Evolution of Banking: From Benches to Modern Institutions
undefined
•
“bancus” or “banque” which means
bench.
•
Early bankers, the Jews transacted
their business on benches in the
market place.
When banker was unable to meet his
obligation, his bench was broken up
by people; it is called “bankrupt.”
The word “bank” is originally derived
from the German word “back”
meaning joint stock fund.
2000 B.C., the Babiloninas had developed a
banking system.
Temples of Babylon were used as banks.
Great temples Ephesus & of Delphi were the
most powerful of the Greek banking
institution .
Spread of irreligion destroyed the public
sense of security in depositing valuables in
temple & priest were no where acting as
financial agents.
Aristotle’s dictum-charging of interest was
unnatural and consequently immoral.
Even now Mohammedans in
obedience to the commands contained in
their religious books, refuse to accept
interest on money loans.
The India banking law is based to a very large
extent upon the English Banking Law.
Beside Banking Law, the Law of Contract, the
Law of Torts and other branches of
commercial and civil laws are applicable to
banks as to others.
Law merchant or
Lex mercatoria
customs of merchants
ratified by courts and become part of
general law.
Lord Mansfield’s ruling
Post industrial revolution period, banking
law largely judge made law.
Took into consideration customs of
merchants of the advanced European
Countries.
Royal exchanger
In England, Edward III-Royal Exchanger for
the benefit of the Crown.
Goldsmiths
Land ceased to be the only form of wealth,
merchants began to hold part of their
“capital” in cash.
Merchants entrusted their cashiers with large
sums, later misappropriated.
City merchants decided to keep their cash
with goldsmiths, who had strong rooms and
doors and employed watchmen.
Early beginning of “Issue” and “Deposit”
banking
Large sums of money were left with the
goldsmiths for safe custody, against signed
receipts- “goldsmiths’ notes”.
Notes- embodying an undertaking to return
money to depositor or to bearer on demand.
Transformed from receipt to a bank note-
considerable circulation.
Large money were left with them.
Following Dutch bankers-thought it is
profitable to lend which is to be repaid within
a fixed time.
In order to attract more depositors they began
to offer interest on deposits.
Current banking
In 1672, English banking received a rude
setback.
Charles II borrowed heavily and repudiated
his debts.
Crisis ensued, leading to general suspension
of payments. Confidence, however, was
restored.
Receive deposits on “current account”
i.e.,
money withdrawal without notice.
Bank of England (1694)
The Tonnage Act
Financial difficulties of William III, was
carrying war with France.
The public distrust of goldsmiths.
Mr. Patterson-raise $1,200,000, a loan to
the Govt, certain concession the right to
issue notes were given to proposed
institution.
Certain important provisions of the Act are
as follows-
1.
Authorized the raising of $1,200,00 by
subscription, the subscribers forming a
corporation called “The Governor and
company of the Bank of England”
2.The Corporation was to lend the whole of its
capital to the Govt , interest @ 8% & $4000
for expenses of management.
3. Corp. have a privilege of bank for12 years,
Govt preserved the right of annulling the
charter after giving 1 yr notice toCorp.
4. Corp. was forbidden to trade in any
merchandise, but allowed to deal in bill of
exchange, gold or silver bullion & to sell
wares or merchandise upon which it has
advanced money.
The new bank is a big competitor to the
comparatively small private banks.
Monopoly of note issue
: prohibited any other
bank, with more than 6 partners, issuing
promissory notes
i.e
., bank notes
Limited supply of Bank of England notes
The Act gave monopoly of note issue to the
Bank of England, so far joint stock
companies were concerned, but left private
banks having not more than six partners
free to issue notes.
Notes of pvt banks did not circulate to any
appreciable extent
unprofitable and gave it up; began to develop
deposit
banking.
They received deposits which were at first
withdrawable by letter, and later by cheques.
Printed cheque forms were first issued between
1749 & 1759.
Bank of England notes were not popular beyond
the metropolis, as it did not have any outside
branch.
Pvt banks in provincial cities began to play an
important role after the middle of 18
th
century.
Restriction on monopoly
It was realized that joint stock banks with
right of issue should be started outside
London.
In 1826 an Act was passed which allowed
banks to be started with unlimited liability,
consisting more than 6 partners , with the
right to issue notes, provided they have no
office within a radius of 65 miles from
London, it was removed –Mr. Joplin-no such
monopoly was intended.
Peel’s Act, 1844
No limit to the amount of notes, which pvt
bankers and after 1826 the country joint-
stock banks were allowed to issue.
resulted in numerous banking crisis and
bank failures .
Extinction of the right of issue of bank notes
and deposit banking came into place.
Growth of deposit banking and cheque
currency
Currency and Bank Notes Act, 1928- Bank of
England was given exclusive right to issue
notes.
In 1947 it was nationalized.
History of Banking in India
India was not a stranger to the concept of
Banking.
Provisions of banking were found in
Kautilya’s Arthashastra-
Sahukars
and
Mahajans
Manusmriti etc
Hundi
“hund”,
means to collect.
The bills of exchange are generally used for
the collection of debts.
For instance, when a merchant in Bombay
sells goods to a merchant in Delhi, the former
draws a bills of exchange on the latter, so to
collect the price of those goods.
llly when a merchant in Calcutta
desires to collect a debt, due to merchants in
Madras, the former may draw a
Hundi
for the
amount upon the latter.
Types of
“
Hundis”-3 types
“
Darshani hundi
” payable at sight
“
Muddati hundi
” payable after specified
period of time.
“
Shah Jog Hundi
” payable by drawee only to
a respectable person.
Nature of document a promissory note or a
hundi
unconditional undertaking that the
defendants has promised to pay an amount
to petitioner.
Mere inscription of word “
Hundi
” above the
stamp is not sufficient to hold the document
as “
Shah Jog Hundi
”
Usury- The Usurious Loans Act, 1918
Usury, or high rate of interest, was widely
prevalent in India.
In Bengal, money was frequently lent to
farmers at 40% or 60% per annum, while the
standing crop was mortgaged for repayment
of the loan.
Most writers attribute usury to the state of
insecurity in India risk-low financial status of
the borrowers.
Money lender rather than a banker.
State Money-Lenders Acts
The money lenders in India are regulated
under the respective State Money-Lenders
Acts
e.g
., the Kerala Money Lenders Act,
1958, the Karnataka Money Lenders Act,
1961etc
Money- Lending legislations of various
states have similar salient provisions -
Requirement of Registration/license
Duty of money lenders with respect to
maintaining and providing statement of
accounts to the debtors.
Penalty for carrying on business without
license
Intimidating the debtors or interfering with
their day to day activities
Maximum rate of interests
The Constitution of India has conferred
power to legislate on matters relating to
money lending to the states.
RBI working group/Radhakrishna Expert
Group on Agricultural indebtedness (2008)
recommended there should be stricter and
more transparent regulation of Money-
Lenders.
Pvt. firms or individuals
Business was hereditary and confined to few
castes & communities like vaishyas, Jains,
Marwaries and Chettis.
Financial intermediaries
Indigenous bankers v. money lenders
Deal in short term credit instrument like
hundis and commercial bill.
They provided credit to traders, agriculturist,
small producers and Govt also.
Lending on basis of promissory note.
Simple method of accounting.
Easily accessible.
Do not have fix banking hours.
No much formalities and procedures.
Defects in Indigenous banking
Hindrance in the development of an organized
money market.
High rate of interest
Involved other business.
Manipulating accounts
Secrecy of accounts, neither audited nor
published.
Commission agents
Deducting interest in advance-undeseriable
practice.
Give loans for any purpose.
Suggestions:
Indian Central Banking Enquiry
Committee,1931
The Banking Commission, 1971
Only banking business and not any other
activity.
Maintain account books in a prescribed and
recognized form and get them audited.
Linked with commercial banks.
Benefit of Bankers’ Book Evidence Act shpuld
be extended to them.
Their banking practices need to be
upgraded.
These banks are encouraged to become
corporate bodies rather than continuing as
family based enterprises.
profit-based financial institution.
Primary functions
Accepting
deposits
Fixed or time
deposit
Saving Deposit
Current Deposit
Recurring Deposit
Loans and
advances
Loans
Cash Credit
Overdraft
Purchasing and
discounting of
bills
Secondary Functions
Agency Functions Utility Functions
Transfer of funds/ Locker facility
remittance
Payment of bills Foreign exchange
Underwriter Provide market info
Collection of cheque Advice to exporters
Collecting money on Behalf of customers
Income tax returns
Trustee, administrator
Set up in July 1964, as a wholly-owned
subsidiary of RBI. Autonomy in 1976.
Apex institution in the arena of development
banking.
Major role is to coordinate the activities of
other development banks.
Provides medium & long term finance to
business units.
Functions:
Planning, promoting & developing industries-
fill gaps in the industrial structure by
conceiving, preparing & floating new
projects.
Technical & administrative assistance for
promotion, management & expansion of
industry.
Providing refinance to the IFCI and other
financial institutions.
Purchasing or underwriting shares and
debentures of industrial concerns.
Guaranteeing deferred payments due from
industrial concerns.
Undertaking market and investment
research, surveys and techno-economic
studies.
Entrepreneurship development programme.
The scope of business of the IDBI extended-
direct industrial assistance by way of project
loans, equipment finance scheme.
Assistance to service sector industries like
health care, informatics.
Small Industries Development Bank of India
(SIDBI)-1990-subsidary to IDBI delinked in
1997- apex bank in financing small scale
industries.
Germany
First cooperative credit society was Act (1904)
Registered under respective state Cooperative
Societies Act. (1959).
Small financial entities.
Voluntary association of members of locality or
professional community.
Operate in rural (finance farming, cattle) and urban
areas (self employment, small scale units, personal
finance).
They are governed by RBI (licensing, rate of interest,
area of operation), State Govt (management, merging,
liquidation)
Higher rate of interest on deposits. Credit oriented
movement.
•
The Maclagan committee (1915) on co-
operative, recommended some important
policies regarding the three-tier system of
co-operative societies.
•
The first urban co-operative society was
established in India, “Annyona Shakari Mandli
Co-operative Bank‟ located in Baroda (Gujarat
state) on 5 Feb 1889.
•
Economic sustainable development.
•
Banking to doorsteps of common people.
The Objectives and Functions of the Urban Co-
Operative Banks:
1. Primarily, to rise funds for lending money to its
members
2. To attract deposits from members as well as non-
members
3. To encourage thrift, self-help ad mutual aid
among members.
4. To draw, make, accept, discount, by sell, collect
and deal in bills of exchange, draft, certificates and
other securities
5. To provide safe deposits vaults.
6. To issue letters of credit and traveler‟s cheques
7. To arrange for the safe custody of valuables
8. It acts as an agent of its customers
9. To borrow funds and utilize them for giving loans
to needy persons
o
Problems
•
Many regulatory bodies.
•
No expertise & skills.
•
Recruitments are Politicized.
•
Unduly dependent on refinance.
•
No active participation of members.
Reforms
RBI suggested: Single regulatory body.
Established on 1
st
April, 1935 under the
RBI Act, 1934.
Was established on recommendations of
Hilton Young Commission.
RBI nationalized in
1949
Originally a shareholders’ bank.
Paid up capital was Rs. 5 crores.
Took over the function of currency issue from
GOI & power of credit control from SBI.
In 1949 Banking Companies Act was
enacted and now renamed as Banking
Regulation Act, 1949.
Functions of RBI
RBI was constituted to:
1. Regulate the issue of banknotes
2. Maintain reserves with a view to securing
monetary stability.
3. Operate the credit & currency system of the
country to its advantage.
1.Issuer of currency in India
Sole authority to issue, control & regulate
currency in India.
It issues & exchanges or destroys currency &
coins not fit for circulation.
Objective is to give adequate quantity of
supplies of currency notes & coins in good
quantity.
2. Banker to the Govt
Performs merchant banking functions of State
& Central Govts.
Also acts as banker to GOI and State Govts.
Accept money on account of the Govt, to
make payment on behalf of the Govt.
Carries out exchange remittance& other
banking operations including Govt securities
and management of public debt of the govt.
3. Baker of Commercial Banks
RBI act as Banker of Banks.
Maintains banking accounts of all scheduled
Banks.
All banks keep and maintain their accounts
with RBI
4. Organizer of Commercial Banking System
Concerned with the organization of a sound & healthy
commercial banking system.
Ensuring effective co-ordination & control over credit through
appropriate monetary
& credit policies followed from time to time.
5. Regulator & supervisor of Financial Sysem
Prescribes broad parameters of banking operations.
Objective is to
i.
maintain public confidence in the system
ii.
protect depositors interest.
iii.
provide cost effective banking service to the public.
6. Financial Supervision
Guidance of the Board for Financial
Supervision (BFS), constituted in Nov 1994 as
a committee of the Central Board of
Directors of the RBI.
Objective of BFS: undertake consolidated
supervision of financial sector comprsing
commercial banks, financial institutions &
non banking financial institutions.
BFS through the Audit Sub-Committee aims
at upgrading the quality of the statutory audit
& internal audit functions in banks & FI.
BFS oversees the functioning of Department
of Banking Supervision(DBS), Department of
Non-Banking Supervision(DNBS) & Financial
Institution Division (FID).
Gives direction on the regulatory &
supervisory issues.
7. Monetary Authority
RBI formulates, implements & monitors the
monetary policy.
Objective is maintaining price stability &
ensuring adequate flow of credit to
productive sectors.
8. Control the volume of credit
Exercise it control over volume of credit
created by the commercial banks in order to
ensure price stability.
Quantitative Credit Control
1.
Bank Rate
2.
Repo Rate
3.
Reverse Repo Rate
4.
Open Market Operations
5.
Variable Reserve Requirements
6.
Selective Credit Control
9.
RBI has been designated under the Payment
& Settlement System Act, 2007 as the
authority to regulate & supervise payment
system
in the country, including those
operated by non- banks such as CCIL &
other payment system providers.
10. Manager of Foreign Exchange
Facilitate external trade & payment & promote
orderly development & maintenance of foreign
exchange market in India
11. Maintains the value of currency
Maintain not the internal value of currency,
i.e
., the Indian rupee, but it has also
maintain the external value of the currency.
12. It is also concerned with the
development
of rural banking.
13. It plays an important role in the
promotion of FI.
RBI has taken steps to enable the
Commercial Banks to open up branches in
foreign centres.
14. Issue license to commercial
banks/branches
No commercial bank can commence the
business of banking without obtaining
license from RBI.
BR Act, 1949,
Sec. 22
License may be issued subject to following
Conditions:
i. Company is or will be in a position to pay to
its present or future depositors in full as
their claims accrue.
Affairs of the company are not conducted or
not likely to be conducted in a manner
detrimental to the interest of present or
future depositors.
The general character of the proposed
management of the company will not
prejudicial to public interest or the interest of
the depositors
Company has adequate capital structure &
earning prospects.
Public interest will be served by grant of a
license to a co.
15. Power to inspect the commercial banks
S. 35 of BR Act, 1949
RBI itself or on direction of Central Govt may
at any time cause an inspection, carried out
by one or more officers of any bank & its
books & accounts.
RBI shall supply to the banking company a
copy of its report on such inspection.
If there are defects, the banks concerned are
required to rectify them.
RBI has power to appoint Additional
Directors on the Board of Directors.
RBI may also cause scrutiny to be made by
one or more of its officers, of the affairs of
any banking company and its books and
accounts.
It is duty of every employee of bank to
produce such books, accounts and other
documents in his custody.
Submit a report to Central Govt, if it is of
opinion that the affairs of the banking
company-detriment of the interests of its
depositors.
After giving such opportunity to the bank to
make a representation, by order in writing-
i.
prohibit the banking Co. from receiving
fresh deposits.
ii.
Direct the RB for the winding up of the
banking company.
iii.
Publish the report.
Any person making an inspection may
examine on oath any director or employee
of a banking company.
Overall control over Management of Banks
Directions & circular letters issued by RBI are
binding on the banking companies.
S. 35B of BR Act, 1949 the approval of RBI is
necessary for the appointment or re-
appointment or termination of appointment
of chairman, managing & whole time
director.
Power to supersede the Board of Directors of
Banking Company
RBI in consultation with Central Govt can
supersede the Board of Directors for a period
not more then 6 months which could be
extended from time to time, totally not
exceeding 12 months in case it is in public
interst.
Selective credit control
S. 21 Power of RB to control advances by
banking companies
RBI may give directions to banking companies
generally or to any banking companies or
group of banking companies in particular to-
The purpose for which advance may or may
not be granted.
The margins to be maintained in respect of
secured advances.
45JA. Power of Bank to determine policy and
issue directions.
To all or any of the NBFC’s
Relating to:
•
income recognition
•
accounting standards
•
making of proper provision for bad and doubtful
debts
•
capital adequacy based on risk weights for assets
and credit conversion factors for off-balance
sheet items and
•
relating to deployment of funds
nonbanking financial companies shall be bound
to follow the policy so determined and the
directions so issued.
If any directions are not complied, the Bank may
prohibit the NBFC from accepting any deposit.
May also order not to sell, transfer, create charge
or mortgage or deal in any manner with its
property and assets without prior written
permission of the Bank for such period not
exceeding six months from the date of the order.
Directions:
•
a) the purpose for which advances or other fund
based or non-fund based accommodation may
not be made; and
b) the maximum amount of advances or
other financial accommodation or
investment in shares and other securities
which, having regard to the paid-up capital,
reserves and deposits of the non-banking
financial company and other relevant
considerations, may be made by that
nonbanking financial company to any person
or a company or to a group of companies.
S.45K.
Power of Bank to collect information
from non-banking institutions as to deposits
and to give directions
.
Information
:
•
the amount of the deposits,
•
the purposes and periods for which, and the
rates of interest and other terms and
conditions on which, they are received.
•
Directions
:
•
the rates of interest payable on such
deposits, and the periods for which deposits
may be received.
If any NBFC fails to comply with any direction
given by the Bank, the Bank may prohibit the
acceptance of deposits by that non-banking
institution.
If so required by bank, NBFC shall send on its
on cost a copy of its annual balance sheet
and P&L A/C or other annual accounts to
every person from whom the non-banking
institution holds, as on the last day of the
year to which the accounts relate, deposits
higher than such sum as may be specified by
the Bank.
S. 45L. Power of Bank to call for information from financial
institutions and to give directions
.
the paid-up capital, reserves or other liabilities, the
investments whether in Government securities or
otherwise, the persons to whom, and the purposes and
periods for which, finance is provided and the terms and
conditions, including the rates of interest, on which it is
provided.
In issuing directions to any financial institution the Bank
shall have due regard to the conditions in which, and the
objects for which, the institution has been established, its
statutory responsibilities, if any, and the effect the
business of such financial institution is likely to have on
trends in the money and capital markets.
S. 45M. Duty of non-banking institutions to
furnish statements, information or
particulars etc., required by Bank.
S. 45MC. Power of Bank to file winding up
petition.
A non-banking financial company shall be
deemed to be unable to pay its debt if it has
refused or has failed to meet within five
working days any lawful demand made at any
of its offices or branches
45N. Inspection.
purpose of verifying the correctness or
completeness of any statement, information
or particulars furnished to the Bank or for the
purpose of obtaining any information or
particulars which the non-banking institution
has failed to furnish on being called upon to
do so; or
Duty to furnish that authority with any
statements and information
CHAPTER IIIC
PROHIBITION OF ACCEPTANCE OF DEPOSITS
BY UNINCORPORATED BODIES
45S. Deposits not to be accepted in certain
cases.
(1) No person, being an individual or a firm
or an unincorporated association of
individuals shall, accept any deposit
Except, receipt of money by an individual by
way of loan from any of his relatives
45T. Power to issue search warrants.
on an application by an officer of the Bank or
of the State Government authorised in this
behalf stating his belief that certain
documents relating to acceptance of deposits
in contravention of the provisions of section
45S are secreted in any place within the local
limits of the jurisdiction of such court, issue a
warrant to search for such documents.
Deposit Insurance Scheme was introduced under
the Deposit Insurance & Credit Guarantee
Corporation Act, 1961 in the wake of certain
bank failures .
India is second major country to provide
insurance cover to bank depositors.
Under the above Act Deposit Insurance
Corporation was established with effect from 1
st
January 1962.
DIC looks over the undertaking of the Credit
Guarantee Corporation of India Ltd., a public
Ltd., Company promoted by RBI
w.e.f 15th
July
1978.
With integration of two organization the
Corporation was renamed as the Deposit
Insurance Credit Guarantee Corp (DICGCs).
The functions & claims of DICGC are
governed by the provisions of the Deposit
Insurance & Credit Guarantee Corporation
Act, 1961& Insurance & Credit Guarantee
Corporation General Regulations, 1961
framed by RBI in exercise of the powers
conferred by the said Act.
DICGC has twin objectives:
1. giving insurance protection to small
depositors in bank.
2. providing guarantee support to credit
extended by banks & approved financial
institutions to certain categories of small
borrowers, particularly those belonging to
the weaker & neglected sections of the
society as well as to small-scale industrial
units.
Deposit insurance functions of DICGC
Under DICGC Act, all commercial banks
including RRB’s (1968) are registered as
insured banks, there by affording uniform
protection to all bank depositors.
DICGC is extending insurance cover to small
depositors with the object of maintaining the
confidence of small investors in the banking
system of the of the country & also
promoting financial stability. Indian
depositors enjoy high degree of protection.
Role of Insurance Premium & limit of Cover
Each depositor of insured bank which goes
into liquidation is entitled to receive from
Corp., through liquidator, repayment of his
amount up to Rs. 1,00,0000.
Where a depositor has would have several
accounts, either in one branch or different
branches of a bank, the aggregate of all
credits in such accounts would fall within this
limit, such that the eligible repayment shall
not exceed Rs. 1,00,000.
Amount which is excess of Rs. 1,00,000 may
not be given to depositors unless bank in
liquidation is having sufficient funds which
can be given all on pro-rata basis after
providing for expenditure in liquidation
proceedings .
Banks are required to pay the premium @ 10
paise per annum for every RS. 100 of total
amount of assessable deposits.
The insurance cover is thus available to the
depositors free of cost.
Deposits of the Central & State Govts, foreign
Govts. & the banking companies are not covered
under the scheme.
The amount of deposit covered for the purpose
of insurance is the net sum owned by the bank
after adjustment of any deductions due from the
depositor.
The Corp. is empowered to request the RBI to
inspect an insured bank & obtain the Reserve
Bank’s Inspection report.
The Act also empowers the Corp. to require the
Insured bank to furnish any information relating
to their deposits & to have free access to
records of Insured bank.
7.
Use of words "bank", "banker", "banking" or
"banking company"
(1) No company other than a banking company
shall use as part of its name [or in connection
with its business] any of the words "bank",
"banker" or "banking" and no company shall carry
on the business of banking in India unless it uses
as part of its name at least one of such words.
(2) No firm, individual or group of individuals
shall, for the purpose of carrying on any
business, use as part of its or his name any of
the words "bank", "banking" or "banking
company".
8 - Prohibition of trading
Notwithstanding anything contained in section 6 or in any
contract, no banking company shall directly or indirectly deal in
the buying or selling or bartering of goods,
except in connection with the realisation of security given to or
held by it, or engage in any trade, or buy, sell or barter goods for
others otherwise than in connection with bills of exchange
received for collection or negotiation or with such of its business
as is referred to in section 6(1) (i)
[PROVIDED that this section shall not apply to any such business
as is specified in pursuance of clause (o) of sub-section (1) of
section 6.]
Explanation.--For the purposes of this section, "goods" means
every kind of movable property, other than actionable claims,
stocks, shares, money, bullion and specie, and all instruments
referred to in clause (a) of sub-section (1) of section 6.
9 -
Disposal of non-banking assets
Notwithstanding anything contained in section 6, no
banking company shall hold any immovable property
howsoever acquired, except such as is required for its
own use, for any period exceeding
seven years
from the
acquisition thereof or from the commencement of this
Act, whichever is later or any extension of such period as
in this section provided, and such property shall be
disposed of within such period or extended period, as the
case may be:
PROVIDED that the banking company may, within the
period of seven years as aforesaid deal or trade in any
such property for the purpose of facilitating the disposal
thereof:
PROVIDED FURTHER that the Reserve Bank may in any
particular case extend the aforesaid period of seven years
by such period not exceeding five years where it is
satisfied that such extension would be in the interests of
the depositors of the banking company.
36AE. Power of Central Government to acquire
undertakings of banking companies in certain
cases
(a) has, on more than one occasion, failed to
comply with the directions given to it in writing
under section 21 or section 35A, in so far as such
directions relate to banking policy, or
(b) is being managed in a manner detrimental to
the interests of its depositors, and that—
(i) in the interests of the depositors of such
banking company, or
(ii) in the interest of banking policy, or
(ii) in the interest of banking policy, or
(iii) for the better provision of credit generally
or of credit to any particular section of the
community or in any particular area,
it is necessary to acquire the undertaking of
such banking company, the Central
Government may, after such consultation with
the Reserve Bank as it thinks fit, by notified
order, acquire the undertaking of such
company
PROVIDED that no undertaking of any banking
company shall be so acquired unless such
banking company has been given a
reasonable
opportunity of showing cause
against the
proposed action.
(2) on the appointed day, the undertaking of
the acquired bank and all the
assets and
liabilities
of the acquired bank shall stand
transferred
to, and vest in, the Central
Government.
(3) The undertaking of the acquired bank and its
assets and liabilities
shall be deemed to
include
all rights, powers, authorities and privileges and
all property, whether movable or immovable,
including, in particular, cash balances, reserve
funds, investments, deposits and all other
interests and rights in, or arising out of, such
property as may be in the possession of or held
by, the acquired bank immediately before the
appointed day and all books, accounts and
documents relating thereto, and shall also be
deemed to include all debts, liabilities and
obligations, of whatever kind, then existing of
the acquired bank.
all contracts, deeds, bonds, agreements, powers
of attorney, grants of legal representation and
other instruments of whatever nature subsisting
or having effect immediately before the
appointed day and to which the acquired bank is
a party or which are in favour of the acquired
bank shall be of as full force and effect against
or in favour of the Central Government, or as the
case may be, of the transferee bank, and may be
enforced or acted upon as fully and effectually as
if in the place of the acquired bank the Central
Government or the transferee bank had been a
party thereto or as if they had been issued in
favour of the Central Government or the
transferee bank, as the case may be.
If, on the appointed day, any suit, appeal or
other proceeding of whatever nature is
pending by or against the acquired bank, the
same shall not abate, be discontinued or be,
in any way, prejudicially affected by reason of
the transfer of the undertaking of the
acquired bank or of anything contained in this
Part, but the suit, appeal or other proceeding
may be continued, prosecuted and enforced
by or against the Central Government or the
transferee bank as the case may be.
36AF. Power of the Central Government to
make scheme
(1) The Central Government may, after
consultation with the Reserve Bank, make a
scheme for carrying out the purposes of this
Part in relation to any acquired ban
the continuance of the right of any person who,
on the appointed day, is entitled to or is in
receipt of,
a pension
or other superannuation or
compassionate allowance or benefit
, from the
acquired bank or any
provident, pension
or other
fund or any authority administering such fund,
to be paid by, and to receive from, the Central
Government or the transferee bank, as the case
may be, or any provident, pension or other fund
or any authority administering such fund, the
same pension, allowance or benefit so long as he
observes the conditions on which the pension,
allowance or benefit was granted, and if any
question arises whether he has so observed such
conditions, the question shall be determined by
the Central Government and the decision of the
Central Government thereon shall be final;
36AG. Compensation to be given to
shareholders of the acquired bank
(1) Every person who, immediately before the
appointed day, is registered as a holder of
shares in the acquired bank or, when the
acquired bank is a banking company
incorporated outside India, the acquired
bank, shall be given by the Central
Government, or the transferee bank, as the
case may be, such compensation in respect of
the transfer of the undertaking of the
acquired bank as it determined in accordance
with the principles contained in the Fifth
Schedule.
36AG. Compensation to be given to
shareholders of the acquired bank (1) Every
person who, immediately before the
appointed day, is registered as a holder of
shares in the acquired bank or, when the
acquired bank is a banking company
incorporated outside India, the acquired
bank, shall be given by the Central
Government, or the transferee bank, as the
case may be, such compensation in respect
of the transfer of the undertaking of the
acquired bank as it determined in accordance
with the principles contained in the Fifth
Schedule.
(4) If the amount of compensation offered in
terms of sub-section (3) is not acceptable to
any person to whom the compensation is
payable, such person may, before such date
as may be notified by the Central Government
in the Official Gazette, request the Central
Government in writing, to have the matter
referred to the Tribunal constituted under
section 36AH.
36AH. Constitution of the Tribunal
(1) The Central Government may, for the
purpose of this Part, constitute a Tribunal
which shall consist of a Chairman and two
other members.
(2) The Chairman shall be a person who is,
or has been, a Judge of a High Court or of
the Supreme Court, and, of the two other
members, one shall be a person, who, in the
opinion of the Central Government, has had
experience of commercial banking and the
other shall be a person who is a chartered
accountant within the meaning of the
Chartered Accountants' Act, 1949
The Tribunal may, for the purpose of
determining any compensation payable under
this part, choose one or more persons having
special knowledge or experience of any
relevant matter to assist it in the
determination of such compensation.
36AI. Tribunal to have powers of a civil court
(1) The Tribunal shall have the powers of a
civil court, while trying a suit,
(a) summoning and enforcing the attendance
of any person and examining him on oath;
(b) requiring the discovery and production of
documents;
(c) receiving evidence on affidavits;
(d) issuing commissions for the examination
of witnesses or documents.
(2) No such application shall be maintainable
unless it is accompanied by a report of the
Reserve Bank indicating that in the opinion of
the Reserve Bank the banking company will
be able to pay its debts if the application is
granted.
(3) When an application is made under sub-
section (1), the High Court may appoint a
special officer who shall forthwith take into
his custody or under his control all the
assets, books, documents, effects and
actionable claims to which the banking
company is or appears to be entitled and
shall also exercise such other powers as the
High Court may deem fit to confer on him,
having regard to the interests of the
depositors of the banking company.]
(4) Where the Reserve Bank is satisfied that
the affairs of a banking company in respect of
which an order under sub-section (1) has
been made, are being conducted in a manner
detrimental to the interests of the depositors,
it may make an application to the High Court
for the winding up of the company, and
where any such application is made, the High
Court shall not make any order extending the
period for which the commencement or
continuance of all actions and proceedings
against the company were stayed under that
sub-section.
Dr. Hart: “a customer is one who has account
with a banker or for whom a banker
habitually undertakes to act as such.”
For the purpose of KYC policy, customer is
defined as:
i. a person or entity that maintain account
with &/or has business relation with the
bank.
ii. One on whose behalf the account is
maintained.
Customer is one who has either a current
account or a deposit account or, in absence
of it, some relation with the bank in the
ordinary course of business, that can be seen
as banking business.
Paget: to constitute a “customer”, there must
be some recognizable course or habit on the
part of a person of dealing with bank in the
nature of regular banking business.
An isolated transaction or a series of transaction not
Sufficient . He does not seems to favour the school,
which thinks that duration of relationship is not of
the essence.
Single transaction may constitute a customer:
Savory & Co.
v.
Lloyds Bank Ltd
Frequency anticipated
Frequency of transaction is not essential to
constitute a person as a customer but it is true
to say that his position is must be such that
transaction are likely to become frequent.
Dealing to be of a banking nature
If a person occasionally goes to a cashier of bank
& gets cheques cashed or deposits, valuables or
securities for safe custody or buy some stamps,
he does not thereby become a customer of the
bank, it is a casual service not a transaction of
banking business.
H.L Hart: “ a customer is one who has an
account with a banker or for whom a banker
habitually undertake to act as such.”
HC of Kerala in
Central Bank of India Ltd. v.
Gopinath Nair,
AIR 1970 Ker. 74.
A customer is a person who has the habit of
resorting to the same place, to do the
business.
A customer is a person whose money has
been accepted on the footing, that the banker
will honour up to the amount standing to his
credit, irrespective of his connection being of
short or long standing.
Deposit doesn’t constitute bailment.
Customer (creditor) to make demand on
banker (debtor)
Joachimson
v.
Swiss Bank Corporation
Debt due from bank
to customer & debt due
from
ordinary borrower
have two
distinctions. So far banker is concerned the
rule that debtor should find , doesn’t apply.
Here the creditor (customer) has to make a
demand to the debtor (bank). The demand
can be made only at that branch of the bank
where customer has an account.
Velji Lakhamsey & Co.
v.
Dr. Bannaji (1955) 25
Comp. Cas 395.
Any amount due from banker to customer
cannot be claimed as
preferential creditor
if
the bank is wound up. But customer may give
certain specific directions to the bank &
constitute bank as his agent. Agency brings
about fiduciary relationship which lasts until
the agency is terminated.
Indian Bank Alumini
um v.
Industries Ltd
(1990)69 Comp Cas 427 (Ker) (DB)
The company got license to import ignots.
By letter dated 4
th
February 996 the company
requested to bank to execute an undertaking
to the foreign supplier to effect import.
Accordingly, the bank gave undertaking to
make remittance to the foreign supplier.
By the letter dated 10
th
May 1996 company
informed the bank that it had deposited
requisite money & requested it to remit
money to Govt.
In the same letter it also informed bank that
it would be depositing the money for
Calcutta consignment soon & actually
deposited money on 23
rd
May 1996.
Bank made remittance on 10
th
July 1996.
In the mean time, the rupee was devalued,
as a result of which the Co. had to pay
additional amount of Rs. 8.78 lacs which it
claimed from bank for its negligence in not
remitting the money in time, which it could
do.
Holding the bank liable for loss, the Court
observed : “..the bank which was required to
possess expertise, instead of exercising
expertise or care, acted carelessness…it is
not an unforeseeable event like devaluation
which was directly responsible for loss.”
In determining the negligence, the test is the
standard of the ordinary competent banker.
The requisite standard is that which ordinary
competent bankers ought to exercise & not
what the bankers do in fact exercise.
Hedely Byrne & Co. Ltd.
v.
Heller & Partners
Ltd.
[1963]2 All ER 577.
If the banker upon receiving a
request for
information
or advice in circumstances that
show that his skill or judgment in being relied
upon gives the information or advice without
clear disclaimer of responsibility, he accepts a
legal duty to exercise proper care in doing
so., even though he is not under any
contractual or fiduciary obligation to the
inquirer, if he is negligent an action for
damages will lie.
Tournier
v.
National Provincial & Union Bank
of England
[1924]1KB 461.
Duty of secrecy is not absolute but qualified.
i. where disclosure is under compulsion of
law.
ii. Where there is a duty to the public to
disclose.
iii. Where the interest of the bank require
disclosure.
iv. Where the disclosure is made by the
express or implied consent of the customer.
Sec. 5 of Bankers’ Book Evidence Act, 1891:
no officer of the bank shall in any legal
proceeding to which bank is not party be
compellable to produce any bankers’ book…
Nobody can seek through a writ petition an
inquiry into commercial transactions between
the banker and the customer.
Duties of Banker
a. banker has contractual
duty of care
to his
customer in the conduct of customer
business.
b.
duty to honour cheque
up to the credit
balance or agreed overdraft.
c.
Duty not to pay without authority:
when the banker pays a cheque which
is void of material alteration, or on which the
drawer signature has been forged, the
general rule is that the customer’s account
cannot be debited with the amount so paid.
d. duty of secrecy
e. If in a particular case the giving of
advice
forms part of banker’s business, it is under
a duty to take reasonable care in giving it.
f. Safe custody arrangements.
g.
Bank Statement
: a banker is under a duty
to keep accurate record of operations of its
customer’s account.
h. a bank may seek
exclusion of liability
in
matters specifically provided in the contract
between the bank & his customer.
When a banker buys or sells securities on behalf
of his customer, he performs agency function .
Payment of tax, insurance premiums, telephone
or electricity bills, prepare income tax returns of
customers.
Similarly when banker collects cheques,
dividends, bills or promissory note on his
customer behalf, he acts as his agent.
Banker may also act in various other agency
capacities for example, as a trustee, attorney,
executor, auctioneer, correspondence with
income tax authorities etc.
Eg. A entrusts Rs. 50,000/- to his banker B
for buying securities of stated particulars. B’s
position is an agent to A (customer)
No bank provides service without authority of
the customer
In a case, ICICI issued General Insurance
Medical Policy for his customer without his
consent & withdrew Rs. 9000/- from his
account. Consumer forum has ordered to
refund whole amount and compensation of
10,000.
Condition for payment of deposit amount.
i.
creditor must demand payment
.
Banker accepts money with additional obligation
to honour cheque.
If the banker returns the deposited amount on his
own accord by closing the account, cheque issued
by depositor is dishonored, his reputation might
be effected.
ii. Proper place and time
Demand for the payment of the deposit must be
made at the same branch of the bank concerned.
Now Central Banking Solution (CBS) system has
made payment possible at any branch of the same
bank & under Automatic Teller Machine (ATM)
customer can take payment anywhere at any bank.
Demand must be made during banking hours
only on a working day of the bank.
iii. Demand must made in proper manner
Through a cheques, drafts, order or
otherwise.
Demand should not be made verbally through
a telephonic message or in any such manner.
The above aspects also explains that bank is
not an ordinary debtor but a
favored debtor
or privileged debtor. Some more points are as
follows:
No security for deposits.
Ordinary loans are subject to limitation
period. In case FD there is automatic renewal.
The bank can claim right to combine the
accounts of the customer whereas such right
cannot be claimed in case of ordinary debt.
Refusal to providing services by bank to its
customer not proper
In
Purewal & Associates
v.
Punjab National
Bank
AIR 1993SC 954.
It was held that the appellants who
manufacture watches & clocks were denied
banking services on the ground that the
appellants, who allegedly owe large sum of
money to the bank, have failed and neglected
to repay the same.
Appellants alleged that the monopolist
nationalized banking sector has virtually
made it impossible for the appellants to avail
themselves of normal banking services &
operation such as furnishing of Letter of
Credit for import purposes, payment of
wages, taxes, salaries and payment of raw –
material suppliers etc.
SC held that the respondent shall allow the
operations of one current account, which will
be free from the incidents of banker’s lien , so
as to enable the appellants to carry on its
normal day-to-day business transaction.
Respondent bank is at liberty to institute a
suit or other appropriate proceedings against
the appellants for the recovery of alleged
dues.
It may be studied under following headings:
1. general obligation of banker towards
customer.
2. rights of bankers.
3. the obligations & rights of the customers.
Banker’s obligations : statutory duties of
banks
1. Obligation (duty) to honour cheques.
2. Obligation to maintain secrecy of accounts.
3.Obligation to honour guarantee.
4. Obligation to honour letter of credit.
5. Obligation of recovery of debts by legal
means.
6. Dropping box for collection of cheques &
banks liability.
7. To maintain correct account of the
customer.
8. Obligation of banker not to convert excess
credit as overdraft.
1. Obligation (duty) to honour cheques
Sec 31 of NI Act, 1881: Liability of drawee of
cheque.—
The drawee of a cheque having sufficient
funds of the drawer in his hands properly
applicable to the payment of such cheque
must pay the cheque when duly required so
to do, and , in default of such payment, must
compensate the drawer for any loss or
damage caused by such default.
The banker is bound to honour his customer
cheques provided following conditions are
fullfilled:
i. there must be sufficient funds
By sufficient funds is meant funds at least
equal to the amount of the cheque presented.
The funds must be sufficient in the hands of
the banker.
Generally cheques sent for collection by the
customer are not treated as cash in the hands
of the banker until the same is realised.
A banker should, therefore, be given
sufficient time to realize the amount of
cheques sent for collection before the said
amount is drawn by the customer.
If the customer draws a cheque on such
unrealized amounts, the banker will be
justified in dishonoring the cheques with the
remark “effect not cleared”
No obligation to make part payment of the
cheque.
If the payee of the cheque makes a deposit in
the account of the drawer to make up such
defciency…
ii.
Funds must be properly applicable to the
payment of the cheque
Customer might be having several bank
accounts in his various capacities.
It is essential that the account on which a
cheque is drawn must have sufficient funds.
If some funds are earmarked by the customer
for some specific purpose, the said funds are
not available for honoring his cheque.
Customer cannot draw a cheque on the basis
of the FD with the banker as it is deposited
under a separate agreement for a specific
period & can be withdrawn in the prescribed
manner and not through a cheque.
iii. Banker must be duly required to pay
Within 3 months from the date of cheque
must be presented for payment. On the expiry
of this period the cheque is treated as stale &
banker dishonors the cheque.
A post dated cheque is also dishonored,
because the order of the drawer becomes
effective only on the date given in the cheque.
iv. Justified dishonor
The bank has valid conditions for dishonor of
cheques
e.g.,
undated, post dated cheques,
mutilated cheques, cheques with material
alteration, where amount differs in words and
figures, death and insolvency of drawer etc.
Garnishee Order
No obligation on banker to honour cheque on
the receipt of garnishee order, issued under
Order XXI Rule 46 of CPC, 1908.
If the debtor fails to pay debt owned by him to
his creditor, he may apply to the court for the
issue of garnishee order on the banker of his
debtor.
The account of the customer with the banker
thus, becomes suspended & banker is under an
obligation not to make any payment from the
account concerned after receipt of garnishee
order.
The creditor, on whose request the order is
issued, is called judgment creditor; the debtor
whose money is frozen is called judgment debtor
& the banker who is the debtor of the judgment
debtor is called the Garnishee.
Garnishee order is issued in two parts
1. Court directs the banker to stop payments out
of the account of the judgment debtor. Such
order, is called
Order Nisi.
Seeks explanation from banker as to why the
funds in the said account should not be utilized
for meeting judgment creditor’s claim.
The banker is prohibited from paying the amount
due to his customer on the date of receipt of the
Order Nisi.
Banker should immediately inform the customer
so that dishonor of cheque issued by him may be
avoided.
After banker files his explanation, if any, the
court may issue final order, called
order
Absolute.
The entire balance or specified amount is
attached to be handed over to the judgment
creditor.
On receipt of such order the banker is bound
to pay garnished funds to the judgment
creditor & his liability towards his customer
is discharged to that extent.
The suspended account may be revived after
payment has been made to judgment
creditor as per directions of the court.
If the entire amount in the account is
garnished or attached & if the banker pays any
amount out of the same which is in excess of
the amount of debt of the creditor, he will
render himself liable for such payment.
Overdraft
The right to set off any debt owed by the
customer before the amount to which the
Garnishee order applies is determined. But
debt has to be actual debt not a contingent
one.
G.O attaches the balance standing to the
credit of the principal debtor
at the time the
order
is served on the banker.
Garnishee order does not applies to:
1. amounts of cheques, draft, bills etc., sent
for collection by the customer, which remains
uncleared at the time of the receipt of the
order.
2. sale proceeds of the customer securities,
which have not been received by the banker.
G.O cannot attach the amounts deposited
into the customer account, after G.O has
been served on the banker.
G.O is not effective on the payments already
made by the banker before order is served upon
him.
•
Cheque presented for payment and its actual
payment is not yet been made…
G.O is not applicabe to:
1.
Money held abroad by the judgement debtor.
2.
Securities held in the safe custody of the
banker.
G.O may be served on the head office of the
bank concerned & it will be treated as sufficient
notice to all of its branches. H.O is given
reasonable time to intimate all the concerned
branches.
Joint accounts:
joint account is opened in the names of
two or more persons
if only one of them is a judgement debtor the joint
account cannot be attached.
partnership accounts:
if a partner is a judgement debtor
only his Individual account may be attached and not that
of the firm or other partners.
When the garnishee deposits the attached amount in the
court, creditor becomes a secured creditor.
Rikhabchand Mohanlal Surana
v.
Sholapur Spinning and
weaving Co. Ltd.
When the attachment is only by a prohibitory order then
the attaching creditor has no right in the property attached
but once the property or money comes into the position of
the court then it would follow that they are constructively
held by the court for attaching creditor.
Credit balance in the account of a customer of a banker
may be attached by
Income Tax authorities
.
Loss or damage in
section 31
of Negotiable
Instrument Act means and includes
1.monitory loss suffered by the customer and
2.loss of credit or reputation in the market
in case of traders
and Businessman reputation
of credit is a Foundation on which their business
depend.
there is natural presumption in law that a trader
suffer loss of reputation in case his cheque is
wrongfully dishonored by his banker.
He is entitled to claims not only general
damages but also substantial damages for such
loss of credit or reputation and even without
proving the special loss suffered by him because
in his case
loss is presumed.
Special loss could be taken into consideration for
arriving at the exact quantum of damages.
In
New Central Hall
v.
United commercial bank
Limited
AIR 1959 Mad 153
The clerk of the bank forgot to credit the
customer account with the money deposited by
the customer and as a result number of cheques
issued by him were dishonored by bank.
The
amount of damages
claimed by the customer
for loss of his reputation need not depend on
amount of cheque
. If the smaller amount of
cheque is wrongfully dishonored, the greater is
the damage caused to the reputation of the trader
and larger would be the damages he would be
entitled to.
The banker disobeyed the customer order to stop
payment of a cheque, subsequently another cheque
was dishonored as a result of insufficiency of funds.
Court will determine actual amount of substantial
damages my taking into account all relevant facts
namely:
The financial position of the customer the reputation
he enjoys in market and customs and practices of his
business.
The court may also grant special damages if the
customer is able to prove that he has a suffered loss,
as a result of losing a profitable contract due to
wrongful dishonor of his cheque.
The Liability of the drawee bank for the
wrongful dishonour of cheque is towards the
drawer and not the payee.
Non-traders
are entitled only to nominal
damages. If they prove that they have
sustained special damages...
2. Obligation to maintain secrecy of accounts
Financial dealings with the customer depicts
the true state of his financial position.
If it is disclosed to others the customer's
repetition may suffer and he may incur losses
also. It may effect his credit worthiness and
business.
banker has an obligation to take utmost care in
keeping secrecy about the accounts of his customers.
Take all necessary precautions and care to ensure that
no such information leaks out of the account books.
Tournier
V.
National Provincial and Union Bank of
England
(1924) 1 K.B. 461.
Tournierwas a temporary employee in M/s. Kenyan Co.
and he was to be made a permanent employee.
He overdrew from the said bank Rs. 9,856 and agreed
to pay by weekly instalments.
one day he did not attend duty. the director of the
company telephoned the bank manager know his
address. In their conversation the bank manager
revealed that he had taken overdraft and made
payment to bookmaker.
The director misconceived the information
and came to conclusion that Tournier has
turned to be or gambler and was in practice
of betting and also insolvent...
Secrecy of customers account maybe
dispensed within the following
circumstances
:
When the
law requires
such disclosure to be
made
When the
practices and usages
amongst the
bankers permit such disclosure.
Disclosure of information required by law
Income Tax Act, 1961
:
S.131
income tax authorities possess the same
powers as are vested in a court under CPC.
S. 133
empowers income tax authorities required
banking companies to furnish statement of
account and affairs which is relevant to any
proceedings under the Act.
II. Disclosure to Police
S. 94 Cr.P.C
: the banker is not exempted from
producing account books before the police.
The police officer conducting investigation may
also inspect the bankers books for the purpose of
such investigations. (sec. 5 Bankers Book
Evidence Act)
Duty to the public to disclose
Crime has been committed and information
in the bank’s possession
may lead to
apprehension of the culprits
.
Where the bank considers that the customer
is involved in activities
prejudicial to the
interest of the country.
Where the bank’s book reveal that the
customer is contravening the provisions of
any law.
where sizable funds are received from the
foreign countries.
S. 26 of BR Act, 1949
every banking Co. is
required to submit a return annually of all
such accounts which have
not been operated
upon 10 yrs.
S. 45-B of RBI Act, 1934
every banking Co.
should provide credit information to the RBI.
II. Disclosure permitted by banker’s
practices & usages.
1. with express or implied consent of the
customer.
Direct banker in writing to intimate the
balance or in his A/C or other details to his
agent or consultant.
Oral enquiry at the counter.
Pass book if has to be sent through messenger, in
closed cover.
Should recognize the voice of customer.
Implied consent
Info to Guarantor.
Trade reference.
Implied consent cannot be taken for granted.
Even when customer and enquirer are closely
related.
Banker may disclose state of customer A/C in
order to legally protect his own interest.
Banker has to recover dues from customer,
disclosure to guarantor or solicitor becomes
necessary.
Banker’s references-
info from other bankers.
Precautions to be taken by the banker
1.
Banker should disclose his opinion based on
the exact position of the customer as is
evident from his account.
2.
General statement of the customer’s
account without disclosing the actual
figures.
he should not speak too low or too high.
Risk of unwarranted and unjustified
disclosure
Liability to the customer
duty to maintain secrecy continue even after
account is closed.
Substantial amount man be claimed if
customer sustained material damage.
Answer honestly.
Liability to the third parties
Banker furnishes information with the
knowledge that it is false.
Such party relies on the information and
suffers losses.
HOL in
Hedley Byrne
v.
Heler & partners Ltd.
(1964) A.C. 465
Banker of a Co. in a reply to an enquiry from
a firm gave his opinion: the Co. is
respectfully constituted, considered good for
its normal business engagements.
Opinion was given without responsibility.
Co. went into liquidation.
Disclaimer made by banker.
3. obligation to honour guarantee
Plays significant role in credit transaction.
No specific statutory provision but according
to uniform customs and practices for
Documentary credits…except in following two
conditions:
i. in case of fraud and
ii. Where irreparable loss or damage may
arise.
Bank guarantee amounts to service to
customer and therefore, failure to honour it
amounts deficiency in service.
Bank is liable to honour guarantee given by it
even though the purpose for which it was
given has been failed.
Obligation to maintain correct account of the
customer & not to convert excess credit as
overdraft.
Bank is not justified to claim interest on such
excess amount treating it as overdraft.
It is not for the account holder to discover the
mistake committed by the bank.
Dropping of cheques in drop boxes for
collection
Crossed cheques are not allowed to paid in
cash. Such cheques have to be deposited to
bank for collection; known as collecting
bank.
Who will be collecting bank?
Depends on type of crossing.
In case of ordinary crossing any bank in India
may act as collecting bank.
In case of specific crossing only that bank in
whose name it is specifically crossed can act
as collecting banker.
In ordinary crossing, payee should have a
account in bank but in case of specific
crossing his account must be in that bank
against whose name it has been specifically
crossed.
Depositing of cheques
Cheques for collection are deposited through
‘pay in slip’ form by payee himself or any
other person.
Bank employee has to return counterfoil of
the ‘pay in slip’ with his signature & seal of
the bank which remains as proof for deposit.
If collection is not made within reasonable
time he may remind with the counterfoil.
During 2005 there was drop box without any
receipt from bank.
It created hue and cry all over the country.
Complaints of wrong debit of account, loss of
cheque, wrongful dishonor, altered etc.
It came to the knowledge of RBI it issued a
circular to ensure both drop box facility and
acknowledgment of cheques are made
available at collection counters.
No bank can refuse acknowledgment of
cheques if they are tendered at bank
counters. Bank cannot compel customer to
drop cheque in cheque box. While check box
facility is also made available.
Display on drop box itself that customer can
also tender cheques at the counter.
Depositing cheques by phone
Photo cheque- smart phone
Download application.
Facility is started in USA, Canada and Spain
since 2009. In India it is yet to come.
The rights of the banker may be grouped as
follows:
1.
Banker’s right of general lien
2.
Banker’s right of set-off
3.
Banker’s right of appropriation of payment.
4.
Banker’s right to claim incidental charges.
5.
Banker’s right to compound interest.
Right of general lien
Lien means right of the creditor to retain the
goods and securities owned by debtor until
the debt due from him is paid.
Right to retain the security and not the right
to sell it.
A bankers lien tantamount to an implied
pledge- implied pledge. May sell the
securities after giving proper to the customer
Particular lien
can be exercised by a
craftsman.
Goods are retained for a particular debt only.
E.g. tailor, repair shop.
General lien
is applicable in respect of all
amounts due from the debtor to creditor.
S. 171
of Indian Contract Act provides
general lien on the following persons:
1. Bankers
2. Factors
3. Wharfingers
4. Attorney of HC
5. Policy brokers
Banker cannot exercise general lien if:
The goods and commodities ve been
entrusted to the banker as a trustee or as
agent of the customer E.g. safe custody
deposits
Contract- express or implied exists, between
the customer and the banker which is
inconsistent with the bankers right of general
lien.
If goods or securities are deposited for some
special purpose...
If customer sends bills of exchange with
specific instructions to utilize its proceeds for
specific purpose , a contract inconsistent with
right to lien exist.
Customer hands over shares with the
instruction to sell them at or above price & the
same are lying unsold with the banker, right of
lien cannot be exercised.
Money deposited for specific purpose
e.g.,
purchase of securities.
No lien on securities left with the banker
negligently.
Securities lodged with banker for securing
loan, before such loan is actually granted.
No lien over the securities deposited by the
customer as a trustee in respect of his
personal loan.
but if the banker is unaware of the
fact that the negotiable securities do not
belong to the customer, right of general is
not effected.
Banker has right to set-off not lien on money
deposited. Lien can be exercised only over
the property of someone else not own
property.
2.
Banker’s right of set-off
Mutual claims of debtor and creditor are
adjusted and only the remainder amount is
payable by debtor.
When customer has taken overdraft…
No set-off when there is agreement to the
contrary.
A notice need to be sent.
Banker takes a letter of set-off, in which he
can exercise the right of set-off without
giving him notice.
Banker has right to combine two accounts so that
he can set-off the debit against the credit.
Right to set-off can be exercised subject to
following conditions:
1.
Accounts must be in the same name and in the
same right.
‘the same right’ means that the capacity
of account holder in both the accounts must be
same.
the underlying principle involved in this rule is
that funds belonging to someone else, but
standing in the name of account holder, should
not be made available to satisfy his debts.
Sole trader- account in personal name & account
in firm name are deemed to be in same capacity.
In capacity of guardian & personal account are
not in same capacity.
Partnership account firm & personal A/C.
2. The right of set-off can be exercised in
respect of debts due not in respect of future or
contingent debts.
3. The amount of debts must be certain.
4. The banker has the right to exercise set-off
before Garnishee order is made effective.
Banker’s right to combine accounts
Garnett
v.
Mc Kervan
the plaintiff had a dormant overdraft with one
branch of a bank & few years after he stopped
business with the branch.
He opened a new A/C with another branch of
the same bank.
Where his credit balance just exceeded the
amount of the dormant debit balance.
The amount required for clearing of the
overdraft with the first branch was transferred
from his A/C in the second branch.
It led to the dishonor of cheque.
The Court decision was in favor of bank.
It was held that there was no special contract
or usage proved to keep the accounts
separate.
There was no legal obligation on a bank to
give notice to a customer of intention to
combine accounts, either from the express
contract or course of dealing.
No right of the customer to combine the
account
Banker issue different cheque books with
different code no. for different accounts.
SBI
v.
Vathi Samba Murthy
AIR 1988 Ori 50.
Customer had two current accounts with the
bank.
One A/C was in the name of the customer &
other in the of partnership firm, of which he
was partner.
The customer issued cheque on his personal
account .
Funds in that A/C were insufficient.
The bank honored the cheque resulting in
overdrawl of personal A/C.
When demanded, the customer refused to
pay the overdraft & interest thereon.
Defense: the amount of cheque was really
intended to be drawn from the partnership
A/C in which there was sufficient balance.
Held : cheque of one account cannot be used
in respect of another account, even though
the same person may be having two
accounts.
Regarding the overdraft the Court held that
the customer is liable to pay back the amount
with reasonable interest.
Automatic right of set-off
of all accounts
arises immediately in the following instances:
1.
On the death, mental incapacity or
insolvency of a customer.
2.
Winding-up of a Co.
3.
On the receipt of a Garnisghee Order.
Right to publish defaulting borrowers.
Right of Appropriation (Rule of Clayton’s Case)
In the course of his usual business, a banker
receives payments from his customer.
If the customer has taken more then one
loan, the question of appropriation of the
money deposited subsequently arises
In such cases customer has the right to direct
the banker to appropriate the amount to either
of the two accounts.
In the absence of any direction from the the
customer, the banker shall have the right to
appropriate the payment to any debt or
account according to his discretion.
He should inform the customer accordingly.
Clayton’s Case
Devayns
v.
Noble
A firm of bankers known as Devayanes, Noble
& Co. had 5 partners.
Devayanes, the senior partner, died & the
surviving partners carried on the business of
banking in the same name.
The executors of the deceased partner
objected to the continuance of the name
Devayanes in the firm’s name.
After a year the firm become bankrupt &
various classes of creditors of the firm placed
their claims against the estate of Devayanes.
N Clayton was one such creditor who
continued to deal with the surviving partners.
At the time of death of Deveynes, Claytons
balance was $1,713. He withdrew several
times thus balance reduced to $453.
Later he deposited with the firm, credit
balance at the time of bankruptcy
Not to draw cheques without sufficient funds.
Drawing cheques with reasonable care.
1.
Keep the cheque book under lock & key.
2.
Fill in the body of cheques before delivery.
3.
Fill in the amount in words as near as
possible to the words “Rupees” and amount
in figures as near as possible to “Rs”.
Cheques must be drawn in such a way as to
prevent any alteration after issue.
Young
v.
Goorte
The customer left the gap while writing the
amount in figures and in words & the Court
held that the customer provided the occasion
for his own loss.
He could not rely on the normal rule that the
alteration of cheque in a material particular
invalidated it, so the banker had no mandate
to pay it at all.
3. To repay overdrawings.
4. To pay charges of the bank
◦
Banker provides diversified services like issue of
DD, locker facility, travel cheques, MICR cheques,
credit cards, ATM facility etc.
To communicate or inform facts
Forgery of signature on cheque, loss of
cheque book, ATM cards etc.
To make demand for repayment of deposists.
Demand deposists
Payable on demand.
Banker has to keep sufficient cash reserves to
meet such liability.
Withdrawable without notice.
Deposits are liability on part of the bankers,
so it may be termed as demand liability/ time
liability.
No restriction on the number & the amount of
withdrawals.
Formerly it did not contribute to the capital of
banks in India as compared to FD.
In recent years it constitute 15 to 20% of
aggregate deposits. Portion varies with bank
to bank and from time to time.
Current Account suit the requirement of big
businessmen, joint stock companies,
institutions, public authorities and public
corporations.
Reserve Bank directive prohibits payment of
interest on current accounts.
Maintain minimum balance, failing which
customer has to pay bank charges either in
the form of commission on the half yearly
turnover of the A/C certain sum of money
every half year.
This practice enables the banker to earn
something on the minimum balance agreed
to kept.
Overdraft facility is available only in case of
Current A/C.
Helps customers to save part of their current
income to meet their future needs & earn
income from their savings.
Restrictions on number and amount of
withdrawals.
Whether bank can accept interest free
deposits?
Banks can pay interest quarterly or longer
rests.
computation of interest on savings bank
deposits done on a daily product basis.
No limit is prescribed for the maximum
amount that may be held in SB A/C, banks
allow interest on a maximum balance of Rs.1
lakh in one A/C.
Fixed deposits are payable on the expiry of
specified period.
Term deposits are withdrawable subject to
notice and not on demand.
It varies from 3months to 5 years.
Period is fixed during at the time deposit is
made. It enables banker to invest money.
Ensured or guaranteed return compared to
investment in share market.
These deposits constitute more than half of
the total bank deposit.
Higher rate of interest.
Double or treble scheme were there.
Fixed Deposit Receipts (FDR) are not
negotiable/transferable.
FDR can be transferred by way of assignment to a
third party. Notice of assignment is to served on
the banker.
By mere handing over of FDR is not enough,
‘letter of authority’ need to be signed.
Even after the expiry of the fixed period the
depositor is not entitled to draw cheques on FD.
Withdrawal of interest or the principal through
cheques is not permitted.
Whether banks can prematurely repay term
deposits on their own?
a term deposit can be paid prematurely at the
request of the customer subject to the terms
of the contract, including penalty, if any.
Demand by the payment is essential for the
repayment of FD.
Whether banks are permitted to offer
differential rate of interest on other deposits?
Banks can formulate special fixed deposit
schemes specifically for resident Indian senior
citizens offering higher and fixed rates of
interest as compared to normal deposits of
any size.
Fixed deposit in joint names
Payable to either or survivor.
Premature repayment request by one of the
joint depositor.
Loan is sought against FDR by one of joint
depositor…
•
loan application shall be signed by other
depositor or
•
no objection to loan granted to one of them
may be taken other depositor/s.
•
Request for duplicate receipt- should be
signed by all the depositors.
Loss of FDR
A letter signed by depositor/s informing the
loss of FDR.
A note to this effect should be made in FD
ledger.
Anumati v.PNB
AIR 2005 SC 29.
Appellant ‘A’ & her husband ‘M’ made a FD of
Rs. 20,000/- with respondent bank ‘P’ for a
period of 7 years.
The maturity amount of the deposit was Rs.
39,930/ on 31.5.1995.
Husband without the consent of wife pledged
FDR for loan which was accepted by the bank.
Bank prayed for a decree against FDR which
was resisted by wife.
Since she failed to get remedy in civil court,
she filed a complaint in District Consumer
Forum.
Dist Forum concluded that bank is entitled to
recover half of the amount of FDR .
Because she has never pledged her share of
FD. Bank appealed to State Forum & got order
in his favour.
She appealed to National Commission which
reaffirmed State Forums Commission.
So she appealed to SC & it upheld Dist. Forum
order.
Partnership firm
Partnership is agreement to share profits of
business carried by all or any of them acting
for all.
A firm A/C should always be opened in the
name of the firm not in the name of
individual partner.
Banker should confirm the right of the
applicant/s to open an account in the name
of firm.
Mutual agency.
Promissory note is executed on behalf of firm
by managing partner, money is utilized for
the purpose of firm. Every partner is liable for
the debt incurred.
Partner does something which is not related
to the kind of business carried on by the firm
other partners and firm will not be liable.
Power given to particular partner to operate
firm account may be withdrawn by any of
them by giving notice to the banker.
In such circumstances the banker should pay cheques
which is signed by all the partners.
Borrowing power of a partner: a partner may
justifiably do all that he is expressed to do
for carrying on the business of the firm
unless expressly barred or power is limited…
Exploring the historical evolution of banking, from early transactions on benches in marketplaces to the development of banking systems in ancient civilizations like Babylon and Greece. The journey continues through the impact of religious beliefs on banking practices, the influence of English Banking Law on Indian banking regulations, and the establishment of banking customs and laws during the post-industrial revolution period. The narrative culminates with the role of goldsmiths in early banking practices and the transition to modern banking institutions.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
E N D
Presentation Transcript
bancus or banque which means bench. Early bankers, the Jews transacted their business on benches in the market place.
When banker was unable to meet his obligation, his bench was broken up by people; it is called bankrupt. The word bank is originally derived from the German word back meaning joint stock fund.
2000 B.C., the Babiloninas had developed a banking system. Temples of Babylon were used as banks. Great temples Ephesus & of Delphi were the most powerful of the Greek banking institution .
Spread of irreligion destroyed the public sense of security in depositing valuables in temple & priest were no where acting as financial agents. Aristotle s dictum-charging of interest was unnatural and consequently immoral. Even now Mohammedans in obedience to the commands contained in their religious books, refuse to accept interest on money loans.
The India banking law is based to a very large extent upon the English Banking Law. Beside Banking Law, the Law of Contract, the Law of Torts and other branches of commercial and civil laws are applicable to banks as to others.
Law merchant or customs of merchants ratified by courts and become part of general law. Law merchant or Lex Lex mercatoria mercatoria Lord Mansfield s ruling Post industrial revolution period, banking law largely judge made law. Took into consideration customs of merchants of the advanced European Countries. Lord Mansfield s ruling
Royal exchanger In England, Edward III-Royal Exchanger for the benefit of the Crown. Goldsmiths Land ceased to be the only form of wealth, merchants began to hold part of their capital in cash. Merchants entrusted their cashiers with large sums, later misappropriated. Royal exchanger Goldsmiths
City merchants decided to keep their cash with goldsmiths, who had strong rooms and doors and employed watchmen. Early beginning of Issue and Deposit banking Large sums of money were left with the goldsmiths for safe custody, against signed receipts- goldsmiths notes . Notes- embodying an undertaking to return money to depositor or to bearer on demand. Early beginning of Issue and Deposit banking
Transformed from receipt to a bank note- considerable circulation. Large money were left with them. Following Dutch bankers-thought it is profitable to lend which is to be repaid within a fixed time. In order to attract more depositors they began to offer interest on deposits. Current banking In 1672, English banking received a rude setback. Current banking
Charles II borrowed heavily and repudiated his debts. Crisis ensued, leading to general suspension of payments. Confidence, however, was restored. Receive deposits on current account i.e., money withdrawal without notice. Bank of England (1694) The Tonnage Act Financial difficulties of William III, was carrying war with France. The public distrust of goldsmiths. Bank of England (1694)
Mr. Patterson-raise $1,200,000, a loan to the Govt, certain concession the right to issue notes were given to proposed institution. Certain important provisions of the Act are as follows- 1. Authorized the raising of $1,200,00 by subscription, the subscribers forming a corporation called The Governor and company of the Bank of England
2.The Corporation was to lend the whole of its capital to the Govt , interest @ 8% & $4000 for expenses of management. 3. Corp. have a privilege of bank for12 years, Govt preserved the right of annulling the charter after giving 1 yr notice toCorp. 4. Corp. was forbidden to trade in any merchandise, but allowed to deal in bill of exchange, gold or silver bullion & to sell wares or merchandise upon which it has advanced money.
The new bank is a big competitor to the comparatively small private banks. Monopoly of note issue bank, with more than 6 partners, issuing promissory notes i.e., bank notes Limited supply of Bank of England notes The Act gave monopoly of note issue to the Bank of England, so far joint stock companies were concerned, but left private banks having not more than six partners free to issue notes. Monopoly of note issue: prohibited any other Limited supply of Bank of England notes
Notes of pvt banks did not circulate to any appreciable extent unprofitable and gave it up; began to develop deposit banking. They received deposits which were at first withdrawable by letter, and later by cheques. Printed cheque forms were first issued between 1749 & 1759. Bank of England notes were not popular beyond the metropolis, as it did not have any outside branch. Pvt banks in provincial cities began to play an important role after the middle of 18thcentury.
Restriction on monopoly It was realized that joint stock banks with right of issue should be started outside London. In 1826 an Act was passed which allowed banks to be started with unlimited liability, consisting more than 6 partners , with the right to issue notes, provided they have no office within a radius of 65 miles from London, it was removed Mr. Joplin-no such monopoly was intended. Restriction on monopoly
Peels Act, 1844 Peel s Act, 1844 No limit to the amount of notes, which pvt bankers and after 1826 the country joint- stock banks were allowed to issue. resulted in numerous banking crisis and bank failures . Extinction of the right of issue of bank notes and deposit banking came into place.
Growth of deposit banking and currency Currency and Bank Notes Act, 1928- Bank of England was given exclusive right to issue notes. In 1947 it was nationalized. Growth of deposit banking and cheque currency cheque History of Banking in India India was not a stranger to the concept of Banking. History of Banking in India
Provisions of banking were found in Kautilya s Arthashastra- Sahukars and Mahajans Manusmriti etc Hundi hund , means to collect. The bills of exchange are generally used for the collection of debts. Hundi
For instance, when a merchant in Bombay sells goods to a merchant in Delhi, the former draws a bills of exchange on the latter, so to collect the price of those goods. llly when a merchant in Calcutta desires to collect a debt, due to merchants in Madras, the former may draw a Hundi for the amount upon the latter.
Types of Darshani hundi payable at sight Muddati hundi payable after specified period of time. Shah Jog Hundi payable by drawee only to a respectable person. Nature of document a promissory note or a hundi unconditional undertaking that the defendants has promised to pay an amount to petitioner. Types of Hundis Hundis - -3 types 3 types Nature of document a promissory note or a hundi
Mere inscription of word Hundi above the stamp is not sufficient to hold the document as Shah Jog Hundi Usury Usury, or high rate of interest, was widely prevalent in India. In Bengal, money was frequently lent to farmers at 40% or 60% per annum, while the standing crop was mortgaged for repayment of the loan. Usury- - The Usurious Loans Act, 1918 The Usurious Loans Act, 1918
Most writers attribute usury to the state of insecurity in India risk-low financial status of the borrowers. Money lender rather than a banker. State Money The money lenders in India are regulated under the respective State Money-Lenders Acts e.g., the Kerala Money Lenders Act, 1958, the Karnataka Money Lenders Act, 1961etc State Money- -Lenders Acts Lenders Acts
Money- Lending legislations of various states have similar salient provisions - Requirement of Registration/license Duty of money lenders with respect to maintaining and providing statement of accounts to the debtors. Penalty for carrying on business without license Intimidating the debtors or interfering with their day to day activities Maximum rate of interests
The Constitution of India has conferred power to legislate on matters relating to money lending to the states. RBI working group/Radhakrishna Expert Group on Agricultural indebtedness (2008) recommended there should be stricter and more transparent regulation of Money- Lenders.
Pvt. firms or individuals Business was hereditary and confined to few castes & communities like vaishyas, Jains, Marwaries and Chettis. Financial intermediaries Indigenous bankers v. money lenders Deal in short term credit instrument like hundis and commercial bill. They provided credit to traders, agriculturist, small producers and Govt also. Lending on basis of promissory note.
Simple method of accounting. Easily accessible. Do not have fix banking hours. No much formalities and procedures. Defects in Indigenous banking Hindrance in the development of an organized money market. High rate of interest Involved other business. Manipulating accounts Secrecy of accounts, neither audited nor published. Commission agents Defects in Indigenous banking
Deducting interest in advance-undeseriable practice. Give loans for any purpose. Suggestions: Indian Central Banking Enquiry Committee,1931 The Banking Commission, 1971 Only banking business and not any other activity. Maintain account books in a prescribed and recognized form and get them audited. Linked with commercial banks. Suggestions:
Benefit of Bankers Book Evidence Act shpuld be extended to them. Their banking practices need to be upgraded. These banks are encouraged to become corporate bodies rather than continuing as family based enterprises.
profit-based financial institution. Primary functions Fixed or time deposit Saving Deposit Accepting deposits Current Deposit Recurring Deposit
Loans Loans and advances Cash Credit Overdraft Purchasing and discounting of bills
Secondary Functions Secondary Functions Agency Functions Utility Functions Transfer of funds/ Locker facility remittance Payment of bills Foreign exchange Underwriter Provide market info Collection of cheque Advice to exporters Collecting money on Behalf of customers Income tax returns Trustee, administrator Agency Functions Utility Functions
Set up in July 1964, as a wholly-owned subsidiary of RBI. Autonomy in 1976. Apex institution in the arena of development banking. Major role is to coordinate the activities of other development banks. Provides medium & long term finance to business units.
Functions: Planning, promoting & developing industries- fill gaps in the industrial structure by conceiving, preparing & floating new projects. Technical & administrative assistance for promotion, management & expansion of industry. Providing refinance to the IFCI and other financial institutions. Purchasing or underwriting shares and debentures of industrial concerns. Functions:
Guaranteeing deferred payments due from industrial concerns. Undertaking market and investment research, surveys and techno-economic studies. Entrepreneurship development programme.
Leader Coordinator Innovator, promotional
The scope of business of the IDBI extended- direct industrial assistance by way of project loans, equipment finance scheme. Assistance to service sector industries like health care, informatics. Small Industries Development Bank of India (SIDBI)-1990-subsidary to IDBI delinked in 1997- apex bank in financing small scale industries.
Germany First cooperative credit society was Act (1904) Registered under respective state Cooperative Societies Act. (1959). Small financial entities. Voluntary association of members of locality or professional community. Operate in rural (finance farming, cattle) and urban areas (self employment, small scale units, personal finance). They are governed by RBI (licensing, rate of interest, area of operation), State Govt (management, merging, liquidation) Higher rate of interest on deposits. Credit oriented movement.
State Cooperative Bank District/Central Cooperative Bank Primary Credit Societies/Urban Cooperative Bank
The Maclagan committee (1915) on co- operative, recommended some important policies regarding the three-tier system of co-operative societies. The first urban co-operative society was established in India, Annyona Shakari Mandli Co-operative Bank located in Baroda (Gujarat state) on 5 Feb 1889. Economic sustainable development. Banking to doorsteps of common people.
The Objectives and Functions of the Urban Co- Operative Banks: 1. Primarily, to rise funds for lending money to its members 2. To attract deposits from members as well as non- members 3. To encourage thrift, self-help ad mutual aid among members. 4. To draw, make, accept, discount, by sell, collect and deal in bills of exchange, draft, certificates and other securities 5. To provide safe deposits vaults. 6. To issue letters of credit and traveler s cheques 7. To arrange for the safe custody of valuables 8. It acts as an agent of its customers 9. To borrow funds and utilize them for giving loans to needy persons
o Problems Many regulatory bodies. No expertise & skills. Recruitments are Politicized. Unduly dependent on refinance. No active participation of members. Problems Reforms RBI suggested: Single regulatory body. Reforms
Established on 1st April, 1935 under the RBI Act, 1934. Was established on recommendations of Hilton Young Commission. RBI nationalized in 1949 Originally a shareholders bank. Paid up capital was Rs. 5 crores. Took over the function of currency issue from GOI & power of credit control from SBI.
In 1949 Banking Companies Act was enacted and now renamed as Banking Regulation Act, 1949. Functions of RBI RBI was constituted to: 1. Regulate the issue of banknotes 2. Maintain reserves with a view to securing monetary stability. 3. Operate the credit & currency system of the country to its advantage.
1.Issuer of currency in India Sole authority to issue, control & regulate currency in India. It issues & exchanges or destroys currency & coins not fit for circulation. Objective is to give adequate quantity of supplies of currency notes & coins in good quantity. 2. Banker to the Govt Performs merchant banking functions of State & Central Govts. Also acts as banker to GOI and State Govts.
Accept money on account of the Govt, to make payment on behalf of the Govt. Carries out exchange remittance& other banking operations including Govt securities and management of public debt of the govt. 3. Baker of Commercial Banks RBI act as Banker of Banks. Maintains banking accounts of all scheduled Banks. All banks keep and maintain their accounts with RBI
4. Organizer of Commercial Banking System Concerned with the organization of a sound & healthy commercial banking system. Ensuring effective co-ordination & control over credit through appropriate monetary & credit policies followed from time to time. 5. Regulator & supervisor of Financial Sysem Prescribes broad parameters of banking operations. Objective is to i. maintain public confidence in the system ii. protect depositors interest. iii. provide cost effective banking service to the public.
6. Financial Supervision Guidance of the Board for Financial Supervision (BFS), constituted in Nov 1994 as a committee of the Central Board of Directors of the RBI. Objective of BFS: undertake consolidated supervision of financial sector comprsing commercial banks, financial institutions & non banking financial institutions. BFS through the Audit Sub-Committee aims at upgrading the quality of the statutory audit & internal audit functions in banks & FI.
BFS oversees the functioning of Department of Banking Supervision(DBS), Department of Non-Banking Supervision(DNBS) & Financial Institution Division (FID). Gives direction on the regulatory & supervisory issues. 7. Monetary Authority RBI formulates, implements & monitors the monetary policy. Objective is maintaining price stability & ensuring adequate flow of credit to productive sectors.
8. Control the volume of credit Exercise it control over volume of credit created by the commercial banks in order to ensure price stability. Quantitative Credit Control 1. Bank Rate 2. Repo Rate 3. Reverse Repo Rate 4. Open Market Operations 5. Variable Reserve Requirements 6. Selective Credit Control
