A PROJECT ON CO-OPERATIVE BANK MANAGEMENT WITH SPECIAL REFERENCE TO RBI NORMS

Submitted towa d! t"e #a tia$ %u$%i$$me&t o% t"e e'ui eme&t %o t"e (e) ee o% MASTERS OF B*SINESS A(MINISTRATION SESSION +,-.--,-.,/

S*BMITTE( B01 NEHA LAHAR .-2-3,,34567 MBA 3TH Re)io&a$ I&!titute o% Ma&a)eme&t a&d Te8"&o$o)9 Pu&:ab Te8"&i8a$ *&i;e !it9< =a$a&d"a

PREFACE
MBA is a stepping-stone to the management carrier and to develop good manager it is necessary that the theoretical must be supplemented with exposure to the real environment. Theoretical knowledge just provides the base and its not su icient to produce a good manager thats why practical knowledge is needed. There ore the research product is an essential re!uirement or the student o MBA. This research project not only helps the student to utili"e his skills properly learn ield realities but also provides a chance to the organi"ation to ind out talent among the budding managers in the very beginning. #n accordance with the re!uirement o MBA course # have studed a project on the topic $%&-&'()AT#*( BA+, MA+A-(M(+T .#T/ 0'(%#A1 )(2()(+%( T& )B#
+&)M03

The in ormation regarding the project research was collected through the !uestionnaire.

A8>&ow$ed)me&t
# hereby want to thank a large number o individuals have contributed to project .This project is a humble attempt to sketch done the contribution o all those persons who have directly or indirectly given their precious time and help along with proper guidance or making this report in the ollowing shape. # was thrilled to ind that people were very co-operative and helped me in all ways possible. They were very eager in solving my !ueries and were ready to help all the time. # pay my gratitude to my parents4 amily members4 riends4 aculty members o ).#.M.T. or their moral support and whole hearted co-operation in dra ting this report. .

NEHA LAHAR 4

MBA 2nd year

Tab$e o% 8o&te&t

01.+&

TOPIC LIST OF FIG< ABV< TABLES E?EC*TIVE S*MMAR0

'A-(. +&

CHAPTER .

INTRO(*CTION TO IN(IAN BANKING S0STEM

CHAPTER , CHAPTER 7 CHAPTER 3 CHAPTER 2 CHAPTER @ CHAPTER 6 CHAPTER 5 CHAPTER 4 CHAPTER .-

ALL ABO*T PSC OB=ECTIVES OF THE ST*(0 METHO(OLOG0 (EPOSITS CASH HAN(LING AT BANK CLEARING LOAN RBI NORMS ON PRIORIT0 SECTOR LEN(ING RBI NORMS ON MAINTENANCE OF CRR AN( SLR

CHAPTER ..

RBI NORMS ON CAPITAL A(EA*AC0 BIBLOGRAPH0

Li!t o% Abb e;iatio&!

PSC NBFC!

'unjab state cooperative bank +on Banking 2inancial #nstitutions

7

IPO B GOI F( PAN K0C PC O( FO( SO( M( *I NPA RBI PCBC*CB PACS SEB ABC CRR

#nitial 'ublic & er -overnment o #ndia 2ixed 5eposits 'ermanent Account +umber ,now 6our %ustomer 'ersonal %omputer &verdra t 2ixed &5 0ecured &5 Managing 5irector #nsurance %ompany 7nited #ndia #nsurance %ompany +on 'er orming Asset )eserve Bank o #ndia 'rimary 87rban9 %o-operative Bank 'rimary Agriculture %redit 0ocieties 0tate (lectricity Board Adjusted Bank %redit %ash )eserve )atio
8

SLR (TL SBI (( IFSC

0tatutory 1i!uidity )atio 5emand and Time 1iabilities 0tate Bank o #ndia 5emand 5ra t #ndian 2inancial 0ystem %ode

Li!t o% Tab$e!

Tab$e 7D. 25 interest rate table Tab$e 3D. %ash receipt window Tab$e 3D, 2illing o cash receipt window Tab$e @D. rate o interest charged on loan
9

Li!t o% Fi)u e!

Fi)u e .D. %lassi ication o banks Fi)u e @D. 'rocedure or getting a loan

E?EC*TIVE S*MMAR0

5issertation Title: ST*(0 OF BANK MANAGEMENT WITH SPECIAL REFERENCE TO RBI NORMS +ame o student: Ne"a La"a

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This Thesis work gives a glimpse o working o a co-operative bank and its compliance with )B# norms. The bank basically has ive departments with the help o which it carries out is operations. These departments are 5eposits4 %ash counter4 1oan4 %learing and Maintenance. To start with it was necessary to know the services that are being o ered by the bank. Therea ter4 the study o bank was done by knowing the work done at each o these departments and then integrating their work to know how a bank per orms as a single unit. A ter knowing the operations o bank4 its maintenance or compliance o )B# norms was studied by reading the norms published by )B#.

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CHAPTER- .

INTRO(*CTION TO IN(IAN BANKING S0STEM

The #ndian banks can be broadly categori"ed into nationali"ed 8government owned94 private banks4 speciali"ed banking institutions and co-operative banks as shown in igure below.

Fi)u e .D. C$a!!i%i8atio& o% ba&>!

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&ver the years the nationali"ed banks have ac!uired a place o prominence and have seen tremendous progress. The need to become highly customer ocused has orced these slowmoving banks to adopt a ast track approach. &n the other hand private banks have been ast on the uptake and are reorienting their strategies using the internet as a medium.

%omplementing the roles o the nationali"ed and private banks are the speciali"ed inancial institutions or +on Banking 2inancial #nstitutions 8+B2%s9. .ith their ocused port olio o products and services4 these +on Banking 2inancial #nstitutions act as an important catalyst in contributing to the overall growth o the inancial services sector. +B2%s o er loans or working capital re!uirements4 acilitate mergers and ac!uisitions4 #'& inance4 etc. apart rom inancial consultancy services. Trends are now changing as banks 8both public and private9 have now started ocusing on +B2% domains.

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%o-operative banks are nimble ooted in approach and armed with e icient branch networks which ocus primarily on the retail segments. These banks which ocus on areas o agriculture4 rural development etc. has lower overheads. This enables them to give a marginally higher percentage on savings deposits. Among the above stated banks the #ndian nationali"ed banks 8banks owned by the government9 continue to be the major lenders in the economy due to their sheer si"e and penetrative networks which assures them high deposit mobili"ation. Moreover4 to control the actions o these banks4 the )eserve Bank o #ndia acts a centrali"ed body monitoring any discrepancies and shortcoming in the system. &ver the years4 the #ndian banking has gone through two main phases or changes which need to be +oticed and are there ore explained in the ollowing paragraphs.

.D Natio&a$iEatio& o% ba&>!
By the ;<=>s4 the #ndian banking industry had become an important tool to acilitate the development o the #ndian economy. At the same time4 it had emerged as a large employer4 and a debate was ensued about the possibility to nationali"e the banking industry. 0o or this4 #ndira -andhi4 the-then 'rime Minister o #ndia expressed this intention o the -&# 8-overnment & #ndia9 in the annual con erence o the All #ndia %ongress Meeting in a paper. The paper was
14

received with positive enthusiasm. Therea ter4 her move was swi t and sudden4 and the -&# issued an ordinance and nationali"ed the ;? largest commercial banks with e ect rom the midnight o @uly ;<4 ;<=<.This nationalism was described as a Amasterstroke o political sagacity3 by one o the national leaders o #ndia. A second dose o nationali"ation o = more commercial banks ollowed in ;<B>. The stated reason or the nationali"ation was to give the government more control o credit delivery. .ith the second dose o nationali"ation4 the -&# controlled around <;C o the banking business o #ndia. The nationali"ed banks were credited by someD including /ome minister '. %hidambaram4 to have helped the #ndian economy resist the global inancial crisis o E>>F-E>><. 1ist o 'ublic 0ector Banks in #ndia is as ollows: Allahabad Bank4 Andhra Bank4 Bank o Baroda4 Bank o #ndia4 Bank o Maharashtra4 %anara Bank4 %entral Bank o #ndia4 %orporation Bank4 5ena Bank4 #ndian Bank4 #ndian &verseas Bank4 &riental Bank o %ommerce4 'unjab and 0ind Bank4 'unjab +ational Bank4 0tate Bank o Bikaner G @aipur4 0tate Bank o /yderabad4 0tate Bank o #ndia 80B#94 0tate Bank o #ndore4 0tate Bank o Mysore4 0tate Bank o 'atiala4 0tate Bank o 0aurashtra4 0tate Bank o Travancore4 0yndicate Bank4 7%& Bank4 7nion Bank o #ndia.

,D Libe a$iEatio& o% ba&>!

#n the early ;<<>s4 the then +arsimha )ao government embarked on a policy o liberali"ation4 licensing a small number o private banks. The examples o private banks include -lobal Trust Bank 8the irst o such new generation banks to be set up94 which later amalgamated with &riental Bank o %ommerce4 Axis Bank8earlier as 7T# Bank94 #%#%# Bank and /52% Bank.
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E%%e8t! o% Libe a$iEatio&: The liberali"ation brought huge changes in the banking industry. 0ome o these changes are stated below. H The reserve which needed to be kept with the )B# was reduced to a great degree. The reduction o the %)) and 01) resulted in increased lexibility or banks in determining both the volume and terms o lending. H There was deregulation o interest rates which aimed at promoting inancial savings and growth o the organi"ed inancial system. H Because o the lowering o entry barriers4 competition has signi icantly increased since the beginning o the;<<>s. 0even new private banks entered the market between ;<<? and E>>>. #n addition4 over E> oreign banks started operations in #ndia since ;<<?.A ter the episodes o nationali"ation and liberali"ation4 the next stage or the #ndian banking had been setup with the proposed relaxation in the norms or 2oreign 5irect #nvestment4 where all 2oreign #nvestors in banks may be given voting rights.

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CHAPTER- ,

ALL ABO*T PSC BANK HISTOR0 OF P*N=AB STATE COOPERATIVE BANK

'unjab 0tate %ooperative Bank was established on I;st August4 ;<?< at 0himla vide registration +o. FE> has a principle inancing institution o the cooperative movement in 'unjab. #n ;<J; its /ead & ice was shi ted to @alandhar rom where it moved in ;<=I to its present building at %handigarh. #n the cooperative Banking structure4 the position o the 'unjab 0tate %ooperative Bank is extremely important as the whole credit system revolves around it.

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#t has ;< branches and I extension counters in %handigarh. There are E> 5istrict %entral %ooperative Banks having B>B branches all over 'unjab4 mostly in rural areas o the 0tate.

THE P*N=AB STATE COOPERATIVE BANK LT(DCHAN(IGARH

#t has ;< branches and I extension counters in the city o %handigarh. E> %entral %ooperative Banks having FBB branches and E< (xtension %ounters in the 0tate o 'unjab are a iliated with the bank. #n the %ooperative banking structure the position o the 'unjab 0tate %oop Bank is extremely important as a the whole short term credit system revolves around it. This bank ensures that its member central cooperative banks ollow sound banking practices and observe strict inancial discipline. The %entral %ooperative Banks are inancing the armers through 'A%0 at the village 1evel. There is no arena o li e where this premier institution has not played its part. 2rom a armer4 artisan to tradersKbusinessman4 everybody has been covered in the old o this institution. The green4 white and sweet revolutions in the state o 'unjab are some o the major achievement in which this institution has plays a vital role. The 'unjab 0tate %ooperative Bank has already been awarded AB(0T '()2&)MA+%( A.A)5A rom +ABA)5 and +A20%&B. 2or the year E>>I>?4 'unjab %ooperative Bank has been selected or +ABA)5s $Best
18

'er ormance Award $ which is based on per ormance o all the 0%Bs in the country. 0imilarly our @alandhar 5%%B has also been selected or +ABA)5s Best 'er ormance Award out o all the 5%%Bs in the country or the year E>>I OB=ECTIVES To serve as a Balancing %entre or %ooperative 0ocieties in the 0tate or %ooperative 0ocieties in the 0tate o 'unjab registered under the 'unjab

%ooperative 0ocieties Ac4 ;<=; or the time being in orce. To promote the economic interest o the member banks and cooperative societies in the state in accordance with cooperative principles and to acilitate the development and unding o any cooperative society registered under the said act. To carry on banking and credit business.

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CHAPTER- 7

OB=ECTIVE OF ST*(0
The objective o my study is to know the working and unctioning o the bank. /ow all internal work is done there4 how entries are being recorded4 how loan is passed and how the clearing o che!ues take place. # also want to know about saving and other di erent accounts4 about ixed deposits and long term deposits. Another objective o my study was to know the )B# norms concerned with the co-operative banks.
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21

CHAPTER- 3
METHO(OLOG0 METHO(S OF (ATA COLLECTION
0ource o data collection was both primary and secondary. 'rimary data was collected by interacting with employees in '0% bank. 0econdary data was collected by reading manuals which were published or banks which state various rules and procedures o bank and its unctioning. Also secondary data was collected rom various sites related to banking and )B#.

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LIMITATIONS OF ST*(0
There are ew limitations also o my study as employees o bank are busy persons and they dont have su icient time to answer my all !ueries.

CHAPTER- 2
23

(EPOSITS I&t odu8tio&

5eposits are the prime source o unds or the banks. The enormity o deposits replicates the amount o pro it that a bank can make. This is so because large chunk o deposits are given away as loans which renders higher interest rate than that given on deposits. 0o4 it is customary to encourage large number o huge deposits. This can be done by providing di erent types o deposits according to the needs o varied customers. These deposits as o ered are explained below AD Cu e&t BD Sa;i&)! CD Loa& a88ou&t
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(D FiFed ED Re8u i&) FD Lo8>e

Cu e&t A88ou&t
H #t is basically used or business purposes. #t doesnt give any interest on deposits. H #t can be held in the name o association94 person. H #ts prime purpose is to serve the customers or their daily business transactions. H A customer having current account can withdraw money in the orm o cash or che!ue in a in inite number o times and so is unrestricted. irms 8include partnership irm4 pvt. 1td. %o.4 ltd. %o.4 trust4

Sa;i&)! A88ou&t

25

H These deposits too are used or transactions purpose. 2or example i you want to pay electricity bill4 telephone bill etc. you can give a che!ue rom your savings aKc rather than giving hard cash. &ther things such as paying ees4 paying dues etc. can be done rom this aKc. H This deposit is usually held in the name o individual as it is used or personal purposes and gives interest at the rate o I.JC per annum. H +ote that trust and association can hold current as well as savings account. H A customer having savings account can withdraw money in the orm o cash or che!ue any no. o times. +ote that this withdrawing power can be di erent or di erent banks according to the rules and regulations o that particular bank. .

.FiFed (e#o!it! +F(/

H #t is a deposit which o ers the highest interest rate than any other above mentioned deposits. 0o it is mainly used or long-term saving purposes. 2or example: a couple having a child o the age o ;> keeps an 25 account so as to use the matured amount or the childs college ees in uture. H These deposits and its interest rates are explained in detail in the uture sections that are to come. )ecurring H #t is a type o 25 with deposits kept or ;E or more months. /ere the deposits are given at installment by the customer. The interest rate or these deposits is same as 25.
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Lo8>e
H # person is having locker acility rom bank then person will be charged )s J>> per annum plus service tax as a rent o a locker and i person is not able to pay this amount than he will be charged plenty o )s EJ per !uarter.

Ca!" Ce ti%i8ate de#o!it

H This is a type o 25. /ere4 the amount is compulsorily re!uired to be deposited or ;E or more months. The interest on the deposits is calculated !uarterly and is added to the principal which makes these deposits even more lucrative.

Cu e&t a88ou&t
a. 2illing o orm 8given in Appendix ;9 b. 'rere!uisites ;. 'A+ card 8compulsory9: #t is taken as photo proo as well as address proo . # there is a proprietor to a business then his 'A+ card is needed4 but i there is a partnership or association irm then 'A+ card o all the partners as well as 'A+ card o the business is re!uired. E. Address 8business proo 9. I. 'hotos. ?. )e erence 8names o re erences9.
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J. ,6% 8,now 6our %ustomer9 2orm: it is made mandatory rom last ; year 8given in appendix E9

Sa;i&)! a88ou&t
a. Address proo : residential address b. 'A+ card is not compulsory4 but can be accepted as photo proo . 2or photo proo a customer can give #5 cardK pass portK election card c. ,6% compulsory d. 'eople not having 'A+ card should ill orm no.=>8given in Appendix I9

Met"od! o% T a&!a8tio&
Basically there are three methods by which a depositor can make a transaction i.e. credit or debit his deposits. They are .D Ca!" ,D C"e'ue o% ow& ba&> 7D C"e'ue o% ot"e ba&> These transactions can be understood by bi urcating them as credit transactions and debit transactions as ollows:

C edit t a&!a8tio&!
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/ere suppose a depositor having his account in bank wants to credit his account4 then he can do this in ollowing ways: ;. %ash: /e can bring cash and deposit the same in his account 8current4 savings etc.9 E. %he!ue o own bank: /e can present a sel che!ue or a che!ue rom his customer 8having his Account in bank9 in his name. The che!ue amount is then credited to his account. I. %he!ue o other bank: /e can present a che!ue o some other bank which is written in his name. /e can present this che!ue at the clearing desk and can then credit his account with the amount mentioned in the che!ue.

(ebit t a&!a8tio&!
/ere suppose a depositor having his account wants to debit his account4 then he can do this in ollowing ways. ;. %ash: /e can withdraw the cash rom his account by issuing a sel che!ue. 8%urrent4 savings etc.9 E. %he!ue o own bank: /ere he can debit his account by issuing a che!ue to his %ustomer. +ow his customer can have one o the ollowing possibilities: a. /e can present it in bank 8i he is having his account in bank9 b. /e can present the che!ue at some other bank which through clearing comes or reali"ation.

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#n both the above cases the account o the depositor gets debited by the particular amount mentioned in the che!ue.

FiFed (e#o!it! +F(/

2rom the be ore stated deposits only 25 has a separate section o its own due to the high demand o it. 25s award higher return on investment or a depositor as compared to any other deposits. the ollowing interest rate was prevalent during my tenure o 0#'.

Tab$e 7D. F( i&te e!t ate

Time %o w"i8" de#o!it i! >e#t I&te e!t ate #e a&&um

Time #e iod F to ;? days ;J to ?J days ?= to <> days <; to ;F< days ;B> to L ; year ; to L E year E to LJ year

Rate o% i&te e!t E.JC IC ?C JC J.JC =.FJC FC

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J year and above

F.EJC

# a depositor is a senior citi"en 8above => years9 and i the deposit kept by him is or ;E or more months and amount is more than J>>> then he would be given >.JC more interest on his deposits. 25 once matured4 i not renewed in ;? days o its maturity4 then according to the rules o )B# only ?C interest is given on the days a ter maturity.

At %iFed de#o!it! 8ou&te < de#o!ito 8ome! %o t" ee t"i&)! a! !tated be$ow1 .D (e#o!iti&) &ew F(! ,D Re&ewa$ o% matu ed F(! 7D Ca!" wit"d awa$ % om F(! +ow4 the procedure ollowed by the banker at '0% when the depositor comes or the above stated three services is as ollows

.D (e#o!iti&) &ew F(!

/ere the depositor can give cash4 che!ue o the same bank4 che!ue o other bank. The pre re!uisites or this are 25 orm 'hoto proo 4 'A+ card and ,6% orm. The depositor also mentions the time period or which he wants to deposit the amount. A ter completing the ormalities on the depositor side the procedure ollowed by banker is M /e
31

ollows the path: 2ixed M master transaction Mcreate new which is applicable to '0% only. /ere he creates new account where the account number is automatically given by the system. #n the new account the banker enters the period or which the deposit is to be kept and rate o interest or that particular time period. The print o the receipt created is taken and is given to the customer.

,D Re&ewa$ o% matu ed F(!

/ere depositor comes or renewal o his 25s. /e ollows the ollowing procedure. a. /e should have brought the earlier receipt o his 25. b. /e should mention the time or which the 25 should be renewed. c. A ter this banks ill up a slip containing 25 aKc number4 name4 matured amount4 date 8all this data rom earlier receipt9 d. A ter this the o icer debits the current receipt by ollowing the path: 2ixed M transaction posting. /ere aKc number4 receipt number is entered and then the receipt is debited. e. Then credit to other receipt is done by ollowing the path: 2ixed M master transaction M 0peciali"e 8/ere by putting aKc number customers aKc details are shown9 M Add new: /ere the banker enters the details o new receipt such as date or renewal4 period or which 25 should be renewed and amount . Therea ter print o the new receipt is taken which is given to the client.

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+ote: /ere sometimes people come or cashing the interest o 25 keeping 25 intact. #n this case the only extra thing is to ill a orm which is given to savings department a ter which the customer withdraws the interest rom saving aKc.

7D Ca!" wit"d awa$ %o F(!

/ere depositor withdraws cash and irst and ourth step o the above procedure is ollowed. That is only the receipt is debited. A ter this or the customer to withdraw the cash4 the amount is credited to savings aKc 8# he is having the aKc in this bank9 or he is given pay slip 8i he is not having aKc in this bank9.

T a&!%e
This is one o the busiest sections in a bank. The work done here can be classi ied into two as ollows: ;. The trans er o und rom one aKc to another with both the accounts held in '0% bank E. The trans er o und rom one aKc to another with one held at '0% and other held at some other bank.

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#n the irst case4 a che!ue is issued by one '0% customer to another 8both having their accounts at '0%9. /ere4 the bene iciary presents the che!ue at trans er section with a illed slip showing the details o his aKc. A ter this the trans er section makes entry as per the slip and the che!ue and trans ers the und rom the remitting customers aKc 8aKc number mentioned in che!ue9 to bene iciary customers aKc. #n the second case4 the che!ues are provided by the clearing department to the trans er section. /ere there can be two cases ;. A remitting customer can have an aKc at '0%4 in which case the trans er section debits his aKc and credits the aKc o the bank whose che!ue is presented by clearing section to trans er section. E. A bene iciary customer can have an aKc at '0%4 in which case the trans er section credits his aKc and debits the aKc o the bank whose che!ue is presented by clearing section to trans er section.

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CHAPTER -@

35

CASH HAN(LING AT BANK

The handling o hard cash is one o the important jobs o the bank. Besides acing the threat o robbery4 the t etc. the cash department also needs to be alert about the small recklessness which can send a large amount o money out o the bank without any notice. 2or this there should be no loopholes in the procedure that is to be ollowed while giving and taking cash. Basically4 the cash department has two unctions that are to give cash and take cash rom its depositors. #t will be easy to understand this department by knowing what work is done on di erent desks and how it is done which are explained below.

SCROLL1 /ere the customers and its deposit or withdrawal details are entered into the system through '%. The procedure is as ollows ;. /ere the depositor comes with a slip and the withdrawer comes with a che!ue.

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E. 2rom the details o the slip or che!ue4 the banker here enters the data into the system through '%. I. 2irst he enters ) or '4 ) or receipt by the bank4 ' or payment by the bank. ?. 0econd he enters aKc type or example current4 savings4 /ypothecation etc. +ote that the colour o slip can be seen as an indicator o di erent accounts. 2or example red colour slip is used or /ypothecation4 green slip is used or savings4 white slip or current etc. #n case o che!ue4 the aKc type is mentioned on the same.

J. +ext he enters the aKc number o the customer as mentioned in the che!ue or slip. =. A ter entering aKc number4 another window will get displayed which will show the data o customer. The banker veri ies the details o this window with the slip or che!ue illed by the depositor. F. Then he enters the amount mentioned in the slip into the system 8'%9. B. A ter this a window will get displayed which shows the scroll number and other details. The banker writes the scroll number on the slip and returns the slip to the depositor. 2or withdrawer the banker gives a token which signi ies the scroll number. <. A ter this the clerk at the scroll section hands over the slip to cash taker or che!ue or authori"ation4 whatever the case may be.

CASH RECEIPT1 /ere the cash is taken rom the customer and this cash is then credited to the customers aKc. The procedure is as ollows
37

;. /ere the system 8on which the person is seated9 will display the pending activities i.e. the activities 8receipt only9 which are already scrolled but are not inished. E. /ere the customer comes with the slip that is scrolled. &n this slip the scroll number is already written 8 rom scroll9. I. The banker here looks at the scroll number in the slip and enters into the same scroll number in his system.

Tab$e 3D. Ca!" e8ei#t wi&dow

Note! F &umbe ;>>>x J>>x ;>>x J>x E>x ;>x Jx Ex ;x Total

amou&t

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Tab$e 3D, Fi$$i&) o% 8a!" e8ei#t wi&dow

+otes x number ;>>> x J> J>> x I> ;>> x J> x E> x ;> x Jx Ex ;x total

Amount J>>>> ;J>>>

=J>>>

The numbers displayed in red are entered and the amount in yellow is calculated by the system itsel . 2or convenience o the person two note counting machines are kept besides him.

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?. +ext the banker veri ies the slip 4 both part the slip has two parts4 one is to be retained by the customer and one is kept with the banker. /e initially veri ies both the part o the slips as both can have di erent igures 8mistakenly9. J. A ter veri ying the notes the banker imposes a stamp $received3 on the slip and gives back a part o the slip to the customer. The process gets completed. =. /e then hands over the slip to authori"ation section.

CASH PA0MENT1 /ere the cash is disbursed to the customer. The procedure ollowed is similar to the cash receipt. ;. /ere the banker has the !ueued activities on the system. /is work starts as soon as the customer approaches him with the token as mentioned be ore. E. A ter this he takes the token and looks at that particular token number in his !ueue. /e enters the particular token number in the system which again displays the window showing the notes as in cash receipt. /ere he enters the note given by him to the customer. I. 2or convenience he maintains bundles o notes which are not re!uired to be counted. 0o that he can !uickly disburse the cash as soon as the customer approaches him. +ote that according to bank sources the raud can happen only here in cash payment.

A*THORIGATION1 /ere the authori"ation o di erent transactions is done. This is done by o icer. The authori"ation is done o both the cash receipt and cash payment by bank. #n the

40

ormer case authori"ation is done at last 8Ird step9. #n the latter authori"ation is End step4 cash payment being the last. #n authori"ation the o icer acknowledges that the transaction occurred is right. /e has a window showing the pending activities. /e clicks on those and acknowledges these transactions. # the authori"ation is re!uired to be done or regular customer then he directly authori"es and i not so then he veri ies the sign o customer with the che!ue.8 in case o cash payment by bank9. +ote that in case o cash receipt by bank4 no customer would intentionally deposit the amount in somebody elses aKc. 0o4 here there is no need to veri y the signature. +ote that in case o cash receipt by the bank the order ollowed is ;. 0%)&11 E. %A0/ )(%(#'T I. A7T/&)#NAT#&+ .hereas in case o cash payment by bank it is as ollows ;. 0%)&11 E. A7T/&)#NAT#&+ I. %A0/ 'A6M(+T A transaction between cash received and cash payment section As mentioned earlier that the cash receiver receives and cash payer pays the cash. 0o on one side the payer wants cash to give it to the customers on need and on the other side receiver receives huge amount o cash which can be di icult to handle. 0o to solve both the problems a transaction happens between

41

the cash receipt and cash payment section4 where cash receipt section gives away money to the cash payment section. The procedure ollowed is mentioned below ;. At irst4 the cash payer enters into the window o demand. /ere he demands money rom the cash taker 8name is available in his window9. E. +ow a ter the demand is place neither o them can proceed. 0o4 the cash taker has to open his demand ul illment window and place a window showing notes to be given by him. A ter his acceptance o paying4 the cash payer receives the cash. +ote that once such transaction is in process4 no other work can happen on the system4 so as to avoid the delay and con usion.

CONCL*SION
%ash being an easily recogni"ed wealth4 is searched or by almost every person in the world. 0o it is necessary to have a stringent system o give and take o cash which can avoid any

42

mishaps o raud at the bank. Also accepting depositors cash is less risky than giving cash to him. 0o or this4 in case o giving o cash4 authori"ation is done be ore the payment o cash.

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CHAPTER -6

CLEARING I&t odu8tio&

Although )T-0 8)eal Time -ross 0ettlement9 and +(2T 8+ational (lectronic 2und Trans er9

44

0ystems are already introduced4 there is still time le t or these systems to become ubi!uitous. 7ntil that time4 the clearing section has to work ull- ledge and per orm its duty. This section deals with two types o transactions ;. 2irst transaction: #t can be understood by ollowing example. Mr. O having his aKc at '0%4 is given #%#%# bank che!ue by Mr. 6 or the services rendered to him by Mr. O. /ere Mr. O presents this che!ue at clearing section o '0%.'0% credits Mr. O aKc by the amount in che!ue although the che!ue is not o '0%. This is called outward clearing and is explained in later in this chapter. E. 0econd transaction: The example is as ollows. Mr. A having his aKc at '0%4 -ives '0%s che!ue to Mr. B or services rendered by Mr. B to him. Mr. B is not having aKc at '0% and so goes to his bank /52% or crediting the che!ue to his aKc. +ow4 /52% takes this che!ue and per orms certain ormalities and gives the che!ue to '0% or debiting Mr. As aKc by the amount mentioned in the che!ue. This is called inward clearing or '0% and is explained later. #n short clearing is debiting one aKc and crediting other aKc irrespective o the type o aKc and the bank in which the aKc is held. That is irrespective o the bank and type o aKc o remitting and

bene iciary customer4 the remitting customer will always get his aKc debited and the bene iciary customer will get it credited.

45

Outwa d C$ea i&)

'rocedure: /ere a customer comes with che!ueKs and a slip attached to it. The slip colour is indicative o the aKc type and its details contain aKc type and aKc number o bene iciary customer4 name o the bene iciary customerK irm4 and amount to be credited. The che!ue too contains the details such as name o the bene iciary customerK irm4 aKc number and aKc type o the remitting customer and the amount. A ter providing the slip and che!ue to the banks clearing department4 the procedure ollowed by banker is as ollows ;. 2irst the details o the slip vi". aKc type and aKc number o the bene iciary customer and amount are entered into the system 8'%9. /ere as soon as you enter the aKc number o the bene iciary customer4 the database o the system will show the name o the bene iciary customerK irm. *eri y this name with that mentioned on the slip4 so that the amount doesnt get credited to anybody elses aKc. E. +ext the details o the che!ue vi". remitting bank code and branch code 8 etched rom database o the bank94 che!ue number 8mentioned on the che!ue9 and the amount is entered. This inishes the process. +ote that i there is any mistake in the entry o the above transaction4 then it can be corrected while tallying in the a ternoon4 a ter which it is sent to clearing house.

I&wa d C$ea i&)

46

'rocedure: /ere the che!ues are received rom clearing house when a banker rom bank approaches the clearing house. A ter this the procedure ollowed by him is as ollows ;. The che!ues are segregated according to the aKc type vi". savings4 current4 etc E. A ter this any bunch is selected or data entry. /ere once the aKc type is entered or the irst che!ue4 every other a ter that goes into that aKc type only. I. A ter having entered the aKc type4 the che!ue details such as aKc number o the remitting customer4 che!ue number4 date and amount is entered. This inishes the process. +ote that no tallying is re!uired in inward clearing because unless the aKc number o the remitting customer and che!ue number dont coincide4 the system will not allow entering the data. This is so because the database here already contains the in ormation about which customer has been issued which che!ue book.

47

CHAPTER- 5

LOAN I&t odu8tio&

48

1ending o money as loans is one o the most important way in which the bank earns its pro it. #t is a service given by bank in which it lends money to the customer and gets it back at some later stage with interest as a pro it. Being a pro itable service to o er4 the banks always try to give away maximum number o loans at optimal risk. Moreover4 to cover the needs o di erent customers the bank o ers di erent types o loans4 which are described below. ;. /ypothecation-cash credit: This loan is basically given to business people on their trading stock. E. #ndustrial: 1ike /ypothecation this loan is also given to irms but here it is given on inished goods. The other things are same as /ypothecation. I. &verdra t 8&59: 2or the businesses like brokerage irms and trading irms4 where there is no record o the stock4 but has to keep large amount o unds to elicitate trade4 hypothecation and industrial loans cannot be given. 0o or the liberation o these irms4 &5 loans can be given. /ere these irms are given loans on the basis o their record o balance sheet and '+1 8'ro it and 1oss9 account. These loans are o E types vi". 2&5 and 0&5. 2&5 is the loan given against ixed deposit whereas 0&5 means 0ecured &5 and is given on the mortgaging o the property o the business land or property ?. 'ledge: /ere stock is under the control o bank. 2or example the key o the warehouse in which the goods are kept is with the bank. (xample o a ridge stock. 0uppose a warehouse o ridge is under the control o bank. +ow4 bank will give the keys to the stockholder only i he pays a part o loan which he has taken on the stock o ridge.

49

TERM LOANS1 These are loans in which monthly installments are made or disbursement or paying o o loans. The term or these loans is agreed upon in advance by the bank and

customer. These are mentioned below. J. %onsumption: This is called sel -mortgaging loan where the people usually comes or taking loans on their personal income. #t is the only type o loan where the purpose o the loan is not mentioned. =. 0ta %onsumption: This is similar to the consumption loan except that it is provide to sta people at a slightly lesser rate. F. %ommercial loan: This loan is provided to the small vendors4 who are in need o money or running their business. This is usually given to the people running small provision stores4 pan shops and others. B. *ehicle loan: As the name implies the bank gives loan on the purchase o vehicle. /ere a customer may want an old vehicle or a new vehicle. #n the ormer case the valuation o the vehicle is must. This valuation can be done by the bank or the customer himsel . #n the later case o new vehicle the bill !uotation is used or considering vehicles value and FJC o the value can be given as loan. /owever4 in case o old vehicle J>C o the value o vehicle is given as loan. <. Building loan: This loan is given on the purchase or construction o building or residential or business purposes. This type o loan is also one o the major contributors to the credit o the bank. These loans are basically taken by the public or housing and are also taken by the builders or construction purpose. The loan to the builders is given on the amount o the work

50

done. 2or example when the construction is about to start the irst installment o loan is sanctioned. Therea ter4 a ter the construction o ;st slab4 another installment is given and so on. ;>. %onsumable loan: This loan is given or consumable such as ridge4 T*4 A%4 etc. This is a type o personal loan wherein it is necessary to de ine the purpose o the loan. ;;. Machinery loan: This is a loan given to industries on the purchase o the machinery. /erein4 i it is a new machinery then bill !uotation is used as valuation. &n the other hand i it is an old machinery then a valuer o bank is asked to give valuation report4 based on which loan is sanctioned. ;E. -old loan: /ere the loan is given on the purchase o gold. This loan is a rarity now. ;I. Bill purchase: /ere the customers give their receipts receivables to the bank. Bank pay the total amount o bills to the customer and then it itsel collects the receivables on behal o the customers. )ate o interest on certain loans which were charged in '0% bank.

51

Fi)u e @D. ate o% i&te e!t

1&A+ A%%&7+T /&70#+- 1&A+ %A) 1&A+ T.& ./((1A) 1&A+ ')&'()T6 1&A+ )AT( &2 #+T()(0T ;>C ;;C ;;C %harged against ;J>C value o property (57%AT#&+ 1&A+ 5A#)6 1&A+ ).% 1#M#T <C ;>.JC ;;C

52

'rocedure or loan to get passed 2or the loan to get passed it has to pass through many hands as shown in the igure below.

Fi)u e @D. P o8edu e %o )etti&) a $oa&D

Re8e#tio&1 /ere a person in!uires about the loan rates and other prere!uisites that are to be
submitted. /e is provided this in ormation by the clerk at the reception. 2or example in case o hypothecation4 he is in ormed to submit his stock letters and details o other things which he wishes to mortgage or taking loan.

53

C edit ati&)1 Based on the documents submitted by the customer4 the credit rating o the
customer is done i.e. how much the loan amount should be granted to the customer is calculated. This is done as ollows ;. 2irst the total value o the customers assets is calculated. 2or example i loan is on a stock plus i he has provided the papers o his business land4 then in this case his credit will be calculated as a sum o the value o both these assets .i.e. total value P value o stock Q value o land E. +ow4 according to the rules o bank some percentage o the value o these assets can only be given as loan. This percentage varies or di erent types o loans and based on it the sanctioned loan amount is calculated.

I&!#e8tio&: A ter having calculated the credit and the amount that can be sanctioned or
loan4 the ile is orwarded or inspection. /ere4 the o icer veri ies the work done by the clerk at the credit rating desk. Moreover4 he checks the banks database to see i the loan taker has any previous obligations which are remaining to be met 8i he is an old customer9. A ter the satis action with all the parameters4 he hands over the ile to the loan manager.

Loa& Ma&a)e : /ere the ile is again examined and the interest rate or the loan is put
down. This interest rate is same or all the loans at ;JC per annum.

Meeti&)1 A ter having examined the ile4 the ile is then put orward be ore the %hairman
and Managing 5irector 8M59 in a meeting. This ile is then cross examined and is then made ready or disbursement o loan amount.

I&!u a&8e1 Be ore issuing the loan amount or opening o aKc or loan4 the customer is
re!uired to get insurance on the thing on which he wishes to take loan. This is done by bank
54

with the help o 7nited #ndia 87#9 #nsurance %ompany. Moreover4 i any other thing is mortgage or taking loan4 then the insurance is taken on that particular thing also. This is explained in detail in the coming sections.

Gi;i&) awa9 o% $oa&! A ter paying the insurance amount4 the loan amount or account is
handed over to the customer. 'rere!uisites or taking a loan- 2rom the customers point o view4 there are some ormalities and prere!uisites that are to be complied with be ore taking a loan. Among these prere!uisites4 some are more or less general which can apply to almost all types o loans mentioned above. /owever4 there are some other prere!uisites which are speci ic to particular loans. These general and speci ic prere!uisites are mentioned below -eneral 'rere!uisites ;. 1etter o %ontinuing 0ecurity 8 )s. J> stamp9 E. 5emand promissory note: #n this note it is stated that the customer is seeking loan rom the bank and promises to payback the same in due time. I. )eceipt showing the receiving o loan amount by the customer: #t is similar to the demand promissory note. ?. Acceptance o 1oan amount: #t shows the amount4 the interest rate Rr4 the penal interest rate4 sign o customer and his guarantors. #t also shows the guarantors making a promise o payback incase customer de aults. J. 1etter o guarantors: #t shows that the name o the people who are agreeing to be guarantors and making a promise o payback in case the customer de aults.
55

=. #t is a rule o )B# that any customer who wants to take loan orm a co-operative bank has to be necessarily the shareholder o the bank. #t was decided by )B# that or securedS loans the loan taker should possess E.JC and or unsecured Sloans he should possess JC o the sanctioned loan amount. F. ;.JC o the sanctioned amount is to be given as document charge to the bank. These documents involve all the above letters. S0ecured loans are loans on which enough properties or mortgaging is provided to cover the loan amount whereas unsecured loans are loans on which there are not enough properties or mortgaging to cover the loan amount. 0peci ic 'rere!uisites %onsumption and %ommercial 1oans: The prere!uisites or these loans involve all the above F. Besides these the ollowing prere!uisite is also re!uired. ;. 'apers o assets kept or mortgaging *ehicle loan or machinery loan: /ere too the prere!uisites involve all the points mentioned above. Be!ide! t"e!e !ome ot"e i&;o$;e ;. *aluation report: this report shows the value o vehicle or machinery. The loan amount is then sanctioned on the percentage amount o this value. /ypothecation loan: /ere all except ;st o the general prere!uisites are re!uired. #n addition to these others involve ;. 1etter o guarantors on )s. J> stamp E.Agreement on )s. J> stamp

I&!u a&8e

56

The customer will be taking loan on things such as stock4 building4 etc. &n these things the bank issues insurance which is compulsory. The insurance amount is to be paid by the customer. At irst time when the customer has just issued the loan4 he is asked to give a che!ue or pay cash to the bank or taking insurance. The bank in turn hands over this amount to the insurance company

Sto8> mai&te&a&8e
2or the loans such as hypothecation4 industrial and others4 where the loan is taken on stock o goods4 it is re!uired to maintain a stock ile or database in which the stock letters o customers is maintained. This is re!uired so as to know the capability o the customer in pay-back o the loan. Moreover4 it also shows that whether the loan acility given by the bank is properly used or not. The person here maintains the stock letter which shows the stock o the customer every month. The bank when it gives loan to a customer on stock at the irst time physically checks the stock. Therea ter4 it commands the customer to provide the bank with the stock letter. (very time the customer gives the stock letter4 his stock maintenance is checked against the amount o banks money which he is using. According to the rule o )B# or co-operative society4 F>C o his stock value should be greater than the amount o banks money used by him.

57

+ote that one may think here that when the customer comes or loan he can show a huge stock and then in the next show case on paper may show ake stock. This can create a raud i the customer runs away with the money. /owever4 it must be noticed here that besides the stock the bank asks or mortgaging o land4 machinery and other. 0o even i a customer wants cash credit o ; crore and he has stock P ; crore4 then too he is re!uired to mortgage the land4 machinery and other things. -etting back to the person on this desk4 he is re!uired to send the letters to customers every month telling them to send the stock letter. Along with this letter he sends a orm in which customer is asked to note down its stock. (very time the customer provides the banker with the stock letter4 the database 8a physical register9 is updated to in orm the system that the customer has given his stock letter. At the end o the closing date or the stock letter4 the customers who are still le t to give their stock letter are given a call.

Loa& Re8o;e 9 !e8tio&

This is the only less signi icant section o the whole bank as people here are having no work or less work. This is so because the '0% bank has almost "ero +'A 8+on 'er orming Asset9 and has very ew de aulters. As the name implies this section deals with the recovery o loan which is in danger o becoming +'A. The process here starts with the regular sight on the loan repayment instalments o the customer. The person here keeps updates o the loan repayment o customers. /e keeps a look at the loan repayment by all the customers as to whether they are able to success ully repay the loan or not.
58

2or a term loan4 usually a phone call is made initially when the customer is unable to pay the instalment till the ?th week a ter it is due. A ter this on the non-payment till J-= weeks4 he is given in ormal notice o bank. /ere the notice is also sent to the E guarantors o the customer. This is so because the guarantor will push the customer to repay the loan instalments as his image will be at stake. +ext the o icer here visits his place or collection o loan amount. (ven a ter this i the customer is unable to pay the instalment then the ormal court notice is sent to him. The same procedure is applicable to other loans too. (arlier under the law4 the bank had to approach the court and then do the need ul. But a ter some amendments to the law4 the bank can now itsel take steps such as auction the property o the customer etc. 0o nowadays the non repayment o loans is less as compared to the previous days as the power has moved into the hands o banks. .hen repayment o the loan occurs a ter the orce o loan recovery section4 then the additional document charge 8consisting o court papers etc.9 is charged to the customers. A copy o notice sent to the customer is kept with the bank. # a customer is unable to repay the ull amount then his guarantor is re!uired to pay the remaining or ull amount. But in rare case such a situation happens.

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60

CHAPTER- 4

RBI NORMS ON PRIORIT0 SECTOR LEN(ING I&t odu8tio&

)B# has incessantly believed that in giving the loans and advances4 the commercial banks should give priority to certain sections o the society such as agriculturists4 small scale industrialists etc. and or certain purposes such as housing loans4 education loans etc. This lending o money by bank is called $'riority 0ector 1ending3. A ter its ormali"ation in ;<FE4 )B# has over the years modi ied the regulations regarding lending to priority sector. #n 0eptember E>>J4 a ter examining and reviewing the regulations4
61

the )B# has decided to include only those sectors as part o the priority sector that impact large sections o the population4 the weaker sections and the sectors which are employment-intensive such as agriculture4 and tiny and small enterprises. Accordingly4 the broad categories o priority sector or 7%Bs 87rban %o-operative Banks9 will be as under:

.D A) i8u$tu e +(i e8t a&d I&di e8t %i&a&8e/

5irect inance to agriculture shall include short4 medium and long term loans given or agriculture and allied activities 8dairy4 ishery4 piggery4 poultry4 bee-keeping4 etc.9 directly to individual armers without limit or taking up agricultureKallied activities. 5irect inance may be limited to regular members and not to nominal members or to agencies like primary agriculture credit societies 8'A%094 primary land development banks etc. #ndirect inance to agriculture include loans given or agriculture and allied activities indirectly. 0ome o these loans include loans granted to +-&sKM2#s provided they have been admitted as members or on-lending to individual armers4 loans given to 0tate (lectricity Boards 80(Bs9 or providing low tension connection rom step-down point to individual armers.

,D Sma$$ E&te # i!e! +(i e8t a&d I&di e8t Fi&a&8e/

5irect inance to small enterprises shall include all loans given to micro and small

8manu acturing9 enterprises engaged in manu actureK production4 processing or preservation o goods4 and micro and small 8service9 enterprises engaged in providing or rendering o service. The micro and small 8service9 enterprises shall include small road G water transport operators4 small business4 pro essional G sel -employed persons4 and all other service enterprises.

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#ndirect inance to small enterprises shall include inance to any person providing inputs to or marketing the output o artisans4 village and cottage industries4 handlooms and to cooperatives o producers in this sector.

7D Retai$ T ade
)etail trade shall include retail tradersKprivate retail traders dealing in essential commodities 8 air price shops9.

3D Mi8 o C edit
This include provision o credit and other inancial services and products o amounts not exceeding )s. J>4>>> per borrower or the maximum permissible limit on unsecured advances whichever is lower.

2D Edu8atio& $oa&!
(ducation loans include loans and advances granted to only individuals or educational purposes up to )s. ;> lakh or studies in #ndia and )s. E> lakh or studies abroad4 and do not include those granted to institutions.

@D Hou!i&) $oa&!
1oans up to )s. E> lakh to individuals or purchaseKconstruction o dwelling unit per amily4 and loans given or repairs to the damaged dwelling units o amilies up to )s. ; lakh in rural and semiurban areas and up to )s. E lakh in urban and metropolitan areas.

63

CHAPTER- .64

RBI NORMS ON MAINTENANCE OF CRR AN( SLR

All primary 8urban9 co-operative banks 8'%Bs9 8scheduled as well as non-scheduled9 are re!uired to maintain stipulated level o cash reserve ratio 8%))9 and statutory li!uidity ratio 801)9. 2or this the )eserve Bank o #ndia has been periodically issuing instructions to these banks. #n regard to %))4 there are di erent provisions which govern the scheduled and nonscheduled banks. /owever4 or 01) each and every commercial bank is governed under the same provision. Be ore going urther and learning about the maintenance in detail4 it will be bene icial to learn certain terms which are a part o the uture explanation. These terms are speci ied in detail by )B# and are stated below 5emand and Time 1iabilities 85T19 1iabilities o the bank to the banking system is classi ied into two broad categories vi". 5emand 1iabilities and Time 1iabilities.

65

5emand 1iabilities to the banking system are urther classi ied as under: 8a9 Balances in current accounts maintained with '%Bs4 by H 0B# H 0B# 0ubsidiary Banks H +ationalised Banks 8b9 &ther demand liabilities comprises o TBalances in current accounts maintained with

'%Bs by ))B4 Banking %ompanies i.e. 'rivate 0ector Banks G 2oreign Banks4 %ooperative Banks4 &ther R+oti ied inancial institutions and others. #n short the balances with the bank which are payable to other banks and others on demand are called demand liabilities. 0imilarly4 the time liabilities are the liabilities which are not payable on demand but are payable only when the time is due or that particular liability. These time liabilities include 8a9 All types o time deposits rom the banks 8b9 %erti icates o deposits rom the banks 8c9 'articipation %erti icates issued to banks which are not payable on demand 8d9 #nterest accrued on time deposits o banks 2ortnight #t shall mean the period rom 0aturday to second ollowing 2riday4 both days inclusive.
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Maintenance o %)) According to the Banking )egulation Act4 every non-scheduled '%B is re!uired to maintain on daily basis a cash reserve4 an amount not less that I per cent o its 5T1 as obtained on the last 2riday o the second preceding ortnight and shall submit to the )eserve Bank be ore i teenth day o every month a return showing the amount so held on alternate 2ridays during a month with particulars o demand and time liabilities in #ndia on such 2ridays and i any such 2riday is a public holiday4 at the close o business on the preceding working day. This balance may be maintained by way o cash resources with itsel or by way o balance in a current account with the )eserve Bank or the 0tate %o-operative Bank o the 0tate concerned or by way or net balance in current accounts with the %entral %o-operative Bank o the district concerned. +ote that

according to )B# rules4 or %)) purpose the reserves can be held only in current account o any bank and balances in any other account cannot be taken as %)). )eporting )e!uirements 8i9 +on-scheduled banks are re!uired to submit a )eturn in 2orm #4 as per pro orma given in Table =.;Annex ?4 to the concerned )egional & ice not later than E> days a ter the end o the month to which it relates showing the position o cash reserve maintained by the banks as at the close o business on each alternate 2riday during the month4 with particulars o its 5T1 in #ndia on such 2ridays or i any such 2riday is a public holiday4 at the close o business on the preceding working day.

67

8ii9 +on-scheduled banks are re!uired to show the position o the 8a9 cash reserve re!uired to be maintained. 8b9 cash reserve actually maintained4 and the 8c9 extent o de icitKsurplus or each day o the month.

CHAPTER -..
68

RBI NORMS ON CAPITAL A(EA*AC0 I&t odu8tio&

%apital acts as a bu er in times o crisis or poor per ormance by a bank. 0u iciency o capital also instils depositors con idence. As such4 ade!uacy o capital is one o the pre-conditions or licensing o a new bank as well as its continuance in business. 0o to en orce the banks to be capital ade!uate4 capital ade!uacy norms were introduced amongst 7%Bs in April EJ4 E>>;. 0tatutory )e!uirements According to the Banking )egulation Act4 no cooperative bank shall commence or carry on banking business unless the aggregate value o its paid up capital and reserves is not less than one lakh rupees. 0hare linking to Borrowings
69

Traditionally4 7%Bs have been augmenting their share capital by linking the same to the borrowings o the members. The )eserve Bank has prescribed the ollowing share linking norms: 8i9 JC o the borrowings4 i the borrowings are on unsecured basis. 8ii9 E.JC o the borrowings4 in case o secured borrowings. This traditional approach to su iciency o capital does not capture the risk elements in various types o assets in the balance sheet as well as in the o -balance sheet business and compare the capital to the level o the assets.

Ca#ita$ to Ri!> A!!et Ratio +CRAR/

To overcome the shortcoming o the traditional approach4 %apital to )isk Asset )atio 8%)A)9 ramework has been adopted by most o the regulatory authorities as the basis o measurement o capital ade!uacy. %)A) takes into account the element o risk associated with various types o assets re lected in the balance sheet as well as in respect o o -balance sheet items and the level o capital held by the banks. #nitially )B# had introduced a minimum %)A) o BC in ;<<E4 or the commercial banks. This committee elt that the continued inancial stability o 7%Bs could not be ensured unless they were subjected to the %)A) discipline. The committee was o the view that %)A) norms should be implemented in respect o 7%Bs on account o the ollowing: i9 %)A) serves as a bu er4 which can absorb the un oreseen losses a 7%B may incur in utureD
70

ii9 7%B sector is an important segment o the inancial system and exclusion o this segment rom %)A) discipline would undermine the stability o the whole systemD and iii9 7%Bs per orm the same banking unctions as commercial banks and are subject to similar risks. To exempt 7%Bs rom the %)A) discipline would4 there ore4 be untenable.

Retu &!
Banks should urnish to the respective )egional & ices annual return indicating 8i9 capital unds4 8ii9 conversion o o -balance sheetKnon- unded exposures 8iii9 calculation o risk weighted assets4 8iv9 calculation o capital unds and risk assets ratio.

BIBLOGRAPH0

www.rbi.org.inK http:KKen.wikipedia.orgKwikiKBankingMinM#ndia http:KKwww.indiaonline.inK7tilitiesKBanksKbanks.asp

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