Deposit 4. Giving Advances 5. Payment and Withdrawal 6. Agency and Utility Services 7. Profit and Service Orientation 9. Connecting Link 10. Banking Business

Types of banks 1. Commercial banks/Deposit banks Banks accept deposits from public and lend them mainly for commercial purposes for comparatively shorter periods are called Commercial Banks, They are oldest banking institution in the organised sector Features of Commercial banks • They accepts deposits on various accounts • They are the manufacturers of money • The perform many subsidiary services to the customer. • They perform many innovative services to the customers 2. Industrial banks/Investment banks which provide fixed capital to industries. They are also called investment banks,They are seen in countries like US, Canada, Japan, Finland, and GermanyIn India industriallike IFC and SFC Features of Industrial Banks

Participate in management. • n making right

relating to industries 3. Agricultural banks provide finance to agriculture and allied sectors, 4. Exchange banks Exchange banks finances foreign exchange business (export, import business) of a pg. 1 Co-operative College Vengara Banking&Insurance by Fasil Poniyeri 7902880004

country. The main functions of exchange banks are remitting money from one country to another country, discounting of foreign bills, buying and selling gold and silver, helping import and export trade etc. 5. Savings bank which specialise in the mobilisation of small savings of the middle and low income group.

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like post office 6. Central / National banks It is the highest banking & monetary institution in a country. It is the leader of all other banks. Since it is occupying a central position, it‟s known as Central Bank.Reserve Bank of India (India), Bank of Canada (Canada) Federal Reserve System(USA) etc are the examples of Central Banks. functions of a Central Bank  Monopoly of currency issue  Acts as banker to the govt.  Serves as bankers‟ bank  Act as controller of credit INDIAN BANKING SYSTEM 1. Unorganised Sector Indigenous Bankers -The exact date of existence of indigenous bank is not known .includes shroffs, seths, mahajans, chettis, etc. a. Moneylenders- They depend entirely on their own funds for lending. They include large farmers, merchants, goldsmiths etc. They charge a very high rate of interest for their loans. 2. Organised Sector Reserve Bank of India (RBI) The Reserve Bank of India (RBI), the central bank of India, which was established in 1935, has been fully owned by the government of India since nationalization in 1949. Like the central bank in most countries, Co-operative banks,Commercial Banks,Regional rural Banks 1- Commercial Banks There are three types of commercial banks in India 1. Public sector banks 2. Private Banks 3. Foreign banks Public sector banks These are banks where majority stake is held by the Government of India or Reserve Bank of India. EG- CENTERAL BANKOF INDIA,SBT, SBI,INDIAN BANK ,BANK OF INDIA Private Banks Private Banks are banks that the majority of share capital is held by private individuals. EG-FEDERAL BANK,ICIC BANK ,HDFC BANK , SOUTH INDIAN BANK

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*Foreign Banks Foreign banks are registered and have their headquarters in a foreign country but operate their branches in India EG- DOHA BANK , BANK OF AMERICA ,BANK OF BAHARAIN &KUWAIT 2-

Co-operative banks

Co-operative banks are banks incorporated in the legal form of cooperatives.a license from the Reserve Bank of India Primary Credit Societies: fund borrow at the village or town level Central Co-operative Banks:fund borrow and operate at the district level State Co- operative Banks: states of the country 3- Regional rural Banks The regional rural banks are banks set up to increase the flow of credit to smaller borrowers in the rural areas. *Development Banks -Development Banks are banks that provide financial assistance to business Industrial Development Bank of India (IDBI) Industrial finance Corporation of India (IFCI) Industrial Credit and Investment Corporation of India (ICICI) *Specialized Banks support for setting up business in specific areas of activity. Export Import Bank of India (EXIM Bank): Small Industries Development Bank of India National Bank for Agricultural and Rural Development CUSTOMERS OF A BANK In the ordinary language, a person who has an account in a bank is considered its customer. must have an account with the bank – i.e., saving bank account, current deposit account, or fixed deposit account. 2. The transactions between the banker and the customer should be of banking nature

1. He

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Special Types of Customers I. Minors:Under the Indian law, a minor is a person who has not completed 18 years of age. The period of minority is extended to 21 years in case of guardian of this person or property is appointed by a court of law before he completes the age of 18years. II. Lunatics:A lunatic or an insane person is one who, on account of mental derangement,the banker must obtain a Certificate from two medical officers regarding his mental soundness at the time of operation on the account. III. Drunkards: A drunkard is a person who on account of consumption of alcoholic drinks get himself intoxicated and thereby, loses the balance over his mental capacity and hence, is incapable of forming rational judgement IV. MarriedWomen: An account may be opened by the bank in the name of a married woman as she has the power to draw cheques and give valid discharge. At the time of opening an account in the name of a married woman, it is advisable to obtain the name and occupation of her husband and name of her employer, V. Insolvents: When a person is unable to pay his debts in full, his property in certain circumstances is taken possession of by official receiver or official assignee, under orders of the court. He realises the debtor‟s property and rateably distributes the proceeds amongst his creditors. VI. Illiterate Persons: A person is said to be illiterate when he does not know to read and write. No current account should be opened in the name of an illiterate person. However, a savings bank account may be opened in the name of such a person.his thumb mark in the presence VII. Agents: A banker may open an account in the name of a person who is acting as an agent of another person VIII. Joint Stock Company Memorandum of Association: Memorandum of Association is the main document of the company, Articles of Association:ules and regulations of the company regarding its internal mgt (c) Certificate of Incorporation:

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d)Certificate to Commence Business, (e)Registration of Charges: X. Partnership Firm: XI. Joint Accounts: When two or more persons open an account jointly, Joint Hindu Family :Joint Hindu family is an undivided Hindu family which comprises of all male members descended from a common ancestor. They may be sons, grandsons and great grandsons, their wives and unmarried daughters.It is managed and represented in its dealings and transactions with others by the Kartha who is the head of the family XIII. Trustees: FUNCTIONS OF COMMERCIAL BANK 1. Principal/ Primary/ Fundamental functions 2. Subsidiary/ Secondary/ Supplementary functions 3. Innovative functions. Principal functions 1. Receiving deposits 2. Lending of funds 3. Credit Creation 4. Investment of funds in securities 5. Promoting cheque system XII.

1. Receiving deposits Features of Current Accounts - It is generally opened by trading & industrial concerns. - It is opened not for profit or savings but for convenience in payments Introduction is necessary to open the account. 2. Lending of funds commercial banks is to advance loans to its customers. Banks charge interest from the borrowers and this is the main source of their income. (i) Cash Credit,(ii) Term loans,(iii) Over-Drafts OD,(v) Money at Call and Short notice

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3. Credit Creation 4. Investment of funds in securities 5. Promoting cheque system

2. General Utility Services : -AGENCY SERVICE -LIC -LOCKER FACILITY -MERCHANT BANKING 3-Innovative Functions 1. ATM services 2. Debit card and credit card facility 3. Tele-banking 4. Internet Banking 6. Mobile Banking: 8. Electronic Fund Transfer Role of commercial banks in a developingeconomy 1. Capital formation 2. Encouragement to entrepreneurial innovations 4. Influencing economic activity 6. Promotion of trade and industry 8. Regional development 9. Development of agricultural ROLE OF BANKS IN ECONOMICDEVELOPMENT 1. Mobilising Saving for Capital Formation 2- Financing Industry 3. Financing Trade 4. Financing Agriculture: 5. Financing Consumer Activities 6. Financing Employment Generating Activities 7. Help in Monetary Policy TYPES /GROUP OF BANKING Branch Banking:two or more banks are opened under a single ownership. EG SBI, IN BNK 1-Unit Banking: 2- Group Banking 3- Chain Banking:4- Deposit Banking:5Mixed Banking RESERVE BANK OF INDIA (RBI) which is entrusted with the task of controlling, supervising, promoting, developing and planning the financial system.It is the authority to regulate and control monetary system of our country. It controls money market and the entire banking system of our coun Central Board:which consists of 20 member team including a Governor,19 pg. 7 Co-operative College Vengara Banking&Insurance by Fasil Poniyeri 7902880004

Mmbr+govrnr Deputy Governors and 15 Directors

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Local Board:Local Board with head quarters at Bombay, Calcutta, New Delhi and Madras.Local boards consist of 5 members each appointed by the Central Government. FUNCTIONS OF RBI A. Issue of currency notes B. Acting as banker to the Government(a) as a banker,(b) as a financial agent, C. Serving as banker of other banks

and (c) as afinancial advisor

1. It 2. It 3. It

holds a part of the cash balances of the commercial banks acts as the clearing house provides cheap remittance facilities to the commercial banks 4. It provides financial accommodation to the commercial banks D. Controlling credit 1. Bank rate policy 2. Open Market Operations 3. Variable Cash reserve ratio 4. Variable Statutory Liquidity Ratio 5. Repo Rate and Reverse Repo Rate E. Controlling foreign exchange operations E-BANK / EMERGING TRENDS INBANKING E-Banking- Online banking, also known as internet banking, e-banking or virtual banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website. To access a financial institution's online banking facility, a customer with internet access would need to register with the institution for the service, and set up a password and other credentials for customer verification . the banking services are delivered by way of a Computer-Controlled System Features of E-Banking o Viewing account balances o Viewing recent transactions o Downloading bank statements, for example in PDF format o Viewing images of paid cheques o Ordering cheque books o Download periodic account statements o Downloading applications for M-banking, E- banking etc Advantages of E-banking • Permanent access to the bank

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• Lower transaction costs / general cost reductions • Access anywhere POPULAR SERVIRCE / INNOVATION FUNCTION OF E-Banking 1. Automated Teller Machines, 2. Credit Cards,- Credit Card is a post paid card. 3. Debit Cards,- is a prepaid card with some stored value 4. Smart Cards,- usually contains an embedded microprocessor 5. Electronic Funds Transfer (EFT) System, 6. Mobile Banking, 7. Internet Banking, 8. Tele-bankingIt is a delivery channel for marketing, banking services 12. Social Banking 13- e-cheque 14-National Electronic Fund Transfer (NEFT) 14-Real Time Gross Settlement System(RTGS): IFSC -IFSC or Indian Financial System Code E-purse -Electronic money, or e-money Virtual Banking A bankthat offers exclusively over the Internet,

services predominately or

National Electronic Fund Transfer (NEFT) National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to- one funds transfer. Real Time Gross Settelmennt System (RTGS): It can be defined as the continuous (real- time) settlement of funds transfers individually on an order by order basis . NEFT RTGS Based • Based on Deferred Net Settlement(DNS) on Gross Settlement • Fastest method of money transfer Slower than RTGS transfer • Complete transactions in batches Complete transactions individually • There is no minimum limit of transactions. Minimum amount to be remitted is 2 lakhs • Settlement on hour basis. (11 settlementsfrom Settlement in real time (at the time the transfer order is processed 9am to 7pm) transfer order is processed) Working of NEFT system (see book )

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NEGOTIABLE INSTRUMENTS - Act, 1881.

Parties to bills of exchange

"A .negotiable instrument" means a promissory note, bill of exchange or cheque payab1e either to order or to bearer. The term "negotiable instrument" means a document transferable from one person to another. Important Characteristics of Negotiable Instruments 1- freely transeferable (2) The holder of the instrument is presumed to be the owner of the property contained in it. Classification of Negotiable Instruments (1)Bearer Instruments (2)Order Instruments (4) Foreign Instruments (5) Demand Instruments (6) Time Instrument Kinds of Negotiable Instruments (I) Promissory Notes signed by the maker to pay a certain sum of money to, or

to the order of, a certain person, or only to bearer of the instrumenA "promissory note" is an instrument in writing Essentials of a Promissory Note (a) It must be in writing. (b) It must contain an express promise or clear undertaking to pay. (c) The promise or undertaking to pay must be unconditional. (d) The maker must be a certain person (e) The payee must be certain. (f) Payment must be in legal money of the country Parties to a Promissory Note (a) The maker: the person who makes or executes the note promising to pay the amount stated therein. (b) The payee: one to whom the note is payable. (c) The holder: is either the payee or some other person to whom he may have endorsed the note. (ii) Bills of Exchange 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 pg. 11 Co-operative College Vengara Banking&Insurance by Fasil Poniyeri 7902880004

only to or to the order of, a certain person or to the bearer of the instrument.

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The Drawer: the person who draws the bill. (b) The Drawee: the person on whom the bill is drawn. (c)The Acceptor: one who accepts the bill. Generally, the drawee is the acceptor but a stranger may accept it on behalf of the drawee (d) The payee: one to whom the sum stated in the bill is payable, either the draweror any other person may be the payee. (e) The holder: is either the original payee or any other person to whom, the npayee has endorsed the bill. Essentials of a Bill of Exchange: (1) It must be in writing. (2)It must be signed by the drawer. (4) The parties must be certain. (5) The sum payable must also be certain. Distinction between Bill of Exchange and Promissory Note (a) A cheque is a bill of exchange and always drawn on a banker, while a bill may be drawn on anyone, including banker. (b) A cheque can only be drawn payable on demand, a bill may be drawn payable on demand, or on the expiry of a specified' period after sight or date. (c) A bill payable after sight must be accepted before payment can be demanded, a cheque does not require acceptance and is intended for immediate payment. (d) A grace of 3 days is allowed in the case of time bills, while no grace is given. in the case of a cheque, for payment (e) Notice of the dishonour of a bill is necessary, but not in the case of a cheque. (a)

Inland Bills (Sections 11 and 12) A bill of exchange is an inland instrument ,India upon any person who is a resident in India Foreign Bills - opst of inland Trade Bill - trad ebill exchng A sell good to B and allows him 90 days time to pay the price Accommodation Bill Bank Draft a bill of exchange drawn by one bank on another bank, LIKRE CHEQUE Cheques- a cheque is a bill of exchange drawn on a bank payable always on demand Parties to a cheque (a) The drawer: The person who draws the cheque. (b) The drawee: The banker of the drawer

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Banker -"accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise Customer one who has an account with the bank or who utilises the services of the bank. Liability of a Banker opening a current account of a customer, Payment in due Course (Section 10) Any person liable to make payment under a negotiable instrument, must make the payment of the amount due thereunder in due course in order to obtain a valid discharge against the holder Collecting Banker Collecting Banker is one who collects the proceeds of a cheque for a customer.. Liability of Parties 1. Liability of Drawer (Section 30) 2. Liability of the Drawee of Cheque (Section 31) 3. Liability of "Maker" of Note and ''Acceptor' of Bill (Section 32 4. Liability of endorser (Section 35) 6. Liability interse 7. Acceptor's Liability on a Bill drawn in a Fictitious Name Endorsement (Sections 15 and 16) 'endorsement' means and involves the writing of something on the back of an instrument for the purpose of transferring the right, title and interest therein to some other person. Classes of endorsement (a) Blank or General: An endorsement is to be blank or general where the endorser merely writes his signature on the back of the instrument, (b) Special or Full: If the endorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of a specified person, the endorsement is said to be special (c) Restrictive: An endorsement is restrictive which prohibits or restricts the further negotiation of an Instrument (d) Partial: An endorsement partial is one which purports to transfer to the endorsee a part only of the amount payable on the instrument. SEE BOOK Electronic Payments

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transfer ofmonetary value, and includes the institutions, instruments, people, rules, procedures, standards, and Technologies that make such an exchange possible. Requirements for E-payments 1. Security 4. Customer base 7. Ease of use 2. Reliability 5. Flexibility 8. Ease of integration 3. Acceptability 6. Flexibility Types of E-payments CARDS Credit cards, debit cards and prepaid cards currently represent the most common form of electronic payments. Internet Online payments involve the customer transferring money or making a purchase online via the internet. Mobile Payments Mobile p...