Banker – Customer Relationship

Banker – Customer Relationship

Relation	Bank	Customer
Deposit account	Debtor	Creditor
Banks lend a money to Customer	Creditor	Debtor
Safe custody of articles	Bailee	Bailor
Safe deposit locker	Lessor	Lessee
Remittances, Collection Of Cheques, bills etc on	Agent	Principal
behalf of the customers
Issue of duplicate draft, FD receipts	Indemnified	Indemnifier
	/ Indemnity
	Holder

Acceptance of deposits should be for the purpose of lending and investment. The deposit should be accepted from public

Acceptance of deposit should be in money.

Deposit repayable to depositors on demand or otherwise.

The deposits may be withdrawable by cheque, draft order or otherwise.

Obligation to Pay Cheques (34)

It is a statutory obligation of the banker, having sufficient funds of the drawer in

his hands properly applicable to the payment cheque duly presented.

Bank’s liability for wrongful dishonor of cheque

The above obligation to pay the cheques is not unconditional. The conditions under which banker may refuse payment of a cheque

Funds properly applicable

The cheque is not properly applicable

The cheque has become stale is post-dated.

The cheque is presented at a branch other than one where it is payable.

Cheque is crossed and is presented for cash payment.

Cheque is received after

Drawer signature differs

Amount of the cheque as stated in figures and words differs.

.

Bank’s Obligation to Maintain secrecy of Accounts

Disclosures permitted by Law and Practice

Precautions to be adopted while disclosing the Information.

Furnishing of o Opinion

Control over Organisation of Banks

 Control over Organisation of Banks

Which Authority to grant licence for establishing a new Bank in India – RBI

The following factors are taken into account while considering an application for starting new bank of India

1.    Information about promoters/promoter group

2.    Source of funding of the Capital

3.    Professional management support

4.    Geographical area to be serviced

5.    business mix

6.    Types of economic activities to be performed

7.    Profitability of the operations

Name the authorities which control the functioning of cooperative banks.

Reserve Bank	Branch  licensing  area  of  operations,  exposure  norms,
	interest rates etc.
State Govt.	Incorporation  and  registration  of  Cooperative  Banks,
	Management audit, amalgamation, liquidation / winding up

Branch expansion within the district does not require permission of RBI.

Foreign Banks: Foreign banks are allowed to operate through branches only. A new foreign bank is required to bring in minimum assigned capital of US $ 50 million, minimum capital adequacy ratio 9% on aggregate risk weighted assets of their Indian Operations.

How are Regional Rural Bank formed – Under Section3 of the RRB Act, 1976 a sponsor bank has to apply to the Central Govt. (50:35:15) (Central Govt : Sponsor Bank : State Govt) subscription ratio of the .

Specific permission of RBI is required for closure of branches in Rural Areas.

To accept Non Resident Foreign Currency deposits at specific branches, permission has to be obtained from RBI.

Banks are allowed to Setup Subsidiaries to undertake business authorized under

section 6(1) of the BR Act, 1949. Aggregate Investment in all the subsidiaries shall not exceed 20% of the Banks’ PaidUp Capital

Three-tiers of Organisational Structure

Branch, LHO/Zonal Office, Head Office

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Minimum Paid Up Capital – Capital Requirements (21)

(Section 11 of BR Act, 1949)

Incorporated In India

A i.     For a banking company incorporated in India having place of business in more than one state

ii.    If any such place or place of business is or are situated in the City of Mumbai Or Kolkata or both

B ii.    If all places of business in one State but none of which in Mumbai City or Kolkata

v.   For principal place of business

The actual requirement of the Capital is determined by the size of business of each bank. The Present Minimum Capital Adequacy Ratio (CRAR) is 9% comprising of Tier I and Tier II capital and unallocated reserves.

Tier I Capital					Tier II Capital
Paid  Up	Capital,  Statutory			Undisclosed	reserves	and	cumulative
Reserves,		and	other	perpetual preference shares
disclosed free reserves, if				Revaluation Reserves
any and				General Provisions and Loss Reserves
Capital		Reserves		Hybrid Debt Capital Instruments
representing			surplus	Subordinated Debt
arising	out	of	sale
proceeds of assets

Authorised Capital of each public sector bank cannot be less than Rs. 1500 crores.

To establish a new private sector bank, the minimum Paid-Up Capital of Rs.

200 crores.

Foreign Investors are permitted to hold up to 10% of Paid-Up capital of banks established in India.

Shareholders of commercial banks can exercise one vote for every share held by them. However, no person can exercise more than 10% of total voting rights of shareholders of the bank. The above restriction on voting rights does not apply to GOI in respect of holding of shares.

As far as Cooperative Bank is concerned, each share holder can exercise only one vote, irrespective of number of shares held by him.

Legal Framework Of Regulation of Banks

Legal Framework Of Regulation of Banks

RBI Act 1934 : The act deals with the constitution, powers and functions of Reserve Bank. The act does not deal with the regulation of the banking except Section 42 which provides for cash reserves of Scheduled Banks to be kept with bank, with a view to regulating the credit system and ensuring monetary stability.

The Business Of Banking (4)

·         Definition of Banking

·         Section 49A

·         Acceptance Of Deposits by Non-Banking Entities

·         Licence For Banking

·         Permitted Business

·         Prohibited Business

Constitution Of Banks

Bank in India fall under one of the following Categories

Public Sector Banks

Banking Companies

Cooperative Banks

Reserve Bank Of India Act, 1934 (9)

The RBI Act, 1934 was enacted to constitute the RBI.

to regulate the issue of Bank Notes

for keeping reserves for securing the monetary stability in India, and

to operate the currency and credit system of the country to its advantage.

The  last  major  amendment  to  the  Act  by  the  RBI(Amendment)  Act,  1997.

Recently a provision was inserted by the IT Act, 2000 for enabling the Reserve Bank to make regulations for regulating payment systems of banks and financial institutions

The Act deals with the constitution, powers and functions of the RBI. The act does not directly deal with the regulation of the banking system except for Section 42 and Section 18

The Reserve Bank – Central Bank and Regulator of Banks (11)

·         The Reserve Bank is constituted under Section 3 of the RBI, 1934 for taking over the management of currency from the Central Government and carrying the business of Banking in accordance with the provisions of the Act.

·         The Reserve Bank is a body corporate having perpetual succession and common seal and shall sue and can be sued by others.

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·         The bank functions under the general superintendence and directions of central board of directors. The board has to abide by direction given by the cental govt. in a public interest after consultation with the governor of the RBI.

·         Section 22 : Licence of banking

·         Section 20 : banker to central and state fovt.

·         Bank Regulator :

Government as a Regulator of Banks

The Reserve Bank is Primary regulator of banks. But the government has also conferred extensive powers under the RBI Act and the BR Act either directly or indirectly over the banks.

The Government holds the entire capital of the Reserve Bank and appoints the Governor and the members of the Central Board and has power to remove them.

Act	Section
RBI Act	7(1)	Power to issue directions to the RBI in public interest after
		consultation with the governor
BR Act	4 & 53	Power to suspend operations of the BR Act / to give
		exemptions from any of the provisions of the Act on the
		recommendations of the RBI.
BR Act	6(1)(0)	Power to notify other forms of business which bank may
		undertake.
BR Act	10B	Removal of managerial personnel
BR Act	14A
BR Act	19	Approval of  Central Govt.  is required for formation of
		subsidiary.
BR Act	22	Licence for banking
BR Act	24(2)	Notification of banks for the purpose of Maintenance of
		assets
BR Act	29	Notification with reference to accounts and balance sheet
BR Act	35	Issue of directions for inspection of banks
BR Act	36AA	Removal of managerial personnel
BR Act	36AE	Power to acquire undertaking of banks
BR Act	45	Suspension of business and amalgamation of banks
BR Act	52	Rule making powers (details to be furnished in various
		returns,  List  of  debtors  to  be  submitted  by  Official
		Liquidator.

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