BANKING FOR BPS

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Prepared by Dr J Deepak Kumar
Asst Prof, Dept of BCom BPS
Sri Ramakrishna College of Arts & Science
(Autonomous), Coimbatore.
 Banking Regulation Act 1949
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“banking” means the accepting, for the purpose of lending or investment, of deposits
of. money from the public, repayable on demand or otherwise, and withdrawable by cheque,
draft, order or otherwise;

“banking company” means any company which transacts the business of banking.

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The Banking Regulation Act of 1949 defines banking as the act of accepting deposits of
money from the public for the purpose of lending or investment:
•The deposits are repayable on demand or otherwise
•The deposits can be withdrawn by cheque, draft, order, or otherwise

The Banking Regulation Act of 1949 also defines a banking company as any company that
transacts the business of banking in India.

The Banking Regulation Act of 1949 was enacted by the Parliament of India on March 10,
1949. It has been amended several times, including in 2004, 2007, 2017, and 2020.
Primary functions of a bank:
1.Accepting Deposits: Banks provide a safe
place for individuals and businesses to deposit 5.Foreign Exchange Services: Banks
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their money, offering various types of accounts facilitate currency exchange for
(savings, checking, fixed deposits) with differing international transactions, allowing
terms and interest rates. individuals and businesses to conduct trade
and travel abroad.
2.Providing Loans and Credit: Banks lend
money to individuals, businesses, and 6.Safeguarding Valuables: Banks often
governments, helping to finance purchases, provide safe deposit boxes and other

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investments, and various projects. This includes services to protect customers' valuables
personal loans, mortgages, business loans, and and important documents.
credit lines.
7.Risk Management: Banks offer various
3.Facilitating Payments: Banks offer services insurance and risk management products,
that enable the transfer of funds, such as checks, helping individuals and businesses mitigate
electronic fund transfers, debit and credit cards, financial risks.
and payment processing services.
8.Monetary Policy Implementation: In
4.Wealth Management and Investment coordination with central banks, commercial
Services: Many banks provide financial advisory banks help implement monetary policy by
services, investment products, and wealth managing interest rates and controlling the
management to help customers manage their money supply through their lending
finances and grow their assets. activities.
Principles of Bank
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 Relationship Between Banker & Customer
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The relationship between a banker and a customer is contractual and can
take many forms, including debtor-creditor, trustee-beneficiary, principal-
agent, and bailor-bailee:
1. Debtor-creditor
3. Principal-agent
The customer is the debtor if they have an
The customer instructs the banker to carry out a
overdraft or loan account, and the banker
specific transaction on their account.

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is the creditor. If the customer has a credit
balance, the banker is the debtor and the
4. Lessor-lessee
customer is the creditor.
The bank is the lessor and the customer is the
lessee when the bank provides a safe deposit
2. Trustee-beneficiary
locker to the customer.
The banker acts as a trustee when the
customer entrusts valuables or securities
to the bank for safekeeping. The customer
remains the owner of the items, and the
banker acts for the customer's benefit.

The relationship between a banker and a customer is based on trust and depends
on the products, services, and activities offered by the bank to the customer.
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Functions of Bank
 Bankers have several key OBLIGATIONS, including:

1.FiduciaryzDuty: Bankers must act in the

best interest of their clients, managing their
funds responsibly and ethically. 5.Transparent Communication: Bankers
should provide clear and accurate information
2.Confidentiality: They must protect the regarding products, services, fees, and risks
privacy of customer information and to customers.
transactions, disclosing details only when

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legally required or with customer consent. 6.Fair Treatment: They must treat all
customers fairly and equitably, avoiding
3.Compliance with Regulations: Bankers discriminatory practices in lending and service
are required to adhere to local and provision.
international banking laws and regulations,
including anti-money laundering (AML) and 7.Risk Management: Bankers are
know your customer (KYC) requirements. responsible for managing the bank’s financial
risks effectively, including credit risk, market
4.Due Diligence: They must conduct risk, and operational risk.
thorough assessments of potential loans or
investments to ensure they meet the bank's 8.Customer Support: They should assist
risk criteria and regulatory standards. customers with inquiries, complaints, and
financial advice, ensuring a high level of
service.
 DUTIES OF A BANKER  Financial Advice
 Offer guidance on savings, investments,
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 Customer Service
 Help clients achieve their financial goals.
 Assist clients with inquiries and banking
 Transaction Processing
needs.  Facilitate
 Provide information on products and deposits, withdrawals,
transfers, and payments.
services.  Ensure
 Account Management accuracy in transaction
 Open and maintain customer accounts. processing.
 Sales and Promotion

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 Ensure accurate record-keeping.
 Promote bank products and services.
 Loan Processing
 Meet sales targets and contribute to
 Evaluate loan applications and conduct
business growth.
credit assessments.  Reporting
 Advise clients on suitable loan options.
 Prepare financial reports for regulatory
 Risk Assessment
 Analyze financial data to assess bodies.
 Document internal procedures and
creditworthiness.
 Minimize the bank's risk exposure. transactions.
 Conflict Resolution
 Compliance
 Address and resolve customer
 Ensure adherence to banking
complaints.
regulations (AML, KYC).  Ensure customer satisfaction and
 Maintain up-to-date knowledge of
loyalty.
relevant laws.
 Right to Charge Interest and Fees: RIGHTS OF A BANKER
Bankers have the right to charge interest
on loanszand fees for services provided,  Right to Confidentiality: Bankers have the
as outlined in the terms agreed upon with right to protect sensitive information and
customers. ensure customer data is kept confidential,
 Right to Information: Bankers have the sharing it only as legally required or with
right to obtain accurate information from consent.
customers to assess creditworthiness and  Right to Legal Recourse: If customers default
comply with regulations. on loans or violate agreements, bankers have
 Right to Collateral: In the case of

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the right to take legal action to recover owed
secured loans, bankers have the right to funds.
require collateral to secure the loan and  Right to Access Records: Bankers can
recover funds in case of default. access and maintain records related to
 Right to Close Accounts: Bankers can customer transactions and accounts for
close accounts that violate terms of compliance and auditing purposes.
service or if they suspect fraudulent  Right to Compensation: Bankers are entitled
activity, provided they comply with legal to fair compensation for their services and
and regulatory requirements. responsibilities, as established in their
 Right to Set Policies: Banks have the employment agreements.
right to establish policies regarding  Right to Refuse Service: Banks can refuse to
account management, loan approvals, open accounts or provide services to
and other services within legal and individuals or entities that do not meet their
regulatory frameworks. criteria or pose a risk.
TYPES OF BANKING CUSTOMERS:

1. Individualz Customers
• Retail Customers: Regular consumers using
banking services for personal needs, such as
savings and checking accounts, loans, and
credit cards.
• High-Net-Worth Individuals (HNWIs): 4. Non-Profit Organizations
Individuals with substantial assets who require • Charities, foundations, and other non-
specialized banking and investment services. profits that require banking services for

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2. Small and Medium Enterprises (SMEs) managing donations, grants, and
• Small Businesses: Local businesses needing operational funds.
basic banking services, loans, and merchant 5. Government Entities
services. • Federal, State, and Local
• Medium Enterprises: Larger businesses with Governments: Agencies and
more complex financial needs, including municipalities that utilize banking
commercial loans and cash management services for public funds management
solutions. and financing public projects.
3. Corporations
• Large Corporations: Major companies that
require comprehensive banking services, such
as treasury management, corporate finance,
and investment banking.
TYPES OF BANKING CUSTOMERS:
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6. Institutional Investors
• Entities like pension funds, mutual
funds, and hedge funds that require SPECIAL CUSTOMERS:
sophisticated banking and
investment services. 1. Joint Accounts of Individuals
7. Students and Young Adults 2. Illiterate person
• Young customers often seeking 3. Blind Persons

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basic accounts, student loans, and 4. Minors’ Accounts
financial education resources. 5. Hindu Undivided Family(HUF)
8. Senior Citizens 6. Sole Proprietary Firms
• Older customers who may need 7. Partnership Firm
tailored financial products, 8. Limited Liability Partnership (LLP)
retirement accounts, and estate 9. Joint Stok Companies
planning services. 10. Trust
9. International Customers 11. Clubs & Societies
• Non-residents or expatriates who
require services such as foreign
currency accounts, international wire
transfers, and cross-border financial
services.
 1. Deposit Accounts
• Savingsz Accounts: Interest-bearing
accounts for saving money.
• Checking Accounts: Accounts for daily
transactions, typically with debit card 3. Credit Products
access. • Credit Cards: Plastic cards that allow
Products of Bank

• Certificates of Deposit (CDs): Time users to borrow funds for purchases up to

deposits with fixed interest rates for a set a certain limit.
term. • Overdraft Protection: A service that

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2. Loans allows checking account holders to
• Personal Loans: Unsecured loans for overdraw their account up to a specified
personal use. limit.
• Home Mortgages: Loans for purchasing 4. Investment Products
real estate, typically secured by the • Mutual Funds: Investment vehicles
property. pooling money from many investors to buy
• Auto Loans: Loans for purchasing a diversified portfolio of stocks or bonds.
vehicles. • Stocks and Bonds: Direct investment
• Business Loans: Financing options for options available through brokerage
businesses, including lines of credit. services.
• Retirement Accounts: Accounts like IRAs
and 401(k)s for retirement savings with tax
advantages.
 5. Insurancez Products
• Life Insurance: Policies that provide
financial protection to beneficiaries upon
the policyholder's death.
• Property and Casualty Insurance:
Products of Bank

7. Wealth Management Services

Coverage for homes, vehicles, and • Personalized financial planning and
businesses. investment management for high-net-worth
6. Foreign Exchange Services

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individuals.
• Currency exchange for international 8. Financial Planning Tools
travel and trade. • Online budgeting tools and financial advisory
services to help clients manage their
finances.

9. Mobile and Online Banking Services

• Apps and online platforms for managing accounts,
making transfers, and paying bills.
10. Merchant Services
• Payment processing solutions for businesses,
including point-of-sale systems and e-commerce
support.
RISK MANAGEMENT in banking is crucial for ensuring the stability and
sustainability of financial institutions. It involves identifying, assessing, and
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mitigating various types of risks that can affect a bank's operations and profitability.
Here are the main components of risk management in banks:

Types of Risks

 Credit Risk: The risk of loss due to a borrower's failure to repay a loan or meet
contractual obligations.

Dr J Deepak Kumar
 Market Risk: The risk of losses due to fluctuations in market prices, interest
rates, and foreign exchange rates.

 Operational Risk: The risk of loss from inadequate or failed internal processes,
systems, or external events (e.g., fraud, technology failures).

 Liquidity Risk: The risk that a bank will not be able to meet its short-term
financial obligations due to an imbalance between assets and liabilities.

 Reputational Risk: The risk of loss from damage to a bank’s reputation, which
can arise from various factors, including poor customer service or regulatory
issues.
RISK MANAGEMENT REGULATIONS
Risk management regulations in banking are designed to ensure that financial institutions operate
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safely and soundly while protecting depositors and maintaining the stability of the financial system.
Here are some key regulations and frameworks governing risk management in banks:

1. Basel Accords
• Basel I: Introduced in 1988, focused on capital adequacy requirements to ensure banks
maintain sufficient capital to cover risks.
• Basel II: Implemented in the early 2000s, it introduced a more sophisticated approach to risk

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management, emphasizing three pillars: minimum capital requirements, supervisory review,
and market discipline.
• Basel III: Introduced after the 2008 financial crisis, it strengthened capital requirements,
introduced liquidity standards, and emphasized risk management practices to enhance bank
resilience.
2. Dodd-Frank Act
• Enacted in the U.S. in 2010, it introduced comprehensive reforms aimed at reducing risks in
the financial system, enhancing consumer protection, and increasing transparency in
financial markets. Key elements include:
• The Volcker Rule, which restricts proprietary trading by banks.
• Increased capital requirements for larger financial institutions.
3. Federal Reserve Regulations
• The Federal Reserve implements regulations that impact risk management, including the
Comprehensive Capital Analysis and Review (CCAR) and the Dodd-Frank Stress Testing
Rule, which require banks to assess their capital adequacy under stress scenarios.
RISK MANAGEMENT REGULATIONS
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4. Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations
Regulations require banks to implement robust systems for identifying and managing risks related
to money laundering and fraud. These include customer due diligence, monitoring transactions,
and reporting suspicious activities.
5. International Financial Reporting Standards (IFRS)
These accounting standards require banks to recognize and disclose risk exposures, particularly
concerning credit risk and fair value measurements, thereby enhancing transparency in financial

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reporting.
6. National Regulations
Many countries have their own regulatory frameworks governing risk management, often modeled
after international standards like those set by the Basel Committee. For example, the European
Banking Authority (EBA) issues guidelines and regulations for EU banks.
7. Enterprise Risk Management (ERM) Frameworks
Organizations may adopt frameworks like the Committee of Sponsoring Organizations (COSO)
ERM framework to create a structured approach to risk management across the entire
organization.
8. Regulatory Guidelines and Best Practices
Regulatory bodies often issue guidelines on best practices for risk management, covering areas
such as credit risk, market risk, operational risk, and liquidity risk.
9. Internal Audit and Compliance Regulations
Banks are required to have robust internal audit functions to assess the effectiveness of risk
management processes and compliance with regulatory requirements.