BANKING LAW AND PRACTICE - icsi.edu

414 Pages·2016·5.44 MB·English

STUDY MATERIAL
PROFESSIONAL PROGRAMME
BANKING LAW
AND
PRACTICE
MODULE 3
ELECTIVE PAPER 9.1
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BANKING LAW AND PRACTICE
Company Secretaries have a pivot role to play in the Banking and Financial Sector. A Company Secretary can
work as a compliance officer in a banking and financial institution and play an important role in ensuring compliance
to complicated legal, regulatory and supervisory issues all the time, transcending various spheres of banking
operations. So, in order to build the capacity of Companies Secretaries to work as a compliance officer in Banks
and to provide them a specialized knowledge in Banking laws and practice, a paper on Banking Laws and
Practice has been added as an elective paper. The students who want to pursue their career in Banking and
financial sector may chose this subject.
The syllabus and content of this paper has been developed in joint association of Indian Institute of Banking and
Finance and the syllabus covers most of the aspects from gamut of banking. The objective of including this
paper is to give a specialized knowledge of law and practice relating to banking.
An attempt has been made to cover fully the syllabus prescribed for each module/subject and the presentation
of topics may not always be in the same sequence as given in the syllabus. Candidates are also expected to
take note of all the latest developments relating to the subjects covered in the syllabus by referring to RBI
circulars, financial papers, economic journals, latest books and publications in the subjects concerned.
Although due care has been taken in publishing this study material, yet the possibility of errors, omissions and/
or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall
not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf.
Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if
the same are brought to its notice for issue of corrigendum in the e-bulletin Student Company Secretary. In the
event of any doubt, students may write to the Directorate of Academics in the Institute for clarification at
[email protected].
There is open book examination for this Elective Subject of Professional Programme. This is to inculcate and
develop skills of creative thinking, problem solving and decision making amongst students of its professional
programme and to assess their analytical ability, real understanding of facts and concepts and mastery to apply,
rather than to simply recall, replicate and reproduce concepts and principles in the examination.
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SYLLABUS
MODULE III, ELECTIVE PAPER 9.1: Banking Law and Practice (100 Marks)
Level of Knowledge: Expert Knowledge
Objective: To acquire specialized knowledge of law and practice relating to Banking
Detailed Contents:
1. Overview of Banking System
2. Regulatory Framework and Compliances
A. Provisions of RBI Act 1935, Banking Regulation Act 1949, Prevention of Money Laundering Act, 2002.
B. Government and RBI’s Powers Opening of New Banks and Branch Licensing Constitution of Board of
Directors and their Rights Banks Share Holders and their Rights CRR and SLR Concepts Cash-
Currency Management Winding up - Amalgamation and Mergers Powers to Control Advances - Selective
Credit Control – Monetary and Credit Policy Audit and Inspection Supervision and Control - Board for
Financial Supervision – its Scope and Role Disclosure of Accounts and Balance Sheets Submission
of Returns to RBI, Corporate Governance.
3. Legal Aspects of Banking Operations
Case Laws on Responsibility of Paying and Collecting Banker Indemnities or Guarantees - Scope and
Application – Obligations of a Banker - Precautions and Rights - Laws relating to Bill Finance, LC and
Deferred Payments - Laws Relating to Securities - Valuation of Securities - Modes of Charging Securities -
Lien, Pledge, Mortgage, Hypothecation etc. - Registration of Firms/Companies - Creation of Charge and
Satisfaction of Charge.
4. Banking Related Laws
Law of Limitation - Provisions of Bankers Book Evidence Act -Special Features of Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 TDS Banking Cash Transaction Tax Service Tax, Asset
Reconstruction Companies, The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, The Consumer Protection Act, 1986, Banking Ombudsman Lok Adalats, Lender’s
Liability Act.
5. Banker - Customer Relations
The legal relationship between the Banker and Customer, the Multifarious Transactions between them and
the Rights and Duties of the Parties springing out of such relationship Nature of Banking Business Legal
Nature of Banker-Customer Relationship and their Mutual Rights and Duties Special Categories of
Customers, such as Corporations, Partnership Firms, Hindu Joint Families, Unincorporated Bodies, Trusts,
Joint Account Holders, Minors, Nominee Accounts, Liquidator, Mercantile Agents, Non-Resident Indians,
Foreigners and the Legal Incidence of Each Different Types of Accounts such as Current Accounts, Savings
Bank Account and Fixed Deposits Other Transactions between Banker and Customer such as Safe Deposit
Vaults, Financial Advice, Letters of Introduction and Other Services Rendered by Banks Special features of
the relationship between banker and customer - Their mutual rights and duties - lien - Power to combine
different accounts - Secrecy of account.
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6. Loans and Advances
Law, Practice and Policies governing the employment of the funds in the hands of the banker with special
reference to the lending banker State Policy on Loans and Advances - Priority sector advances and socio-
economic policies - Financial inclusion - Self- Employment Schemes - Women Entrepreneurs - Small Scale
Industries - Agricultural Finance, Export Finance, etc. – Micro Finance - How the banker profitably uses the
fund - Call loans and loans repayable at short notice - Loans and advances - Overdrafts - Legal control over
bank’s deployment of funds.
7. Securities for Banker’s Loans
The legal issues involved in and the practice governing the different kinds of securities for banker’s advances
and loans Guarantees, pledge, lien, mortgage, charge – subject matters of collateral security Corporate
Securities Documents of title to goods Land and Buildings Book debts Life Policies Factoring; Bill Discounting;
Bank Guarantees; Letters of Credit; Commercial Papers.
8. Financial Analysis of Banks
Introduction; Role of financial analysis in financial management; Techniques of Financial Analysis; DuPont
Model of Financial Analysis; Special issues in Financial Analysis of Banking Industry.
9. Financial System Contemporary and Emerging Issues: An Overview
Introduction; Role of Financial System; Capital Flow Through Intermediary Financial Institutions; Direct
Capital Flow; Primary Market Products; Primary Market Issue Facilitators; Secondary Market; Economic
Importance of Financial Markets.
10. International Banking Management
International Banking: An Overview, Legal & Regulatory Framework, International Banking Operations
Management, Risk Management in International Banking, Special Issues: Technology and International
Banking; Globalisation and International Banking; Financial Innovations in International Banking.
11. Electronic Banking and IT in Banks
IT in Banking: An Introduction. IT Applications in Banking- Computer-Based Information Systems for Banking;
Electronic Banking; Electronic Fund Management, Enabling Technologies of Modern Banking- Electronic
Commerce and Banking; Supply Chain Management; Customer Relationship Management; Integrated
Communication Networks for Banks Security and Control Systems - Cybercrimes and fraud management
Planning and Implementation of Information Systems.
12. Risk Management in Banks
Risk Management: An Overview, Credit Risk Management, Liquidity and Market Risk Management,
Operational Risk Management, Special Issues- Risk Management Organisation; Reporting of Banking
Risk; Risk Adjusted Performance Evaluation Basel III.
13. Ethics and Corporate Governance in Banks
Ethics and Business, Corporate Governance, Corporate Social Responsibility, Governance in Financial
Sector.
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LIST OF RECOMMENDED BOOKS
MODULE 3
ELECTIVE PAPER 9.1 : BANKING LAWAND PRACTICE
The students may refer to the given books and websites for further knowledge and study of the subject :
READINGS
1. M.L.Tannan, revised by : Banking Law and Practice, Wadhwa & Company, Nagpur
C.R. Datta & S.K.
Kataria
2. A.B. Srivastava and : Seth’s Banking Law, Law Publisher’s India (P) Limited
K. Elumalai
3. R.K. Gupta : BANKING Law and Practice in 3 Vols.Modern Law Publications.
4. Prof. Clifford Gomez : Banking and Finance - Theory, Law and Practice, PHI Learning Private
Limited
5. J.M. Holden : The Law and Practice of Banking, Universal Law Publishing.
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ARRANGEMENT OF STUDY LESSONS
Study Lesson No. Topic
1. Overview of Banking System
2. Regulatory Framework and Compliances
3. Legal Aspects of Banking Operations
4. Banking Related Laws
5. Banker - Customer Relations
6. Loans and Advances
7. Securities for Banker’s Loans
8. Financial Analysis of Banks
9. Financial System Contemporary and Emerging Issues: An Overview
10. International Banking Management
11. Electronic Banking and IT in Banks
12. Risk Management in Banks
13. Ethics and Corporate Governance in Banks
Annexures
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CONTENTS
FINANCIAL, TREASURY AND FOREX MANAGEMENT
LESSON 1
OVERVIEW OF BANKING SYSTEM
Introduction 2
Indian Banking System – Evolution 2
Genesis 2
Reserve Bank of India as a Central Bank of the Country 2
State Bank of India and its Associate (Subsidiaries) Banks - A New Channel of Rural Credit 3
Nationalization of Banks for implementing Government policies 3
Regional Rural Banks 4
Local area banks 4
New Private Sector Banks 5
Structure of Banks in India 5
Different types of Banks in India 6
Constituents of the Indian Banking System 6
Commercial Banks 7
1. Public Sector Banks 7
2. Private Sector Banks 7
3. Foreign Banks 8
Co-Operative Banking System 8
1. Short Term Agricultural Credit institutions 8
2. Long Term Agricultural Credit Institutions 9
3. Urban Cooperative Banks 9
Development Banks 9
National Bank for Agriculture and Rural Development (NABARD) 9
Small Industries Development Bank of India (SIDBI) 10
Functions of Small Industries Development Bank of India (SIDBI): 11
National Housing Bank (NHB) 11
Export Import Bank of India (EXIM Bank) 11
LESSON ROUND UP 12
SELFTEST QUESTIONS 12
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LESSON 2
REGULATORY FRAMEWORKAND COMPLIANCES
Part-I – An Overview of RBI Act, 1934 and Banking Regulation Act 1949 16
Reserve Bank of India Act, 1934 16
Banking Regulation Act, 1949 16
Other important sections of Banking Regulation Act, 1949 17
Section 36AB. Deals with Power of Reserve Bank to appoint additional Directors 17
Prevention of Money Laundering Act, 2002 (PMLA) 17
Part B – Opening of New Banks and Branch Licensing 19
Setting up of a New Bank 20
Guidelines for Licensing of New Banks in Private Sector 21
Guidelines and important aspects 21
Branch Licensing 24
Constitution of Banks’ Board of Directors and their Rights 26
Banks’ Share Holders and their Rights 26
Other Issues 27
Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) Concepts 27
Cash Reserve Ratio 27
Statutory Liquidity Ratio (SLR) 29
Cash – Currency Management 31
Currency Chests 31
Currency Printing and Coin Minting 31
Powers to Control Advances 31
Quantitative/General Credit Control 32
Selective Credit Control 33
Functions of RBI 34
RBI as a Controller of Foreign Exchange 34
RBI as Banker to the Government 34
RBI as Lender of the Last Resort 34
Marginal Standing Facility 34
Monetary and Credit Policy 35
Audit and Inspection of Banking Company 35
Audit 35
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Inspection 36
Supervision and Control 36
Board for Financial Supervision 36
Winding Up – Amalgamation and Mergers of Banks 37
Scheme of Amalgamation 37
Winding up by High Court 38
Reserve Bank as Liquidator 38
Disclosure of Accounts and Balance Sheets of Banks 38
Presentation 39
Disclosure Requirements 39
Derivatives: Forward Rate Agreement/Interest Rate Swap 40
Qualitative Disclosure 40
Quantitative Disclosures 41
Submission of Returns to RBI 44
Fraud – Classification and Reporting 46
Classification of Frauds 46
Reporting of Fraud to RBI 47
Corporate Governance 50
Corporate Governance in Banks 51
Banking Codes and Standards Board of India (BCSBI) 51
The Banking Ombudsman Scheme 52
Grounds of Complaints 52
Miscellaneous provisions 53
LESSON ROUND UP 54
SELF TEST QUESTIONS 54
CASE STUDY ON BANK FRAUD – HARSHAD MEHTA’S SCAM 56
LESSON 3
LEGALASPECTS OF BANKING OPERATIONS
Legal Aspects of a Cheque 60
Definition of a Cheque 60
Different types of cheques 60
Crossing of a Cheque 61
Cheque crossed generally 61
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