BANKING LAW AND PRACTICE - The Institute of Company

394 Pages·2014·4.2 MB·English

STUDY MATERIAL
PROFESSIONAL PROGRAMME
BANKING LAW
AND
PRACTICE
MODULE 3
ELECTIVE PAPER 9.1
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© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA
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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
Indian Banking System – Evolution 2
Reserve Bank of India as a Central Bank of the Country 2
State Bank of India and Its associate (Subsidiaries) Banks 2
Nationalization of Banks 3
Regional Rural Banks 4
Local Area Banks 4
New Private Sector Banks 4
Different Types of Banks in India 5
Commercial Banks 6
Co-Operative Banking System 7
National Bank for Agriculture and Rural Development (NABARD) 9
Small Industries Development Bank of India (SIDBI) 9
National Housing Bank (NHB) 10
Export Import Bank of India (EXIM Bank) 10
Functions of Commercial Banks 11
LESSON ROUND UP 12
SELFTEST QUESTIONS 12
LESSON 2
REGULATORY FRAMEWORKAND COMPLIANCES
Reserve Bank of India Act, 1934 16
Banking Regulation Act, 1949 16
Setting Up of a New Bank 18
Branch Licensing 19
Branch Authorisation Policy for Commercial Banks 19
New Bank Licensing Policy, 2013 20
Banks’ Share Holders and their Rights 23
Cash Reserve Ratio 24
Statutory Liquidity Ratio (SLR) 26
Currency Chests 28
Currency Printing and Coin Minting 28
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Quantitative/General Credit Control 29
Selective Credit Control 30
RBI as a Controller of foreign Exchange 31
RBI as Banker to the Government 31
RBI as Lender of the Last Resort 31
Monetary and Credit Policy 32
Audit and Inspection of Banking Company 32
Supervision and Control of Banking Companies 34
Board for Financial Supervision 34
Winding Up – Amalgamation and Mergers of Banks 34
Reserve Bank as Liquidator 35
Disclosure of Accounts and Balance Sheets of Banks 36
Submission of Returns to RBI 42
Fraud – Classification and Reporting 43
Corporate Governance 47
Effective Corporate Governance Practices 48
Corporate Governance in Banks 48
Prevention of Money Laundering Act, 2002 (PMLA) 48
Banking Codes and Standards Board of India (BSCSBI) 50
The Banking Ombudsman Scheme 51
LESSON ROUND UP 53
SELFTEST QUESTIONS 54
LESSON 3
BANKER – CUSTOMER RELATIONSHIP
Meaning of a Banking Company 58
Relationship as Debtor and Creditor 60
Banker as Trustee 61
Banker as Agent 62
Obligations of a Banker 63
Pass Book and Statement of Account 67
Precautions to Be Taken By the Banker and the Customer 69
Garnishee Order 70
Rights of the Attaching Creditor 73
Rights of a Banker 73
Exceptions to the Right of General Lien 75
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Right of Set-off 76
Right to Charge interest and incidental Charges, Etc. 78
Various Types of Customers 79
Closing of a Bank Account - Termination of Banker-Customer Relationship 82
Various Deposit Schemes 83
Deposits – General 83
Demand Deposits 84
Term Deposits 86
Hybrid Deposits or Flexi Deposits Or Multi Option Deposit Scheme (MODS) 88
Tailor-Made Deposit Schemes 89
Special Schemes for Non-Resident Indians (NRIs) 90
‘Know Your Customer’ (KYC) Guidelines of the RBI 92
Customer Identification Procedure 93
Customer Identification Requirements 93
Specimen Signature 95
Power of Attorney 96
Closing of a Bank Account - Termination of Banker-Customer Relationship 96
Insurance of Bank Deposits 97
Salient Features of Deposit insurance 97
Nomination 98
Settlement of Claims 98
LESSON ROUND UP 99
SELFTEST QUESTIONS 100
LESSON 4
LEGALASPECTS OF BANKING OPERATIONS
Introduction 104
Legal aspects of a Cheque 104
Definition of a Cheque 104
Different Types of Cheques 104
Crossing of a Cheque 105
Cheque Crossed Generally 105
Cheque Crossed Specially 105
Payment of Cheque Crossed Generally Or Specially 105
Cheque Bearing “Not Negotiable” 105
Double Crossing 106
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