Unit - 1Basics of BankingBanking occupies one of the most important positions in the modern economic world. It is necessary for trade and industry. Hence it is one of the great agencies of commerce. Although banking in one form or another has been in existence from very early times, modern banking is of recent origin. It is one of the results of the Industrial Revolution and the child of economic necessity. Its presence is very helpful to the economic activity and industrial progress of a country.

MeaningA commercial bank is a profit-seeking business firm, dealing in money and credit. It is a financial institution dealing in money in the sense that it accepts deposits of money from the public to keep them in its custody for safety. So also, it deals in credit, i.e., it creates credit by making advances out of the funds received as deposits to needy people. It thus, functions as a mobiliser of saving in the economy. A bank is, therefore like a reservoir into which flow the savings, the idle surplus money of households and from which loans are given on interest to businessmen and others who need them for investment or productive uses.

Definition of a BankThe term Bank has been defined in different ways by different economists. A few definitions are:According to Walter Leaf A bank is a person or corporation which holds itself out to receive from the public, deposits payable on demand by cheque. Horace White has defined a bank, as a manufacture of credit and a machine for facilitating exchange. According to Prof. Kinley, A bank is an establishment which makes to individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use.

TYPES OF BANKSBroadly speaking, banks can be classified into commercial banks and central bank. Commercial banks are those which provide banking services for profit. The central bank has the function of controlling commercial banks and various other economic activities. There are many types of commercial banks such as deposit banks, industrial banks, savings banks, Agricultural banks, exchange banks, and miscellaneous banks.1. Deposit Banks: The most important type of deposit banks is the commercial banks. They have connection with the commercial class of people. These banks accept deposits from the public and lend them to needy parties. Since their deposits are for short period only, these banks extend loans only for a short period. Ordinarily these banks lend money for a period between 3 to 6 months. They do not like to lend money for long periods or to invest their funds in any way in long term securities.

2. Industrial Banks: Industries require a huge capital for a long period to buy machinery and equipment. Industrial banks help such industrialists. They provide long term loans to industries. Besides, they buy shares and debentures of companies, and enable them to have fixed capital. Sometimes, they even underwrite the debentures and shares of big industrial concerns. The important functions of industrial banks are:1. They accept long term deposits.2. They meet the credit requirements of industries by extending long term loans.3. These banks advise the industrial firms regarding the sale and purchase of shares and debentures.The industrial banks play a vital role in accelerating industrial development. In India, after attainment of independence, several industrial banks were started with large paid up capital. They are, The Industrial Finance Corporation (I.F.C.), The State Financial Corporations (S.F.C.), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI) etc.

3. Savings Banks: These banks were specially established to encourage thrift among small savers and therefore, they were willing to accept small sums as deposits. They encourage savings of the poor and middle class people. In India we do not have such special institutions, but post offices perform such functions. After nationalisation most of the nationalised banks accept the saving deposits.

4. Agricultural Banks: Agriculture has its own problems and hence there are separate banks to finance it. These banks are organised on co-operative lines and therefore do not work on the principle of maximum profit for the shareholders. These banks meet the credit requirements of the farmers through term loans, viz., short, medium and long term loans. There are two types of agricultural banks, (a) Agricultural Co-operative Banks, and (b) Land Mortgage Banks. Co-operative Banks are mainly for short periods. For long periods there are Land Mortgage Banks. Both these types of banks are performing useful functions in India.5. Exchange Banks: These banks finance mostly for the foreign trade of a country. Their main function is to discount, accept and collect foreign bills of exchange. They buy and sell foreign currency and thus help businessmen in their transactions. They also carry on the ordinary banking business. In India, there are some commercial banks which are branches of foreign banks. These banks facilitate for the conversion of Indian currency into foreign currency to make payments to foreign exporters. They purchase bills from exporters and selltheir proceeds to importers. They purchase and sell forward exchange too andthus minimise the difference in exchange rates between different periods, and alsoprotect merchants from losses arising out of exchange fluctuations by bearing the risk. The industrial and commercial development of a country depends these days, largely upon the efficiency of these institutions.

6. Miscellaneous Banks: There are certain kinds of banks which have arisen in due course to meet the specialised needs of the people. In England and America, there are investment banks whose object is to control the distribution of capital into several uses. American Trade Unions have got labour banks, where the savings of the labourers are pooled together. In London, there are the London Discount House whose business is to go about the city seeking for bills to discount. There are numerous types of different banks in the world, carrying on one or the other banking business.

FUNCTIONS OF COMMERCIAL BANKSCommercial banks have to perform a variety of functions which are common to both developed and developing countries. These are known as General Banking functions of the commercial banks. The modern banks perform a variety of functions. These can be broadly divided into two categories: (a) Primary functions and (b) Secondary functions.

I.Primary / Banking Functions :-Commercial banks have two important banking functions. One is accepting deposits and other is advancing loans.1)Deposits :-One of the main function of a bank is to accept deposits from the public. Deposits are accepted by the banks in various forms.a)Current Account Deposits :-Current Accounts are usually opened by businessmen who have a number of regular transactions with the bank, both deposits and withdrawls. There is no restriction on number and amount of deposits. There is also no restriction on withdrawls. No interest is paid on current deposits. Banks may even charge interest for providing this facility. These accounts are also known as demand deposits as amount can be withdrawn on demand.b)Saving Account Deposits :-Saving Accounts are opened by salaried and other less income people. There is no restriction on number and amount of deposits. withdrawls are subject to certain restrictions. It earns Interest but less than fixed deposits. It encourages saving habit among salary earners and others. Saving deposits are an important source of funds for banks.c)Fixed Account Deposits :-Deposits in fixed account are time deposits. Money under this account is deposited for a certain fixed period of time varying from 15 days to several years. A high rate of interest is paid. If money is withdrawn before expiry date, the depositor receives lower rate of interest. Deposits can be renewed for further period. Many banks sanction loans against security of fixed deposits.d)Recurring Account Deposits :-In Recurring deposit, a specified amount is regularly deposited by account holder, at an internal of usually a month. This is to form the habit of small savings among the people. At the end of maturity period, the account holder gets a substantial amount. Interest on this type of deposit is almost equal to fixed deposits.Thus by creating variety of deposits, banks motivate people in a variety of ways and encourage savings in the economy.2)Loans And Advances :-Banks not only mobilize money but also lend to its credit worthy customers for maximizing profits. Loans and Advances are granted To :-a)Business And Trade :-Commercial banks grant short-term loans to business and trade activities in following forms:-

i)Overdraft :-Commercial banks grant overdraft facility to current account holders Under this system a borrower is allowed to draw more than what is deposited in his account. The borrower is granted to a fixed additional amount against collateral security. Interest is charged for actual amount drawn.ii)Cash Credit :-Cash credit is given by the bank to any businessman to meet regular working capital needs, against the security of goods or personal security. Interest is charged on actual amount drawn by the customer.iii)Discounting Of Bills :-When the holder of the bill is not in a position to wait till the maturity of the bill and requires cash urgently, he sells the bill of exchange to bank. Bank advance credit by discounting bills of exchange, government securities or any other approved financial instruments. The bank purchases the instruments at a discount.

iv)Money At Call :-Banks also grant loans for a very short period, generally not exceeding 7 days. Such advances are repayable immediately at a short notice hence they are called as Money at Call or Call money. These loans are given to dealers or brokers in stock market against Collateral Securities.v)Direct Loans :-Loans are given to customers against the security of moveable properties. Their maturity varies from 1 to 10 years. Interest has to be paid on entire loan amount sanctioned. Loans are of many types like :- personal loans, term loans, call loans, participative loans, collateral loans etc.

b)Loans to Agriculture :-Banks grant short-term credit to agriculture at a lower rate of interest. Loans are granted for irrigation, purchase of equipments, inputs, cattle etc.

c)Loans To Industries :-Banks grant secured loans to small and medium scale industries to meet their working capital needs. The time period may be from one to five years. It may be in the form of Overdraft, cash credit or direct loan.d)Loans To Foreign Trade :-Loans are granted to export and import in the form of direct loans, discounting of bills, guarantee for deferred payments etc. Here the rate of interest is low.e)Consumer Credit / Personal loans :-Banks also grant credit to household in a limited amount to buy some durable consumer goods like television sets, refrigerators, washing machine etc. Such consumer credit is repayable in installments. Under 20-point programme, the scope of consumer credit has been extended to cover expenses on marriage, funeral etc., as well.f)Miscellaneous Advances :-Banks also gives advances like packing credits to exporters, export bill purchased or discounted, import finance, finance to self-employed, credit to weaker sections of society at concessional rates etc.II.Secondary / Non-banking Functions :-Banks gives various forms of services to public. Such services are termed as non- banking or secondary functions:-1.Agency Services:-Banks perform certain functions on behalf of their customers. While performing these services, banks act as agents to their customers, hence these are called as agency services. Important agency functions are :-

a)Collection :-Commercial banks collect cheques, drafts, bills, promissory notes, dividends, subscriptions, rents and any other receipts which are to be received by the customer. For these services banks charge a nominal amount.b)payment :-Banks also makes payments on behalf of their customers like paying insurance premium, rent, taxes, electricity and telephone bills etc for such services commission is charged.c)Income Tax Consultant :-Commercial banks acts as income-tax consultants. They prepare and finalise the income tax returns of their clients.d)SaleAnd Purchase Of Financial Assets :-As per the customers instruction banks undertake sale and purchase of securities, shares and any other financial assets. Nominal charges are charged by a bank.e)Trustee, Executor And Attorney :-As a trustee, banks becomes the custodian and manager of customer funds. Bank also acts as executor of deceased customers will. As an Attorney the banks sign the documents on behalf of customer.f)E- Banking :-Through Electronic Banking, a customer can operate his bank account through internet. He can make payments of various bills. He can even transfer money from one place to another.2.Utility Services :-Modern Commercial banks also performs certain general utility services for the community, such as :-

a)Letter Of Credit :-Banks also deal in foreign trade. They issue letter of credit and provide guarantee to foreign traders for the soundness of their customers.b)Transfer Of Funds :-Banks arrange transfer of funds cheaply and safely from one place to another. Transfer can be in the form of Demand draft, Mail transfer Travellers cheques etc.c)Guarantor :-Banks offer a guarantee of payment on behalf of importer to facilitate imports with deferred payments.d)Underwriting :-This facility is provided to Joint Stock Companies and to government to enable them to raise funds. Banks guarantee the purchase of certain proportion of shares, if not sold in the market.e)Locker Facility :-Safe Lockers are provided to the customers. So that they can deposit their valuables like Jewellery, Securities, Shares and otherdocuments.f)Referee :-Banks may act as referee with respect to financial standing, business reputation and respectability of customers.

g)Credit Cards :-Credit card facility has been introduced by commercial banks. It enables the holder to minimize the use of hard cash. Credit card is a convenient medium of exchange which enables its holder to buy goods and services from member establishment without using money.III.Subsidiary Activities :-Many commercial banks also undertakes subsidiary activities such as :-1)Housing Finance :-Housing finance is provided against the security of immoveable property of land and buildings. Many banks such as SBI, Bank of India etc. have set up housing finance subsidiaries.2)Mutual Funds :-A Mutual fund is a financial intermediary that pools the savings of investors for collective investment in diversified portfolio securities Many banks like SBI, Indian Bank etc. have set up mutual fund subsidiaries.3)Merchant Banking :-A variety of services are offered by merchant banking like :-Management, Marketing and Underwriting of new issues, project promotion, corporate advisory services, investment advisory services etc.4)Venture Capital Fund :-Venture capital fund provides start-up share capital to new ventures of little known, unregistered, risky, young and small private business, especially in technology oriented and knowledge intensive business. Many commercial banks like SBI, Canara Bank etc. have set up venture Capital Fund Subsidiaries.5)Factoring :-Factoring is a continuing arrangement between a financial intermediary (factor) and a business concern (client) where by the factor purchases the clients accounts receivable. Banks like SBI and Canara Bank have established subsidiaries to provide factoring services.Thus various services are provided by commercial Banks.

Basic Commercial Bank Financial Statements and Analysis:-

A)BALANCE SHEET OF COMMERCIAL BANKS :-Banks are the most important financial intermediary in an economy. Banks performance can be analysed by its balance sheet and profit and loss account. Bank publish balance sheet in their annual accounts. The balance sheet of a commercial Bank is a statement of its liabilities and Assets at a particular time. Liabilities show the sources of funds through which bank raises funds for its business. Assets represent uses of funds to generate income for bank. Thus, the balance sheet indicates the manner in which bank has raised funds and investedthem in various types of assets. It is customary to state liabilities on left and assets on right side. A model of balance sheet of a bank is given below:-

BALANCE SHEET OF A COMMERCIAL BANK

LIABILITIESASSETS

1) Share Capital (paid up)1) Cash Balancesa) With Central Bankb) With other Banks

2) Reserves and surplus2) Money at call and short notice.

3) Deposits :-a) Time deposits.b) Demand Depositsc) Saving Deposits3) Bills discounted, including treasury bills.

4) Borrowings4) Investments

5) Other Liabilities5) Loans and Advances

6) Other Assets.

B.LIABILITIES OF A COMMERCIAL BANK (LIABILITIES PORTFOLIO) :-

The liability of a commercial bank shows how the bank raises funds for its business.1)Share Capital (Paid-up) :-It is the contribution made by the shareholders of the bank. This indicates the banks liabilities to its shareholders.2)Reserves And Surplus :-It is the amount accumulated over the years out of undistributed profits to meet contingencies. Reserves and surplus are liabilities of the bank, as they belong to its shareholders.3)Deposits :-Deposits from the public constitute the biggest proportion of banks working funds. The deposits accepted by bank in current, fixed and savings account are liabilities of bank to t5heir customers. They are categorized as demand, time and saving deposits. These funds are liabilities of bank to their customers, which have to be returned to them. But at the same time, these funds are also assets to bank since the banker can make use of them to get certain interest yielding assets.4)Borrowings :-When a bank borrows from other banks liability is created. It consist of borrowing / refinance obtained from RBI, commercial banks and other financial institutions. It also includes overseas borrowings.5)Other Liabilities :-In course of its business, miscellaneous liabilities are incurred by bank. They include bills payable like drafts, travellers cheques, pay slips etc. It also includes income tax provision.

Main Functions of a Commercial BankThe main functions of commercial banks are accepting deposits from the public and advancing them loans.However, besides these functions there are many other functions which these banks perform. All these functions can be divided under the following heads:1. Accepting deposits2. Giving loans3. Overdraft4. Discounting of Bills of Exchange5. Investment of Funds6. Agency Functions7. Miscellaneous Functions

ORGANIZATIONAL STRUCTURE OF BANKS IN INDIA:In India banks are classified in various categories according to differ rent criteria. The following figure indicate the banking structure:

1.The Reserve Bank of India (RBI):The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the Reserve Bank.2.Public Sector Banks: State Bank of India and its Associates Nationalized Banks Regional Rural Banks Sponsored by Public Sector Banks3. Private Sector Banks: Old Generation Private Banks Foreign New Generation Private Banks Banks in India4. Co-operative Sector Banks: State Co-operative Banks Central Co-operative Banks Primary Agricultural Credit Societies Land Development Banks State Land Development Banks5. Development Banks:Development Banks mostly provide long term finance for setting up industries. They also provide short-term finance (for export and import activities) Industrial Finance Co-operation of India (IFCI) Industrial Development of India (IDBI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture and Rural Development (NABARD) Export-Import Bank of India

Overview of Banks and Financial InstitutionsIn any economy, financial institutes play an important role because all the financial dealings and matters are handled and monitored by such institutes. The major components of financial institutes are banks, insurance companies, credit card agencies, investment companies, consumer finance companies, and other specialized financial institutes.

Investment bankingInvestment banking is a particular form of banking which finances capital requirements of enterprises. Investment banking assists as it performs IPOs, private placement and bond offerings, acts as broker and carries through mergers and acquisitions. Son of banking encompassing business entities dealing with creation of capital for other companies. Banks earlier confined most of their operations to deposit mobilization and credit dispensation. But in India, they have diversified their activities in line with their counterparts in developed countries, and gone into merchant banking also. This innovative banking has helped many young entrepreneurs who lacked sufficient experience and had a little capital to invest to enter into the field of industrial enterprise. This has led to the need for some agency which can take care of their interests from planning to execution of the projects. With industrial organisation growing more complex day by day, there is crying need for industrial rationalisation because of mergers, amalgamations and the integration of private with public companies. All this require sophisticated planning and management which cannot be provided by specialised agencies that have a flexible approach and possess a proper understanding of the problems of the corporate sector.

Corporate sector needs the services of these experts to tackle problems in technical, financial, managerial and organizational fields. A study by the Reserve Bank of India showed that insufficient project preparation, defective technical planning, inefficient of indifferent management and financial bottlenecks faced by promoters were primarily responsible for delay in the implementation of projects. Merchant banks have a role to play to rectify these defects.

Investment banking is a particular form of banking which finances capital requirements of enterprises. Investment banking assists as it performs IPOs, private placement and bond offerings, acts as broker and carries through mergers and acquisitions. Son of banking compassing business entities dealing with creation of capital for other companies. In addition to acting as agents or underwriters for companies in the process of issuing securities, investment banks also advise companies on matters related to the issue and placement of stock. Investment Banking, branch of finance concerned with the underwriting, distribution, and maintenance of markets in securities issued by business firms and public agencies.

Investment bankers are primarily merchants of securities; they perform three basic economic functions: (1) provide capital for corporations and local governments by underwriting and distributing new issues of securities; (2) maintain markets in securities by trading and executing orders in secondary market transactions; and (3) provide advice on the issuance, purchase, and sale of securities, and on other financial matters. In contrast to commercial banks, whose chief functions are to accept deposits and grant short-term loans to businesses and consumers, investment bankers engage primarily in long-term financing.

MicrofinanceMicrofinanceis a source offinancial servicesfor entrepreneurs and small businesses lacking access tobankingand related services. The two main mechanisms for the delivery of financial services to such clients are: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group.

Traditionally banks and Lending Institutions do not lend money to low income IndividualsThe reasons being Lack of Information about Individuals. Collateral. High Transaction cost of processingMicrofinance provides a solution for the above problem.MICROFINANCEDefinition:- The means by which poor people convert small sums of money into large lump sums (Rutherford 1999)The goals are Eradicate Extreme Poverty & Hunger. Achieve Universal Education. Promote Gender Equality & Womens Empowerment. Reduce Child Mortality

Microfinance Institutions Association for Sarva Seva Farms (ASSEFA) Mitrabharati - The Indian microfinance Information Hub Mysore Resettlement and Development Agency (MYRADA) SADHAN - The Association of Community Development Finance Institutions SEWA: Self-help Women's Association SKS India - Swayam Krishi Sangam Streedhan - Banking with Rural Women Working Women's Forum, Madras, India

Role of Banking in Inclusive GrowthFinancial Inclusion & ProgressGrowth is inclusive only when it creates economic opportunities along with ensuring equal opportunities to all. Hence,Financial Inclusionis considered to be critical for accomplishment of Inclusive Growth.It envisages the accomplishment of three essential dimensions viz.,outreach, availability and usage of basic banking services. However, operating a full-fledged branch in unbanked area is proved to be unviable considering the huge operational costs and limited business volumes.

Financial ServicesFinancial services refer to services provided by the financial institutions in a financial system. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are Asset Management Companies like leasing companies, merchant bankers and Liability Management Companies like discounting houses and acceptance houses, and further general financial institutions like banks, credit card companies, insurance companies, consumer finance companies, stock exchanges, and some government sponsored enterprises.

The term Financial Services in a broad sense means mobilising and allocating savings. Thus, it includes all activities involved in the transformation of savings into investment.

Following are some of the examples of financial services:1. Leasing, credit card services, factoring, portfolio management and financial consultancy services.2. Underwriting, discounting and rediscounting of bills.3. Acceptances, brokerage and stock holding.4. Depository services, housing finance and book building5. Hire purchases and instalment credit.6. Mutual Fund management.7. Deposit insurance.8. Financial and performance guarantees.9. E -commerce and securitisation of debts.10. Loan syndicating and credit rating.

STRUCTURE OF COMMERCIAL BANKS IN INDIAStructure of schedule commercial banks: The composition of the board of directors of a scheduled commercial bank shall consist of whole time chairman. Section 10A of the Banking Regulation Act, 1949 provides that not less than fifty-one per cent, of the total number of members of the Board of directors of a banking company shall consist of persons, who shall have special knowledge or practical experience in respect of one or more of the matters including accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, small-scale industry, or any other matter the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the banking company. Out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale industry.

Besides the above the board of the scheduled bank shall consist of the directors representing workmen and officer employees. The Reserve Bank of India and the Central Government also has right to appoint their nominees into the board of the banks.

Present scenario of the banks in India:Banks are extremely useful and indispensable in the modern community. The banks create the purchasing power in the form of bank notes, cheques bills, drafts etc, transfers funds bring borrows and lenders together, encourage the habit of saving among people.The banks have played substantial role in the growth of Indian economy. From the meagre start in 1860 the banks have come to long way. At present in India there are 20 nationalized banks, State bank of India and its seven Associate banks, 21 old private sector banks and 8 new private sector banks. Besides them there are more than 30 foreign banks either operating themselves or having their branches in India. The statistical table hereunder shows the financial position of the banks as on 31.03.2005.

Banking ProductsBanks in India have traditionally offered mass banking products. Most common deposit products being Savings Bank, Current Account, Term deposit Account and lending products being Cash Credit and Term Loans. Due to Reserve Bank of India guidelines, Banks have had little to do besides accepting deposits at rates fixed by Reserve Bank of India and lend amount arrived by the formula stipulated by Reserve Bank of India at rates prescribed by the latter. PLR (Prime lending rate) was the benchmark for interest on the lending products. But PLR itself was, more often than not, dictated by RBI. Further, remittance products were limited to issuance of Drafts, Telegraphic Transfers, Bankers Cheque and Internal Transfer of funds.Products like debit cards, flexi deposits, ATM cards, personal loans including consumer loans, housing loans and vehicle loans have been introduced by a number of banks.

Products - category wise

CorporatesDemand DepositEducation

GroupInsuranceNRI

Personal / IndividualProfessional Self EmployedProperty

RemittanceSMETechnology

Term Deposit

Social Obligations of Banks in India:-Banks in India have been indulging in a lot of activities which they showcase as their contribution in terms of corporate social responsibility. According to Archie B.Carrol an organization has its obligations towards the society, divided in to four parts in the order of importance namely Economic, Legal, Ethical and Discretionary obligations. It is evident that when the economic, legal and ethical obligations of an organization are fulfilled, only then it should focus on its discretionary social obligations. The article intends to examine the position of 'Financial inclusion' as a matter of social responsibility of the commercial banks. Further, the article intends to critically examine the issue of whether promotion of financial inclusion is an economic or legal or ethical or discretionary obligation of the banks.Retail Banking:-Retail banking is when a bank executes transactions directly with consumers, rather than corporations or other banks. Services offered include savings and transactional accounts, mortgages, personal loans, debit cards, and cards. Today, retail banking is being considered as one of the most innovative financial services provided by the various commercial Public Sector Banks (PSBs), private sector and foreign banks. Retail banking has a huge potential considering the growing demand for its products namely, term deposits, consumer durable loans, auto loans, debit card, credit cards, ATM facilities, insurance, online banking, etc. The growing sector of retail lending has contributed significantly to the development of the economy. Like other developed countries, India too, has a developed retail banking sector which accounts for one-fifth of all banks credit. Retail lending across the globe has been a showcase of innovative services in the commercial banking sector. Countries, like China and India, have emerged as potential markets with changing investment opportunities. The higher growth of retail lending in emerging economies can be attributed to the rapid growth of personal wealth, favourable demographic profile, rapid development in information technology, the conducive macroeconomic environment, financial market reforms and small micro-level supply side factors. The retail banking strategies of banks are undergoing a major transformation, as banks are beginning to adopt a mix of strategies like organic growth acquisition and alliance formation. This has resulted in a paradigm shift in the marketing strategies of the banks. PSBs are adopting aggressive strategies, leveraging their branch network to garner a large share of the retail market.

Unit-2Bank Management and Regulations

Banking Regulation Act, 1949As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company" means any company which transacts the business of banking in India.

Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts the deposits of money from public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause."

As per Section 5(b) of Banking Regulation Act, 1949 , banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.

As per Section 5(d) of Banking Regulation Act, 1949 , company means any company as defined in Section 3 of the Companies Act, 1956 and includes a foreign company within the meaning of Section 591 of that Act.

As per section 51 of Banking Regulation Act, 1949 , certain provisions of the Banking Regulation Act are also applicable to the State Bank of India , any corresponding new bank, a regional rural bank and any subsidiary bank. "Corresponding new bank" has been defined under clause(ee)of section 2 of the DICGC Act to mean a corresponding new bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 or 1980

Liquidity Management in BanksWith the splurge in the credit off-take in the recent past, banks have had to increase their reliance on bulk funding short-term sources. At the same time many of them have also been paring their excess Statutory Liquidity Ratio (SLR) portfolio to fund the credit growth. While this strategy helped them till the recent past, it is unlikely to help them in future given the fact that most of the banks SLR portfolio are just about adequate to meet the statutory requirements, hence leading to a scramble to garner bulk deposits.

Monetary PolicyTheregulationof themoney supplyandinterest ratesby acentral bank, such as theReserve Bank of Indiain India., in order to controlinflationand stabilizecurrency. Monetary policy is one the twowaysthegovernmentcan impact theeconomy. By impacting the effectivecost of money, theRBI canaffecttheamountofmoneythat is spent by consumersand businesses.

Reserve Bank of India (RBI), the central bank, one of its primary functions is to control the supply as well as the cost of credit. Which means how much money is available for the industry or the economy and what is the price that the economy has to pay to borrow that money which is nothing but liquidity and interest rates.So, RBI has a role to play to control these two things because eventually these two have an impact on the inflation and growth in the economy. For this, RBI has got some tools available in their hands and these tools are maintaining certain basic ratios or maintaining certain rates.

Repo rate is a rate at which banks borrow from RBI for short periods up to 7 or 14 days but predominantly overnight. RBI manages this repo rate which is the cost of credit for the bank. This becomes a floor below which the short-term interest rates dont go. Higher the repo rate means the cost of short-term money is very high. Lower the repo rate means the cost of short-term rate is low which means at higher repo rates the economy growth may slow down whereas at lower repo rate economy growth may get enhanced.

CRR and SLR are the two ratios. CRR is a cash reserve ratio and SLR is statutory liquidity ratio. Under CRR a certain percentage of the total bank deposits has to be kept in the current account with RBI which means banks do not have access to that much amount for any economic activity or commercial activity. Banks cant lend the money to corporates or individual borrowers, banks cant use that money for investment purposes. So, that CRR remains in current account and banks dont earn anything on that.SLR, statutory liquidity ratio is the amount of money that is invested in certain specified securities predominantly central government and state government securities. Once again this percentage is of the percentage of the total bank deposits available as far as the particular bank is concerned. The SLR, the money goes into investment predominantly in the central government securities as I mentioned earlier which means the banks earn some amount of interest on that investment as against CRR where it earns zero.RBI FUNCTIONS:-The RBI established by RBI Act 1934 in 1935 and nationalized in 1949 is the central banking and monetary authority of India. It acts as a regulator and supervisor of the Banks. Every country has its own central bank such as Federal Reserve of United States. Please note that most of the central banks of the world were established during the early 20th century and RBI was one of them. Following is the list of the establishment of some of the major banks in the world. Federal Reserve Bank of United States was established via Federal Reserve Act 1913 Bank of England is the oldest established central bank among the major countries. It was established in 1694 as a private entity and remained so till 1946 when it was nationalized. The central Bank of China is People's Bank of China and it was established in 1948 One more older bank is Banque de France , the central Bank of France which was established in 1800.

Following are major functions of RBI: Currency authority Control of Money supply and credit Management of Forex As banker to the government Maintenance of India's financial infrastructure Banker of the banks Supervision of the Banks. In the commercial Banking system, the two functions of RBI viz. Banker of the Banks and Supervision are very important. As the Banker's Bank , RBI carries out the following functions:

Holds a part of the Cash Reserves of the banks Short term lending Centralized clearing facilities.

LORL: RBI is known as Lender of Last Resort because, banks are supposed to meet their shortfalls of cash from other sources and if the other sources don't meet the demand, then they approach RBI. CRR: CRR is Cash Reserve Ratio , the share of the liquid cash that the banks have to keep with the RBI. Current CRR 6%.

Supervisory Functions: These functions are related to banking license, branch expansion, liquidity, management and working methods, amalgamation, reconstruction and liquidation.

CAMELS:-

The components of a bank's condition that are assessed: (C)apital adequacy (A)ssets (M)anagement Capability (E)arnings (L)iquidity(also called asset liability management) (S)ensitivity(sensitivity to market risk, especially interest rate risk)

CAPITAL ADEQUACY, ASSET QUALITY, MANAGEMENT, EARNING, LIQUIDITY AND SYSTEM AND CONTROL.

CAPITAL ADEQUACYPercentageratioof afinancial institution'sprimary capitalto itsassets(loansandinvestments), used as ameasureof itsfinancialstrengthandstability.

According to theCapitalAdequacyStandardset byBank for International Settlements (BIS),banksmust have aprimarycapitalbaseequal at least to eightpercentof their assets: a bank that lends 12dollarsfor every dollar of its capital is within the prescribed limits.

Asset quality is related to the left-hand side of thebankbalance sheet.Bank managersare concerned with the quality of theirloanssince that provides earnings for the bank. Loan quality and asset quality are two terms with basically the same meaning.Government bondsandT-billsare considered as good quality loans whereasjunk bonds,corporate creditsto lowcredit score firmsetc. are bad quality loans. A bad quality loan has a higher probability of becoming anon-performing loanwith no return.Bank management components are:1. Asset management2. Liquidity management3. Liability management4. Capital adequacy management5. Risk managementManagementinbusinessandorganizationsis the function that coordinates the efforts of people to accomplish goals andobjectivesusing available resources efficiently and effectively. Management comprisesplanning,organizing,staffing,leadingor directing, andcontrollinganorganizationor initiative to accomplish a goal.Resourcingencompasses the deployment and manipulation ofhuman resources,financialresources,technologicalresources, andnatural resources. Management is also anacademic discipline, asocial sciencewhose object of study is the social organization.

Earningsare the net benefits of acorporation's operation.Earnings is also the amount on which corporatetaxis due. For an analysis of specific aspects of corporate operations several more specific terms are used asEBIT-- earnings before interest and taxes,EBITDA- earnings before interest, taxes, depreciation, and amortization.

Many alternative terms for earnings are in common use, such asincomeandprofit. These terms in turn have a variety of definitions, depending on their context and the objectives of the authors. For instance, theIRSuses the term profit to describe earnings, whereas for the corporation the profit itreportsis the amount left aftertaxesare taken out. Many economic discussions use principles derived fromKarl MarxandAdam Smith.However the rise of the importance ofintellectual capitalaffects such analyses.

ASSET LIABILITY MANAGEMENT IN BANKS (ALM)

ALM is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earning from interest is maximised within the overall risk-preference (present and future) of the institutions. The ALM functions extend to liquidlyrisk management, management of market risk, tradingrisk management, funding and capital planning and profit planning and growth projection.

Benefits of ALM - It is a tool that enables bank managements to take business decisions in a more informed framework with an eye on the risks that bank is exposed to. It is an integrated approach to financial management, requiring simultaneous decisions about the types of amounts of financial assets and liabilities - both mix and volume - with the complexities of the financial markets in which the institution operates

The concept of ALM is of recent origin in India. It has been introduced in Indian Banking industry w.e.f. 1stApril, 1999.ALM is concerned withrisk managementand provides a comprehensive and dynamic framework for measuring, monitoring and managing liquidity, interest rate, foreign exchange and equity and commodity price risks of a bank that needs to be closely integrated with the banks business strategy.

Therefore, ALM is considered as an important tool for monitoring, measuring and managing the market risk of a bank. With the deregulation of interest regime in India, the Banking industry has been exposed to the market risks. To manage such risks, ALM is used so that the management is able to assess the risks and cover some of these by taking appropriate decisions.

The assets and liabilities of the banks balance sheet are nothing but future cash inflows or outflows. With a view to measure the liquidity and interest rate risk, banks use of maturity ladder and then calculate cumulative surplus or deficit of funds in different time slots on the basis of statutory reserve cycle, which are termed as time buckets.

As a measure of liquidity management, banks are required to monitor their cumulative mismatches across all time buckets in their Statement of Structural Liquidity by establishing internal prudential limits with the approval of the Board / Management Committee.Risk Management Systems in Banks

Banks in the process of financial intermediation are confronted with various kinds of financial and non-financial risks viz., credit, interest rate, foreign exchange rate, liquidity, equity price, commodity price, legal, regulatory, reputational, operational, etc. These risks are highly interdependent and events that affect one area of risk can have ramifications for a range of other risk categories. Thus, top management of banks should attach considerable importance to improve the ability to identify, measure, monitor and control the overall level of risks undertaken.The broad parameters of risk management function should encompass:. organisational structure;. comprehensive risk measurement approach;. risk management policies approved by the Board which should be consistent with the broader business strategies, capital strength, management expertise and overall willingness to assume risk;. guidelines and other parameters used to govern risk taking including detailed structure of prudential limits;. strong MIS for reporting, monitoring and controlling risks;. well laid out procedures, effective control and comprehensive risk reporting framework;. separate risk management framework independent of operational Departments and with clear delineation of levels of responsibility for management of risk; and. periodical review and evaluation.

(L)IQUIDITY(ALSO CALLED ASSET LIABILITY MANAGEMENT)

Initially pioneered by Anglo-Saxon financial institutions during the 1970s as interest rates became increasingly volatile,asset and liability management(often abbreviated ALM) is the practice of managingrisksthat arise due to mismatches between theassetsandliabilities.The process is at the crossroads betweenrisk managementandstrategic planningas is not just offering solution to mitigate or hedge the risks arising from the interaction of assets and liabilities but is conducting the bank from a long-term perspective (success in the process of maximising assets to meet complex liabilities may increase profitability).The exact roles and perimeter around ALM can vary significantly from one bank (and other financial institutions) to another depending on the business model adopted and can encompass a broad area of risks.The traditional ALM programs focus oninterest rate riskandliquidity riskbecause they represent the most prominent risks affecting the organization balance-sheet (as they require coordination between assets and liabilities).

The scope of the ALM function to a larger extent covers the following processes:1. Liquidity risk: the current and prospective risk arising when the bank is unable to meet its obligations as they come due without adversely affecting the bank's financial conditions. From an ALM perspective, the focus is on the funding liquidity risk of the bank, meaning its ability to meet its current and future cash-flow obligations and collateral needs, both expected and unexpected. This mission thus includes the bank liquidity's benchmark price in the market.2. Interest rate risk: The risk of losses resulting from movements in interest rates and their impact on future cash-flows. Generally because a bank may have a disproportionate amount of fixed or variable rates instruments on either side of the balance-sheet. One of the primary causes are mismatches in terms of bank deposits and loans.3. Currency risk management: The risk of losses resulting from movements in exchanges rates. To the extent that cash-flow assets and liabilities are denominated in different currencies.4. Funding and capital management: As all the mechanism to ensure the maintenance of adequate capital on a continuous basis. It is a dynamic and ongoing process considering both short- and longer-term capital needs and is coordinated with a bank's overall strategy and planning cycles (usually a prospective time-horizon of 2 years).5. Profit planning and growth.6. In addition, ALM deals with aspects related to credit risk as this function is also to manage the impact of the entire credit portfolio (including cash, investments, and loans) on the balance sheet. The credit risk, specifically in the loan portfolio, is handled by a separate risk management function and represents one of the main data contributors to the ALM team.

(S)ensitivity(sensitivity to market risk, especially interest rate risk)Market riskis theriskof losses in positions arising from movements in market prices.Some market risks include: Equity risk, the risk thatstockorstock indices(e.g.Euro Stoxx 50, etc. ) prices and/or theirimplied volatilitywill change. Interest rate risk, the risk that interest rates (e.g.Libor,Euribor, etc.) and/or their implied volatility will change. Currency risk, the risk that foreign exchange rates (e.g.EUR/USD,EUR/GBP, etc.) and/or their implied volatility will change. Commodity risk, the risk that commodity prices (e.g.corn,copper,crude oil, etc.) and/or their implied volatility will change.

Model for Rating Foreign BanksAfter initiating the rating exercise for state-run banks, the Reserve Bank of India has turned the heat on foreign banks operating in the country. The central bank has decided to rate foreign banks on a new system called CACS (capital adequacy, asset quality, compliance and systems). The model is to be operationalized during the inspection cycle beginning this July.The rating system to be used for foreign banks marks a departure from the CAMELS model--capital adequacy, asset quality, management, earnings, liquidity and systems--used for state-run banks.In a recent communiqu to the country-heads of foreign banks, the Reserve Bank said: "The rating would be part of the annual financial inspection carried out under Section 35 of the Banking Regulation Act (1935). The composite ratings awarded to banks would be conveyed to the CEO in a secret communication for the limited information of the top management. The model is highly secret and should not be divulged except to board and board-levelofficials."Based on the composite ratings, a foreign bank will be rated from `A' to `D' in descending order of performance, and they will imply the following:* A: The bank is sound in every respect and gives no cause for supervisory concern;* B: The bank is fundamentally sound and is operations are satisfactory. However, there are modest weaknesses and for which supervisory responses are limited to minor adjustments;* C: The bank exhibits a combination of financial, operational or compliance weaknesses ranging from the moderately severe to unsatisfactory. Failure may only be a remote possibility, but the bank gives cause for supervisory concern and requires more than normal supervision to tackle deficiencies; and* D: The bank has serious financial, operational and managerial weaknesses; it warrants a definite plan for corrective action. The bank requires close supervisory monitoring and financial surveillance. In critical cases that make probability of failure high in the immediate future, thebank would require urgent aid from its shareholders or financial assistance from other sources to avoid liquidation or restructuring.

Unit 3Recent Developments in Banking

Role of Technology in Indian Banking SectorIn recent times, the Banking Sector has been making rapid straights by using information technology as a platform and endeavouring to scale higher heights.IT in BankingIndian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons has led to increasing importance of total banking automation in the Indian Banking Industry. The bank which used the right technology to supply timely information will see productivity increase and thereby gain a competitive edge. To compete in an economy which is opening up, it is imperative for the Indian Banks to observe the latest technology and modify it to suit their environment. Information technology offers a chance for banks to build new systems that address a wide range of customer needs including many that may not be imaginable todayEmerging Trends in Banking Technology Financial Inclusion Mobile Banking Electronic Payments CRM Initiatives IT Implementation and Management IT for Internal Effectiveness Managing IT Risk IT for business innovation

Customer Service:-i. Deposit Accountsii. Loans and Advancesiii. Remittances and other Facilitiesiv. Special Customersv. Institutional Arrangementsvi. Customer Educationvii. Comprehensive Banking Regulationviii. Other AspectsATMAn electronic banking outlet, which allows customers to complete basic transactions withoutthe aid of a branch representative or teller.

There are two primary types of automated teller machines, or ATMs. The basic units allow the customer to only withdraw cash and receive a report of the account's balance. The more complex machines will accept deposits, facilitate credit card payments and report account information. To access the advanced features of the complex units, you will usually need to be a member of the bank that operates the machine.

Online bankingA system allowing individuals toperformbankingactivitiesat home, via the internet. Some onlinebanksare traditional banks which alsoofferonline banking, while others are online only and have no physical presence. Online banking through traditional banks enablecustomersto perform all routinetransactions, such asaccounttransfers,balanceinquiries,billpayments, andstop-paymentrequests, and some even offer onlineloanandcredit cardapplications. Account information can be accessed anytime, day or night, and can be done from anywhere. A few online banksupdateinformation inreal-time, while others do it daily. Once information has been entered, it doesn't need to be re-entered for similar subsequent checks, andfuturepayments can be scheduled to occur automatically. Many banksallow forfile transfer between theirprogramand popularaccountingsoftware packages, to simplifyrecordkeeping. Despite the advantages, there are a fewdrawbacks. It doestakesome time toset upand get used to an online account. Also, some banks only offer online banking in a limited area. In addition, when an accountholderpaysonline, he/she may have toput ina check request as much as two weeks before the payment is due, but the bank maywithdrawthemoneyfrom the account the day that request is received, meaning thepersonhas lostup totwo weeks ofintereston that payment. Online-only banks have a fewadditionaldrawbacks: an account holder has to mail indeposits(other thandirect deposits), and someservicesthat traditional banks offer are difficult or impossible for online-only banks to offer, such astraveler's checksandcashier's checks.

Mobile BankingMobile banking is the performing of finance related functions on a mobile device like a Smartphone or tablet. With the use of a mobile device, the user can perform mobile banking via call, text, website, or app. Social BankingSocial Bankingdescribes the provision of banking and financial services that consequently pursue, as their main objective, a positive contribution to the potential of all human beings to develop, today and in the future.In Social Banking, the focus is on satisfying existing needs in the real economy and the society whilst simultaneously taking into account their social, cultural, ecological and economic sustainability. Furthering the common good by generating multiple returns with respect to these aspects is at its core. Generating a monetary profit is not an end but a frequent prerequisite to guaranteeing the necessary flexibility for pursuing its objective in a continuously changing environment.

Banking on WheelsAs a part of financial inclusion, Bank on Wheels is a banking kiosk in a mobile van which goes to various villages as per the predetermined schedule to provide banking services to the rural areas. Bank on Wheels is an example of technical brilliance and can be made a multi modal utility vehicle for all sorts of banking transactions.Some of the features of Bank on Wheels are: Highly sophisticated power set up with 12 hours back up Internet enabled sophisticated Intelligent LED TV Video Conference for public with bank officials Advanced Public Address System Vehicle Tracking through GPRS Regular Monitoring inside the van through GPRS enabled CC camera Remote Immobilising of the vehicle in times of emergency Strongly designed electronic safe and storage systems Advanced bank schedule notification system Web enabled secure bank transactionsProblems and Challenges of Bank Management The issues and challenges of Bank Management are both intrinsic and external, such as

Risk management and Basel II Consolidation Overseas expansion Technology Government reforms Non Performing Assets (NPAs) Skilled manpower Consumer protectionNon-Performing Asset - NPAA classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset.

Efficiency parameters of commercial banksBanking sector reforms in India has introduced the concept of efficiency and productivity on a larger scale than before. Banks now a day are mainly worried and concerned about their performance on the parameters that determine their profitability and only those bank groups are considered as successful which are capable in accelerating their pace of profit making. For this purpose a comparative study is done between public, private and foreign sector bank group w.r.t. their total income, total expenditure, net profits, business per employee and profit per employeeRelationship ManagementThe idea of CRM is that it helps businesses use technology and human resources gain insight into the behaviour of customers and the value of those customers. If it works as hoped, a business can: provide better customer service, make call centres more efficient, cross sell products more effectively, help sales staff close deals faster, simplify marketing and sales processes, discover new customers, and increase customer revenues.

Basel IBasel Iis the round of deliberations bycentral bankersfrom around the world, and in 1988, theBasel Committee on Banking Supervision(BCBS) inBasel,Switzerland, published a set of minimum capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in theGroup of Ten(G-10) countries in 1992. A new set of rules known asBasel IIwas later developed with the intent to supersede the Basel I accords. However they were criticized by some for allowing banks to take on additional types of risk, which was considered part of the cause of the USsubprime financial crisisthat started in 2008. In fact, bank regulators in the United States took the position of requiring a bank to follow the set of rules (Basel I or Basel II) giving the more conservative approach for the bank. Because of this it was anticipated that only the few very largest US Banks would operate under the Basel II rules, the others being regulated under the Basel I framework.Basel IIIwas developed in response to thefinancial crisis; it does not supersede either Basel I or II, but focuses on different issues primarily related to the risk of abank run.

Differences between Basel 1 and 2 And 3Basel I dealt with Capital Requirements for Banks.Basel II deal with Capital Requirements for Banks, Supervisor Review and Regulations, Market Displine.Basel III is same as Basel II with the enhancement of having Capital Buffer upto 4.5% which is not a part of Basel II.

COMPETITION FROM GLOBAL PLAYERSThenew banking licences, for which over two dozen entities are vying, and guidelines which incentivise foreign banks to turn into a wholly owned subsidiary (WOS) of its parent, will result in greater competition in banking. "Competition in the banking sector to intensify with the entry of new banks...competition from foreign banks set to intensify."At present the Standard Chartered Bank is the largest foreign bank in terms of numbers, with 99 branches in 42 cities. As per the RBI discussion paper on presence of foreign banks in India (2011), there were 34 foreign banks operating in India as branches. Their balance sheet assets, accounted for around 7.65 percent of the total assets of the scheduled commercial banks as on March 31, 2010. If the credit equivalent of off balance sheet assets were included, the share of foreign banks was 10.52 per cent of the total assets of the scheduled commercial banks as on March 31, 2010, out of this, the share of top five foreign banks alone was 7.12 per cent.

BANKING OMBUDSMANThe Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. The addresses and contact details of the Banking Ombudsman offices have been provided in the annex. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.

The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services (including internet banking): non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.; non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof; non-acceptance, without sufficient cause, of coins tendered and for charging of commission in respect thereof; non-payment or delay in payment of inward remittances ; failure to issue or delay in issue of drafts, pay orders or bankers cheques; non-adherence to prescribed working hours ; failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents; delays, non-credit of proceeds to parties accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings,current or other account maintained with a bank ; complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters; refusal to open deposit accounts without any valid reason for refusal; levying of charges without adequate prior notice to the customer; non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM/Debit card operations or credit card operations; non-disbursement or delay in disbursement of pension (to the extent the grievance can be attributed to the action on the part of the bank concerned, but not with regard to its employees); refusal to accept or delay in accepting payment towards taxes, as required by Reserve Bank/Government; refusal to issue or delay in issuing, or failure to service or delay in servicing or redemption of Government securities; forced closure of deposit accounts without due notice or without sufficient reason; refusal to close or delay in closing the accounts; non-adherence to the fair practices code as adopted by the bank or non-adherence to the provisions of the Code of Banks Commitments to Customers issued by Banking Codes and Standards Board of India and as adopted by the bank ; non-observance of Reserve Bank guidelines on engagement of recovery agents by banks; and any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services.A customer can also lodge a complaint on the following grounds of deficiency in service with respect to loans and advances non-observance of Reserve Bank Directives on interest rates; delays in sanction, disbursement or non-observance of prescribed time schedule for disposal of loan applications; non-acceptance of application for loans without furnishing valid reasons to the applicant; and non-adherence to the provisions of the fair practices code for lenders as adopted by the bank or Code of Banks Commitment to Customers, as the case may be; non-observance of any other direction or instruction of the Reserve Bank as may be specified by the Reserve Bank for this purpose from time to time. The Banking Ombudsman may also deal with such other matter as may be specified by the Reserve Bank from time to time.

One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received one s representation, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank.

One may lodge his/ her complaint at the office of the Banking Ombudsman under whose jurisdiction; the bank branch complained against is situated.For complaints relating to credit cards and other types of services with centralized operations, complaints may be filed before the Banking Ombudsman within whose territorial jurisdiction the billing address of the customer is located.

The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment. The Banking Ombudsman will take into account the loss of the complainant s time, expenses incurred by the complainant, harassment and mental anguish suffered by the complainant while passing such award.

The complaint should have the name and address of the complainant, the name and address of the branch or office of the bank against which the complaint is made, facts giving rise to the complaint supported by documents, if any, the nature and extent of the loss caused to the complainant, the relief sought from the Banking Ombudsman and a declaration about the compliance of conditions which are required to be complied with by the complainant.

If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award, appeal against the award before the appellate authority. The appellate authority may, if he/ she is satisfied that the applicant had sufficient cause for not making an application for appeal within time, also allow a further period not exceeding 30 days.

The Banking Ombudsman may reject a complaint at any stage if it appears to him that a complaint made to him is: Not on the grounds of complaint referred to above Compensation sought from the Banking Ombudsman is beyond Rs 10 lakh . Requires consideration of elaborate documentary and oral evidence and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint Without any sufficient cause That it is not pursued by the complainant with reasonable diligence In the opinion of the Banking Ombudsman there is no loss or damage or inconvenience caused to the complainant.The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment. The Banking Ombudsman will take into account the loss of the complainant s time, expenses incurred by the complainant, harassment and mental anguish suffered by the complainant while passing such award.