Topic 1: Introduction

Bank and its operations

• A bank is a financial institution that accepts deposits from the public and creates Lending.
• RBI is the sole regulator for the banking sector in India.

Assets and liabilities

• Assets: (yield / income)
  • Lending activities are the best way to earn income for banks. Personal loan, corporate loan, mortgage loan, housing loans will fetch a higher interest rate for the bank.
• Liabilities: (cost fund )
  • Deposits with the banks are liabilities for the banks because banks have to give interest rate for the respective amount deposited by the customer.

Net Interest Margin

• Net interest margin is a gap between Assets and Liability. For example bank charges 9% interest rate for loans. And it gives 4% interest for the deposits that lie with the banks. Now 9% - 4% = 5% will be the profit for the banks. The 5% is a net interest margin for the banks.
• Net Interest Margin (NIM) is the important parameter for the survival of any banking system.
• At present, some new generation private sector banks along with SBI are able to achieve +3% NIM, which is the benchmark for profitable banking operations.
• But most of the public sector banks are struggling with NIMs of 2.2 to 2.7%. Hence these banks are not able to achieve desired levels of profitability.
• To get high net interest margin banks should reduce the cost of funds.

 Topic 2: Types of Accounts and Nomination

Savings Account

• It is especially for individuals and small businesses.It creates the savings habits for people in the country.
• Saving Account eligible for Resident Indians above 18 years age (for 10 to 18 years age group account is allowed with some restrictions and for persons below 10 years, minor account with guardian is to be opened)
• Saving Accounts Interest rates vary from 3.5% to 6% (Most of the banks offer 3.5% at present)
• Regular monthly payments through ECS are allowed for payment of house loans, personal loans etc…(Electronic Clearing Service)
• No tax is payable on interest earned on saving bank account up to Rs.40,000 per year i.e. interest income up to Rs.40,000/- is exempted from income tax
• From 1st April 2020 the interest is calculated on daily basis
• Minimum balance varies from bank to bank. Normally Rs.500/- (without cheque book).Rs.1000/- (With cheque book)

Current Account

• Firms and companies are eligible to open current account
• Basically meant for business men, to run businesses
• Normally firms / companies / trusts / association of persons can open themCurrent Account carries no interest on deposits.
• Banks will charge service charges to account holders.
• Savings and current Accounts are called demand deposits. We can withdraw money at any time

CASA Ratio

• CASA Ratio is the ratio of the deposits in the form of current and savings accounts to the total deposits.

• CASA Ratio of should be more than 40% for banks.

Inactive /Dormant Account

• If a customer has a current or a savings bank account and has not done any transactions through it for more than 12 months, then it will be classified as an inactive account.
• And if you don’t do any transactions from a bank account for 24 months, then it will be classified as dormant Account.
• Such deposits unclaimed for more than 10years are to be transferred to RBI. Now, RBI will use this amount for DEAF(Depositor Education Awareness Fund) Scheme to educate the depositors.

Fixed Deposit

• Account can be operated for a tenure ranging from 7 days to 10 years
• If the deposits are Rs.2crore or more, they come under the bulk deposits and interest rates may vary further
• Interest will be paid at the contracted rate for the agreed period
• Loan facility is available up to 90% of the outstanding principal and accrued interest, generally Moreover, Tax Deduction at Source (TDS) will be ensured by the bank, if the interest income is more than Rs.40,000/- in a financial year

Once the tax is deducted, banks will give form no. 16 A to the depositor to show in their IT returns.

• If the depositor does not come in to the bracket of Income Tax purview, he can deposit form no. 15G or 15H (for senior citizens) so as to avoid ‘TDS’ by banks.

• Interest rates should not be based on quantum of Money.
• Interest rates should be based on Tenure only.

Recurring Deposit

• Most of the features are like fixed deposits
• It is a monthly deposit with the bank for an agreed period
• Interest is credited on the accumulated balance at regular intervals
• These are designed to induce small savers to save regularly
• Maximum period is normally 120 months (10 years)

Bulk Deposit

• Deposits of Rs.2crore and above constitute bulk deposits
• Interest rates vary based on the quantum of deposit
• High interest rates, so the cost of funds is high
• Normally these deposits are obtained from High Net-worthIndividuals

Nomination facility

• Banking Companies (Nomination) rules 1985 permit banks to pay dues to nominee in the event of death of depositor(s) Without asking for succession certificate, Without verifying claims of legal heirs
• Nomination facility is normally available for Savings, Fixed and Recurring deposit accounts
• For Current account deposits, it is available only in few cases
• It is advisable to record ‘nominee’ for any bank transaction
• Nominee means “A person who is proposed or formally entered as the recipient of a grant or award”

 Topic 3: Financial Inclusion and Banking ombudsman

 No-Frill Account(Nov 2005)

• It is a zero balance account. No other facilities available.
• On August 2012, all the ‘No-Frills’ accounts converted to Basic Savings Bank Deposit Accounts (BSBDAs)

BSBDA Account

• Facility of ATM cum debit card at free of cost.
• No limit on the number of times for depositing the amounts.
• Only four withdrawals per month at branch or at ATMs.
• Banks can decide about the price structure, if more than the above facilities are required KYC norms
• are to be followed.
• However, if proper KYC norms are not satisfied, then the account should be treated as “BSBDA – SMALL ACCOUNT”.
• Customer can have only one BSBDA in one bank

PMJDY Account

• No minimum balance.
• Interest on deposit.
• Accident insurance covers of Rs.1,00000/- to all the account holders.
• Life Insurance cover of Rs.30,000/- to all the account holders(However, the Govt. stated that this is applicable for the accounts opened up to 26th jan 2015)
• After satisfactory operation of the account for 6 months, overdraft facility of Rs.10,000/- to one member of the family (Preferably, the lady of the household)
• Rupay card at free of cost
• Age Limit- 18 to 65 years

Small Account

• When the customer is not able to satisfy KYC norms. This account has got several restrictions.
• Aggregate of all deposits shall not exceed Rs.1 lakh per annum
• Aggregate of all withdrawals and transfers in a month shall not exceed Rs.10,000/-
• Maximum balance at any point of time shall not exceed Rs.50,000/-
• However, small accounts are valid for a period of 12 months initially, which may be extended by another 12 months, if the person provides proof of having applied for an Officially Valid Document (OVD).

Banking Ombudsman

• Senior official appointed by RBI to redress customer complaints against deficiency in certain banking services.
• Under section 35a of the Banking Regulation Act 1949
• The Banking Ombudsman Scheme was first introduced in 1995.
• The Current scheme became operative from 1st January 2006
• At present 22 banking ombudsman are being operated mostly in state capitals.
• All scheduled commercial banks (including RRB’S, cooperative banks) are covered
• Customer can complaint against
• Non-payment or inordinate delay in payment of cheques, drafts, bills etc…
• Also RBI has later included the facility for net-banking, digital transactions, mobile banking, Debit card, Credit card, ATM related etc…

HOW TO COMPLAIN?

• First we should approach the bank for any grievance.
• If the grievance is not settled by the bank in 30 days (If not replied / rejection by bank / reply does not satisfy the customer), then we can approach the banking Ombudsman within 1 year.
• Complaints can be lodged on plain paper or by sending e-mail requests.
• No charges involved.
• Maximum limit of award is Rs.20 lakhs. (Rs 1 lakh in case of credit card related complaints)
• If a customer is not satisfied, either of the parties can approach appellate authority within 30 days.
• Appellate authority vested with a deputy governor of RBI.

 Types of Risks in Banking 

Financial Risk:

• Financial Risk develops from the business transactions done by the Banks which is exposed to potential Loss.

Market Risk:

• Market Risk is a type of risk in which losses in on- or off-balance sheet positions that arise from movement in market prices. Market risk is the most prominent for banks present in investment banking.

Credit Risk:

• Credit Risk is the potential that a bank borrower/counter party fails to meet the obligations on agreed terms. There is always scope for the borrower to default from his commitments for one or the other reason resulting in crystallization of credit risk to the bank. Credit risk is inherent to the business of lending funds to the operations linked closely to market risk variables

Interest Rate Risk:

• Interest Rate Risk is the type of risk arises due to fluctuation in interest rate. Changes in interest rate affect earnings, value of assets, liability off-balance sheet items and cash flow. Earnings side involves analysing the impact of changes in interest rates on accrual or reported earnings in the near term.

Liquidity Risk:

• This kind of Risk arises due to inability of bank to meet its obligations when any asset may not be realized into cash. Also, we can say that, it is a mismatch of assets and liabilities. Liquidity is the ability to efficiently accommodate deposit as also reduction in liabilities and to fund the loan growth and possible funding of the off-balance sheet claims.

Operational Risk:

• This risk arises due to failure of day to day activities, system or people. It includes both internal and external frauds like failures related to policies, laws, regulations, documentation or any technological risks. It is defined as any risk that is not categorized as market or credit risk, is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events.

Capital Risk:

• This type of risk arises where the capital comes under risk partially or the whole in some cases emergencies.

Foreign Exchange Risk:

• Forex risk is the risk that a bank may suffer loss as a result of adverse exchange rate movement during a period in which it has an open position, either spot or forward or both in same foreign currency.

Systemic Risk:

• Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. In a financial context, if denotes the risk of a cascading failure in the financial sector, caused by linkages within the financial system, resulting in a severe economic downturn

Reputational risk

• Reputational risk implies the public’s loss of confidence in a bank due to a negative perception or image that could be created with/without any evidence of wrongdoing by the bank.
• Reputational value is often measured in terms of brand value

Reputational risk could stem from:

• The inability of the bank to honor government/regulatory commitments   Nonobservance of the code of conduct under corporate governance
• Mismanagement/Manipulation of customer records
• Ineffective customer service/after sales services

 Topic 4: KYC, ATM services and its Types

KYC(Know Your Customer)

• This is customer identification process, prior to the opening of accounts
• This involves ‘identity” and “address”
• To prevent banks being used (intentionally / unintentionally ) for money laundering
• RBI issued guidelines to banks under section 35A of the Banking Regulation Act 1949 and rule 7 of the money laundering rules 2005 to prevent banks from misuse
• It involves 

1. 1. “Legal Name Verification”
   2. “Correct Permanent Address”

• KYC is to be verified periodically, schedule is given separately for customers Classified as

1. 1. Low Risk
   2. Medium Risk
   3. High Risk

PERIODICAL VERIFICATION OF KYC

Periodical verification of KYC is done by banks as per the following schedule 

• Low risk customers 🡪once in 10 years
• Medium risk customers 🡪 once in 8 years 
• High risk customers 🡪 once in 2 years

If the person is not able to provide KYC Documents (OVD) to the bank, he can still open a bank account, which is known as a small account.

Officially Valid Documents required for KYC:

• Passport Driving Licence
• Voters' Identity Card
• PAN Card
• Aadhaar Card issued by UIDAI
• NREGA Card
• Letter from the National Population Register containing details of name and address

 ATM Services

• It is the facility of accessing the account for dispensing cash and to carry out financial and non- financial transactions without the need to actually visit their bank branches

RBI GUIDELINES ON SERVICE AT ATMs:

• Banks should resolve within 7 working days of complaint
• If not, banks should pay Rs.100/- per day for delay beyond 7 days (But customer should complain within 30 days of transaction)
• If a customer is not satisfied, one can approach the banking ombudsman 

Types of ATM

Onsite/Offsite ATM: Onsite Atm’s are atm within the bank premises.

White label ATM

• RBI permitted NBFCs/FIs to establish ATMs with their own brand name
• These are known as White Label ATMs
• Tata Communications Payment Solutions (TCPS), a wholly owned subsidiary of Tata Communications launched first white label ATM (WLA).
• Ex : Indicash,India One

Brown label ATM: Brown label' ATM are those Automated Teller Machines where hardware and the lease of the ATM machine is owned by a service provider, but cash management and connectivity to banking networks is provided by a sponsor bank whose brand is used on the ATM.

Green Label ATM: ATM is provided for Agricultural Transaction

Orange Label ATM: It is Provided for Share Transactions

Yellow Label ATM:These are Provided for E commerce

Pink Label ATM: Such ATM are monitored by guards who ensure that only women access these ATM. The sole purpose of such ATM is to mitigate the problem of women standing in long queues of ATM

Biometric ATM: ATMs which uses security features like fingerprint scanner and eye scanner of the customer to access the bank details.

Topic 5: NRI Accounts and Payment facilities

NRI(Non Resident Indian)

• An Indian citizen, who residing outside India and holds an Indian Passport

Bank Accounts for NRIs

• NRO account(Non Resident Ordinary rupee/account)
• NRE account(Non Resident External rupee account)
• FCNR(B) account(Foreign Currency Non Resident (Bank) account)

NRO Account(Non Resident Ordinary Rupee Account)

• Account will be in Indian rupees and with banks authorized by RBI.
• Can be opened jointly with resident Indian
• If a citizen becomes an NRI, his existing account becomes NRO account
• Can be in the form of SA / CA / RD / FD
• Income tax will be deducted as per the rules
• There is a limit on the repatriation of funds. (Maximum of $ 1 million per year)

NRE Account(Non Resident External Rupee Account)

• Account will be in Indian rupees and with banks authorized by RBI.
• Can be opened as a joint account with another NRI.
• Amount to be deposited in this account is earned on foreign land only.
• Can be in the form of SA / CA / RD / FD
• Minimum tenure of term deposits will be 1 year.
• No income tax will be deducted in India.
• Fully repatriable to foreign countries.

FRNR(B) Account(Foreign Currency Non Resident (Bank account)

• Only fixed deposit accounts can be opened with banks authorized by RBI.
• Minimum term 1 year and maximum term 5 years.
• Can be maintained in approved foreign currencies.
• No income tax will be deducted in India.
• Fully repatriable to foreign countries.

SNRR Account (External Commercial Borrowing)

• Any Person residing outside India. Having a business, can open (SNRR account) with an authorized dealer for the purpose of putting through bonafide transactions in rupee which are conformity.

Other Accounts: 

Nostro Account:

• These accounts are held by Indian Banks in foreign Banks in foreign currency.
• Example- Indian Bank has an account in Bank of America in dollars.

Vostro Account:

• These accounts are held by foreign banks in India in Indian Rupees.
• Example: Bank of America has an account in Indian Bank in Indian Rupees.

DEMAT Account:

• DEMAT stands for Dematerialised Accounts.
• These accounts are used to transact shares in electronic format.

Dormant Account:

• A Dormant Account is a banking term that refers to an account of a customer which was without any activity for a period of two years other than posting interest.

Escrow Account:

• It is the temporary pass through an account held by third parties during the transaction between two parties.

GILT Account:

• These accounts are maintained by investors with the Primary dealers for holding their Government securities and Treasury bills in the Demat form.

 Topic 6: Payment Types

Standing Instruction

• It is an instruction/order a bank account holder gives to his/her bank to pay a set of amount at regular bank intervals to another account. Ex: Salary payments, payments of bills, electricity bills, repayment of loan, inter account transfer of funds

Debit Card/Credit Card

• Both are plastic cards, that work on some financial platforms like Visa, MasterCard, RuPay
• They are the instruments to facilitate financial transactions, without the need for carrying cash.
• Liquidity is assured on a 24x7 basis.

Visa and Mastercard

• VISA (Visa International Service Association) and MasterCard are Payment processing institutions and several financial institutions use these platforms to facilitate services through Debit cards and Credit cards and for other electronic transactions across the world.
• Both VISA and MASTERCARD are accepted at several merchant outlets.
• NPCI DEVELOPED RUPAY PLATFORM (Developed by india)

NPCI and Its Operations

• It is the National Payments Corporation of India.
• It is incorporated in December 2008 (Under section 25 of the Companies Act)
• Authorized capital 🡪 Rs.300crores
• Paid up capital 🡪 Rs.100crores

Products of NPCI:

• National Financial Switch(NFS) 2.Automated Clearing House
• Immediate Payment Service
• Cheque Truncation System
• Aadhar Payment Bridge System
• Rupay Card

Payments and Settlements System 

UPI(Unified Payment Interface)

• Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI regulated entity.
• UPI is built over the IMPS infrastructure and allows you to instantly transfer money between any two parties' bank accounts.
• A Virtual Payment Address (VPA) is a unique identifier which you can use to send and receive money on UPI.
• Although the transaction limit per UPI transaction is ₹1 lakh, the upper limit depends on bank-to-bank.
• The transaction limit per day for UPI transactions is ₹1 Lakh.
• The maximum number of UPI transactions is limited to 20.
• [#UPI Chalega] is a campaign by NPCI to promote the UPI payment system.
• NPCI, National Payment Corporation of India is trying to drive up the digital payment system by this campaign.(Google pay and Phone pe are promoting upi effectively)

BHIM(Bharat Interface money)

• Bharat Interface for Money (BHIM) is a payments app that facilitates simple and quick transactions using Unified Payments Interface. It allows you to make direct bank payments to any bank account on UPI with the help of UPI ID and PIN. In another case, you can scan a QR code with the BHIM app to transfer money.
• The BHIM app was developed by National Payments Corporation of India (NPCI). It was launched by the Prime Minister of India, Narendra Modi on 30 December 2016 to realize a digitally empowered society.
• BHIM is a UPI based payment interface which allows real time fund transfer using a single identity like your mobile number or name.
• Currently it is available in 16 languages, i.e., Hindi, English, Tamil, Telugu, Malayalam, Bengali, Odia, Kannada, Punjabi, Assamese, Urdu, Marathi, Gujarati, Haryanvi, Bhojpuri and Konkani.
• Dial *99# to avail features of BHIM without internet on any mobile phone.
• A user can send up to Rs.40,000 per transaction and a maximum of Rs.40,000 per day for one bank account.
• This limit is available per bank account linked on BHIM.
• There is no limit to the amount of money you can receive via BHIM.

IFSC Code

• It is Indian Financial System Code.
• It is alpha – numeric code which identifies any branch under the NEFT system
• IFSC code is must for NEFT and RTGS transactions
• It is 11 digit code

• First 4 characters represents bank name
• Fifth digit buffer
• Last six digits are represents bank branch

NEFT Code

• It is a nation wise payment system facilitating one to one funds transfer.
• No limit for minimum or maximum amount of transfer. ( However, for amounts of Rs.2 Lakh and above, RTGS is used.)
• It works on the system of STP - Straight Through Processing
• With a view to promote digital transactions, the Reserve Bank of India (RBI) has allowed the round- the-clock (24×7) transactions facility under the National Electronic Funds Transfer (NEFT) system to customers on all days including weekends and holidays from December 16,2019
• NEFT Operates on 48 half and hourly basis.
• No Charge for NEFT Transaction as per RBI's latest guidelines

RTGS Code

• Real-time gross settlement (RTGS) refers to a funds transfer system that allows for the instantaneous transfer of money and/or securities.
• RGTS is the continuous process of settling payments on an individual order basis without netting debits with credits across the books of a central bank
• Real Time Gross Settlement System (RTGS), used for large value transactions, it is now available round-the-clock from December 2020.
• Earlier, RTGS was available for customers from 7.00 am to 6.00 pm on all working days of a week, except second and fourth Saturdays of every month.
• Minimum Limit- 2 lakh, Maximum Limit- No

IMPS Mode

• IMPS stands for Immediate Payment Service in Indian banking system terminologies.
• The major feature of IMPS is that it is available at all times for usage.
• It transfers funds instantly and is a great banking platform in case of emergencies.
• The transaction charges of this platform are also very nominal and the transfer limit is also considerable, approximately Rupees 2 lakhs per day.
• Moreover, IMPS is available on mobile too which makes it super-convenient

SWIFT Code

• SWIFT stands for Society for Worldwide Interbank Financial Telecommunication
• SWIFT Code is a standard format of Bank Identifier code.
• This code is used particularly for interbank transfer of money between banks & majority of FOREX related message are sent to correspondent banks abroad with the help of SWIFT code.
• SWIFT Code consists 8 or 11 character when the code is 8 digits, it refers to the primary office. 

4 digits – Bank code

2 digits – Country code 

2 digits – Location code

3 digits – Branch code (optional)

• On November 14, 2019 India, China and Russia have partnered together to explore an alternative to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment mechanism in-order to smoothen the trade with countries that face American sanctions
• As India doesn’t have its own domestic financial payments system, it is in plan to link the Central Bank of Russia’s platform with a service that is under development.

Currency Notes and their dimensions:

 POS Terminal (POINT OF SALE TERMINALS)

• It is a terminal at a store, where customers make purchases using a debit card / credit card / prepaid card.
• Card needs to be swiped and the data embedded in the card is electronically validated and gets authorized, if it is in order.It is the payment gateway of the merchant acquirer.
• The merchant establishment is required to hold an operative account with the acquirer bank to avail this service.
• POS terminals are a good source of “Non Interest Income” for banks