FINANCIAL MARKETS Money Market Debt Market Foreign Exchange Market Capital Market FINANCIAL SYS..

YS.. Central Banking Authority Monetary control Supervision over Banks and Financial Institutions Management of Government debt Banker to Government Lender of the last resort Money market regulation Capital Markets Regulatory Authority Equity market and debt market supervision Supervision over, Stock exchanges, Brokers Investment Bankers, Foreign Institutional Investors Custodians, Depositories, Mutual funds Listed Companies, Registrars Insurance and Pension Regulators Regulatory framework for Insurance business Supervision of general and life insurance business Regulation of pricing, investment and cost structure of insurance companies Regulation of insurance brokers Framing rules for pension funds Regulating all pension funds Structure of The Banking System = Central Bank (Reserve Bank) Scheduled Banks Non-Scheduled Banks Central Co-operative Commercial Banks State co-operative Banks Foreign Banks Indian Banks Public sector Banks Private sector Banks Public sector Banks State Bank Of India and its subsidiaries Other Nationalised Banks Regional Rural Banks INDIAN JOINT STOCK BANKS = Scheduled commercial Banks Public sector banks, Old generation private sector Banks, New generation private sector Banks, Foreign Banks Regional Rural Banks , Scheduled co-operative Banks SPECIALIZED BANKS Industrial Finance Branch Overseas Branch SME/SSI Branch NRI Branch Corporate Branch Treasury Branch BANKS FUNCTION Principal function Accepting Deposits Granting Advances Ancilliary Function Collection of bills and cheques Discounting of bills and cheques Remittance Safe custody of articles OFF SHORE BANKING Indian banks set up OBUs in SEZs Covers only non-residents and excludes domestic banking Lower taxes and levies Exempted from CRR and SLR requirements Deals in foreign currencies Restrictions on dealing in rupees Offer multi-currency fixed deposits Free from control of interest rates Offer forex loans and ECBs at competitive interest rates Indian banks have set up OBUs at SEEPZ (Mumbai), Noida and Kochi

Personal Banking Branch

CREDIT FLOW BY NATIONALIZED BANKS Priority sector advances Agriculture Direct Indirect Small enterprises Retail trade Education loans Housing loans

Micro credit

THE MONEY MULTIPLIER Central banks authorize creation of currency (notes and coins) Banks create deposits and credit Bank Deposits received Loans made Reserves A 100 80 20 B 80 64 16 C 64 51.2 12.8.. Final amount 500 400 100 Money supply = 100+(4/5)*100+(4/5)*(4/5)*100+..and so on The process can be recognized as a Geometric progression (GP),whose summation is 100/(1-4/5) or 100/0.20= 100*5 = 500 Initial deposit of Rs.100 has created Rs.500 deposits or 400 of credit in the banking system Money supply can be calculated by multiplying the monetary base (Rs.100) by the money multiplier (in this case 5) ORIGIN OF BANKING 1. Babylonians developed banking systems during 2000 B C 2. Jews of Lombardy transacted on bancus or banque 3. Credit delivery were prevalent in ancient Greece and Rome 4. References are found in the old sanskrit texts of Manu about Deposits ,Pledges ,loans etc 5. Bank of Hindostan, set up in 1770, was the first Indian Bank 6. The Carnatic Bank 1788 EVOLUTION OF BANKING Presidency Banks Bank of Bengal -1806 Bank of Bombay -1840 Bank of Madras -1843 Imperial Bank of India _1920 Reserve Bank Of India _ 1935 State Bank of India _ 1955 Banking regulation act 1949 Social control of Banks 1968 Nationalisation of 14 major banks 19th July 1969 Nationalisation of 6 Banks 15th April 1980 Setting up of Regional Rural banks (RRBs) 1975 STATUTES GOVERNING BANKS Reserve Bank Of India Act 1934 Banking Regulation Act 1949 Banking companies (acquisition and transfer Of Undertaking) Act 1970 / 1980 Negotiable Instrument Act 1881 Negotiable Instruments (Amendment and Misc Provisions)Act 2002 Limitation Act 1963 ACTS APPLIED Indian Contract Act 1872 Indian Partnership Act 1932 Indian Companies Act 1956 Bankers Book Evidence Act 1891 Indian Registration Act 1908 Transfer Of Properties Act 1882 Indian Stamp Act 1899 Hindu Succession Act 1956 The Micro, Small and Medium Enterprises Development Act 2006 Right To Information Act 2005

PRIVATE SECTOR BANKS Post recommendation of the Narasimhan committee on liberalisation, set up in 1991 First Bank, IndusInd Bank, Apr 16, 1994 Global Trust Bank(30 Oct 1994), amalgamated with Oriental Bank Of Commerce, UTI Bank (now Axis Bank), ICICI Bank, IDBI Bank Registered as Public Ltd Companies, initial paid up capital Rs 200 crores Scheduled Commercial Banks Public Sector Banks Private Sector Banks (old/new generation) Foreign Banks Co-operative Banks CATEGORIES OF BANKS Branch Banking Unit Banking Investment Banking Universal banking Merchant Banking Virtual Banking FUNCTIONS OF CO-OPERATIVE BANKS Monopoly of note issue Banker to the government Bankers Banker and lender of the last resort Monetary Control and managing public debt Supervision of Banks and financial Institutions Management of Foreign Exchange reserves and exchange control authority Managing public debt Discretionary control of refinance and rediscounting Purpose Controlling inflation Encouraging growth Financial stability MONETARY CONTROL BY RBI THROUGH : Cash Reserve Ratio (CRR) Statutory Reserve Ratio (SLR) Open Market Operations Repo Rate Reverse Repo Rate BANKING = DEFINITION Banking Regulation Act 1949 sec 5 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 or order or otherwise. CATEGORY OF BANKS 1. Nationalised Banks Old private banks New generation Private Banks 2. Foreign Banks Regional Rural Banks Co-operative banks TYPES OF DEPOSIT a) Demand deposits Time Deposits 1. DEMAND DEPOSITS 1. Savings Bank deposits/ No frills account 2. Current Account Deposits/Flexi deposits 3. Call deposits 4. Margins held against letter of credit/guarantees 2. TIME DEPOSITS 1. Fixed deposits 2. Reinvestment plan deposits 3. Short term deposits 4.Senior citizens deposits5. Overdue deposits 6. Recurring deposits CLASIFICATION OF CUSTOMERS 1)Individuals (Single, Joint(two or more severally or jointly, A &B or A,B & C), Minors, Illiterates, Blind persons, Married Women, Pardanashin Woman, Lunatics, Insolvent Persons, Insane Person, Intoxicated Person) 2) Executors and administrators. 3) Liquidators and receivers 4) Sole proprietory concerns 5) Joint Hindu families(HUF)(as per Hindu succession act1956. 6) Partnership firms ( Indian partnership act 1932 ) 7) Limited companies, Pvt limited cos /Public limited cos ( companies act 1956 ) 8) Trusts 9) non-corporate bodies like clubs, committees, associations etc 10) Schools and colleges 11) Societies 12) Govt/ semi govt bodies OPERATIONS OF JOINT ACCOUNT a) Joint operation b) Joint or survivor d) Former or survivor e) Anyone or survivors or survivor f) Power of attorney or mandate holders c) Either or survivor

FACILITY OF NOMINATION As per The Banking laws( Amendment) Act, 1983 section 45ZA, in the Banking regulation Act, 1949, nomination facility is accorded to depositors of banks. A single depositor or joint depositors may nominate a person to whom, in the event of the death of the depositor, the deposit amount may be paid by the banking company. A nomination can be made in favour of individuals only and not associations, societies, trusts etc. The nominee does not become the absolute owner of the amount received by him. The law of succession will still prevail.

KNOW YOUR CUSTOMER GUIDELINES Direct abuse of the financial system Reputational risk for the country in International circles Risk of reduced foreign investment Difficulty in national tax collection and law enforcement Money laundering and terrorist financing undermine investors trust and global confidence Objectives To properly identify the customers To institute systems and procedures that would enable prevention of financial frauds and identification of money laundering and other anti-social activities To monitor large value cash transactions and foreign currency operations The Basel committee on Banking Supervision has issued guidelines on money laundering Introduction is necessary to get legal protection under section 131 of the Negotiable Instruments Act, 1881 Mandatory to obtain recent photograph of the customer Proper Identity proof Acceptable address proof OBJECTIVES 1) Fight financial terrorism and confirm with anti-money laundering standards (prevention of money laundering act,2002) 2) Minimise frauds and misappropriations 3) Get protection under section 131 of Negotiable Instruments Act 1881 4) Weed out undesirable customers 5) Minimise risk of inadvertant overdraft 6) The customer is not an undischarged insolvent 7) Avoid opening of accounts in anonymous and benami names/addresses Risk classification Type of product/service availed by the customer Country of domicile (lives in high risk countries) Type of customer/nature of activity( dealers in antiques, arms and ammunition etc ) Turnover or annual income of the customer Low risk Individuals .. upto Rs 10lakhs Sole proprietorships upto Rs 1 cr Partnerships . upto Rs 5 cr Limited Co upto Rs 10 cr Assn, clubs . upto Rs 10 lakhs Medium risk Individuals .. Rs 10lakhs to 50 lakhs Sole proprietorships Rs 1 cr to 5 cr Partnerships . Rs 5 cr to 10 cr Limited Co Rs 10 cr to 50 cr Assn, clubs . Rs 10 lakhs to 50 lakhs Trusts (public) .. Rs 10 lakhs to 50 lakhs KYC = FACTS = Issued by Reserve Bank of India under sec 35(A) of Banking regulation Act 1949. Banks will attract penal provisions for non-compliance. Banks have to do due diligence by going into the purpose of opening the account, anticipated turnover in the account, sources of wealth and sources of funds. Accounts have to be monitored on a continuous basis. Customers have to be classified as low risk, medium risk and high risk, taking into account the type of customer, country of domicile, type of service and turnover or annual income. Threshold limits have to be fixed, on the basis of the annual income or turnover.

OBLIGATIONS OF A BANKER Honouring customers cheques ( sec 31 of N I Act 1881 ) Garnishee order order of the court obtained by judgement creditor attaching funds of judgement debtor or garnishee.( Bankers book evidence act 1891) Attachment and prohibitory order issued by Income-tax authorities, as per IT Act 1961 Obligation to maintain secrecy of the accounts Bankers liability in case of wrongful dishonour of cheques. Death of a customer Claims on deceased depositors accounts Nomination under sec 45z of B R Act 1949 Insanity of the customer ( contract is disqualified under Indian Contract Act 1872 ) Insolvency of the customer Closure of undesirable / unremunerative accounts Monitoring of high value and suspicious transactions Monitoring of high value foreign exchange transactions BANKERS RIGHT Right of general lien Right of set-off Bankers right of appropriation ( rule in claytons case ) Right to charge interest, incidental charges, etc. Period of limitation NEGOTIABLE INSTRUMENTS Governed by Negotiable instruments Act 1881 A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer ( section 13) Negotiable instruments are easily transferable and the ownership of the property may be passed on by mere delivery and endorsement. A negotiable instrument confers absolute and good title on the transferee, who takes it in good faith, for value and without notice of the fact that the transferor had a defective title. In the case of goods or commodity, the transferor cannot transfer a better title to the transferee, than he himself possesses. Distinct difference between transferability and negotiability A holder of a negotiable instrument possesses the right to sue upon the instrument in his own name As per section 8 of N I Act, the holder of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. As per section 9 of N I Act, holder in due course means any person who, for consideration, became the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that defect existed in the title of the person from whom he derived his title. Holder Vs Holder in due course Consideration is not essential in case of a holder Possession: holder in due course must possess the instrument before it became payable. In the case of the holder, neither actual possession nor any time limit within which it must be acquired is required Defect in the title : holder in due course should have no cause to believe that any defect exists in the title of the transferor Section 10 Payment in due course means payment in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. Payment should be made in accordance with the apparent tenor of the instrument. Payment should be made in good faith and without negligence. Payment must be made to the person in possession of the instrument in circumstances which do not arouse suspicion about his title to possess the instrument and to receive payment thereof.

CHEQUES=A cheque is an unconditional order, drawn on a specified banker and is payable on demand General crossing - Sec 123 of N I Act. Where a cheque bears across its face an addition of the words and co or any abbreviation thereof, between two parallel transverse lines simply, either with or without the words not negotiable, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally. Special crossing Section 124 of N I Act Where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable , that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker. Not negotiable crossing Section 130 of N I Act A person taking a cheque crossed generally or specially, bearing in either case the words not negotiable shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had. Section 14 When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated. By delivery By endorsement and delivery ENDORSEMENT Section 15 of N I Act. When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to have endorsed the same and is called the endorser. Endorsement in blank, Endorsement in full, Conditional endorsement, Endorsement sans recourse, A forged endorsement does not pass on title to a holder on due course Payee Irregular Regular Mrs Dilip Nair- Mrs Dilip Nair- Dilip Nair Dr Thomas - Dr Thomas -Thomas,M.D Gen Gupta-Gen Gupta- Gupta(Genl) Sai Trust- Sai Trust- For Sai Trust Trustee MATERIAL ALTERATION The following are not material alterations Conversion of endorsement in blank into endorsement full Crossing of open cheque by holder Conversion of general crossing into special crossing Conversion of bearer into order PAYMENT OF CHEQUES Section 126 of N I Act, Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker and where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent for collection Ante dated Post dated Stale cheques Amount in words and figures differs ( sec 18 of N I Act) ) Authentication of alterations Forgery of drawers signature Payment during banking hours Protection to paying banker - 85(1) order cheques, 85(2) bearer cheques REFUSAL OF PAYMENT OF CHEQUES Payment countermanded by the drawer, Death of the drawer Insolvency of the drawer, Insanity of the drawer Garnishee order Breach of trust trust accounts Defective title of the property Mutilated cheques