co-operative bank mgt
TRANSCRIPT
1
Report
By
Milin A. Kundaliya (Roll No. 8083)
Work Carried at Jivan Commercial Co-operative Bank, Ltd., Rajkot
Submitted in partial fulfillment of the requirement of
Summer Internship Programme
Under the Supervision
of Mr. D.N.Kikani
Internal Auditor, Jivan Commercial Co-op. Ltd.,Rajkot
SDM Institute for Management Development
Mysore, Karnataka, India(June 2009)
STUDY OF BANK MANAGEMENT WITH SPECIAL
REFERENCE TO RBI NORMS AND ITS MAINTENANCE
2
CERTIFICATE
3
Acknowledgment
I hereby want to thank JCC bank and its members for their help given to me during my training. I
was thrilled to find that people here were very co-operative and helped me in all ways possible. They
were very eager in solving my queries and were ready to help all the time.
Moreover, I want to take this opportunity to thank Mr. D.N.Kikani. Despite being one of the busiest
people in the bank he took out time to attend to my questions. So for this, I want to thank him for his
co-operation and knowledge that he has imparted to me.
Milin A. Kundaliya
4
List of Abbreviations
NBFCs Non Banking Financial Institutions
IPO ` Initial Public Offer
GOI Government of India
FD Fixed Deposits
PAN Permanent Account Number
KYC Know Your Customer
a/c Account
PC Personal Computer
RTGS Real Time Gross Settlement
NEFT National Electronic Fund Transfer
OD Overdraft
FOD Fixed OD
SOD Secured OD
RMC Rajkot Municipal Corporation
MD Managing Director
UI Insurance Company United India Insurance Company
NPA Non Performing Asset
RBI Reserve Bank of India
PCB/UCB Primary (Urban) Co-operative Bank
PACS Primary Agriculture Credit Societies
SEB State Electricity Board
JCC Jivan Commercial Co-operative Bank Ltd.
5
ABC Adjusted Bank Credit
CRR Cash Reserve Ratio
SLR Statutory Liquidity Ratio
DTL Demand and Time Liabilities
SBI State Bank of India
DD Demand Draft
IFSC Indian Financial System Code
6
List of Tables
Serial No. Table Name
1 Table 3.1 Recurring Example
2 Table 3.2 Calculation of Recurring Example
3 Table 3.3 Locker specifications
4 Table 3.4 Cash certificate Example
5 Table 3.5 Calculation of Cash certificate Example
6 Table 3.6 Calculation of 33 days of Cash
certificate
7 Table 3.7 FD interest rate
8 Table 3.8 Penal interest rate for FD
9 Table 4.1 Cash receipt window
10 Table 4.2 Filling of cash receipt window
11 Table 6.1 Specifications of premium for insurance
12 Table 7.1 Targets and sub-targets set under
priority sector lending for UCBs
13 Table 7.2 Compliance of priority sector lending
norms by JCC
14 Table 7.3 Actual and required maintenance of
capital adequacy norms
15 Table 8.1 Compliance of CRR and SLR norms by
JCC
16 Table 8.2 Summary of CRR maintenance on two
fortnights
17 Table 8.3 Summary of CRR maintenance (as a %)
on two fortnights
18 Table 8.4 Summary of SLR maintenance on two
fortnights
7
19 Table 8.5 Summary of SLR maintenance (as a %)
on two fortnights
20 Table8.6 Investment specifications in govt.
securities for SLR purpose
21 Table 8.7 Required and Actual maintenance of
govt. securities by JCC
22 Table 8.8 Daily maintenance report for CRR and
SLR
23 Table 9.1 Date Scheduled UCBs Non-Scheduled
UCBs.
24 Table 9.2 Returns for capital adequacy norms
25 Table 9.3 Calculation of risk assets for CRAR
purpose
8
List of Figures
Figure Name
Figure 1.1 Classification of banks
Figure 6.1 Procedure for getting a loan
9
Table of contents
EXECUTIVE SUMMARY 10
CHAPTER1 INTRODUCTION TO INDIAN BANKING SYSTEM 11
CHAPTER 2 ALL ABOUT JCC 15
CHAPTER 3 DEPOSITS 16
CHAPTER 4 CASH HANDLING AT BANK 27
CHAPTER 5 CLEARING 32
CHAPTER 6 LOAN 34
CHAPTER 7 RBI NORMS ON PRIORITY SECTOR LENDING
AND ITS MAINTENANCE BY BANK 43
CHAPTER 8 RBI NORMS ON MAINTENANCE OF CRR AND SLR 48
CHAPTER 9 RBI NORMS ON CAPITAL ADEQUACY 61
CHAPTER 10 ADDITIONAL LEARNING 72
APPENDICES 78
REFERENCES 85
10
EXECUTIVE SUMMARY
Dissertation Title: STUDY OF BANK MANAGEMENT WITH SPECIAL REFERENCE
TO RBI NORMS AND ITS MAINTENANCE
Supervisor: Mr. D.N.Kikani
Name of student: Milin A. Kundaliya
PGDM No.8083
This Thesis work gives a glimpse of working of a co-operative bank and its compliance with RBI
norms.
The bank basically has five departments with the help of which it carries out is operations. These
departments are Deposits, Cash counter, Loan, Clearing and Maintenance. To start with it was
necessary to know the services that are being offered by the bank. Thereafter, the study of bank was
done by knowing the work done at each of these departments and then integrating their work to
know how a bank performs as a single unit.
After knowing the operations of bank, its maintenance or compliance of RBI norms was studied by
reading the norms published by RBI and later verifying with the bank as to how these norms are
being maintained practically.
Signature of Student
11
CHAPTER 1
INTRODUCTION TO INDIAN BANKING SYSTEM
The Indian banks can be broadly categorized into nationalized (government owned), private banks,
specialized banking institutions and co-operative banks as shown in figure below.
Figure 1.1 Classification of banks
Over the years the nationalized banks have acquired a place of prominence and have seen
tremendous progress. The need to become highly customer focused has forced these slow-moving
banks to adopt a fast track approach.
On the other hand private banks have been fast on the uptake and are reorienting their strategies
using the internet as a medium.
Complementing the roles of the nationalized and private banks are the specialized financial
institutions or Non Banking Financial Institutions (NBFCs). With their focused portfolio of products
and services, these Non Banking Financial Institutions act as an important catalyst in contributing to
12
the overall growth of the financial services sector. NBFCs offer loans for working capital
requirements, facilitate mergers and acquisitions, IPO finance, etc. apart from financial consultancy
services. Trends are now changing as banks (both public and private) have now started focusing on
NBFC domains.
Co-operative banks are nimble footed in approach and armed with efficient branch networks which
focus primarily on the retail segments. These banks which focus on areas of agriculture, rural
development etc. has lower overheads. This enables them to give a marginally higher percentage on
savings deposits.
Among the above stated banks the Indian nationalized banks (banks owned by the government)
continue to be the major lenders in the economy due to their sheer size and penetrative networks
which assures them high deposit mobilization.
Moreover, to control the actions of these banks, the Reserve Bank of India acts a centralized body
monitoring any discrepancies and shortcoming in the system.
Over the years, the Indian banking has gone through two main phases or changes which need to be
noticed and are therefore explained in the following paragraphs.
1. Nationalization of banks
By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and a
debate was ensued about the possibility to nationalize the banking industry. So for this, Indira
Gandhi, the-then Prime Minister of India expressed this intention of the GOI (Government Of India)
in the annual conference of the All India Congress Meeting in a paper. The paper was received with
positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance
and nationalized the 14 largest commercial banks with effect from the midnight of July 19,
1969.This nationalism was described as a "masterstroke of political sagacity” by one of the national
leaders of India.
13
A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason
for the nationalization was to give the government more control of credit delivery. With the second
dose of nationalization, the GOI controlled around 91% of the banking business of India.
The nationalized banks were credited by some; including Home minister P. Chidambaram, to have
helped the Indian economy resist the global financial crisis of 2007-2009.
List of Public Sector Banks in India is as follows:
Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank,
Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental
Bank of Commerce, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur,
State Bank of Hyderabad, State Bank of India (SBI), State Bank of Indore, State Bank of Mysore,
State Bank of Patiala, State Bank of Saurashtra, State Bank of Travancore, Syndicate Bank, UCO
Bank, Union Bank of India.
2. Liberalization of banks
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization,
licensing a small number of private banks. The examples of private banks include Global Trust Bank
(the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank.
Effects of Liberalization: The liberalization brought huge changes in the banking industry. Some of
these changes are stated below.
• The reserve which needed to be kept with the RBI was reduced to a great degree. The
reduction of the CRR and SLR resulted in increased flexibility for banks in
determining both the volume and terms of lending.
• There was deregulation of interest rates which aimed at promoting financial savings
and growth of the organized financial system.
14
• Because of the lowering of entry barriers, competition has significantly increased
since the beginning of the1990s. Seven new private banks entered the market between
1994 and 2000. In addition, over 20 foreign banks started operations in India since
1994.
After the episodes of nationalization and liberalization, the next stage for the Indian banking had
been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all
Foreign Investors in banks may be given voting rights.
15
CHAPTER 2
ALL ABOUT JCC
Introduction
Jivan Commercial Co-operative Bank Ltd., Rajkot was setup in 1972 by the aristocratic citizens of
Rajkot. It was started with a view to provide access of banking to the common people of the city. It
started with a equity of Rs.78,200 in 1972 and over the years was able to increase it to
Rs.3,64,85,500 at the end of year 2008.
The data up to the current year shows that the bank has got deposits of Rs.131,51,00,000 and has
given away loans of Rs.85,44,00,000.
Over the years, the bank was able to develop as many as 4 branches including 3 in the Rajkot city
and 1 in the nearby town of Wankaner, with main branch in the centre of the city. All of its branches
has experienced co-operation from public because of the facilities provided by them.
Infrastructure
The main branch of JCC is huge compared to its other branches. Besides this it is one of the spacious
banks in the Rajkot city. The internal construction of the main branch is similar to the usual
bureaucratic organization. The ambience generally is bright as it is required to switch on the lights
even in the morning.
Working
At a particular day, each of the branches of JCC operates as an independent bank throughout the day,
but at the end of the day the work is consolidated at the main branch office at Dhebar road.
To accomplish its tasks for all of its branches, JCC employs 4 managers, 29 officers and 78 other
employees with competent skills. The exact working of JCC can be understood by integrating the
working of various departments which is mentioned in the chapters that follows.
16
CHAPTER 3
DEPOSITS
Introduction
Deposits are the prime source of funds for the banks. The enormity of deposits replicates the amount
of profit that a bank can make. This is so because large chunk of deposits are given away as loans
which renders higher interest rate than that given on deposits. So, it is customary to encourage large
number of huge deposits. This can be done by providing different types of deposits according to the
needs of varied customers. These deposits as offered by JCC are explained below
Services Deposits
A. Current
B. Savings
C. Special savings
D. Loan Compulsory
E. Nominal Compulsory
F. Pigmy
G. Fixed
H. Recurring
I. Locker
Current Account
• It is basically used for business purposes. It doesn’t give any interest on deposits.
• It can be held in the name of firms (include partnership firm, pvt. Ltd. Co., ltd. Co.,
trust, association), person.
• Its prime purpose is to serve the customers for their daily business transactions.
• A customer having current account can withdraw money in the form of cash or
cheque in a infinite number of times and so is unrestricted.
17
Savings Account
• These deposits too are used for transactions purpose. For example if you want to pay
electricity bill, telephone bill etc. you can give a cheque from your savings a/c rather
than giving hard cash. Other things such as paying fees, paying dues etc. can be done
from this a/c.
• This deposit is usually held in the name of individual as it is used for personal
purposes and gives interest at the rate of 3.5% per annum.
• Note that trust and association can hold current as well as savings account.
• A customer having savings account can withdraw money in the form of cash or
cheque in a limit number of times which is restricted as 5 times per month at JCC.
Note that this withdrawing power can be different for different banks according to the
rules and regulations of that particular bank.
Special savings
• This concept and deposit was prevalent earlier, but now it is not in use.
• In this deposit a customer can withdraw the money only3 times (less than savings ie 5
times). However, this deposits gives an interest at the rate which is higher than the
savings account. Earlier, when it was in use these deposits gave a return of 0.5%
higher than that of savings deposits.
Loan Compulsory
• These deposits are made compulsory for a customer who wants to take a loan from
JCC. For this customer it is required to keep 2.5% of the loan amount in these
deposits. It gives the same interest rate as saving deposits.
Nominal Compulsory
• It is similar to loan compulsory deposits in most ways. However, the difference is that
these deposits are held by customers having less loan amount. These deposits are
there to help small loan takers, so that these people don’t need to keep 2.5% of their
loan amount as deposits. It gives the same interest rate as saving deposits.
18
Pigmy
• Pigmy has different names at different banks. Some banks give ‘daily saving’ name to
this service.
• Very few banks offer this service. Here, the customer is required to deposit the
installment on daily basis. The interest rate offered is same as Fixed Deposits.
Fixed Deposits (FD)
• It is a deposit which offers the highest interest rate than any other above mentioned
deposits. So it is mainly used for long-term saving purposes. For example: a couple
having a child of the age of 10 keeps an FD account so as to use the matured amount
for the child’s college fees in future.
• These deposits and its interest rates are explained in detail in the future sections that
are to come.
Recurring
• It is a type of FD with deposits kept for 12 or more months. Here the deposits are
given at installment by the customer. The interest rate for these deposits is same as
FD.
• Example
Table 3.1 Recurring Example
deposit date 05-05-2009
matured date 05-05-2010
monthly instalment 500
rate of interest 8%
Matured amount 6265
The calculation of the matured amount is given in the table below
19
Table 3.2 Calculation of Recurring Example
Locker
• It is necessary to deposit some amount in the bank if a customer wants to have a safe-
locker facility. This deposit is made in locker deposits with interest rate of 9%per
annum (interest calculated at half a year) for 5 years. The deposits that are to
maintained for different lockers is given in the following table
Table 3.3 Locker specifications
Size of locker Deposit required to be maintained
Small Rs.7500
Medium Rs.15000
Large Rs.22500
Dates of
instalment
Duration that bears
interest
interest amount
05-05-2009 12 40 540
05-06-2009 11 36.66667 536.6667
05-07-2009 10 33.33333 533.3333
05-08-2009 9 30 530
05-09-2009 8 26.66667 526.6667
05-10-2009 7 23.33333 523.3333
05-11-2009 6 20 520
05-12-2009 5 16.66667 516.6667
05-01-2010 4 13.33333 513.3333
05-02-2010 3 10 510
05-03-2010 2 6.666667 506.6667
05-04-2010 1 3.333333 503.3333
05-05-2010
Matured amount 6260
20
Cash Certificate deposit
• This is a type of FD. Here, the amount is compulsorily required to be deposited for 12
or more months. The interest on the deposits is calculated quarterly and is added to
the principal which makes these deposits even more lucrative.
Table 3.4 Cash certificate Example
deposit date 23-05-2009
matured date 26-06-2012
deposit 50000
rate of interest 11%
The matured amount can be calculated as shown in the table below. Note that the principal gets
greater at every 3 months i.e. a quarter of a year. It means that the interest is deposited to the
principal, every 3 months which makes the interest rate higher than 10%.
Table 3.5 Calculation of Cash certificate Example
Time duration Principal Interest
23-05-2009 to 22-08-2009 50000.00 1375.00
23-08-2009 to 22-11-2009 51375.00 1412.81
23-11-2009 to 22-02-2010 52787.81 1451.66
23-02-2010 to 22-05-2010 54239.48 1491.59
23-05-2009 to 22-08-2010 55731.06 1532.60
23-08-2009 to 22-11-2010 57263.67 1574.75
23-11-2009 to 22-02-2011 58838.42 1618.06
23-02-2010 to 22-05-2011 60456.47 1662.55
23-05-2009 to 22-08-2011 62119.03 1708.27
23-08-2009 to 22-11-2011 63827.30 1755.25
23-11-2009 to 22-02-2012 65582.55 1803.52
23-02-2010 to 22-05-2012 67386.07 1853.12
Total A= 69239.19
21
However, still one month and 3 days are remaining to get accounted for interest. So, the interest for
these 33 days is
Table 3.6 Calculation of 33 days of Cash certificate
Time duration Principal Interest
23-05-2010 to 26-06-2012 67386.07 670.1683
So, the total matured amount becomes 69239.19 + 670.1683 = 69909.36
Process to open accounts at JCC
Although the process to open different accounts at JCC remains more or less same, it will be
informative to state the procedure to open current and saving account which are mentioned below.
Current account
a. Filling of form (given in Appendix 1)
b. Prerequisites
1. PAN card (compulsory): It is taken as photo proof as well as address proof. If there is a
proprietor to a business then his PAN card is needed, but if there is a partnership or
association firm then PAN card of all the partners as well as PAN card of the business is
required.
2. Address (business proof).
3. Photos.
4. Reference (names of references).
5. KYC (Know Your Customer) Form: it is made mandatory from last 1 year (given in
appendix 2)
Savings account
a. Address proof: residential address
b. PAN card is not compulsory, but can be accepted as photo proof. For photo proof a
customer can give ID card/ pass port/ election card
c. KYC compulsory
22
d. People not having PAN card should fill form no.60(given in Appendix 3)
Methods of Transaction
Basically there are three methods by which a depositor at JCC can make a transaction i.e. credit or
debit his deposits. They are
1. Cash
2. Cheque of JCC
3. Cheque of bank (other than JCC)
These transactions can be understood by bifurcating them as credit transactions and debit
transactions as follows:
Credit transactions
Here suppose a depositor having his account at JCC wants to credit his account, then he can do this
in following ways:
1. Cash: He can bring cash at JCC and deposit the same in his account (current, savings etc.)
2. Cheque of JCC: He can present a self cheque or a cheque from his customer (having his
account at JCC) in his name. The cheque amount is then credited to his account.
3. Cheque of bank (other than JCC): He can present a cheque of some other bank which is
written in his name. He can present this cheque at the clearing desk and can then credit
his account with the amount mentioned in the cheque.
Debit transactions
Here suppose a depositor having his account at JCC wants to debit his account, then he can do this in
following ways.
1. Cash: He can withdraw the cash from his account by issuing a self cheque. (current,
savings etc.)
2. Cheque of JCC: Here he can debit his account by issuing a cheque of JCC to his
customer. Now his customer can have one of the following possibilities:
23
a. He can present it at JCC (if he is having his account at JCC)
b. He can present the cheque at some other bank which through clearing comes to JCC
for realization.
In both the above cases the account of the depositor gets debited by the particular amount mentioned
in the cheque.
Fixed Deposits (FD)
From the before stated deposits only FD has a separate section of its own due to the high demand of
it. FDs award higher return on investment for a depositor as compared to any other deposits. At JCC
the following interest rate was prevalent during my tenure of SIP.
Table 3.7 FD interest rate
Time for which deposit is kept Interest rate per annum
15-45 days 4.5%
46-90 days 6%
91-180 days 6.5%
181days-12 months 8%
12-24 months 9.5%
24-36 months 9.75%
More than 36 months 10%
If a depositor is a senior citizen (above 60 years) and if the deposit kept by him is for 12 or more
months then he would be given 0.5% more interest on his deposits.
If a depositor is a senior citizen (above 60 years) and a share member and if the deposit kept by him
is for 12 or more months then he would be given 1% more interest on his deposits.
For registered trust, society or association making a deposit for more than 3 years, 1% more interest
would be given by the bank.
FD once matured, if not renewed in 14 days of its maturity, then according to the rules of RBI only
4% interest is given on the days after maturity.
24
If the deposit is withdrawn prematurely, then a penal interest rate is charged as follows.
Table 3.8 Penal interest rate for FD
Time from subscription Penal interest rate
Less than 1 year 1%
1 to 3 years 2%
More than 3 years 3%
Note that no penal interest is charged to the heirs of FD holder who has died in the duration of the
maturity of FD.
At fixed deposits counter, depositor comes for three things as stated below
1. Depositing new FDs
2. Renewal of matured FDs
3. Cash withdrawal from FDs
Now, the procedure followed by the banker at JCC when the depositor comes for the above stated
three services is as follows
1. Depositing new FDs
Here the depositor can give cash, cheque of the same bank (JCC) , cheque of other bank. The
pre requisites for this are FD form (given in Appendix 4), Photo proof, PAN card and KYC form.
The depositor also mentions the time period for which he wants to deposit the amount. After
completing the formalities on the depositor side the procedure followed by banker is
� He follows the path: Fixed � master transaction �create new which is applicable to JCC
only. Here he creates new account where the account number is automatically given by
the system. In the new account the banker enters the period for which the deposit is to be
kept and rate of interest for that particular time period.
� The print of the receipt created is taken and is given to the customer.
25
2. Renewal of matured FDs
Here depositor comes for renewal of his FDs. He follows the following procedure.
a. He should have brought the earlier receipt of his FD.
b. He should mention the time for which the FD should be renewed.
c. After this banks fill up a slip containing FD a/c number, name, matured amount, date (all
this data from earlier receipt)
d. After this the officer debits the current receipt by following the path: Fixed � transaction
� posting. Here a/c number, receipt number is entered and then the receipt is debited.
e. Then credit to other receipt is done by following the path: Fixed � master transaction �
Specialize(Here by putting a/c number customer’s a/c details are shown) � Add new:
Here the banker enters the details of new receipt such as date for renewal, period for
which FD should be renewed and amount
f. Thereafter print of the new receipt is taken which is given to the client.
Note: Here sometimes people come for cashing the interest of FD keeping FD intact. In this case the
only extra thing is to fill a form which is given to savings department after which the customer
withdraws the interest from saving a/c.
3. Cash withdrawal for FDs
Here depositor withdraws cash and first and fourth step of the above procedure is followed. That is
only the receipt is debited. After this for the customer to withdraw the cash, the amount is credited to
savings a/c (If he is having the a/c in the JCC) or he is given pay slip (if he is not having a/c in JCC).
Transfer
This is one of the busiest sections in a bank. The work done here can be classified into two as
follows:
1. The transfer of fund from one a/c to another with both the accounts held in JCC.
2. The transfer of fund from one a/c to another with one held at JCC and other held at some
other bank.
26
In the first case, a cheque is issued by one JCC customer to another (both having their
accounts at JCC). Here, the beneficiary presents the cheque at transfer section with a filled
slip showing the details of his a/c. After this the transfer section makes entry as per the slip
and the cheque and transfers the fund from the remitting customer’s a/c (a/c number
mentioned in cheque) to beneficiary customer’s a/c.
In the second case, the cheques are provided by the clearing department to the transfer
section. Here there can be two cases
1. A remitting customer can have an a/c at JCC, in which case the transfer section debits his
a/c and credits the a/c of the bank whose cheque is presented by clearing section to
transfer section.
2. A beneficiary customer can have an a/c at JCC, in which case the transfer section credits
his a/c and debits the a/c of the bank whose cheque is presented by clearing section to
transfer section.
27
CHAPTER 4
CASH HANDLING AT BANK
Introduction
The handling of hard cash is one of the important jobs of the bank. Besides facing the threat of
robbery, theft etc. the cash department also needs to be alert about the small recklessness which can
send a large amount of money out of the bank without any notice. For this there should be no
loopholes in the procedure that is to be followed while giving and taking cash.
Basically, the cash department has two functions that are to give cash and take cash from its
depositors. It will be easy to understand this department by knowing what work is done on different
desks and how it is done which are explained below.
SCROLL: Here the customer’s and its deposit or withdrawal details are entered into the system
through PC. The procedure is as follows
1. Here the depositor comes with a slip and the withdrawer comes with a cheque.
2. From the details of the slip or cheque, the banker here enters the data into the system
through PC.
3. First he enters R or P, R for receipt by the bank, P for payment by the bank.
4. Second he enters a/c type for example current, savings, Hypothecation etc. Note that the
colour of slip can be seen as an indicator of different accounts. For example red colour
slip is used for Hypothecation, green slip is used for savings, white slip for current etc. In
case of cheque, the a/c type is mentioned on the same.
5. Next he enters the a/c number of the customer as mentioned in the cheque or slip.
6. After entering a/c number, another window will get displayed which will show the data of
customer. The banker verifies the details of this window with the slip or cheque filled by
the depositor.
7. Then he enters the amount mentioned in the slip into the system (PC).
8. After this a window will get displayed which shows the scroll number and other details.
The banker writes the scroll number on the slip and returns the slip to the depositor. For
withdrawer the banker gives a token which signifies the scroll number.
28
9. After this the clerk at the scroll section hands over the slip to cash taker or cheque for
authorization, whatever the case may be.
CASH RECEIPT: Here the cash is taken from the customer and this cash is then credited to the
customer’s a/c. The procedure is as follows
1. Here the system (on which the person is seated) will display the pending activities i.e. the
activities (receipt only) which are already scrolled but are not finished.
2. Here the customer comes with the slip that is scrolled. On this slip the scroll number is
already written (from scroll).
3. The banker here looks at the scroll number in the slip and enters into the same scroll
number in his system. Here the system displays the window such as the following
Table 4.1 Cash receipt window
Notes x number amount
1000 x
500 x
100 x
50 x
20 x
10 x
5 x
2 x
1 x
Total
29
He fills this form as
Table 4.2 Filling of cash receipt window
Notes x number amount
1000 x 50 50000
500 x 30 15000
100 x
50 x
20 x
10 x
5 x
2 x
1 x
Total 65000
The numbers displayed in red are entered and the amount in yellow is calculated by the system itself.
For convenience of the person two note counting machines are kept besides him.
4. Next the banker verifies the slip , both part the slip has two parts, one is to be retained by
the customer and one is kept with the banker. He initially verifies both the part of the slips
as both can have different figures (mistakenly).
5. After verifying the notes the banker imposes a stamp “received” on the slip and gives
back a part of the slip to the customer. The process gets completed.
6. He then hands over the slip to authorization section.
CASH PAYMENT: Here the cash is disbursed to the customer. The procedure followed is similar
to the cash receipt.
1. Here the banker has the queued activities on the system. His work starts as soon as the
customer approaches him with the token as mentioned before.
2. After this he takes the token and looks at that particular token number in his queue. He
enters the particular token number in the system which again displays the window
30
showing the notes as in cash receipt. Here he enters the note given by him to the
customer.
3. For convenience he maintains bundles of notes which are not required to be counted. So
that he can quickly disburse the cash as soon as the customer approaches him.
Note that according to bank sources the fraud can happen only here in cash payment.
AUTHORIZATION: Here the authorization of different transactions is done. This is done by
officer. The authorization is done of both the cash receipt and cash payment by bank. In the former
case authorization is done at last (3rd
step). In the latter authorization is 2nd
step, cash payment being
the last.
In authorization the officer acknowledges that the transaction occurred is right. He has a window
showing the pending activities. He clicks on those and acknowledges these transactions. If the
authorization is required to be done for regular customer then he directly authorizes and if not so
then he verifies the sign of customer with the cheque.( in case of cash payment by bank). Note that
in case of cash receipt by bank, no customer would intentionally deposit the amount in somebody
else’s a/c. So, here there is no need to verify the signature.
Note that in case of cash receipt by the bank the order followed is 1.SCROLL 2. CASH RECEIPT
3. AUTHORIZATION whereas in case of cash payment by bank it is as follows 1. SCROLL 2.
AUTHORIZATION 3. CASH PAYMENT
A transaction between cash received and cash payment section
As mentioned earlier that the cash receiver receives and cash payer pays the cash. So on one side the
payer wants cash to give it to the customers on need and on the other side receiver receives huge
amount of cash which can be difficult to handle. So to solve both the problems a transaction happens
between the cash receipt and cash payment section, where cash receipt section gives away money to
the cash payment section. The procedure followed is mentioned below
1. At first, the cash payer enters into the window of demand. Here he demands money from
the cash taker (name is available in his window).
31
2. Now after the demand is place neither of them can proceed. So, the cash taker has to
open his demand fulfillment window and place a window showing notes to be given by
him. After his acceptance of paying, the cash payer receives the cash.
Note that once such transaction is in process, no other work can happen on the system, so as to avoid
the delay and confusion.
CONCLUSION
Cash being an easily recognized wealth, is searched for by almost every person in the world. So it is
necessary to have a stringent system of give and take of cash which can avoid any mishaps of fraud
at the bank. Also accepting depositor’s cash is less risky than giving cash to him. So for this, in case
of giving of cash, authorization is done before the payment of cash.
32
CHAPTER 5
CLEARING
Introduction
Although RTGS (Real Time Gross Settlement) and NEFT (National Electronic Fund Transfer)
systems are already introduced, there is still time left for these systems to become ubiquitous. Until
that time, the clearing section has to work full-fledge and perform its duty. This section deals with
two types of transactions
1. First transaction: It can be understood by following example. Mr. X having his
a/c at JCC, is given ICICI bank cheque by Mr. Yfor the services rendered to him by
Mr. X. Here Mr. X presents this cheque at clearing section of JCC. JCC credits Mr. X
a/c by the amount in cheque although the cheque is not of JCC. This is called outward
clearing and is explained in later in this chapter.
2. Second transaction: The example is as follows. Mr. A having his a/c at JCC,
gives JCC’s cheque to Mr. B for services rendered by Mr. B to him. Mr. B is not
having a/c at JCC and so goes to his bank HDFC for crediting the cheque to his a/c.
Now, HDFC takes this cheque and performs certain formalities and gives the cheque
to JCC for debiting Mr. A’s a/c by the amount mentioned in the cheque. This is called
inward clearing for JCC and is explained later.
In short clearing is debiting one a/c and crediting other a/c irrespective of the type of a/c and the
bank in which the a/c is held. That is irrespective of the bank and type of a/c of remitting and
beneficiary customer, the remitting customer will always get his a/c debited and the beneficiary
customer will get it credited.
Outward Clearing
Procedure: Here a customer comes with cheque/s and a slip attached to it. The slip colour is
indicative of the a/c type and its details contain a/c type and a/c number of beneficiary customer,
name of the beneficiary customer/firm, and amount to be credited. The cheque too contains the
details such as name of the beneficiary customer/firm, a/c number and a/c type of the remitting
33
customer and the amount. After providing the slip and cheque to the bank’s clearing department, the
procedure followed by banker is as follows
1. First the details of the slip viz. a/c type and a/c number of the beneficiary customer and
amount are entered into the system (PC). Here as soon as you enter the a/c number of the
beneficiary customer, the database of the system will show the name of the beneficiary
customer/firm. Verify this name with that mentioned on the slip, so that the amount doesn’t
get credited to anybody else’s a/c.
2. Next the details of the cheque viz. remitting bank code and branch code (fetched from
database of the bank), cheque number (mentioned on the cheque) and the amount is entered.
This finishes the process.
Note that if there is any mistake in the entry of the above transaction, then it can be corrected
while tallying in the afternoon, after which it is sent to clearing house.
Inward Clearing
Procedure: Here the cheques (of JCC) are received from clearing house when a banker from bank
approaches the clearing house. After this the procedure followed by him is as follows
1. The cheques are segregated according to the a/c type viz. savings, current , hypothecation etc.
2. After this any bunch is selected for data entry. Here once the a/c type is entered for the first
cheque, every other after that goes into that a/c type only.
3. After having entered the a/c type, the cheque details such as a/c number of the remitting
(JCC) customer, cheque number, date and amount is entered. This finishes the process.
Note that no tallying is required in inward clearing because unless the a/c number of the remitting
customer and cheque number don’t coincide, the system will not allow entering the data. This is so
because the database here already contains the information about which customer has been issued
which cheque book.
34
CHAPTER 6
LOAN
Introduction
Lending of money as loans is one of the most important way in which the bank earns its profit. It is a
service given by bank in which it lends money to the customer and gets it back at some later stage
with interest as a profit. Being a profitable service to offer, the banks always try to give away
maximum number of loans at optimal risk. Moreover, to cover the needs of different customers the
bank offers different types of loans, which are described below.
At JCC the ‘r=15%’
1. Hypothecation-cash credit: This loan is basically given to business people on their trading
stock. JCC gives loan upto 70% of the value of the stock. If here the customer provides
additional property for mortgaging, then extra 50% of the value of property can be added to
the loan amount.
2. Industrial: Like Hypothecation this loan is also given to firms but here it is given on finished
goods. The other things are same as Hypothecation.
3. Overdraft (OD): For the businesses like brokerage firms and trading firms, where there is no
record of the stock, but has to keep large amount of funds to felicitate trade, hypothecation
and industrial loans cannot be given. So for the liberation of these firms, OD loans can be
given.Here these firms are givne loans on the basis of ttheir record of balance sheet and PNL
(Profit aNd Loss) account. These loans are of 2 types viz. FOD and SOD. FOD is the loan
given against fixed deposit whereas SOD means Secured OD and is given on the mortgaging
of the property of the business land or property. JCC gives loan upto 85% of FD value.
4. Pledge: Here stock is under the control of bank. For example the key of the warehouse in
which the goods are kept is with the bank. Example of a fridge stock. Suppose a warehouse
of fridge is under the control of bank. Now, bank will give the keys to the stockholder only if
he pays a part of loan which he has taken on the stock of fridge. This loan is not prevalent
now at JCC.
35
TERM LOANS: These are loans in which monthly installments are made for disbursement or
paying off of loans. The term for these loans is agreed upon in advance by the bank and customer.
These are mentioned below.
5. Consumption: This is called self-mortgaging loan where the people usually comes for taking
loans on their personal income. It is the only type of loan where the purpose of the loan is not
mentioned. At JCC, this loan has one of the larger shares among all types of loans. Majority
of the loan takers of these loans are the workers of Rajkot Municipal Corporation (RMC).
Here the RMC submits the salary information of the worker who wants to take loan and
promises to pay back the loan installments from the salary of that particular worker. RMC
manages this by withholding the installment amount from the salary.
6. Staff Consumption: This is similar to the consumption loan except that it is provide to staff
people at a slightly lesser rate.
7. Commercial loan: This loan is provided to the small vendors, who are in need of money for
running their business. This is usually given to the people running small provision stores, pan
shops and others.
8. Vehicle loan: As the name implies the bank gives loan on the purchase of vehicle. Here a
customer may want an old vehicle or a new vehicle. In the former case the valuation of the
vehicle is must. This valuation can be done by the bank or the customer himself. In the later
case of new vehicle the bill quotation is used for considering vehicle’s value and 75% of the
value can be given as loan. However, in case of old vehicle 50% of the value of vehicle is
given as loan.
9. Building loan: This loan is given on the purchase or construction of building for residential or
business purposes. This type of loan is also one of the major contributors to the credit of the
bank. These loans are basically taken by the public for housing and are also taken by the
builders for construction purpose. The loan to the builders is given on the amount of the work
done. For example when the construction is about to start the first installment of loan is
sanctioned. Thereafter, after the construction of 1st slab, another installment is given and so
on.
10. Consumable loan: This loan is given for consumable such as fridge, TV, AC, etc. This is a
type of personal loan wherein it is necessary to define the purpose of the loan.
11. Machinery loan: This is a loan given to industries on the purchase of the machinery. Herein,
if it is a new machinery then bill quotation is used as valuation. On the other hand if it is an
36
old machinery then a valuer of bank is asked to give valuation report, based on which loan is
sanctioned.
12. Gold loan: Here the loan is given on the purchase of gold. This loan is a rarity now.
13. Bill purchase: Here the customers give their receipts receivables to the bank. Bank pay the
total amount of bills to the customer and then it itself collects the receivables on behalf of the
customers. Again this is also not prevalent now at JCC.
Procedure for loan to get passed
For the loan to get passed it has to pass through many hands as shown in the figure below.
Figure 6.1 Procedure for getting a loan
Inquires information
Submission of documents
Reception: Here a person inquires about the loan rates and other prerequisites that are to be
submitted. He is provided this information by the clerk at the reception. For example in case of
hypothecation, he is informed to submit his stock letters and details of other things which he wishes
to mortgage for taking loan.
Credit rating: Based on the documents submitted by the customer, the credit rating of the customer is
done i.e. how much the loan amount should be granted to the customer is calculated. This is done as
follows.
Reception Inspection
Meeting
Loan
Manager
Giving away
of loan
Credit rating
Insurance
Customer
37
1. First the total value of the customer’s assets is calculated. For example if loan is on a
stock plus if he has provided the papers of his business land, then in this case his credit
will be calculated as a sum of the value of both these assets.
i.e. total value = value of stock + value of land
2. Now, according to the rules of bank some percentage of the value of these assets can only
be given as loan. This percentage varies for different types of loans and based on it the
sanctioned loan amount is calculated.
Inspection: After having calculated the credit and the amount that can be sanctioned
for loan, the file is forwarded for inspection. Here, the officer verifies the work done by the clerk at
the credit rating desk. Moreover, he checks the bank’s database to see if the loan taker has any
previous obligations which are remaining to be met (if he is an old customer). After the satisfaction
with all the parameters, he hands over the file to the loan manager.
Loan Manager: Here the file is again examined and the interest rate for the loan is put down. This
interest rate is same for all the loans at 15% per annum.
Meeting: After having examined the file, the file is then put forward before the Chairman and
Managing Director (MD) in a meeting. This file is then cross examined and is then made ready for
disbursement of loan amount.
Insurance: Before issuing the loan amount or opening of a/c for loan, the customer is required to get
insurance on the thing on which he wishes to take loan. This is done by bank with the help of United
India (UI) Insurance Company. Moreover, if any other thing is mortgage for taking loan, then the
insurance is taken on that particular thing also. This is explained in detail in the coming sections.
After paying the insurance amount, the loan amount or account is handed over to the customer.
Prerequisites for taking a loan
From the customers’ point of view, there are some formalities and prerequisites that
are to be complied with before taking a loan. Among these prerequisites, some are more or less
general which can apply to almost all types of loans mentioned above. However, there are some
38
other prerequisites which are specific to particular loans. These general and specific prerequisites are
mentioned below
General Prerequisites
1. Letter of Continuing Security ( Rs. 50 stamp)
2. Demand promissory note: In this note it is stated that the customer is seeking loan from the
bank and promises to payback the same in due time.
3. Receipt showing the receiving of loan amount by the customer: It is similar to the demand
promissory note.
4. Acceptance of Loan amount: It shows the amount, the interest rate ‘r’, the penal interest rate,
sign of customer and his guarantors. It also shows the guarantors making a promise of
payback incase customer defaults.
5. Letter of guarantors: It shows that the name of the people who are agreeing to be guarantors
and making a promise of payback in case the customer defaults.
6. It is a rule of RBI that any customer who wants to take loan form a co-operative bank has to
necessarily be the shareholder of the bank. It was decided by RBI that for secured* loans the
loan taker should possess 2.5% and for unsecured *loans he should possess 5% of the
sanctioned loan amount.
7. 1.5% of the sanctioned amount is to be given as document charge to the bank. These
documents involve all the above letters.
*Secured loans are loans on which enough properties for mortgaging is provided to cover the loan
amount whereas unsecured loans are loans on which there are not enough properties for mortgaging
to cover the loan amount.
Specific Prerequisites
Consumption and Commercial Loans: The prerequisites for these loans involve all the above 7.
Besides these the following prerequisite is also required.
1. Papers of assets kept for mortgaging
Vehicle loan or machinery loan: Here too the prerequisites involve all the points mentioned above.
Besides these some other involve
39
1. Valuation report: this report shows the value of vehicle or machinery. The loan amount is
then sanctioned on the percentage amount of this value.
Hypothecation loan: Here all except 1st of the general prerequisites are required. In addition to these
others involve 1. Letter of guarantors on Rs. 50 stamp 2.Agreement on Rs. 50 stamp
Insurance
The customer will be taking loan on things such as stock, building, etc. On these things the bank
issues insurance which is compulsory. The insurance amount is to be paid by the customer. At first
time when the customer has just issued the loan, he is asked to give a cheque or pay cash to the bank
for taking insurance. The bank in turn hands over this amount to the insurance company, United
India (UI) in the case of JCC. The bank gets the commission from the UI on the issue of insurance.
The different premium amount that is to be paid for insuring different assets of the customer is given
in the table below.
Table 6.1 Specifications of premium for insurance
Asset
A B C D E
fire earth Total=A+B
10.3% of Total
=10.3% of C
Grand
total=C+D
Residential
Building 0.35% 0.05%
Commercial
Building 1.26% 0.05%
Industrial Building 0.88% 0.12%
Shop Stock 1.96% 0.05%
Warehouse 1.75% 0.12%
Open Stock 1.40% 0.15%
Polymer 2.45% 0.12%
Wood 3.15% 0.12%
Under Construction 0.70% 0.12%
40
Procedure
First the customer’s file which has touch upon many hands is ready for the issuing of cash or
a/c. However before giving the cash or opening an a/c, the file is sent to the banker who issues the
insurance. Here this person has been provided by UI, the form which is common for all type of
insurances. He looks at the customer file given to him and fills the form details, its premium and at
last takes the signature of the customer when he approaches to take the loan amount or for opening of
the a/c ( in case of hypothecation, industrial, etc.).
As mentioned earlier he as the first premium can give a cheque in the name of UI or can give cash to
bank.
The person seated here sends this document with the premium to the insurance company. He makes
notice of the a/c number and enters the details of the customer into the database. After some days the
UI sends the confirmation of the insurance and returns the insurance policy number to the bank. The
person here makes notice of this number and enters into the database. Now, this person has to look
into this policy after a year when it is to be renewed. It must be noted that the policy issued by UI to
JCC is usually for more than a year typically 4 to 6 years and varies according to the things to be
insured.
After every year the policy is to be renewed and the premium to be paid is to be taken by debiting
a/c. of the customer by the premium amount and to credit the pay slip a/c. by the same amount. The
pay slip is then sent to UI.
Note in exceptional cases such as crackers, cotton and others the premium rate is high and the
customer is required to pay higher interests.
Every time when the premium rates of the UI change, they intimidate the bank about this change.
Stock maintenance
For the loans such as hypothecation, industrial and others, where the loan is taken on stock of goods,
it is required to maintain a stock file or database in which the stock letters of customers is
maintained. This is required so as to know the capability of the customer in pay-back of the loan.
Moreover, it also shows that whether the loan facility given by the bank is properly used or not.
41
The person here maintains the stock letter which shows the stock of the customer every month. The
bank when it gives loan to a customer on stock at the first time physically checks the stock.
Thereafter, it commands the customer to provide the bank with the stock letter.
Every time the customer gives the stock letter, his stock maintenance is checked against the amount
of bank’s money which he is using. According to the rule of RBI for co-operative society, 70% of his
stock value should be greater than the amount of bank’s money used by him.
Note that one may think here that when the customer comes for loan he can show a huge stock and
then in the next show case on paper may show fake stock. This can create a fraud if the customer
runs away with the money.
However, it must be noticed here that besides the stock the bank asks for mortgaging of land,
machinery and other. So even if a customer wants cash credit of 1 crore and he has stock = 1 crore,
then too he is required to mortgage the land, machinery and other things.
Getting back to the person on this desk, he is required to send the letters to customers every month
telling them to send the stock letter. Along with this letter he sends a form in which customer is
asked to note down its stock.
Every time the customer provides the banker with the stock letter, the database (a physical register)
is updated to inform the system that the customer has given his stock letter. At the end of the closing
date for the stock letter, the customers who are still left to give their stock letter are given a call.
Loan Recovery section
This is the only less significant section of the whole bank as people here are having no work or less
work. This is so because the JCC bank has almost zero NPA (Non Performing Asset) and has very
few defaulters. As the name implies this section deals with the recovery of loan which is in danger of
becoming NPA.
The process here starts with the regular sight on the loan repayment instalments of the customer. The
person here keeps updates of the loan repayment of customers. He keeps a look at the loan
repayment by all the customers as to whether they are able to successfully repay the loan or not. For
a term loan, usually a phone call is made initially when the customer is unable to pay the instalment
42
till the 4th
week after it is due. After this on the non-payment till 5-6 weeks, he is given informal
notice of bank. Here the notice is also sent to the 2 guarantors of the customer. This is so because the
guarantor will push the customer to repay the loan instalments as his image will be at stake. Next the
officer here visits his place for collection of loan amount. Even after this if the customer is unable to
pay the instalment then the formal court notice is sent to him. The same procedure is applicable to
other loans too.
Earlier under the law, the bank had to approach the court and then do the needful. But after some
amendments to the law, the bank can now itself take steps such as auction the property of the
customer etc. So nowadays the non repayment of loans is less as compared to the previous days as
the power has moved into the hands of banks.
When repayment of the loan occurs after the force of loan recovery section, then the additional
document charge (consisting of court papers etc.) is charged to the customers. A copy of notice sent
to the customer is kept with the bank.
If a customer is unable to repay the full amount then his guarantor is required to pay the remaining or
full amount. But in rare case such a situation happens.
43
CHAPTER 7
RBI NORMS ON PRIORITY SECTOR LENDING AND ITS MAINTENANCE BY BANK
Introduction
RBI has incessantly believed that in giving the loans and advances, the commercial banks should
give priority to certain sections of the society such as agriculturists, small scale industrialists etc. and
for certain purposes such as housing loans, education loans etc. This lending of money by bank is
called “Priority Sector Lending”.
After its formalization in 1972, RBI has over the years modified the regulations regarding lending to
priority sector. In September 2005, after examining and reviewing the regulations, the RBI has
decided to include only those sectors as part of the priority sector that impact large sections of the
population, the weaker sections and the sectors which are employment-intensive such as agriculture,
and tiny and small enterprises. Accordingly, the broad categories of priority sector for UCBs (Urban
Co-operative Banks) will be as under:
1. Agriculture (Direct and Indirect finance)
Direct finance to agriculture shall include short, medium and long term loans given for agriculture
and allied activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers
without limit for taking up agriculture/allied activities. Direct finance may be limited to regular
members and not to nominal members or to agencies like primary agriculture credit societies
(PACS), primary land development banks etc.
Indirect finance to agriculture include loans given for agriculture and allied activities indirectly.
Some of these loans include loans granted to NGOs/MFIs provided they have been admitted as
members for on-lending to individual farmers, loans given to State Electricity Boards (SEBs) for
providing low tension connection from step-down point to individual farmers.
2. Small Enterprises (Direct and Indirect Finance)
Direct finance to small enterprises shall include all loans given to micro and small (manufacturing)
enterprises engaged in manufacture/ production, processing or preservation of goods, and micro and
small (service) enterprises engaged in providing or rendering of service. The micro and small
44
(service) enterprises shall include small road & water transport operators, small business,
professional & self-employed persons, and all other service enterprises.
Indirect finance to small enterprises shall include finance to any person providing inputs to or
marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of
producers in this sector.
3. Retail Trade
Retail trade shall include retail traders/private retail traders dealing in essential commodities (fair
price shops).
4. Micro Credit
This include provision of credit and other financial services and products of amounts not exceeding
Rs. 50,000 per borrower or the maximum permissible limit on unsecured advances whichever is
lower.
5. Education loans
Education loans include loans and advances granted to only individuals for educational purposes up
to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those
granted to institutions;
6. Housing loans
Loans up to Rs. 20 lakh to individuals for purchase/construction of dwelling unit per family,
(excluding loans granted by banks to their own employees)and loans given for repairs to the
damaged dwelling units of families up to Rs. 1 lakh in rural and semiurban areas and up to Rs. 2 lakh
in urban and metropolitan areas.
TARGETS/SUB-TARGETS
The targets under priority sector lending would be linked to Adjusted Bank Credit (ABC) (total loans
and advance plus investments made by UCBs in non-SLR bonds) or Credit Equivalent amount of
Off-Balance Sheet Exposures (OBE), whichever is higher, as on March 31of the previous year.
45
The targets and sub-targets set under priority sector lending for UCBs are furnished below:
Table 7.1Targets and sub-targets set under priority sector lending for UCBs
Targets and sub-targets set under priority sector
Total Priority Sector
advances
40 per cent of Adjusted Bank Credit (ABC) or credit equivalent
amount of Off-Balance Sheet Exposure, whichever is higher
Agriculture Advances
No target
Small Enterprise advances
40 per cent of ABC or credit equivalent amount of Off-Balance
Sheet Exposure, whichever is higher.
Micro enterprises within Small
Enterprises sector
i) 40 per cent of total advances to small enterprises sector should
go to micro (manufacturing) enterprises having investment in
plant and machinery up to Rs 5 lakh and micro (service)
enterprises having investment in equipment up to Rs.2lakh;
ii) 20 per cent of total advances to small enterprises sector should
go to micro (manufacturing) enterprises with investment in plant
and machinery above Rs 5 lakh and up to Rs. 25 lakh, and micro
(service) enterprises with investment in equipment above Rs. 2
lakh and up to Rs. 10 lakh.
(Thus, 60 per cent of small enterprises advances should go to
the micro enterprises).
Advances to weaker sections
Of the stipulated target for priority sector advances, at least 25%
(or 15% of the ABC or credit equivalent amount of Off-Balance
Sheet Exposure, whichever is higher) should be given to weaker
sections.
46
The above norms are stated and formulated by RBI and every co-operative bank needs to follow such
norms and send a return to RBI showing the compliance with these norms or regulations. JCC too
needs to send these returns and the last return by JCC to RBI is as follows:
ABC=925829000
Table 7.2 Compliance of priority sector lending norms by JCC
Type of priority sector
Of which weaker section
has
Borrowers
loan amount
(‘000s)
Borrowers
loan amount
(‘000s)
Small scale development of new and
renewable sources of energy
167 324731 49 19262
Advance to road/motor transport
operators for the purchase of one
vehicle
58 7073 43 3663
Other private retail traders with credit
limits not exceeding 25 lakhs
147 27359 70 7441
Small business enterprises 616 128461 409 23557
Professionals and self employed
persons
68 3875 57 1696
Education loans 13 379 12 318
Housing loans 2731 164808 2591 119386
Total 3800 656686 3231 175023
Advances to Minorities
Within the overall target for priority sector lending and the sub-
target of 25 per cent for the weaker sections, sufficient care may
be taken to ensure that the minority communities also receive an
equitable portion of the credit
47
Table 7.3 Actual and required maintenance of capital adequacy norms
Sector Percentage of ABC
required to be maintained actually maintained
Priority sector 40% 70.93%
Weaker section 15% 18.90%
The above data clearly shows that JCC easily fulfils the RBI norms required to be
maintained in both the cases. Also for JCC no adjustment is required to comply to the rules of RBI as
there are already sufficient number of these type of borrowers. Moreover, earlier the priority sector
loans were to be maintained at 60% of ABC. However, now from 2009 it has been reduced to 40%
which makes it very easy to maintain.
Now 656686/925829*100=70.93%
175023/925829*100=18.90%
48
CHAPTER 8
RBI NORMS ON MAINTENANCE OF CRR AND SLR
All primary (urban) co-operative banks (PCBs) (scheduled as well as non-scheduled) are required to
maintain stipulated level of cash reserve ratio (CRR) and statutory liquidity ratio (SLR). For this the
Reserve Bank of India has been periodically issuing instructions to these banks. In regard to CRR,
there are different provisions which govern the scheduled and non-scheduled banks. However, for
SLR each and every commercial bank is governed under the same provision.
Before going further and learning about the maintenance in detail, it will be beneficial to learn
certain terms which are a part of the future explanation. These terms are specified in detail by RBI
and are stated below
Demand and Time Liabilities (DTL)
Liabilities of the bank to the banking system is classified into two broad categories viz. Demand
Liabilities and Time Liabilities.
Demand Liabilities’ to the banking system are further classified as under:
(a) Balances in current accounts maintained with PCBs, by
• SBI
• SBI Subsidiary Banks
• Nationalised Banks
(b) Other demand liabilities comprises of –Balances in current accounts maintained with
PCBs by RRB, Banking Companies i.e. Private Sector Banks & Foreign Banks, Co-
operative Banks, Other ‘Notified’ financial institutions and others.
In short the balances with the bank which are payable to other banks and others on demand
are called demand liabilities. Similarly, the time liabilities are the liabilities which are not payable on
demand but are payable only when the time is due for that particular liability. These time liabilities
include
49
(a) All types of time deposits from the banks
(b) Certificates of deposits from the banks
(c) Participation Certificates issued to banks which are not payable on demand
(d) Interest accrued on time deposits of banks
Fortnight
It shall mean the period from Saturday to second following Friday, both days inclusive.
Maintenance of CRR
According to the Banking Regulation Act, every non-scheduled PCB is required to maintain
on daily basis a cash reserve, an amount not less that 3 per cent of its DTL as obtained on the last
Friday of the second preceding fortnight and shall submit to the Reserve Bank before fifteenth day of
every month a return showing the amount so held on alternate Fridays during a month with
particulars of demand and time liabilities in India on such Fridays and if any such Friday is a public
holiday, at the close of business on the preceding working day. This balance may be maintained by
way of cash resources with itself or by way of balance in a current account with the Reserve Bank or
the State Co-operative Bank of the State concerned or by way or net balance in current accounts with
the Central Co-operative Bank of the district concerned. Note that according to RBI rules, for CRR
purpose the reserves can be held only in current account of any bank and balances in any other
account cannot be taken as CRR.
Reporting Requirements
(i) Non-scheduled banks are required to submit a Return in Form I, as per proforma
given in Table 6.1Annex 4, to the concerned Regional Office not later than 20 days
after the end of the month to which it relates showing the position of cash reserve
maintained by the banks as at the close of business on each alternate Friday during
the month, with particulars of its DTL in India on such Fridays or if any such
Friday is a public holiday, at the close of business on the preceding working day.
(ii) Non-scheduled banks are required to show the position of the (a) cash reserve
required to be maintained. (b) cash reserve actually maintained, and the (c) extent
of deficit/surplus for each day of the month.
50
These requirements (recently) submitted by JCC are as follows
Table 8.1 Compliance of CRR and SLR norms by JCC
As at the close of business
on
First
Alternate
Friday
(13-03-09)
Second
Alternate
Friday
(27-03-09)
1 2 3
PART-A
I. Liabilities in India to the banking system
(a) Demand liabilities
(i) Total of credit balances in current accounts
maintained with the Cooperative Bank by the
State Bank of India, subsidiary banks and
corresponding new banks
(ii) Total of other demand liabilities to the banking system
(b) Time liabilities to the banking system
Total of I
II. Liabilities in India to others X
(a) Demand liabilities
401526
432094
51
(b) Time liabilities
888613 884940
Total of II 1290139 1317034
III. Assets in India with the banking system
(a) Total of credit balances (%) in current accounts
maintained with State Bank of India, subsidiary banks
and corresponding new banks.
27583 16179
(b) Total of other assets with the banking system, viz., (i)
balances in all accounts other than those included in item
III(a), (ii) money at call and short notice, (iii) advances, and
(iv) any other assets.
12647
1245
IV. Total (net) demand and time liabilities for the purposes of
Sections 18 and 24 of the Act = (I-III) + II, if (I-III) is a plus
figure, OR II only, if (I-III) is a minus figure
1290139
1317034
V. Cash in hand (&) 20489
21749
VI. Balances in current accounts with
(a) Reserve Bank of India ++
451 482
(b) State Co-operative Bank of the State concerned
965
4564
(b) Central Co-operative Bank of the district
concerned (%)
Total of VI 1416
5046
52
For SLR:
VII. Balances of all other types with
(a) State Co-operative Bank of the State
concerned
59000 59000
(b) Central Co-operative Bank of the district
concerned *+%
177500 207500
Total 236500 266500
VIII. Net balance in current accounts, i.e., excess of
III(a) over I(a)(i)
27583 16179
IX. PART-B: Compliance with Section 18
(Not applicable to scheduled State Co-operative
Banks)
3 per cent of IV as on the last Friday of the second preceding
fortnight
38566
38781
X. Cash reserve actually maintained = V + VI + VIII 49488
42974
PART-C: Compliance with Section 24:(Not applicable to
scheduled State Co-operative Banks)
XI. 25 per cent (or a higher specified percentage) of IV
as on the last Friday of the second preceding
fortnight
321381
323173
XII. Assets actually maintained
(a) Cash and other balances maintained in India
X-IX + VII
247422
270693
53
(b) Gold
(c) Unencumbered approved securities 263407
263407
Total of XII 510829
534100
PART-D : Compliance with Section 24: (Applicable to
Scheduled/State Co-operative Banks)
XIII 25 per cent (or a higher specified percentage) of IV as on
the last Friday of the second preceding fortnight
XIV Assets actually maintained
(a) Cash in hand
(b) Balance maintained with the Reserve Bank of India in
excess of the balance required to be maintained under Section
42 of the Section of India Act, 1934 [i.e., VI(a)]
(c) Net balance in current accounts (i.e., VIII)
(d) Gold
(e) Unencumbered approved securities
(f) Balances of all other types with:
54
(i) State Co-op. Bank of the State concerned (+)
(ii)Central Co-op. Bank of the district concerned (X)
Some Explanations of above table
• Here DTL is calculated as Liabilities to others + (Balances of other banks in current account
of JCC – balances of JCC in current accounts of other banks). However, note that other banks
doesn’t have any balance in the current accounts of JCC. So second term becomes negative.
However, this negative term is omitted in liabilities side and is therefore included while
calculating assets.
• Here Cash reserve actually maintained is calculated as a sum of
(i) cash in hand
(ii) balances in current accounts with the RBI, State co-op. bank of state and Central co-op.
bank of district
(iii) the access amount left after deducting the balances of other banks in JCC from the
balances by JCC in current accounts of SBI, subsidiary banks and corresponding new banks.
• Note that the 3% of DTL value doesn’t use the present DTL for its calculation. It uses the
DTL of earlier returns. From the earlier returns it is known that the DTL are 38566000and
38781000 respectively.
55
• Table 8.2 Summary of CRR maintenance on two fortnights
• For a better understanding,
Table 8.3 Summary of CRR maintenance (as a %) on two fortnights
Date CRR (as a percentage of DTL)
Required to be maintained Actually maintained Surplus
13-05-2009 3% 3.85% 0.85%
27-05-2009 3% 3.32% 0.32%
• The Surplus here is used for SLR purpose.
• In case of calculations for SLR, the 25 % of DTL is calculated on the basis of previous DTL
as explained earlier.
• Moreover, the cash and other balances provision is calculated as Surplus of CRR + Balances
in other accounts in banks as shown in the table. This provision is then added to the
investment in unencumbered approved securities which gives the assets actually maintained
for the purpose of SLR.
• Therefore, for SLR
Date
CRR (‘000s) (‘000s)
Required to be
maintained =
3% of DTL
Actually
maintained
Surplus
13/05/2009 38566 49488 10922
27/05/2009 38781 42974 4193
56
Table 8.4 Summary of SLR maintenance on two fortnights
• Again, for a better understanding, look at the following table
Table 8.5 Summary of SLR maintenance (as a %) on two fortnights
Date Amount of liquid assets (as a percentage of DTL) Surplus
Required to be maintained Actually maintained
13-05-2009 25% 39.74% 14.74%
27-05-2009 25% 41.32% 16.32%
• A small point to be noted is that for maintenance of SLR, the securities to balances in
other a/cs ratio is 1:1 i.e. half the reserve (required for the maintenance of SLR) is in
securities and the other half is in balances in other accounts of banks. Moreover, there is a
regulation of RBI under which it is required to invest in government and other approved
securities as indicated below
Date
Amount of liquid assets
Required to be
maintained =
25% of DTL
Actually
maintained
Surplus
13/05/2009 321381 510829 189448
27/05/2009 323173 534100 210927
57
Table 8.6 Investment specifications in govt. securities for SLR purpose
Sr.No. Category of banks Minimum SLR holding in
Government and other
approved securities as
percentage of Net Demand
and Time Liabilities
(NDTL)
1. Scheduled banks 25 per cent
2. Non-Scheduled banks
a) With NDTL of Rs. 25
crore & above
15 per cent
b) With NDTL of less than
Rs. 25bcrore
10 per cent
c) Unit banks/multiple branch
within a single district with
deposits base below Rs.100
crore.
With effect from 17.2.2006
exempted up to the ceiling
kept with interest bearing
deposits with SBI, Public
Sector banks and IDBI Ltd.(
upto March 31,2008
• JCC comes under the 2 a provision in the above table. So it is required to maintain 15% of its
25 % of DTL investment in Government and other approved securities. The compliance to
above rule by JCC is shown in table below.
58
Table 8.7 Required and Actual maintenance of govt. securities by JCC
Date
Minimum SLR holding in Government and other approved
securities as a percentage of NDTL
Surplus
Required to be maintained Actually maintained
13-05-2009 15% 81.96% 66.96%
27-05-2009 15% 81.51% 66.51%
Earlier the table 8.1 showed the calculations of liabilities, assets for the purpose of CRR and SLR.
Now, the following tables show the figures for the daily maintenance of CRR and SLR.
Table 8.8 Daily maintenance report for CRR and SLR
Cash Reserve Ratio (CRR)
Date amount of cash reserve
required to be maintained actually maintained surplus
1 0 0 0
2 38566 51290 12724
3 38566 49373 10807
4 38566 61664 23098
5 38566 594355 555789
6 38566 49606 11040
7 38566 46233 7667
8 0 0 0
9 38566 49541 10975
10 38566 49517 10951
11 38566 49517 10951
12 38566 50598 12032
13 38566 49488 10922
14 38781 45165 6384
15 0 0 0
59
16 38781 59579 20798
17 38781 54225 15444
18 38781 52693 13912
19 38781 56578 17797
20 38781 54603 15822
21 38781 43172 4391
22 0 0 0
23 38781 52942 14161
24 38781 55485 16704
25 38781 59105 20324
26 38781 64190 25409
27 38781 42974 4193
28 38704 46435 7731
29 0 0 0
30 38704 52830 14126
31 38704 49476 10772
Statutory Liquidity Ratio (SLR)
Date amount of liquid assets
required to be maintained actually maintained surplus
1 0 0 0
2 321381 482631 161250
3 321381 495714 174333
4 321381 508005 186624
5 321381 505776 184395
6 321381 505947 184566
7 321381 502574 181193
8 0 0 0
9 321381 505882 184501
10 321381 510858 189477
60
11 321381 510858 189477
12 321381 511939 190558
13 321381 510829 189448
14 323173 506291 183118
15 0 0 0
16 323173 520705 197532
17 323173 515351 192178
18 323173 513819 190646
19 323173 517704 194531
20 323173 530729 207556
21 323173 524298 201125
22 0 0 0
23 323173 534068 210895
24 323173 536611 213438
25 323173 540231 217058
26 323173 535316 212143
27 323173 534100 210927
28 322535 537638 215103
29 0 0 0
30 322535 544033 221498
31 322535 540679 218144
CONCLUSION
In both the tables above there is a huge surplus. This means that JCC easily maintains the
CRR and SLR. Just for maintaining and providing the returns to RBI, JCC has employed 1 clerk and
1 internal accountant.
JCC is getting a surplus in maintenance of CRR. This surplus is stored in the current a/c of
different banks. So, it will be beneficial if the amount of this surplus is reduced and invested in some
interest bearing investments or bonds.
61
CHAPTER 9
RBI NORMS ON CAPITAL ADEQUACY
Introduction
Capital acts as a buffer in times of crisis or poor performance by a bank. Sufficiency of capital also
instils depositors’ confidence. As such, adequacy of capital is one of the pre-conditions for licensing
of a new bank as well as its continuance in business. So to enforce the banks to be capital adequate,
capital adequacy norms were introduced amongst UCBs in April 25, 2001.
Statutory Requirements
According to the Banking Regulation Act, no cooperative bank shall commence or carry on banking
business unless the aggregate value of its paid up capital and reserves is not less than one lakh
rupees.
Share linking to Borrowings
Traditionally, UCBs have been augmenting their share capital by linking the same to the borrowings
of the members. The Reserve Bank has prescribed the following share linking norms:
(i) 5% of the borrowings, if the borrowings are on unsecured basis.
(ii) 2.5% of the borrowings, in case of secured borrowings.
This traditional approach to sufficiency of capital does not capture the risk elements in various
types of assets in the balance sheet as well as in the off-balance sheet business and compare the
capital to the level of the assets.
Capital to Risk Asset Ratio (CRAR)
To overcome the shortcoming of the traditional approach, Capital to Risk Asset Ratio (CRAR)
framework has been adopted by most of the regulatory authorities as the basis of measurement of
capital adequacy. CRAR takes into account the element of risk associated with various types of
assets reflected in the balance sheet as well as in respect of off-balance sheet items and the level of
capital held by the banks. Initially RBI had introduced a minimum CRAR of 8% in 1992, for the
62
commercial banks. These norms were then prescribed for UCBs too by Madhava Rao comittee in
May 1999. This committee felt that the continued financial stability of UCBs could not be ensured
unless they were subjected to the CRAR discipline. The committee was of the view that CRAR
norms should be implemented in respect of UCBs on account of the following reasons:
i) CRAR serves as a buffer, which can absorb the unforeseen losses a UCB may incur in future;
ii) UCB sector is an important segment of the financial system and exclusion of this segment from
CRAR discipline would undermine the stability of the whole system; and
iii) UCBs perform the same banking functions as commercial banks and are subject to similar risks.
To exempt UCBs from the CRAR discipline would, therefore, be untenable.
Pursuant to the recommendations of the Madhavrao Committee, UCBs were brought under the
CRAR discipline with effect from March 31, 2002, in a phased manner. Accordingly, UCBs were
advised to adhere to capital adequacy standards over a period of three years as indicated below.
Table 9.1 Date Scheduled UCBs Non-Scheduled UCBs.
Essentially, under the capital adequacy framework, the balance sheet assets, and offbalance
sheet items have been assigned weights according to the prescribed risk weights. For example
commercial loan assets had a risk weight of 100%, inter-bank assets were assigned 20% risk weight;
31.03. 02 8% 6%
31.03. 03 9% 7%
31.03. 04 As applicable to
commercial banks i.e.
9%
9%
31.03.05 As applicable to
commercial banks i.e.
9%
As applicable to
commercial banks
63
sovereign paper carried 0 % risk weight. These risk weights are assigned from 0% to 100%
depending on the riskiness of the assets.
After having assigned risk weight the value of each asset/item shall be multiplied by the relevant
weights to arrive at the risk-adjusted values of assets and of off-balance sheet items. The aggregate
will be taken into account for reckoning the minimum capital ratio. UCBs are required to maintain
minimum ‘Capital Funds’ equivalent to the prescribed ratio on the aggregate of risk weighted assets
and other off-balance sheet exposures on an ongoing basis.
Returns
Banks should furnish to the respective Regional Offices annual return indicating
(i) capital funds,
(ii) conversion of off-balance sheet/non-funded exposures
(iii) calculation of risk weighted assets,
(iv) calculation of capital funds and risk assets ratio.
The return from JCC is given in the table 9.2. The returns should be signed by two officials who are
authorized to sign the statutory returns submitted to Reserve Bank.
Table 9.2 Returns for capital adequacy norms
Figures in lakhs
I Capital Funds
A Tier I Capital elements
(a) Paid-up Capital 394.34
Less : Intangible assets and losses 38.14
Net Paid-up Capital 356.20
(b) Reserves & Surplus
1. Statutory reserves* 525.78
2. Building* 319.9
3. Dividend* 37
4. Capital reserves 0
5. Other reserves # 194.17
64
6. Surplus in Profit & Loss Account 110.70
Total Reserves & Surplus 1187.55
B Tier II capital elements
(i) Undisclosed reserves 0
(ii) Revaluation reserves 0
(iii) General provisions and loss reserves #
112.18
(iv) Investment Fluctuation Reserves / Funds*
40
(v) Hybrid debt capital instruments
0
(vi) Subordinated debts 0
Total 152.18
Total of I (A + B)
1695.93
II Risk Assets
(a) Adjusted value of funded risk assets i.e. on Balance Sheet items (to tally with
Part`B') 10530.38
(b) Adjusted value of non-funded and off-Balance Sheet items (to tally with Part `C') 31.48
(c) Total risk-weighted assets (a+b)
10561.86
III Percentage of capital funds to risk-weighted
assets I / II x 100
i. Core CRAR 14.62
ii. Tier II CRAR 1.44
iii. Overall CRAR 16.06
# Calculations
5. Other Reserves 38.49
65
Charity Fund
24.74
Karmachari kalyannidhi fund 48.08
Sabhasad kalyannidhi fund 53.15
Mahotsav kalyannidhi fund 29.71
Co.op. canvassing fund 0
Total 194.17
iii) General provision
staff gratuity fund 12.18
contingent fund
100
total 112.18
*Statutory reserves, building, dividend and investment fluctuation reserves are all taken
from profit. Dividend funds are reserved as a backup for a weak year to give sufficient
dividend to the customer to keep their faith alive on bank. Investment fluctuation reserves
are reserved as a backup for a loss in the investment in a particular year.
Some points regarding the above table
• It may be noted that 'Capital Funds' for the purpose of capital adequacy standard consist of
both Tier I and Tier II Capital. Here the terms used are self explanatory except the few which
are explained below.
a. Paid up capital: It consists of share capital collected from regular members having voting
powers.
b. Capital Reserves: It represents surplus arising out of sale proceeds of assets
c. Revaluation Reserves: These reserves arise from revaluation of assets that are
undervalued in the bank's books. They often serve as a cushion against unexpected losses,
but they are less permanent in nature and cannot be considered as 'Core Capital'. The
typical example in this regard is bank premises and marketable securities. The extent to
which the revaluation reserves can be relied upon as a cushion for unexpected losses
depends mainly upon the level of certainty that can be placed on estimates of the market
value of the relevant assets Therefore, it would be prudent to consider revaluation
66
reserves at a discount of 55 % when determining their value for inclusion in Tier II
Capital i.e. only 45% of revaluation reserve should be taken for inclusion in Tier II
Capital.
• At present UCBs do not issue instruments of the type indicated at (v) and (vi)
above, so it is not necessary to describe them.
• Note that for the sake of simplicity the calculation of the risk adjusted assets are calculated in
the table that follows.
• In JCC’s case Adjusted value of non-funded and off-Balance Sheet items has only one
provision i.e. Letter of credit. This means that JCC has issued Letter of Credit worth Rs.
31.48 lakhs.
The above table shows the calculation of capital funds and CRAR with the help of given value of
risk assets as 10561.86 lakhs. For the sake of simplicity the calculation of risk assets is not shown in
above table, but it is calculated separately as shown in the table below.
Table 9.3 Calculation of risk assets for CRAR purpose
Figures
in lakhs
PART B of maintenance of
capital adequacy
book
value
margin net book
value
risk
weight
in %
risk
adjusted
value
i. balances
1 Cash 214.19 0 214.19 0.00 0
2 Balances in current a/c. with
UCBs
137.97 0 137.97 20.00 2759.4
3 Balances in current a/c. with
other banks
212.75 0 212.75 20.00 4255
4 ii. Investments 0 0 0
67
5 Investments in central govt.
securities
1942.59 0 1942.59 2.50 4856.475
6 Investments in other approved
securities
0 0 0 2.50 0
7 Investments in other approved
securities
591.48 0 591.48 2.50 1478.7
8 Investment in other securities
where payment of interest and
repayment of principal are
guaranteed by State Govt.
100 0 100 2.50 250
9 Investment in other Approved
Securities where payment of
interest
and repayment of principal is
not guaranteed by Central /
State Govt.
0 0 0 22.50 0
10 Investment in Govt.
guaranteed securities of
government
undertakings which do not
form part of the approved
market
borrowing Program
0 0 0 22.50 0
11 Claims on commercial banks,
District Central Co-operative
Banks, and State Co-operative
Banks such as fixed deposits,
certificates of deposits, etc.
3660 0 3660 20.00 73200
12 Claims on other Urban Co-
operative banks such as
term/fixed deposits
46.36 46.91 -0.55 20.00 -11
13 Investments in bonds issued 0 0 0 22.50 0
68
by All India Public financial
Institutions.
14 Investments in bonds issued
by Public Financial
Institutions for
their Tier-II Capital
0 0 0 102.50 0
15 All Other Investments 10.05 0 10.05 102.50 1030.125
iii. Loans and advances
1 Loans and advances including
bills purchased and
discounted and
other credit facilities
guaranteed by GOI
0 0 0 0.00 0
2 Loans guaranteed by State
Govt
0 0 0 0.00 0
3 A State Government
guaranteed advance which
has become a
non performing advance
0 0 0 100.00 0
4 Loans granted to PSUs of
GOI
0 0 0 100.00 0
5 Real Estate Exposure
(a) Mortgaged residential
housing loan to individuals:
• above Rs 30.00 lakh (LTV
ratio =or<75 %).
369.45 0 369.45 75.00 27708.75
6 Co-op / group housing
societies and Housing Board
and
for any other purpose.
0 0 0 100.00 0
7 all other loans and advances
including educational loan.
6136.78 531.27 5605.51 100.00 560551
69
8 consumer credit including
personal loan
1018.11 0 1018.11 125.00 127263.75
9 Advances covered by DICGC
/ ECGC
0 0 0 50.00 0
10 Advances for term deposits,
Life policies, NSCs, IVPs and
KVPs where adequate margin
is available
216.87 0 216.87 0.00 0
11 Loans to staff of banks, which
are fully covered by
superannuation benefits and
mortgage of flat / house
268.82 0 268.82 20.00 5376.4
12 Commercial real estate: loans
to builders and contractors
1248.26 0 1248.26 150.00 187239
iv. Money 0 0 0 20.00 0
v. premises 473.43 0 473.43 100.00 47343
vi. Other assets 0 0
1 interest due on govt. 76.76 0 76.76 0.00 0
2 accr. Interest on crr 0 0 0 0.00 0
3 all other assets 384.38 287.01 97.37 100.00 9737
4 tds on investment 0 0 0 0.00 0
5 tds on insurance 0 0 0 0.00 0
6 tds on bank's FDRs 0 0 0 0.00 0
7 interest 0 0
8 advances 2.49 0 2.49 0
9 telephone 0.49 0 0.49 0
10 service 0.25 0 0.25 0
11 tds on investment 0.99 0 0.99 0
12 tds on insurance 0.25 0 0.25 0
13 tds on bank's deposits 6.46 0 6.46 0
14 income tax 27.21 0 27.21 0
15 contract items 0 0 0
70
16 obc/ibc 26.83 0 26.83 0
viii.
Fe 0 0 100.00 0
gold open 0 0 100.00 0
Total 17173.22 865.19 16308.03 1053037.6
16308.03 10530.376
Some points regarding the above table
• The risk weight stated against the balances in the above table is prescribed by RBI. This risk
weight is then multiplied with the net book value of balances which in turn gives the risk
adjusted value of the balance.
• The total of risk adjusted value is then known as adjusted value of funded risk assets which is
then carried forward in table 1.
CONCLUSION
• From the table
And according to RBI the CRAR needs to be maintained at 9%. This means that JCC is
complying with the rules and can be said to be capitally adequate.
Core CRAR 14.62
Tier II CRAR 1.44
Overall CRAR 16.06
71
• Moreover, the difference between the required level and that maintained is 7.06% which
means that JCC is keeping a good margin for the maintenance. Also it can be inferred that
JCC has less risk assets and more capital funds which makes CRAR almost double of what is
required.
• The major chunk of the CRAR is provided by Core CRAR.
72
CHAPTER 10
ADDITIONAL LEARNING
Introduction
Many people believe that profit of the bank is in issuing of huge loans with sufficient interest as
margin and issuing of justifiable deposits which can shoulder these loans. And rightly so – this is
what makes a bank popular. However, in considering these big things, one should not forget that the
small services that the banks offer also counts. Moreover, it should be noticed that these small
services which bank offers helps in sustaining the loans and deposits. These services which include
financial advising, issuing of Demand Draft (DD), printing of pass book and others are mentioned
below. Apart from these services, some such as Core banking, RTGS (Real Time Gross Settlement)
and NEFT (National Electronic Fund Transfer) which were not prevalent at JCC are also described.
Issuing of DD
Demand Draft is a written order for making payments. It is a relatively secure method for cashing
checks. Basically it can be of two types viz. Sight Draft or Time Drafts. Sight draft allows money
transfer only when proper documents are produced on sight. While time draft allows money transfer
after the specified time (a future date). The person making payments is called drawee and the
recipient is called payee. The bank providing the service is called drawer.
It is a service offered by the bank in which the bank issues a DD for paying up of the service availed
by the customer in some other city. For example consider a case of a person in Rajkot, having his a/c
at JCC. Now, if this person wants to give money to an institute in Delhi to pay the fees of his son,
then in that case he can issue a DD in the name of the particular institute in which his son is studying.
At JCC, the bank issues a DD of HDFC bank as the bank itself doesn’t have any other branch except
at Rajkot and Wankaner. The bank charges the commission on issuing of DD which cannot be issued
on cash transaction i.e. a customer cannot get a DD against cash, but has to deposit the cash in his a/c
( savings, current etc.).
73
Procedure
1. First a slip is to filled by the customer. This slip contains the name of the customer’s client
(in whose name the DD is to be issued), name of the customer, his a/c type and number and
amount.
2. From the slip the scroll is done. In scroll the slip details are filled into the system through PC.
3. After scroll we go to ECD for getting the DD.
4. Thereafter DD is printed and DD number is written on the slip (which will be retained by
bank).
5. After this the DD slip and cheque are sent to officer for verification.
6. After verification, the DD is handed over to the customer.
Printing of Pass book
A Pass book is a book showing the transactions of customer (available only for savings a/c). It shows
when and what amount was transacted by the customer. For example on the 5th
June if the customer
had deposited 50,000 Rs. then it can be shown on the pass book for the reference of the customer.
For current account, the similar process takes place, however here only statement is given as it the
current a/c has many transactions. Also, the details of the balance can be given to client by the person
on this desk. Note that there are different desks for the inquiry of the balance for deposits and loans.
Procedure: The procedure here is particular to JCC in which the banker at this desk has to enter into
different menus to print the pass book.
1. First the banker goes to the deposits on the main menu. Then he enters into the a/c type (
current or savings). Then goes into inflows, then transaction and then voucher.
2. After this a window will open in which a/c no. is entered from the pass book.
3. After entering into the a/c, the passbook is kept inside the printer for printing.
4. After it gets printed, the data on the pass book is verified with the data of window.
Note that at the time of issue of pass book, the a/c type and number is printed on it so as to help the
customer in keeping reference or memory of his transactions.
74
Share membership section
In this section the share is issued to the deserving customers. The share membership can be given to:
1. A customer having FD of 1 lakh or more: here 1 share is issued per 1 lakh of FD.
2. A customer getting a loan from a bank : here it is mandatory to hold 2.5% of the loan amount
in shares.
Procedure
To be a share holder you have to fill up the form. This form contains details of the customer.
After filling up of this form the share receipt is prepared which contains the details about the
customers. This share receipt is then kept for the issue at next meeting. In the next meeting the share
receipt is signed by MD, chairman, manager.
Note that share receipt is different for two types of shareholder mentioned above. In the 2nd
one the
sign of loan manager is also taken.
Dividend is given at the end of each year. Here the dividend is given to the FD holder on the number
of shares. For example if a customer, having FD of 1 lakh must have 1 share with value=Rs.25. Now,
JCC generally gives dividend at10%, then dividend that must be given = 2.5 Rs.
On the other hand for a loan holder, dividend is given on 10% of the share holding amount. For
example loan = Rs1 crore, then at 2.5%, the share holding should be worth Rs 250000 and dividend
given must be Rs 25000
Core Banking
Core banking is a general term used to describe the services provided by a group of networked bank
branches. In other words Core banking is nothing but interrelation of branches of a single bank. It
allows the user (customers) to operate accounts from any branch of a bank. For this the computer
software is developed to perform core operations of banking like recording of transactions, passbook
maintenance, interest calculations on loans and deposits, customer records, balance of payments and
withdrawal are done. This software is installed at different branches of bank and then interconnected
75
by means of communication lines like telephones, satellite, internet etc. This new platform has
changed the way banks are working.
Core banking can be understood clearly by taking an example: say a customer has an a/c. at PNB
Rajkot. Now, say suppose he has come to Mumbai for holidays and is running short of cash. Here,
now he want the PNB Mumbai to pay him cash from his a/c. held at PNB Rajkot. This service is
provided by the PNB and it is called core banking. Here the bank charges some money on this
transaction. These charges are variable with different slabs for different types of core banking
transactions which can be in terms of issue of DD, cash withdrawal, issue of cheque etc.
Note that the transactions done here are through satellite operated systems.
PROCEDURE: The procedure followed by bank to give core banking services can be understood by
taking example mentioned in the above paragraph i.e. a traveller in Mumbai arrives at PNB Mumbai
to withdraw cash from his a/c. held at PNB Rajkot.
In this case the banker at the PNB Mumbai himself debits the traveller’s a/c. and gives cash to the
customer at Mumbai branch i.e. the point here is that the banker at Mumbai doesn’t ask the Rajkot
branch to debit the a/c. but it itself debits the a/c. This means that the a/c. of any customer of the
PNB at any branch is available for use at all branches.
RTGS
As core banking is interrelation of branches RTGS and NEFT(National Electronic Fund Transfer)
are interrelation of banks. 'RTGS' stands for Real Time Gross Settlement. It is a funds transfer
mechanism where transfer of money takes place from one bank to another on a 'real time' and on
'gross' basis. Settlement in 'real time' means payment transaction is not subjected to any waiting
period. The transactions are settled as soon as they are processed. 'Gross settlement' means the
transaction is settled on one to one basis without bunching with any other transaction.
Example
A person having a/c. in PNB can transfer fund from his a/c. to his client a/c. in ICICI bank. Here the
remitting customer has to furnish the following information to a bank for effecting a RTGS
remittance
76
1. Amount to be remitted
2. His account number which is to be debited
3. Name of the beneficiary bank
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information, if any
7. The IFSC* Number of the receiving branch
Note that the beneficiary customer can obtain the IFSC code from his branch. The IFSC code is also
available in the cheque leaf. This code number and bank branch details can be communicated by the
beneficiary to the remitting customer.
Some Characteristics of RTGS
1. Payment is taken as final and irrevocable.
2. Transactions are processed continuously throughout the RTGS business hours.
3. Minimum amount to be remitted through RTGS is Rs.1 lakh. There is no upper ceiling for
RTGS transactions.
4. Beneficiary branches are expected to receive the funds in real time as soon as funds are
transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's
account within two hours of receiving the funds transfer message.
5. The services are available from 9.00 hours to 16.30 hours on week days and from 9.00
hours to 12.30 noon on Saturdays.
6. Charges for
a) Inward transactions – Free, no charge to be levied
b) Outward transactions – Rs. 1 lakh to Rs. 5 lakh - not exceeding Rs. 25 per
transaction.Rs. 5 lakh and above – not exceeding Rs. 50 per transaction.
NEFT
NEFT stands for National Electronic Fund Transfer and is quite similar to RTGS, except that it
settles transactions in batches. This settlement takes place at a particular point of time. All
77
transactions are held up till that time. For example, NEFT settlement takes place 6 times a day during
the week days (9.00 am, 11.00 am, 12.00 noon. 13.00 hours, 15.00 hours and 17.00 hours) and 3
times during Saturdays (9.00 am, 11.00 am and 12.00 noon). Any transaction initiated after a
designated settlement time would have to wait till the next designated settlement time. Moreover, no
minimum or maximum stipulation has been fixed for NEFT transactions.
The charges are
a) Inward transactions – Free, no charge to be levied
b) Outward transactions
Up to Rs. 1 lakh - should not exceed Rs.5 per transaction.
Rs. 1 lakh and above – should not exceed Rs. 25 per transaction
*Indian Financial System Code (IFSC) is an alpha numeric code designed to uniquely
identify the bank-branches in India. This is 11 digit code with first 4 characters
representing the banks code, the next character reserved as control character (Presently 0
appears in the fifth position) and remaining 6 characters to identify the branch
78
Appendix 1: Filling of form – current a/c Jivan Commercial Co-op. Bank Ltd.
Full name Sample signature
1.
2.
3.
4.
5.
6.
Address ______________________________________ Date: __________
_______________________________________
_______________________________________ ___________________________
Remarks ______________________________________ Manager Accountant Officer
Phone O: __________________R:_________________
Name: ____________________________________________________A/C No. __________
Application
A/C No. ________________
Date ___________________
To
Manager
Jivan Commercial Co-op. Bank Ltd.
I wish to open current account in your bank by name________________________________
______________________. For this I deposit Rs.______________________ in words_____
_____________________________________________________________________. I agree to
abide by the rules related to this and I request you to issue me a cheque book and a passbook.
Name of introducer _______________________ With thanks
79
Address ________________________________ (1)____________________________
________________________________ (2)____________________________
________________________________ (3)_____________________________
(4) _____________________________
(5) ______________________________
A/C No.
80
Appendix 2: KYC Form Jivan Commercial Co-op. Bank Ltd.
“VITALAY”, Dhebarbhai Road, Rajkot – 360 001
Address__________________________________________________________________________
_________________________________________________________________________________
_
Phone: ______________ Fax: ______________________ Mo:
___________________
E-mail:
____________________________________________________________________________
(A) Occupation/Business: Service Trading Agriculture Retired Student
Doctor Lawyer Engineer C.A.
Others (Specify)
Monthly Income : upto Rs. 20,000 Rs.20,001 to 50,000
Rs.50,001 to 1 lakh Rs. 1 lakh to 5 lakh above 5 lakh
Know Your Customer (KYC) form
To be accompanied while opening an account
Account type: Account number:
Full name:
Father/Husband’s name:
Tick whichever is applicable
81
Annual turnover : _______________________________________________________
(B) Personal Information: Date of Birth __________________ Married Unmarried
Education : Upto S.S.C. Graduation Post Graduation NA
Number of Family : _______________________________________________________
Members
Do you have any kin in a foreign country? Yes No
If Yes, then..
Name _______________________________________________________________________
Address _____________________________________________________________________
(1) Name
_______________________________________________________________________
Address _____________________________________________________________________
(2) Name
_______________________________________________________________________
Address _____________________________________________________________________
How many times have you visited foreign country in last 3 years?
(1) Never (2) 1-5 times (3) more than 5 times
(C) Specifications of other bank with which you are related:
Name and branch:
_______________________________________________________________
Account type:
___________________________________________________________________
Do you have credit card? Yes No of which bank? _________________
82
(D) Any pending loans
Car Loan Housing Loan Consumer Loan
Security Loan Credit card Education Loan
Business/ Agri. related Other Building
(E) Assets
Vehicles : Car Two wheeler Other NA
House : Personal On Rent
Insurance : upto 1 lakh upto 2 lakh upto 5 lakh above 5 lakh
Other
Investment : upto 1 lakh upto 2 lakh upto 5 lakh above 5 lakh
Other assets :
____________________________________________________________________
Place: ____________________
Date: _____________________ Signature of applicant
83
Appendix 3: Form No. 60
Form Number 60
(Under rule 114 B sec. 3)
Those people who don’t have PAN and General Index Register Number are required to fill this form
1. Full Name and Address
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
2. Purpose:
3. Amount:
Agreement
I, ___________________________________________________________________________
hereby declare that above details are completely true as per my knowledge.
Date and Day ___________________
Place: Rajkot
Sign of applicant
84
Appendix 4: Filling of form – FD a/c
Receipt Number ___________________
For Dt. - -200
Single person/co-operative society/Loan account
I/We hereby deposit Rs. _________________________ in words ______________________
____________________________________________________________ as a FD and according to
the details below request you to issue me a receipt for this.
Name Time duration
Interest rate
%
Remarks
This receipt’s interest shall be deposited every ____________________________ months in
___________________________________ a/c number.
Jivan Commercial Co-op. Bank Ltd. Rajkot
85
REFERENCES
www.rbi.org.in/
http://en.wikipedia.org/wiki/Banking_in_India
http://www.indiaonline.in/Utilities/Banks/banks.asp