BANKING LAW AND PRACTICE - ICSI

1 ISTUDY MATERIALPROFESSIONAL PROGRAMMEBANKING LAWANDPRACTICEMODULE 3 ELECTIVE PAPER House, 22, Institutional Area, Lodi Road, New Delhi 110 003tel 011-4534 1000, 4150 4444fax +91-11-2462 6727email THE INSTITUTE OF COMPANY SECRETARIES OF INDIATIMING OF HEADQUARTERSM onday to FridayOffice Timings to Dealing TimingsWithout financial transactions to financial transactions to , Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, andPrinted at Tan Prints/July 2014iiiiiBANKING LAW AND PRACTICEC ompany Secretaries have a pivot role to play in the BANKING and Financial Sector. A Company Secretary canwork as a compliance officer in a BANKING and financial institution and play an important role in ensuring complianceto complicated legal, regulatory and supervisory issues all the time, transcending various spheres of bankingoperations.

2 So, in order to build the capacity of Companies Secretaries to work as a compliance officer in Banksand to provide them a specialized knowledge in BANKING laws and PRACTICE , a paper on BANKING Laws andPractice has been added as an elective paper. The students who want to pursue their career in BANKING andfinancial sector may chose this syllabus and content of this paper has been developed in joint association of Indian Institute of BANKING andFinance and the syllabus covers most of the aspects from gamut of BANKING . The objective of including thispaper is to give a specialized knowledge of law and PRACTICE relating to attempt has been made to cover fully the syllabus prescribed for each module/subject and the presentationof topics may not always be in the same sequence as given in the syllabus. Candidates are also expected totake note of all the latest developments relating to the subjects covered in the syllabus by referring to RBIcirculars, financial papers, economic journals, latest books and publications in the subjects due care has been taken in publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out.

3 This publication is released with an understanding that the Institute shallnot be responsible for any errors, omissions and/or discrepancies or any action taken in that there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged ifthe same are brought to its notice for issue of corrigendum in the e-bulletin Student Company Secretary. In theevent of any doubt, students may write to the Directorate of Academics in the Institute for clarification is open book examination for this Elective Subject of Professional Programme. This is to inculcate anddevelop skills of creative thinking, problem solving and decision making amongst students of its professionalprogramme 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 III,ELECTIVE PAPER : BANKING Law and PRACTICE (100 Marks)Level of Knowledge:Expert KnowledgeObjective.

4 To acquire specialized knowledge of law and PRACTICE relating to BankingDetailed of BANKING Framework and of RBI Act 1935, BANKING Regulation Act 1949, Prevention of Money Laundering Act, and RBI s Powers Opening of New Banks and Branch Licensing Constitution of Board ofDirectors 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 - SelectiveCredit Control Monetary and Credit Policy Audit and Inspection Supervision and Control - Board forFinancial Supervision its Scope and Role Disclosure of Accounts and Balance Sheets Submissionof Returns to RBI, Corporate Aspects of BANKING OperationsCase Laws on Responsibility of Paying and Collecting Banker Indemnities or Guarantees - Scope andApplication Obligations of a Banker - Precautions and Rights - Laws relating to Bill Finance, LC andDeferred Payments - Laws Relating to Securities - Valuation of Securities - Modes of Charging Securities -Lien, Pledge, Mortgage, Hypothecation etc.

5 - Registration ofFirms/Companies - Creation of Charge andSatisfaction of Related LawsLaw of Limitation - Provisions of Bankers Book Evidence Act -Special Features of Recovery of Debts Dueto Banks and Financial Institutions Act, 1993 TDS BANKING Cash Transaction TaxService Tax, AssetReconstruction Companies, The Securitization and Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act, 2002, The Consumer Protection Act, 1986, BANKING Ombudsman Lok Adalats, Lender sLiability - Customer RelationsThe legal relationship between the Banker and Customer, the Multifarious Transactions between them andthe Rights and Duties of the Parties springing out of such relationship Nature of BANKING Business LegalNature of Banker-Customer Relationship and their Mutual Rights and Duties Special Categories ofCustomers, 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, SavingsBank Account and Fixed Deposits Other Transactions between Banker and Customer such as Safe DepositVaults, Financial Advice, Letters of introduction and Other Services Rendered by Banks Special features ofthe relationship between banker and customer - Their mutual rights and duties - lien - Power to combinedifferent accounts - Secrecy of and AdvancesLaw.

6 PRACTICE and Policies governing the employment of the funds in the hands of the banker with specialreference 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 ScaleIndustries - Agricultural Finance, Export Finance, etc. Micro Finance - How the banker profitably uses thefund - Call loans and loans repayable at short notice - Loans and advances - Overdrafts - Legal control overbank s deployment of for Banker s LoansThe legal issues involved in and the PRACTICE governing the different kinds of securities for banker s advancesand loans Guarantees, pledge, lien, mortgage, charge subject matters of collateral security CorporateSecurities Documents of title to goods Land and Buildings Book debts Life Policies Factoring; Bill Discounting;Bank Guarantees; Letters of Credit; Commercial Analysis of BanksIntroduction; Role of financial analysis in financial management; Techniques of Financial Analysis; DuPontModel of Financial Analysis; Special issues in Financial Analysis of BANKING System Contemporary and Emerging Issues: An OverviewIntroduction.

7 Role of Financial System; Capital Flow Through Intermediary Financial Institutions; DirectCapital Flow; Primary Market Products; Primary Market Issue Facilitators; Secondary Market; EconomicImportance of Financial BANKING ManagementInternational BANKING : An Overview, Legal & Regulatory Framework, International BANKING OperationsManagement, Risk Management in International BANKING , Special Issues: Technology and InternationalBanking; Globalisation and International BANKING ; Financial Innovations in International BANKING and IT in BanksIT in BANKING : An introduction . IT Applications in BANKING - Computer-Based Information Systems for BANKING ;Electronic BANKING ; Electronic Fund Management, Enabling Technologies of Modern BANKING - ElectronicCommerce and BANKING ; Supply Chain Management; Customer Relationship Management; IntegratedCommunication Networks for Banks Security and Control Systems - Cybercrimes and fraud managementPlanning and Implementation of Information Management in BanksRisk Management: An Overview, Credit Risk Management, Liquidity and Market Risk Management,Operational Risk Management, Special Issues- Risk Management Organisation; Reporting of BankingRisk.

8 Risk Adjusted Performance Evaluation Basel and Corporate Governance in BanksEthics and Business, Corporate Governance, Corporate Social Responsibility, Governance in OF RECOMMENDED BOOKSMODULE 3 ELECTIVE PAPER : BANKING LAWAND PRACTICEThe students may refer to the given books and websites for further knowledge and study of the subject , revised by: BANKING Law and PRACTICE , Wadhwa & Company, Datta & Srivastava and:Seth s BANKING Law, Law Publisher s India (P) LimitedK. Gupta: BANKING Law and PRACTICE in 3 Law Clifford Gomez: BANKING and Finance - Theory, Law and PRACTICE , PHI Learning Holden:The Law and PRACTICE of BANKING , Universal Law OF STUDY LESSONSS tudy Lesson No. of BANKING Framework and Aspects of BANKING Related - Customer and for Banker s Analysis of System Contemporary and Emerging Issues.

9 An BANKING BANKING and IT in Management in and Corporate Governance in BanksAnnexuresviiiCONTENTSFINANCIAL, TREASURY AND forex MANAGEMENTLESSON 1 OVERVIEW OF BANKING SYSTEMI ndian BANKING System Evolution2 Reserve Bank of India as a Central Bank of the Country2 State Bank of India and Its associate (Subsidiaries) Banks2 Nationalization of Banks3 Regional Rural Banks4 Local Area Banks4 New Private Sector Banks4 Different Types of Banks in India5 Commercial Banks6Co-Operative BANKING System7 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 Banks11 LESSON ROUND UP12 SELFTEST QUESTIONS12 LESSON 2 REGULATORY FRAMEWORKAND COMPLIANCESR eserve Bank of India Act, 193416 BANKING Regulation Act, 194916 Setting Up of a New Bank18 Branch Licensing19 Branch Authorisation Policy for Commercial Banks19 New Bank Licensing Policy, 201320 Banks Share Holders and their Rights23 Cash Reserve Ratio24 Statutory Liquidity Ratio (SLR)

10 26 Currency Chests28 Currency Printing and Coin Minting28ixPageQuantitative/General Credit Control29 Selective Credit Control30 RBI as a Controller of foreign Exchange31 RBI as Banker to the Government31 RBI as Lender of the Last Resort31 Monetary and Credit Policy32 Audit and Inspection of BANKING Company32 Supervision and Control of BANKING Companies34 Board for Financial Supervision34 Winding Up Amalgamation and Mergers of Banks34 Reserve Bank as Liquidator35 Disclosure of Accounts and Balance Sheets of Banks36 Submission of Returns to RBI42 Fraud Classification and Reporting43 Corporate Governance47 Effective Corporate Governance Practices48 Corporate Governance in Banks48 Prevention of Money Laundering Act, 2002 (PMLA)48 BANKING Codes and Standards Board of India (BSCSBI)50 The BANKING Ombudsman Scheme51 LESSON ROUND UP53 SELFTEST QUESTIONS54 LESSON 3 BANKER CUSTOMER RELATIONSHIPM eaning of a BANKING Company58 Relationship as Debtor and Creditor60 Banker as Trustee61 Banker as Agent62 Obligations of a Banker63 Pass Book and Statement of Account67 Precautions to Be Taken By the Banker and the Customer69 Garnishee Order70 Rights of the Attaching Creditor73 Rights of a Banker73 Exceptions to the Right of General Lien75xPageRight of Set-off76 Right to Charge interest and incidental Charges, Types of Customers79 Closing of a Bank Account - Termination of Banker-Customer Relationship82 Various Deposit Schemes83 Deposits General83 Demand Deposits84 Term Deposits86 Hybrid Deposits or Flexi Deposits Or Multi Option Deposit Scheme (MODS)88 Tailor-Made Deposit Schemes89 Special Schemes for Non-Resident Indians (NRIs)