Page 1 JAIIB- Sure Success Series- Principles & Practices of Banking- Vaibhav Awasthi Sure Success Series Principles & Practices of Banking ( As per NEW UPDATED SYLLABUS For JAIIB/ Diploma in Banking & Finance Examination for November 2015 exam onwards) 3 rd Edition By: Vaibhav Awasthi
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Financial System: Financial system is a structure which transforms savings into consumption
and investment. This function is done in the financial market with the help of financial
intermediaries which can be banks, mutual funds etc.
Intermediary Characteristic
Commercial Banks
Commercial Banks refer to both scheduled and non-scheduled commercial banks which are regulated under Banking Regulation Act, 1949. Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. The banks included in this schedule list should fulfil two conditions. 1. The paid capital and collected funds of bank should not be less than Rs. 5 lac. 2. Any activity of the bank will not adversely affect the interests of depositors. Every Scheduled bank enjoys the following facilities. 1. Such bank becomes eligible for debts/loans on bank rate from the RBI 2. Such bank automatically acquires the membership of clearing house.
Non Banking Financial Companies (NBFC)
A Non-Banking Financial Company (NBFC) is a company a) registered under the Companies Act, 1956, b) its principal business is lending, investments in various types of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance business, chit business, and c) its principal business is receiving deposits under any scheme or arrangement in one lump sum or in instalments. However, a Non-Banking Financial Company does not include any institution whose principal business is agricultural activity, industrial activity, trading activity or sale/purchase/construction of immovable property. (Section 45 I (c) of the RBI Act, 1934) . One key aspect to be kept in view is that the financial activity of loans/advances as stated in 45 I ( c) , should be for activity other than its own. In the absence of this provision, all companies would have been NBFCs. Does the Reserve Bank regulate all financial companies? No. Some financial businesses have specific regulators established by law to regulate and supervise them, such as, IRDA for insurance companies, Securities Exchange Board of India (SEBI) for Merchant Banking Companies, Venture Capital Companies, Stock Broking companies and mutual funds, National Housing Bank (NHB) for
housing finance companies, Department of Companies Affairs (DCA) for Nidhi companies and State Governments for Chit Fund Companies.
The Reserve Bank of India regulates and supervises Non-Banking Financial Companies which are into the business of (i) lending (ii) acquisition of shares, stocks, bonds, etc., or (iii) financial leasing or hire purchase. The Reserve Bank also regulates companies whose principal business is to accept deposits. (Section 45I (c) of the RBI Act, 1934)
Primary Dealers In 1995, the Reserve Bank of India (RBI) introduced the system of Primary Dealers (PDs) in the Government Securities (G-Sec) Market, Should be registered as an NBFC under Section 45-IA of the RBI Act, 1934 for at least one year prior to the submission of application.
Cooperative Banks
Primary (urban) credit societies that meet certain specified criteria can apply to RBI for a banking license to operate as urban co-operative banks. Primary (urban) co-operative banks are registered and governed by state governments under the respective co-operative societies acts of the concerned states. Since they are also covered by the provisions of the Banking Regulation Act, 1949, they come under the control of the RBI as well. Other Cooperative banks are Governed by NABARD
Investment Bankers or Merchant Bankers
They undertake activities such as issue of stocks, raising funds, advisory services on mergers and acquisitions. They are regulated by SEBI.
Foreign Institutional Investors
They invest in shares ie equity markt and bonds ie debt market. They are regulated by SEBI
Depositories These hold securities in demat form. Demat means in dematerialized form as opposed to physical form. India at present has two depositories National Securities Depository Limited (NSDL) and Central Depository Services (CDS). NSDL is the first Indian depository, it was inaugurated in November 1996. Depositories have to be registered with SEBI. These depositories appoint Depository participants
Mutual Funds Form of collective investments that pools money from investors and invests in stocks, debts. A less risky option for individuals who want to invest in equity markets. India’s first mutual fund was UTI which was set up in 1963. All mutual funds in India are controlled by SEBI. The Association of Mutual Funds of India (AMFI) is a self-governing association of Indian Mutual Funds that regulates its members' sales, distribution and communication practices
Registrars They maintain register of share and debentures allocation, when issues are subscribed during IPO. They are regulated by SEBI. Karvy Registrar and Investor services is one of the example of it.
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RBI was set under RBI Act 1934 and started functioning from 1 April, 1935.Control of RBI vests
with Central Board of Directors which comprises of the Governor, 4 Deputy Governor and 15
directors nominated by Union Government. It has 20 departments.
Its main objective as contained in preamble “to regulate the issue of bank notes and keeping of
reserves with a view to securing monetary stability in India and generally to operate the currency
and credit system of the country to its advantage.
Function Details Issue of currency notes At present, banknotes in India are issued in the denomination of
Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called banknotes as they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the denominations of Re.1, Rs. 2 and Rs.5 has been discontinued as these denominations have been coinised. The Reserve Bank can also issue banknotes in the denominations of five thousand rupees and ten thousand rupees, or any other denomination that the Central Government may specify. There cannot, though, be banknotes in denominations higher than ten thousand rupees in terms of the current provisions of the Reserve Bank of India of Act, 1934. The Government of India issues Re 1 note and coins under Coinage Act 1906. Coins can be issued up to the denomination of Rs.1000.
Government’s Banker Its Banker to Central and State Governments. It provides banking services of deposits, withdrawal, making payments and receipts, collection and transfer of funds and management of Public debt (Loan taken by Governments). RBI receives Government deposits free of cost and does not receive any remuneration for routine banking business of the Government. It gives “ways and means” advances to central and state governments. Under this loans are given to governments to tide over temporary mismatches in the cash flow of their receipts and payments they are within 3 months.
Banker’s Bank Banks keep CRR & SLR. RBI acts as “lender of last resort” for banks by re discounting bills
Bank’s Supervision Board of Financial supervision was set up in 1994 which supervises the entire banking system
Development of Financial system
RBI has created specialized financial institutions; (i) IDBI in 1964 for Industrial Finance (ii) NABARD in 1982 for Agriculture finance (iii) EXIM in 1981 for export import finance (iv) Deposit Insurance and Credit Guarantee Corporation of India
Exchange Control RBI under FEMA controls foreign exchange market
Monetary control: RBI has to manage supply of money in the economy to control inflationary
or deflationary trends. Let’s take an example, let rate at which loan is available is just 2 % it
means people can take loan at just 2%. With money being available so easily people will start
taking loans and will buy cars, bikes, new houses, other goods. Supply of these goods cannot be
increased in short term, thus to meet the demand prices will increase, which will result in inflation.
Thus money supply needs to be controlled which can be done by reducing the ability of Banks to
lend at cheaper rates. This can be done by:
(i) CRR: Cash deposit which Banks need to keep with RBI as a percentage of their Demand
and Time liability. Banks do not get any interest on CRR.
(ii) SLR: Deposits which banks need to keep with RBI in the form of approved security, gold as
a percentage of their Demand and Term liability.
(iii) Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of
exchange or other commercial papers.
(iv) Open market operations: RBI can buy or sell securities from open market (bond market).
If RBI sells securities, banks/other financial intermediaries will buy them thus liquidity (ie money)
will be sucked out of the system and Banks will not be able to lend and vice versa.
(v) Selective credit control: RBI issues directives under Sections 21 and 35A of BR act
stipulating certain restrictions on bank advances, against specified sensitive commodities.
Presently only buffer stocks of sugar, levy sugar and unreleased stocks of sugar with sugar mills
representing free sale sugar are covered under this.
Regulatory restrictions on lending: There are certain restrictions lending under BR Act:
1. No advance or loan can be granted against security of bank’s own share or partly paid
shares of other companies.
2. No loan against (i) CD (ii) FD issued by other banks (iii) Money market mutual funds
3. No Bank can hold shares in a company as a pledgee or mortgagee in excess of 30 % of
the paid up capital of that company or 30 % of Bank’s Paid up capital and reserves whichever is
less
4. Total investment in capital market should not exceed 40% of Bank’s networth as on end of
previous year
Extras for your knowledge: Zimbabwe is most classic case of Hyperinflation. At the height of inflation in 2008-2009, monthly inflation was 6.5 sextillion (sextillion = 1021) . Largest note of Zimbabwe was of 100 trillion dollar. At one point, a loaf of bread was Z$550 million in the regular market and Teachers were paid salaries of Z$ 1 trillion per month however it only equaled 1 US dollar. Zimbabwe abandoned its currency in 2009.
India’s public debt was around 450 billion dollar which roughly works out to Rs 27,00,786 crore as on quarter ended June 2014. Debt can be internal or external. Internal debt can be raised in the form short term borrowing up to 1 year in the form of Treasury bills. Treasury bills are of three maturities (91, 182 and 364 days). Debt of more than 1 year is raised by way of dated securities; at present maximum period of dated securities is 30 years in India.
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DP LCs are those where Payment to be made against documents on presentation
Documents against acceptance or usance
DA LCs are those where payment will be made on maturity date in terms of credit
Irrevocable and Revocable LC
In irrevocable LC the issuing bank cannot amend or cancel the undertaking while in revocable LC credit can be cancelled or amended by issuing bank without the prior knowledge of seller.
With or without recourse Where the beneficiary holds himself liable to the holder of the bill if dishonoured it is considered with recourse. For e.g if seller of goods has received payment from negotiating bank but if on due date, buyer or applicant does not make payment, beneficiary will be making payment to negotiating bank. As per RBI directive dated Jan 23 23, 2003, banks should not open LC and purchase, negotiate, discount bills bearing without recourse clause.
Restricted LC Where a specified bank is designated to pay, accept or negotiate.
Red Clause credit A red clause credit also called packing or anticipatory credit has a clause permitting the correspondent bank in exporter’s country to grant advance to beneficiary at issuing Bank’s responsibility.
Green Clause Credit A green clause credit permits the advances for storage of goods in a warehouse in addition to pre shipment advance.
Anti-Money laundering: Offence of money laundering has been defined in section 3 of
Prevention of Money laundering act, 2002 (PMLA) as “Whosoever directly or indirectly attempts
to indulge or knowingly assists or knowingly is a party or is actually involved in any process or
activity connected with the proceeds of crime and projecting it as untainted property shall be
guilty of offence of money laundering.
Stages of Money Laundering:
(i) Placement : First stage refers to physical disposal of proceeds
(ii) Layering: creation of complex layer of financial transactions to conceal audit trail and
anonymity
(iii) Integration: Placing laundered proceeds into legitimate economy as normal funds.
In order that Banks are not used for money laundering RBI has introduced KYC norms.
There are 4 elements of KYC Policy
(A) Customer Acceptance Policy (CAP): It means who can be accepted as customers:
No account is opened in anonymous or fictitious/ benami name(s);
Decide on acceptance criteria for each category of business
Accept customers after verifying their identity
Strive not to
It is important to bear in mind that the adoption of customer acceptance policy and
its implementation should not become too restrictive and must not result in denial of
banking services to general public, especially to those, who are financially or socially
disadvantaged.
RBI’s Recent simplified KYC Measures
Single document for proof of identity and proof of address
There is now no requirement of submitting two separate documents for proof of identity and proof of address. If the officially valid document submitted for opening a bank account has both, identity and address of the person, there is no need for submitting any other documentary proof.
Officially valid documents (OVDs) for KYC purpose include: Passport, driving licence, voters’ ID card, PAN card, Aadhaar letter issued by UIDAI and Job Card issued by NREGA signed by a State Government official.
To further ease the process, the information containing personal details like name, address, age, gender, etc., and photographs made available from UIDAI as a result of e-KYC process can also be treated as an ‘Officially Valid Document’.
e-KYC services offered by UIDAI, enables a resident having an Aadhaar number to share their demographic information (NAME, ADDRESS, DATE OF BIRTH etc.) and photograph with a UIDAI partner organization in an online, secure, auditable manner with the residents consent in form of Biometric authentication (Finger Print)or an One Time Password (OTP) authentication.
With use of e-KYC, account opening time can be reduced to a greater degree. Its utility is in following way for the Bank
1. Without integration to CBS, use print out or PDF as KYC document – this provide instant KYC document. In rural area, availability of KYC document, Xerox etc. is a problem. By using e-KYC we can do away with the need of Xerox etc.
2. In later phase, when e-KYC will be integrated with CBS the demographic details like name, father’s name, date of birth, address etc. will be directly inserted in CBS, thus drastically reducing the data entry time
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Mandate: A person competent to enter into a contract may authorise another person to open and operate an account on its behalf. This authority can be granted by a mandate or a power of attorney. Mandate is not acceptable from Institutions. Institutions can issue power of attorney. A mandate ceases to be valid on death, insanity, insolvency and bankruptcy of the account holder.
Power of Attorney (P/A)
It is a document executed by one person caller donor ( principal in favour of another person
called done agent) to act on behalf of the former.
Following are salient features of P/A:
(a) Two types of P/A are there
o General P/A – issued for acting in more than one transaction and confers wide powers to done
o Special or limited P/A- issued for specific purpose and is often for single transaction
(b) General P/A gives power to sign cheques, stop payment of cheques, to sign borrowal
documents on behalf of principal.
(c) It is a stamped document and is executed in the presence of a Notary.
Important Points :
If account is jointly operated, authority to third party can be given only when signed by all
account holders
In case of partnership firm, it should be signed by all the partners.
In case of limited companies, power of attorney to be affixed with common seal of company.
Fiduciaries (involving trust, especially with regard to the relationship between a trustee and a
beneficiary) like administrators and legal guardians cannot appoint agents
Garnishee order:
An order of the court obtained by a judgement creditor (one who has given money) for attaching
the funds belonging to a judgement debtor ( one who has taken money) which may be in bank
also. For example, Ram has given loan of Rs 10,000 to Shyam. Shyam has bank account with
Lena bank with deposit of Rs 5000. In case shayam refuses to pay money, Ram can go to court
and get garnishee order, garnishee order will prohibit Lena bank not to make any further
payment from the account till court proceedings are going on. A garnishee order is issued by the
court under order 21 rules 46 of the code of civil Procedure, 1908.
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Section 6 of the Act defines A cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand” and it includes the electronic image of a truncated cheque and a cheque in electronic form. A cheque is bill of exchange with two more qualifications, namely, (i) it is always drawn on a specified banker, and (ii) it is always payable on demand. If on cheque amount stated in words and figures is different then as per section 18 of NI act
amount written in words must be paid.
Section
(NI Act)
Explanation
Section 123
General
Crossing
When a cheque bears across its face an addition of the word “an company” or any abbreviation thereof, between two parallel transverse lines or two transverse lines simply, either with or without the words “not negotiable”, that addition shall be deemed to be a crossing and the cheque shall be deemed to be crossed generally.
section 124
Special
crossing
If name of banker is written in crossing it will be deemed as special crossing. Account payee crossing has not been dealt under NI act and same is product of banking practice. As per RBI directives, banks should not collect ‘Account payee’ crossed cheques for any person other than the named payee.
section 126, Payment of cheque crossed generally. If a cheque is drawn generally it should be paid only through bank account and not over the counter.
section 127 Where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.
Unit 16- Payment and collection of cheques and other negotiable instruments.
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SWARNJAYANTI GRAM SWAROZGAR YOJANA Salient features of SGSY: The Swarnjayanti Gram Swarojgar Yojana (SGSY) is a major self-employment scheme launched in April, 1999 after restructuring and combining the IRDP with allied programmes i.e. TRYSEM, DWCRA, SITRA, GKY, MWS. It has been designed as a holistic self-employment scheme aimed at providing sustainable income to rural BPL families through income generating assets / economic activities so as to bring them out of the poverty line. It is a process oriented scheme involving processes like organization of the rural poor (BPL) into Self-Help Groups (SHGs) through social mobilization, capacity building & training, provision of revolving fund, making available credit and subsidy, technology, infrastructure & marketing. SGSY aims at bringing the assisted poor families (swarozgaries) above poverty line by providing them income generating – assets through a mix of bank credit and government subsidy.
The scheme is being implemented in the States through the District Rural Development Agencies (DRDAs) and funds are transferred by Ministry of Rural Development directly to the DRDAs with active involvement of Panchayati Raj Institutions(PRIs). Funds are allocated to the States on the basis of inter se poverty ratios fixed by the Planning Commission and further to the districts on the basis of their Below Poverty Line (BPL) population.
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Document means any matter expressed or described upon any substance by means of letters,
figures or by more than one of these means intended to be used or which may be used for the
purpose of recording that matter as per section 3 of Indian Evidence Act 1872.
Indian Stamp Act defines instrument as “ instrument includes every document by which any right
or liability is or purported to be created, transferred, limited, extended , extinguished or recorded (
Section 2(14) of Indian Stamp Act)
The purpose of taking documents are to fix the terms and conditions between the bankers and
the borrowers, to identify the borrowers, to identify the securities, to count the period of limitation,
to resort to legal remedies in case of need and so on. There are certain enactments such as
Indian Contract Act, Partnership Act, Companies Act, Indian Registration Act, Limitation Act,
Indian Stamps Act, etc., which affect directly the bankers' loan documentation.
DIFFERENT TYPES OF DOCUMENTS
(a) Personal security
(b) Primary security
(c) Collateral security
(d) tangible security
(a) Personal liability documents : Documents which make the executants personally liable
to the bank for any advance/loan . Examples are DP note, letter of guarantee, acknowledgment of
debt and security etc
(b) Charge creating documents : They are the documents which create some sort of charge on
executants property in favour of the bank. They are agreement of Hypothecation, Agreement of
pledge, Deed of mortgage, letter of lien and set off etc.
Documents obtained by the bank may be either be an agreement or a bond or a deed.
Agreement : Agreement attracts fixed stamp duty irrespective of the amount involved. This
document is not be attested or witnessed by a third party under any circumstances.
Bank computerization began after first Rangrajan committee report on bank mechanization submitted in year 1984. Committee was head by then deputy governor of RBI C Rangrajan. Computer is needed for (i) customer service (ii) housekeeping (iii) decision-making (iv) productivity and profitability. Stand alone computer system is the initial stage of computerisation of bank where a single computer is used by one user. They are used by executives for decision making. Its major advantage is it had low cost. Multi user system involves a computer system with several computers. Mini computers, mainframe computers, super computers fall under this. Multi user computer networking: they are based on centralised processing concept. System like unix are used as operating system. Most of banking system are developed using centralised computing concept. Most of Relational Data base management systems (RDBMS) and Data base management systems (DBMS) use unix platform. Advantages of a centralised data processing system are (i) availability of all information at one place (ii) overall cost of acquiring hardware software reduces as bulk purchases can be made(iii) due to high level of data processing, computing resources are fully utilized (iv) technical power also better utilized. Computerization in Banking is done at branch level for customer transactions, at RO/ZO level for for credit monitoring, personnel data management and inter branch reconciliation. Computerisation at HO level is done for operations (ii) planning (iii) personnel management(iv) branch profiles(v) credit monitoring etc LAN: a computer network is an interconnected system of autonomous computers, each system being capable of independent operations as well as being able to communicate with other systems. In LANs, each independent system is known as a node and when such nodes are interconnected, it is known as a LAN. Usually, there will be one central node (Server).Sharing common cabling and pooling resources within a work group are the key elements of LAN operation
Topology (Layout)
The way in which the devices are interconnected is known as topology. These are two basic
forms of local area network design used in information transmission; centralised control and
distributed control. The popular centralised control networks are star, tree and loop
topologies, while that of the distributed controls are ring and bus topologies. The methods
of operation for the transfer of data over networks are called packets switching.
Automated Teller Machines (ATMs): The committee headed by Dr. C. Rangarajan recommended
the setting up of ATMs in India.
ATM Models in India
Online: When the ATM is connected to the bank's database and provides online real time access
to the customers’ accounts, it is said to be 'online.
Offline: When an ATM is not connected to bank's database, it is stated to be 'offline.' In this
mode, withdrawals are permitted up to a pre-fixed limit only, irrespective of the balance available
in customers' accounts.
Stand-alone: When an ATM is not connected to any ATM network, it is said to be 'stand-alone'.
In this case, transactions at an ATM are restricted to customers of the ATM branch and its link
branches.
Networked: When ATMs are connected to an ATM network, they are said to be 'networked'. The
advantage of networked ATMs is that cardholders can use their ATM cards at any of the
networked-ATMs.
Cash Dispenser (CD)
Cash dispenser is a pruned down version of the ATM. CD is an ATM without a depository and is
intended to serve the customers for making cash withdrawals only.
Networking of ATMs :To optimise the cost on investments in ATMs, Banks join together as
clusters at the national level, the IDRBT initiated the process of setting up a 'National Financial
Switch' to facilitate apex level connectivity of other switches established by banks.
Indian Banks' Association (IBA) was the first to set up a shared payment network system (SPNS)
or SWADHAN network of ATMs of its member banks in Mumbai.
HWAK (The Intelligent Auto-teller and Netware Management System)Intelligent auto-teller
systems are a special breed of auto-teller machines capable of thinking for themselves.
CHEQUE TRUNCATION: Originally, Section 6 of the Negotiable Instruments Act, defined cheque as 'a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand'. This section has been amended in September 2002 to include cheque truncations and electronic cheques within the definition of cheque. The amended Section 6 reads as under:'A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a cheque truncation and a cheque in the electronic form.' Cheque truncation - Definition A cheque truncation is defined by the new Section 6(b) of Negotiable Instruments Act as 'a cheque which is truncated during the course of a clearing cycle, either by the Clearing House or by the bank, whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.' Characteristics of a Cheque Truncation (a)It is an electronic image of a paper cheque.
(b)Only the banks involved and the Clearing House can truncate a cheque. The drawer/holder of a cheque cannot truncate a cheque. (c)The electronic image of the 'cheque truncation' will substitute the physical cheque from the point and time of truncation onwards. (d)Truncation is to be done only during the course of a clearing cycle to reduce the time taken for realisation. (e)The paper cheque, after truncation, is to be kept in the custody of the bank/clearing house that truncated the cheque. (f)Addition of digital signature of the truncating Bank/Clearing House to the electronic image of the cheque truncation is optional. Ways in which truncation can be done 1. Using MICR data: MICR cheques have the cheque number, city, bank and branch numbers, and transaction code pre-coded. Abroad, even the account number of the customer is precoded. During encoding at the collecting bank, the amount, as well as the payee's name, is inserted in the MICR line. The entire MICR line is then captured electronically. The electronic information is then exchanged with other for clearing (Inter Bank Data Exchange or IBDE). The cheques do not move any further. 2. Using image processing: Image processing, as we have seen earlier, is the latest document handling system. Cheque image processing involves scanning of both sides of the cheque and storing the image in digital form. The cheque itself is moved to some offsite storage and the image is used for further processing.
MICROFICHE
For storage and backup of huge data microfilm or microfiche are uses as they can retain
voluminous information and the relative inability to readily ascertain their contents. The following
controls should be put in place for the protection of this media. Efforts must be made to protect
the security of this data against any damages or unauthorized access.
National Payments Corporation of India: Reserve Bank of India, after setting up of the Board for Payment and Settlement Systems in 2005, released a vision document incorporating a proposal to set up an umbrella institution for all the RETAIL PAYMENT SYSTEMS in the country. National Payments Corporation of India (NPCI) was incorporated in December 2008 and the Certificate of Commencement of Business was issued in April 2009. It has been incorporated as a Section 25 company under Companies Act and is aimed to operate for the benefit of all the member banks and their customers. The authorized capital has been pegged at Rs 300 crore and paid up capital is Rs 100 crore so that the company can create infrastructure of large dimension and operate on high volume resulting payment services at fraction of the present cost structure.
RUPAY RuPay is an Indian domestic card scheme conceived and launched by the National Payments Corporation of India (NPCI).. RuPay facilitates electronic payment at all Indian banks and financial institutions, and competes with MasterCard and Visa in India.RuPay card was launched on 26 March 2012. NPCI entered into a strategic partnership with Discover Financial Services (DFS) for RuPay Card, enabling the acceptance of RuPay Global Cards on Discover’s global payment network outside of India.
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Keeping in view the changing threat milieu and the latest international standards, it was felt that
there was a need to enhance RBI guidelines relating to the governance of IT, information security
measures to tackle cyber fraud apart from enhancing independent assurance about the
effectiveness of IT controls. To consider these and related issues, RBI announced the creation of
a Working Group on Information Security, Electronic Banking, Technology Risk Management and
Tackling Cyber Fraud in April, 2010. The Group was set up under the Chairmanship of the
Executive Director Shri.G.Gopalakrishna.
Major Recommendations of the working group are as under:
On IT Governance:
Banks need to formulate a Board approved IT strategy/plan document. An IT policy needs to be framed for regular management of IT functions and ensure that detailed documentation in terms of procedures and guidelines exists and are implemented. The strategic plan and policy need to be reviewed annually.
A need was felt for the position of CIO in banks, to be the key business player and play a part in the executive decision-making function.
IT Steering Committee needs to be created with representations from various IT functions, HR, Legal and business functions as appropriate. The role of the IT Steering Committee would be to assist the Executive Management in the implementation of the IT strategy approved by the Board.
Key focus areas of IT Governance that need to be considered include strategic alignment, value delivery, risk management, resource management and performance management.
There is also a need to maintain an “enterprise data dictionary” that incorporates the organization’s data syntax rules.
An IT balanced scorecard may be considered for implementation, with approval from key stakeholders, to measure IT performance along different dimensions such as financial aspects, customer satisfaction, process effectiveness, future capability, and for assessing IT management performance.
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Q1. Global Bank is having a current account of M/s Ruchi Enterprises and a cheque of Rs.13500 is presented through clearing, drawn in favour of Mr. Ramesh. Through an oversight the cheque is dishonoured wrongfully. When information about this dishonour is received by Mr. Ramesh, he sends a notice to the Global Bank for wrongful dishonour and claims damages. What would you do with this notice? a. Bank should contact Mr. Ramesh for withdrawls of the notice for damages. b. Banks should contact the drawer and ask them to prevail upon the payee for withdrawal of the notice. c. Bank can ignore this notice as the bank is not liable for such damages to the payee. d. Bank is liable to the drawer of the cheque and no one else. e. c and d above Q2. Corporate Bank had opened a saving bank account in the name of Mr. Subramanian and Murlidhar operated as `former or survivor’. The wife of Mr. Subramanian, who is nominee in the account comes to your branch and informs you that Mr. Subramanian has expired a month back. She also hands over the death certificate and requests for payment of the balance. a. the payment to the nominee will be made on proper identification as she is also having the death certificate. b. the payment will be made to the wife of deceased being legal heir of the former. c. the payment will not be made as with the death of the former, nomination has been cancelled. d. the payment will not be made as with the death of the former, survivor gets the authority to operate the account and nominee comes in to picture only when none of the account holders is available e. any of the above Q3 Bank Universal Limited receives a letter of credit of $ 20000 in favour of M/s Diamond Exports Pvt Ltd for exports to Germany. After verification of the genuineness of the credit, it is forwarded to the beneficiary through registered letter. Unfortunately, due to postal strike, by the time the letter of credit is delivered, its validity period expires. The exporter threatens legal action against the bank: a. bank is liable as bank has not handed over the credit in time to the beneficiary b. postal department is liable for the loss and exporter has to take up the matter with the postal department c. bank is not liable as it does not assume any liability for the consequences arising out of delay in transit due to actions beyond its control d. bank could persuade the opening bank to extend the validity date so that it is not put to loss any of the above Q4 Your branch has received a garnishee order in the name of your customer having saving bank account, with following transactions. Which among these is not subject matter of the garnishee order: a. an advice ready for despatch to another branch after debit to the account in payment of cheque b. an advice received for a cheque which was sent in collection, from another branch but not credited to the account so far c. a cheque sent in clearing, the amount of which has been credited to the account d. an amount of Rs.4000 relating to his wife’s account credited by mistake to the account of the customer e. all the above
Q5 Your branch opens a fixed deposit of Rs.50000 in the joint name of Mr. Anil Kumar and Mr. Suhail Kumar payable to either or survivor. They also nominate Miss Konica a minor daughter of Mr. Suhail Kumar with the provision that the payment can be claimed by Mrs. Suhail Kumar on behalf of the minor. Unfortunately, Mr. Suhail Kumar expired and subsequently Mr. Anil Kumar decides to change the nomination from Miss Konica to his own son. To this, Mrs. Suhail Kumar objects and asks your branch not to accept the instruction of Mr. Anil Kumar: a. bank has no option to ignore the request from Mr. Anil Kumar as, being survivor all rights relating to deposit are vested with him. b. bank can request Mr. Anil Kumar to decide the case in consultation with the existing nominee c. bank has to accept the request from Mrs. Suhail Kumar, as she was the nominee coupled with interest d. bank will ask them to go to a court of law for decision and would implement the decision of the court e. b and c above Q6 Sh. Amrit Lal opens a term deposit account with Bank of Bengal and nominates his niece Ms Aruna Pande. Unfortunately, he expires in an accident but Ms Aruna Pande does not turn up despite a notice from the bank. Meantime, the legal heirs of Mr. Amrit Lal i.e. his two sons, visit the bank and request for making payment of the deposit. They also present a probate from court of law in which they are executors of the will of the deceased: a. the payment of the balance in the account will be made by the bank to Ms Aruna Pande only b. the payment of the balance would be made to the legal heirs in terms of probate c. the payment will be made in equal proportion to the legal heirs and the nominee d. the bank will advise the legal heirs to bring specific order from the court in the light of nomination e. none of the above
Q7 The liability of a minor co‑parcener in an HUF, for the acts of a Karta is:
a. unlimited b. nil c. to the extent of his share in the family property d. 50% of the loss as per his share e. none of the above
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To purchase the complete Sure Success Series log on to our website
www.jaiibcaiib.co.in You can also call us on 07600273309 for any assistance