Few Important Banking/Financial terminologies:
Bank Rate:
Under Section 49 of the Reserve Bank of India Act, 1934, the Bank Rate has been defined as ―the standard rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under the Act. On introduction of LAF, discounting/rediscounting of bills of exchange by the Reserve Bank has been discontinued. As a result, the Bank Rate became dormant as an instrument of monetary management. It is now aligned to MSF rate and used for calculating penalty on default in the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR).
Marginal Standing Facility Rate:
To meet additional liquidity requirements, banks can borrow overnight funds from the Reserve Bank under the Marginal Standing Facility (MSF) at a higher rate of interest, normally 100 basis points above the policy repo rate. Banks can borrow against their excess SLR securities and are also permitted to dip down up to two percentage points below the prescribed SLR to avail funds under the MSF.
Statutory Liquidity Ratio (SLR):
This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. In terms of Section 24 of the Banking Regulations Act, 1949, scheduled commercial banks have to invest in unencumbered government and approved securities certain minimum amount as statutory liquidity ratio (SLR) on a daily basis. In addition to investment in unencumbered government and other approved securities, gold, cash and excess CRR balance are also treated as liquid assets for the purpose of SLR.
Cash Reserve Ratio:
Banks in India are required to hold a certain proportion of their deposits in the form of cash.
However, actually Banks don‘t hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to holding cash with RBI.
Banks have to maintain minimum 95 per cent of the required CRR on a daily basis and 100 per cent on an average basis during the fortnight.
Calculations: CRR for the current fortnight= a fixed percentage (%) of the total demand and time liabilities reported by the banks in terms of Section 42 (1) of the Reserve Bank of India Act, 1934 with a lag of 1 fortnight i.e. CRR for the fortnight ended April 4, 2014 is a fixed
percentage (%) of the total demand and time liabilities reported by the banks as on the reporting fortnight March7, 2014. The Fixed percentage is based on the policy announcement or otherwise.
Repo rate:
Repo rate is the rate at which banks borrow funds from the Reserve Bank against eligible collaterals and the reverse repo rate is the rate at which banks place their surplus funds with the RBI under the liquidity adjustment facility (LAF) introduced in June 2000. The repo rate has emerged as the key policy rate for signaling the monetary policy stance.
Liquidity adjustment facility (LAF):
LAF is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations. Repo or repurchase option is a collaterised lending i.e. banks borrow money from Reserve bank of India to meet short term needs by selling securities to RBI with an agreement to repurchase the same at predetermined rate and date. The rate charged by RBI for this transaction is called the repo rate. Repo operations therefore inject liquidity into the system. Reverse repo operation is when RBI borrows money from banks by lending securities. The interest rate paid by RBI is in this case is called the reverse repo rate. Reverse repo operation therefore absorbs the liquidity in the system
Categorization of Customers:
Low Risk Customers (Level 1 customer):
Salaried Employees
People belonging to lower economic strata
Government Departments
Government Owned Companies
Regulatory and Statutory Bodies
KYC Guidelines issued under: Section 35A of the Banking Regulation Act, 1949
Medium Risk Customers (Level 2 customers)
Blind and Pardanishin also under Medium Risk Category
High Net worth Customers
Non Resident Customers
Politically exposed persons (PEP) Politically exposed persons are individuals who are or have been entrusted with prominent Public functions in a Foreign Country, e.g., Heads of States or of Governments, Senior Politicians, Senior Government / Judicial / Military Officers, Senior Executives of State-owned Corporations, important Political Party Officials, etc.
Periodical updation of customer data: (latest photograph and address proof)
Low Risk Customer: Once in 10 years
Medium: Once in 8 years.
High Risk Customers: Once in 2 years
This exercise has to be done quarterly i.e. in April, July, October and January.
Simple KYC norms procedure for Basic Saving Bank Account.
Financial Action Task Force
The Financial Action Task Force (FATF) which is a global body, identifies countries / jurisdictions that have strategic deficiencies in AML/CFT standards and works with them to address those deficiencies that pose a risk to the international financial system.
REAL TIME GROSS SETTLEMENT (RTGS):
A Real time, secure payment mode, processed and settled simultaneously. Each payment instruction is handled individually. The processing and settlement is on real time basis from 8 AM to 4.30 PM for customer payment on all working days. Inter Bank payment timing is 8 AM to 7.45 PM on all working days. Payment is final and irrevocable and the receiver can utilize the funds immediately. Minimum funds transfer Rs. 2,00,000/-. Straight Through Process (STP) is implemented for automatic accounting and settlement of RTGS transactions
Facility has been extended in all our branches and Administrative Offices. The RTGS facility can be used for direct credits to loan accounts.
NATIONAL ELECTRONIC FUNDS TRANSFER (NEFT):
An efficient, secure, economical and expeditious Inter-Bank funds transfer and clearing system. No minimum limit for transactions under NEFT. The processing and settlement is hourly basis from 8 AM to 7 PM (23 settlements). Straight Through Process (STP) is implemented for automatic accounting and settlement of NEFT transactions. Facility has been extended in all our branches.
NEFT facility is extended to the two sponsored Regional Rural Banks. NEFT facility can be used for direct credits to loan accounts. Walk-in customers who do not have an account with remitting bank can send remittance through NEFT upto Rs.50,000/- by paying cash. One way remittance facility from India to Nepal through NEFT with a ceiling of 250000/- and maximum of 12 remittances in a year is available.
Unified Payment Interface (UPI) application is enabled with an enhanced feature –QR Code based payment.
There is no lower limit in UPI. The merchant must have an android smart phone version 4.4.4 and above. The merchant should have been issued a debit card. The Mobile Number of the merchant should be registered.
Bharat Interface for Money (BHIM) –
NPCI has developed a common UPI BHIM, which would co-exist with other apps released by participating banks. BHIM is a simplified version of the existing UPI Applications of individual Banks. BHIM is an additional UPI platform to Bank‘s UPI application and does not replace the same. BHIM consists of basic functionalities whereas Bank‘s UPI application-
Features available in BHIM:
Balance enquiry, Transaction history, Pay option, Collect option, Scan & pay through QR code, Change & generate UPI-PIN, and Change account. Maximum limit per transaction under BHIM is Rs.10000. Maximum limit per day under BHIM is Rs.25000.
VARIOUS LAWS/ACTS RELATED WITH INDIAN BANKING SYSTEM
Background:
Banking in India is governed by various laws and legal provisions, requirements restrictions and guidelines. This is required in order to maintain transparency between banking institutions and customers with whom they conduct business.
The following are the important laws whose statutory provisions the Banks have to comply with.
The Banking Regulation Act, 1949
The main statute governing the banks in India is the Banking Regulation Act 1949.
By virtue of the powers conferred by the Act, The Reserve Bank of India and the Government of India exercise control over banks right from the opening of the Branches to their winding up. The purpose of enactment of this Act was to consolidate the banking system and suitably amend the laws relating to banking sector and to regulate the Banking Companies including cooperative banks. This Act is not applicable to primary agriculture societies, and cooperative land development banks.
Section 22 of the Act regulates the entry of a company into banking business by licensing as provided. It also put restrictions on shareholding, directorship, voting powers and other aspects of banking companies. There are several provisions in the act regulating the business of banking such as restrictions on loans and advances, provisions relating to rate of interest, requirements as to cash reserve ratio, provisions regarding audit and inspection and submission of balance sheet and accounts.
The act also provides for control over the management of banking companies.
Reserve Bank of India Act, 1934:
This Act was enacted on 6th March, 1934 to constitute the Reserve Bank of India with the following objectives:
To issue of Bank Notes.
For keeping reserves for securing monitory stability in India and,
To operate the currency and credit system of the country to its advantage.
The Act deals with the following:
Incorporation, capital, management and business of the bank.
Central banking functions like Issue of Bank Notes, monetary control, acting as banker to the Government and Banks, lender of last resort etc.
Collection and furnishing credit information.
Acceptance of deposits by Non-Banking Financial Institution (NBFI).
Handling Reserve Fund, Credit funds, publication of bank rate, audit and accounts etc.
Penalties for violation of the provision of the act or direction issued there under.
The Government of India has adopted a committee based approach for formulating policy on maintaining price stability while keeping the objective of growth in mind. The committee will conduct four meetings in a year and shall publicize its decisions after each meeting. The committee has come into force from 27.06.2016.
Important Provisions:
Definition of a Scheduled Bank –
According to Section 2(e), Scheduled Bank means a bank whose name is written in the 2nd schedule of RBI Act, 1934 and which satisfies the conditions laid down in Section 42(6), - Paid up capital and reserves of not less than Rs. 5 lac, satisfaction of RBI that the affairs will not be conducted by the bank in a way to jeopardize the interests of the depositor.
It may be a State Co-operative Bank, a company defined in Companies Act, 1956, an institution notified by Central Government for the purpose and a corporation or a company incorporated by or under any law in force, in any place outside India. Any bank that is not included in the 2nd Schedule of RBI is called Non-Scheduled Bank.
Section 49 defines Bank Rate as
The Standard Rate at which it (the bank) is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under this Act‖. By varying the bank rate, the RBI can to a certain extent regulate the commercial bank credit and the general credit situation of the country.
The impact of this tool has not been very great because of the fact that the RBI does not have a mechanism to control the unorganized sector. Further the money market in our financial system is not fully developed, so that the Bank rate policy will have if desired impact on the financial system.
Supervisory role of the RBI: Inspection of Banks:
The most significant supervisory function exercised by the RBI is the inspection of Banks. The basic objectives of inspection of banks are to safeguard the interests of the depositors and to build up and maintain a sound banking system in conformity with the banking laws and regulations as well as the country‗s socio-economic objectives.
Accordingly, inspections serve as a tool for overall appraisal of the financial and managerial systems and performance of the banks, toning up of their procedures and methods of operation and prevention of serious irregularities. RBI has now adopted ‗Risk Based Supervision‘ system which focuses on:
a. Evaluating both present and future risks
b. Identifying incipient problem
c. Facilitating prompt intervention / early corrective action
d. Replacing present compliance based /transaction based approach (CAMEL).
e. Periodicity depends on risk rather than volume of business.
The RBI‗s powers to conduct inspections are contained in various provisions of the Banking Regulation Act, the most important being Section 35. This apart, inspections may be necessary under the provisions of Section 23, 37, 38, 44, 44A, 44B and 45 of the Act.
Audit of Annual Accounts of Banks:
Banks have to close their books of accounts every year as at March 31st and prepare a Balance Sheet and Profit and Loss account as prescribed in the III schedule of the Banking Regulation Act.
These annual accounts are required to be audited by auditors appointed by the Bank each year with the prior approval of the Reserve Bank of India, as per Section 30(1A) of the Banking Regulation Act, in respect of private sector banks. Section 10(1) of the Banking Companies [Acquisition and Transfer of Undertakings] Act, 1970 / 1980 provides for audit of annual accounts of banks in the case of nationalized banks.
Negotiable Instrument Act, 1881:
The NI Act, 1881 defines the cheque, Bill of Exchange, DP Note, Drawer, Drawee, Maker, Payee, and also lays down the laws relating to payment of the customers cheques by a banker and also protection available to a banker.
The relationship between banker and customer being debtor – creditor relationship, the bank is bound to pay the cheques drawn by his customers. This duty on the part of Bank to honour its customer‗s mandate is laid down in section 31 of the NI Act.
Section 10, 85, 89 and 128 of the NI Act grants protection to a paying banker.
Cheque Truncation System: CTS 2010:
Truncation is the process of stopping the flow of the physical cheque issued by a drawer to the drawee branch. The physical instrument will be truncated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch
along with the relevant information like the MICR fields, date of presentation, presenting banks etc.
The images captured at the presenting bank level would be transmitted to the Clearing House and then to the drawee branches with digital signatures of the presenting bank. Thus each image would carry the digital signature, apart from the physical endorsement of the presenting bank, in a prescribed manner. The physical instruments are required to be stored for a statutory period. It would be obligatory for presenting bank to warehouse the physical instruments for that statutory period. In case a customer desires to get a paper instrument back, the instrument can be sourced from the presenting bank through the drawee bank.
Indian Contract Act, 1872:
Banking involves interaction between a banker and customer. A customer of a bank may be a depositor, borrower or any other person merely utilizing one of the various services provided by the banker. The relation between the Banker and the customer will vary according to the transaction carried out. The relationship may be Debtor- Creditor, Creditor- Debtor, Bailor-bailee, etc.
The interaction of a bank with its customer creates certain obligations and gives certain rights to both the bank and the customer. All Agreements are contracts, if they are made by parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. All Banking transactions are therefore, separate contracts.
Contract of indemnity-
A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.
There are two parties to the contract of Indemnity-i.e. the indemnifier and the indemnified. This is defined in Section124 of the Indian Contract Act.
Contract of guarantee:
The contract of guarantee is defined in Section126. There are three parties to the contract of guarantee. They are: Surety, Principal debtor and creditor.
A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The person who gives the guarantee is called the surety, the person in respect of whose default the guarantee is given is called the principal debtor and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written.
Bailment:
A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor‗. The person to whom they are delivered is called the bailee‗. (Section148).
Pledge:
The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor is in this case called pawnor. The bailee is called pawnee.
Section172
Agent and Principal:
An agent is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the principal. When the bank collects the cheque on behalf of the customer the Bank is the agent and the customer is the Principal.-(Section182).
Indian Partnership Act, 1932-
Partnership is the relationship between persons who have agreed to share the profit of a business carried out by all or any of them, acting for all. The relationship between partners is governed by Partnership Deed. Firm is not the legal entity but governed by Indian Partnership Act, 1932.
Any person capable to enter into the contract can be a partner in the firm. Max partners: Non-banking business=10, other=20
The act provides for registration of partnership and it is necessary that a banker dealing with partnership firm should verify as to whether the firm is registered or not.
This would help him to know all the names of the partners and their relationship. The act of the partner shall be binding on the firm if done:
(a) In the usual business of the partnership.
(b) In the usual way of business.
(c) As a partner, i.e. on behalf of the firm and not solely on his own behalf.
(d) An unregistered firm cannot sue but can be sued
Limited Liability Partnership Act, 2008:
LLP is a body Corporate having separate legal existence having mixed characteristics of Partnership Firm & Companies. As per the need of the day, the Parliament enacted the Limited Liability Partnership Act, 2008 which received the assent of the President on 7th January, 2009.
The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
Owing to flexibility in its structure and operation, the LLP would also be a suitable vehicle for small enterprises and for investment by venture capital.
Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP.
Partners are not personally liable rather will be liable up to the extent of his share as LLP agreement. For all purposes of taxation, an LLP is treated like any other partnership firm. It is separate from its Partners. It can sue and be sued.
Indian Companies Act, 1956:
A company is a juristic person created by law, having a perpetual succession and common seal distinct from its members.
In India, companies are governed by Companies Act, 1956.All the companies are required to be registered under Companies Act, 1956. Section 11 of the Companies Act provides that an Association or Partnership consisting of more than 10 in the case of Banking Business and more than 20 in the case of other business shall be registered under the companies act. If not registered, the said association or partnership will be illegal. The business and the objects of a company and the rules and regulations governing its management are known by two important documents called Memorandum of Association and Article of Association. Company is juristic person created by law, having a perpetual succession and common seal distinct from its members. Company is owned jointly by a group of persons. It has a legal existence separate from that of owners.
Properties of company are owned by company and not jointly by owners who are called shareholders. Unlike partners, shareholders are not personally liable for the debts of the company. They cannot participate in day to day management of company. It is managed by its directors.
Amendments made in the Indian Companies Act, 2013:
The amendments to the Companies Act 1956 in 2013 Act have introduced several new concepts and have also tried to streamline many of the requirements by introducing new definitions. After getting approval of both the houses of Parliament, the long awaited Companies Bill 2013 obtained the assent of the President of India on 29 August 2013 and became Companies Act, 2013 (2013 Act). The changes in the 2013 Act have far-reaching implications that are set to significantly change the manner in which corporates operate in India.
Highlights of Companies Act 2013:
1. Immediate Changes in letterhead, bills or other official communications, as if full name, address of its registered office, Corporate Identity Number (21 digit number allotted by Government), Telephone number, fax number, email ID, website address if any.
2. One Person Company (OPC): It's a Private Company having only one Member and at least One Director. No compulsion to hold AGM. Conversion of existing private Companies with paid-up capital up to Rs 50 Lacs and turnover up to Rs 2 Crores into OPC is permitted.
3. Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director.
4. Resident Director: Every Company must have a director who stayed in India for a total period of 182 days or more in previous calendar year.
5. Accounting Year: Every company shall follow uniform accounting year i.e. 1 st April -31st March.
6. Loans to director – The Company CANNOT advance any kind of loan / guarantee / security to any director, Director of holding company, his partner, his relative, Firm in which he or his relative is partner, private limited in which he is director or member or any bodies corporate whose 25% or more of total voting power or board of Directors is controlled by him.
7. Articles of Association- In the next General Meeting, it is desirable to adopt Table F as standard set of Articles of Association of the Company with relevant changes to suite the requirements of the company. Further, every copy of Memorandum and Articles issued to members should contain a copy of all resolutions / agreements that are required to be filed with the Registrar.
8. Disqualification of director- All existing directors must have Directors Identification Number (DIN) allotted by central government. Directors who already have DIN need not take any action. Directors not having DIN should initiate the process of getting DIN allotted to him and inform companies. The Company, in turn, has to inform registrar.
9. Financial year- Under the new Act, all companies have to follow a uniform Financial Year i.e. from 1st April to 31st March. Those companies which follow a different financial year have to align their accounting year to 1st April to 31st March within 2 years. It is desirable to do the same as early as possible since most of the compliances are on financial year basis under the new Companies Act.
10. Appointment of Statutory Auditors- Every Listed Company can appoint an individual auditor for 5 years and a firm of auditors for 10 years. This period of 5 / 10 years commences from the date of their appointment. Therefore, those companies have reappointed their statutory auditors for more than 5 / 10 years; have to appoint another auditor in Annual General Meeting for year 2014.
Foreign Exchange Management Act (FEMA):
Foreign Exchange Management Act (Also known as FEMA) was enacted in 1999.
It came into effect from 1st of June 2000.
FEMA has made considerable improvement over FERA which was supposed be very stringent and draconian.
This Act aims to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Other Important Legal and statutory provisions affecting bankers are:
Transfer of Property Act,
Information Technology Act, 2000
Code of Civil Procedure Act, 1908
Recovery of Debts due to Banks and Financial Institutions Act, 1993 (DRT)
Stamps Act
Right to Information Act
Foreign Exchange Management, Act, 1999
Bankers Book Evidence Act, 1891
Consumer Protection Act 1986
Regulators and Regulatory compliance:
The Reserve Bank of India:
The banks in India are required to comply with the guidelines issued by the RBI from time to time.
The most important of them is the strict adherence to the norms laid down in respect of KYC and AML.
The RBI has laid down specific guidelines in respect of documents to be obtained while opening of bank accounts.
These documents are called Officially Valid Documents (OVD).
The OVD are:
Passport/ Driving License with photo, Aadhar card issued by the UIDAI, Voter ID issued by the Election commission of India, job card under NREGA issued by the State Governments, PAN card (Only for ID proof).
Registration certificate of the firm issued by the Municipal corporation under the Shops and establishment Act, Certificate of incorporation in case of companies, Sales Tax/ IT returns, in case of corporate a/cs.
Either of the documents from the list of ‗Officially Valid KYC Documents‘ for Account Opening must be obtained from the customers to verify the identity and address of the customers. It must be noted that only the documents mentioned in the list provided by the RBI would be accepted by the branches while opening of any new account. Branches would not have the discretion to accept any other document for this purpose. The RBI also enforces the compliance of stipulated norms in respect of Forex transactions by the banks.
The regulatory functions of the RBI:
RBI controls the monitory policy of the country.
It keeps vigil on the functioning of the banks in the country and ensures that, they maintain various rates such as CRR, SLR in accordance with the formulated policies.
The RBI conducts inspection of the branches of various banks to monitor the proper implementation of the guidelines.
It also calls for various reports such as CTR/STR (Through FIU-Ind) in respect of domestic transactions and R reports in respect of Forex transactions, being carried out by the Banks in India.
It wields power to levy penalties on the erring banks who flout the guidelines issued by the RBI in respect of KYC/AML or FOREX matters.
Registrar of Companies (ROC):
Registrars of Companies (ROC) appointed under Section 609 of the Companies Act, covering the various States and Union Territories are vested with the primary duty of registering companies and LLPs floated in the respective states and the Union Territories and ensuring that such companies and LLPs comply with statutory requirements under the Act. These offices function as registry of records, relating to the companies registered with them, which are available for inspection by members of public on payment of the prescribed fee.
The Central Government exercises administrative control over these offices through the respective Regional Directors.
The charge of the financing Institutions on the assets of the company are required to be registered with the ROC within 30 days from the date of creation of charge. If the charge has remained to be created within the stipulated time of 30 days, then also the charge can be created by paying the additional fee by way of penalty.
Central Registry:
Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is a central online security interest registry of India. It is primarily created to check frauds in lending against equitable mortgages, in which people would avail multiple finances against the same asset from different banks.
CERSAI's mandate is to maintain a centralized data bank of equitable mortgages created and registered where it contains information on the equitable mortgage taken on a property along with details of the financial institution that has extended the loan as well as details about the borrower. CERSAI also allowed lenders to register transactions of securitisation and asset reconstruction. According to the government's directives, financial institutions must register details of security interests created by them with CERSAI within 30 days of its creation.
Banking Codes and Standard Boards of India (BCSBI):
It is an autonomous body established on 18.02.2006 with an aim to monitor and assess the compliance with codes and minimum standards of service to Individual customers to which the banks agree to.
The main function of the Board is to ensure adherence to the "Code of Bank's Commitment to Customers".
It sets minimum standards of banking practices for banks to follow dealing with individual customers in their day-today operations.
It provides protection to customers and explains how banks are expected to deal with customers in their day-to-day operations.
The BCSBI ensures that the commitments of the member banks are implemented for the benefit of the customers.
Banking operation related issues:
Settlement of accounts of deceased account holders,
Remittances,
Safe Deposit Lockers
Deposit Accounts
Internet banking
Privacy and confidentiality of the information relating to the customer
To treat all personal information as private and confidential
Norms governing advertisements, marketing and sales by banks
To publicize the code.
Matters relating to financial issues:
Loans and advances and guarantees
Tariff schedule/ Interest rates
Compensation for loss, if any, to the customer due to the acts of omission or commission on the part of the bank
Foreign exchange services.
Banking Ombudsman:
Banking Ombudsman is a quasi-judicial authority functioning under India‘s Banking Ombudsman Scheme 2006 and the authority was created pursuant to a decision made by the Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks. The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The current scheme became operative from 1 January 2006, and replaced and superseded the Banking Ombudsman Scheme 2002.
The type and scope of the complaints which may be considered by a Banking Ombudsman is very comprehensive, and it has been empowered to receive and consider complaints pertaining to the following operational issues
Non-payment or inordinate delay in the payment or collection of cheques, drafts, bills inward remittances
Failure to issue or delay in issue, of drafts, pay orders or bankers‘ cheques;
Non-adherence to prescribed working hours;
Delays, non-credit of proceeds to parties' accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings, current or other account maintained with a bank
Forced closure of deposit accounts without due notice or without sufficient reason;
Failure to honour guarantee or letter of credit commitments;
Failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents;
Delays in receipt of export proceeds, handling of export bills, collection of bills etc., for exporters provided the said complaints pertain to the bank's operations in India; Financial loss incurred to customer due to wrong information given by bank official.
Any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services.
Complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters;
Non-adherence to the fair practices code as adopted by the bank; and
Vide their Circular No.CSD.BOS.4638/13.01.01/2006-07 dated May 24, 2007, the Reserve Bank of India has amended their Banking Ombudsman Scheme, 2006 and the scheme shall be operative with amended effect.
Procedure for redressal of grievances:
BO undertakes the cases where the value of dispute does not exceed Rs. 20 lakhs. The complaints can be made in any form including online (email) and the same will be processed without any fee.
The complainant is required to take up the matter with the concerned branch for redressal of the grievance and wait for 30 days and if not addressed he can approach the BO. He should not have filed a complaint before any other forum or court or consumer forum or arbitrator on the same subject matter and be pending when he approaches the B.O.
On receipt of the complaint, notice will be sent to the bank advising the bank to settle the grievance within fifteen days from the date of receipt of the notice or else submit version and also attend a conciliation meeting at the office of the BO.
If the grievance is not settled by conciliation, it will be taken up for passing an award. The complainant will have to accept award within fifteen days of receipt of the award. The time limit for implementation of award is 30 days from the date of such receipt of acceptance letter.
However, Bank can approach Reviewing Authority (Deputy Governor RBI). Compensation for mental agony, reputation loss etc., will not be considered as per the provisions of the Scheme.
Bank Rate:
Under Section 49 of the Reserve Bank of India Act, 1934, the Bank Rate has been defined as ―the standard rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under the Act. On introduction of LAF, discounting/rediscounting of bills of exchange by the Reserve Bank has been discontinued. As a result, the Bank Rate became dormant as an instrument of monetary management. It is now aligned to MSF rate and used for calculating penalty on default in the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR).
Marginal Standing Facility Rate:
To meet additional liquidity requirements, banks can borrow overnight funds from the Reserve Bank under the Marginal Standing Facility (MSF) at a higher rate of interest, normally 100 basis points above the policy repo rate. Banks can borrow against their excess SLR securities and are also permitted to dip down up to two percentage points below the prescribed SLR to avail funds under the MSF.
Statutory Liquidity Ratio (SLR):
This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. In terms of Section 24 of the Banking Regulations Act, 1949, scheduled commercial banks have to invest in unencumbered government and approved securities certain minimum amount as statutory liquidity ratio (SLR) on a daily basis. In addition to investment in unencumbered government and other approved securities, gold, cash and excess CRR balance are also treated as liquid assets for the purpose of SLR.
Cash Reserve Ratio:
Banks in India are required to hold a certain proportion of their deposits in the form of cash.
However, actually Banks don‘t hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to holding cash with RBI.
Banks have to maintain minimum 95 per cent of the required CRR on a daily basis and 100 per cent on an average basis during the fortnight.
Calculations: CRR for the current fortnight= a fixed percentage (%) of the total demand and time liabilities reported by the banks in terms of Section 42 (1) of the Reserve Bank of India Act, 1934 with a lag of 1 fortnight i.e. CRR for the fortnight ended April 4, 2014 is a fixed
percentage (%) of the total demand and time liabilities reported by the banks as on the reporting fortnight March7, 2014. The Fixed percentage is based on the policy announcement or otherwise.
Repo rate:
Repo rate is the rate at which banks borrow funds from the Reserve Bank against eligible collaterals and the reverse repo rate is the rate at which banks place their surplus funds with the RBI under the liquidity adjustment facility (LAF) introduced in June 2000. The repo rate has emerged as the key policy rate for signaling the monetary policy stance.
Liquidity adjustment facility (LAF):
LAF is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations. Repo or repurchase option is a collaterised lending i.e. banks borrow money from Reserve bank of India to meet short term needs by selling securities to RBI with an agreement to repurchase the same at predetermined rate and date. The rate charged by RBI for this transaction is called the repo rate. Repo operations therefore inject liquidity into the system. Reverse repo operation is when RBI borrows money from banks by lending securities. The interest rate paid by RBI is in this case is called the reverse repo rate. Reverse repo operation therefore absorbs the liquidity in the system
Categorization of Customers:
Low Risk Customers (Level 1 customer):
Salaried Employees
People belonging to lower economic strata
Government Departments
Government Owned Companies
Regulatory and Statutory Bodies
KYC Guidelines issued under: Section 35A of the Banking Regulation Act, 1949
Medium Risk Customers (Level 2 customers)
Blind and Pardanishin also under Medium Risk Category
High Net worth Customers
Non Resident Customers
Politically exposed persons (PEP) Politically exposed persons are individuals who are or have been entrusted with prominent Public functions in a Foreign Country, e.g., Heads of States or of Governments, Senior Politicians, Senior Government / Judicial / Military Officers, Senior Executives of State-owned Corporations, important Political Party Officials, etc.
Periodical updation of customer data: (latest photograph and address proof)
Low Risk Customer: Once in 10 years
Medium: Once in 8 years.
High Risk Customers: Once in 2 years
This exercise has to be done quarterly i.e. in April, July, October and January.
Simple KYC norms procedure for Basic Saving Bank Account.
Financial Action Task Force
The Financial Action Task Force (FATF) which is a global body, identifies countries / jurisdictions that have strategic deficiencies in AML/CFT standards and works with them to address those deficiencies that pose a risk to the international financial system.
REAL TIME GROSS SETTLEMENT (RTGS):
A Real time, secure payment mode, processed and settled simultaneously. Each payment instruction is handled individually. The processing and settlement is on real time basis from 8 AM to 4.30 PM for customer payment on all working days. Inter Bank payment timing is 8 AM to 7.45 PM on all working days. Payment is final and irrevocable and the receiver can utilize the funds immediately. Minimum funds transfer Rs. 2,00,000/-. Straight Through Process (STP) is implemented for automatic accounting and settlement of RTGS transactions
Facility has been extended in all our branches and Administrative Offices. The RTGS facility can be used for direct credits to loan accounts.
NATIONAL ELECTRONIC FUNDS TRANSFER (NEFT):
An efficient, secure, economical and expeditious Inter-Bank funds transfer and clearing system. No minimum limit for transactions under NEFT. The processing and settlement is hourly basis from 8 AM to 7 PM (23 settlements). Straight Through Process (STP) is implemented for automatic accounting and settlement of NEFT transactions. Facility has been extended in all our branches.
NEFT facility is extended to the two sponsored Regional Rural Banks. NEFT facility can be used for direct credits to loan accounts. Walk-in customers who do not have an account with remitting bank can send remittance through NEFT upto Rs.50,000/- by paying cash. One way remittance facility from India to Nepal through NEFT with a ceiling of 250000/- and maximum of 12 remittances in a year is available.
Unified Payment Interface (UPI) application is enabled with an enhanced feature –QR Code based payment.
There is no lower limit in UPI. The merchant must have an android smart phone version 4.4.4 and above. The merchant should have been issued a debit card. The Mobile Number of the merchant should be registered.
Bharat Interface for Money (BHIM) –
NPCI has developed a common UPI BHIM, which would co-exist with other apps released by participating banks. BHIM is a simplified version of the existing UPI Applications of individual Banks. BHIM is an additional UPI platform to Bank‘s UPI application and does not replace the same. BHIM consists of basic functionalities whereas Bank‘s UPI application-
Features available in BHIM:
Balance enquiry, Transaction history, Pay option, Collect option, Scan & pay through QR code, Change & generate UPI-PIN, and Change account. Maximum limit per transaction under BHIM is Rs.10000. Maximum limit per day under BHIM is Rs.25000.
VARIOUS LAWS/ACTS RELATED WITH INDIAN BANKING SYSTEM
Background:
Banking in India is governed by various laws and legal provisions, requirements restrictions and guidelines. This is required in order to maintain transparency between banking institutions and customers with whom they conduct business.
The following are the important laws whose statutory provisions the Banks have to comply with.
The Banking Regulation Act, 1949
The main statute governing the banks in India is the Banking Regulation Act 1949.
By virtue of the powers conferred by the Act, The Reserve Bank of India and the Government of India exercise control over banks right from the opening of the Branches to their winding up. The purpose of enactment of this Act was to consolidate the banking system and suitably amend the laws relating to banking sector and to regulate the Banking Companies including cooperative banks. This Act is not applicable to primary agriculture societies, and cooperative land development banks.
Section 22 of the Act regulates the entry of a company into banking business by licensing as provided. It also put restrictions on shareholding, directorship, voting powers and other aspects of banking companies. There are several provisions in the act regulating the business of banking such as restrictions on loans and advances, provisions relating to rate of interest, requirements as to cash reserve ratio, provisions regarding audit and inspection and submission of balance sheet and accounts.
The act also provides for control over the management of banking companies.
Reserve Bank of India Act, 1934:
This Act was enacted on 6th March, 1934 to constitute the Reserve Bank of India with the following objectives:
To issue of Bank Notes.
For keeping reserves for securing monitory stability in India and,
To operate the currency and credit system of the country to its advantage.
The Act deals with the following:
Incorporation, capital, management and business of the bank.
Central banking functions like Issue of Bank Notes, monetary control, acting as banker to the Government and Banks, lender of last resort etc.
Collection and furnishing credit information.
Acceptance of deposits by Non-Banking Financial Institution (NBFI).
Handling Reserve Fund, Credit funds, publication of bank rate, audit and accounts etc.
Penalties for violation of the provision of the act or direction issued there under.
The Government of India has adopted a committee based approach for formulating policy on maintaining price stability while keeping the objective of growth in mind. The committee will conduct four meetings in a year and shall publicize its decisions after each meeting. The committee has come into force from 27.06.2016.
Important Provisions:
Definition of a Scheduled Bank –
According to Section 2(e), Scheduled Bank means a bank whose name is written in the 2nd schedule of RBI Act, 1934 and which satisfies the conditions laid down in Section 42(6), - Paid up capital and reserves of not less than Rs. 5 lac, satisfaction of RBI that the affairs will not be conducted by the bank in a way to jeopardize the interests of the depositor.
It may be a State Co-operative Bank, a company defined in Companies Act, 1956, an institution notified by Central Government for the purpose and a corporation or a company incorporated by or under any law in force, in any place outside India. Any bank that is not included in the 2nd Schedule of RBI is called Non-Scheduled Bank.
Section 49 defines Bank Rate as
The Standard Rate at which it (the bank) is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under this Act‖. By varying the bank rate, the RBI can to a certain extent regulate the commercial bank credit and the general credit situation of the country.
The impact of this tool has not been very great because of the fact that the RBI does not have a mechanism to control the unorganized sector. Further the money market in our financial system is not fully developed, so that the Bank rate policy will have if desired impact on the financial system.
Supervisory role of the RBI: Inspection of Banks:
The most significant supervisory function exercised by the RBI is the inspection of Banks. The basic objectives of inspection of banks are to safeguard the interests of the depositors and to build up and maintain a sound banking system in conformity with the banking laws and regulations as well as the country‗s socio-economic objectives.
Accordingly, inspections serve as a tool for overall appraisal of the financial and managerial systems and performance of the banks, toning up of their procedures and methods of operation and prevention of serious irregularities. RBI has now adopted ‗Risk Based Supervision‘ system which focuses on:
a. Evaluating both present and future risks
b. Identifying incipient problem
c. Facilitating prompt intervention / early corrective action
d. Replacing present compliance based /transaction based approach (CAMEL).
e. Periodicity depends on risk rather than volume of business.
The RBI‗s powers to conduct inspections are contained in various provisions of the Banking Regulation Act, the most important being Section 35. This apart, inspections may be necessary under the provisions of Section 23, 37, 38, 44, 44A, 44B and 45 of the Act.
Audit of Annual Accounts of Banks:
Banks have to close their books of accounts every year as at March 31st and prepare a Balance Sheet and Profit and Loss account as prescribed in the III schedule of the Banking Regulation Act.
These annual accounts are required to be audited by auditors appointed by the Bank each year with the prior approval of the Reserve Bank of India, as per Section 30(1A) of the Banking Regulation Act, in respect of private sector banks. Section 10(1) of the Banking Companies [Acquisition and Transfer of Undertakings] Act, 1970 / 1980 provides for audit of annual accounts of banks in the case of nationalized banks.
Negotiable Instrument Act, 1881:
The NI Act, 1881 defines the cheque, Bill of Exchange, DP Note, Drawer, Drawee, Maker, Payee, and also lays down the laws relating to payment of the customers cheques by a banker and also protection available to a banker.
The relationship between banker and customer being debtor – creditor relationship, the bank is bound to pay the cheques drawn by his customers. This duty on the part of Bank to honour its customer‗s mandate is laid down in section 31 of the NI Act.
Section 10, 85, 89 and 128 of the NI Act grants protection to a paying banker.
Cheque Truncation System: CTS 2010:
Truncation is the process of stopping the flow of the physical cheque issued by a drawer to the drawee branch. The physical instrument will be truncated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch
along with the relevant information like the MICR fields, date of presentation, presenting banks etc.
The images captured at the presenting bank level would be transmitted to the Clearing House and then to the drawee branches with digital signatures of the presenting bank. Thus each image would carry the digital signature, apart from the physical endorsement of the presenting bank, in a prescribed manner. The physical instruments are required to be stored for a statutory period. It would be obligatory for presenting bank to warehouse the physical instruments for that statutory period. In case a customer desires to get a paper instrument back, the instrument can be sourced from the presenting bank through the drawee bank.
Indian Contract Act, 1872:
Banking involves interaction between a banker and customer. A customer of a bank may be a depositor, borrower or any other person merely utilizing one of the various services provided by the banker. The relation between the Banker and the customer will vary according to the transaction carried out. The relationship may be Debtor- Creditor, Creditor- Debtor, Bailor-bailee, etc.
The interaction of a bank with its customer creates certain obligations and gives certain rights to both the bank and the customer. All Agreements are contracts, if they are made by parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. All Banking transactions are therefore, separate contracts.
Contract of indemnity-
A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.
There are two parties to the contract of Indemnity-i.e. the indemnifier and the indemnified. This is defined in Section124 of the Indian Contract Act.
Contract of guarantee:
The contract of guarantee is defined in Section126. There are three parties to the contract of guarantee. They are: Surety, Principal debtor and creditor.
A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The person who gives the guarantee is called the surety, the person in respect of whose default the guarantee is given is called the principal debtor and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written.
Bailment:
A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor‗. The person to whom they are delivered is called the bailee‗. (Section148).
Pledge:
The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor is in this case called pawnor. The bailee is called pawnee.
Section172
Agent and Principal:
An agent is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the principal. When the bank collects the cheque on behalf of the customer the Bank is the agent and the customer is the Principal.-(Section182).
Indian Partnership Act, 1932-
Partnership is the relationship between persons who have agreed to share the profit of a business carried out by all or any of them, acting for all. The relationship between partners is governed by Partnership Deed. Firm is not the legal entity but governed by Indian Partnership Act, 1932.
Any person capable to enter into the contract can be a partner in the firm. Max partners: Non-banking business=10, other=20
The act provides for registration of partnership and it is necessary that a banker dealing with partnership firm should verify as to whether the firm is registered or not.
This would help him to know all the names of the partners and their relationship. The act of the partner shall be binding on the firm if done:
(a) In the usual business of the partnership.
(b) In the usual way of business.
(c) As a partner, i.e. on behalf of the firm and not solely on his own behalf.
(d) An unregistered firm cannot sue but can be sued
Limited Liability Partnership Act, 2008:
LLP is a body Corporate having separate legal existence having mixed characteristics of Partnership Firm & Companies. As per the need of the day, the Parliament enacted the Limited Liability Partnership Act, 2008 which received the assent of the President on 7th January, 2009.
The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
Owing to flexibility in its structure and operation, the LLP would also be a suitable vehicle for small enterprises and for investment by venture capital.
Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP.
Partners are not personally liable rather will be liable up to the extent of his share as LLP agreement. For all purposes of taxation, an LLP is treated like any other partnership firm. It is separate from its Partners. It can sue and be sued.
Indian Companies Act, 1956:
A company is a juristic person created by law, having a perpetual succession and common seal distinct from its members.
In India, companies are governed by Companies Act, 1956.All the companies are required to be registered under Companies Act, 1956. Section 11 of the Companies Act provides that an Association or Partnership consisting of more than 10 in the case of Banking Business and more than 20 in the case of other business shall be registered under the companies act. If not registered, the said association or partnership will be illegal. The business and the objects of a company and the rules and regulations governing its management are known by two important documents called Memorandum of Association and Article of Association. Company is juristic person created by law, having a perpetual succession and common seal distinct from its members. Company is owned jointly by a group of persons. It has a legal existence separate from that of owners.
Properties of company are owned by company and not jointly by owners who are called shareholders. Unlike partners, shareholders are not personally liable for the debts of the company. They cannot participate in day to day management of company. It is managed by its directors.
Amendments made in the Indian Companies Act, 2013:
The amendments to the Companies Act 1956 in 2013 Act have introduced several new concepts and have also tried to streamline many of the requirements by introducing new definitions. After getting approval of both the houses of Parliament, the long awaited Companies Bill 2013 obtained the assent of the President of India on 29 August 2013 and became Companies Act, 2013 (2013 Act). The changes in the 2013 Act have far-reaching implications that are set to significantly change the manner in which corporates operate in India.
Highlights of Companies Act 2013:
1. Immediate Changes in letterhead, bills or other official communications, as if full name, address of its registered office, Corporate Identity Number (21 digit number allotted by Government), Telephone number, fax number, email ID, website address if any.
2. One Person Company (OPC): It's a Private Company having only one Member and at least One Director. No compulsion to hold AGM. Conversion of existing private Companies with paid-up capital up to Rs 50 Lacs and turnover up to Rs 2 Crores into OPC is permitted.
3. Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director.
4. Resident Director: Every Company must have a director who stayed in India for a total period of 182 days or more in previous calendar year.
5. Accounting Year: Every company shall follow uniform accounting year i.e. 1 st April -31st March.
6. Loans to director – The Company CANNOT advance any kind of loan / guarantee / security to any director, Director of holding company, his partner, his relative, Firm in which he or his relative is partner, private limited in which he is director or member or any bodies corporate whose 25% or more of total voting power or board of Directors is controlled by him.
7. Articles of Association- In the next General Meeting, it is desirable to adopt Table F as standard set of Articles of Association of the Company with relevant changes to suite the requirements of the company. Further, every copy of Memorandum and Articles issued to members should contain a copy of all resolutions / agreements that are required to be filed with the Registrar.
8. Disqualification of director- All existing directors must have Directors Identification Number (DIN) allotted by central government. Directors who already have DIN need not take any action. Directors not having DIN should initiate the process of getting DIN allotted to him and inform companies. The Company, in turn, has to inform registrar.
9. Financial year- Under the new Act, all companies have to follow a uniform Financial Year i.e. from 1st April to 31st March. Those companies which follow a different financial year have to align their accounting year to 1st April to 31st March within 2 years. It is desirable to do the same as early as possible since most of the compliances are on financial year basis under the new Companies Act.
10. Appointment of Statutory Auditors- Every Listed Company can appoint an individual auditor for 5 years and a firm of auditors for 10 years. This period of 5 / 10 years commences from the date of their appointment. Therefore, those companies have reappointed their statutory auditors for more than 5 / 10 years; have to appoint another auditor in Annual General Meeting for year 2014.
Foreign Exchange Management Act (FEMA):
Foreign Exchange Management Act (Also known as FEMA) was enacted in 1999.
It came into effect from 1st of June 2000.
FEMA has made considerable improvement over FERA which was supposed be very stringent and draconian.
This Act aims to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Other Important Legal and statutory provisions affecting bankers are:
Transfer of Property Act,
Information Technology Act, 2000
Code of Civil Procedure Act, 1908
Recovery of Debts due to Banks and Financial Institutions Act, 1993 (DRT)
Stamps Act
Right to Information Act
Foreign Exchange Management, Act, 1999
Bankers Book Evidence Act, 1891
Consumer Protection Act 1986
Regulators and Regulatory compliance:
The Reserve Bank of India:
The banks in India are required to comply with the guidelines issued by the RBI from time to time.
The most important of them is the strict adherence to the norms laid down in respect of KYC and AML.
The RBI has laid down specific guidelines in respect of documents to be obtained while opening of bank accounts.
These documents are called Officially Valid Documents (OVD).
The OVD are:
Passport/ Driving License with photo, Aadhar card issued by the UIDAI, Voter ID issued by the Election commission of India, job card under NREGA issued by the State Governments, PAN card (Only for ID proof).
Registration certificate of the firm issued by the Municipal corporation under the Shops and establishment Act, Certificate of incorporation in case of companies, Sales Tax/ IT returns, in case of corporate a/cs.
Either of the documents from the list of ‗Officially Valid KYC Documents‘ for Account Opening must be obtained from the customers to verify the identity and address of the customers. It must be noted that only the documents mentioned in the list provided by the RBI would be accepted by the branches while opening of any new account. Branches would not have the discretion to accept any other document for this purpose. The RBI also enforces the compliance of stipulated norms in respect of Forex transactions by the banks.
The regulatory functions of the RBI:
RBI controls the monitory policy of the country.
It keeps vigil on the functioning of the banks in the country and ensures that, they maintain various rates such as CRR, SLR in accordance with the formulated policies.
The RBI conducts inspection of the branches of various banks to monitor the proper implementation of the guidelines.
It also calls for various reports such as CTR/STR (Through FIU-Ind) in respect of domestic transactions and R reports in respect of Forex transactions, being carried out by the Banks in India.
It wields power to levy penalties on the erring banks who flout the guidelines issued by the RBI in respect of KYC/AML or FOREX matters.
Registrar of Companies (ROC):
Registrars of Companies (ROC) appointed under Section 609 of the Companies Act, covering the various States and Union Territories are vested with the primary duty of registering companies and LLPs floated in the respective states and the Union Territories and ensuring that such companies and LLPs comply with statutory requirements under the Act. These offices function as registry of records, relating to the companies registered with them, which are available for inspection by members of public on payment of the prescribed fee.
The Central Government exercises administrative control over these offices through the respective Regional Directors.
The charge of the financing Institutions on the assets of the company are required to be registered with the ROC within 30 days from the date of creation of charge. If the charge has remained to be created within the stipulated time of 30 days, then also the charge can be created by paying the additional fee by way of penalty.
Central Registry:
Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is a central online security interest registry of India. It is primarily created to check frauds in lending against equitable mortgages, in which people would avail multiple finances against the same asset from different banks.
CERSAI's mandate is to maintain a centralized data bank of equitable mortgages created and registered where it contains information on the equitable mortgage taken on a property along with details of the financial institution that has extended the loan as well as details about the borrower. CERSAI also allowed lenders to register transactions of securitisation and asset reconstruction. According to the government's directives, financial institutions must register details of security interests created by them with CERSAI within 30 days of its creation.
Banking Codes and Standard Boards of India (BCSBI):
It is an autonomous body established on 18.02.2006 with an aim to monitor and assess the compliance with codes and minimum standards of service to Individual customers to which the banks agree to.
The main function of the Board is to ensure adherence to the "Code of Bank's Commitment to Customers".
It sets minimum standards of banking practices for banks to follow dealing with individual customers in their day-today operations.
It provides protection to customers and explains how banks are expected to deal with customers in their day-to-day operations.
The BCSBI ensures that the commitments of the member banks are implemented for the benefit of the customers.
Banking operation related issues:
Settlement of accounts of deceased account holders,
Remittances,
Safe Deposit Lockers
Deposit Accounts
Internet banking
Privacy and confidentiality of the information relating to the customer
To treat all personal information as private and confidential
Norms governing advertisements, marketing and sales by banks
To publicize the code.
Matters relating to financial issues:
Loans and advances and guarantees
Tariff schedule/ Interest rates
Compensation for loss, if any, to the customer due to the acts of omission or commission on the part of the bank
Foreign exchange services.
Banking Ombudsman:
Banking Ombudsman is a quasi-judicial authority functioning under India‘s Banking Ombudsman Scheme 2006 and the authority was created pursuant to a decision made by the Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks. The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The current scheme became operative from 1 January 2006, and replaced and superseded the Banking Ombudsman Scheme 2002.
The type and scope of the complaints which may be considered by a Banking Ombudsman is very comprehensive, and it has been empowered to receive and consider complaints pertaining to the following operational issues
Non-payment or inordinate delay in the payment or collection of cheques, drafts, bills inward remittances
Failure to issue or delay in issue, of drafts, pay orders or bankers‘ cheques;
Non-adherence to prescribed working hours;
Delays, non-credit of proceeds to parties' accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings, current or other account maintained with a bank
Forced closure of deposit accounts without due notice or without sufficient reason;
Failure to honour guarantee or letter of credit commitments;
Failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents;
Delays in receipt of export proceeds, handling of export bills, collection of bills etc., for exporters provided the said complaints pertain to the bank's operations in India; Financial loss incurred to customer due to wrong information given by bank official.
Any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services.
Complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters;
Non-adherence to the fair practices code as adopted by the bank; and
Vide their Circular No.CSD.BOS.4638/13.01.01/2006-07 dated May 24, 2007, the Reserve Bank of India has amended their Banking Ombudsman Scheme, 2006 and the scheme shall be operative with amended effect.
Procedure for redressal of grievances:
BO undertakes the cases where the value of dispute does not exceed Rs. 20 lakhs. The complaints can be made in any form including online (email) and the same will be processed without any fee.
The complainant is required to take up the matter with the concerned branch for redressal of the grievance and wait for 30 days and if not addressed he can approach the BO. He should not have filed a complaint before any other forum or court or consumer forum or arbitrator on the same subject matter and be pending when he approaches the B.O.
On receipt of the complaint, notice will be sent to the bank advising the bank to settle the grievance within fifteen days from the date of receipt of the notice or else submit version and also attend a conciliation meeting at the office of the BO.
If the grievance is not settled by conciliation, it will be taken up for passing an award. The complainant will have to accept award within fifteen days of receipt of the award. The time limit for implementation of award is 30 days from the date of such receipt of acceptance letter.
However, Bank can approach Reviewing Authority (Deputy Governor RBI). Compensation for mental agony, reputation loss etc., will not be considered as per the provisions of the Scheme.
