principles & practices of banking

Principles &

Practices of Banking

Useful for JAIIB & Other Bank Promotion Exams

CONTENTS

Module – A

Indian Financial System

1. Indian Financial System - Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 • Definition of Banking and Banking Functions

• Types of Banks in India

• Indian Financial Services

• Capital Market

• Equity and Debt Market

• Mutual Funds

• Multi Commodity Exchange of India Ltd (MCX) Insurance Regulatory & Development Authority of

India (IRDAI)

• Practice MCQs with Solutions

2. Banking Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 • Reserve Bank of India – Role

• Objectives and Functions of RBI

• Monetary Policy

• Regulatory Restriction on lending


3. Retail Banking, Wholesale Banking and International Banking . . . . . . . . . . . . . . . . . . . . 29 • Scope

• features and opportunities of retail

• wholesale and International Banking


4. Role of Money Market, Debt Market and Forex Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 • Debt Markets & Forex

• Market

• Types of Money & Debt Market Instruments, G-Secs;

• Ads, FEMA, LIBOR, MIBOR, etc

• CDs, Commercial paper

• Interest rate derivatives

• corporate bond market


5. Capital Markets, SEBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 • Primary and secondary Market

• Stock Exchange, BSE, NSE

• ASPA, QIPs,QIBs, SEBI


6. Mutual Funds & Insurance Companies, Bancassurance & IRDAI . . . . . . . . . . . . . . . . . . 54 • Insurance Companies,

• Bancassurance & IRDA

• Types, roles and principles of Insurance companies


7. Factoring, Forfeiting and Off-Balance Sheet Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

• Factoring

• The diferent types of Factoring

• Forfeitng Services

• Of-Balance Shet Items

• Guarantes

• Leter of Credit

• Parties of Leter of Credit

• Types of Leter of Credit

• Forward Exchange Contract

• Forward Rate Agrements and Interest Rate Swaps.


8. Risk Management, Basel Accords . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

• Risk management in Banks

• Types of risks

• Basel 1,2,3


9. CIBIL, Fair Practice Code for Debt Collection, BCSBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

• Credit Information Companies in India

• Analysis of CIBIL Score

• Fair Practices Code for Debt Collection

• Banking Codes and Standards Board of India

• Right to Fair Treatment, Right to Transparency, Fair and Honest Dealing

• Code of Bank’s Commitment to Micro and Smal Enterprises

• Code of Bank’s Commitment to Customers


10. Recent Developments In The Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

• Insolvency and Bankruptcy Code

• Cheque Truncation System

• Benefits of CTS to Customers of Banks

• Curency-Counting Machine

• RuPay

• BHIM (Bharat Interface for Money)

• Inovations in Branch Banking Through Al (Artifcial Inteligence) and Inteligent Robotic Asistant


Module– B

Functions of Banks

11. Banker-Customer Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

• Various Types of Relationships

• Termination of Relationship between a Banker and a Customer

• Various Deposit Products and Services

• Curent Acount

• Saving Acounts

• Small Acounts

• Term Deposits

• Non-Resident External Deposit Acounts

• Services to Customers and Investors


12. Anti-Money Laundering (AML) Standards & Know Your Customer (KYC) Norms . . . . 117

• Money Laundering,

• The Prevention of Money Laundering Act (PMLA), 2002

• Ways of Money Laundering

• Risk Perception in Money Laundering

• Know Your Customer (KYC) – Key Elements of KYC Policy

• Customer Aceptance Policy (CAP)

• Risk Management

• Customer Identifcation Procedure (CIP)

• Monitoring of Transactions and Financial Inteligence Unit-India.


13. Bankers Special Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

• Mandate Leters

• Power of Atorney

• Types of Power of Atorney

• Garnishe Order

• Income Tax Atachment Orders

• Banker’s Right of Set Of Lien

• Right of Apropriation.


14. Consumer Protection Act (COPRA), Banking Ombudsman Scheme . . . . . . . . . . . . . . . . . 134

• Consumer Protection Act (COPRA)

• Consumer Protection Council

• Definiton of a Consumer

• Consumer Forum for redressal of consumer greviances

• Banking Ombudsman Scheme

• Grounds and conditions of Complaint


15. Payment & Collection of Cheques and Other Negotiable Instruments . . . . . . . . . . . . . 148 • Negotiable Instruments • Parties to Bills of Exchange or a Cheque Endorsement of Cheques • Crosing of the Cheques • Practice MCQs with Solutions

16. Opening Accounts of Various Types of Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 • Personal Acounts • Hindu Undivided Family (HUF) • Proprietorship Firm • Partnership Firm • Limited Liabilty Partnership (LP) • Companies • Diferent types of Companies in India. • Practice MCQs with Solutions

17. Ancillary Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 • Remitances • Demand Draft (DD) and Banker’s Cheque National Electronic Funds Transfer (NEFT) System • Real Time Gros Setlement (RTGS) • Electronic Benefit Transfer (EBT) Scheme Mobile and Internet Banking Transactions • Safe Deposit Locker • Pension Payments & Government Busines • Portfolio Management • Merchant Banking • Practice MCQs with Solutions

18. Cash Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 • Cash Management Services • Types of Cash Management Services • A Framework to Provide Efective Cash Management Services • Practice MCQs with Solutions

19. Principles of Lending, Working Capital Assessment and Credit Monitoring . . . . . . . . 181 • Principles of Lending • Important Aspects for Project Report Assessment Important Aspects for Borrowers Profile • Non-Fund Based Limits (a) Bank Guarantees (b) letter of Credit (LCs) • Working Capital-Appraisal & Assessment • Marginal Cost of Funds Based Lending Rate (MCLR) • Credit Monitoring and Types of Credit Monitoring. • Practice MCQs with Solutions

20. Priority Sector Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 • Priority Sector Lending in India • Target/Sub-Target for Priority Sector Lending Adjusted Net Bank Credit (ANBC) • Sub-target under Agriculture • Micro • Smal and Medium Enterprises (MSMEs) • Export Credit • Education • Housing • Social infrastructure • Renewable Energy,weaker sections • Monitoring of Priority Sector Lending targets • Nonachievement of Priority Sector Targets • Practice MCQs with Solutions

21. Agricultural Finance and Agricultural Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 • Agricultural Loans

• Pradhan Mantri Kisan Sampada Yojana

• Kisan Credit Card (KCC) Selected Activites Under Agricultural Finance

• Minimum Suport Price (MSP)

• Pradhan Mantri Fasal Bima Yojana (PMFBY)

• Risks Covered

• Procedure for Asesment

• Procesing & Aproval of Claims

• Weather Based Crop Insurance Scheme (WBCIS)


22. Micro, Small and Medium Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 • Micro

• Small & Medium Enterprises (MSMED) act,2006

• Priority Sector Targets for MSME Sector Revised General Credit Card (GCC) Scheme Credit Linked Capital Subsidy Scheme (CLSS) Credit Rating of the Micro Small Borowers Credit Guarante Fund Trust for Micro & small enterprises

• Specialised MSME Branches

• Cluster approach


23. Government Sponsored Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 • NRLM

• NULM

• SRMS

• DRI

• PMEGP

• Margin and Financial Assistance


24. Self Help Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 • SHGs- Importance and credit requirements


25. Credit Cards, Home Loans, Personal Loans, Consumer Loans . . . . . . . . . . . . . . . . . . . . . 253 • Credit Card Operations

• Types of Credit Cards

• Interest Rates and Other Charges

• Wrongful Billing

• Issue of Unsolicited Cards/Facilties

• Housing Finance

• Pradhan Mantri Aawas Yojana (PMAY)

• The Procedure and Practices for Home Loan, Loan to Value (LTV) Ratio

• Personal Loans


26. Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 • Documentation in Loan Acount

• Diferent Types of Documents

• Steps and Proces of Documentation and Securitsation


27. Different Modes Of Charging Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 • Charges on Security

• Mortgage and its types

• Actionable Claim

• Pledge

• Rights of Pledge

• Duties of the Pledge

• Hypothecation and its Drawbacks

• Possession & Sale

• Lien

• Set-Of


28. Types of Collaterals and Their Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 • Colateral Securites , Various Kinds of Securites

• Land & Building / Real Estate / Documents of Title to Goods

• Life Insurance Policy – Advantages

• Term Deposit Receipt

• Supply Bills

• Gold ornaments and Paper Security.


29. Performing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 • Non-Performing Asets

• Computation of NPA Levels

• Asset Clasifcation- Determination of Asset Clasifcation and Health Code

• Provisioning Norms


30. Financial Inclusion and Financial Literacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 • Financial Inclusion

• Busines Corespondents (BC) Model

• Financial Literacy Initatives

• Use of Mobile in Financial Inclusion Drive

• Rural Self Employment Training Instiutes (RSETI)


Module – C

Banking Technology

31. Essentials of Bank Computerisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 • Ned for Computerisation

• The Advantages of Using a Centralised Data Procesing System

• Local Area Network (LAN) Topology (Layout) Wide Area Network (WAN)

• Uninterupted Power System (UPS)

• Core Banking Solution

• Busines Components


32. Payment Systems and Electronic Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

• Electronic Payments Systems

• Automated Teler Machine (ATM)

• White Label ATMs (WLAs)

• Difference between ATM and WLA (White Label ATM)

• HWAK (The Inteligent Auto-teler and Netware Management System)

• National Payments Corporation of India (NPCI)

• RuPay

• Personal Identifcation Number (PIN)

• Electromagnetic Cards, Electronic Banking

• Cheque Truncation System

• Curency-Counting Machine

• Microfiche


33. Data Communication Network and EFT Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

• Data Communication

• Components and Data Transmision Modes

• Communication Media

• Communication Components

• Networks in India

• Satellite Connectivity

• INFINET-Network component

• Financial Network Architecture

• Integration of VSAT and Terestrial Network Electronic Funds Transfer (EFT) System

• Society for Worldwide Inter-Bank Financial Telecommunication (SWIFT)

• Automated Clearing House (ACH)

• Electronic Clearance System (ECS)

• National Electronic Funds Transfer (NEFT)

• RTGS

• IFSC

• IMPS

• digital signature


34. Role of Technology Upgradation and Its Imapct on Banks . . . . . . . . . . . . . . . . . . . . . . . . . 340

• Objectives of Technology Development in Banks

• Inovation in Indian Banking

• Data Warehousing and Data Mining

• Recent Trends in Banking

• Impact of Technology in Banking Sector


35. Security Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 • Risk Concern Areas and Controls Mechanism in IT Environment

• Computer Audit

• Information Security Policies

• Natural Disasters

• Viruse

• Human Errors Software Malfunction

• Hardware Malfunction

• About Viruses

• Information Systems Audit (IS Audit) and Maintenance of Data Integrity


36. Overview of IT ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 • RBI guidelines on IT Act

• Gopal Krishna committee recommendations


37. Preventive Vigilance in Electronic Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 • Vigilance Function in Banks

• Phishing Atack Phishing Protection


Module – D

Marketing of Banking Services/Products

38. Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 • Introduction

• Marketing Management

• Services Marketing

• Diference between Goods and Services Marketing in Banking Services.


39. Social Media Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 • Scope of Social Media Marketing (SMM)

• Few Popular Social Media Networks Oportunites by Social Media Marketing

• Issues of Social Media Marketing

• Social Media Marketi ng Prospects in India


40. Consumer Behaviour and Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 • Consumer Behaviour

• Maslow’s Hierarchy of Needs Theory

• Product

• Customer Relationship Management (CRM) Types of CRM

• CRM in Banking for Indian Scenario

• Issues and Challenges of CRM in Banking.


41. Pricing Importance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 • Pricing Importance

• Pricing Objectives and Pricing Methods

• Cost based pricing, pricing strategies.


42. Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382 • Introduction

• Distribution and Distribution Channels for Banking Services

• Types of Distribution Channels

• Mobile Banking and Internet Banking

• Curent Scenario of Internet Banking and E-Banking in India.


43. Channel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .390 • Chanel Management

• Chanel Levels

• Chanel Dynamics

• Advantages of Chanel Management Customers receive Financial Suport


44. Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393 • Role and kinds of promotion

• Promotion mix

• Factors influencing promotion mix


45. Role of Direct Selling Agent/ Direct Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .397 • Definition of direct selling agent, his roles

• IBA Model Code of Conduct for Direct Seling Agents

• Delivery Chanels in a Bank

• Evaluating the Capabilty of the Service Provider Responsibilties of DSA/DMA/Recovery Agents


46. Marketing Information System - A longitudinal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 403 • MIS component, advantages, dis advantages


Module – E Ethics in Banks and Financial Institutions

47. Concept of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 • Busines Ethics in a Global Perspective

• Banking Ethics in Global and Indian Contexts Ethical Banking


48. Ethics at Indivual Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 • Ethics at the Individual Level

• Value, Norms, Beliefs, Morality, Conflict, Integrity

• Dilemma and Decision-making

• The Golden Rule


49. Ethical Dimensions: Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 • Obligation to Bank, Right of the Bank

• Abuse of Oficial Positon

• Sexual Harasment

• Conflict of Interest

• Fair Acounting Practices

• Human Resource Management Ethics Employes as Ethics Ambasadors

• Managers as Ethical Leaders. • Practice MCQs with Solutions

50. Work Ethics and The Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424 • Work Ethics

• Benefits of Ethical Behaviour

• Unethical Behaviour: Causes and Remedies Code of Ethics Manual

• Whistle-blowing in Banks and laws relating to it


51. Banking Ethics: Changing dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 • Ethics and Technology,

• Data Security and Privacy

• Intellectual Property Rights

• Patents and Proprietary Rights


Full Length Mocks

Mock 01: Principles and Practices of Banking (PPB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439



