branch banking/commercial banking institute of management technology ghaziabad sunday; july 18, 2010

Branch Banking/Commercial Banking

Institute of Management TechnologyGhaziabad

Sunday; July 18, 2010

Branch/Commercial Banking 2

Agenda

Permissible Entities Structure of Banks Licensing Requirement Opening of Branch Type of Accounts/Type of Deposits Type of Customers Opening of Account – Procedure, KYC

Guidelines Banking Operations


Agenda

Permissible Entities Banking?


Permissible Entities

Body corporate constituted under special statues, like State Bank of India, Nationalised Banks.

Domestic Company or foreign companies under Companies Act u/s 3/591

Cooperative Society registered under Central/State Cooperative Society Act.

Regional Rural Banks established under Regional Rural Banks Act.


Banking Company – Definition

Section 5 (c) of Banking Regulation Act ‘Banking Company means any company which

transacts the business of banking in India’

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 (Section 7(1)).

No firm, individual or group of individuals shall use as part of its or his name any of such words (Section 7(2)).


Agenda

Structure of Banks Banking?


Structure of Banks

Head of Bank, CEO

Support Functions

Head of Risk

Operations

Compliance

Audit

Legal

Customer Services

Head of Products

Treasury

Project Finance

Trade Finance

Transaction Banking

Investment Banking

Head of Businesses

Branch Banking

Retail Banking

Business Banking

Corporate Banking


Structure of Banks

Regional Structure for Corporate Banking

Region/Cluster/Branch Structure/ for Retail Banking/ Business Banking


Agenda

Licensing Requirements Banking?


Licensing Requirements

To establish a commercial Bank/Branch an application has to be made to Reserve Bank of India. Section 22 of Banking Regulation Act provides that a company intending to carry on banking business must obtain a license from RBI.

Detailed due-diligence is carried out by RBI before grant of license: Information on Promoters, Promoter Group Source of Capital, Professional Management Support, Geographical areas to be serviced, business mix Type of Economic activities to be financed, Expected profitability from operations.



Important aspect of scrutiny/due diligence is ability to pay the depositor’s money

Affairs of company are not likely to be conducted in a manner detrimental to the interest of its depositors,

General character of the proposed management will not be prejudicial to public interest,

Company has adequate capital structure and earning prospects,

Not prejudicial to stability and consolidation of banking system having regard to banking facilities available in the proposed principal place of business.

Any other checks/conditions to ensure that the proposed business would not be prejudicial to public interest/interest of depositors.



Criteria applicable to Foreign banks also. Besides RBI would examine dealing of

foreign banks with Indian parties, international/home country rating, international presence, economic and trade relations with home country.

Prior consent of home country regulator. Government/Laws of home country do not

discriminate against the Banks of India.



Setting up of a branch in India/outside India shall require prior RBI permission (Section 23 of Banking Regulation Act) Satisfaction on financial position, history of

operations, General character of Management, Adequacy of capital structure and earning

prospects, Public interest would be served by opening of

branch at the proposed place. Nature and scope of banking services to common

people in the area, financial inclusion, pricing of products, credit flow to priority sector etc.



No permission required for opening of branches in Tier 3 to Tier 6 centers (population less than 50,000)

Tier 1 and 2 centers (population of 50,000 and more) will continue to require prior RBI permission.

Generally branch expansion plans approved by RBI on an annual basis considering the annual expansion plans of the banks. Branch plans are approved considering certain minimum number of branches in semi-urban and rural centers.



Indian Banks opening branches overseas Prior RBI permission for setting up of a

branch/subsidiary/joint venture Importance of country, pattern of India’s trade Size of Indian population and expatriates in the

country, Local banking laws, exchange control regulations

etc. Pragmatic branch licensing policy keeping

in view the geographical coverage, economic viability and logistic support available.


Other permissions

To carry Foreign Exchange business, prior permission of RBI.

To undertake capital market activities viz. DMAT Accounts, Merchant Banking activities etc. registration with SEBI.

Transfer of shares in excess of 5 per cent require prior RBI consent.

Banks allowed to set up subsidiaries and make investments in companies that are authorised to undertake business authorised under BR Act. This ensures that Banks form subsidiaries only for financial services businesses.


Other Permissions/Regulations

Qualification of Directors Whole time/part time directors Whole time directors can hold office for maximum

period of 5 years at one time Whole time directors cannot be directors in other

companies No other engagement or vocation Not less than 51 per cent of total directors should

consist of persons with professional or other experience.

Board and Management One of the directors as Chairman If Chairman not whole-time, management with MD. RBI has powers to remove/elect/approve the

appointment of directors.


Agenda

Opening of Branch Banking?


Opening of Branch

Selection of Premises Selection of Products vis-à-vis

location, catchment area, population Local advertisement, sourcing of

customers


Agenda

Type of Accounts/Deposits Banking?


Types of Deposits/Accounts

Demand Deposits Saving Accounts

To create habit of saving and banking Interest is paid at specific rate

Current Accounts To meet transaction needs of customer No interest is paid Generally by business entities or individuals with large number of

transactions Time Deposits

Fixed Deposits For a fixed period of time Interest payable depending tenor of the deposit, Repayable after the tenor of deposit Can be pre-matured with payment of penalty/lower interest

Recurring Deposits Fixed amount being kept in deposit every month Interest payable at FD rates for the tenor of RD


Agenda

Types of Customers Banking?


Types of Customers

Type of Customers Individuals either Singly or Jointly Proprietorship Firms Partnership Firms Hindu Undivided Families Limited Companies Clubs and Associations Trusts Executors and Administrators Official Liquidators Cooperative Societies Clubs Government Departments/Municipal Bodies


Agenda

A/c Opening/KYC Guidelines

Banking?


Account Opening/KYC Guidelines

Account Opening Form Identity and Address Proof

Passport, Driving License, PAN Card, Election ID Card, Utility Bill, Bank Statement

Different documents for different entities Partnership Firm – Partnership deed, Proof of

individual partners etc. Company – Memorandum, PAN, Certificate of

Incorporation, Commencement, BR etc. Societies/Association – Byelaws, Registration

certificate, Resolution of Management Committee etc.

Trust – Trust Deed, Resolution, PAN Card


KYC Guidelines

Knowing the identify of the customer has always been a basic requirement of banking law and practice.

Traditionally introduction was emphasized and considered sufficient for opening of A/c.

To prevent banking system being exposed to criminal elements, money laundering, black money - lot more focus and attention on strengthening KYC policies of Banks.

Every bank has to design a comprehensive KYC Policy


KYC Guidelines

Key elements of KYC Policy Customer Acceptance Policy

Types of customers/entities acceptable as customers. High Risk (NGOs/Trusts/ Foreigners/Firms with sleeping partners/non face-to-face customers), known criminal background, link with terrorist org, suspicious activities/businesses not acceptable.

Customer Identification Procedure Ultimate control and ownership, legal status,

Identify, Address, nature of business, Original Documents,


KYC Guidelines

Key elements of KYC Policy Monitoring

Continuous monitoring of transactions – High cash transactions, suspicious payee, high cheque returns, no operations etc.

Risk Management Continuous review and updation of KYC

policies and procedures, effective internal audit procedures, employee training etc.


Modes of Operations

Singly Jointly, E or S, J or S, Any two (or

three) or Survivor Specific signatory (ies) for specific

amounts


Banking Operations/Services

Cash Operations Cheque – Collection/Payment

Clearing Process Outstation Cheques Anywhere Cheques

Payorders/Demand Drafts/Debit Cards Transfers/Remittances

ECS, RTGS, NEFT Fixed Deposits/Recurring Deposits/2in1 A/c Foreign Exchange Services DMAT Services


Cash Operations

Cash Retention Limit Cash Safe – Dual Control Opening Cash Cash Receipts Cash Payments Closing Cash Remittance of cash to currency chest Requisition of cash from branch/ currency chest Cash Sorting – ATM, Issuable, Non-issuable Important function to understand the customer Various Records/Registers

Daily Cash Balance Book/Denomination Wise Safe Register- In and Out Currency Chest Register


Cheque – Payment/Collection

Outward/Inward Clearing Customers depositing cheques/cheques received

for payment through process of clearing Cheque – Meaning

A ‘Bill of Exchange’ drawn on a specified banker and expressed to be payable only on demand (Section 6 of NI Act)

Bill of Exchange – An instrument in writing containing an unconditional order, signed by a maker, directing a certain person to pay a certain sum of money to a certain person or to the order of that person or to the bearer of that instrument (Section 5 of NI Act)


Cheque – Payment/Collection

Features of Cheque Instrument in WritingContaining an Unconditional OrderSigned by the Maker (drawer)Directing a specified banker (drawee)To pay a certain sum of moneyTo pay a certain person or to the

order of that person or to the bearerOn Demand


Cheque

Crossing of Cheques Putting two parallel lines on the face

of the cheque is called crossingPrevents payment of the cheque at

counter and can be paid only through clearing

General Crossing/Special Crossing ‘& Co/Not Negotiable/A/c payee Addition of name of a banker either

with/without words Not Negotiabl


Cheque

Endorsement of Cheques An Order Instrument can be passed on from

one person to another (negotiation) by endorsement and delivery – Prevalent in Trading/Broker community.

Endorsement in Blank – Mere Signature of the endorser on the back of an instrument. Effect of making cheque payable to bearer and thereafter it can be negotiated by mere delivery.

Endorsement in full – When the endorser makes a direction to pay the amount specified in the cheque to a certain person or his order


Cheque Clearing - Process

MICR ClearingHigh Value ClearingUpcountry Cheque Clearing

Drawn on bank’s upcountry branchesDrawn on other banks at locations

where the Bank has branchesDrawn on other banks at locations

where bank does not have branches. Anywhere ChequesCheque Truncation


Payment/Remittance Services

Payorders To avoid uncertainty of payment of cheque

(Universities, Government Departments, Hospitals)

A cheque issued by a Bank on itself (same branch)

Issued after collecting the amount from applicant

The drawer and drawee are same. Demand Drafts

Cheques issued by Banks on themselves but with different issuing and paying branch.

Used for settlement of transactions between persons at two different places



Electronic Clearing Service (ECS) Mode of electronic fund transfer for transactions that are

repetitive and periodic in nature. Used for making bulk payment e.g. Dividend, Interest,

Salary, Pension, Commission etc. or for bulk collection of amounts e.g. Telephone, Electricity, Loan Payment, Periodic Mutual Fund payments etc.

ECS facilitates transfer of monies from one bank account to multiple accounts or vice versa.

Two variants – ECS Debit and ECS Credit Affording credit to large number of beneficiaries having

accounts with bank branches at various locations within the jurisdiction of ECS centers by raising a single debit to an account of a Bank e.g. Dividend, Salary, Interest etc.

Raising debit to a large number of accounts maintained with bank branches at different locations for single credit to an account of a Bank.

Consent/Mandate from beneficiaries/Account Holder to credit/debit his account.

Happens through Clearing Centers/No physical cheques



National Electronic Fund Transfer (NEFT) Nationwide electronic system of transfer of funds from

one bank to other bank. NEFT works on deferred net settlements. Remitter initiates fund transfer through branch/internet Data sent to RBI NEFT Center to be included in next

settlement (currently 7 settlements in a day) RBI NEFT Center sorts the transactions bank wise/branch

wise and processes the net debit credit to various bank accounts and bank wise remittance messages are transmitted to Banks.

Receiving bank processes the remittance message received from RBI and credits the beneficiary account.

Recognition of receiving bank/branch through IFS Code. (Indian Financial System Code). Unique Alpha Numeric code. 11 digits – First 4 representing the Bank, next character as reserved character, and remaining 6 characters to identify the branch.


Payment Remittance Services

Real Time Gross Settlement (RTGS) Nationwide electronic system of transfer of

funds from one bank to other bank. RTGS works on real-time gross settlements. Remitter initiates fund transfer through

branch/internet Processed by RBI on real time basis. Gross debit

and credit to Bank Accounts. Intimation to receiving bank on real-time basis,

which in turn processes the credit in bene a/c. Recognition of receiving bank/branch through

IFS Code. (Indian Financial System Code). Unique Alpha Numeric code.

Minimum amount of 1 lac. Fastest possible way of fund transfer in India.


THANK YOU !


Fixed Deposits


THANK YOU !

branch banking/commercial banking institute of management technology ghaziabad sunday; july 18, 2010

Documents

business of banking

banking facilities available

proposed business

indiano company

domestic company

foreign banks

regional rural banks

nationalised banks