Sunday, 21 September 2014

Bank advances and loans

Lending business is a risky activity. As banks' main function is lending, they must follow certain principles in order to protect their funds. The basic principles that banks follow while lending are....

1. Safety: 
Banks need to consider the borrowers' capacity to pay, willingness to pay, and income generation of the person or business entity. This is a safety check that banks need to consider while lending.

2. Liquidity: 
Lent amount is to be paid in proper repayment schedules and inflow towards the loan or advance must be proper in order to fulfill the demand of their depositors.

3. Profitability: 
The activity of lending is done in order to make some profit out of it.

4. Purpose: 
The loans must be grant for some income generation purpose and not for speculation or some anti social activity. The purpose must be genuine.

5. Diversification of risk: 
Banks need to diversify their risk by lending to different type, sectors and areas of businesses.

6. Security: 
Security on the loan is the primary criteria for the bank. All secure loans are safe and can be recovered even the borrower is a defaulter.

Different types of lending....
Banks lend money in different ways. NThese are classified into following categories:

★ Fund based advances: 
Fund based advances are those where the bank give money as loan or advance. These are for business entities and individuals. These are like term loans and working capital loans. Those may be secure or unsecure loans.

★ Working capital loans: 
These are generally unsecure loans but vary from bank to bank and borrower to borrower. This is a type of loan taken to meet day to day cash requirement of the business entities. Requirements like purchase of raw material, payment of wages, payments to vendors etc.,. As said the criteria differ in lending, the documentation and securities also differ, where the loan will not have a fixed amount, or fixed intervals, or fixed period or fixed schedule for repayment. The best example is Overdraft (OD).

★ Term loans: 
As the word 'term' denotes period these loans have to be paid back in a fixed period and fixed schedule. For these loans the rate of interest will be fixed as well as payment period and payment amount (like EMIs). These loans may be secure or unsecure loans and rate of interest varies for both, as rate of interest will be lower to secure loans compared with unsecure loans.
The best examples are: business loans, vehicle loans, jewellery loans. These are secure loans. And personal loan, credit cards etc are unsecure loans.

★ Secure loans: 
These are loans that are granted on basis of certain security against it as collateral. If the borrower defaults in payment of the loan the security will be used for repayment. Security may be land, house, factory, jewellry, vehicle, shares, life insurance policies, fixed deposits etc.

★ Unsecure loans: 
These loans are granted by banks without any security against it. Banks may be at high risk in these cases. The examples are loans like credit cards, personal loans, overdraft etc.

BANKING AWARENESS PRACTICE QUESTIONS

1. What are the measures taken by RBI to reduce liquidity in the banking system?
a) RBI increases the CRR.
b) RBI increases the SLR
c) RBI increases the repo rate.
d) RBI increases the bank rate.
e) All the above

2. LAF stands for .......
a) Loan Adjustment Fund
b) Liquidity Adjustment Facility
c) Long Awaited Funds
d) Loan Against Funds
e) None of these

3. Open market operations, one of the measures taken by RBI in order to control credit expansion in the economy, means ........
a) Sale or purchase of govt. securities
b) Issuance of different types of bonds
c) Auction of gold
d) To make available the direct finance to borrowers
e) None of these

4. Truncation of cheques means .........
a) The cheques in the paper form will be retained by the collecting banker and he will submit only photograph image of cheque to the clearing house.
b) A trunk call will be booked by banks to the payee bank and requests them to clear the cheque.
c) Cheques will be scanned and the electronic image, instead of physical cheque, will be transmitted in the clearing cycle.
d) Debiting the drawers account through internet banking.
e) None of these

5. Which of the following institution plays a major role in promotion of cross border trade and investment?
a) SIDBI
b) IFCI
c) NHB
d) EXIM Bank
e) None of these

6. Forged cheque means ........
a) The cheque which is post dated cheque
b) The cheque in which the signature of the drawer of the cheque is not genuine.
c) A stale cheque
d) All of the above
e) None of these

7. Amalgamation of Regional Rural Banks is recommended by?
a) K.C. Chakravarthy Committee
b) Usha Thorat Committee
c) Vyas Committee
d) C.V. Anand Bose Committee
e) None of these

8. Which of the following loan products is also known as 'teaser loans'?
a) Working capital loan
b) Education loans
c) Jewel loans
d) Home loans
e) Consumer durable products loans

9. Lending to customers with less than ideal credit status is known as?
a) sub-prime lending
b) Banks don't lend
c) Ideal credit lending
d) Risky lending
e) None of these

10. Expand NPA in the context of loan products?
a) Non-performing assets
b) New product ascendant
c) Net performing assets
d) Net profit on assets
e) None of these

11. Loan period or term of loan in case of repo is ........
a) Greaterthan 365 days
b) Lessthan 30 days
c) Greaterthan 30 days
d) No limit in case of term in repo
e) None of these

12. Identify lending institution from the following .......
a) Exports and Imports Bank (EXIM Bank)
b) Small Industries Development Bank of India (SIDBI)
c) Housing Development Finance Corporation (HDFC)
d) All the above
e) None of these

13. Advancing term loan or cash credit or working capital requirements is known as ......
a) Retail lending
b) Corporate financing
c) Multilateral lending
d) Company financing
e) None of these

14. EXIM Bank's Line of credit preclude ...... for Indian exporters.
a) Credit risk
b) Legal Risk
c) Systemic Risk and settlement Risk
d) Market Risk
e) None of these

15. Money with the public and money with banks in form demand deposits and money with RBI in other deposits is known as?
a) Narrow banking money or M2
b) Narrow Money or M1
c) Broad money or M3
d) High powered money or M0
e) None

16. The concept of classifying banks into weak banks and permitting them to invest only in
government securities is known as?
a) Narrow Banking concept
b) Tarapore and Narasimham concept
c) Banking investment concept
d) Four-tire banking concept
e) None

17. Automatically converting amount from savings bank account into fixed deposit, beyond a fixed limit, set as per the customer's request is known as .......
a) Re-investment deposit
b) Demand Term deposit
c) Flexi deposit
d) Recurring deposit
e) None of these

18. What are loans and advances provided by banks to meet working capital requirements
of a business entity?
a) Overdraft
b) Cash credit
c) Purchase and discounting of bills
d) Loans
e) All the above

19. As per RBI guidelines what percentage does Indian banks must lend to Priority Sector?
a) 40%
b) 32%
c) More than 50%
d) 18%
e) As per the individual bank's capacity

20. Exchange Earner's Foreign Currency (EEFC) account .....
a) It is a current account so no interest is paid to the deposits in the account
b) Account deposits are not in Indian Rupee
c) This account can be opened by all categories of foreign exchange earners but resident in India
d) The amount have to be convert into Indian rupee before a month
e) All the above

21. Which of the following credit rating institutions is promoted by RBI along with SBI, HDFC Bank and ICICI Bank?
a) ICRA
b) CIBIL
c) CRISIL
d) CRO
e) None of these

22. Identify the odd one from the following. While lending banks will follow certain cardinal principle, those are ........
a) Safety and Security
b) Liquidity and Profitability
c) Purpose
d) Diversification of risk
e) None

23. What are methods used to estimate the working capital needs?
a) Operating cycle
b) Turn over projection
c) Net working capital projection
d) All the above
e) None of these

24. What is the mode of charges laid on vehicle loan?
a) Pledge
b) Hypothecation
c) Assignment
d) Mortgage
e) All the above

25. Generally banks face a credit risk when ....
a) Customer defaulting to repay the loan
b) Banks lend money to RBI
c) Banks lend money to government
d) Credit given to the customer
e) All the above

26. Identify the odd out of following with respect to priority sector ......
a) Agriculture
b) Education
c) Housing
d) Consumer durable credit
e) Export Credit

27. What is the percent of advances does Khadi and Village Industries Sector (KVI) must be lent by banks in the SME and MSME category of Priority Sector advancing?
a) More than 50% SME and MSME category
b) 60% of total Priority Sector advances
c) 60% of SME and MSME category
d) Less than 40% SME and MSME category
e) None of these

28. As per present RBI guidelines what is minimum percentage does commercial banks need to lend Government?
a) 22%
b) 4%
c) 9%
d) 8%
e) No need to lend

29. A reduction in SLR rate leads to .......
a) Gold rate decrease
b) Support the credit growth in India.
c) Government will be funded more as the rate is reduced.
d) Reduction in credit growth in India
e) None of these

ANSWERS:
1-a, 2-b, 3-a, 4-c, 5-d, 6-b, 7-c, 8-d, 9-a, 10-a
11-c, 12-d, 13-b, 14-a, 15-b, 16-a, 17-c, 18-e, 19-a, 20-e
21-b, 22-e, 23-d, 24-b, 25-a, 26-d, 27-c, 28-a, 29-b.

Tuesday, 16 September 2014

BANKING AWARENESS PRACTICE MCQs FOR ALL BANK EXAMS

1. The tenth Five-Year Plan period is :
A. 2000-05
B. 2001-06
C. 2002-07
D. 2004-2009 
E. 2005-2010

2. Indian corporate can now invest in joint ventures and subsidiaries abroad to the extent of .............% of their net worth.
A. 200
B. 150
C. 100
D.75 
E. None 

3. Minimum period of a Certificate of Deposit is :
A.15 days 
B.30 days
C.10 days
D.7 days
E. None 

4. To accelerate growth of services exports from India and to create a unique brand, a new scheme called ............... has been introduced in the New Foreign Trade Policy.
A. India Service
B. India Calling
C. Incredible India
D. Served from India
E. None 

5. The New Foreign Trade Policy envisages Indias share in merchandise trade to ......... within the period 2004-09.
A. double
B. treble
C. rise by 50%
D.rise by 80%
E. None of these.

6. Hybrid capital instruments (debt / equity) form part of ........ capital.
A.Tier II 
B.Tier I
C.Paid up
D. Preference share
E. None of these.

7. A customer has been defined in : 
A. Banking Regulation Act 
B.Negotiable Instruments Act 
C. Anti-Money Laundering Act 
D. KYC guidelines
E. None of these.

8. A Medium Enterprise is defined as one in which investment in plant and machinery is over the SSI limit, but less than Rs........
A. 5 cr.
B. 10 cr.
C. 25 cr.
D. 50 cr. 
E. None 

9. The BSE Sensex consists of a basket of ...... stocks.
A. 50
B. 100
C. 30
D. 66 
E. None 

10. The Government of India has recently announced a scheme for providing short term loans to farmers at concessional rate of ......... % p.a. up to an amount of Rs. .........lakh.
A. 7, 1
B. 7, 3
C. 5, 1
D. 5, 3
E. None of these.

11. Banks in our country normally publicize that additional interest rate is allowed on retail domestic term deposits of .......
A. Minors
B. Married Women
C. Senior citizens 
D. Government Employees
E. Rural residents 

12. When the rate of inflation increases ......
A. Purchasing power of money increases 
B. Purchasing power of money decreases 
C. Value of money increases 
D. Purchasing power of money remains unaffected 
E. Amount of money in circulation decreases 

13. A centralized database with online connectivity to branches, internet as well as ATM network which has been adopted by almost all major banks of our country is known as .........
A. Investment Banking 
B. Core Banking
C. Mobile Banking 
D. National Banking 
E. Specialized Banking 

14. Which of the following is NOT considered a money market instrument? 
A. Treasury Bills 
B. Repurchase Agreement 
C. Commercial Paper 
D. Certificate of Deposit 
E. Shares and Bonds 

15. Which of the following is necessary while opening deposit accounts in banks? 
A. Will 
B. Registration
C. Nomination 
D. Indemnity 
E. Guarantee 

16. Which of the following is not a banking term? 
A. Letter of credit 
B. MIBOR 
C. Factoring services 
D. Entry load 
E. None of these 

17. Which of the following organizations issue the rules of global trade?
A. IMF 
B. World Trade Organization 
C. Foreign trade 
D. G-20 
E. None 

18. One single statement that depicts the financial position of a Bank and / or Business enterprise at a given point of time is called: 
A. Statement of product details 
B. Foreign exchange 
C. Balance Sheet 
D. Balance of payment 
E. Trading and Manufacturing account 

19. The Reverse Mortgage Scheme is launched to give benefit to which of the following groups of society? 
A. Persons below 60 yrs 
B. Senior Citizens 
C. Unemployed youth 
D. Orphans 
E. All the above 

20. One of the major challenges banking industry is facing these days is curbing deliberate efforts of some people to bring money earned through illegal activities in circulation. Which of the following act is passed to prevent this activity? 
A. Payment & settlements Act 
B. Control money supply Act 
C. Narcotics and Psychotropic substance Act 
D. Prevention of Money laundering Act 
E. None 

21. The provision to be made on Standard assets for the current year is :
A. 0.25%
B. 0.40%
C. 0.40% for all loans except loans to Priority Sector 
D. 0.40% on all loans, except loans to direct Agriculture & SME segments, for which the provision is 0.25%
E. None of these

22. Clause 49 of the Listing Agreement of SEBI refers to:
A. announcing of quarterly results of listed companies
B. restriction of FDI in public sector banks
C. corporate governance and financial penalties including  delisting for companies who do not appoint the required  number of independent directors on their board
D. None of these
E. All of the Above

23. Which bank in India ranks number one in India in terms of market capitalization?
A. SBI
B. ICICI Bank 
C. UTI Bank 
D. IDBI Bank
E. None of these 

24. Which is the first mutual fund in the country to offer redemption of its units through ATMs of HDFC Bank and VISA ?
A. Reliance MF
B. UTI MF
C. SBI MF 
D. Pro ICICI MF
E. None of these

25. The stake of SBI in its joint venture with TCS, C-Edge, is :
A. 51%
B. 40%
C. 60%
D. 49% 
E. None

26. A Banks aggregate capital market exposure has been capped at ...... % of its net worth.
A. 5
B. 10
C. 40
D. 25
E.None

27. Financial Intelligence Unit is set up by ............. for tightening anti-money laundering measures.
A. RBI 
B. Central Vigilance Commission 
C. Income Tax Department 
D. Finance Ministry, GOI 
E. None of these

28. Credit limits to dealers in agricultural machinery up to Rs. .......... lacs are classified as priority sector advances.
A. 25
B. 30
C. 40
D. 20 
E.None

29. The minimum maturity period for Commercial Paper (CP) is ................. days.
A. 14
B. 30
C. 45
D. 7
E.None 

30. The first SEZ promoted by a corporate is :
A. Reliance SEZ, Haryana 
B. SEEPZ, Mumbai
C. Mahindra SEZ, Pune 
D. None of the above
E. All of the Above

31. Which of the following scheme is not meant for investment purposes?
A. National saving certificate 
B. Infrastructure bonds 
C. Mutual funds 
D. Letter of credit 
E. None 

32. Basel norms which are important regulatory stipulations are meant for which sector? 
A. Insurance
B. Banking
C. Micro finance 
D. Pension funds
E. None 

33. Systematic investment Plans relates to: 
A. Mutual Funds
B. Life Insurance Companies 
C. Commercial Banks
D. Post office savings schemes 
E. None 

34. Euro money is the official currency of ........ ?
A. NATO 
B. United Nations
C. European Union 
D. Germany and England 
E. None of these 

35. Which of the following is an example of cash less purchase? 
A. Debit card 
B. Credit card 
C. ATM withdrawal 
D. All of the above 
E. None 

36. Whose signature appears on Indian Rs. 100 note? 
A. Finance Minister
B. RBI Governor 
C. Finance Secretary 
D. Chairman, Planning Commission 
E. None 

37. While discussing investments there is a mention of short term government security. What is this investment? 
A. Debenture
B. Mutual funds
C. Treasury bill
D. Share
E. None 

38. NBFCs are an important part of the Indian financial system. what is meant by this term?
A. New Banking Financial Companies 
B. Non Banking Financial Companies 
C. Neo Banking Financial Confederation 
D. Non banking Fiscal Companies
E. None of these 

39. Banking loan against property requires the asset to be free from encumbrances. What does it mean? 
A. The asset to be free from any liability 
B. The asset to be properly registered 
C. The property to be fully constructed 
D. The asset should not have multiple owners 
E. None of these

40. RBI stipulates a healthy mix of CASA in the business figures of banks. What is CASA? 
A. Customer Analysis and Savings Pattern 
B. Cost Appreciation and selling Analysis 
C. Current Account and saving Account 
D. Credit and savings Aggregate 
E. None 

ANSWERS:
1-C, 2-A, 3-D, 4-D, 5-A, 6-B, 7-D, 8-B, 9-C, 10-B
11-C, 12-B, 13-B, 14-E, 15-C, 16-D, 17-B, 18-C, 19-B, 20-D
21-D, 22-C, 23-B, 24-A, 25-D, 26-C, 27-D, 28-B, 29-D, 30-C
31-D, 32-B, 33-A, 34-C, 35-D, 36-B, 37-C, 38-B, 39-A, 40-C

Monday, 15 September 2014

BANKING SECTOR - QUICK DIGEST

RESERVE BANK OF INDIA (RBI)
        RBI established on April 1, 1935 under RBI Act 1934 (on the recommendations of John Hilton Young Commission 1926 - called Royal Commission on Indian Currency and Finance), is the central bank of the country and was nationalised wef Jan 01,1949. Prior to its existence, Imperial Bank of India from SBI was conducting the Central Bank’s functions. Originally it was a shareholders’ bank which was taken over by the Central Govt, under Reserve Bank (Transfer of Public Ownership) Act 1948 (paid up capital Rs.5 cr). RBI’s central office is in Mumbai.
Management of RBI : RBI is managed by a Central Board of Directors with 4 local board at Mumbai, Delhi, Calcutta and Chennai. It has one Governor, provision for 4 Dy. Governors and 15 other directors.
Functions of RBI:
a: Issuance of currency : U/s 22 of RBI Act 1934, RBI has the sole agency/ authority in India to issue currency notes (called bank notes) under signatures of Governor. (One rupee note called currency note is issued by the Central Govt, and signed by Finance Secretary).
Issue Deptt : is responsible for issue of fresh notes against security which consists of gold coins, bullion, rupee coins foreign securities, eligible promissory notes and other approved securities (aggregate value of gold and foreign exchange reserves should not be less than Rs.200 crore out of which, gold (coins and bullion) should not be less than Rs.115 crore) (Sec 33). The stock of currency is distributed with the help of currency chests spread all over the country.
b : Banker to the Govt : U/s 20 for (Central Govt) and u/s 21-A (for State Govt), RBI transacts govt, business and manages public debt. SBI or any other public sector bank is appointed its Agent where RBI does not have office. It provides Ways & Means advances (Section 17(5) to Govt.
c : Bankers’ bank : It keeps a part of deposits of commercial banks (as CRR) and acts as lender of last resort by providing financial assistance to banks. Section 17 (2) and (3) enable banks to approach RBI for rediscounting of bills, refinance etc. It provides export credit refinance, Liquidity Adjustment Facility (LAF)and Marginal Standing Facility (MSF).
d : Controller of Banks : Every entity which wants to conduct banking business in India has to obtain licence from RBI. RBI also acts as controller of banks by including the banks in India in 2nd Schedule of the Act. It issues directions, carries inspection (on-site as well as off-site) and exercises management control.
e : Controller of credit : U/s 21 and 3 5A, of Banking Regulation Act, RBI can fix interest rates (including Bank Rate) and also exercise selective credit controls to regulate money supply for ensuring price stability. Various tools such as change in cash reserve ratio, stipulation of margin on securities, directed credit guidelines etc. are used for this purpose. It also carries sale and purchase of securities which are known as open market operations.
f : Statutory Reserves : RBI ensures that the banks maintain certain %age of their assets in liquid/cash form under SLR/CRR requirements.
g : Collection of information : RBI collects credit information (U/s 45-C information on borrowers enjoying credit limits up to Rs. 10 lac on secured basis and Rs.5 lac on unsecured basis) and can share this information with other banks (Sec 45-D). Besides, RBI obtains information on suit-filed accounts and BSR returns.
h : Maintenance of external value : RBI is responsible also for maintaining external value of Indian currency as well as the internal value. Foreign exchange reserves are held by RBI and it has wide powers to regulate foreign exchange transactions under Foreign Exchange Management Act (FEMA).
CTS-2010 STANDARD
        On the recommendations of a Working Group, RBI decided to prescribe certain benchmarks towards achieving standardisation of cheques known as “CTS-2010 standard”, specifications.
Mandatory features applicable wef 1.12.2010
1. Paper: Paper should have protection against alterations by having chemical sensitivity to acids, alkalis, bleaches and solvents giving a visible result after a fraudulent attack. CTS-2010 Standard paper should not glow under Ultra-Violet (UV) light i.e., it should be UV dull.
2. Watermark : All cheques shall carry a standardized watermark, with the words “CTS-INDIA”. It should be oval in shape and diameter could be 2.6 to 3.0 cms. Each cheque must hold atleast one full watermark.
3. VOID pantograph : Pantograph with hidden / embedded “COPY” or “VOID” feature shall be included in the cheques. This feature should be clearly visible in photocopies and scanned colour images as a deterrent against colour photocopy or scanned colour images of a cheque.
4. Bank’s logo: Bank’s logo shall be printed in ultraviolet (UV) ink. The logo will be captured by / visible in UV-enabled scanners / lamps. It will establish genuineness of a cheque.
5. Mandating colours and background : Light / Pastel colours so that Print / Dynamic Contrast Ratio (PCR / DCR) is more than 60% for ensuring better quality and content of images.
6. Prohibiting alterations / corrections on cheques : No changes / corrections should be carried out on the CTS cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount or legal amount etc., fresh cheque forms should be used by customers. This requirement is for cheques issued under CTS only and not other cheques. 
7. Printing of account field : Cheques used in current accounts and corporate customers, should be issued with the account number field pre-printed. Courtesy amount means amount in figures and legal amount means in words.
8. As per RBI Cir dated Sep 03, 2012 banks are required to arrange to withdraw the non-CTS-2010 Standard cheques in circulation before December 31, 2012. Banks holding post-dated EMI cheques may ensure to replace non-CTS-2010 standard cheques with CTS-2010 I standard cheques before Dec 31,2012. The executive head of Reserve Bank of India (RBI) is known as the Governor, the governor is assist by four deputy Governor.
Governor:
Governor of Reserve Bank of India (RBI) is Raghuram Rajan who replaced Duvvuri Subbarao on September 4, 2013.
List of Deputy Governor:
1. Shri H.R.Khan
2. Urijit Patel (New Appointment, Replaced Subir Gokarn.)
3. Shri R. Gandhi (Appointed on April 3, 2014.)
4. Post Vacant. [Dr.K.C.Chakrabarty depart early from his post on April 25, 2014).
BANKING OMBUDSMAN-SCHEME 2006
        RBI notified the Banking Ombudsman Scheme 2006 (on Dec 26, 2005), in partial modification of its Banking Ombudsman Scheme 2002 to enlarge the extent and scope of the authority and functions of the Ombudsman, u/s 35A of Banking Regulation Act, 1949. The scheme that came into force wef Jan 01, 2006 covers all commercial banks, regional rural banks and scheduled primary co-operative banks.
Objective : To facilitate the resolution of complaints relating to Banking services through conciliation and mediation between the bank and the aggrieved parties OR by passing an Award.
Who can be Ombudsman : CGM/GM -RBI (not exceeding 3 years at a time). Cost borne by RBI.
Who can file a complaint : A person himself /his authorised representative (other than an advocate) can file the complaint on paper OR through electronic media (eMail) OR forwarded by RBI or Central Govt, (For Credit card, the jurisdiction is with reference to Ombudsman having jurisdiction over the billing address of the card holder).
Conditions: Complaints can be made when:
a: the complaint was made to the bank and bank had rejected it OR no reply was received within a period of one month OR the complainant is not satisfied with the reply given by the bank;
b: period of more than one year has not lapsed after receipt of bank reply.
c: the complaint is not for issues already settled/dealt with Ombudsman OR for which proceedings before court, tribunal or arbitrator or any other forum is pending or a decree or Award or order has been passed;
d: the complaint is within limitation period under Indian Limitation Act 1963.
Rejection of Complaint by Ombudsman Rejection can be at any stage if it appears to be frivolous, vexatious, malafide; OR without sufficient cause; OR not pursued by the complainant with diligence; OR there is no loss or damage or inconvenience caused to the complainant; OR is beyond the pecuniary jurisdiction of Ombudsman. Customer can appeal against grounds of rejection to Appellate Authority within 30 days of receipt of communication regarding rejection.
Process of redressal of grievance By sending copy of the complaint to the bank, endeavour shall be made for a settlement by agreement through conciliation or mediation. The proceedings shall be summary in nature. 
Award by the Ombudsman Where a complaint could not be settled by agreement within a period of one month from the date of receipt of the complaint, Ombudsman may pass an Award or reject the complaint, on the basis of evidence, the principles of banking law and practice, directions and guidelines issued by RBI.
Award & Compensation: Award shall specify the amount of compensation, if any, to be paid by bank, not more than actual loss suffered as direct consequence of act of omission or commission of the bank OR Rs.10 lac, whichever is lower. A copy of the Award shall be sent to the complainant and the bank.
Effect of award : Award shall be binding on a bank only if the complainant sends acceptance of in full and final settlement, within 30 days from the date of receipt of the Award.
Implementation: Customer is to send acceptance of the award within 30 days of date of receipt of the award. Bank is to implement the award within one month from the date of receipt of the acceptance from the complainant and intimate compliance to the Banking Ombudsman.
Appeal : The customer can file an appeal to Appellate Authority (Dy. Governor RBI) within 30 days of date of receipt of Award (which could be extended by 30 days by Appellate Authority). The appeal by banks should be filed with sanction of the CMD /ED / CEO. For banks 30 days period for filing appeal begins from date of receipt of customer’s acceptance.. The Appellate Authority may dismiss/allow the appeal; OR set aside the Award; OR remand the matter to Ombudsman for fresh disposal OR modify the Award or pass any order as it may deem fit.
Nodal officers : The banks shall appoint Nodal Officers at their RO/ZO and inform the Ombudsman, who shall represent the bank/furnish information to the Ombudsman.
May I help You Counters 
Such counters should be available at all branches except very small branches as per RBI’s customer service guidelines of Oct 2008. As per Goiporia Committee, such counters were to be established at branches having a staff strength of 30 or more.
CURRENCY, COINS & NOTES
        Notes are of two kinds i.e. Govt. notes (Re.l note issued by Govt, of India) and Bank notes (issued by RBI (Rs.2 and above denomination).
Essential features of a currency note:
 Name of issuing authority, which may be either RBI or Govt, of India (Ministry of Finance)
 Guarantee and promise clause (Hindi or English)
 Signatures
 King/s effigy/Ashoka Pillar Emblem
 Water mark of King’s Effigy or Ashoka Emblem.
DIFFERENT KINDS OF NOTES
Genuine Notes: Such notes must have a water mark of Ashoka Pillar, security thread and serial number along with alphabet. They have distinctive colours.
Spurious coins: When tendered over the counter, should be cut and handed over to the tenderer. If the tenderer disputes it, the coins should be sent to the Mint at his cost, for examination.
Soiled notes: The currency note which has become dirty due to its use or may be in 2 pieces. No portion of such note should be missing. These notes are accepted for exchange without any restrictions by the banks.
Mutilated notes: Such currency notes that are composed of various pieces or they are cut notes of which some portion is missing. These notes are exchanged only by the currency chest branches of banks.
Single/double numbered notes: Notes of denomination up to Rs.5 are single numbered while the notes of denomination above Rs.5 are double numbered notes.
Imperfect Notes: The currency notes which are washed, bleached, oiled or are altered or have become undecipherable, are known as imperfect notes. They are different from mutilated notes
RBI’S CLEAN NOTE POLICY
        RBI had announced ‘Clean Note Policy’ in January 1999. For withdrawing soiled notes from circulation and pumping fresh notes into circulation, the RBI introduced various changes in the system and procedures related to currency management which include mechanization of the currency verification and processing as also shredding and briquetting for destruction of soiled and mutilated notes. RBI issued a public interest directive (u/s 35A B R Act) to all banks instructing them :
 Not to staple bank notes,
 To Tender soiled notes to the Reserve Bank in unstapled condition,
 To use bands instead of staple pins,
 To issue only clean notes to members of public,
 To open select currency chest branches on Sundays to provide exchange facility to members of public all over the county,
 To provide unrestricted facility for exchange of soiled and mutilated notes to members of public.
 banks should sort notes into re-issuables and non-issuables, and issue only clean notes to public. Soiled notes in unstapled condition may be tendered at RBI in inward remittances through Currency Chests; and,
 banks should stop writing of any kind on watermark window of bank notes.
Coins of 25 Paise and Below - Withdrawal
        Govt, of India has decided to withdraw coins of denomination of 25 paise and below from circulation w.e.f. June 30, 2011. Coins of denomination of 25 paise and below are not accepted for exchange at the bank branches from July 1, 2011 onwards.
PERMANENT ACCOUNT NUMBER (PAN)
        The Central Board of Direct Taxes (CBDT) made it mandatory to quote PAN or General Index Number (GIR) on specified transactions (specified as per Rule 114B) with a view to ensure voluntary compliance of the income tax procedures. The quoting PAN became mandatory with effect from 01.11.1998.
What is PAN : A PAN is a 10 character alphanumeric number allotted by the Income Tax Deptt, to a tax payer who is eligible to file the income tax return. First 3 characters are Alphabetic series. 4th is status of PAN holder. 5th is the 1st character of PAN holder’s name. Next 4 are special sequential numbers and the last one is alphabetic check.
IFSC Code
        IFSC stands for Indian Financial System Code . The electronic Payment System Applications such as Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and Centralized Funds Management System (CFMS) developed by the Reserve Bank of India use these codes. The code consists of 11 Alpha Numeric characters (example - CNRB00O3252):
 First 4 characters represent entity / bank name
 5th position reserved as a ‘0’ (Zero) for future use
 Last 6 character denotes the branch identity
        IFSC is identified by RBI as the code to be used for various payment system projects within the country, and it would, in due course, cover all networked branches.
As on July 31, 2012 there are more than 90,000 RTGS enabled bank branches for which IFSC and MICR code is available.
Maintenance of bank account: The remitter and the beneficiary should have an account. NEFT is an account to account funds transfer system.
Foreign remittances : The remittances abroad using the NEFT are not permitted.
NEFT for loan repayment: It can be used.
CENTRALIZED FUNDS MANAGEMENT SYSTEMS(CMFS)
        CFMS is a system set up, operated and maintained by RBI to enable operations on current accounts maintained at various offices of the RBI, through standard message formats in a secure manner.
Components: The CFMS comprises 2 components. (1) the Centralised Funds Enquiry System (CFES) and (2) Centralised Funds Transfer System (CFTS).
Eligibility Criteria and admission: Bank maintaining a current account with RBI and a member of INFINET, is eligible for membership to the CFMS. Admission to the CFMS may be granted, suspended or revoked by RBI. 
Transaction Types: The following types of facilities are be available through CFMS:
a) Enquiries relating to the operation of its current account/s maintained with any of the DADs
b) Funds Transfers between accounts of the same account holder at different DADs.
CFMS Operation Sessions: The CFMS is operational on all days on which at least 2 DADs of RBI are working. CFMS timings wef Jan 24, 2011 are Monday-Friday : 10 am to 5 pm and Saturday : 10 am to 3 am.
ATM Models
1. Online ATMs : These ATMs are connected to data base of the bank and provide transactions on real time basis, online. The withdrawal limits are fixed and the limit is monitored by ATM switch centre.
2. Offline ATMs: These ATMs are not connected to bank’s data base. Withdrawals are permitted within a pre-fixed limit irrespective of the amount balance.
3. Stand alone ATMs: These ATMs are not connected to any ATM network. The transactions are restricted to the ATM branch and link branches only.
4. Networked ATMs: These ATMs are connected an ATM network.
5. 0nsite ATMs: The ATMs that are installed within the bank branch premises.
6. 0ff-site ATMs : The ATMs that are installed away from the bank branch premises, such as in a shopping centre, air port, railway station etc.
WHITE LABEL ATMs
        RBI decided to permit (on Jun 20, 2012), the non-bank entities incorporated in India under the Companies Act 1956, to set up, own and operate ATMs in India. Such ATMs are called “White Label ATMs” (WLAs). These can be set up after obtaining RBI authorisation (valid for 1 year) under Payment and Settlement Systems (PSS) Act 2007. The time for seeking authorisation is available for 4 months from Jun 20, 2012.
Eligibility criteria for WLA Operators (WLAO) :
1. Non-bank entities must have net worth of at least Rs 100 crore as per the last audited balance sheet (if additional capital is infused to satisfy this condition, certificate of Chartered Accountant is required), which has to be maintained at all times.
2. 1n case of any FDI in the applicant entity, necessary approval from the competent authority must be submitted while seeking authorization.
Location : The authorised WLAO would have the freedom to choose the location of the WLA.
ELECTRONIC CLEARING SERVICES (ECS)
        ECS is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa.
Types of ECS : There are two types of ECS called ECS (Credit) and ECS (Debit). ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment. ECS (Debit) is used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution. ECS-Credit is available at 60 centres and ECS-Debit at 15 centres.
MAGNETIC INK CHARACTER RECOGNITION (MICR)
        RBI had issued a set of comprehensive guidelines (Dec 06, 2002) for operating the mechanized cheque processing systems using Magnetic Ink Character Recognition (MICR) technology.
Standardisation of Cheque Forms: Instruments passing through clearing are required to be issued in standard format and defined size of 8' x 3 2/3'. The instruments should be printed on MICR grade quality paper with a ‘read band’ of 5/8' in width reserved at the bottom on which essential particulars occur in special MICR ink in the E-13B Font. Cheques are printed by approved security printers forming part of a panel which is maintained by IBA.
MICR Code Line Structure: The code line occurring in the Read Band is divided into 5 fields as under:
i) Cheque serial number of 6 numeric digits. The alpha-numeric prefix to the serial number should be printed outside the code line.
ii) Sort field or the city/bank/branch code number consisting of 9 digits. The first 3 digits represent the city, the next 3 indicate the bank and the last 3 digits signify the branch. The 9 digit sort code is unique for any bank branch in the country,
iii) Account number field consisting of 6 digits followed by a delimiter is an optional field. In the case of Government Cheques issued by RBI alone, the account number is of 7 digits. The Government Account number is 10 digits in length-7 digits occurring in the Account number field and 3 in the transaction code field.
iv) Transaction code field comprising of 2 digits is in all instruments except Government cheques drawn on RBI which have a 3 digit transaction code. Control documents - batch and block tickets have a 3 digit ? representation in the transaction code field,
v) Last field represents the amount field and consists of 13 digits bounded on both sides by a delimiter. The amount is encoded in paise without the decimal point.
National Payment Corporation of India (NPCI)
        With a view to consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems, NPCI was incorporated, on recommendations of an IBA Core Group, in Dec 2008 as a Section 25 company under Companies Act. The authorized capital is Rs 300 crore and the paid up capital is Rs 30 crore.
Shareholding and management : There are 10 core promoter banks (SBI, PNB, Canara Bank, Bank of Baroda, Union bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC).
Expected role: NPCI would function as a hub in all electronic retail payment systems which is evergrowing in terms of varieties of products, delivery channels, number of service providers and diverse Technology solutions. BPSS on Sept 24,2009 approved, in-principle, to issue authorisation to NPCI, for operating various retail payment systems in the country and granted Certificate of Authorisation for “operation of National Financial Switch (NFS) ATM Network with effect from October 15, 009.
PRE-PAID PAYMENT INSTRUMENTS (PPI)
        Under the provisions of Payment and Settlement Systems, Act 2007, all persons involved in the issuance of PPI require RBI authorization. RBI issued guidelines on Apr 29, 2009 u/s 18 and additional guidelines in Nov 2010.
PPI : These are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value represents the value paid for by the holders by cash, by debit to a bank account, or by credit card.
Form of PPI : These can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument, which can be used to access the pre-paid amount.
Eligibility to issue PPI: Banks which comply with the eligibility criteria can issue all categories of PPI. NBFCs and other persons can issue only semi-closed system payment instruments.
Capital requirements to be eligible
1. Banks and NBFCs which comply with the Capital Adequacy requirements prescribed by RBI can issue pre-paid payment instruments.
2. Other persons to have a min paid-up capital of Rs 100 lakh and positive net owned funds. KYC/AML/CFT provisions
l. The RBI KYC guidelines shall apply.
2. The use of pre-paid payment instruments for cross border transactions shall not be permitted.
3. The maximum value of any pre-paid payment instruments (where specific limits have not been prescribed) shall not excecd Rs 50,000.
Issue of PPI to corporates for onward issuance to their employees:
W.e.f. 4.8.11 banks can issue such instruments:
a. Instruments can be issued only to corporate entities listed in any of the stock exchanges in India;
b. Amount on individual prepaid payment instruments at any point of time shall not exceed Rs 50,000.
CORE BANKING SOLUTIONS
        Core Banking Solutions (CBS) or Centralised Banking Solutions is the process which is completed in a centralized environment i.e. under which the information relating to the customer’s account (i.e. financial dealings, profession, income, family members etc.) is stored in the Central Server of the bank (that is available to all the networked branches) instead of the branch server. 
        Depending upon the size and needs of a bank, it could be for the all the operations or for limited operations. This task is carried through an advance software by making use of the services provided by specialized agencies. Due to its benefits, a no. of banks in India in recent years have taken steps to implement the CBS with a view to build relationship with the customer based on the information captured and offering to the customer, the customised financial products according to their need.
Essential requirement of CBS Creation of Primary Data centre : It houses the central server for online transaction. Central data base is used for all customer centric delivery channel services integrated with CBS. It is manned round the clock to offer 24*7 service to the customer.
Disaster recovery site (DRS): It is done to avoid disruption in the business activities of CBS branches due to central system or network failure, to ensure non-stop functioning of branches and on line delivery channels integrated with CBS, to act as a back up for providing a reliable and continuous processing environment.
Business process re-engineering: It done with a view to help the bank in realigning existing business processes in tune with the benefits provided by the new technology platform, to help the bank in taking advantage of the best business practices available in the technology platform to provide more efficient services.
Software : It is to comprise the branch functional modules, delivery channel needs like ATMs, tele-banking, internet banking, interface to integrate with NDS, RTGS etc.
Networking: leased lines of WAN to be used as primary communication channel and ISDN link as backup.
SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATIONS (SWIFT)
        SWIFT was founded in 1973, as non-profit cooperative organisation under Belgian law (with its HQ in La Hulpe, near Brussels in Belgium), by 239 banks spread over 15 countries. As of December 2008, SWIFT had linked nearly 9000 banks/ institutions in 209 countries. The objective of SWIFT is to create a unified international transaction processing and transmission system to meet the ever growing telecommunication needs of the banking industry. It does not perform any clearing or settlement system. It also does not facilitate funds transfer.
Major features of SWIFT:
• It is owned by member banks.
• It is a basically a message transmission system, takings place world-over.
• It operates on a 24 x 7 basis.
• The messages are acknowledged i.e. either accepted or rejected.
• In India, most of the banks are members of SWIFT. These are connected to SWIFT’s regional processor at Mumbai.
STRUCTURED FINANCIAL MESSAGING SYSTEM(SFMS) 
        SFMS is an Electronic Data Interchange (EDI) system (like SWIFT) that permits exchange of structured messages (prepared according to the published standards of Working Group on INFINET).
The system consists 4 main elements:
Hub - that switches inter-bank messages from sending bank’s gateway to receiving bank’s gateway.
Bank gateway - that switches intra-bank message from one branch server to another branch server and also out messages.
Branch server - that receives and sends branch messages using online thin clients. SFMS security - It uses X.509 Digital signatures for access control and authentication of messages. The outgoing messages are encrypted with the receiving node’s public key for protection of confidentiality of messages in transit.
SMFS security - It uses X.509 Digital signatures for access control and authentication of messages. The outgoing messages are encrypted with the receiving node’s public key for protection of confidentiality of messages in transit.
Point Of Sale Terminal (POS)
        POS is a simple electronic transaction terminal that facilitates the payment through credit and debit cards in merchant establishments, whenever a customer makes a purchase in a merchant establishment by accessing the account. There are 2 basic types of POS terminals
(1) electronic cash registers that are used by high volume merchants, such as department stores, and
(2) dial-up terminals that automatically dial a special telephone number to obtain authorization.
POS and ATM: A POS terminal is used for payment for sale and purchase transaction, while an ATM can be used for several other services like balance enquiry.
RBI guidelines: In July 2008, RBI allowed cash to be withdrawn from any merchant establishment with a pos terminal up to a ceiling of Rs. 1,000 a day using debit cards.
Electronic Payment Services - E Cheques
        Nowadays we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the same manner, a new technology is being developed in US for introduction of e-cheque, which will eventually replace the conventional paper cheque. India, as harbinger to the introduction of e-cheque, the Negotiable Instruments Act has already been amended to include; Truncated cheque and E-cheque instruments.
Electronic Funds Transfer (EFT)
        Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another person/company etc. can approach his bank and make cash payment or give instructions/authorization to transfer funds directly from his own account to the bank account of the receiver/beneficiary. Complete details such as the receiver's name, bank account number, account type (savings or current account), bank name, city, branch name etc. should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries' account correctly and faster. RBI is the service provider of EFT.
Electronic Clearing Service (ECS)
        Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals.
Tele Banking
        Tele Banking facilitates the customer to do entire non-cash related banking on telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For complicated queries and transactions, manned phone terminals are used.
Electronic Data Interchange (EDI)
        Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format between trading partners. EDI can also be used to transmit financial information and payments in electronic form.
COMPUTER AUDIT
        In computer audit, more than accuracy and conformity to the systems and procedures, the focuses is on collecting and validating evidences to ensure safeguarding assets, maintaining data integrity, achieving organisational goals of computerisation effectively and ensuring effective usage of resources.
COMMITTEES ON COMPUTERIZATION
1. Rangarajan Committee 1st (1983).
2. Rangarajan Committee 2nd (1988)
3. Shere Committee (1994)
4. Saraf Commiteee (1994)
5. Vasudevan Committee (1998)
BANKNET
        BANKNET is a payment network established by RBI (on the recommendations of Iyer Committee) which functions within India and was launched during 1991. The system makes use of inter-city trunk voice grade data circuits. The user banks can access BANKNET from their premises through leased or dial-up lines at the local centres using ports on PADS and UNIX machines with popular data communication softwares. The messages of banking transactions can be transferred in coded form for settlement of transactions and advices. It enables transfer of data and other statement to RBI. Access to SWIFT is also possible through this system.
RBINET
        It is communication system operating over the BANKNET. RBINET client running a personal computer is called RBINET Dos client and he can communicate with its server over a dedicated leased line or dial up line.
I-net
        I-net owned by Deptt of Telecommunications (DoT) is a Packet Switching Public Data Network (PSPDN) which was opened in 1983 for slow speed data communication. Inet uses telephone connections and satellite for communication through which communication is possible across major metropolis and other international networks. The subscribers can also form a private network within Inet.
NICNET
        National Informatics Centre Network (NICNET), a part of internet services was set up in 1975 to promote information culture which is a govt. organisation and works for govt, organisations. It provides multiple services to user departments which include finance, agriculture, industry, commerce by making use of various applications. The host computer in NICNET is stationed in New Delhi. Currency chest operations in banks are performed through NICNET.
IBA SWADHAN NETWORK
        Swadhan was IBA Shared Payment Network Systems (SPNS). The member banks included all types of banks. The system was dismantled wef 31.12.2003.
INFINET
        Indian Financial Network (INFINET), the satellite based VSAT network developed by Institute for Development and Research in Banking Technology (lDRBTHyderabad, an RBI sponsored organisation) is fast and secure intra-bank and inter-bank communication system.
E-COMMERCE
        E-Commerce refers to buying and selling of goods and services through internet, with business sites on internet offering the customers, buying and selling options. It is considered to be a generic term to describe technology-enabled communication with customers and suppliers for a business organisation. In its broader perspective, e-Commerce is conducting business processes through an entire spectrum of activities such as EDI, inventory and order management, product support and service, information delivery and other business application linking solutions through the use of paperless information technologies such as internet, bar coding, e-mail, smart cards, CD-ROMs etc.
ELECTRONIC DATA INTERCHANGE (EDI)
        In EDI, the data is transmitted between various computer terminals for the purpose of processing which eliminates paper transactions. It is more or less like eMail with the difference being in the internal structure and structure of messages in EDI and eMail. While in eMail data is not processed in the receiving system, in EDI the messages are sent only for the purpose of processing. EDI reduces chances of errors in transmission and improves the quality of data iniiow. It avoids lot of duplication work thus reducing time and financial costs. In order to make use of EDI the data is obtained from a computer system and translated in a transferable form. Thereafter it is transferred to another computer. The receiving system translates message and retrieves it.
        Banks have been using EDI in the form of SWIFT messages, EFT, credit clearing and debit clearing. Electronic Data interchange for Administration of Commerce and Transport (EDIFACT) is the universal set of standards and guidelines for communication by EDI. EDI guidelines are known as communication standards.
VERY SMALL APERTURE TERMINALS (VSATs)
        VSATs works with the help of satellite and uses small antennas with variable sizes working like earth stations. This has helped the banking services by providing speed. VSA terminals can exchange and transmit information through a larger earth station which is called Hub Station having larger size antenna. VSATs are being made use of in banking, stock exchange, corporate networking, weather forecasting, international service, reservation etc.
HWAK
        HWAK, the Intelligent Auto Teller Systems are special kind of ATMs that are capable of thinking for themselves and can provide better service. It benefits are better customer service, online and offline auto recovery, anytime full banking service, low cost, shorter queues and less tellers with ease of use.
UPDATION OF TRANSACTIONS IN BANKS
        Banks makes use of two approaches to update their records of transctions i.e. online update and batch update
Online means direct linking of an operation or equipment to a computer system so that any stimulus provided by that operation or equipment is immediately accepted by the computer system. Such updation takes place in case of foreign exchange operations, ATMs etc.
Batch updates involves updation at the end of each business day by data entry.
MONEY LAUNDERING
        Money laundering means acquiring, owning, possessing or transferring any proceeds of money of crime or knowingly entering into any transaction related to proceeds of the crime either directly or indirectly or concealing or aiding in the concealment of the proceeds or gains of crime, within or outside India. It is a process for conversion of money obtained illegally to appear to have originatedfrom legitimate sources.
        Essential elements of money laundering (a) a crime is committed, (b) there are gains from the crime, (c) proceeds have been received from crime and (d) there is some transaction in respect of these proceeds or the gains.
        Legal set up in India Indian Parliament passed ‘The Prevention of Money Laundering Act 2002’ during December 2002 for prevention of money laundering. Offences and punishment Offences are cognizable/non-bailable. Punishment would be rigorous imprisonment for not less than 3 years but up to 7 years and fine up to Rs.5 lac. Enforcement Directorate is designated authority to track cases of money laundering, which has far more powers than what was available to ED under FERA.
UNIVERSAL BANKING
        R H Khan Committee had recommended the concept of Universal Banking. Universal banking means allowing FIs & banks to undertake all types of banking or development financing activity or activity associated with that, subject to compliance’ of statutory and other requirements of RBI, Govt, and related legal Acts.
Activities in Universal Banking: These activities include accepting deposits, granting loans, investing in securities, credit cards, project finance, remittances, payment systems, project counseling, merchant banking, foreign exchange operations, insurance etc.
Objective: To offer world class financial services to the clients by using information technology and cross selling, reduce per customer cost and increase per customer revenue, take benefit of economies of scale and compete with international banks by expanding business abroad.
RBI guidelines on Universal Banking
        As per RBI guidelines of April 2001, FIs have an option to transform into a bank provided they ensure compliance with the following.
Reserve requirements - Compliance with the cash reserve ratio and statutory liquidity ratio requirements would be mandatory for an FI after its conversion into a universal bank.
Permissible activities - Any activity of an FI currently undertaken but not permissible for a bank under Section 6(1) of the B. R. Act, 1949, may have to be stopped or divested after its conversion into a universal bank.
Composition of the Board - Composition of the Board of Directors to ensure compliance with the provisions of Section 10(A) of the B. R. Act, which requires at least 51% of the total number of directors to have special knowledge and experience.
NARROW BANKING
        In India, the concept of narrow banking came into discussion after submission of the report by the Committee on Capital Account Convertibility (Tarapore Committee). It was suggested as a solution to the problem of high NPAs and related matters. The Committee proposed that incremental resources of the narrow banks should be restricted only to investments in low risk assets like govt, securities.
A ‘Narrow Bank’ in its narrow sense, is the system of banking under which a bank places its funds in risk-free assets with maturity period matching its liability maturity profile, so that there is no problem relating to asset liability mismatch and the quality of assets remains intact without leading to emergence of substandard assets.
"Advantages : Such an approach can ensure the regular deployment of funds in low risk liquid assets. With such pattern of deployment of funds, these banks are expected to remove the problems of bank failures and the consequent systemic risks and loss to depositors.
RETAIL BANKING
Retail banking sector is characterized by 3 basic characteristics:
a: multiple products (deposits,, credit cards, insurance, investments etc.);
b: multiple delivery channels (call centre, branch, Internet and kiosk); and
c: multiple customer groups (consumer, small business, and corporate).
Retail banking objectives The objective of retail banking is to increase penetration by providing increasing level of services and increased access, by offering value added services to customers by packing them with retail banking products and services. The retail banking offers considerably better spread of 3-4 % compared to very thin spread available to banks in case of corporate clients.
Various segments in retail banking Basically there are 3 important segments in retail banking which include deposit products (convenient deposit schemes such as flexi-deposits), loan products (such as housing loans, education loans, conveyance loans, personal loans for diverse purposes such as medical expenses, travel abroad) and other products.
Delivery channels of retail banking The delivery of these products and services can be through branch banking, internet banking or automated teller machines. These can be called home banking, internet banking, mobile banking, credit cards, etc.
Other advantages
Banks have excellent opportunity to cross sell various retail products like credit cards, insurance policies, funds investment services (including mutual funds), ancillary services like dematerialization, portfolio management etc.
SUBPRIME LENDING
        Subprime lending (also referred (a as B-paper, near-prime, or second chance lending) is a practice followed by lenders in various contries (including US & UK), to sanction loans to the borrowers, who do not qualify for the best market interest rates, due to certain deficiency in their credit history.
Subprime lenders: To deploy their funds, the lenders often take on far greater additional risks, associated with subprime borrowers. In the case of subprime loans, the risk is offset with a higher interest rate. In the case of subprime credit cards, a subprime customer, is charged higher late fees, higher over.limit.fees,.yearly fees or up front fees for the: card. 
Subprime borrowers: Subprime borrowers are generally defined as individuals with limited income or having credit scores (FICO) below 620 on a scale that ranges from 300 to 850.
Characteristics of Subprime Borrowers
a) 2 or more loan payments paid with a delay of 60 days, due in the last 12 months, or one or more loan payments paid with a delay of 90 days during the last 36 months;
b) Judgment, foreclosure, repossession, or nonpayment of a loan in the prior 48 months;
c) Bankruptcy in the last 7 years;
d) Relatively high default probability as evidenced by, a credit bureau risk score (FICO) of 620 or below.
FINANCIAL INCLUSION
Financial inclusion means the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Financial exclusion may lead to increased travel requirements, higher incidence of crime, general decline in investment, difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates, increased unemployment etc. The small business may suffer I due to loss of access to middle class and higher-income consumers, higher cash handling costs, delays in remittances of money.
Steps for financial inclusion
        Financial inclusion can be expanded through state-driven intervention (by way of statutory enactments) and through voluntary effort of banking community for evolving various strategies to bring the large strata of society, within the ambit of the banking sector.
RBI steps for Financial Inclusion
        RBI approach to financial inclusion aims at ‘connecting people’ with the banking system and not just opening accounts. This includes meeting the small credit needs of the people, giving them access to the payments system and providing remittance facilities.
(i) Basic saving Bank account (previously called No Frill account) :
In Nov 2005, RBI asked banks to offer a basic banking ‘no-frills’ account with low or zero min balances and min charges to expand the outreach of such accounts to the low Income groups.
(ii) Easier credit facility: Banks told to introduced a General Purpose Credit Card up to Rs. 25,000.
(iii) Simpler KYC norms: KYC procedure for opening accounts was simplified for those accounts with balances not exceeding Rs 50,000 and credits thereto not exceeding Rs.100,000 in a year. .
(iv) Use of information technology: Banks urged to scale up initiatives for financial inclusion speedily while ensuring that solutions are highly secure, amenable to audit, and follow widely-accepted open standards to ensure eventual interoperabiliry among the different systems. 2 of the important initiatives are:
 Smart cards for opening bank accounts with biometric identification. These help the customers get banking services near their doorstep.
 Link to mobile hand held electronic devices for banking transactions. In October 2008, the RBI advised banks on issues relating to technology, security standards, and customer protection.
(v) EBT through banks: RBI is in consultation with State governments to encourage them to adopt electronic benefit transfer (EBT) by banks.
RBI Roadmap for Financial Inclusion
        Under RBI’s earlier roadmap (of Sep 2010) 74,414 unbanked villages were identified and allocated to banks for opening of banking outlets. Banks opened banking outlets in 74,199 (99.7%) villages by March 2012.
New roadmap : 
        In its 2012-13 policy, RBI advised State Level Bankers’ Committees (SLBCs) to prepare a roadmap covering all unbanked villages of population less than 2000 and notionally allot these villages to banks for providing banking services, in a time-bound manner to provide with at least one banking outlet. The lead banks are to constitute a Sub-Committee of the District Consultative Committees (DCCs) to draw up a roadmap for provision of banking services in every village having a population below 2000 (2001 census) for providing banking services, in a time bound manner. It is to be ensured that there is a brick arid mortar branch to provide support to a cluster of BC units, i.e., about 8-10 BC units at a reasonable distance of 3-4 kilometers. Priority for BC location or bank branch to be given to villages having population greater than 1500. Emphasis should be given to providing banking access in villages of north east states.
Swabhimaan
        Hamara Khaata Hamara Swabhimaan (Our Account our Pride) was launched on February 10, 2011, jointly by Ministry of Finance, Govt, of India and the Indian Banks Association. Under this, basic banking services were to be provided to 73,000 villages not served by any bank, with the aim of bringing a bank within the reach of every village with a population of over 2000 by the end of March, 2012 is achieved.
Important Features:
1. Opening of 5 cr new rural bank accounts.
2. The banking will be offered through business correspondents called ‘Bank Saathi’.
3. Speedy transfer of funds and payment of govt subsidies and other developmental funds allotted by the government from time to time for the rural sector.
4. The social security benefits can be directly transferred to the beneficiary accounts removing the operations of middlemen.
WAYS & MEANS ADVANCES (WMAs)
        WMAs were introduced as per an agreement between RBI & Govt. WMAs are temporary overdrafts by RBI to govt. (Central & State) under Section 17(5) of RBI Act. WMAs replaced the earlier ad hoc T-Bills system w.e.f. 1.4.1997.
Objective-WMAs bridge the time interval of mismatch between govt, expenditure and receipts. These are not a source of finance.
Interest rate: On normal WMAs, it is Repo Rate and for overdrawn amount, repo rate + 2%.
Duration: 10 consecutive working days for Central Govt, and 14 days for State Govt.
Amount ceiling: Limits are fixed by RBI. (for, Central Govt, for 2012-13 it is Rs.50000 cr for 1st quarter and Rs.40000 cr 2nd quarter).
Minimum balance: On Fridays and at close of the Govt, or RBI financial year shouldn’t be less than Rs. 100 cr. On any other working day not less than Rs.10 cr. When 75% of WMA is utilised, RBI may consider fresh flotation of market loans.
WMA for States
Consolidated limit is Rs. 10240 cr.
LIQUIDITY ADJUSTMENT FACILITY
        Liquidity Adjustment Facility (LAF) was h introduced by RBI during June, 2000 in phases, to ensure smooth transition and keeping pace with technological upgradation. On recommendations of an RBI’s Internal Group RBI has revised the LAF scheme on March 25, 2004. Further revision has been carried wef Oct 29, 2004. The revised LAF scheme has the following features:
Objective : The funds are used by the banks for their day-to-day mismatches in liquidity.
Tenor : Reverse Repo auctions (for absorption of liquidity) and Repo auctions {for injection of liquidity) are conducted on a daily basis (except Saturdays). 7-days and 14-days Repo operations discontinued wef Nov 01, 2004.
Eligibility : All commercial banks (except RRBs) and PDs having current account and SGL account with RBI.
Minimum bid Size: Rs. 5 cr (multiple of Rs.5 cr)
Eligible securities: Repos and Reverse Repos in transferable Central Govt, dated securities and treasury bills.
Rate of Interest : The reverse repo rate is fixed by RBI from time to time. The repo rate will continue to be linked to the reverse repo rate.
Marginal Standing Facility (MSF)
MSF was introduced w.e.f May 09, 2011, by RBI.
Eligibility: All Scheduled Commercial Banks having Current Account and SGL Account with RBI.
Tenor and Amount: It can be availed up to 2% of NDTL at the end of 2nd preceding fortnight. It is for one day except on Fridays when it is for 3 days or more, maturing on the following working day.
Timing : On all working days excluding Saturdays (3.30 P.M. and 4.30 P.M.)
Interest Rate : 100 basis points above LAF repo rate.
Mechanics of operations :
i) The requests to be submitted electronically in the NDS. Members facing system problem, may submit physical requests (sealed cover) to RBI, by 4.30 P.M.
ii) MSF is conducted as “Hold-in-Custody” repo, similar to LAF - Repo.
iv) On acceptance of MSF requests, the applicant’s RC SGL Account will be debited by the required quantum of securities and credited to Bank’s RC SGL A/c. Accordingly, the applicant’s current a/c will be credited with the MSF application amount. The transactions will be reversed in the second leg.
Amount : Rs. 1 cr and in multiples of Rs. 1 cr. Eligible
Securities : All SLR-eligible transferable Govt, of India dated Securities/Treasury Bills and State Development Loans (SDL).
Margin Requirement : For Gol dated securities and Treasury Bills-5%. In respect of DLs -10%.
Settlement of Transactions : The settlement will take place on the same day after the closure of the window for acceptance of applications.
NEGOTIATED DEALING SYSTEM
        The system which became operational during Feb 2002, facilitates the submission of bids/applications for auctions/floatation of govt, securities through pooled terminal facility located at Regional Offices of Public Debt Offices and through member terminals. The system can be used for daily Repo and Reverse Repo auctions under Liquidity Adjustment Facility.
Members : Banks, Primary Dealers and Financial Institutions having Subsidiary General Ledger and Current Accounts with RBI are eligible to become members.
Instruments : Govt, dated securities, Treasury Bills, Re-purchase Agreements (Repos), call/notice/term money, CPs, CDs, forward rate agreements/interest rate swaps, etc.
Benefits : It provides an electronic dealing platform for primary and secondary market participants in govt, securities and also facilitate reporting of trades executed through exchanges for information dissemination and settlement, in addition to deals done through the system.
CLEARING CORPORATION OF INDIA
        Clearing Corporation of India Limited (CCIL) was incorporated on 30th of April, 2001, as the country’s first clearing house for the Govt, securities, forex and other related market segments. It commenced operations from February 15, 2002. It provides a system for efficient clearing of money, government securities and foreign exchange market transactions.
Promoters and management - Owned by market participants and promoted by banks. It is a limited liability company under Indian Companies Act 1956, with authorized capital of Rs.50 cr. It is managed by a Board of Directors.
Membership : Membership (including Associate Membership) of CBLO segment is extended to banks, financial institutions, insurance companies, mutual funds, primary dealers, NBFCs, non-Govt. Provident Funds, Corporates etc. The Members are required to open Constituent SGL (CSGL) Account with CCIL for depositing securities which are offered as collateral / margin for borrowing and lending of funds. Besides, Associate Members are to open a current account with a Settlement Bank designated by CCIL for settlement of funds.
Objectives: To establish a safe institutional structure for clearing & settlement of trades in Govt. Securities, Forex, Money & Debt Markets.