SKILL DEVELOPMENT QUESTIONS

LAW AND PRACTICE OF BANKING B.COM II SEMESTER(NEP)

1. Refer RBI website and identify different types of banks operating in India.

TYPES OF BANKS

a) Central Bank

A bank which is entrusted with the functions of guiding and regulating the banking system of
entry is known as its Central bank. Such a bank does not deal with the general public. The
Central Bank maintains record of Government revenue and expenditure under various heads.
It also advises the Government on monetary and credit policies and decides on the interest
rates. For bank deposits and bank loans. In addition, foreign exchange rates are also
determined by the Central bank.

b) Commercial Banks

Commercial Banks are banking institutions that accept deposits and grant short-term loans
and Advances to their customers. In addition to giving short-term loans, commercial banks
also give Medium-term and long-term loan to business enterprises. Now-a-days some of the
commercial Banks are also providing housing loan on a long-term basis to individuals. There
are also many Other functions of commercial banks, which are discussed later in this lesson.

Types of Commercial Banks

(i) Public Sector Banks: These are banks where majority stake is held by the Government of
India or Reserve Bank of India. Examples of public sector banks are: State Bank of India,
Corporation Bank, Bank of Baroda and Dena Bank etc.

(ii) Private Sectors Banks: In case of private sector banks majority of share capital of the
bank is held by private individuals. These banks are registered as companies with limited
liability. For example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd.,
Development Credit Bank Ltd. Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global
Trust Bank, Vysya Bank etc.

(iii) Foreign Banks: These banks are registered and have their headquarters in a foreign
country but operate their branches in our country. Some of the foreign banks operating in our
country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American
Express Bank, Standard and Chartered Bank, Grind lay's Bank etc. The number of foreign
banks operating in our country has increased since the financial sector reforms of 1991.

c) Development Banks

Business often requires medium and long-term capital for purchase of machinery and
equipment, for using latest technology or for expansion and modernization. Such financial
assistance is provided by Development Banks. They also undertake other development

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM

measures like subscribing to the shares and debentures issued by companies, in case of under
subscription of the issue by the public. Industrial Finance Corporation of India (IFCI) and
State Financial Corporations (SFCs) are examples of development banks in India.

d) Co-operative Banks

People who come together to jointly serve their common interest often form a co-operative
society under the Co-operative Societies Act. When a co-operative society engages itself
banking business it is called a Co-operative Bank. The society has to obtain a license from
Reserve Bank of India before starting banking business. Any co-operative bank as a society is
function under the overall supervision of the Registrar, Co-operative Societies of the State.

e) Specialized Banks

There are some banks, which cater to the requirements and provide overall support for setting
up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of
such banks. They engage themselves in some specific area of activity and thus, are called
specialized banks. Let us know about them.

i) Export Import Bank of India (EXIM Bank)

ii) Small Industries Development Bank of India (SIDBI)

iii) National Bank for Agricultural and Rural Development (NABARD)

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM

2. Roles and Functions of Paying and Collecting Banker

ROLE OF PAYING BANKER

1. Acting as agent: While collecting an instrument, whether for credit to customer's account or for
himself, the Bankers works as agent of his customer. As an agent he has generally to take such steps
& precautions to protect the interest or his customer as a man of ordinary prudence would take to
safe-guard his own interest.

2. Scrutinizing the instruments: Name of the holder, Branch name, date, amount in world and
figure, any cutting without signature, material alteration of any to be checked carefully.

3. Checking the endorsement: Bankers has to check the instrument whether it has been endorsed
properly.

4. Presenting the instrument in due time: It is the responsibility of the collecting bank to present the
instrument in due time to the paying bank.

5. Collecting the proceeds in the payee's account: It is the duty of collecting banks to collect and
credit the proceeds of the instruments to the proper account.

6. Notice of dishonor and returning the instruments: If any instrument is dishonored by the paying
bank it should be informed to the customer on the business day following the receipt of unpaid
instrument.

ROLE OF COLLECTING BANKER

1. Due Care and Diligence in the Collection of Cheques

The collecting banker is bound to show due care and diligence in the collection of cheques presented
to him. In case a cheque is entrusted with the banker for collection, he is expected to show it to the
drawee banker within a reasonable time.

2. Serving Notice of Dishonour

When the cheque is dishonoured, the collecting banker is bound to give notice of the same to his
customer within a reasonable time. It may be noted here, when a cheque is returned for
confirmation of endorsement, notice must be sent to his customer. If he fails to give such a notice,
the collecting banker will be liable to the customer for any loss that the customer may have suffered
on account of such failure.

3. Agent for Collection

In case a cheque is drawn on a place where the banker is not a member of the 'clearing- house', he
may employ another banker who is a member of the clearing-house for the purpose of collecting the
cheque. In such a case the banker becomes a substituted agent. According to Section 194 of the
Indian Contract Act, 1872, "Whereas an agent, holding an express or implied authority to name
another person to act in the business of the agency has accordingly named another person, such a
person is a substituted agent. Such an agent shall be taken as the agent of a principal for such part of
the work as is entrusted to him."

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM

4. Remittance of Proceeds to the Customer

In case a collecting banker has realized the cheque, he should pay the proceeds to the customer as
per his (customer's) direction. Generally, the amount is credited to the account of the customer on
the customer's request in writing; the proceeds may be remitted to him by a demand draft.

5. Collection of Bills of Exchange

There is no legal obligation for a banker to collect the bills of exchange for its customer. But,
generally, bank gives such facility to its customers. In collection of bills, a banker should examine the
title of the depositor as the statutory protection under Section 131 of the Negotiable Instruments
Act, 1881.

___________________________________________________________________________

3. Collect and fill dummy account opening forms as different types of customer.

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM

4. Draft a specimen of negotiable instruments: Bills of exchange, promissory notes and
cheques.

Bills of exchange

Promissory note

Cheque

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM

5. Identify and Prepare report on pros and cons of recent development in the field of
banking sector

ADVANTAGES

1. Higher Rates

Rates at online banks are often higher than at traditional banks. Internet banks are able to
provide the best interest rates for checking and savings accounts because they don't have to
spend money on maintaining physical premises. For instance, the top online savings
accounts provide APYs of about 1.50%. When compared to the national average savings rate
of 0.05%, some of the biggest brick-and-mortar banks offer savings accounts that only yield
0.01% APY, a discrepancy that may quickly grow when an account balance is substantial. The
majority of internet banks now provide certificates of deposit (CDs), many of which have no
early withdrawal penalties.

2. Lower Fees

The fact that online banks often charge minimal or no fees is another benefit of not having
to bother about branch maintenance. This implies that you will be less likely to incur
monthly service costs, overdraft fees, or fees related to using a debit card or check as a form
of payment, to mention a few. Comparatively, major physical banks sometimes charge
monthly service fees for accounts, but they could eliminate them if you satisfy certain
criteria, such as maintaining a required minimum balance.

3. Environmentally Preferable

Online banking greatly minimises the usage of paper because you receive all banking
correspondence via email or text. A USB stick makes data storage and management simple,
as does virtually storing data in the "cloud." Additionally, if you need to produce records for
tax purposes, you can easily access this information. So when it comes to doing your part to
protect the environment, you can feel good about banking online.

4. Accessibility

While traditional banking hours aren't always convenient, online banking allows you to
access your accounts and bank services whenever you need them on a computer or mobile
device, anywhere there is an internet connection. Customer care is also accessible by
phone, frequently around-the-clock, seven days a week.

5. Simple and Quick Transactions

In terms of speedy money transfers and deposits, online banks do better than traditional
banks. You may deposit cheques using an application and transfer funds from another
checking account to your online bank without having to search for and visit an ATM.

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM

DISADVANTAGES

1. No Actual Branches

The workers at your local branch may be spoken with directly when you use a traditional
bank. If and when you require extra financial services, such as a loan, or when you must
modify your banking arrangements, that can be a benefit. In addition, many conventional
banks offer current clients special deals on credit cards, vehicle loans, and mortgages. With
an online bank, you'll probably have less access to in-person assistance and fewer chances
to form those interpersonal bonds.

2. Tech-Related Service Disruptions

We are dependent on the reliability and effectiveness of the system whenever we utilise
computers or an internet connection. If your internet service is delayed or unavailable for a
while, it will obviously limit your ability to access accounts online. Similarly, you won't be
able to access your banking information over the internet or a mobile device if the bank's
servers crash or become momentarily inaccessible as a result of planned site maintenance.

3. Concerns about Identity Theft and Security

In general, internet banking platforms and mobile applications should be secure because
banks frequently install new security measures. However, neither system is completely safe,
and hacked accounts can result in identity theft due to stolen login credentials. Therefore,
even if you may generally use mobile or online banking with confidence, be cautious to
avoid using insecure networks, change passwords frequently, and safeguard your login
information.

4. Deposit Restrictions

Individuals, particularly enterprises, may find it challenging to make significant online

deposits due to daily or monthly mobile deposit restrictions. Once you've spent your
allotted amount, you'll need to make the trip to a bank to make a deposit. Additionally, not
all check types can be read by computer scanning software with ease. For instance,
handwritten company checks with a black line on the back to create a carbon copy in an
account register would not be accepted by the internet deposit system, necessitating an on-
site deposit.

5. Faster is Not Always More Convenient

Even while it can just take a few seconds to deposit a check using a bank's mobile app, you
still have to wait before your money is available. Online banking is convenient in that it
saves time on travel and line waiting at branches, but depending on the amount placed, it
might take up to three business days for all deposits to be reviewed and monies to be made
available for access.

Mr. SHREESHA R HUDDAR, ASST. PROFESSOR, BMSCCM