introduction to the banking..very useful

1. Introduction to
Banking
Mishu Tripathi
Assistant Professor-Finance

2. History of Banking in India-Phase I
• Three presidency banks were established in Calcutta
(1806) in Bombay (1840) and in Madras (1843)
• In the early part of 20th century, on account of the
Swadeshi movement a number of joint stock banks
were established by Indians like Bank of India, Bank of
Baroda and Central Bank of India.
• In 1921 the three presidency banks were merged and
the Imperial Bank of India was created

3. • During the period 1900 to 1925 many banks failed, and
hence a Central Banking Enquiry Committee formed in
1929 to trace the reasons for the failure of such banks.
• The Reserve Bank of India Act was passed in 1934 and
the RBI came into existence in 1935 and RBI was
nationalised in 1949
• The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India

4. Phase II
• In 1955 State Bank of India became the
successor to the Imperial Bank of India ,under
the State Bank of India Act,1955.
• In 1959 State Bank of India (Subsidiary
Banks) Act was passed to enable SBI to take
over State Associated banks as SBI‟s
subsidiaries

5. • In 1969 the Government of India nationalised 14
major commercial banks having deposits of Rs.50
crore or more
• In 1975 Regional Rural Banks were established
under RRB Act 1976, which was preceded by RRB
Ordinance in 1975
• In 1980 six more commercial banks were
nationalised, with a deposit of Rs.200 crore or more

6. Banking Progress in India-Phase III
• In the liberalised, privatised and globalised
environment, banks operating in India have
diversified their banking activities by offering
Banking facilities like:
– Merchant banking
– ATMs/Credit Cards/Internet banking/Mobile
Banking
– Factoring
– Third Party Services
*Time is more important than money

7. What is Banking and its
functions???

8. Definition of a Bank
• The banking is defined as “accepting for
the purpose of lending or investment, of
deposit of money from the public,
repayable on demand or otherwise, and
withdrawal by cheque, draft and order or
otherwise”

9. Features of the Bank
1. Accepting money/deposits from the public
2. Lending or investing the money so collected.
If the purpose of accepting of deposit is not to
lend or invest, the business is not called
banking business.
The money so accepted is repayable on
demand.
The money so deposited can be withdrawn by
the approved modes as specified by bank.

10. Accepting deposits
Accepting deposits is the prime function of a
commercial bank.
They generally accept 3 types of deposits
1. Current Deposits
2. Savings Deposits
3. Term Deposits

11. Current Deposits/Current Account
• Current Deposits/Current Account is also
known as demand deposit as any amount can
be withdrawn at any time by drawing a cheque
or giving the cheque favouring the payee.
• No interest is allowed on these.

12. • In fact bank charges incidental charges
depending on the volume of transactions,
which was earlier, calculated on the basis of
number of folios used.
• If the depositor keeps huge balance in the
account, the bank is ready to waive the
charges, as it is costless deposit for the bank.
• The bank also charges cheque book issuing
charges on per leaf basis.

13. Who can open Current Account
1. Individuals of sound mind and who have attained
majority.
2. Two or more individuals in their joint names.
3. Proprietary Concerns (Sole Proprietorships)
4. Partnerships Firms
5. Hindu Undivided Families
6. Companies

14. 7. Clubs, Societies, Associations, Committees, Schools etc
8. Trusts
9. Executors
10. Administrators
11. Government and Semi-Government Bodies, Local Authorities
etc.
• Based on the current account variant you choose, you will be
eligible for a host of services at free/concessional rates.
• Companies, firms and other business entities primarily use this
account.

15. KNOW YOUR CUSTOMER- KYC
• Know your customer norms are applicable
to all customer accounts. It deals with not
only to identify the customer but also
to understand the activities of the customer,
to ensure that the operations in the customer
account/s is/are for genuine purpose

16. KYC RULES
The main rules are –
1. Customer identification
2. Ceiling and monitoring of cash transactions
3. Internal Control Systems
4. Prevention of Terrorism Finance
5. Identification and Reporting of Suspicious
Transactions
6. Adherence to Foreign Contribution Regulation Act
(FCRA), 1976
7. Record Keeping
8. Training of staff and management

17. Savings deposits/Savings Bank Account
• This account is designed to promote savings
among the households.
• This is mainly for non-commercial transactions.
• Companies, firms and other business entities are
prohibited to open such accounts.

18. Who can open Savings Account
1. An individual in his/her own name
2. Individuals in their joint names with suitable
repayment instructions
3. Minor represented by parent/guardian
4. Minor students above 10 years
5. Clubs, Societies, Associations, Trusts, Executors,
Educational Institutions, Administrators, HUF, etc.

19. Documentation Required
• One passport size photograph
• Identity Proof
• Address Proof
• PAN number or form 60/61 is a must for
opening the account.

20. Savings Account
• The depositor earns interest, which at present is
4%, and the rate of interest is governed by RBI
directive and is same in all the banks.
• Earlier interest is paid on the minimum balance in
the account from 10th of the month to last day of
the month.
• From 1st of April 2010 the interest is paid based
on daily balance in the account.
• There are restrictions on number of withdrawals
in a year.
• Banks issue certain cheque leaves free: 60 cheque
leaves free in a year and Rs 5 per cheque leaf
beyond that.

21. • There is a restriction for maintaining minimum
balance in the account, which is fixed at the
discretion of the bank.
• Quarterly Average Balance - Rs 250/- at Rural
Branches and Rs 500/- at semi urban Branches
and Rs 1,000 in Metro and urban branches.
• Non-maintenance of QAB attracts a service
charge of Rs 75/- per quarter.

22. • The balance can be withdrawn by issuing cheques or one
can have ATM/Debit Card.
• Depositor can give standing instructions to transfer funds
from the account to his other accounts like recurring
deposit every month for which the charges have to be
paid.
• Banks have the system of transferring any sum above the
stipulated amount to a term deposit of the desired period
to enable the depositor to avail of higher rate of interest.

23. Term deposit
• While opening the term deposit one has to state the
period for which the deposit is required and the rate
of interest on deposit is dependent on period of
deposit.
• At present the deposit rate varies from 8.25-9.10%
• The minimum period at present is 7 days and
maximum is 10 years.
• The bank prescribes the rules for premature
withdrawals and charges penalty for premature
withdrawal.

24. • If the depositor wants funds for short term,
temporarily or the maturity of deposit is just
near, he can opt for a loan against the security
of such deposit.
• The quantum of loan can be 90% of deposit
inclusive of interest.
• While the depositor continues to earn interest
on his deposits, he has to pay interest on the
loan raised, which is higher than the rate of
deposit.

25. Different schemes of term deposits
1. Monthly interest scheme.
2. Half yearly interest scheme.
3. Reinvestment plan wherein the interest
earned on deposit at the end of each quarter
/half year is deemed to be invested and the
depositor earns interest on principal and
interest.

26. Recurring deposit
• It is classified as term deposit and the depositor
opts for depositing a fixed amount every month
for a stated number of months. The rate of interest
is same as in the case of fixed deposit.
• At the request of depositor the bank will debit the
customers operative account for the credit of
recurring deposit every month.
• The depositor can withdraw the balance
prematurely or can raise a loan at the security of
recurring deposit.

27. Tax deduction at source on interest (TDS)
• Banks are statutorily required to deduct income tax (@
10%+ 3 % education cess on tax so calculated) if the
interest paid or accrued in all the deposits of a
particular depositor exceeds Rs 10000/ in a financial
year.
• If the depositor does not furnish his PAN, in that case
the bank will deduct TDS at 20% + 3% education cess
on tax deducted.
• There is no TDS on Savings Bank Account.
• Banks will not deduct TDS in case the depositor gives
a declaration in Form 15 G (15 H for senior citizens) in
duplicate stating that the tax on estimated income of the
recipient for the financial year will be NIL.

28. Introduction for opening a bank account
• For opening an account particularly operating
account in a bank, bank requires the customers
to bring introduction from a customer known
to the bank.
• Banks incur great risk if they open an account
without proper introduction.
• Nomination is also encouraged.

29. Advancing of Loans
• The second most primary function of a
commercial bank is to ‘Lend’.
• In fact lending and accepting deposit are bread
and butter of a commercial banks.

30. Loans are given for
• Consumption
• Trade and Commerce
• Agriculture
• Small Scale Industries (SSIs)
• Industrial Loans
• Export or Imports
• Vehicle
• Housing and
• you name and bank will tailor make the
scheme to suit the class of borrowers

31. • Loans may be fund based or non-fund based
(wherein bank guarantee or LC is issued)
• Loan may be fixed duration- term loans In
this case a fixed amount is given.
• These loans are given to acquire some assets
like, machinery, land and buildings, car, house
etc.
• This is repayable in equated
monthly/quarterly/yearly installments along
with monthly interest
• The assets purchased out of bank finance are
taken as security.

32. • Loans may be in the form of running account - cash credit or
overdraft.
• “Working capital needs” means funds required to meet day to
day working of the borrower like buying raw materials, day –
to- day expenses, wages and salaries etc.
• Therefore to meet the needs of working capital (day to day
requirement) amount given by a bank is in the form of running
account.
• The bank fixes the limit of the borrower. The borrower can
withdraw the amount as per his requirements mainly for
purchasing of goods, payment of expenses and sale proceeds is
deposited by him.
• The bank charges interest on the balance drawn by the
borrower and not on the limit fixed. This way the borrower
will be paying interest for the amount withdrawn and for the
period it is withdrawn.

33. Bills Discounting/Cheque Discounting
• A trader receives bill of exchange or cheque in
settlement of his claim from the debtor.
• The banker discounts or purchases the bills or
cheques of their customers and provide him with
funds which can be used by the borrower for meeting
his working capital requirements.

34. Bills Discounting/Cheque Discounting
• Example:
• „A‟ a trader has sold goods to a trader „B‟ at Delhi for Rs 1 lac.
• B‟ has given a cheque to „A‟ for Rs 1 lac for settlement of his dues.
The cheque is drawn at Delhi.
• If „A‟ deposits the same in his account it will take about 10 to 15
days for the cheque to be cleared as the cheque will be treated as
outstation.
• If „A‟ is in urgent need of funds he can request his banker to
purchase the cheque.
• The bank depending on the nature of dealing of „A‟ will purchase
the cheque and after deducting bank‟s charges known as discount
charges, give credit to „A‟.
• Bank will send the cheque to Delhi for collection and after it is
realized, clears its entry.
• If the cheque is returned, bank will recover from „A‟.
• This way the trader gets credit against their outstandings.

35. • Loans given by the banks are classified as
secured, unsecured or partly secured.
• If the banks have not taken any security
then it is called unsecured (clean loan).
Examples of unsecured loans are:
1. Agriculture loans
2. Educational loans etc

36. • In the case of unsecured loans the banker relies
on the credit worthiness of the borrower and take
one or more guarantor to ensure safety of the
advance.
• Secured loans are those loans against which the
banker holds some security.
• Partly secured loans are those where the value of
security does not fully cover the amount of loan
taken

37. • Bankers generally do not finance the full
amount of the asset to be purchased but asks
the borrower to bring a margin which varies
from 10 to 15% depending on the type of
security and the credit worthiness of the
borrower.
• The purpose of taking margin is to cover the
fall in the value of security and also the
increase in the amount of outstanding of the
borrower on account of interest, if the
borrower does not pay any amount.

38. Some Examples of Secured Loans
Purpose Security
Car/Vehicle Loan Car/Vehicle
Housing Loans House
Machinery Loans Machinery
Television/ Refrigerator Television/ Refrigerator
Loans
Inventory Inventory

39. Bank Guarantee
• In the case of Bank Guarantee the bank undertakes to pay the
stated amount to the beneficiary of bank guarantee in case of
default in meeting the obligation.
• Example: Suppose „A‟ wants to get a machine manufactured
from „B‟ for Rs 10 lac.
• They are not regularly dealing with each other as machines are
not bought everyday. The machine is suitable only for „A‟ and
may not be of any use to any body else.
• If „B‟ asks „A‟ to pay the cost of machine of Rs 10 lac before
„B‟ starts manufacturing the machine.
• „A‟ may not give because of fear if „B‟ does not manufacture or
delay he will lose the money and have to litigate the matter for
recovery.

40. • On the other hand if „B‟ starts manufacturing and later on
„A does not take delivery and does not pay, „B‟ will suffer a
great loss.
• To mitigate the hardship „B‟ asks „A‟ to arrange for a bank
guarantee in his favour for Rs 10 lacs.
• In the Bank guarantee the bank will undertake to make
payment to „B‟ if he delivers the machine to „A‟
• In Bank Guarantee document, the conditions and date of
delivery etc will be clearly written.
• Bank will charge its commission for issuing bank guarantee.
• Bank is not parting with the funds when they issue bank
guarantee.
• But bank has to part with the funds if „A‟ does not pay when
the machine is delivered.
• Banks issue Bank guarantee to their credit worthy
borrowers and after taking suitable security.

41. Letter of Credit (L/C)
• M/s ABC Ltd. an exporter of shirts to USA receives and
order from M/s XYZ from USA.
• In the normal course they have two options:
• One is to ask M/s XYZ to send the money in advance
so that the shirt may be sent.
• This may not be accepted by the importer i.e. M/s XYZ
as if M/s ABC does not send the shirts, they will suffer.
There is risk on the part of importer.
• Second option is to send the shirts and wait for the
payment.
• The importer M/s XYZ may delay or not send the
payment or may even reject the goods leading to
litigation in USA.
• The risk is on the part of exporter.

42. • To mitigate the problem the exporter will request
the importer to send a letter of credit from a
reputed bank who will guarantee payment if the
export is made and all the conditions governing
the export is complied with.
• This way the bank is undertaking to make
payment. Bank is substituting the credit of
borrower with his own credit.
• This way neither the exporter will suffer due to
lack of clarity on the credit worthiness of the
importer nor the importer will suffer as the
payment will be made only after the export has
been done and all the conditions are complied
with.
• This is called non-fund based facility.

43. Principles of Lending

44. “Lending is an art not a science.”
• This maxim indicates that there are no set rules
or formulae to appraise loan applications
providing cent percent results.
• Appraisal, by whatever methods, can never be
an exact or automatic process.
• It will always remain more of an art than a
science and it is through experience that a
person becomes proficient in the art of lending.

45. Factors in Lending
Systematic study of various factors shall help a
banker in working out the feasibility of the
project and evaluating credit worthiness of the
borrower although the risk can never be fully
eliminated in lending.

46. 5Ms
• Man
• Material
• Market
• Machine and
• Money
Under these five heads we shall examine various
other aspects related to them.

47. Man
The foremost and the most important aspect of
appraisal is the man behind the scene i.e., the
management.
• The Character
• Competence and
• Capital

48. Character: Will he repay the loan?
• In banking parlance, character is usually
associated with the record of past payments of
the party with the banker other creditors.
• If past financial record is not good, it is better
to drop the proposal even if good security is
available.
• A banker can bear with borrower who is not
able to pay because of circumstances beyond
his control but he cannot do with a borrower
who is not willing to pay.

49. • In the absence of past record one has to see
other traits of a borrower like frankness,
reasonableness, patience, attitude towards risk
and other entrepreneurial qualities.
• An experienced banker can draw conclusions
during the course of an interview.

50. Competence: Can he repay the loan?
1. Managerial Competence
• It is a decisive factor influencing the failure or
success of an enterprise.
• Fluctuating availability of supplies, changing
technology, rising prices, shifting tastes and
stiff competition enlarge the role of
management decision in success.

51. • In the era of competition the evaluation of the earning
process and projections is not very reliable and the tendency
to depend merely on the analysis of financial statements
may not be free from risk unless supplemented by
managerial competence.
• No lender can possibly foresee all the future circumstances
that will affect the fortune of the borrower. But if he is
satisfied by the superior ability of the management, he can
reduce the risk to a great extent.
• Appraisal of management is the touch-stone of credit
analysis.

52. 2. Technical Competence
Capital: What is the owner’s stake in the
business?
Capital indicates the financial resources available
at the borrower‟s end. From the banker‟s point of
view these resources can be classified into three
divisions, namely, margin, principal security and
collateral.

53. Margin
• Margin is the amount invested by the borrower
himself and is asked for, for providing protection
to bankers against a possible decline in value.
Thus, margin indicates the owner‟s stake, which
very often governs his motivation.
• A sound banking proposition requires the
presence of some security in order to cover the
risk in lending.
• Such security can be of two types: (a) Principal
security and (b) Additional security, popularly
known as collateral.

54. The Principal Security
• It is the main security consisting of goods,
machinery etc created out of the funds lent.
• It is quite natural that bank will like to create
charge over such security in order to secure
their advance. The charge can be in the form of
pledge, hypothecation, assignment, mortgage,
etc. If no charge is obtained, the advance can
be considered as clean advance.

55. A good security should possess four
qualities, namely:
• Marketability
• Ascertain ability of value
• Stability of value
• Transferability of ownership

56. The Collateral
• When the principal security does not
adequately cover the future risks, bankers do
insist for collateral as a measure of protection.
• The traditional banking laid lot of emphasis on
collateral often paying little attention to other
factors. But for small borrowers or small scale
industries the approach suggested by the
regulators is to go for need based lending
rather than security based lending so that a
good entrepreneur should not be denied the
finance in the absence of security.

57. • No banker should begin with hypothesis that
the repayment of loans shall come by the sale
of collateral; rather it should come out of the
generation of surplus.
• If the collateral is available, it must be insisted
upon as it will discourage the borrower from
fraud and also create motivation.

58. Material
This head include not only availability of raw
material but also other infrastructural facilities
like skilled labour, power or fuel, water,
transport facilities, appropriate technology and
proper location.

59. Raw Material
• Raw material is one of the basic requirements
of an industrial enterprise.
• The availability of raw material whether
imported or indigenous must be properly
assessed.
• A prudent lender shall always ensure that the
enterprise will be able to get the required raw
material at competitive rates.

60. Skilled Labour
There is no dearth of unskilled labour in any
part of the country. But some enterprises
require highly skilled labour, which may not
be available at all places.

61. Power and Fuel
Availability of power and fuel is very much
essential for certain enterprises and in some
industries the requirement is uninterrupted
power.

62. Water
Certain enterprises like chemical unit or a
tannery require abundant supply of water.

63. Transport Facilities
• Inadequate transport facilities can adversely
affect an otherwise sound project.
• Certain units, which have railway siding, save
a lot on transportation costs and may fare
better than those with transport bottlenecks.
• Special care should be exercised while
granting loans to projects in remote areas

64. Technology
• Sometimes technical processes are adopted from
abroad without due regard to differences in
climatic, geographical and economic conditions.
• If any imported technical process is involved, the
technology has to be fully examined by a
specialist agency, to ascertain whether it suits
Indian conditions.

65. Location
• The success of a project is also dependent on its proper
location, yielding advantages like nearness to the
source of raw material, market, skills, etc.
• The importance of these aspects shall vary from
product to product depending upon its nature and type.
• Like cement or steel industry has to be near its raw
material. In the case of sports goods and handicrafts,
where skill is very important the unit should be at a
place where skilled labour is available.

66. Market
• An examination of this aspect is very important and any
slackness in this regard may prove costly for the lender.
• Even if the borrower is honest and competent and
physical facilities are also available, if the final product is
not saleable, all finance is bound to prove a waste.
• For investigating the marketing potential, an examination
of the following aspects may be required………

67. The Total Demand and Supply of the Product
• The total demand and supply position of a
product as envisaged by the borrower should
be properly examined.

68. The Past Trend of Sales and
Inventory Hold–Ups
The financial statements of the earlier years
shall reveal the trends of sales, i.e., whether
they are stagnant, increasing or decreasing.
Increasing accumulation of finished goods
every year may also indicate low saleability
unless otherwise explained for.

69. The Stage in the life Cycle
• Normally every enterprise during its lifetime passes
through four stages, namely, infancy, growth,
maturity and saturation or decline. During the
“infancy” stage the enterprise will have low sales and
a lot of teething problems too.
• The financial requirements for long-term investments
shall be high and the working capital will also be high
as compared to volume of business.
• This is like an „experimental stage „ and mortality rate
is quite high.

70. • But if the project is well planned it will reach
the growth stage during which the sales will
grow very rapidly and an increased plant
capacity will be utilized.
• This can be called as the exploitation stage and
due to rapid growth of sales the working
capital requirement shall be high at this stage.

71. • Once the installed capacity is fully utilized, the
enterprise may move to the maturity stage
where the sales shall become stagnant, as they
cannot be increased in spite of existing
demand.
• It affects the competitive strength of the
enterprise.
• Decline may also set in due to appearance of
product substitutes or the saturation of
demand.
• The efficiency of a good management lies in
forestalling the “maturity” or “decline” stage
by taking suitable steps in advance.

72. The scope and Area of market
• Some times the enterprise has orders from a
department of the government and they are
going ahead on the strength of that, the banker
must examine its saleability otherwise also
incase the Government department or any
company user cancels the order the enterprise
should not find it difficult to sell.
• The contract between the parent company with
the ancillary unit should be carefully
examined.

73. The Nature of Competition
• The competitive position of the enterprise
needs to be examined in detail. This is possible
only when details of other enterprises in the
industry with regard to capacity utilization, age
of plant and machinery, technology adopted,
costs, prices etc. are also available.
• These facts if available, shall help in making a
comparative study for working out cost
advantages and finding out the nature of
competition within industry

74. • Besides examining the present marketing
position of the product, the possible future
market potential should also be examined.
• Such estimates for future can never be wholly
accurate or absolutely reliable. Even in
developed countries where adequate data is
available and the latest statistical techniques
are employed for forecasts, they only prove as
probable or at best approximations.
• We can say that very accurate estimation is
neither possible nor aimed at, but estimate may
still help in approximating the range within
which the demand for any product will vary.

75. Machinery
• The banks have to examine the installed capacity as
compared to the demand of the product.
• Whether the technology used is appropriate not outdated. It
should be examined that when the need is of low precision,
a high caliber machine with high cost should not be
installed, and vice versa.
• This may be counter productive and uneconomical. The
plant and machinery should have a balanced process with
the least bottlenecks.

76. Money
The money is required for two purposes, i.e., to
acquire capital assets, and to meet working capital
requirements.
The financial requirements for these two purposes
can be partly met by own investment in the form
of capital together with reserve funds, if any, and
partly by loans and advances from institutional as
well as non-institutional sources.
For acquiring capital assets, either long term or
medium term loans may be required. These are
called term loans.
For working capital purposes, loans are required
for a short duration. It is called working capital
facilities.

77. Term Loans
• These are required to acquire capital assets like
land and building, plant and machinery.
• Large incorporated bodies will finance these
by issuing equity, debts etc but the small firms
have to depend on borrowings from banks and
other term lending institutions for this purpose.
• In the case of term loans, banks shall have to
find out the probability of the borrower being
able to meet the interest and the installment of
the loan.

78. Working Capital Facilities/Short Term Loan
• These are required to hold inventory consisting of
raw materials, stores, work in process and the
finished goods and debtors arising out of credit
sales and also to meet other day-to-day
obligations and expenses.
• Some of these expenses are financed by creditors
and also advance from suppliers. The difference is
to be financed.

79. The banks because of their maturity pattern of
deposits, which are mostly payable on demand
and even there is provision for premature
withdrawal of term deposits, prefer to grant
working capital finance in the form of:
1. Cash credit against hypothecation or pledge
of stocks.
2. Overdraft
3. Bill discounting facility
4. Loans against Book Debts.
5. Working capital term loans.

80. 6. Non-fund based facilities in the form of letters
of credit and bank guarantees.
7. Export finance in the form of pre shipment
credit and post shipment credit.
• Banks do not finance whole of the working
capital required but the borrower is required to
bring in margin, which is generally to the
extent of 25% but can be less also.
• The principle is that the finance should not be
excessive so as to give scope for diversion of
funds and also should not be less as the
enterprise may come to stand still.

81. Other Services
offered by banks

82. 1. Internet Banking
2. Telephone Banking
3. Mobile Banking
4. On-line trading in shares
5. Bills payment on- line
6. Booking air/ railway tickets on- line
7. Bills payment on-line
8. Cash Management Services

83. 9. On-line remittance facility-RTGS/NEFT etc
10. Sale of third party products – Mutual fund
schemes/insurance
11. Safe Custody
12. Safe deposit vault
13. Depository Services
14. Tax payments on-line
15. Counseling Services

84. Cash Management Services
• In today's competitive market place, effective
management of cash flows can make the difference
between success and failure
• The cash management product usually offers corporate
customers fast track cheque collections, speedier
release of funds and profitable funds management, at a
reasonable cost
• Payments received from buyers and made to suppliers
of a corporate client are efficiently processed to
optimize cash flow position and to ensure the effective
management of business' operating funds
• The flow of receivables and payables can also usually
be seen on-line.

85. Depository Services
With a view to adding value to banking
services and making available the numerous
benefits of depository system to clients, banks
in India offer Demat services through either
Depositories viz. National Securities
Depository Limited (NSDL) or Central
Depository Services (India) Ltd. (CDSL) or
both by becoming a sub-participant.

86. Counseling Services
The following are the usual objectives of counseling services
provided by some banks.
• Advising on gaining access to structured financial system
including banking
• Creating awareness among the public about financial
management
• Counseling people who are struggling to meet the repayment
obligations and helping debt resolution
• Helping in rehabilitation of borrowers in friendly and timely
guidance not only to mitigate the immediate stress of the
trapped individuals and their households, but also to help to
infuse confidence in others who are in distress.

87. Relationship between banker and customer
• The relation of debtor and creditor:
• The relation of banker and customer is primarily
that of debtor and creditor and the respective
position is determined by the state of the account.
• The money deposited in a bank becomes the
property of the bank and is absolutely at its
disposal.
• The bank has to return the money to the customer
on his demanding in a manner as agreed and as
per the practice.
• The bank is not required to return the same notes
as were accepted.

88. Differences
(Relationship of debtor and creditor)
• The creditor (depositor) must demand payment
• In the case of deposit in a bank, the debtor (bank) is not
required to repay the amount on his own. It is essential
that the depositor (creditor) must demand the payment
of the deposit in a proper manner. If the bank returns
the money on its own then the bank will be dishonoring
the cheques of the customer.
• According to statutory definition of banking, it is
clearly stated that the deposits are payable on demand.
This way the relationship of a banker and customer
differs from the ordinary relationship of debtor and
creditor.

89. Proper place and time of demand
• The demand by the customer (creditor) must
be made at a proper place and at a proper time.
A bank may have number of branches but the
depositor (creditor) has to make his demand at
the same branch unless the bank has agreed to
pay money at other places. The demand must
be made during banking hours and on working
days.

90. The demand must be made in proper manner
• The demand for money must be made in a
proper manner i.e., through cheque or by an
order or in a mode, which is of common usage.
• Nowadays the facility of ATMs are available
where the amount can be withdrawn without
cheques but one have to order the bank
through machine after putting his
password/PIN.

91. Banker as Trustee
• Trustee is a person who holds valuables,
articles or may be money in trust. Normally in
the usual course of banking i.e., accepting
deposits, the bank is not a trustee otherwise he
has to return the money in the same form,
same notes as were accepted by them.
• The example of trustee is that when a customer
deposits his securities or other valuables with
the bank.

92. Banker as Trustee
• The position of the bank, whether he is a
trustee or debtor depends on the circumstances
of each case
• The relationship between the banker and
customer as a trustee and beneficiary depends
on the specific instruction given by him to the
bank regarding the purpose and use of money
and documents entrusted to the banker.

93. Banker as agent
• When a banker buys or sells securities on
behalf of his customer, he performs an agency
function. Similarly, when he collects cheques,
dividends, bills or promissory notes on behalf
of his customer, he acts as his agent.
• Besides he may also act in other agency
capacities, for example, as trustee, attorney,
executor, correspondent or a representative.