1. HISTORY OF BANKING IN INDIA

Banking in India was originated in the last decades of the 18th century. The first banks were

Bank of Hindustan (1770-1829) and The General Bank of India, established 1786 and since

defunct.

The largest bank, and the oldest still in existence, is the State Bank of India, which originated in

the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This

was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of

Madras, all three of which were established under charters from the British East India Company.

The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's

independence, became the State Bank of India in 1955. For many years the presidency banks

acted as quasi-central banks, as did their successors, until the Reserve Bank of India was

established in 1935.

In 1969 the Indian government nationalized all the major banks that it did not already own and

these have remained under government ownership. They are run under a structure known as

'profit-making public sector undertaking' (PSU) and are allowed to compete and operate

as commercial banks. The Indian banking sector is made up of four types of banks, as well as the

PSUs and the state banks, they have been joined since 1990s by new private commercial banks

and a number of foreign banks.

Banking in India was generally fairly mature in terms of supply, product range and reach-even

though reach in rural India and to the poor still remains a challenge. The government has

developed initiatives to address this through the State bank of India expanding its branch

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network and through the National Bank for Agriculture and Rural Development with things

like microfinance.

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2. TYPES OF BANK

WHAT ARE COMMERCIAL BANKS ?

Commercial banks may be defined as, any banking organization that deals with the deposits and

loans of business organizations

Commercial banks issue bank checks and drafts, as well as accept money on term

deposits.  Commercial banks also act as moneylenders, by way of installment loans and

overdrafts.

Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and

time deposit. These institutions are run to make a profit and owned by a group of individuals.

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3. THE COMMERCIAL BANKS IN INDIA MAY BE BROADLY CLASSIFIED

INTO THE FOLLOWING CATEGORIES:

Public   Sector /Nationalized Banks –

1. Allahabad Bank

2. Bank of Baroda

3. Bank of Maharashtra

4. Bank of India

5. Canara Bank

6. Central Bank of India

7. Dena Bank

8. Indian Bank

9. Indian Overseas Bank

10. Punjab National Bank

Private Sector Banks (Indian) –

1. Vysya Bank Ltd

2. Axis Bank Ltd

3. Indus land Bank Ltd

4. ICICI Banking Corporation Bank Ltd

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5. Global Trust Bank Ltd

6. HDFC Bank Ltd

7. Centurion Bank Ltd

8. Bank of Punjab Ltd

Foreign Commercial Banks –

1. American Express Bank Ltd.

2. ANZ Grid lays Bank Plc.

3. Bank of America NT & SA

4. Bank of Tokyo Ltd.

5. Banquo National de Paris

6. Barclays Bank Plc.

7. Citi Bank N.C.

8. Deutsche Bank A.G.

9. Hong Kong and Shanghai Banking Corporation

10. Standard Chartered Bank.

11. The Chase Manhattan Bank Ltd.

12. Dresdner Bank AG.

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4. FUNCTIONS OF COMMERCIAL BANKS

Commercial banks have to perform a variety of functions which are common to both developed

and developing countries. These are known as ‘General Banking’ functions of the commercial

banks. The modern banks perform a variety of functions. These can be broadly divided into two

categories:

(a) Primary functions and

(b) Secondary functions.

A. Primary Functions

Primary banking functions of the commercial banks include:

Acceptance of Deposits: Accepting deposits is the primary function of a commercial bank

mobilize savings of the household sector. Banks generally accept three types of deposits viz., (a)

Current Deposits (b) Savings Deposits, and (c) Fixed Deposits.

Current Deposits: These deposits are also known as demand deposits. These deposits can be

withdrawn at any time. Generally, no interest is allowed on current deposits, and in case, the

customer is required to leave a minimum balance undrawn with the bank. Cheques are used to

withdraw the amount. These deposits are kept by businessmen and industrialists who receive and

make large payments through banks. The bank levies certain incidental charges on the customer

for the services rendered by it.

Savings Deposits: This is meant mainly for professional men and middle class people to help

them deposit their small savings. It can be opened without any introduction. Money can be

deposited at any time but the maximum cannot go beyond a certain limit. There is a restriction on

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the amount that can be withdrawn at a particular time or during a week. If the customer wishes to

withdraw more than the specified amount at any one time, he has to give prior notice. Interest is

allowed on the credit balance of this account. The rate of interest is greater than the rate of

interest on the current deposits and less than that on fixed deposit. This system greatly

encourages the habit of thrift or savings.

Fixed Deposits: These deposits are also known as time deposits. These deposits cannot be

withdrawn before the expiry of the period for which they are deposited or without giving a prior

notice for withdrawal. If the depositor is in need of money, he has to borrow on the security of

this account and pay a slightly higher rate of interest to the bank. They are attracted by the

payment of interest which is usually higher for longer period. Fixed deposits are liked by

depositors both for their safety and as well as for their interest. In India, they are accepted

between three months and ten years.

Advancing Loans: The second primary function of a commercial bank is to make loans and

advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are made

against personal security, gold and silver, stocks of goods and other assets. The most common

way of lending is by:

Overdraft Facilities: In this case, the depositor in a current account is allowed to draw over and

above his account up to a previously agreed limit. Suppose a businessman has only Rs. 30,000/-

in his current account in a bank but requires Rs. 60,000/- to meet his expenses. He may approach

his bank and borrow the additional amount of Rs. 30,000/-. The bank allows the customer to

overdraw his account through cheques. The bank, however, charges interest only on the amount

overdrawn from the account. This type of loan is very popular with the Indian businessmen.

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Cash Credit: Under this account, the bank gives loans to the borrowers against certain security.

But the entire loan is not given at one particular time, instead the amount is credited into his

account in the bank; but under emergency cash will be given. The borrower is required to pay

interest only on the amount of credit availed to him. He will be allowed to withdraw small sums

of money according to his requirements through cheques, but he cannot exceed the credit limit

allowed to him. Besides, the bank can also give specified loan to a person, for a firm against

some collateral security. The bank can recall such loans at its option.

Discounting Bills of Exchange: This is another type of lending which is very popular with the

modern banks. The holder of a bill can get it discounted by the bank, when he is in need of

money. After deducting its commission, the bank pays the present price of the bill to the holder.

Such bills form good investment for a bank. They provide a very liquid asset which can be

quickly turned into cash. The commercial banks can rediscount, the discounted bills with the

central banks when they are in need of money. These bills are safe and secured bills. When the

bill matures the bank can secure its payment from the party which had accepted the bill.

Creation of Credit: A unique function of the bank is to create credit. Banks supply money to

traders and manufacturers. They also create or manufacture money. Bank deposits are regarded

as money. They are as good as cash. The reason is they can be used for the purchase of goods

and services and also in payment of debts. When a bank grants a loan to its customer, it does not

pay cash. It simply credits the account of the borrower. He can withdraw the amount whenever

he wants by a cheque. In this case, bank has created a deposit without receiving cash. That is,

banks are said to have created credit. Sayers says “banks are not merely purveyors of money, but

also in an important sense, manufacturers of money.”

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Promote the Use of Cheques: The commercial banks render an important service by providing

to their customers a cheap medium of exchange like cheques. It is found much more convenient

to settle debts through cheques rather than through the use of cash. The cheque is the most

developed type of credit instrument in the money market.

Financing Internal and Foreign Trade: The bank finances internal and foreign trade through

discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the

security of commercial papers. This discounting business greatly facilitates the movement of

internal and external trade.

Remittance of Funds: Commercial banks, on account of their network of branches throughout

the country, also provide facilities to remit funds from one place to another for their customers

by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges.

As compared to the postal money orders or other instruments, bank drafts have proved to be a

much cheaper mode of transferring money and has helped the business community considerably.

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5. SECONDARY FUNCTIONS

Secondary banking functions of the commercial banks include:

1. Agency Services

2. General Utility Services

These are discussed below.

Agency Services: Banks also perform certain agency functions for and on behalf of their

customers. The agency services are of immense value to the people at large.

The various agency services rendered by banks are as follows:

(a) Collection and Payment of Credit Instruments: Banks collect and pay various credit

instruments like cheques, bills of exchange, promissory notes etc., on behalf of their customers.

(b) Purchase and Sale of Securities: Banks purchase and sell various securities like shares,

stocks, bonds, debentures on behalf of their customers.

(c) Collection of Dividends on Shares: Banks collect dividends and interest on shares and

debentures of their customers and credit them to their accounts.

(d) Acts as Correspondent: Sometimes banks act as representative and correspondents of their

customers. They get passports, traveler’s tickets and even secure air and sea passages for their

customers.

(e) Income-tax Consultancy: Banks may also employ income tax experts to prepare income tax

returns for their customers and to help them to get refund of income tax.

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(f) Execution of Standing Orders: Banks execute the standing instructions of their customers

for making various periodic payments. They pay subscriptions, rents, insurance premia etc., on

behalf of their customers.

(g) Acts as Trustee and Executor: Banks preserve the ‘Wills’ of their customers and execute

them after their death.

2. General Utility Services: In addition to agency services, the modern banks provide many

general utility services for the community as given.

Locker Facility: Bank provide locker facility to their customers. The customers can keep their

valuables, such as gold and silver ornaments, important documents; shares and debentures in

these lockers for safe custody.

Traveler’s Cheques and Credit Cards: Banks issue traveler’s cheques to help their customers

to travel without the fear of theft or loss of money. With this facility, the customers need not take

the risk of carrying cash with them during their travels.

Letter of Credit: Letters of credit are issued by the banks to their customers certifying their

credit worthiness. Letters of credit are very useful in foreign trade.

Collection of Statistics: Banks collect statistics giving important information relating to trade,

commerce, industries, money and banking. They also publish valuable journals and bulletins

containing articles on economic and financial matters.

Acting Referee: Banks may act as referees with respect to the financial standing, business

reputation and respectability of customers.

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Underwriting Securities: Banks underwrite the shares and debentures issued by the

Government, public or private companies.

Gift Cheques: Some banks issue cheques of various denominations to be used on auspicious

occasions.

Accepting Bills of Exchange on Behalf of Customers: Sometimes, banks accept bills of

exchange, internal as well as foreign, on behalf of their customers. It enables customers to import

goods.

Merchant Banking: Some commercial banks have opened merchant banking divisions to

provide merchant banking services.

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6. COMMERCIAL BANKS AND ECONOMIC DEVELOPMENT

Commercial banks are considered not merely as dealers in money but also the leaders in

economic development. They are not only the store houses of the country’s wealth but also the

reservoirs of resources necessary for economic development. They play an important role in the

economic development of a country. A well-developed banking system is essential for the

economic development of a country. The “Industrial Revolution” in Europe in the 19th century

would not have been possible without a sound system of commercial banking.

In case of developing countries like India, the commercial banks are considered to be the

backbone of the economy. Commercial banks can contribute to a country’s economic

development in the following ways:

Accelerating the Rate of Capital Formation: Capital formation is the most important determinant

of economic development. The basic problem of a developing economy is slow rate of capital

formation. Banks promote capital formation. They encourage the habit of saving among people.

They mobilize idle resources for production purposes. Economic development depends upon the

diversion of economic resources from consumption to capital formation. Banks help in this

direction by encouraging saving and mobilizing them for productive uses.

Provision of Finance and Credit: Commercial banks are a very important source of finance

and credit for industry and trade. Credit is a pillar of development. Credit lubricates all

commerce and trade. Banks become the nerve center of all commerce and trade. Banks are

instruments for developing internal as well as external trade.

Monetization of Economy: An underdeveloped economy is characterized by the existence of a

large non-monetized sector. The existence of this non-monetized sector is a hindrance in the

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economic development of the country. The banks, by opening branches in rural and backward

areas can promote the process of monetization (conversion of debt into money) in the economy.

Innovations: Innovations are an essential prerequisite for economic development. These

innovations are mostly financed by bank credit in the developed countries. But in

underdeveloped countries, entrepreneurs hesitate to invest in new ventures and undertake

innovations largely due to lack of funds. Facilities of bank loans enable the entrepreneurs to step

up their investment on innovational activities, adopt new methods of production and increase

productive capacity of the economy.

Implementation of Monetary Policy: Economic development need an appropriate monetary

policy. But a well-developed banking is a necessary pre-condition for the effective

implementation of the monetary policy. Control and regulation of credit by the monetary

authority is not possible without the active co-operation of the banking system in the country.

Encouragement to Right Type of Industries: Banks generally provide financial resources to

the right type of industries to secure the necessary material, machines and other inputs. In this

way they influence the nature and volume of industrial production.

Promote Industrial Development: Industrial development needs finance. In some countries,

commercial banks encouraged industrial development by granting long-term loans also. Loan or

credit is a pillar to development. In underdeveloped countries like India, commercial banks are

granting short-term and medium-term loans to industries. They are also underwriting the issue of

shares and debentures by industrial concerns. This helps industrial concerns to secure adequate

capital for their establishment, expansion and modernization. Commercial banks are also helping

manufacturers to secure machinery and equipment from foreign countries under instalment

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system by guaranteeing deferred payments. Thus, banks promote or encourage industrial

development.

Regional Development: Banks can also play an important role in achieving balanced

development in different regions of the country. They transfer surplus capital from the developed

regions to the less developed regions, where it is scarce and most needed. This reallocation of

funds between regions will promote economic development in underdeveloped areas of the

country.

Promote Commercial Virtues: The businessmen are more afraid of a banker than a preacher.

The businessmen should have certain business qualities like industry, forethought, honesty and

punctuality. These qualities are called “commercial virtues” which are essential for rapid

economic progress. The banker is in a better position to promote commercial virtues. Banks are

called “public conservators of commercial virtues.”

Fulfillment of Socio-economic Objectives: In recent years, commercial banks, particularly in

developing countries, have been called upon to help achieve certain socio-economic objectives

laid down by the state. For example, nationalized bank in India have framed special innovative

schemes of credit to help small agriculturists, self-employed persons and retailers through loans

and advances at concessional rates of interest. Banking is thus used to achieve the national policy

objectives of reducing inequalities of income and wealth, removal of poverty and elimination of

unemployment in the country.

Thus, banks in a developing country have to play a dynamic role. Economic development places

heavy demand on the resources and ingenuity of the banking system. It has to respond to the

multifarious economic needs of a developing country. Traditional views and methods may have

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to be discarded. “An Institution, such as the banking system, which touches and should touch the

lives of millions, has necessarily to be inspired by a larger social purpose and has to sub serve

national priorities and objectives.” A well-developed banking system provides a firm and durable

foundation for the economic development of the country.

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7. BANK’S POLICY ON CUSTOMER SERVICE

“A customer is the most important visitor on our premises; he is not dependent on us. We are

dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an

outsider in our business. He is part of it. We are not doing him a favor by serving him. He is

doing us a favor by giving us an opportunity to do so.” – Mahatma Gandhi

The Bank’s Policy on Customer Service is inspired by the above precious words of the Mahatma

And based on the following cardinal principles.

Courtesy:

The least that every visitor to a branch- be he a customer or a casual visitor- deserves is

courteous behavior from the Bank’s staff. Therefore, first and foremost, every customer shall be

extended all due courtesies, whether or not the Bank is in a position to meet his need/s. Every

customer who comes in shall be greeted in an appropriate manner with a smile and made to feel

Comfortable. All forms of non-face-to-face communication with the customer including

telephonic calls and E-mail shall also be courteous. This basic minimum entitlement of every

customer shall be unfailingly ensured by every staff member during his/her interactions with

Customers.

Communication:

While communicating with customers on behalf of the Bank either orally or otherwise,

employees shall make it a point to identify themselves. They shall also try to follow the 3 Cs of

good communication- Correctness, Conciseness and Considerateness. Wherever, channels like

E-Mail, SMS etc. are employed for sending communication which is sensitive in nature or which

has financial implications, necessary safeguards shall be observed so as not to compromise the

Interests of either the Bank or the customer.

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Efficiency and timeliness:

The staff of the Bank shall attend to the needs of the customers promptly and efficiently,

Ensuring that the time norms laid down by the Bank are followed.

Products:

The Bank will strive to be a financial supermarket to the customer so that he can find solutions to

All his banking needs under one roof.

General management of the branches:

To provide excellent Customer Service, the following aspects shall be adhered to with regard to

General management of the branches:

Providing infrastructure facilities by branches by bestowing particular attention to providing

adequate space, proper furniture (seating etc.,), drinking water facilities, sufficient lighting, clean

toilets, gum for pasting cut/mutilated currency notes etc., with specific emphasis on pensioners,

senior citizens, disabled persons, etc.

Providing entirely separate enquiry counters at their large / bigger branches in addition to a

regular reception counter.

Displaying indicator boards at all the counters in English, Hindi as well as in the concerned

regional language. Business posters at semi-urban and rural branches of banks should also be in

the concerned regional languages.

Posting roving officials to ensure employees' response to customers and for helping out

customers in putting in their transactions.

Providing customers with booklets consisting of all details of service and facilities available at

the bank in Hindi, English and the concerned regional languages.

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Use of Hindi and regional languages in transacting business by banks with customers, including

communications to customers.

Reviewing and improving upon the existing security system in branches so as to instill

confidence amongst the employees and the public. Wearing on person an identification badge

displaying photo and name thereon by the employees. Periodic change of desk and entrustment

of elementary supervisory jobs.

Training of staff in line with customer service orientation. Training in Technical areas of banking

to the staff at delivery points. Adopting innovative ways of training / delivery ranging from job

cards to roving faculty to video conferencing.

Visit by senior officials from controlling offices and Head Office to branches at periodical

intervals for on the spot study of the quality of service rendered by the branches.

Rewarding the Best branches from customer service point of view by annual awards/running

Shield.

Customer service audit, customer surveys.

Holding customer relation programmers and periodical meetings to interact with different cross

sections of customers for identifying action points to upgrade the customer service with

customers.

Clearly establishing a New Product and Services Approval Process which should require

approval by the Board especially on issues which compromise the rights of the Common

Person.

Appointing Quality Assurance Officers who will ensure that the intent of policy is translated

Into the content and its eventual translation into proper procedures.

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Knowledge:

The staff members manning points of interface with the customers are expected to be fully

conversant with the products and services they handle so as to be able to answer any query from

customers in a professional manner. They shall also provide the brochures/pamphlets on these

products/services to the customers to assist them in making informed decisions. Additionally, the

Bank will also display information on its various products, services, procedures and charges

inside the branch premises.

Going the extra mile for a customer:

All employees should make a conscious effort to assist a customer in finding what he or she

needs and in resolving his problem, if there is one. If the solution to a problem does not lie with

the Bank, the staff shall to the best of their knowledge and capacity, extend necessary guidance

to the customer with regard to the person/authority to be approached for resolution and the

manner of doing so.

Dress:

All employees of the Bank shall wear attire, which is proper and dignified, and in keeping with

the professional appearance that they are expected to project.

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8. GOOD CUSTOMER SERVICE MAKES BANKING CONSUMERS FEEL

FINANCIALLY CONFIDENT

According to a survey by TD Bank, 60% of consumers who are happy with their bank say they

they have low- or no financial stress, and more than half are optimistic about their financial

future. Moreover, consumers who define themselves as happy with their bank spend 72 minutes

less (7.3 hours vs. 8.5 hours) each week worrying about their financial situation compared to

those who say they are not happy with their bank.

“All banks are not the same when it comes to the service they provide. Research shows those

who feel valued by their bank are more likely to be happy with their financial state,” said Ryan

Bailey, EVP/Head of Deposit Products at TD Bank.TD Bank surveyed more than 1,500

consumers all along the east coast — from Maine to Florida — to better understand consumers’

banking experiences, their financial stress, as well as their financial outlook.

Other key findings from the survey include:\

Three-out-of-four respondents aged 18-34 noted friendly service as a key characteristic to

an ideal banking relationship compared to 82% of ages 35-54 and 89% of those 55+.

When examining the nature of banking interactions, the majority of consumers are using

bank branches (73%) followed by phone (30%) and online (13%)

Not surprisingly, those 18-34 are most likely to go online, however 65% still use bank

branches.

Top financial goals among those polled included saving (56%) followed by paying off

debt (38%) and planning for retirement (36%).

Among those aged 35-54, saving and investing more (63%) and planning for retirement

(49%) were top priorities.

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Based on the survey, Bailey concluded that “fast and simple” customer service is the key to

influencing customer feelings of satisfaction. For customers to feel valued by their financial

institution, the most critical components most often cited include friendly service (82%),

knowledgeable advice (62%) and being a reliable financial resource (60%).

Bailey says banks have an opportunity to improve customers’ financial lives beyond the

functional aspects of transactions. He says consumers will have positive brand associations with

their primary financial provider if banks and credit unions would help them make banking easier.

Financial marketers should seek to establish a positive connection with consumers and foster

trust, because people’s feelings of satisfaction towards their bank can give them a solid

foundation to build a more confident and secure financial future, Baily explains.

The study was conducted from January 23-28, 2013. The sample size of 1,520 has a margin of

error of +/- 2.5%. The survey was hosted by global research company Angus Reid Public

Opinion.

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9. HOW TO DEAL WITH CUSTOMERS IN BANKS?

Banks are required to constitute a Customer Service Committee of the Board and include experts

and representatives of customers as invitees. The role of the Committee includes:

• Formulation of a Comprehensive Deposit Policy

• Issues such as the treatment of death of a depositor for operations of his account

• Product approval process with a view to suitability and appropriateness

• Annual survey of depositor satisfaction

• Tri-ensile audit of such services,

• Examination/review of the Awards being issued by Banking Ombudsman in respect of

complaints relating to provision of banking services and address issues of systemic deficiencies

existing in banks brought out by the Awards.

Banks are also required to set up Standing Committee to review the practice and procedures

prevalent in the bank and take necessary corrective action on an ongoing basis. The committee

would act as a bridge between the various departments of the bank and the Board / Customer

Service Committee of the Board. Banks are further required to establish Customer Service

Committee at branch level to encourage a formal channel of communication between the

customers and the bank at the branch level. Besides these, each bank is expected to have a

nodal department/official for customer service at H.O. and each Controlling Office with whom

customers with grievances can approach at first instance and with whom the Banking

Ombudsman and RBI can liaise.

Policies

Along with profit, growth, and fulfilment of social obligations, customer service is treated

As priority objective of banks. Accordingly, banks are required to have in place Board

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Approved policies in respect of:-

Comprehensive Deposit Policy - covering rights of the depositors in general and small

depositors in particular and aspects of operation of deposit accounts, charges, and other related

issues.

Cheque collection policy – covering aspects viz. (i) immediate credit for local/outstation

cheques, (ii) Timeframe for collection of local/outstation instruments, and (iii) Interest

payment for delayed collection (Policy dealt separately).

Customer Compensation Policy – covering (i) Erroneous Debits arising on fraudulent or

other transactions, (ii) Payment of interest for Delays in collection, (iii) Payment of interest for

delay in issue of duplicate draft, and (iv) Other unauthorized actions of the bank leading to a

financial loss to customer.

Customer Grievance Redressal Policy - To be framed based on the broad principles (dealt

separately)

Financial Inclusion– Role of Banks

“Basic Savings Bank Deposit Account”

Banks have been advised by RBI to offer “Basic Savings Bank Deposit Account” which will

offer the minimum common facilities as under:-

The account should be considered as a normal banking service available to all;

No requirement of minimum balance;

Facilitate deposit and withdrawal of cash at bank branch as well as ATMs;

Receipt/credit of money through electronic payment channels or by means of cheques/

collection of cheques drawn by Central/State Government Agencies and departments;

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Account holders are permitted a maximum of four withdrawals in a month including

ATM withdrawals;

Facilitate deposit and withdrawal of cash at bank branch as well as ATMs;

Receipt/credit of money through electronic payment channels or by means of cheques/

collection of cheques drawn by Central/State Government Agencies and departments;

Account holders are permitted a maximum of four withdrawals in a month including

ATM withdrawals;

Holders of ‘Basic Savings Bank Deposit Account’ are not eligible for opening of any

other savings bank accounts and existing such accounts should be closed down within

A period of 30 days from the date of opening of ‘Basic Savings Bank Deposit Account’.

Existing ‘no frills’ accounts can be converted to ‘Basic Savings Bank Deposit Account’

The account would be subject to RBI instructions on Know Your Customer (KYC) /

Anti-Money Laundering (AML) for opening of bank accounts issued from time to time.

I.T. enables Financial Inclusion

Banks are required to increase their banking outreach to the remote corners of the country with

affordable infrastructure and technology so as to lower the transaction costs to make small

ticket transactions viable. Care should be taken to ensure that the solutions developed are

highly secure, amenable to audit, and follow widely accepted open standards to allow inter-

operability among different systems adopted by different banks.

Printed material in trilingual form

Banks are required to make available all printed material used by retail customers including

account opening forms, pay-in-slips, pass books, etc. in trilingual form i.e. English, Hindi, and

concerned Regional Language.

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Opening/operation of Deposit Accounts

Banks are required to comply with the guidelines on KYC/AML for opening of accounts.

a) Savings bank rules

The Savings Bank Rules must be made available to account holders while opening the

accounts.

Photographs of all depositors/account holders whether resident or non-resident should be

obtained in respect of all types of deposit accounts including fixed, recurring, cumulative, etc.

except:-

Banks, Local Authorities and Govt. Departments (excl. public sector undertakings or quasi

Government bodies);

Accounts of Staff members (single/joint)

Banks should obtain photographs of all persons authorized to operate the accounts viz. Savings

Bank and Current Accounts without exception.

Banks may obtain two copies of photographs and obtaining photocopies of driving

license/passport containing photographs in place of photographs would not suffice.

Banks need not insist for the presence of account holder for making cash withdrawal of ‘self’

or bearer cheques unless circumstance so warrants.

Photographs cannot be a substitute for specimen signatures.

Only one set of photographs need be obtained and separate photographs need not be obtained

for each category of deposit.

Photographs of the ' Pardanishin' women need to be obtained

For additional accounts, fresh photographs need not be insisted upon.

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While opening the accounts, the account holders should be informed in transparent manner the

requirement of minimum balance and other charges, etc. Revision in charges also needs to be

advised from to time.

Banks may purchase cheques, drafts, etc. deposited in the account for clearing in case of

suspension of clearing operations temporally or apprehension of prolonging the suspension.

This facility is extended to customers upon examining the credit worthiness, integrity, past

dealing, occupation, etc. so as to guard themselves from the possibilities of such instrument

being dishonored subsequently.

Savings Bank Pass Books must be provided invariably to all customers. In case of account

statement, the same should be mailed to the customers regularly. These facilities should be

provided at Bank’s cost. Updating the pass book periodically should also be arranged by the

banks.

Banks may avoid the usage of inscrutable entries in pass books/statement of account and

ensure that brief, intelligible particulars are invariably entered in pass books / statement of

account with a view to avoiding inconvenience to depositors.

Banks are required to ensure that full address / telephone number of the branch is invariably

mentioned in the Pass Books / Statement of Accounts issued to account holders.

All cheque forms should be printed in Hindi and English irrespective of the language the

customer uses including regional language.

Cheque books are to be delivered over the counters on request to the depositors or his

authorized representative.

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Cheques bearing date in Hindi as per the National Calendar (Saka Samvat) can be accepted by

banks for payment, if otherwise in order. Banks can, however, ascertain the Gregorian calendar

date corresponding to the National Saka calendar in order to avoid payment of stale cheques.

Banks are required to make available the Magnetic Ink Character Recognition (MICR) code

and Indian Financial System Code (IFSC), besides cheque leaf, in all passbook/ statement of

account holders.

All CBS enabled banks are required to issue only “payable at par” / “multi-city” CTS 2010

Standard cheques to all eligible customers without extra charges.

Term Deposit Account

Banks are required to issue term deposit receipt indicating therein full details, such as, date of

issue, period of deposit, due date, applicable rate of interest, etc.

Term Deposit Receipts can be freely transferable from one office of bank to another.

Advance instructions from depositors for disposal of deposits on maturity may be obtained in

the application form itself. Wherever such instructions are not obtained, banks should ensure

sending of intimation of impending due date of maturity well in advance to their depositors.

Change in rate of interest should be advised well in advance to the customers.

Deposits repayable in less than three months or where the terminal quarter is incomplete

interest should be paid proportionately for the actual number of days reckoning the year at 365

days or 366 days in case of leap year.

Banks may allow premature withdrawal of Term Deposits at the request of the depositor and

interest on the deposit for the period that it has remained with the bank will be paid at the rate

applicable. Banks have the freedom to fix penal interest on such withdrawal. No interest need

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be paid where premature withdrawal takes place before completion of the minimum period

prescribed.

Banks will have the discretion to disallow premature withdrawal of bulk term deposits of Rs. 1

crore and above of all depositors including deposits of individuals and HUFs. Banks should,

however, notify such depositors of its policy of disallowing premature withdrawal in advance

i.e. at the time of accepting such deposits ( w.e.f. 01.04.2013).

Bank should not insist for signatures of both the depositors in respect of Fixed/term deposit

accounts opened with operating instructions ‘Either or Survivor’ on maturity.

In case the mandate is “Former or Survivor”, the former can operate/withdraw the matured

amount when both are alive. However, the signatures of both the depositors are required in

case of payment before maturity. If the former expires before the maturity of the fixed/term

deposit, the ‘Survivor’ can withdraw the deposit on maturity.

In other words, in case of term deposits with "Either or Survivor" or "Former or Survivor"

mandate, banks are permitted to allow premature withdrawal of the deposit by the surviving

joint depositor on the death of the other, only if, there is a joint mandate from the joint

depositors to this effect. The joint deposit holders are permitted to give the mandate either at

the time of placing fixed deposit or anytime subsequently during the term / tenure of the

deposit.

Bank can permit addition/deletion of name/s of joint account holders. However, the period and

aggregate amount of the deposit should not undergo any change. Banks may also allow

splitting of joint deposit, in the name of each of the joint account holders provided that the

period and the aggregate amount of the deposit do not undergo any change.

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Banks may renew the frozen accounts upon obtaining suitable request letter for renewal. No

renewal receipt be issued but suitable noting may be done in the deposit account. Renewal of

the deposit may be advised to the concerned Enforcement Authority by registered post/Speed

Post/Courier. Overdue interest may be paid as per the policy adopted by the banks.

No tax should be deducted in case the depositors submit form 15-G/15-H under Income Tax

Rules 1962.

Banks are required to ensure that their branches invariably accept cash over the counters from

all their customers who desire to deposit cash at the counters.

Notwithstanding the legal provisions, opening of fixed/recurring and savings bank accounts be

permitted in the name of minor with mother as guardian provided bank take adequate

safeguards in allowing operations in the accounts by ensuring that such accounts are not

allowed to be overdrawn and that they always remain in credit.

Current Accounts

Banks while opening current account must obtain a declaration to the effect that the account

holder is not enjoying any credit facilities with any other bank. Banks must scrupulously

ensure that their branches do not open current accounts of entities which enjoy credit facilities

(fund based or non-fund based) from the banking system without specifically obtaining a No-

Objection Certificate from the lending bank(s).

Bank may open account of prospective customer in case no response is received from its

existing bankers upon waiting for a fortnight. The situation may be reviewed with reference to

the information provided by the prospective customer as well as taking needed due diligence

on the customer.

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For corporate entities enjoying credit facilities from more than one bank, the banks should

exercise due diligence and inform the consortium leader, if under consortium, and the

concerned banks, if under multiple banking arrangement. Reconciliation of transactions at

ATMs failure.

Banks are required to resolve complaints within 7 working days from the date of receipt of the

complaint. Failure to reaccredit the amount with the timeframe shall entail payment of

compensation to the customer @100/- per day by the issuing bank. For compensation, suitable

application is to be made within 30 days of date of the transaction.

All disputes regarding ATM failed transactions shall be settled by the issuing bank and the

acquiring bank through the ATM System Provider only. No bilateral settlement arrangement

outside the dispute resolution mechanism available with the system provider is permissible.

Non-adherence to the provision attract penalty under the Payment and Settlement System Act

2007.

Banks are required to display prominently at the ATM locations that complaints should be

lodged at the branches where customers maintain accounts to which the ATM is linked along

with telephone numbers of help desk/contact persons of ATM owning bank, etc.

Each bank should ensure that the process flow is modified to provide for the pin validation for

every transaction including balance enquiry facilitated through ATM. Failure to this attract

penalty. Banks are required to have in place a system of online alerts for all types of

transactions irrespective of the amount involving usage of cards at various channels.

Electronic Payment Systems - The electronic modes of payment like RTGS, NEFT and IMPS

have emerged as channel agnostic modes of funds transfer. In order to ensure these channels

safe and secure, some additional measures are introduced as under:-

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(I) Customer induced options may be provided for fixing a cap on the value / mode of

transactions / beneficiaries. In the event of customer wanting to exceed the cap, an additional

authorization may be insisted upon.

(ii) Limit on the number of beneficiaries that may be added in a day per account could be

considered.

(iii) A system of alert may be introduced when a beneficiary is added.

(iv)Banks may put in place mechanism for velocity check on the number of transactions

effected per day / per beneficiary and any suspicious operations should be subjected to alert

within the bank and to the customer.

(v) Introduction of additional factor of authentication (preferably dynamic in nature) for such

payment transactions should be considered.

(vi)The banks may consider implementation of digital signature for large value payments for

all customers, to start with for RTGS transactions.

(vii) Capturing of Internet Protocol (IP) address as an additional validation check should be

considered.

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10. LEVY OF SERVICE CHARGES

Banks should ensure that the service charges fixed are reasonable and they are not out of line

with the cost of providing such services. Customers with low volume of transactions are not

penalized.

1. Foreclosure charges/prepayment penalty – Home Loans

2. Banks are not permitted to levy/charge prepayment charges/penalties on Home Loans on

floating interest rates, with immediate effect.

3. Banking hours/working hours/Operation

4. Banks are required to function for public transactions at least for 4 hours on week days

and 2 hours on Saturdays in the larger interest of public and trading community.

5. Extension counters, satellite offices, one man offices or other special class of branches

may remain open for such shorter hours as may be considered necessary.

6. Banks may fix, after due notice to customers, whatever business hours are convenient i.e.

double shift, weekly holiday other than Sunday, or functioning Sundays also (7 days

working) etc.

7. The banks' branches in rural areas can fix the business hours (i.e., number of hours, as

well as timings) and the weekly holidays to suit local requirements subject to the

guidelines.

8. Commencement of employees’ working hours 15 minutes before commencement of

business hours could be made operative by banks at branches in metropolitan and urban

centres.

9. Banks are required to extend business hours for banking transactions other than cash till

one hour before close of working hours. Banks can have evening counters at the premises

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of existing branches in metropolitan/urban centres for providing facilities to the public

beyond normal business hours to bring about improvement in customer service and the

transactions should be merged with the main accounts of the branch where it is set up.

10. Banking hours/working hours/Operation Banks are required to function for public

transactions at least for 4 hours on week days and 2 hours on Saturdays in the larger

interest of public and trading community.

11. Extension counters, satellite offices, one man offices or other special class of branches

may remain open for such shorter hours as may be considered necessary.

12. Banks may fix, after due notice to customers, whatever business hours are convenient i.e.

double shift, weekly holiday other than Sunday, or functioning Sundays also (7 days

working) etc.

13. The banks' branches in rural areas can fix the business hours (i.e., number of hours, as

well as timings) and the weekly holidays to suit local requirements subject to the

guidelines.

14. Commencement of employees’ working hours 15 minutes before commencement of

business hours could be made operative by banks at branches in metropolitan and urban

centres.

15. Banks are required to extend business hours for banking transactions other than cash till

one hour before close of working hours. Banks can have evening counters at the premises

of existing branches in metropolitan/urban centres for providing facilities to the public

beyond normal business hours to bring about improvement in customer service and the

transactions should be merged with the main accounts of the branch where it is set up.

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16. Sick/old/incapacitated account holders -- Operational Procedure In case the old/sick/

incapacitated account holder can put his thumb or toe impression, the same may be

accepted for withdrawal of money. It should be identified by two independent witnesses

known to the bank, one of whom should be a responsible bank official.

17. Where the customer cannot put even his/her thumb impression and also not able to

present in the bank, a mark can be obtained on the cheque/withdrawal form which should

be identified by two independent witnesses, one of whom should be a responsible bank

official.

18. Person to whom the payment is to be made may be indicated by the customer in both the

above cases and he should be identified by two independent witnesses. The person should

be asked to furnish his signature to the bank.

19. As per the opinion obtained by IBA, a toe impression or any mark by a customer who

Lost both the hands can be taken for acceptance.

20. Banks are required to take necessary steps to provide all existing ATMs / future ATMs

with ramps so that wheel chair users / persons with disabilities can easily access them and

also make arrangements in such a way that the height of the ATM does not create an

impediment in its use by a wheelchair user.

21. Banks are required to ensure that all the banking facilities such as cheque book facility

including third party cheques, ATM facility, Net banking facility, locker facility, retail

loans, credit cards etc., are invariably offered to the visually challenged without any

discrimination.

22. Banks are required to make at least one third of new ATMs installed as talking ATMs

with Braille keypads and place them strategically in consultation with other banks to

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ensure that at least one talking ATM with Braille keypad is generally available in each

locality for catering to needs of visually impaired persons.

23. In respect of disabled persons with autism, cerebral palsy, mental retardation and

multiple disabilities Banks can rely upon the Guardianship Certificate issued either by the

District Court under Mental Health Act or by the Local Level Committees under the

above Act for the purposes of opening / operating bank accounts.

24. Banks may ensure that both drop box facility and the facility for acknowledgement of

cheques are made available at collection centres (branches) and no branch should refuse

to give acknowledge of cheques if tendered at the counters. Banks should display on the

drop box itself that “Customers can also tender the cheques at the counter and obtain

acknowledgement on the pay-in-slips”.

25. Banks should put in place an appropriate mechanism to confirm successful credit of

funds to the beneficiaries account transferred through NEFT. In case of any delay or

returning the uncredited amount, banks should pay penal interest at the current RBI LAF

Repo Rate plus 2% for the period of delay/till the date of refund as the case may be to the

affected customers suo moto without waiting form customers.

26. Under the NEFT Procedural Guidelines, banks are required to establish dedicated

Customer Facilitation Centres (CFCs) to handle customer queries/complaints regarding

NEFT transactions and the same should be made available in the website of banks as well

as the website of RBI for easy availability to the customers.

27. In order to extend both the National Electronic Clearing System (NECS) and Regional

Electronic Clearing System (RECL), the participating banks are advised to make efforts

in bringing all their branches under NECS/RECS.

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28. Collection of Instruments – Rules relating thereof factoring the competitive environment,

Banks have been permitted to formulate a comprehensive and transparent cheque

collection policy, taking into account their technological capabilities. The policy may

include immediate credit for local/outstation cheques, time frame for collection of

local/outstation instruments, and interest payment for delayed collection.

29. Banks are also required to comply with the order passed by the National Consumer

Disputes Redressal Commission (Case no. 82 of 2006) which inter alia includes:-

30. For local cheques, credit and debit shall be given on the same day or at the most the next

day of their presentation in clearing. Timeframe for collection of cheques drawn on State

Capitals / major cities / other locations to be 7/10/14 days respectively. If there is any

delay in collection beyond this period, interest at the rate specified in the Cheque

Collection Policy (CCP) of the bank, shall be paid or at rate applicable for Fixed Deposits

for corresponding maturity, etc.

31. Banks are prohibited from crediting 'account payee' cheque to the account of any person

other than the payee named therein. Banks are not permitted to collect account payee

cheques for any person other than the payee constituent. However, in order to mitigate

the difficulties faced by the members of co-operative credit societies in collection of

account payee cheques, the collecting bank may collect ‘account payee’ cheque drawn.

32. Banks are prohibited from crediting 'account payee' cheque to the account of any person

other than the payee named therein. Banks are not permitted to collect account payee

cheques for any person other than the payee constituent. However, in order to mitigate

the difficulties faced by the members of co-operative credit societies in collection of

account payee cheques, the collecting bank may collect ‘account payee’ cheque drawn.

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33. Bills for collection - Bills for collection including bills discounted are required to be

collected by the collecting bank through another bank at the realizing center. The bills are

to be forwarded directly by the collecting bank to the bank at the realizing center.

34. The delayed period is reckoned after the normal transit period based on 2 days each for:-

35. (I) Dispatch of bills; (ii) Presentation of bills of drawers. (iii) Remittance of proceeds to

the Lodger’s bank. (iv) Crediting the proceeds to drawer's account; the lodger’s bank

(collecting bank) should pay interest to the lodger of the bill at 2% over SB accounts rate.

In case the delay is attributing to the drawer’s bank, the lodger's bank may recover

interest for such delay from that bank.

36. Banks are required to implement the recommendation of the Goiporia Committee that

dishonored instruments are returned / dispatched to the customer promptly without delay,

in any case within 24 hours.

37. The paying bank is required to return the dishonored cheques presented through clearing

houses strictly as per the return discipline prescribed for respective clearing house and for

cheques presented directly, it should return dishonored such cheques immediately. The

collecting bank on receipt of such dishonored cheques should dispatch it immediately to

the payees / holders indicating the reason for return of the cheque.

38. In order to enforce financial discipline among customers, in case of dishonor of cheque

of Rs. 1 Crore and above drawn on a particular account for financial reasons on four

occasions in a financial year, no fresh cheque book should be issued. Bank may also

consider closing the account at its discretion. In respect of advances accounts such as

cash credit account, overdraft account, the need for continuance or otherwise of these

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credit facilities and the cheque facility relating to these accounts should be reviewed by

appropriate authority higher than the sanctioning authority.

39. Banks may formulate suitable policy for frequent dishonor of cheques of less than Rs. 1

Crore as also frequent dishonor of ECS mandate with the approval of respective Boards.

40. General - Banks are required to extend full co-operation and furnish documentary proof

of dishonor for proceedings before any forum.

41. Banks are required to adopt with approval of their Boards appropriate procedure for

dealing with dishonored cheques.

Complaints

Banks are required to provide Complaints/suggestion box at each office besides maintaining

Complaint Book/Register with perforated copies in each set. A copy of the complaint is also to

be forwarded to Controlling Office along with remark of the Branch

Manager within a time frame.

1. Complaint form along with name of the nodal officer for complaint redressed be provided

in the Homepage of Website to facilitate submission by customers. Complaints received

are to be reviewed by Board for taking corrective steps wherever required. The details are

to be disclosed in the financial results giving the number of complaints received,

redressed,

2. Awards by Ombudsman, etc.

3. Banks are also required to put in place a proper Grievance Redressal Mechanism and

examine on an on-going basis whether it is found effective in achieving improvement in

Customer service in different areas.

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Erroneous Debits arising on fraudulent or other transactions

While opening and allowing operation in deposit accounts, banks should remain vigilant

to avoid lapses to safeguard against unscrupulous persons opening accounts mainly to us

them as conduit for fraudulently encasing payment instruments, etc. In such cases, banks

should compensate the customer upon completion of departmental action or police

interrogation as part of their approved Customer Relation Policy. Safe Deposit

Locker/Safe Custody Article Facility

Banks have to refrain from restrictive practices such as linking the lockers facility with

placement of fixed or any other deposit beyond what is specifically permitted. Banks may

obtain Fixed Deposits to cover 3 years rent and charges of breaking open the locker to

take care of an eventuality that the locker-hirer neither operates the locker nor pays rent.

Bank branches are required to maintain a wait list for the purpose of allotment of lockers

And ensure transparency in allotment of the lockers. A copy of the Agreement may be

passed on to the locker-hirer at the time of allotment of the locker.

Banks may carry out customer due diligence for both new and existing customers at least

to the levels prescribed for customers classified as medium risk. If the customer is

classified in a higher risk category, customer due diligence as per KYC medium risk

category or one year for a higher risk category, banks should immediately contact the

locker-hirer and advise him to either operate the locker or surrender it. This exercise

should be carried out even if the locker hirer is paying the rent regularly.

Nomination facility is available to locker hirer which would provide for nomination and

release of contents of safety lockers/safe custody article to the nominee and protection

against notice of claim of other persons (Sec. 45ZC to 45 ZF of B.R. Act 1949)

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Access to Safe Deposit Locker/Safe Custody articles (with survivor/nominee

Clause)

In the event of death of sole locker hirer, banks may give access to the locker with liberty

to remove the contents of the locker to the nominee and in case of the locker hired jointly

with operational instruction to operate under joint signatures and nomination exists, bank

may give access to the locker with liberty to remove the articles jointly to the

survivor(s)/nominee.

In the case of the locker was hired jointly with survivorship clause and the hirer

instructed that the access of the locker should be given over to "either or survivor",

"anyone or survivor" or "former or survivor" or according to any other survivorship

clause, banks may follow the mandate in the event of the death of one or more of the

Locker-hirers.

Settlement of claims in respect of missing persons

Banks are required to formulate a policy which would enable them to settle the claims of

a missing person after considering the legal opinion and taking into account the facts and

circumstances of each case (claims are to be settled as per provisions u/s 107/108 of

Indian Evidence Act 1872).

In order to avoid inconvenience and undue hardship to the common person, banks may,

keeping in view their risk management systems, fix a threshold limit, up to which claims

in respect of missing persons could be settled without insisting on production of any

documentation other than (I) FIR and the non-traceable report issued by police authorities

and (ii) letter of indemnity.

Unclaimed deposits/Inoperative Accounts in banks

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A savings as well as current account should be treated as inoperative / dormant if there

are no transactions in the account for over a period of two years.

If credits by way of interest on Fixed Deposit account is being received in the Savings

Bank accounts as per the mandate of the customer, the same can be treated as a customer

induced transaction and the account can be treated as an operative account. It will

become inoperative only after 2 years from the date of the last credit entry of the interest

on Fixed Deposit account.

For the purpose of classifying an account as ‘inoperative’ both the type of transactions

i.e., debit as well as credit transactions induced at the instance of customers as well as

third party should be considered. However, the service charges levied by the bank or

interest credited by the bank should not be considered

Banks need to ascertain the whereabouts of the account holder(s) by letters, telephone

calls, or contacting legal heirs, or contacting the introducers or employers as available

record or any other means suited to them in case of no operations (credits other than

periodic interest or debiting service charges) for more than one year.

Periodical interest should continue to be credited in the inoperative accounts and

proceeds of FDR unpaid, the amount left unclaimed should attract Savings Bank rate of

interest. Inoperative accounts should get audited periodically. There should not be

Any charge on activation of an inoperative account.

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11. CONCLUSION

Banking systems have been with us for as long as people have been using money. Banks

and other financial institutions provide security for individuals, businesses and

governments, alike. Let's recap what has been learned with this tutorial: 

In general, what banks do is pretty easy to figure out. For the average person banks

accept deposits, make loans, provide a safe place for money and valuables, and act as

payment agents between merchants and banks.

Banks are quite important to the economy and are involved in such economic activities as

issuing money, settling payments, credit intermediation, maturity transformation and

money creation in the form of fractional reserve banking.

To make money, banks use deposits and whole sale deposits, share equity and fees and

interest from debt, loans and consumer lending, such as credit cards and bank fees.

In addition to fees and loans, banks are also involved in various other types of lending

and operations including, buy/hold securities, non-interest income, insurance and leasing

and payment treasury services.

History has proven banks to be vulnerable to many risks, however, including credit,

liquidity, market, operating, interesting rate and legal risks. Many global crises have been

the result of such vulnerabilities and this has led to the strict regulation of state and

national banks.

However, other financial institutions exist that are not restricted by such regulations.

Such institutions include: savings and loans, credit unions, investment and merchant

banks, shadow banks, Islamic banks and industrial banks.

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