CONTENTS
CHAPTER I
BANKS : CONCEPT, DEFINITION, FUNCTIONS AND KINDS
Early History of Banking
Evolution of Banking in England
Islamic Banking
Evolution or History of Banking in India
Evolution of Modern Banks in India
Social Control of Banks
Special Features of Social Control Planning
Effect of Social Control
Nationalisation of Banks
Objectives of Nationalization of Banks
Definition of Bank
Legal Definition of Bank
Difference between Banking and Banking Law
I. To Receive Deposits
II. Making Loans and Advances
III. Agency Functions
IV. Miscellaneous Functions
V. Financing of Internal and External Trade
VI. Credit Creation
Structure of Banking System
1. Unit Banking
Advantages of unit banking system
Disadvantages of unit banking system
2. Branch Banking
Advantages of branch banking system
Disadvantages of Branch Banking
3. Group Banking
Advantages of Group Banking
Disadvantages of Group Banking
4. Chain Banking
Importance of Banks
Classification of Banks
I. Apex Institutions
(i) Reserve Bank of India
Functions of Reserve Bank
(i) Note Issue
(ii) Banker to the Government
(iii) Control of Banks
(a) Power to appoint Chairman of a Banking Company.
(b) Minimum paid-up capital and reserves
(c) Cash Reserve
(d) Reserve Bank of India control over Banking Companies
(e) Power of the Reserve Bank to control advances by banking companies
(f) Licensing of banking companies
(g) Monthly returns
(h) Accounts and balance-sheet
(i) Audit
(j) Submission of returns
(k) Inspection
(1) Directions
(m) Power to remove managerial and other persons from office
(n) Supersession of Board of Directors of Banking Company
(o) Power of the Reserve Bank of India to impose penalty
(iv) Banker’s Bank
(v) Control of Credit
(vi) Custodian of Exchange Reserve
(vii) Collection of Data and Publications
(viii) Promotional and Developmental Functions
Moratorium or Reconstruction or Amalgamation of Banking Companies
(i) Moratorium
(ii) Amalgamation
(iii) Suspension of business and winding up of banking companies
(ii) Export-Import Bank (EXIM BANK)
II. Commercial Banks
(i) Indian Commercial Banks
(a) Scheduled Commercial Banks and Non-Scheduled Commercial Banks.
(b) Licensed Commercial Banks and Non-Licensed Commercial Banks.
(c) Public Sector Banks and Private Sector Banks. Differences between State Bank and Nationalized Banks
Differences between Co-operative Banks and Commercial Banks
(d) Indian Banks and Foreign Banks Merchant Banking.
III. Institutional Agencies of Rural Finance
(i) Co-operative Banks
(ii) Land Development Banks
(iii) Regional Rural Banks
(iv) Agricultural Finance Corporation Limited (A.F.C.)
(v) National Bank for Agriculture and Rural Development (NABARD)
(a) Credit Functions
(b) Development Functions
(c) Regulatory Functions
IV. Specialized Agencies of Industrial Finance
(i) Industrial Finance Corporation of India
(ii) Industrial Credit and Investment Corporation of India (ICICI)
(iii) Industrial Reconstruction Bank of India (IRBI)
(iv) State Financial Corporations (S.F.C.)
(v) State Industrial Development Corporations
(vi) Industrial Development Bank of India
(vii) Small Industries Development Bank of India (SIDBI)
V. Investment Institutions
(i) Life Insurance Corporation of India
(ii) General Insurance Corporation of India
(iii) Unit Trust of India (U.T.l.)
VI. Post Office Savings Banks
CHAPTER II
CUSTOMER OF THE BANK
Meaning of a Customer
(1) Duration not of Essence
(2) Frequency of transactions
(3) Nature of dealings
(4) Introduction Necessary
CHAPTER V
NEGOTIABLE INSTRUMENTS
Definition of Negotiable Instrument
Kinds of Negotiable Instruments
(i) Negotiable Instruments by Statute
(ii) Negotiable Instruments by Custom or Usage
Essential Features of a Negotiable Instrument
Presumptions related to negotiable instruments
Definition of Transferability and Negotiability and Differences between Transferability and Negotiability
Transferability
Negotiability
Differences between Transferability and Negotiability
Parties to Negotiable Instruments
(1) Drawer.
(2) Maker.
(3) Drawee.
(4) Payee.
(5) Acceptor.
(6) Endorser.
(7) Endorsee.
(8) Drawee in case of Need.
(9) Acceptor for Honour.
(10) Meaning of Holder.
(11) Holder in Due Course.
Rights of a holder
Privileges of a holder in due course
Difference between Holder and Holder in Due Course
(12) Holder for Value.
Promissory Note
Specimens of Promissory Notes
Essential Characteristics
(1) Written Instrument.
(2) Not a Bank Note or Currency Note.
(3) Promise to pay.
(4) Unconditional Promise.
(5) Signature.
(6) Maker of the instrument must be certain.
(7) Promise to pay certain amount.
(8) Payee must be certain.
(9) Other Characteristics.
Bill of Exchange
Definitions
Specimen
Essentials
(1) Written Instrument.
(2) Unconditional Order to pay.
(3) Signature of the Drawer.
(4) Drawer must be Certain.
(5) The drawee must be certain.
(6) The payee must be certain.
(7) Certain amount.
Distinction between Promissory Note and Bill of Exchange
Cheque
Definitions.
Specimen
Essentials
Distinction between Cheque and Bill of Exchange
Distinction between Cheque and Promissory Note
Different Kinds of a Cheque
Bank draft
Characteristics of a Bank draft
Is it a Cheque?
Is it a Bill of Exchange?
Hundi or poorja
Kinds of hundies
(1) Darshani Hundies.
(2) Muddati or Miadi Hundies.
Examples
Date of Maturity on Public Holiday.
Difference between Indian and English Law
CHAPTER VI
ENDORSEMENTS AND NEGOTIATION
Endorsement
Definition of Endorsement
Essentials of Endorsement.
Kinds of Endorsement
(i) Endorsement in Blank or General.
(ii) Endorsement in Full or Special.
(iii) Conditional Endorsement.
(iv) Restrictive Endorsement.
(v) Endorsement ‘Sans Recourse’.
(vi) Facultative Endorsement.
Other Provisions Regarding Endorsements
General Rules Regarding the Form of Endorsements
(a) Signature of the endorser.
(b) Spelling.
(c) No addition or omission of initial of the name.
(d) Prefixes and suffixes to be excluded.
Negotiation
Modes of Negotiation
(i) Negotiation by Delivery.
(ii) Negotiation by Endorsement and Delivery.
Assignment
Distinction between Negotiation and Assignment
(i) Formalities.
(ii) Consideration.
(iii) Title
(iv) Rights.
Negotiation Back
TRANSFER BY ASSIGNMENT
CHAPTER VII
CROSSING OF CHEQUES
Meaning of crossing of cheques
Types of crossing
(i) General Crossing
(ii) Special Crossing
Significance of certain markings
Not Negotiable.
Account Payee.
Double Crossing.
What Does Not Constitute Crossing?
Persons Who Can Cross
The Holder.
The Banker.
CHAPTER VIII
PAYMENT OF CHEQUES
Paying Banker
Precautions by the paying banker
Advantages of Using Printed Forms
Funds in the account must be sufficient
Payment be made in chronological order of receipt
Liability in Payment after Banking Hours
Circumstances in which bank must dishonor customer’s cheques
1. When the Drawer Countermands Payment.
2. Death of the Customer.
3. Insanity of the Customer.
4. Insolvency of the Customer.
5. Receipt of Garnishee Order.
6. Defective Title of the Holder.
7. Receipt of Notice of Assignment.
8. Breach of Trust.
Circumstances in which Bank may Dishonour Customer’s Cheques
By whom and to whom Notice of dishonour should be given
Noting and Protest
Compensation
Rules of Evidence
Special Rules of Evidence
Penalties in case of dishonour of cheques for insufficiency of funds in account
Recent Trends in Banking
(i) Automatic Teller Machine (A.T.M.).
(ii) Smart Cards.
(iii) Credit Cards.
CHAPTER IX
BANKING FRAUDS AND FORGERY
1. Banking frauds
Classification of Frauds.
2. Forgery
Forgery of Drawer’s Signature.
Detection of forged cheques.
Protection against forgery.
3. Money-laundering
Attachment, Adjudication and Confiscation
Attachment of property.
Adjudicating Authorities.
Adjudication.
Vesting of Property in Central Government.
Management of confiscated property.
Powers of Adjudicating Authority regarding summons, production of documents and evidence etc.
Obligations of Banking Companies, Financial Institutions and Intermediaries
Access to information.
Summons, Searches and Seizures etc.
Appellate Tribunal
Special Courts
Authorities
Reciprocal Arrangement for Assistance in Certain Matters and Procedure for Attachment and
Confiscation of Property
CHAPTER X
LOANS AND ADVANCES
General principles for lending
(1) Safety.
(2) Liquidity.
(3) Profitability.
(4) Purpose of the Loan.
(5) Diversification of risks.
(6) Technical competency.
(7) Managerial capability.
(8) Security.
(9) Marketability.
(10) Social objectives.
(11) Quantum of finance.
Kinds of Advances
(i) Cash Credits.
(ii) Over-Draft.
(iii) Loans.
(iv) Purchasing and Discounting of Bills.
(v) Money at Call.
Meaning of loan
Distinctions between Loan and Cash Credit
Types of loans
(i) Term Loan.
(ii) Participation Loan.
(iii) Personal Loan.
Secured loans or advances
Unsecured loans or advances
Debts recovery tribunal
CHAPTER XI
MODES OF CREATING A CHARGE OF
BANKING SECURITIES
Types of Charges.
1. Fixed Charges.
2. Floating Charges.
Registration of Charges.
Effects of non-registration of Charges.
Modes of creating a Charge.
Banker’s line and set-off
Banker’s Lien
Meaning of Lien.
Kinds of Lien
Negative Lien
Set off
Bailment of pledges
Essentials of Pledge
1. Delivery of goods.
2. Delivery as a security.
Persons Competent to Pledge
1. Owner or a person with his authority.
2. Mercantile Agent.
3. Person in possession under a voidable contract.
4. A person having only a limited interest.
Right of the Pawnor to Redeem
Rights of Pawnee.
Distinction between Bailment and pledge
Distinction between Hypothecation and Pledge
Distinction between Pledge and Lien
Mortgage
Essentials of mortgage
Kinds of Mortgages
A. Simple mortgage.
B. Mortgage by conditional sale.
C. Usufructuary mortgage.
D. English mortgage.
E. Equitable mortgage or Mortgage by deposit of title deeds.
F. Anomalous mortgage.
Registration of the Mortgage Deed
Rights and Liabilities of the Mortgagor
Rights of Mortgagor.
Liabilities of the Mortgagor.
Rights of a mortgagee.
Liabilities of the mortgagee.
CHAPTER XII
GUARANTEE AND INDEMNITY
Contract of Guarantee.
Essentials of Contract of Guarantee
Kinds of Guarantee
(1) Specific guarantee.
(2) Continuing guarantee.
(3) Joint and several guarantee.
(4) Limited guarantee.
Liability of a Guarantor or Surety
Rights of a guarantor or Surety
(i) Right to subrogation.
(ii) Right to security.
(iii) Right to be indemnified by the Principal Debtor.
(iv) Right to contribution.
(v) Right to information.
(vi) Right to set-off.
Termination or discharge of Guarantor
(i) Revocation.
(ii) Death of guarantor.
(iii) Variance in terms of the Contract.
(iv) Novation.
(v) Release or discharge of the principal debtor.
(vi) Creditor agreeing not to sue the principal debtor.
(vii) Creditor’s act or omission impairing surety's eventual remedy.
(viii) Loss of security by the creditor.
(ix) Variance in the contract of guarantee.
(x) Change in legal position of parties.
Rights of a Creditor.
Obligations of a Creditor towards Surety.
Bank Guarantee.
Invocation of Bank Guarantee.
Bank Guarantee and Law of Limitation.
Types of Bank Guarantees.
(i) Financial Guarantee.
(ii) Deferred Payment Guarantee.
(iii) Bid Bond Guarantee.
(iv) Advance Payment Guarantee.
(v) Performance Guarantee.
Contract of Indemnity.
Distinction between Contract of Guarantee and Contract of Indemnity
CHAPTER XIII
LETTER OF CREDIT
Meaning of Letter of Credit
Parties to the Letter of Credit
Opening of Letter of Credit
Precautions for the Bank to be taken
Contents of letter of credit
(i) Traveller’s Letters of Credit.
(ii) Letters of Commercial Credit.
Types of Letters of Credit
(i) General (i.e. Open) and Specific (i.e. Restricted) Letters of Credit.
(ii) Revocable and Irrevocable Letters of Credit.
(iii) Documentary or Secured Letter of Credit and Clean Letter of Credit.
(iv) Confirmed Letter of Credit and Unconfirmed Letter of Credit.
(v) Fixed Letter of Credit and Revolving Letter of Credit.
(vi) Transferable and non-transferable Letters of Credit.
(vii) ‘With’ and ‘Without recourse' Letters of Credit.
(viii) Stand-by Letter of Credit.
(ix) Negotiation Letter of Credit.
(x) Deferred payment Letter of Credit.
(xi) Back to back Letter of Credit.
(xii) Red clause Letter of Credit.
(xiii) Green clause Letter of Credit.
Advantages of a Letter of Credit
Advantages to the Beneficiary i.e. Exporter or Seller
1. Certainty of payment.
2. Immediate negotiation of the Bills.
3. Security against exchange restrictions.
4. Advance may be taken.
Advantages to the Buyer or Importer
1. Purchasing without cash.
2. Better terms of trade.
3. Payments after satisfying conditions.
4. Release against Trust Receipt.
Disadvantages of a Letter of Credit
CHAPTER XIV
COMPUTER BANKING : ELECTRONIC BANKING
BRANCH AUTOMATION
BANKNET
RBINET
I-NET
NICNET
INDIAN BANK ASSOCIATION (IBA) NETWORK
INDIAN FINANCIAL NETWORK (INFINET)
Intra-bank
Inter-bank
INTERNET
Core Banking Solutions or Centralised Banking Solutions (CBS)
