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:::BANKING :::
RBI established on April 1, 1935 under RBI Act 1934 (on the recommendations of John Hilton Young Commission 1926 - called Royal Commission on Indian Currency and Finance), is the central bank of the country and was nationalised wef Jan 01,1949. Prior to its existence, Imperial Bank of India from SBI was conducting the Central Bank’s functions. Originally it was a shareholders’ bank which was taken over by the Central Govt, under Reserve Bank (Transfer of Public Ownership) Act 1948 (paid up capital Rs.5 cr). RBI’s central office is in Mumbai.
Management of RBI : RBI is managed by a Central Board of Directors with 4 local board at Mumbai, Delhi, Calcutta and Chennai. It has one Governor, provision for 4 Dy. Governors and 15 other directors.
Functions of RBI:
a: Issuance of currency : U/s 22 of RBI Act 1934, RBI has the sole agency/ authority in India to issue currency notes (called bank notes) under signatures of Governor. (One rupee note called currency note is issued by the Central Govt, and signed by Finance Secretary).
Issue Deptt : is responsible for issue of fresh notes against security which consists of gold coins, bullion, rupee coins foreign securities, eligible promissory notes and other approved securities (aggregate value of gold and foreign exchange reserves should not be less than Rs.200 crore out of which, gold (coins and bullion) should not be less than Rs.115 crore) (Sec 33). The stock of currency is distributed with the help of currency chests spread all over the country.
b : Banker to the Govt : U/s 20 for (Central Govt) and u/s 21-A (for State Govt), RBI transacts govt, business and manages public debt. SBI or any other public sector bank is appointed its Agent where RBI does not have office. It provides Ways & Means advances (Section 17(5) to Govt.
c : Bankers’ bank : It keeps a part of deposits of commercial banks (as CRR) and acts as lender of last resort by providing financial assistance to banks. Section 17 (2) and (3) enable banks to approach RBI for rediscounting of bills, refinance etc. It provides export credit refinance, Liquidity Adjustment Facility (LAF)and Marginal Standing Facility (MSF).
d : Controller of Banks : Every entity which wants to conduct banking business in India has to obtain licence from RBI. RBI also acts as controller of banks by including the banks in India in 2nd Schedule of the Act. It issues directions, carries inspection (on-site as well as off-site) and exercises management control.
e : Controller of credit : U/s 21 and 3 5A, of Banking Regulation Act, RBI can fix interest rates (including Bank Rate) and also exercise selective credit controls to regulate money supply for ensuring price stability. Various tools such as change in cash reserve ratio, stipulation of margin on securities, directed credit guidelines etc. are used for this purpose. It also carries sale and purchase of securities which are known as open market operations.
f : Statutory Reserves : RBI ensures that the banks maintain certain %age of their assets in liquid/cash form under SLR/CRR requirements.
g : Collection of information : RBI collects credit information (U/s 45-C information on borrowers enjoying credit limits up to Rs. 10 lac on secured basis and Rs.5 lac on unsecured basis) and can share this information with other banks (Sec 45-D). Besides, RBI obtains information on suit-filed accounts and BSR returns.
h : Maintenance of external value : RBI is responsible also for maintaining external value of Indian currency as well as the internal value. Foreign exchange reserves are held by RBI and it has wide powers to regulate foreign exchange transactions under Foreign Exchange Management Act (FEMA).
On the recommendations of a Working Group, RBI decided to prescribe certain benchmarks towards achieving standardisation of cheques known as “CTS-2010 standard”, specifications.
Mandatory features applicable wef 1.12.2010
1. Paper: Paper should have protection against alterations by having chemical sensitivity to acids, alkalis, bleaches and solvents giving a visible result after a fraudulent attack. CTS-2010 Standard paper should not glow under Ultra-Violet (UV) light i.e., it should be UV dull.
2. Watermark : All cheques shall carry a standardized watermark, with the words “CTS-INDIA”. It should be oval in shape and diameter could be 2.6 to 3.0 cms. Each cheque must hold atleast one full watermark.
3. VOID pantograph : Pantograph with hidden / embedded “COPY” or “VOID” feature shall be included in the cheques. This feature should be clearly visible in photocopies and scanned colour images as a deterrent against colour photocopy or scanned colour images of a cheque.
4. Bank’s logo: Bank’s logo shall be printed in ultraviolet (UV) ink. The logo will be captured by / visible in UV-enabled scanners / lamps. It will establish genuineness of a cheque.
5. Mandating colours and background : Light / Pastel colours so that Print / Dynamic Contrast Ratio (PCR / DCR) is more than 60% for ensuring better quality and content of images.
6. Prohibiting alterations / corrections on cheques : No changes / corrections should be carried out on the CTS cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount or legal amount etc., fresh cheque forms should be used by customers. This requirement is for cheques issued under CTS only and not other cheques.
7. Printing of account field : Cheques used in current accounts and corporate customers, should be issued with the account number field pre-printed. Courtesy amount means amount in figures and legal amount means in words.
8. As per RBI Cir dated Sep 03, 2012 banks are required to arrange to withdraw the non-CTS-2010 Standard cheques in circulation before December 31, 2012. Banks holding post-dated EMI cheques may ensure to replace non-CTS-2010 standard cheques with CTS-2010 I standard cheques before Dec 31,2012. The executive head of Reserve Bank of India (RBI) is known as the Governor, the governor is assist by four deputy Governor.
Governor of Reserve Bank of India (RBI) is Raghuram Rajan who replaced Duvvuri Subbarao on September 4, 2013.
List of Deputy Governor:
1. Shri H.R.Khan
2. Urijit Patel (New Appointment, Replaced Subir Gokarn.)
3. Shri R. Gandhi (Appointed on April 3, 2014.)
4. Post Vacant. [Dr.K.C.Chakrabarty depart early from his post on April 25, 2014).
RBI notified the Banking Ombudsman Scheme 2006 (on Dec 26, 2005), in partial modification of its Banking Ombudsman Scheme 2002 to enlarge the extent and scope of the authority and functions of the Ombudsman, u/s 35A of Banking Regulation Act, 1949. The scheme that came into force wef Jan 01, 2006 covers all commercial banks, regional rural banks and scheduled primary co-operative banks.
Objective : To facilitate the resolution of complaints relating to Banking services through conciliation and mediation between the bank and the aggrieved parties OR by passing an Award.
Who can be Ombudsman : CGM/GM -RBI (not exceeding 3 years at a time). Cost borne by RBI.
Who can file a complaint : A person himself /his authorised representative (other than an advocate) can file the complaint on paper OR through electronic media (eMail) OR forwarded by RBI or Central Govt, (For Credit card, the jurisdiction is with reference to Ombudsman having jurisdiction over the billing address of the card holder).
Conditions: Complaints can be made when:
a: the complaint was made to the bank and bank had rejected it OR no reply was received within a period of one month OR the complainant is not satisfied with the reply given by the bank;
b: period of more than one year has not lapsed after receipt of bank reply.
c: the complaint is not for issues already settled/dealt with Ombudsman OR for which proceedings before court, tribunal or arbitrator or any other forum is pending or a decree or Award or order has been passed;
d: the complaint is within limitation period under Indian Limitation Act 1963.
Rejection of Complaint by Ombudsman Rejection can be at any stage if it appears to be frivolous, vexatious, malafide; OR without sufficient cause; OR not pursued by the complainant with diligence; OR there is no loss or damage or inconvenience caused to the complainant; OR is beyond the pecuniary jurisdiction of Ombudsman. Customer can appeal against grounds of rejection to Appellate Authority within 30 days of receipt of communication regarding rejection.
Process of redressal of grievance By sending copy of the complaint to the bank, endeavour shall be made for a settlement by agreement through conciliation or mediation. The proceedings shall be summary in nature.
Award by the Ombudsman Where a complaint could not be settled by agreement within a period of one month from the date of receipt of the complaint, Ombudsman may pass an Award or reject the complaint, on the basis of evidence, the principles of banking law and practice, directions and guidelines issued by RBI.
Award & Compensation: Award shall specify the amount of compensation, if any, to be paid by bank, not more than actual loss suffered as direct consequence of act of omission or commission of the bank OR Rs.10 lac, whichever is lower. A copy of the Award shall be sent to the complainant and the bank.
Effect of award : Award shall be binding on a bank only if the complainant sends acceptance of in full and final settlement, within 30 days from the date of receipt of the Award.
Implementation: Customer is to send acceptance of the award within 30 days of date of receipt of the award. Bank is to implement the award within one month from the date of receipt of the acceptance from the complainant and intimate compliance to the Banking Ombudsman.
Appeal : The customer can file an appeal to Appellate Authority (Dy. Governor RBI) within 30 days of date of receipt of Award (which could be extended by 30 days by Appellate Authority). The appeal by banks should be filed with sanction of the CMD /ED / CEO. For banks 30 days period for filing appeal begins from date of receipt of customer’s acceptance.. The Appellate Authority may dismiss/allow the appeal; OR set aside the Award; OR remand the matter to Ombudsman for fresh disposal OR modify the Award or pass any order as it may deem fit.
Nodal officers : The banks shall appoint Nodal Officers at their RO/ZO and inform the Ombudsman, who shall represent the bank/furnish information to the Ombudsman.
May I help You Counters
Such counters should be available at all branches except very small branches as per RBI’s customer service guidelines of Oct 2008. As per Goiporia Committee, such counters were to be established at branches having a staff strength of 30 or more.
Notes are of two kinds i.e. Govt. notes (Re.l note issued by Govt, of India) and Bank notes (issued by RBI (Rs.2 and above denomination).
Essential features of a currency note:
Name of issuing authority, which may be either RBI or Govt, of India (Ministry of Finance)
Guarantee and promise clause (Hindi or English)
King/s effigy/Ashoka Pillar Emblem
Water mark of King’s Effigy or Ashoka Emblem.
Genuine Notes: Such notes must have a water mark of Ashoka Pillar, security thread and serial number along with alphabet. They have distinctive colours.
Spurious coins: When tendered over the counter, should be cut and handed over to the tenderer. If the tenderer disputes it, the coins should be sent to the Mint at his cost, for examination.
Soiled notes: The currency note which has become dirty due to its use or may be in 2 pieces. No portion of such note should be missing. These notes are accepted for exchange without any restrictions by the banks.
Mutilated notes: Such currency notes that are composed of various pieces or they are cut notes of which some portion is missing. These notes are exchanged only by the currency chest branches of banks.
Single/double numbered notes: Notes of denomination up to Rs.5 are single numbered while the notes of denomination above Rs.5 are double numbered notes.
Imperfect Notes: The currency notes which are washed, bleached, oiled or are altered or have become undecipherable, are known as imperfect notes. They are different from mutilated notes
RBI had announced ‘Clean Note Policy’ in January 1999. For withdrawing soiled notes from circulation and pumping fresh notes into circulation, the RBI introduced various changes in the system and procedures related to currency management which include mechanization of the currency verification and processing as also shredding and briquetting for destruction of soiled and mutilated notes. RBI issued a public interest directive (u/s 35A B R Act) to all banks instructing them :
Not to staple bank notes,
To Tender soiled notes to the Reserve Bank in unstapled condition,
To use bands instead of staple pins,
To issue only clean notes to members of public,
To open select currency chest branches on Sundays to provide exchange facility to members of public all over the county,
To provide unrestricted facility for exchange of soiled and mutilated notes to members of public.
banks should sort notes into re-issuables and non-issuables, and issue only clean notes to public. Soiled notes in unstapled condition may be tendered at RBI in inward remittances through Currency Chests; and,
banks should stop writing of any kind on watermark window of bank notes.
Coins of 25 Paise and Below - Withdrawal
Govt, of India has decided to withdraw coins of denomination of 25 paise and below from circulation w.e.f. June 30, 2011. Coins of denomination of 25 paise and below are not accepted for exchange at the bank branches from July 1, 2011 onwards.
The Central Board of Direct Taxes (CBDT) made it mandatory to quote PAN or General Index Number (GIR) on specified transactions (specified as per Rule 114B) with a view to ensure voluntary compliance of the income tax procedures. The quoting PAN became mandatory with effect from 01.11.1998.
What is PAN : A PAN is a 10 character alphanumeric number allotted by the Income Tax Deptt, to a tax payer who is eligible to file the income tax return. First 3 characters are Alphabetic series. 4th is status of PAN holder. 5th is the 1st character of PAN holder’s name. Next 4 are special sequential numbers and the last one is alphabetic check.
IFSC stands for Indian Financial System Code . The electronic Payment System Applications such as Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and Centralized Funds Management System (CFMS) developed by the Reserve Bank of India use these codes. The code consists of 11 Alpha Numeric characters (example - CNRB00O3252):
First 4 characters represent entity / bank name
5th position reserved as a ‘0’ (Zero) for future use
Last 6 character denotes the branch identity
IFSC is identified by RBI as the code to be used for various payment system projects within the country, and it would, in due course, cover all networked branches.
As on July 31, 2012 there are more than 90,000 RTGS enabled bank branches for which IFSC and MICR code is available.
Maintenance of bank account: The remitter and the beneficiary should have an account. NEFT is an account to account funds transfer system.
Foreign remittances : The remittances abroad using the NEFT are not permitted.
NEFT for loan repayment: It can be used.
CFMS is a system set up, operated and maintained by RBI to enable operations on current accounts maintained at various offices of the RBI, through standard message formats in a secure manner.
Components: The CFMS comprises 2 components. (1) the Centralised Funds Enquiry System (CFES) and (2) Centralised Funds Transfer System (CFTS).
Eligibility Criteria and admission: Bank maintaining a current account with RBI and a member of INFINET, is eligible for membership to the CFMS. Admission to the CFMS may be granted, suspended or revoked by RBI.
Transaction Types: The following types of facilities are be available through CFMS:
a) Enquiries relating to the operation of its current account/s maintained with any of the DADs
b) Funds Transfers between accounts of the same account holder at different DADs.
CFMS Operation Sessions: The CFMS is operational on all days on which at least 2 DADs of RBI are working. CFMS timings wef Jan 24, 2011 are Monday-Friday : 10 am to 5 pm and Saturday : 10 am to 3 am.
ATM Models
1. Online ATMs : These ATMs are connected to data base of the bank and provide transactions on real time basis, online. The withdrawal limits are fixed and the limit is monitored by ATM switch centre.
2. Offline ATMs: These ATMs are not connected to bank’s data base. Withdrawals are permitted within a pre-fixed limit irrespective of the amount balance.
3. Stand alone ATMs: These ATMs are not connected to any ATM network. The transactions are restricted to the ATM branch and link branches only.
4. Networked ATMs: These ATMs are connected an ATM network.
5. 0nsite ATMs: The ATMs that are installed within the bank branch premises.
6. 0ff-site ATMs : The ATMs that are installed away from the bank branch premises, such as in a shopping centre, air port, railway station etc.
RBI decided to permit (on Jun 20, 2012), the non-bank entities incorporated in India under the Companies Act 1956, to set up, own and operate ATMs in India. Such ATMs are called “White Label ATMs” (WLAs). These can be set up after obtaining RBI authorisation (valid for 1 year) under Payment and Settlement Systems (PSS) Act 2007. The time for seeking authorisation is available for 4 months from Jun 20, 2012.
Eligibility criteria for WLA Operators (WLAO) :
1. Non-bank entities must have net worth of at least Rs 100 crore as per the last audited balance sheet (if additional capital is infused to satisfy this condition, certificate of Chartered Accountant is required), which has to be maintained at all times.
2. 1n case of any FDI in the applicant entity, necessary approval from the competent authority must be submitted while seeking authorization.
Location : The authorised WLAO would have the freedom to choose the location of the WLA.
ECS is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa.
Types of ECS : There are two types of ECS called ECS (Credit) and ECS (Debit). ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment. ECS (Debit) is used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution. ECS-Credit is available at 60 centres and ECS-Debit at 15 centres.
RBI had issued a set of comprehensive guidelines (Dec 06, 2002) for operating the mechanized cheque processing systems using Magnetic Ink Character Recognition (MICR) technology.
Standardisation of Cheque Forms: Instruments passing through clearing are required to be issued in standard format and defined size of 8' x 3 2/3'. The instruments should be printed on MICR grade quality paper with a ‘read band’ of 5/8' in width reserved at the bottom on which essential particulars occur in special MICR ink in the E-13B Font. Cheques are printed by approved security printers forming part of a panel which is maintained by IBA.
MICR Code Line Structure: The code line occurring in the Read Band is divided into 5 fields as under:
i) Cheque serial number of 6 numeric digits. The alpha-numeric prefix to the serial number should be printed outside the code line.
ii) Sort field or the city/bank/branch code number consisting of 9 digits. The first 3 digits represent the city, the next 3 indicate the bank and the last 3 digits signify the branch. The 9 digit sort code is unique for any bank branch in the country,
iii) Account number field consisting of 6 digits followed by a delimiter is an optional field. In the case of Government Cheques issued by RBI alone, the account number is of 7 digits. The Government Account number is 10 digits in length-7 digits occurring in the Account number field and 3 in the transaction code field.
iv) Transaction code field comprising of 2 digits is in all instruments except Government cheques drawn on RBI which have a 3 digit transaction code. Control documents - batch and block tickets have a 3 digit ? representation in the transaction code field,
v) Last field represents the amount field and consists of 13 digits bounded on both sides by a delimiter. The amount is encoded in paise without the decimal point.
National Payment Corporation of India (NPCI)
With a view to consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems, NPCI was incorporated, on recommendations of an IBA Core Group, in Dec 2008 as a Section 25 company under Companies Act. The authorized capital is Rs 300 crore and the paid up capital is Rs 30 crore.
Shareholding and management : There are 10 core promoter banks (SBI, PNB, Canara Bank, Bank of Baroda, Union bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC).
Expected role: NPCI would function as a hub in all electronic retail payment systems which is evergrowing in terms of varieties of products, delivery channels, number of service providers and diverse Technology solutions. BPSS on Sept 24,2009 approved, in-principle, to issue authorisation to NPCI, for operating various retail payment systems in the country and granted Certificate of Authorisation for “operation of National Financial Switch (NFS) ATM Network with effect from October 15, 009.
Under the provisions of Payment and Settlement Systems, Act 2007, all persons involved in the issuance of PPI require RBI authorization. RBI issued guidelines on Apr 29, 2009 u/s 18 and additional guidelines in Nov 2010.
PPI : These are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value represents the value paid for by the holders by cash, by debit to a bank account, or by credit card.
Form of PPI : These can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument, which can be used to access the pre-paid amount.
Eligibility to issue PPI: Banks which comply with the eligibility criteria can issue all categories of PPI. NBFCs and other persons can issue only semi-closed system payment instruments.
Capital requirements to be eligible
1. Banks and NBFCs which comply with the Capital Adequacy requirements prescribed by RBI can issue pre-paid payment instruments.
2. Other persons to have a min paid-up capital of Rs 100 lakh and positive net owned funds. KYC/AML/CFT provisions
l. The RBI KYC guidelines shall apply.
2. The use of pre-paid payment instruments for cross border transactions shall not be permitted.
3. The maximum value of any pre-paid payment instruments (where specific limits have not been prescribed) shall not excecd Rs 50,000.
Issue of PPI to corporates for onward issuance to their employees:
W.e.f. 4.8.11 banks can issue such instruments:
a. Instruments can be issued only to corporate entities listed in any of the stock exchanges in India;
b. Amount on individual prepaid payment instruments at any point of time shall not exceed Rs 50,000.
Core Banking Solutions (CBS) or Centralised Banking Solutions is the process which is completed in a centralized environment i.e. under which the information relating to the customer’s account (i.e. financial dealings, profession, income, family members etc.) is stored in the Central Server of the bank (that is available to all the networked branches) instead of the branch server.
Depending upon the size and needs of a bank, it could be for the all the operations or for limited operations. This task is carried through an advance software by making use of the services provided by specialized agencies. Due to its benefits, a no. of banks in India in recent years have taken steps to implement the CBS with a view to build relationship with the customer based on the information captured and offering to the customer, the customised financial products according to their need.
Essential requirement of CBS Creation of Primary Data centre : It houses the central server for online transaction. Central data base is used for all customer centric delivery channel services integrated with CBS. It is manned round the clock to offer 24*7 service to the customer.
Disaster recovery site (DRS): It is done to avoid disruption in the business activities of CBS branches due to central system or network failure, to ensure non-stop functioning of branches and on line delivery channels integrated with CBS, to act as a back up for providing a reliable and continuous processing environment.
Business process re-engineering: It done with a view to help the bank in realigning existing business processes in tune with the benefits provided by the new technology platform, to help the bank in taking advantage of the best business practices available in the technology platform to provide more efficient services.
Software : It is to comprise the branch functional modules, delivery channel needs like ATMs, tele-banking, internet banking, interface to integrate with NDS, RTGS etc.
Networking: leased lines of WAN to be used as primary communication channel and ISDN link as backup.
SWIFT was founded in 1973, as non-profit cooperative organisation under Belgian law (with its HQ in La Hulpe, near Brussels in Belgium), by 239 banks spread over 15 countries. As of December 2008, SWIFT had linked nearly 9000 banks/ institutions in 209 countries. The objective of SWIFT is to create a unified international transaction processing and transmission system to meet the ever growing telecommunication needs of the banking industry. It does not perform any clearing or settlement system. It also does not facilitate funds transfer.
Major features of SWIFT:
• It is owned by member banks.
• It is a basically a message transmission system, takings place world-over.
• It operates on a 24 x 7 basis.
• The messages are acknowledged i.e. either accepted or rejected.
• In India, most of the banks are members of SWIFT. These are connected to SWIFT’s regional processor at Mumbai.
SFMS is an Electronic Data Interchange (EDI) system (like SWIFT) that permits exchange of structured messages (prepared according to the published standards of Working Group on INFINET).
The system consists 4 main elements:
Hub - that switches inter-bank messages from sending bank’s gateway to receiving bank’s gateway.
Bank gateway - that switches intra-bank message from one branch server to another branch server and also out messages.
Branch server - that receives and sends branch messages using online thin clients. SFMS security - It uses X.509 Digital signatures for access control and authentication of messages. The outgoing messages are encrypted with the receiving node’s public key for protection of confidentiality of messages in transit.
SMFS security - It uses X.509 Digital signatures for access control and authentication of messages. The outgoing messages are encrypted with the receiving node’s public key for protection of confidentiality of messages in transit.
Point Of Sale Terminal (POS)
POS is a simple electronic transaction terminal that facilitates the payment through credit and debit cards in merchant establishments, whenever a customer makes a purchase in a merchant establishment by accessing the account. There are 2 basic types of POS terminals
(1) electronic cash registers that are used by high volume merchants, such as department stores, and
(2) dial-up terminals that automatically dial a special telephone number to obtain authorization.
POS and ATM: A POS terminal is used for payment for sale and purchase transaction, while an ATM can be used for several other services like balance enquiry.
RBI guidelines: In July 2008, RBI allowed cash to be withdrawn from any merchant establishment with a pos terminal up to a ceiling of Rs. 1,000 a day using debit cards.
Electronic Payment Services - E Cheques
Nowadays we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the same manner, a new technology is being developed in US for introduction of e-cheque, which will eventually replace the conventional paper cheque. India, as harbinger to the introduction of e-cheque, the Negotiable Instruments Act has already been amended to include; Truncated cheque and E-cheque instruments.
Electronic Funds Transfer (EFT)
Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another person/company etc. can approach his bank and make cash payment or give instructions/authorization to transfer funds directly from his own account to the bank account of the receiver/beneficiary. Complete details such as the receiver's name, bank account number, account type (savings or current account), bank name, city, branch name etc. should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries' account correctly and faster. RBI is the service provider of EFT.
Electronic Clearing Service (ECS)
Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals.
Tele Banking
Tele Banking facilitates the customer to do entire non-cash related banking on telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For complicated queries and transactions, manned phone terminals are used.
Electronic Data Interchange (EDI)
Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format between trading partners. EDI can also be used to transmit financial information and payments in electronic form.
In computer audit, more than accuracy and conformity to the systems and procedures, the focuses is on collecting and validating evidences to ensure safeguarding assets, maintaining data integrity, achieving organisational goals of computerisation effectively and ensuring effective usage of resources.
1. Rangarajan Committee 1st (1983).
2. Rangarajan Committee 2nd (1988)
3. Shere Committee (1994)
4. Saraf Commiteee (1994)
5. Vasudevan Committee (1998)
BANKNET is a payment network established by RBI (on the recommendations of Iyer Committee) which functions within India and was launched during 1991. The system makes use of inter-city trunk voice grade data circuits. The user banks can access BANKNET from their premises through leased or dial-up lines at the local centres using ports on PADS and UNIX machines with popular data communication softwares. The messages of banking transactions can be transferred in coded form for settlement of transactions and advices. It enables transfer of data and other statement to RBI. Access to SWIFT is also possible through this system.
It is communication system operating over the BANKNET. RBINET client running a personal computer is called RBINET Dos client and he can communicate with its server over a dedicated leased line or dial up line.
I-net owned by Deptt of Telecommunications (DoT) is a Packet Switching Public Data Network (PSPDN) which was opened in 1983 for slow speed data communication. Inet uses telephone connections and satellite for communication through which communication is possible across major metropolis and other international networks. The subscribers can also form a private network within Inet.
National Informatics Centre Network (NICNET), a part of internet services was set up in 1975 to promote information culture which is a govt. organisation and works for govt, organisations. It provides multiple services to user departments which include finance, agriculture, industry, commerce by making use of various applications. The host computer in NICNET is stationed in New Delhi. Currency chest operations in banks are performed through NICNET.
Swadhan was IBA Shared Payment Network Systems (SPNS). The member banks included all types of banks. The system was dismantled wef 31.12.2003.
Indian Financial Network (INFINET), the satellite based VSAT network developed by Institute for Development and Research in Banking Technology (lDRBTHyderabad, an RBI sponsored organisation) is fast and secure intra-bank and inter-bank communication system.
E-Commerce refers to buying and selling of goods and services through internet, with business sites on internet offering the customers, buying and selling options. It is considered to be a generic term to describe technology-enabled communication with customers and suppliers for a business organisation. In its broader perspective, e-Commerce is conducting business processes through an entire spectrum of activities such as EDI, inventory and order management, product support and service, information delivery and other business application linking solutions through the use of paperless information technologies such as internet, bar coding, e-mail, smart cards, CD-ROMs etc.
In EDI, the data is transmitted between various computer terminals for the purpose of processing which eliminates paper transactions. It is more or less like eMail with the difference being in the internal structure and structure of messages in EDI and eMail. While in eMail data is not processed in the receiving system, in EDI the messages are sent only for the purpose of processing. EDI reduces chances of errors in transmission and improves the quality of data iniiow. It avoids lot of duplication work thus reducing time and financial costs. In order to make use of EDI the data is obtained from a computer system and translated in a transferable form. Thereafter it is transferred to another computer. The receiving system translates message and retrieves it.
Banks have been using EDI in the form of SWIFT messages, EFT, credit clearing and debit clearing. Electronic Data interchange for Administration of Commerce and Transport (EDIFACT) is the universal set of standards and guidelines for communication by EDI. EDI guidelines are known as communication standards.
VSATs works with the help of satellite and uses small antennas with variable sizes working like earth stations. This has helped the banking services by providing speed. VSA terminals can exchange and transmit information through a larger earth station which is called Hub Station having larger size antenna. VSATs are being made use of in banking, stock exchange, corporate networking, weather forecasting, international service, reservation etc.
HWAK, the Intelligent Auto Teller Systems are special kind of ATMs that are capable of thinking for themselves and can provide better service. It benefits are better customer service, online and offline auto recovery, anytime full banking service, low cost, shorter queues and less tellers with ease of use.
Banks makes use of two approaches to update their records of transctions i.e. online update and batch update
Online means direct linking of an operation or equipment to a computer system so that any stimulus provided by that operation or equipment is immediately accepted by the computer system. Such updation takes place in case of foreign exchange operations, ATMs etc.
Batch updates involves updation at the end of each business day by data entry.
Money laundering means acquiring, owning, possessing or transferring any proceeds of money of crime or knowingly entering into any transaction related to proceeds of the crime either directly or indirectly or concealing or aiding in the concealment of the proceeds or gains of crime, within or outside India. It is a process for conversion of money obtained illegally to appear to have originatedfrom legitimate sources.
Essential elements of money laundering (a) a crime is committed, (b) there are gains from the crime, (c) proceeds have been received from crime and (d) there is some transaction in respect of these proceeds or the gains.
Legal set up in India Indian Parliament passed ‘The Prevention of Money Laundering Act 2002’ during December 2002 for prevention of money laundering. Offences and punishment Offences are cognizable/non-bailable. Punishment would be rigorous imprisonment for not less than 3 years but up to 7 years and fine up to Rs.5 lac. Enforcement Directorate is designated authority to track cases of money laundering, which has far more powers than what was available to ED under FERA.
R H Khan Committee had recommended the concept of Universal Banking. Universal banking means allowing FIs & banks to undertake all types of banking or development financing activity or activity associated with that, subject to compliance’ of statutory and other requirements of RBI, Govt, and related legal Acts.
Activities in Universal Banking: These activities include accepting deposits, granting loans, investing in securities, credit cards, project finance, remittances, payment systems, project counseling, merchant banking, foreign exchange operations, insurance etc.
Objective: To offer world class financial services to the clients by using information technology and cross selling, reduce per customer cost and increase per customer revenue, take benefit of economies of scale and compete with international banks by expanding business abroad.
RBI guidelines on Universal Banking
As per RBI guidelines of April 2001, FIs have an option to transform into a bank provided they ensure compliance with the following.
Reserve requirements - Compliance with the cash reserve ratio and statutory liquidity ratio requirements would be mandatory for an FI after its conversion into a universal bank.
Permissible activities - Any activity of an FI currently undertaken but not permissible for a bank under Section 6(1) of the B. R. Act, 1949, may have to be stopped or divested after its conversion into a universal bank.
Composition of the Board - Composition of the Board of Directors to ensure compliance with the provisions of Section 10(A) of the B. R. Act, which requires at least 51% of the total number of directors to have special knowledge and experience.
In India, the concept of narrow banking came into discussion after submission of the report by the Committee on Capital Account Convertibility (Tarapore Committee). It was suggested as a solution to the problem of high NPAs and related matters. The Committee proposed that incremental resources of the narrow banks should be restricted only to investments in low risk assets like govt, securities.
A ‘Narrow Bank’ in its narrow sense, is the system of banking under which a bank places its funds in risk-free assets with maturity period matching its liability maturity profile, so that there is no problem relating to asset liability mismatch and the quality of assets remains intact without leading to emergence of substandard assets.
"Advantages : Such an approach can ensure the regular deployment of funds in low risk liquid assets. With such pattern of deployment of funds, these banks are expected to remove the problems of bank failures and the consequent systemic risks and loss to depositors.
Retail banking sector is characterized by 3 basic characteristics:
a: multiple products (deposits,, credit cards, insurance, investments etc.);
b: multiple delivery channels (call centre, branch, Internet and kiosk); and
c: multiple customer groups (consumer, small business, and corporate).
Retail banking objectives The objective of retail banking is to increase penetration by providing increasing level of services and increased access, by offering value added services to customers by packing them with retail banking products and services. The retail banking offers considerably better spread of 3-4 % compared to very thin spread available to banks in case of corporate clients.
Various segments in retail banking Basically there are 3 important segments in retail banking which include deposit products (convenient deposit schemes such as flexi-deposits), loan products (such as housing loans, education loans, conveyance loans, personal loans for diverse purposes such as medical expenses, travel abroad) and other products.
Delivery channels of retail banking The delivery of these products and services can be through branch banking, internet banking or automated teller machines. These can be called home banking, internet banking, mobile banking, credit cards, etc.
Other advantages
Banks have excellent opportunity to cross sell various retail products like credit cards, insurance policies, funds investment services (including mutual funds), ancillary services like dematerialization, portfolio management etc.
Subprime lending (also referred (a as B-paper, near-prime, or second chance lending) is a practice followed by lenders in various contries (including US & UK), to sanction loans to the borrowers, who do not qualify for the best market interest rates, due to certain deficiency in their credit history.
Subprime lenders: To deploy their funds, the lenders often take on far greater additional risks, associated with subprime borrowers. In the case of subprime loans, the risk is offset with a higher interest rate. In the case of subprime credit cards, a subprime customer, is charged higher late fees, higher over.limit.fees,.yearly fees or up front fees for the: card.
Subprime borrowers: Subprime borrowers are generally defined as individuals with limited income or having credit scores (FICO) below 620 on a scale that ranges from 300 to 850.
Characteristics of Subprime Borrowers
a) 2 or more loan payments paid with a delay of 60 days, due in the last 12 months, or one or more loan payments paid with a delay of 90 days during the last 36 months;
b) Judgment, foreclosure, repossession, or nonpayment of a loan in the prior 48 months;
c) Bankruptcy in the last 7 years;
d) Relatively high default probability as evidenced by, a credit bureau risk score (FICO) of 620 or below.
Financial inclusion means the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Financial exclusion may lead to increased travel requirements, higher incidence of crime, general decline in investment, difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates, increased unemployment etc. The small business may suffer I due to loss of access to middle class and higher-income consumers, higher cash handling costs, delays in remittances of money.
Steps for financial inclusion
Financial inclusion can be expanded through state-driven intervention (by way of statutory enactments) and through voluntary effort of banking community for evolving various strategies to bring the large strata of society, within the ambit of the banking sector.
RBI steps for Financial Inclusion
RBI approach to financial inclusion aims at ‘connecting people’ with the banking system and not just opening accounts. This includes meeting the small credit needs of the people, giving them access to the payments system and providing remittance facilities.
(i) Basic saving Bank account (previously called No Frill account) :
In Nov 2005, RBI asked banks to offer a basic banking ‘no-frills’ account with low or zero min balances and min charges to expand the outreach of such accounts to the low Income groups.
(ii) Easier credit facility: Banks told to introduced a General Purpose Credit Card up to Rs. 25,000.
(iii) Simpler KYC norms: KYC procedure for opening accounts was simplified for those accounts with balances not exceeding Rs 50,000 and credits thereto not exceeding Rs.100,000 in a year. .
(iv) Use of information technology: Banks urged to scale up initiatives for financial inclusion speedily while ensuring that solutions are highly secure, amenable to audit, and follow widely-accepted open standards to ensure eventual interoperabiliry among the different systems. 2 of the important initiatives are:
Smart cards for opening bank accounts with biometric identification. These help the customers get banking services near their doorstep.
Link to mobile hand held electronic devices for banking transactions. In October 2008, the RBI advised banks on issues relating to technology, security standards, and customer protection.
(v) EBT through banks: RBI is in consultation with State governments to encourage them to adopt electronic benefit transfer (EBT) by banks.
RBI Roadmap for Financial Inclusion
Under RBI’s earlier roadmap (of Sep 2010) 74,414 unbanked villages were identified and allocated to banks for opening of banking outlets. Banks opened banking outlets in 74,199 (99.7%) villages by March 2012.
New roadmap :
In its 2012-13 policy, RBI advised State Level Bankers’ Committees (SLBCs) to prepare a roadmap covering all unbanked villages of population less than 2000 and notionally allot these villages to banks for providing banking services, in a time-bound manner to provide with at least one banking outlet. The lead banks are to constitute a Sub-Committee of the District Consultative Committees (DCCs) to draw up a roadmap for provision of banking services in every village having a population below 2000 (2001 census) for providing banking services, in a time bound manner. It is to be ensured that there is a brick arid mortar branch to provide support to a cluster of BC units, i.e., about 8-10 BC units at a reasonable distance of 3-4 kilometers. Priority for BC location or bank branch to be given to villages having population greater than 1500. Emphasis should be given to providing banking access in villages of north east states.
Hamara Khaata Hamara Swabhimaan (Our Account our Pride) was launched on February 10, 2011, jointly by Ministry of Finance, Govt, of India and the Indian Banks Association. Under this, basic banking services were to be provided to 73,000 villages not served by any bank, with the aim of bringing a bank within the reach of every village with a population of over 2000 by the end of March, 2012 is achieved.
Important Features:
1. Opening of 5 cr new rural bank accounts.
2. The banking will be offered through business correspondents called ‘Bank Saathi’.
3. Speedy transfer of funds and payment of govt subsidies and other developmental funds allotted by the government from time to time for the rural sector.
4. The social security benefits can be directly transferred to the beneficiary accounts removing the operations of middlemen.
WMAs were introduced as per an agreement between RBI & Govt. WMAs are temporary overdrafts by RBI to govt. (Central & State) under Section 17(5) of RBI Act. WMAs replaced the earlier ad hoc T-Bills system w.e.f. 1.4.1997.
Objective-WMAs bridge the time interval of mismatch between govt, expenditure and receipts. These are not a source of finance.
Interest rate: On normal WMAs, it is Repo Rate and for overdrawn amount, repo rate + 2%.
Duration: 10 consecutive working days for Central Govt, and 14 days for State Govt.
Amount ceiling: Limits are fixed by RBI. (for, Central Govt, for 2012-13 it is Rs.50000 cr for 1st quarter and Rs.40000 cr 2nd quarter).
Minimum balance: On Fridays and at close of the Govt, or RBI financial year shouldn’t be less than Rs. 100 cr. On any other working day not less than Rs.10 cr. When 75% of WMA is utilised, RBI may consider fresh flotation of market loans.
WMA for States
Consolidated limit is Rs. 10240 cr.
Liquidity Adjustment Facility (LAF) was h introduced by RBI during June, 2000 in phases, to ensure smooth transition and keeping pace with technological upgradation. On recommendations of an RBI’s Internal Group RBI has revised the LAF scheme on March 25, 2004. Further revision has been carried wef Oct 29, 2004. The revised LAF scheme has the following features:
Objective : The funds are used by the banks for their day-to-day mismatches in liquidity.
Tenor : Reverse Repo auctions (for absorption of liquidity) and Repo auctions {for injection of liquidity) are conducted on a daily basis (except Saturdays). 7-days and 14-days Repo operations discontinued wef Nov 01, 2004.
Eligibility : All commercial banks (except RRBs) and PDs having current account and SGL account with RBI.
Minimum bid Size: Rs. 5 cr (multiple of Rs.5 cr)
Eligible securities: Repos and Reverse Repos in transferable Central Govt, dated securities and treasury bills.
Rate of Interest : The reverse repo rate is fixed by RBI from time to time. The repo rate will continue to be linked to the reverse repo rate.
Marginal Standing Facility (MSF)
MSF was introduced w.e.f May 09, 2011, by RBI.
Eligibility: All Scheduled Commercial Banks having Current Account and SGL Account with RBI.
Tenor and Amount: It can be availed up to 2% of NDTL at the end of 2nd preceding fortnight. It is for one day except on Fridays when it is for 3 days or more, maturing on the following working day.
Timing : On all working days excluding Saturdays (3.30 P.M. and 4.30 P.M.)
Interest Rate : 100 basis points above LAF repo rate.
Mechanics of operations :
i) The requests to be submitted electronically in the NDS. Members facing system problem, may submit physical requests (sealed cover) to RBI, by 4.30 P.M.
ii) MSF is conducted as “Hold-in-Custody” repo, similar to LAF - Repo.
iv) On acceptance of MSF requests, the applicant’s RC SGL Account will be debited by the required quantum of securities and credited to Bank’s RC SGL A/c. Accordingly, the applicant’s current a/c will be credited with the MSF application amount. The transactions will be reversed in the second leg.
Amount : Rs. 1 cr and in multiples of Rs. 1 cr. Eligible
Securities : All SLR-eligible transferable Govt, of India dated Securities/Treasury Bills and State Development Loans (SDL).
Margin Requirement : For Gol dated securities and Treasury Bills-5%. In respect of DLs -10%.
Settlement of Transactions : The settlement will take place on the same day after the closure of the window for acceptance of applications.
The system which became operational during Feb 2002, facilitates the submission of bids/applications for auctions/floatation of govt, securities through pooled terminal facility located at Regional Offices of Public Debt Offices and through member terminals. The system can be used for daily Repo and Reverse Repo auctions under Liquidity Adjustment Facility.
Members : Banks, Primary Dealers and Financial Institutions having Subsidiary General Ledger and Current Accounts with RBI are eligible to become members.
Instruments : Govt, dated securities, Treasury Bills, Re-purchase Agreements (Repos), call/notice/term money, CPs, CDs, forward rate agreements/interest rate swaps, etc.
Benefits : It provides an electronic dealing platform for primary and secondary market participants in govt, securities and also facilitate reporting of trades executed through exchanges for information dissemination and settlement, in addition to deals done through the system.
Clearing Corporation of India Limited (CCIL) was incorporated on 30th of April, 2001, as the country’s first clearing house for the Govt, securities, forex and other related market segments. It commenced operations from February 15, 2002. It provides a system for efficient clearing of money, government securities and foreign exchange market transactions.
Promoters and management - Owned by market participants and promoted by banks. It is a limited liability company under Indian Companies Act 1956, with authorized capital of Rs.50 cr. It is managed by a Board of Directors.
Membership : Membership (including Associate Membership) of CBLO segment is extended to banks, financial institutions, insurance companies, mutual funds, primary dealers, NBFCs, non-Govt. Provident Funds, Corporates etc. The Members are required to open Constituent SGL (CSGL) Account with CCIL for depositing securities which are offered as collateral / margin for borrowing and lending of funds. Besides, Associate Members are to open a current account with a Settlement Bank designated by CCIL for settlement of funds.
Objectives: To establish a safe institutional structure for clearing & settlement of trades in Govt. Securities, Forex, Money & Debt Markets
source: bsc facebook -kundan sir - Rajendra Kumar

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