BANKING REGULATIONS AND

SERVICES

Dr.N.Ramesh Kumar
 SYLLABUS
UNIT – I
Banking Services Fund Based Business
– Deposit Products – CASA and Team
Deposits – Different types of
Commercial Loans, Retail Loans and
Wholesale Loans – Trade finance –
Overdraft Facilities – Primary and
Collateral Securities – Modes of
creating charges on securities –
Hypothecation, Pledge, Mortgage, Lien
 UNIT - II
• Role of IT Banking Technology –
Electronic Banking – Core
Banking, Mobile Banking, Online
Banking – Remittance Facilities
and Clearing system : National
Electronic Fund Transfer (NEFT),
RTGS, ECS, SWIFT, MICR –
ATMs, Credit / Debit / Smart
 UNIT - III
• Structural Framework Indian
Banking System : an Overview –
Banking Structure – Different
types of Banking – Investment
Banking and Commercial Banking
– Central Bank – Need and
establishment – Organization and
Administration of RBI – Functions
of RBI – State Level Banking
 UNIT - IV
• Regulatory Framework Banking
Regulations Act – RBI Act –
Credit control measures and
Monetary policy of RBI : CRR,
SLR, REPO rates, Reverse
REPO rates and Base Lending
Rate – Bank Capital : Tier I & Tier
II – Base1 III and Capital
Adequacy norms (CAR AND
 UNIT - V
• Marketing of Banking Services
Marketing Strategies :
Segmentation, Marketing Mix for
Banking Services – Product and
Services Innovation – Cost
effective pricing, One stop shop,
Cross selling of products, value
added services, Marketing
Information System – Importance
 BANKS AND BANKING
The Banking Companies Act of 1949,
defines :
It defines banking as, accepting for the
purpose of lending or investment of
deposit money from the public,
repayable on demand or otherwise
and withdraw able by cheque draft ,
order or otherwise
A bank as an institution dealing in
money and credit. It safeguard of
Structure of Banks in India
Stages in History of Banking in India
History of Banking has been
divided into Stages like:
•Pre-independence stage
•Post Independence stage
•Nationalization of Banks
•Introduction of Financial Sector
Reforms
 History of Banking in India
(Pre-Independence Stage)
There were three oldest Banks called
Presidency Banks.
•Bank of Bengal (Earlier Bank of Calcutta)
•Bank of Bombay
•Bank of Madras
They merged in 1925 to form the Imperial
Bank of India, which after independence
became State Bank of India.
Reserve Bank of India came
into existence in the year of
 Banking Scenario after Independence
•In 1948, the Reserve Bank of India was
nationalized, and it became an institution
owned by the Government of India.
•In 1949, the Banking Regulation Act was
enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control,
and inspect the banks in India."
 Nationalisation of Banks
On July 19, 1969, 14 major banks
were
.
nationalised.
On April 15, 1980 another 6 banks
were nationalised
With the nationalisation, the
banking inIndia shifted from
‘Class’ banking to ‘Mass’ Banking
 Liberalisation
• In the early 1990s the Govt
embarked on a policy of
liberalisation and gave licences to
a small number of private banks,
which came to be known as New
Generation tech-savvy banks like
Global Trust Bank, UTI Bank(now
re- named as Axis Bank), ICICI
Bank and HDFC Bank.
 Narasimham Committee
The first Narasimham
Committee was set up
in 1991 to suggest
remedial measures for
strengthening the
banking system
encompassing:
Banking Policy
 Thrust of reforms
The main thrust of economic reforms
was on:
1.Removal of structural bottlenecks
2.Improvement in trading, clearing
and settlement practices
3.Introduction of new players and
instruments
4.Introduction of free pricing of
financial assets
 Banking & Indian Economy
A study of the economic history of western
country shows that without the evolution of
commercial banks in the 18th and 19th
centuries, the industrial revolution would not
have taken place in Europe.
The economic importance of banks to the
developing countries may be viewed thus:
1.PROMOTING CAPITAL FORMATION
2.ENCOURAGING INNOVATION
3.MONETSATION
4.INFLUENCE ECONOMIC ACTIVITY
5.FACILITATOR OF MONETARY POLICY
The product mix for business
banking services is very broad
and product lines are deep, with
many product items. Products
are often customized to the
needs of the customer. There
can be two type of banking
products;
•Fee based Banking Products/
Fee based Banking Products/
Services
Broadly fee based services can
be divided into two
categories:
• Corporate fee-based services
• Retail fee-based services
 Fee- based
Corporate
Services Retail Fee-
Fee- based based
Services Services

 Cash Management  Personal Tax Counseling

Services  Credit Cards
 Collection  Debit Cards
 Payment  Smart Cards
 Liquidity  E-Cash
 Merchant Banking  Automated Teller
 Foreign Exchange Machines (ATM)
Services  Foreign Inward/Outward
 Bill Discounting Remittances
 Factoring  Fund Transfer Facilities
 Forfeiting  Microfinance
 Leasing  Online Trading
 Credit Rating  Utility Bills Payment
 Letter of Credit  Portfolio Management
 Bank Guarantee  Safe Deposit Lockers
 Safe-Custody Facilities
 Corporate fee-based services :
A corporate fee based service is a
collective term giving to all those
financial services that various
financial institutions, bank offer to
corporate customers on payment
of a fee. The various fee-based
services provided by banks to
corporate customers are:
•Cash Management Services
Cash management is the effective
management of cash in order to minimize
transaction costs, exercise greater control
and maximize returns. Banks offer cash
management services to their corporate
customers.
Cash management services can be broadly
divided into three sub categories. They are:
•Collection : Collection and disbursement
of cheques for the clients form an
important part of the cash management
services. Clients continuously receive
• Payment : Payment services
include payments to clients’
vendors and suppliers, dividends
to the shareholders payment of
interest on commercial bills and
debentures payment of salaries to
employees, etc.

• Liquidity : Liquidity management

involves pooling and distributing
 Merchant Banking
Merchant Banking can be defined as an
activity in which a bank deals mostly in
international finance, long-term loans for
companies and underwriting. They
include registrar service, underwriting
services and custodial services.
 Foreign Exchange Services
Foreign exchange services refer to
converting foreign currency into Indian
currency and vice-versa. The need for
such services is felt by organization,
whose executives travel abroad, and
 Bill Discounting
A bill discounting or a bill of exchange is a
short-term, negotiable and self-liquidating
money-market instrument. The bill of
exchange is used for financing a
transaction in goods which means that it is
essentially a trade-related instrument.

 Factoring
Bank also provides factoring services to
corporate. A factor manages the collection
of account receivables of the companies on
their behalf and bears the credit risk
 Forfeiting
Forfeiting is a form of financing of receivables
pertaining to international trade. It denotes
the purchase of trade bills / Promissory
notes by a bank / financial institution
without recourse to the seller.

 Leasing
Lease is contract between the owner of the
asset and the user of the asset called the
lessee ,. Where by the lesser gives the right
to use the asset to the lessee over an
 Credit Rating
The credit rating services are a corporate fee-
based service where a credit rating
agency gives its expert opinion on the
relative willingness and ability of the
company that is interested in taking debt in
any form.

 Letter of Credit
Under the system of letter of credit the banker
issues commitment on behalf of its client
to the supplier of goods to accept clients’
bills up to the amount stated in the letter of
 Bank Guarantee
A guarantee is a contract between the
issuing bank an the client in which the
bank undertakes to meet the claims put
forward by the client against the
customer on behalf of whom the
guarantee is issued. If the customer
fails to meet the obligation, the client
will approach the bank for payment of
the amount of default.
 Retail fee-based services :
Retail fee-based services are essentially
marketed to retail consumers to help them
meet their specific financial requirement. A
retail fee-based service can be a pure fee-
based service or may be linked to certain fund-
based product. The latter can be called a
value added fee-based service as they add
value to the existing fund-based products.
 Personal Tax Counseling
One of the emerging areas of Income Tax
Act1961, every individual whose annual
taxable income exceeds the specified limit
 Credit Cards
A Credit Card is a plastic card bearing an
account number assigned to a cardholder
with a credit limit that can be used to
purchase goods and services and to obtain
cash disbursements on credit, for which a
cardholder is subsequently billed by an
issuer for repayment of the credit extended
at once or on an installment basis.
Debit Cards
Debit Cards are substitutes for cash or check
payments much the same way that credit
cards are. However, banks only issue them
Smart Cards
Smart Cards offer consumers the ability to
hold multiple applications on a single card,
separately and securely. Smart cards allow
consumers to make secure electronic
commerce purchases anytime, anywhere
they go. This is simply not possible with
today’s available card because when one
makes on online purchase, the electronic
proof of his/her identity is actually locked
inside his/her PC.
E-Cash
 Automated Teller Machines (ATM) An
Automated Teller Matching is a mechanism
which enables the customer to withdraw
money from his account without visiting the
bank branch. An ATM card is issued to the
customer by bank in order to make cash
withdrawals at cash machines. This
service help the ATM customer to withdraw
money even when the banks are closed.
 Foreign Inward/Outward Remittances
Non-resident Indians working abroad may
have to send money to their near and dear
in india. Companies and business firms
 Fund Transfer Facilities Predominantly,
people were using post offices for funds
transfer. The development of banking
enabled the banks to provide fund transfer
facilities at a cheaper rate than the money
order facility offered by postal department.
The common form of fund transfer facilities
through banks are cheques, drafts, mail
transfers and telegraphic transfers.

 Microfinance Microfinance refers to a

range of financial services including credit,
savings, insurance, money transfers, and
 Online Trading Online trading is one
of the latest fee-based services
offered by banks and other financial
institutions-brokers (or) depository
participants. Online trading involve
trading in shares, debentures,
commodities, and foreign exchange in
the respective markets.
 Utility Bills Payment Utility bills
payment helps the bank’s customers
to pay their utility bills such as
 Portfolio Management
Banks NBFCs and broking firm are providing
portfolio management services to individuals.
A portfolio is defined as total holding of
securities belonging to any person. The
securities can be shares, bonds or other
securities.
Safe Deposit Lockers
Safe deposit locker is a facility provided by
banks to their customers to keep their
valuables like jewelry, title deeds, etc. Safe
deposit locker is a steel cabinet having
multiple cubicles.
 Fund based Banking Products/ Services
Fund based services are those where bank has
to make the investment. There is a cost and risk
of these services and return expected from them.
Fund
Some of based
the Banking
fund based Products/
services are:
Services

Working Capital Short Term Finance

Finance

Bill Discounting Export Finance

Term Lending Buyer’s Credit /

Supplier’s Credit
Working Capital Finance We offer working
capital facilities - both fund-based and fee-
based. Fund- based working capital products
include cash credit, overdraft, bill discounting,
short- term loans, export financing (pre-
shipment as well as post-shipment). Fee
based facilities include letters of credit and
bank guarantees.

Short Term Finance The Bank offers short-

term loans for a period ranging from 3 months
to 12 months to sound corporate for meeting
 Bill DiscountingThis product enables
corporate to fund their operating cycle right
from the stage of procurement to sale. Bill
Financing is extended by IndusInd Bank to its
clients at competitive rates.
Export Finance As an important incentive
to the exporters community for boosting
exports, financial assistance in Rupees is
extended to exporters on priority basis on
relatively liberal terms. Such finance is
provided both at pre-shipment stage (as
working capital finance) and at post-shipment
 Term LendingWe offer term loans to both
Industrial as well as Infrastructure sectors
promoted by strong business houses. These
loans are for a period of 3-5 years with a
moratorium period. Interest rates could be
fixed or floating linked to the bank's BPLR.

Buyer’s Credit / Supplier’s Credit This

facility provides total flexibility to corporate to
utilize the line (sanctioned limit) of credit.
The terms of the line of credit are either
predetermined or negotiated at the time of
1) Fixed Deposit
2) Saving Deposit
3) Recurring Deposit
4) Current Account Deposit
 Deposits with the bank is for
fixed period of time
 Principal is repayable on expiry
of the term
 Also known as term deposit
 Deposit period=3-6 years
 No cash reserves to be
maintained
 High rate of interest
 Rate of interest
 After october 1997,banks were
permitted to charge their
own interest rates
 Interest to be paid according to the
schedules in the act
 Interest rate varies from bank to
bank
 Depends upon the amount and
period of deposit
Period of deposit:
 Payment of
interest:
Interest may be paid quarterly or half-
yearly or on the
request of the depositor
It is based on “half-yearly rests” or
”quarterly rests”
Amount is credited to the depositor’s
saving or principal a/c
Withdrawal is not permitted through
cheques
 •It is a document of title
Features:
•Not a negotiable instrument
•Cannot be transferred by mere
endorsement
•Duly assigned and given to the
bank
• No cheques can be drawn
•FDR signed by the depositor
rd
•Amount can be claimed by court’s
order if FDR is lost
•Amount due can be attached by court
•No stamp to be fixed if the depositor is
the prospective claimant
•FDR is concerned with Donotio Mortis
causa
•Joint FD repayable to all or to one
person
•Limitation period=according to
•Meant for personal
savings
•Interest rate is less than
that of FD
•Until 24.10.2011,
interest rate=4%
 Restriction on withdrawal:

Number of withdrawal is 50
for 6 months
Minimum withdrawal amount

through
• Cheque =Rs.5

• Form =Rs.1
Restriction on deposit:
Minimum balance:
banks prescribe their limit
Usually,Rs.500-Rs.1000
Payment of interest:
• Calculated quarterly or longer
rest on the minimum balance
• Calculated between 10th and
30th/31st of every month
• Interest is credited twice in a
NO FRILLS BANK ACCOUNT:
o Recently introduced
o Accounts are opened with nil
balance
o Provide banking facility to all
sections of society
AADHAR ENABLED BANK
ACCOUNTS:
o Accounts opened under
Mahatma Gandhi National Rural
Also known as cumulative
deposit
Fixed amount of money is
deposited every month(in
multiples of Rs.100)
Rate of interest is similar to
FD
Monthly installments to be
made before the last working
 Default:

Ifdepositor closes a/c before

maturity, bank:
• pays no interest for deposit
less than 3 months
• 1.5% for 6 months
• 4% for 12 months

Accumulated amount with

•Introduced for business
purpose
•No restriction on
number/amount of withdrawal
•Deposits to be paid on
demand(demand liability of the
banker)
 Previliges:
• 3rd party/endorsement cheques can be
deposited for collection
• Overdraft facility
• Loans and advances are given
Characteristics:
• No cash handling by the customer
• Bankers collect cheques etc.
• Regional Rural Banks(RRB) may pay
0.5% interest below borrowing rate fixed
for RRB
• From May 1983,interest is paid at
 SAVINGS PLUS AUTO SWEEP FACILITY A/C:

• Surplus amount in savings a/c is

converted to term deposits
• Earns interest at a high rate
• Provides liquidity
• Minimum balance of savings
a/c=Rs.5000
• Auto sweep may be weekly or monthly
• Reverse sweep facility =withdrawal is
 PREMIUM SAVINGS ACCOUNT:
•Similar to savings a/c
•offers additional facilities like SMS
alert,RTGS/NEFT free internet banking
•Minimum bal.=Rs.25000
MULTI OPTION DEPOSIT SCHEME(MODS):
•Combination of FD and saving or current
a/c
•Minimum deposit amount=Rs.10000
•Minimum subsequent deposit
amount=Rs.5000
 KYC
• To protect the interest of the
customers, RBI advised banks
to exercise diligence in
• understanding the customer
and nature of his business.
• Guidelines are given by RBI
Objectives:
I. Preventing money laundering
II. Improve financial dealings
 Key Elements:
1.Customer acceptance policy-
• No account to be opened in
anonymous name
• Risks to be clearly defined
• Documents to be collected and
verifications to be done
• Banker cannot close/open an
account if they are unable to
apply customer due diligence
2.Customer identification
procedure:
•Customer verification through
documents and photographs
•For legal entites,bankers should
verify:
•Legal status
•Any person acting on behalf of
legal entity
3.Monitoring transaction:
•Special attention given to
complex transactions
•Intensified monitoring for high
risk a/c
•Record of all transactions
•Illegal transaction to be
reported
•Easy monitoring through
4.Risk Management-
Apply various anti- Procedure in
money laundering compliance with
measures Other KYC guidelines:
Aspects:
•Identification of
•Employee training depositors
•Customer •Control of financial
education frauds
•Credit/debit/smart/ •Identification of
gift cards money laundering
•Existing accounts
Unique Customer Identification Code(UCIC):
Came into existence from June 2012
Benefits:
Identify a customer
Track facilities availed
Monitor financial transaction
Improve risk profiling
Smoothen banking operation
Holistic view of CR profile
What is a 'Current Account Savings
Account (CASA)
• A current account savings
account (CASA) is an attempt
to combine savings
and checking accounts to
entice customers to keep their
money in the bank by paying
no or very low interest on
 Meaning of CASA
• Current Account
• Current accounts are specially for customers
those who have to carry out business and
large number of transactions in the account
every day. There are no restrictions on the
number of transactions in current accounts.
• No interest is paid on the balances in current
accounts.
• Savings Account:-
• Savings Bank accounts are specially for
individual persons or jointly individual (Joint
Account), which have a transaction limit 6 at
 What is CASA Ratio?
• CASA stands for Current and
Savings Account. Different kinds of
deposits like current account, savings
account and term deposits form the
major source of funds for banks.
• CASA ratio is the share of current and
savings account deposits to the total
deposits of the bank.
• In India, interest rates paid on current
 Analysis of CASA Ratio
Deposits in Current & Savings
Account In Crore
FY’14 - 15
CASA Ratio March
= 2013 Total Deposits
Particular March 2014
s June 14 June Mar 15
Budget Actual Differenc
Actual 14 Budget
e Budget Actual Difference Budge
t

CASA 101.28 100.48 -2.76 84.18 133.49 49.31 101.14 81.08 135.75

CA 29.05 46.86 17.81 26.71 41.96 15.25 34.78 25.50 44.22

SA 72.23 53.62 -18.62 57.47 91.53 34.06 66.36 52.58 91.53

71
 Why is it important for banks?
• A higher CASA ratio means
higher portion of the deposits of
the bank has come from current
and savings deposit, which is
generally a cheaper source of
fund. Many banks don’t pay
interest on the current account
deposits and money lying in the
savings accounts attracts a
 What Is a Commercial Loan?
• Though it may sound more
complicated, a commercial loan is,
simply put, a loan designed to be
used for commercial purposes—i.e.
a small business loan.
• Commercial loans are available from
both banks and from non-bank
online lenders, and there are
different types of commercial loans
designed to fit the needs of every
 Types of Commercial Business Loans

Short Term Loans: Long Term Loans:

•Equipment and
•Lines of Credit
Vehicle Loans
•Accounts
•Real Estate Loans
Receivable
•Construction
Loan
Loan
•Land and
Subdivision
Development
•Commercial
Fishing Loan
 An Overview of Retail Loans

• The phrase “retail loans” refers to

loans obtained from retail lenders.
However, in some cases, the
phrase can also apply to loans
taken out by retailers. To shed
some light on the similarities and
differences between these two
definitions.
 What is a Retail Loan?
• A retail loan is similar to a mortgage
loan acquired to buy a real estate
property. The primary difference is
that mortgage loan secures a
residence, whereas a retail loan
secures a commercial retail property.
• Banks and private investors can
supply funding for a retail location,
such as a stand-alone retail store or
 Types of Retail Loans

•Housing Loans
•Educational Loans
•Vehicle or Auto
Loans
•Personal Loans
• Housing Loans – Most individuals
take housing loans and when it
comes to retail loans, housing loans
is right there at the top. Banks give
housing loans to individuals so that
can buy apartment or construct new
house if they already have the land.
• Educational Loans – This type of
loans is given by the banks to
students so that they can pay for
• Vehicle or Auto Loans – This type
of loans are given to individuals
who are looking for buying cars
whether new or second hand, auto
loans are also given for two
wheelers to individuals.
• Personal Loans – Personal loan
are the loans which are given to
individuals for purposes such as
marriage, traveling to abroad, loans
 Definition: Wholesale Loans
• Wholesale Loans are kind of loans in
which the lender gives amount to the
loan broker and the loan broker
distributes the loan amount to the
customer unlike the retail loan where
the lender directly gives to the
customer.
• In wholesale loan, the lender gives
amount to the broker relatively at lower
rate, the broker adds his commission
Activities are involved in a loan
process.
Trade finance