Banking By Somashekar
Banking By Somashekar
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CONTENTS
Banking By Somashekar
Free Download
INTRODUCTION 1
Meaning 1
Definition of a Bank 1
TYPES OF BANKS 2
FUNCTIONS OF COMMERCIAL BANKS 4
SOURCES OF BANK'S INCOME 9
INVESTMENT POLICY OF BANKS 10
BALANCE SHEET OF THE BANK 12
Liabilities 12
Assets 14
CREDIT CREATION 15
Basis of Credit Creation 15
Process of Credit Creation 16
Leaf and Cannon Criticism 18
Limitation on Credit Creation 18
UNIT BANKING VS BRANCH BANKING 20
A. Unit Banking 20
B. Branch Banking System 22
COMMERCIAL BANKS AND ECONOMIC DEVELOPMENT 24
Conclusion 26
CHAPTER-2: CENTRAL BANKING 27-45
INTRODUCTION 27
Meaning of Central Bank 27
Definition of Central Bank 27
Functions of the Central Bank 28
CREDIT CONTROL 31
Objectives of Credit Control 32
Methods of Credit Control 32
Meaning 33
Theory of Bank Rate 33
Working of Bank Rate 34
The Process of Bank Rate Influence 34
Bank Rate Under the Gold Standard 34
Conditions for the Success of the Bank Rate Policy 34
Limitations 35
Meaning 36
Theory of Open Market Operations 36
Objectives of Open Market Operations 37
Conditions for the Success of Open Market Operations 37
Popularity of Open Market Operations 38
A. Variable Cash Reserve Ratio 39
Meaning 39
B. Theory of Variable Reserve Ratio 39
Working of Variable Reserve Ratio 40
Limitations 41
Selective or Qualitative Methods 41
Objectives 42
Measures of Selective Credit Control 42
Conclusion 45
CHAPTER-3: RESERVE BANK OF INDIA 47-75
INTRODUCTION 47
Capital 48
Organisation 48
Offices of the Bank 49
Departments of the Reserve Bank 50
Functions of the Reserve Bank 51
CREDIT CONTROL 58
Weapons of Credit Control 58
METHODS OF SELECTIVE CREDIT CONTROLS ADOPTED BY RESERVE BANK 61
Limitations of Selective Controls in India 63
MONETARY POLICY OF THE RESERVE BANK OF INDIA 64
Reserve Bank of India and Monetary Controls 64
Limitations of Monetary Policy 66
Chakravarthy Report on the Working of the Monetary System 67
The Narasimham Committee Report (1991) 68
Recommendations of the Committee 68
The Goiporia Committee Report (1991) 70
Recommendations of Goiporia Committee 70
The Narasimham Committee Report (1998) 71
ROLE OF RBI IN ECONOMIC DEVELOPMENT 71Meaning 1
Definition of a Bank 1
TYPES OF BANKS 2
FUNCTIONS OF COMMERCIAL BANKS 4
SOURCES OF BANK'S INCOME 9
INVESTMENT POLICY OF BANKS 10
BALANCE SHEET OF THE BANK 12
Liabilities 12
Assets 14
CREDIT CREATION 15
Basis of Credit Creation 15
Process of Credit Creation 16
Leaf and Cannon Criticism 18
Limitation on Credit Creation 18
UNIT BANKING VS BRANCH BANKING 20
A. Unit Banking 20
B. Branch Banking System 22
COMMERCIAL BANKS AND ECONOMIC DEVELOPMENT 24
Conclusion 26
CHAPTER-2: CENTRAL BANKING 27-45
INTRODUCTION 27
Meaning of Central Bank 27
Definition of Central Bank 27
Functions of the Central Bank 28
CREDIT CONTROL 31
Objectives of Credit Control 32
Methods of Credit Control 32
Meaning 33
Theory of Bank Rate 33
Working of Bank Rate 34
The Process of Bank Rate Influence 34
Bank Rate Under the Gold Standard 34
Conditions for the Success of the Bank Rate Policy 34
Limitations 35
Meaning 36
Theory of Open Market Operations 36
Objectives of Open Market Operations 37
Conditions for the Success of Open Market Operations 37
Popularity of Open Market Operations 38
A. Variable Cash Reserve Ratio 39
Meaning 39
B. Theory of Variable Reserve Ratio 39
Working of Variable Reserve Ratio 40
Limitations 41
Selective or Qualitative Methods 41
Objectives 42
Measures of Selective Credit Control 42
Conclusion 45
CHAPTER-3: RESERVE BANK OF INDIA 47-75
INTRODUCTION 47
Capital 48
Organisation 48
Offices of the Bank 49
Departments of the Reserve Bank 50
Functions of the Reserve Bank 51
CREDIT CONTROL 58
Weapons of Credit Control 58
METHODS OF SELECTIVE CREDIT CONTROLS ADOPTED BY RESERVE BANK 61
Limitations of Selective Controls in India 63
MONETARY POLICY OF THE RESERVE BANK OF INDIA 64
Reserve Bank of India and Monetary Controls 64
Limitations of Monetary Policy 66
Chakravarthy Report on the Working of the Monetary System 67
The Narasimham Committee Report (1991) 68
Recommendations of the Committee 68
The Goiporia Committee Report (1991) 70
Recommendations of Goiporia Committee 70
The Narasimham Committee Report (1998) 71
Contribution to Economic Development 72
Conclusion 75
CHAPTER-4: STATE BANK OF INDIA 77-81
INTRODUCTION 77
Capital 77
Management 77
Functions 78
Role of the State Bank in Economic Development 79
Conclusion 80
CHAPTER-5: MONEY MARKET AND CAPITAL MARKET 83-105
INTRODUCTION 83
Money Market 83
Functions of Money Market 83
Composition of the Money Market 84
Financial Institutions of the Money Market 85
Characteristics of a Developed Money Market 86
Usefulness of a Developed Money Market 87
Structure of the Money Market 88
Characteristics of Indian Money Market 89
Defects of Indian Money Market 89
Measures for Improvement of the Money Market 91
Suggestions to Remove Defects in the Indian Money Market 93
The Repo Market 95
The Commercial Bill Market 96
The Certificate of Deposit (CD) Market 97
The Commercial Paper Market 98
Money Market Mutual Funds 98
Capital Market 99
Classification of Indian Capital Market 99
Importance of Capital Market 100
Functions of Capital Market 100
Structure of Indian Capital Market 101
Components of Indian Capital Market 101
Recent Trends in the Capital Market 102
Comparison of Money Market and Capital Market 104
Conclusion 105
CHAPTER-6: STRUCTURE OF BANKING IN INDIA 107-137
INTRODUCTION 107
1. INDIGENOUS BANKS 107
Meaning 109
Groups 109
Types 109
Functions of Indigenous Bankers 109
Defects of Indigenous Bankers 110
Indigenous Bankers and the Reserve Bank 111
Suggestions for Reform 111
2. MONEYLENDERS 112
Features of Moneylenders 112
Differences Between Moneylenders and Indigenous Bankers 112
Defects of Moneylenders 113
3. CO-OPERATIVE BANKS 113
Meaning 114
Structure of Co-operative Banks 114
Progress of PACS 115
Shortfalls PACS 116
Functions 116
Progress of CCBs 117
Defects of CCBs 117
Functions 118
Defects 118
Progress 118
Present Position of Co-operative Banks 118
Importance or Benefits of Co-operative Banks 119
Problems or Weaknesses of Co-operative Banks 119
Suggestions for the Improvement of the Co-operative Credit Structure 120
4. LAND DEVELOPMENT BANK 121
Sources of Funds 122
The Working of the LDBs 122
Progress 122
Defects 122
Suggestions for Improvement 123
5. REGIONAL RURAL BANKS 123
Objectives of Regional Rural Banks 123
Capital Structure 124
Features of Regional Rural Banks 124
Functions of Regional Rural Banks 124
Progress Achieved by Regional Rural Banks 124
Problems 125
Suggestions for Reorganisation and Improvement 127
6. NABARD 128
Objectives 128
NABARD's Financial Resources 128
Management 128
Functions of NABARD 129
Achievements of NABARD 130
7. COMMERCIAL BANKS 132
Nationalisation of Banks 132
Advantages of Credit Cards 136
Limitations or Drawbacks of Credit Cards 136
Conclusion 136
CHAPTER-7: DEVELOPMENT BANKS 139-158
INTRODUCTION 139
Meaning 139
Features 139
Important Development Banks in India 140
1. INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. 140
Functions of the IFCI 141
Financial Resources of IFCI 141
Lending Operations of IFCI 142
Appraisal of IFCI's Performance 142
2. THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LTD. 143
Financial Resources of ICICI 143
Lending Operations of ICICI 143
Appraisal of ICICI's Performance 144
3. STATE FINANCIAL CORPORATIONS 145
4. THE INDUSTRIAL DEVELOPMENT BANK OF INDIA 148
Financial Resources of IDBI 148
Cumulative Assistance by IDBI 148
Composition of Financial Assistance 149
Promotional Functions of the IDBI 150
Critical Appraisal 150
5. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA 151
Financial Resources of SIDBI 151
Financial Assistance by SIDBI 151
6. THE INDUSTRIAL RECONSTRUCTION BANK OF INDIA (IRBI) 151
7. THE STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDCS) AND THE STATE 151
INDUSTRIAL INVESTMENT CORPORATIONS (SIICS) 152
8. UNIT TRUST OF INDIA 153
Present Position 153
9. LIFE INSURANCE CORPORATION OF INDIA (LIC) 154
Present Position 155
10. THE EXPORT-IMPORT BANK OF INDIA (EXIM BANK) 156
Functions of the EXIM Bank 156
Present Position 156
Conclusion 157
CHAPTER-8: BANKER AND CUSTOMER 159-184
INTRODUCTION 159
Meaning and Definition of a Banker 159
Special Types of Customers 163
Legal Provisions Regarding Guardianship of a Minor 164
The Banker-Customer Relationship 171
A. General relationship, and B. Special relationship 171
1. Primary relationship 171
2. Secondary relationship 172
Obligations of Bankers 179
1. Obligation to Honour the Customer's Cheques 179
2. Obligation to Maintain Secrecy of Customer's Account 181
3. Obligation to Receive Cheques and Other Instruments for Collection 182
4. Obligation to Give Reasonable Notice before Closing the Account 182
Obligations of Customers 183
Conclusion 183
CHAPTER-9: OPENING AND OPERATING BANK ACCOUNTS 185-196
INTRODUCTION 185
Types of Accounts 185
Procedure of Opening Current and Savings Accounts 189
Forms Used in Operation of Bank Account 191
Closing of a Bank Account 192
Insurance of Bank Deposit 193
Deposit Insurance and Credit Guarantee Corporation (DICGC) 193
Objectives 193
Credit Guarantee Function 193
Nomination Facility 194
Non-Resident Account 195
Recent Development 195
Conclusion 196
CHAPTER-10: PASS BOOK 197-202
INTRODUCTION 197
Meaning of Pass Book 197
Object or Purpose of Pass Book 198
Statement of Account 198
Examination of Entries 198
Legal Position of Entries in the Pass Book 199
Effect of Entries in the Pass Book 199
Precautions in Writing a Pass Book 201
Conclusion 202
CHAPTER-11: CHEQUES 203-220
INTRODUCTION 203
Meaning 203
Essentials 204
Types of Cheques 205
Uses of a Cheque 206
Advantages of Using Printed Forms 206
Parties to a Cheque 207
MATERIAL ALTERATIONS 207
Alteration 207
Material Alteration 207
Examples of Material Alterations 207
Examples of Authorised Alterations 208
Examples of Non-material Alterations 208
Effects of Material Alteration 208
CROSSING OF CHEQUES 209
Meaning of Crossing 209
Types of Crossing 209
Special Crossing 210
Other Types of Crossing 211
Significance of Crossing 212
ENDORSEMENT 213
Definition of Endorsement 213
Essentials of a Valid Endorsement 213
Kinds of Endorsement 214
Legal Effects of an Endorsement 215
Differences Between a Bill of Exchange and Cheque 215
Distinguish Between a Cheque and a Promissory Note 216
HOLDER AND HOLDER IN DUE COURSE 217
Holder 217
Holder in Due Course 217
Privileges of a Holder in Due Course 218
Distinction Between Holder and Holder in Due Course 219
Conclusion 220
CHAPTER-12: THE PAYING BANKER 221-229
INTRODUCTION 221
Meaning 221
Precautions for Payment of Cheques 222
Precautions 222
Statutory Protection 225
Protection Available Under the Negotiable Instruments Act 225
Dishonour of Cheques 227
When a Banker can Dishonour Cheques 228
Bank's Remarks on Dishonoured Cheques 229
Conclusion 229
CHAPTER-13: COLLECTING BANKER 231-238
INTRODUCTION 231
Meaning 231
Collecting Banker as Holder for Value 231
Collecting Banker as an Agent of the Customer 232
Conversion 233
Statutory Protection to Collecting Banker 233
Duties and Responsibilities of a Collecting Banker 235
Marking of Cheque 236
Who Can Get the Cheque Marked? 236
Conclusion 237
CHAPTER-14: LOANS AND ADVANCES 239-247
INTRODUCTION 239
General Rules of Sound Lending 239
Forms of Lending (Advances) 241
Merits of Granting Loans 242
Demerits 242
Merits of Cash Credit 243
Demerits 243
Distinction Between Loan and Cash Credit 244
Distinction Between Cash Credit and Overdraft 244
Types of Loans and Advances 245
Determining Creditworthiness 246
Sources of Credit Information 246
Conclusion 247
CHAPTER-15: TYPES OF SECURITIES 249-268
INTRODUCTION 249
Characteristics of Good Security 249
General Principles of Secured Advances 250
Types of Securities on which Loans or Advances can be Granted 251
Precautions 257
Merits of Advances Against Stock Exchange Securities 258
Risks in Advancing Against Securities 259
Precautions to be Taken in Advancing Against Securities 259
Precautions in Advancing Against Real Estate 262
Merits of Life Insurance Policy as a Security 264
Demerits of Policies as Securities 264
Precautions in Advancing Against LIC Policies 265
Precautions in Advancing Against Fixed Deposit Receipt 266
Precautions in Advancing Against Book Debts 267
INTRODUCTION 269
Modes of Creating Charge 269
Difference Between Pledge and Lien 270
Who can Pledge the Goods? 271
Right and Obligations of Pledger 272
Rights 272
Obligations (Duties) 272
Right and Obligations of Pledgee or Pawnee 272
Obligation and Duties of Pledgee 273
Essential Features of a Mortgage 273
Types of Mortgages 274
Legal and Equitable Mortgage 276
Merits of Equitable Mortgage over the Legal Mortgage 276
Demerits of Equitable Mortgage over the Legal Mortgage 276
Rights of Mortgager 277
Rights of Mortgagee (Banker) 277
Precautions to be Taken by a Banker in Case of Lending Against Hypothecation 278
Conclusion 279
CHAPTER-17: GUARANTEES 281-291
INTRODUCTION 281
Meaning 281
Definition 281
Necessity for Bank Guarantee 282
Essentials of a Valid Guarantee 282
Kinds of Guarantees 283
Contract of Guarantee 285
Purpose of the Contract 286
Contract of Indemnity 286
Parties to Indemnity 286
Analysis of the Definition 286
Difference between Contract of Guarantee and a Contract of Indemnity 287
Rights of the Surety 287
Liability of the Surety 288
Rights of the Banker 288
Liabilities of the Banker (Obligation) 288
Merits and Demerits of Guarantee 289
Merits of Guarantee 289
Demerits of Guarantee 289
Precautions to be Taken by the Banker in a Contract of Guarantee 290
Conclusion 291
INTRODUCTION 293
Definition 293
Types of Letters of Credit 294
I. Travellers' Letter of Credit 295
II. Commercial Letter of Credit 296
Types of Letters of Commercial Credit 296
Opening a Letter of Credit 298
ADVANTAGES OF LETTER OF CREDIT 299
Advantages to the Exporter 299
Advantages to the Importer 299
Conclusion 300
CHAPTER-19: ACCOUNTS AND AUDIT OF BANKS 301-309
INTRODUCTION 301
Salient Features of Bank's Accounts 301
Books of Account (Section 209) 302
Books shall Give a True and Fair View 302
Preservation of Books 302
Persons Responsible to Keep the Books 302
Penalty 302
Inspection of Books of Account 303
Books to be Maintained 303
Final Accounts 306
Preparation of Balance Sheet and Profit and Loss Account (Sec. 47) 306
Form of Balance Sheet and Profit and Loss Account 306
Signing of Balance Sheet and Profit and Loss Account 306
Audit of Bank Accounts 306
Audit of Accounts (Section 30) 306
Publication and Filing of Accounts (Section 30) 307
Penalty 309
Conclusion 309
MULTIPLE CHOICE QUESTIONS WITH ANSWERS 311-358
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