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Unit – 12 : Banker-Customer Relationship
1. A firm consisting of not more than 10 partners or a company incorporated under Indian
Companies Act 1956 can be a bank.
2. The relationship between customer and bank, when the customer deposits money with the bank,
is a lender and a borrower and thus a creditor and a debtor.
3. The relationship between customer and bank, when the bank lends money to the customer, is a
borrower and lender and thus a debtor and a creditor.
4. The relationship between customer and bank, when a customer deposits certain valuables, bonds,
securities etc, with the bank for safe custody, is bailor-bailee and thus customer and trustee.
5. The relationship between customer and bank, when a bank performs the services of remittance,
collection of cheques, bills, etc on behalf of the customers, is principal and agent.
6. The relationship between customer and bank, when a bank provides safe deposit lockers to the
customer, who hires them on a lease basis, is lessee-lessor.
7. The relationship between customer and bank, when one party promises to save the other from
loss caused to the other by the conduct of promisor, is indemnifier and indemnified (or indemnity
8. Merchant bankers are financial intermediaries because they transfer capital from investor or bond
subscriber (owner of capital) to government or corporate (user).
9. Lease financing means leasing out the capital purchase of assets to another company against
monthly rents for asset’s consumption or use.
1. A mandate (an unstamped agreement) is an authority given by the account holder in favour of a
third person to do certain acts on his behalf.
2. Institutions cannot issue mandate, instead they issue a power of attorney.
3. Power of Attorney is a legal document (as it is a stamped document and is executed in the
presence of a notary public/magistrate of a court/authorized government official) executed by one
person called donor (principal) in favor of another person called donee agent to act on behalf of the
former, as per the authority given in the document.
4. Donor means the person who issues Power of Attorney and donee means the person to whom
Power of Attorney is given.
5. General/universal power of attorney is issued for acting in more than one transaction while
special/limited Power of Attorney is issued for only one transaction.
6. Garnishee order is an order of the court obtained by a judgement creditor attaching the funds
belonging to a judgement debtor (customer) in the hands of his debtors, including a bank, who is
called a garnishee, advising not to release the money until directed by the court to do so.
7. Cheques presented after service of the garnishee order should be returned with the “refer to
8. Preliminary proceedings of a court are called garnishee order nisi.
9. Subsequent proceedings of a court are called garnishee absolute.
10. When a bank has a prior right to set-off, the bank is not bound by the garnishee order.
11. When a lien is marked on fixed deposit receipts, it cannot be attached by a garnishee order.
12. Any excess over the lien is attachable by the garnishee order.
13. Orders received from the court for recovery of certain debts are called garnishee order.
14. Orders received from the revenue authorities (income tax/sale tax authority) are called
15. Credits received after garnishee orders are not attachable because debts due or accruing at the
time of receipt of order are only attachable.
16. In “Joint Accounts” with “Either or Survivor” clause, “Garnishee Order” if in a single name, cannot
17. In “Joint Accounts” with “Former or Survivor” clause, “Garnishee Order” if in a single name, can
18. The personal accounts of a partner can be attached with garnishee order for the firm’s debt.
19. The trust’s account cannot be attached garnishee order.
20. When a customer has more than 1 account and one is in credit and other is in debit, then the
garnishee order can be attached only if the net result is in credit.
21. A lien is a right of the banker to retain possession of the goods and securities owned by the
debtor until the debt due from the latter is paid.
22. The banker’s lien is an implied (understood) pledge (promise/guarantee).
23. In case of lien, the bank can sell the goods and securities in case the debt is not paid under
section 171 of the Indian Contract Act 1872.
24. Lien cannot apply in safe deposit locker.
25. Set-off means adjusting debit balance in one account with an account having credit balance of
the same customer.
26. A deceased credit account and a customer debit account cannot be combined.
Unit – 14 : Banking Ombudsman Scheme and Consumer Protection Act
1. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act,
1949 by RBI with effect from 1995.
2. The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank
customers for resolution of complaints relating to certain services rendered by banks.
3. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress
customer complaints against deficiency in certain banking services.
4. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks
are covered under the Scheme.
5. The Banking Ombudsman can receive and consider any complaint relating to the following
deficiency in banking services (including internet banking):
non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.;
non-acceptance, without sufficient cause, of small denomination notes tendered for any
purpose, and for charging of commission in respect thereof; non-acceptance, without sufficient cause, of coins tendered and for charging of commission in respect thereof; non-payment or delay in payment of inward remittances ; failure to issue or delay in issue of drafts, pay orders or bankers’ cheques; non-adherence to prescribed working hours ; failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents; delays, non-credit of proceeds to parties accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any
savings,current or other account maintained with a bank ;
complaints from Non-Resident Indians having accounts in India in relation to their remittances
from abroad, deposits and other bank-related matters; refusal to open deposit accounts without any valid reason for refusal; levying of charges without adequate prior notice to the customer;
non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM/Debit
card operations or credit card operations;
non-disbursement or delay in disbursement of pension (to the extent the grievance can be
attributed to the action on the part of the bank concerned, but not with regard to its employees);
refusal to accept or delay in accepting payment towards taxes, as required by Reserve
Bank/Government; refusal to issue or delay in issuing, or failure to service or delay in servicing or redemption of Government securities; forced closure of deposit accounts without due notice or without sufficient reason; refusal to close or delay in closing the accounts;
non-adherence to the fair practices code as adopted by the bank or non-adherence to the
provisions of the Code of Bank s Commitments to Customers issued by Banking Codes and Standards
Board of India and as adopted by the bank ;
non-observance of Reserve Bank guidelines on engagement of recovery agents by banks; and
any other matter relating to the violation of the directives issued by the Reserve Bank in relation
to banking or other services.
6. A customer can also lodge a complaint on the following grounds of deficiency in service with
respect to loans and advances non-observance of Reserve Bank Directives on interest rates;
delays in sanction, disbursement or non-observance of prescribed time schedule for disposal of
non-acceptance of application for loans without furnishing valid reasons to the applicant; and
non-adherence to the provisions of the fair practices code for lenders as adopted by the bank or
Code of Bank’s Commitment to Customers, as the case may be;
non-observance of any other direction or instruction of the Reserve Bank as may be specified by
the Reserve Bank for this purpose from time to time.
The Banking Ombudsman may also deal with such other matter as may be specified by the Reserve
Bank from time to time.
7. One can file a complaint before the Banking Ombudsman if the reply is not received from the bank
within a period of one month after the bank concerned has received one s representation, or the
bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank.
8. One can file a complaint with the Banking Ombudsman simply by writing on a plain paper. One can also file it online (at “click here to go to Banking Ombudsman scheme” or by sending an email to the Banking Ombudsman.
9. The Banking Ombudsman may reject a complaint at any stage if it appears to him that a complaint
made to him is: not on the grounds of complaint referred to above
compensation sought from the Banking Ombudsman is beyond Rs 10 lakh .
requires consideration of elaborate documentary and oral evidence and the proceedings before
the Banking Ombudsman are not appropriate for adjudication of such complaint without any
sufficient cause that it is not pursued by the complainant with reasonable diligence
in the opinion of the Banking Ombudsman there is no loss or damage or inconvenience caused
to the complainant.
10. If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award,
appeal against the award before the appellate authority. The appellate authority may, if he/ she is
satisfied that the applicant had sufficient cause for not making an application for appeal within time,
also allow a further period not exceeding 30 days.
11. Consumer Protection Act, 1986
a. It extends to the whole of India except the State of Jammu and Kashmir.
b. It shall come into force on such date as the Central Government may, by notification, appoint
and different dates may be appointed for different States and for different provisions of this
c. Save as otherwise expressly provided by the Central Government by notification, this Act
shall apply to all goods and services.
12. “complaint” means any allegation in writing made by a complainant that—
a. an unfair trade practice or a restrictive trade practice has been adopted by any trader or
b. the goods bought by him or agreed to be bought by him; suffer from one or more defects.
c. the services hired or availed of or agreed to be hired or availed of by him suffer from
deficiency in any respect.
d. a trader or service provider, as the case may be, has charged for the goods or for the service
mentioned in the complaint a price in excess of the official/valid price.
e. goods which will be hazardous to life and safety when used or being offered for sale to the
f. services which are hazardous or likely to be hazardous to life and safety of the public when
used, are being offered by the service provider which such person could have known with
due diligence to be injurious to life and safety.
Unit – 15 : Payment and Collection of Cheques and Other NI
1. In Sans recourse endorsement, liability of the endorser is excluded.
2. In facultative endorsement, the notice of dishonour is waived.
3. The 3 negotiable instruments are promissory notes, bills of exchange and cheque.
4. A paying banker is protected under NI Act in the following cases:
a. Forged endorsement in an
i. order cheque under section 85 (1)
ii. bearer cheque under section 85 (2)
iii. draft under section 85 (A)
b. Material alteration in a cheque under section 89
c. Payment of a crossed cheque under section 128.
Unit – 16 : Opening Accounts of Various Types of Customers
1. Indian Majority Act 1875 defines the age of majority to be 18 years.
2. Section 26 of the NI Act provides that a minor may draw, endorse, deliver and negotiate a
negotiable instrument and as such, a minor can draw a cheque. The minor’s age should be above 13
years and should be literate. No overdraft is allowed in these accounts.
3. Two minors cannot open a joint account.
4. In an HUF, the members of a family are called coparceners and the eldest male child is called Karta
(Manager), the Karta operates the account.
5. All the adult members have to sign account opening form while opening HUF account.
6. Registration of a partnership is optional (except in states of Gujarat and Maharashtra where it is
7. When there is an addition into the partnership, the old account can be continued ifthe balance is
in credit, else old account should be closed and a new one should be opened. This process avoids
8. Death of a partner dissolves the partnership firm.
9. A public limited company – minimum 7 members, maximum unlimited members. Minimum paid
up capital of Rs 5 Lakh.
10. A private limited company – minimum 2 members, maximum 50 members. For banking business
maximum number is 20. Minimum paid up capital of Rs 1 Lakh.
11. A government company – minimum 51% of the shares are held by the government.
12. Internal rules of a company are mentioned in articles.
Unit – 17 : Ancillary Sercices
Each bank has two main activities as the sourcing or borrowing of funds ( as deposits and capital
from the market) and the deploying or lending the funds as Loans and Investments): these form the
traditional and core activities of all the banks.
Apart from these basic activities, the banks provide a variety of other services or products.The most
popular ones are listed below.
1) Funds transfer service: Useful for sending and receiving money from all over the world.The
products that cover these services are Demand Drafts, Bankers Checks/Pay orders, EFT(Electronic
Funds Transfer ),etc.
2) Forex service: You can buy the foreign exchange for any purpose of expenditures like travel,
buying merchandise,etc..and sell the same to the bank when you earn or receive from abroad . Of
course, these forex transactions are subject to the rules and regulations prevailing in a country and
they are provided by only those bank branches which are approved by the Banking Authority or
Regulator for this purpose.
3) Custodial Service: You can keep your valuables like jewels, documents, etc.. under this service
which is commonly known as Locker facility(Safe Deposit Vaults in banking parlance. The bank will
collect a nominal fee for the service.
4) Gold sale: You can buy pure gold for self consumption or for trading by the jewelry businesses.
Here also, only a few selected branches of banks or banks are allowed to provide this. The products
usually range from a coin to a 100 gm biscuit or bar.
5) Investment service: Invest your money in the mutual funds run by the banks. The service comes as
Portfolio service( the decision to maximize the returns on your money is left with the banker or
portfolio manager) and as Stand-alone product where the decision to get maximum returns is borne
by you. Both have the plus and minus but these products are offered to suit the convenience of the
investors. Portfolio means a basket of investments and securities in a combined form. Debt securities will yield interest income and equity investment will yield dividend income. Portfolio management means management of a combination of securities to get the most efficient portfolio.
6) Insurance sale: A range of insurance products covering the risk of life, health, assets like vehicle,
credit and debit cards, travel etc. are offered by almost all the banks by themselves or in
collaboration with the leading insurer companies ,which again may be local or multinational
7) Card services: Primarily intended for safety and convenience purpose but now, has become a
payment mode and a symbol of economic status. The card products usually are called as Debit card,
Credit card .
8) eBanking: also known as Netbanking or Internet banking is the latest and most convenient facility
of the banks .You can get id and password to operate your account online : for transfer of funds to
another account in the same bank or another bank. You can keep the surplus funds in fixed deposit
by using this facility. The best use of this facility is for shopping online.
Unit – 18 : Cash Management Services and its Importance
1. Cash management is a broad term that refers to the collection, concentration, and disbursement of cash.
2. It encompasses a company’s level of liquidity, its management of cash balance, and its short-term
3. The objective of a cash management system is to improve revenue, maximize profits, minimize
costs and establish efficient management systems to assist and accelerate growth.
4. In India, the cash management business primarily involves collections and payments services.
5. Products Offered by Banks Under Collections (Paper and Electronic)
a. Local cheque collections
b. High value (0 Day clearing)
c. Magnetic ink character recognition (MICR)
d. Outstation cheque collections
e. Cheques drawn on branch locations
f. Cheques drawn on correspondent bank locations
g. Cheques drawn on coordinator locations
i. House cheque collections
j. Outside network cheque collections
k. Cash collections
m. Post dated cheque collection
n. Invoice collections
o. Capital market collections
6. Products Offered by Banks Under Payments (Paper and Electronic)
a. Demand drafts/banker’s cheques
b. Customer cheques
c. Locally payable
d. Payable at par
f. Cash disbursement
g. Payments within bank
h. Capital market payments
7. In a dynamic economy, markets need to play a key role in guiding the development of
infrastructure, including mechanisms like payments systems.
8. This means that innovation and competition will be central to the future development of the
payments system – as they are in other areas of the economy.
9. Efficient cash management is a must to support an institution’s growth, and therefore, adopting
the best cash management practices is necessary.
Unit – 19 : Principles of Lending, Working Capital Assessment and Credit Monitoring
1. Stocks procured through L/C are taken under hypothecation.
2. An increase in the ratio of current assets to total assets results in a decline in the profitability of
the firm (because investment in current assets is less profitable than those in fixed assets).
3. Term loans are loans which are repayable after one year and up to 10 years. Short term loan = 1-3
years, medium term loans = 3-7 years, long term loans = 7-10.
4. Difference between term loan and working capital is that term loans are repayable in quarterly or
half yearly installments whereas working capital is generally availed in cash credit hypothecation
accounts with frequent drawings and is payable on demand.
5. For an assessment of the working capital needs of a borrower who requires fund based limits in
excess of Rs 10 crore, the cash budget system (instead of cash flow statement) should be used.
6. Cash flow system deals with both cash and non-cash funds, while the cash budget system deals
with cash transactions only.
7. The ceiling for banks in providing advances/loans to borrowers is 15% of the capital funds in case
of a single borrower and 40% in case of group borrowers.
8. Working capital means the sum total of inventory, receivables and other current assets held by a
9. Working capital is computed by the banks through the concept of operating cycle, i.e., the time
taken by a business entity to get the money released from the raw materials, semi-finished goods,
Unit – 20 : Priority Sector Advances
1. RBI has advised the banks to raise the shares of priority sector lending to 40 % of the aggregate
2. Out of this 40 %, 18 % is for agricultural sector (no targets for foreign banks), 10 % is for weaker
sections (no targets for foreign banks), and 1 % of previous year’s total advances are given under DRI
(Differential Rate of Interest Scheme) (no targets for foreign banks).
3. Above mentioned limit is for domestic commercial banks. For foreign banks, 32 % of ANBC
(Adjusted Net Bank Credit) is for priority sector advances.
4. Export credit is not a part of priority sector for domestic commercial banks. However foreign banks are given target of 12 % of ANBC.
5. Description of Micro, Small and Medium Sectors:
Investment in plant and machinery Investment in Equipment Type of Enterprise
(Manufacturing Sector) – (Services Sector)
Up to 25 lacs – up to 10 lacs Tiny
25 lacs to 5 crore – 10 lacs to 2 crore Small
5 crore to 10 crore – 2 crore to 5 crore Medium
6. Micro credit includes provision of very small amounts up to Rs 50,000 per borrower.
7. The government has decided that the farmers should receive short term credit at 7 % with an
upper limit of 3 lakh on the principal amount. On this amount, the government provides interest
subvention of 2 % p.a. to the banks.
8. This 2 % subvention will be available to banks on condition that they make short term credit
available at the ground level with ROI of 7 % p.a.
Unit – 21 : Agricultural Finance
1. Loans repayable up to 18 months are short term loans.
2. Medium/long term loans are for more than 36 months.
3. All farmers who require loan for their cultivation expenses are eligible to get loan under KCC
4. KCC is valid for a period of 3 years subject to an annual review. Any number of withdrawals and
repayments are permitted under this scheme.
Unit – 22 : Micro, Small and Medium Enterprises in India
1. A credit guarantee scheme was started to provide collateral-free loans to micro and small
2. The exemption limit for relief from payment of Central Excise duty was raised to Rs 1 crore.
3. The MSMED Act (Micro, Small and Medium Enterprise Development Act) 2006 came into effect
from 2 Oct 2006.
4. Credit to MSMEs is part of the priority sector lending policy of the banks. Refer to Lesson 18 (1-3).
Any shortfall in the 10 % limit of MSMEs of the 32 % prescribed limit of priority sector for foreign
banks has to be deposited in the SEDF (Small Enterprise Development Fund) set up by SIDBI.
5. The principal financial institution for promotion, financing and development of the MSME sector is
6. If the buyer of the goods fails to make the payment to the supplier within a period of 45 days, the
buyer shall be liable to pay compound interest to the supplier on the amount with monthly interest
at 3 times of the bank rate.
Unit – 23 : Govt Sponsored Schemes
1. The Swarnajayanti Gram Swarojgar Yojna (SGSY) came into effect from 1 April 1999 in the ruralareas of the country.
2. SGSY scheme is funded by the centre and state in the ration of 75:25 and will be implemented by
3. DRDA (District Rural Development Agencies) provides fund to those self help group who are in
existence for 6 months and have demonstrated the potential of a viable group. This fund is aka
4. In case of group loan, the group is entitled to a subsidy of 50 % of the project cost, subject to per
capita subsidy of Rs 10,000 or Rs 1.25 lacs whichever is less.
5. Loan applications under the SGSY scheme should be disposed of within the prescribed limit of 15
days and at any rate, not later than one month.
6. Swarojgaris are covered under the group insurance scheme. The maximum age of Swarojgaris at
the time of sanction has to be kept at 60 years of age.
7. Insurance coverage would be for 5 years or till the loan is repaid.
8. For individual loans up to Rs 50,000 and group loans up to Rs 5 lacs, the assets created out of the
bank loan would be hypothecated to the bank as a primary security.
9. In case of immovable assets (like minor irrigation, dug well, etc), the security created is mortgage.
Where mortgage is also not possible, 3rd party guarantee may be obtained.
10. For all loans (individual or group), in addition to the hypothecation/mortgage/3rd party
guarantee, suitable margin money/other collateral security in the form of an insurance policy;
marketable security/deeds of other property, etc, may be obtained at the discretion of the bank.
11. Project cost includes bank loan plus government security.
12. Subsidy under SGSY scheme will be 30 % subject to a maximum of Rs 7,500.
13. In respect of SC/STs, Subsidy under SGSY scheme will be 50 % subject to a maximum of Rs 10,000
(per capita) or Rs 1.25 lacs whichever is less.
14. Banks should not charge interest on the subsidy portion of the loan amount.
15. All SGSY loans are medium term loans with minimum repayment period 5 years (maximum 9
16. The SJSRY (Swarna Jayanti Shahari Rozgar Yojna) came into effect from 1 April 1997 in all urban
towns in India.
17. The SJSRY scheme is funded by the centre and state in the ration of 75:25.
18. Both urban employed and urban unemployed (no age limit) youth whose annual family income is
below the poverty line and have got education up to 9th standard come under SJSRY scheme.
19. Project cost up to Rs 50,000 is provided under the SJSRY scheme in case of an individual. Higher
project costs would also be covered in the scheme provided the share of each person in the project
cost is Rs 50,000 or less.
20. In SJSRY scheme, Subsidy would be provided at the rate of 15 % of the project cost, subject to a
ceiling of Rs 7,500 per head.
21. Margin money is 5 % of the project cost in SJSRY scheme.
22. In SJSRY scheme, repayment schedule ranges from 3 to 7 years, after initial moratorium period of
6 to 18 months (at bank’s discretion).
23. DWCUA (Development of Women and Children in Urban Areas) group shall consists of at least 10
urban poor women and the subsidy amount would be 50 % of the project cost of Rs.1,25,000,
whichever is less.
24. If in DWCUA, the project cost exceeds Rs 2, 50, 000, the project cost less subsidy (Rs.1,25,000)
and margin money (@ 5 % of the project cost) would be the component of the bank.
25. The beneficiaries under the SJSRY scheme are identified on the basis of a monthly per capita
income and not by the annual family income (which is the case in SGSY scheme, refer to Point no 18).
26. The % of women beneficiaries under the SJSRY scheme shall not be less than 30 %.
27. The loans granted under the SJSRY scheme come under priority sector advances and hence loan
applications for amount up to Rs 25, 000 should be disposed of within a fortnight and for credit limits above Rs 25, 000 within 8-9 weeks.
28. In SJSRY scheme, a loan amount of Rs 50, 000 and group loans up to Rs 3 lacs don’t require a
collateral/guarantee. Besides margin, the borrower would hypothecate/mortgage/pledge to the
bank the assets created out of the bank loan.
29. The PMRY scheme is for unemployed youth between the age of 18-35 years (10 years relaxation
in case of women/PH/SC/ST), who are at least 8th standard pass.
30. PMRY scheme covers those unemployed educated youths whose annual family income is below 1 lac per annum and the beneficiary should be a permanent resident of the district for 3 years.
31. In case of SHG, PMRY scheme gives subsidy per beneficiary Rs 12,500 subject to a maximum
ceiling of Rs 1.25 lacs.
32. In PMRY scheme, bank’s margin money varies from 5 to 12.5 % of the project cost so that the
total of subsidy and margin money is equal to 20 % of the project cost.
33. The project cost in PMRY scheme is restricted to Rs 2 lacs for business sector and Rs 5 lacs for industry sector.
34. Margin money in PMRY scheme is 5 to 16.25 % (except in north-eastern states, HP, J&K,
Uttaranchal, where it varies from 5 to 12.5 %) of the project cost so as to make the total of subsidy
and margin money equal to 20 % of the project cost.
35. In PMRY scheme, subsidy eligible is 15 % of the project cost, subject to a maximum of Rs 12,500
per borrower in states other than north-eastern states, HP, J & K, Uttaranchal.
36. In PMRY scheme, the borrower has to hypothecate/mortgage/pledge to the bank assets. The
borrowers will not have to give a collateral security under the industry sector projects with the cost
up to Rs 2 lacs (for business sectors) and up to Rs 1 lac for service sectors.
37. The exemption from collateral is limited to Rs 1 lac per person in case of a partnership in PMRY
38. PMRY loans have repayment period from 3 to 7 years after an initial moratorium.
39. In joint ventures/partnerships, the total project cost should not exceed Rs 10 lacs.
40. In SHG, there may be 5-20 educated unemployed youths and there is no upper ceiling on loan.
41. The exemption from collateral security is Rs 5 lac per borrower in industry sector whereas the
exemption is Rs 1 lac per member in services and industry sector.
42. SLRS (Scheme of Liberation and Rehabilitation of Scavengers) was launched on 22 Mar 1992 and
the project cost is limited to Rs 50,000 (the banks would give 32,500, subsidy would be 10,000, and
7,500 would be margin money from Scheduled Caste Development Corporations aka SCDC) per head.
Margin money is up to 15 % of the project cost and rate of interest 4 %.
43. Under the SLRS scheme, the subsidy would be 50 % of the project cost with a ceiling of Rs.10,000.
44. Loans up to Rs 6,500 are treated as loans under DRI scheme and rate of interest is 4 %. If the loan
sanctioned/disbursed is more than Rs 6,500 such loans will attract a rate of interest according to the
45. In SLRS scheme, the security for the loan will only be the hypothecation of the assets. The
repayment period is 3-7 years.
46. Loan amount up to Rs 25,000 under SLRS scheme should be disposed of within a fortnight and for amount exceeding Rs 25,000 within 8-9 weeks.
Unit – 24 : Self Help Groups
1. Registration of SHG is compulsory if the number of members is more than 20 (normally an SHG has 5-20 unemployed educated members).
2. The SHG should meet weekly or fortnightly and devise a code of conduct (Group Management
Norms) to bind itself.
3. The SHG builds a group corpus fund by voluntary saving from members.
Unit – 25 : Credit Cards, Home Loans, Personal Loans and Consumer Loans
Credit card is the one of the delivery channels of the banking services. It is a small plastic card issued
to users as a system of payment.
It allows its holder to buy goods and services based on the holder’s promise to pay for these goods
The issuer of the card creates a revolving account and grants a line of credit to the consumer from
which the user can borrow money for payment to a merchant or as a cash advance to the user.
Benefits to Credit Card Holders
(a) They can purchase goods and services at a large number of merchant outlets up to the inbuilt
ceiling credit limit amount without using cash or cheque. This is generally useful in emergencies.
(b) Card holder has a period of interest free credit, depending upon the issuing bank and the card
scheme, i.e. the normal card and gold cards, as offered by various banks. The period of interest free
credit ranges from 15 days to 51 days.
(c) Cash up to a ceiling, within the credit limit is obtainable from the banks’ branches or ATMs
(Automated Teller Machines).
Disadvantages to Credit Card Holders
(a) Often results in over spending.
(b) Frauds, due to a loss of card in the intervening periods.
(c) Since signatures are already on the cards, forged signatures could cause a loss to the card holders.
Such kind of a forged signature loss is avoided with the use of photo credit cards.
Parties involved in Credit Card
Cardholder: The holder of the card used to make a purchase; the consumer.
Card-issuing bank: The financial institution or other organization that issued the credit card to the
cardholder. This bank bills the consumer for repayment and bears the risk that the card is used
fraudulently. American Express and Discover were previously the only card-issuing banks for their
respective brands, but as of 2007, this is no longer the case. Cards issued by banks to cardholders in a different country are known as offshore credit cards.
Merchant: The individual or business accepting credit card payments for products or services sold to
Acquiring bank: The financial institution accepting payment for the products or services on behalf of
Independent sales organization: Resellers (to merchants) of the services of the acquiring bank.
Merchant account: This could refer to the acquiring bank or the independent sales organization, but
in general is the organization that the merchant deals with.
Credit Card association: An association of card-issuing banks such as Discover, Visa, MasterCard,
American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring
Transaction network: The system that implements the mechanics of the electronic transactions. May
be operated by an independent company, and one company may operate multiple networks.
Affinity partner: Some institutions lend their names to an issuer to attract customers that have a
strong relationship with that institution, and get paid a fee or a percentage of the balance for each
card issued using their name. Examples of typical affinity partners are sports teams, universities,
charities, professional organizations, and major retailers.
Home loans are available to resident Indians and NRIs for the purchase or construction of house or
flats, repairs and renovation of house.
The Procedure and Practices for Home Loans
Target Group: Normally, the target group is the salaried class, professionals, self-employed and
business¬men. Banks fix the age criteria for availing the loan.
Purpose: The purpose of the loan is for the purchase or construction of house or flats, repairs and
renovation of house, and in some banks, for purchase of house sites also.
Quantum of loan: The quantum of eligible loan is fixed based on the gross monthly income/net
monthly income. For this, banks ask for a salary certificate for the salaried class or the Income tax
return for others. Bank also ask for the statement of bank account for a prescribed period.
Age: Banks fix the lower and upper age for availing the loan taking in to consideration the remaining
period of service, in the case of salaried class and the income earning capacity during the period of
loan for others.
Repayment: Most of the banks are giving long repayment period, say 20-25 years. The repayment
will be based on equated monthly instalments (EMI). In case of loan for purchase of a ready built
house, it should be ensured that the remaining life of the building should be longer than the
repayment period allowed, plus a cushion period, says ten years. Normally banks allow a holiday
period for repayment. The holiday period for construction will be more than it is, for the purchase of
ready built house.
Security: Generally, the property purchased or constructed out of the bank loan is taken by way of
mortgage. Sometimes, when the income of the spouse is taken for arriving at the quantum of loan,
his/ her guarantee is also taken as personal security.
Margin: Banks stipulate that a certain percentage of the project cost, say fifteen per cent, is to be
borne by the borrower from his own sources. When the loan is for repairs/renovation, banks
stipulate a higher margin.
Rate of Interest: When compared to the rate of interest for other loans, the rate of interest for home
loan is cheaper. Most of the banks offer a rate of interest below the ‘Bench Mark Prime Lending Rate’
(BPLR). Banks also offer a floating rate and a fixed rate option to the borrower.
At the time of applying for the loan, the banks ask for some necessary documents namely;
(a) Agreement of Sale/Sale deed
(b) No Encumbrance certificate NIL EC (for 13 years)
(c) Parent document for 30 years
(d) Approved building plan
(e) Patta (NOC from Housing Board, etc., wherever applicable)
(f) Valuation report from the Bank’s approved engineer
(g) Bank statement for last 12 months
Procedure and Practices for Salary Loans
Target group: Permanent employees with a minimum service/experience of say three years, with a
Govt./quasi Govt./boards/endowments/reputed companies/corporate industrial establishments, etc.
The stipulation of minimum period of service may vary from bank to bank.
Purpose: For meeting of marriage/educational and medical expenses, to celebrate family functions
and for other household expenses.
Eligible Amount: The eligible amount of a loan is calculated based on so many times of the gross/net
salary. While arriving at the quantum of loan, the minimum take home pay say, forty per cent of the
gross salary, will be stipulated after the proposed EMI.
Security: Sometimes banks insist on the guarantee of another person, if there is no collateral
security, or in case, the account is with the branch, a letter giving an undertaking from the borrower
to debit his account for the EMI. When the employer of the borrower sponsors the
loan, h is asked for an undertaking, to the bank to recover the EMI from the salary and remit into the
Documents: Proof of employment and salary certificate are normally obtained. After sanction of the
loan, banks take the necessary loan documents such as; DPN, salary loan agreement, etc., from the
borrower and a guarantee agreement from the guarantor, if any.
The rate of interest on this loan will be higher than other loans as there is no collateral security.
Some banks are taking post-dated cheques for the future EMI.
Banks allow 36-60 months as repayment period.
Normally banks levy a certain percentage of the loan amount; say one per cent, as a processing fee.
Target group: Salaried class, pensioners, professionals, self-employed business persons and other
individuals who have regular income.
Purpose: For purchase of consumer durables and white goods like TV, VCR, VCP, air conditioners,
refrigerators, personal computers and accessories, etc.
Eligible amount: While arriving at the quantum of loan, the cost of the article to be purchased and the margin be brought by the borrower are taken into account. The minimum take home pay, say forty per cent of the gross salary, shall also be ensured after the proposed EMI.
Security: Hypothecation of the article purchased out of the bank loan.
Margin: Normally a margin of 10-20 per cent is stipulated.
Repayment: Banks allow a thirty six to sixty months repayment period.
Documents: The documents to be obtained are: salary certificate for three months for self and spouse(if spouse income is also taken into account for arriving at the eligibility) IT returns/Form 16 for two to three years in case of professionals, businessmen, Self-employed persons. Quotations of the articles selected from a reputed dealer. Statement of account/passbook, showing one year’s transactions. Some banks are taking post-dated cheques for the future EMI.
After sanction of the loan, banks take necessary loan documents such as DPN, hypothecation
agreement, etc., from the borrower and a guarantee agreement from the guarantor if any.
Normally banks levy a certain percentage of the loan amount, say one per cent, as a processing fee.
Unit – 26 : Documentation
1. There are 3 types of documents taken by a bank for a loan – DPN, agreement, and form.
2. DPN (Demand Promissory Note) is a document which a bank takes when there is no fixed period
for the repayment of loan.
3. In DPN, the borrower makes a promise to the banker to repay the loan amount on demand with
agreed rate of interest.
4. DPN must be stamped as per Indian Stamps Act.
5. An agreement includes the amount of loan, rate of interest, rate of penal interest, % of margin,
period of repayment, rights of the bankers in case of default of loan, details of security/securities
6. The agreement must be stamped.
7. Forms are neither promised nor agreement. They are obtained to specify the intention of the
borrower. For ex, when a loan is granted against the security of a FD standing in joint names, one of
them gives an authorization to the other to raise a loan on the deposit. Such an authorization is
taken in a form.
8. For correct documentation, the steps followed are – selection of correct set of documents,
stamping, filling, execution, and legal formalities.
9. The cancellation of adhesive stamp is done as per Section 12 of the Indian Stamp Act.
10. In case of advances to limited companies against its assets, the required forms are to be
presented to the Registrar of Companies with the 30 days from the date of execution.
11. In case of creation of registered mortgages, the mortgage deed is presented for registration
before the Registrar of Assurances within 4 months from the date of execution of the deed.
12. The documents submitted to the bank don’t have perpetual life, the provision of Limitation Act
apply to them. The Limitation Act prescribes the period of limitation for different types of
13. The limitation period for a DPN is 3 years from the date of execution. It means if the loan is not
repaid within 3 years, the bank has to get fresh documents for extending the period.
14. If the borrower or his duly authorized agent makes any part payment towards the loan before
the expiry of period of limitation, then the period of limitation is extended by one more period from
the date of such part payment.
15. Securitisation is the process of acquisition of large NPA loan or portfolio of loans such as housing,
by Securitisation or Reconstruction Co from a bank or financial institution on mutually agreed terms
Unit – 27 : Different Modes of Charging Securities
1. Assignment is transfer of a right, property or a debt. The transferor is called assignor and the
transferee is called assignee.
2. A borrower may assign the book debt, money due from government department and LIC as
security for an advance.
3. Under the provision of the Insurance Act, an LIC is assignable by an endorsement on the back of
the policy or by a separate deed of assignment, but notice of such assignment must be given to the
insurer by the assignee or assignor.
4. Under section 171 of the Indian Contract Act, lien is the right of the banker to retain (and sell if
need arises) possession of goods and securities owned by the debtor until the debt due from the
latter is paid.
5. Lien is an implied (understood) pledge.
6. Set-off means adjusting the debit balance in one account of the debtor with the credit balance in
another account of the same debtor. It is also applicable in case of partnership accounts.
7. Lien and set-off both cannot be exercised at a time.
8. Hypothecation is a charge created on movable property without delivery of possession of the
9. Hypothecation differs from pledge because goods remain in the possession of the borrower in
10. Hypothecation transforms into pledge when the possession of the goods is transferred to the
11. Hypothecation differs from mortgage because mortgage relates to immovable property but
hypothecation relates to movables. Also, in hypothecation, there is only obligation to repay money
and no transfer of interest but in mortgage, there is transfer of interest in the property to the
12. Pledge means bailment of goods for purpose of providing security for payment of debt or
performance of a promise (as per section 172 of the Contract Act 1872).
13. In pledge, there is actual or constructive (no physical) delivery of goods to the Pawnee (who takes the goods as security).
14. 6 types of mortgage are –
a. Simple mortgage – mortgage is by deposit of title deeds, mortgagee has a right to proceed
against the property mortgaged and also personally against the mortgagor
b. Mortgage by conditional sale – possession of mortgaged properties is given
c. Usufructuary mortgage – possession of mortgaged properties is given
d. English mortgage – possession of mortgaged properties is not given
e. Mortgage by deposit of title deeds – it is not required to be created by way of a deed and
doesn’t require registration
f. Anomalous mortgage
15. Mortgage is to be created by way of deed and requires to be registered under the Registration
16. Limitation period for filing a suit for sale of mortgage property is 12 years from the date
mortgage debt becomes due.
17. Limitation period for filing a suit for foreclosure of mortgage property is 30 years from the date
mortgage debt becomes due.
18. Bankers generally prefer simple mortgage and mortgage by deposit of title deeds.
19. Pledge: When lender possess movable security.
20. Hypothecation: When lender has a charge against movable security, which is not in lender’s
21. Mortgage: when lender has a charge against immovable property, not in its possession.
22. Lien: not necessarily the security is in your possession, but we have frozen it for any
Unit – 28 : Types of Collaterals and their Characteristics
1. Security is of two types – primary and collateral.
2. Primary security is one that is regarded as the main cover for an advance, generally assets against
which advance are made. Ex stocks for cash credits, machinery for term loans.
3. Collateral security is security other than primary security.
4. Mortgage of immovable property is either primary or collateral.
5. When doing mortgage, encumbrance certificate is taken for generally 13 years to check no
encumbrance exists on the property.
6. The nature of charge created on lands and buildings is mortgage.
7. The nature of charge created on goods may be pledge or hypothecation.
8. In the case of key cash credit, the nature of charge created is pledge because in this case, the
possession of goods is transferred to the banker.
9. In the case of open cash credit, the nature of charge created is hypothecation because in this case,
the possession of goods is not transferred to the banker.
10. In both the key cash credit and open cash credit (means in either case of pledge or
hypothecation), the title in the goods is not transferred to the bank.
11. The valuation of the stocks is done on the basis of cost price or market price whichever is less.
12. Documents of title to goods means a document used in the ordinary course of business as a proof of possession or control of goods authorising or purporting (claiming) to authorise either by
endorsement or delivery (as per section 2(4) of Sales of Goods Act).
13. Goods represented by the documents are transferrable by endorsement and/or delivery of the
documents. It looks like negotiable instruments but actually they are quasi-negotiable instruments.
14. Examples of documents of title are bill of lading, dock warrant, warehouse-keepers certificate,
railway receipts, delivery orders, etc.
15. LICs are taken either as primary or collateral security.
16. Nomination under the LIC is automatically cancelled in the event of the assignment of the policy.
17. The nature of charge created while making advances against shares is a pledge.
18. Banks provide either demand loan or an over draft against the security of shares.
19. Shares should be in demat form and should be quoted in a recognised stock exchange.
20. Advances are granted against fully paid shares only.
21. No loan can be granted against the security of a private limited company.
22. No banking company can hold shares in any company of an amount exceeding 30 % the paid up
share capital of that company or 30 % of its own paid up share capital and reserves whichever is less
(BR Act 1949, section 19 (2)).
23. If the securities (of shares, debentures and PSU bonds) are in physical form, loans against to
individuals should not exceed the limit of Rs 10 lac per borrower.
24. If the securities (of shares, debentures and PSU bonds) are in demat form, loans against to
individuals should not exceed the limit of Rs 20 lac per borrower.
25. ESOP (Employees Stock Option Plan) is a scheme under which banks provide loan to employees
for purchasing shares of their own companies.
26. Under ESOP, an employee can purchase to the extent of 90 % of the purchase price of shares or
Rs 20 lac, whichever is less.
27. In case of advances against shares, a uniform margin of 50 % shall be applicable on all
advances/financing of IPOs/issue of guarantees. And within this margin of 50 %, a minimum cash
margin of 25 % shall be maintained in respect of guarantees issued by banks for capital market
28. Banks also give loans under book debts.
29. Book debts mean account receivables (total of debit balance in the purchaser’s account).
30. Book debts can be financed by: factoring (lesson 7), forfeiting (outright i.e. complete purchase of
book debts, and overdraft and cc against hypothecation of book debts.
31. Age of the book debts should be 3-6 months old, but not later.
32. Margin of 50 % is maintained in book debts.
33. Banks may provide advances against the security of time deposits such as FD or RD.
34. The nature of facility granted against the security of term deposits may either be a loan or an
35. The nature of charge created while granting loan against time deposits is a pledge.
36. Normally loans up to 90 % of the deposit amount/accrued value of the deposit is provided.
37. The ROI charged on the loan would be 1 or 2 % above the interest rate offered on the deposits.
38. Loans given to a sole proprietor against deposit in the name of the proprietor concern should
NOT be treated as 3rd party loan.
39. Loans given to a partner against deposit in the name of the firm should be treated as 3rd party
loan and interest should be charged at the commercial rate.
40. If a company seeks loan against its deposit, a board resolution authorising the company to raise
the loan should be obtained. The charge of pledge need not be registered with the ROC.
41. A deposit held under ‘Capital Gain Scheme’ is not eligible for loan.
42. The nature of charge created under the security of gold ornaments is a pledge.
43. No loan can be given against the security of pure gold.
44. Around 30 % margin is kept on the market value of the ornaments.
45. The nature of charge created under ‘Supply Bills’ is assignment
Unit – 29 : Non-Performing Assets
The prudent guidelines were first issued by RBI in the year 1991 implemented wef 01.04.1992 on
recommendations of Narasimham committee covering, income recognition, asset classification and
1. Prudential norms prescribed by RBI include norms relating to Accounting, Exposure, and Capital
2. Prudential accounting norms are income recognition, asset classification and provisioning.
CLASSIFICATION AS NPA
1. Term Loan – If Interest and/ or instalment of principal remain overdue for a period of
more than 90 days
2. CC/Overdraft – if the account remains ‘out of order or the limit is not renewed/reviewed
within 180 days from the due date of renewal. Out of order means an account where
(i) the balance is continuously more than the sanctioned limit or drawing power OR
(ii) where as on the date of Balance Sheet, there is no credit in the account continuously for
90 days or credit is less than interest debited OR
(iii) where stock statement not received for 3months or more.
3. Bills -If the bill remains overdue for a period of more than 90 days from due date of payment
4. Agricultural accounts – (i) if loan has been granted for short duration crop: interest and/or
installment of principal remains overdue for two crop seasons beyond the due date.
(ii) if loan has been granted for long duration crop: interest and/or installment of principal
remains overdue for one crop season beyond due date.
5. Decision about crop duration to be taken by SLBC.
6. Loan against FD, – Advances against term deposits, NSCs eligible for surrender, IVPs,
NSC, KVP, LIP, KVPs and life policies not treated as NPAs provided sufficient margin is
Advances against gold ornaments, govt securities and all other securities are not covered by
7. Loan guaranteed – Loan guaranteed by Central Govt not treated as NPA for asset
by Government classification and provisioning till the Government repudiates its guarantee
when invoked. Treated as NPA for income recognition.
8. Consortium advances – Asset classification of accounts under consortium should be based on
the record of recovery of the individual member banks.
1. Asset Classification to be borrower-wise and not facility-wise
2. Assets classified into Standard, Sub standard, Doubtful, Loss. Except standard all others are NPAs.
3. When an account becomes NPA it is called Sub standard asset.
4. An account remains sub standard up to 12 months from the date of becoming NPA
5. Doubtful Assets : An asset is to be classified as doubtful, if it has remained NPA or sub standard for
a period exceeding 12 months.
6. Loss Assets : A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly.
7. When an account is classified as Doubtful or Loss without waiting for 12 months: If in an account
which was secured in the beginning, the realizable value of tangible security falls below10%of the
outstanding, it should be classified loss asset without waiting for 12months
8. If the realizable value of security is 10% or above but below 50% of the outstanding, it should be
classified as doubtful irrespective of the period for which it has remained, NPA.
1. Provisioning is made on all types of assets i.e. Standard, Sub standard, Doubtful and loss assets.
2. Standard Assets :
a. Direct advance to agriculture or Micro and Small Enterprise (Not medium) : 0.25%of outstanding;
b. Commercial Real Estate: 1%of outstanding;
c. Housing Loans with teaser interest rates: 2%of outstanding; All others: 0.4%of outstanding
d. The provisions on Standard Assets is shown as ‘Contingent Provisions against Standard Assets’
under ‘Other Liabilities and Provisions Others’ in Schedule 5 of the balance sheet.
3. Sub Standard Assets:
a. Secured sub standard: 15% of outstanding balance without considering securities available.
b. Unsecured sub standard: if the loan was unsecured from the beginning: 25%of outstanding
c. If unsecured sub standard for infrastructure: 25%of outstanding balance.
d. Unsecured exposure means exposure where the realisable value of the security, as assessed by the
bank/approved valuers/Reserve Bank’s inspecting officers, is not more than 10 percent, ab-initio, of
the outstanding exposure.
4. Doubtful Assets:
1. Unsecured portion:100%
2. Secured portion: 25% to 100% depending on the period for which account is doubtful
Age of Doubtful Asset Provision as % of secured portion
Doubtful up to 1 year D1 25% of RVS (Realisable value of security)
Doubtful for more than 1 year to 3 years D2 40% of RVS
Doubtful for more than 3 years; D3 100% of RVS
5. Loss Assets: 100%of the outstanding amount.
6. If loan is guaranteed by ECGC, CGFT or CGFLHS, provision not on guaranteed portion
7. Provision on advance against FD, NSC, LIP, KVP as per their asset classification.
8. Overall provisions: Provisioning coverage ratio, including floating provisions, should not be less
than 70 per cent.
9. Provisioning coverage ratio is the ratio of provisioning to gross NPAs.
10. Provision on Standard account to be kept as part of Other Liabilities in Schedule-5 of bank’s
11. Provision on Standard accounts to be done on Global balance and for NPA accounts on Gross
12. For Doubtful accounts, provision to be done separately for secured portion and unsecured
portion of total balance in the account.
13. In case of standard and sub standard assets, provision is on outstanding balance without
bifurcating the balance into secured or unsecured.
14. Floating provisions can be deducted from Gross NPAs or treated as part of Tier Il capital but not
UPGRADATION OF LOAN ACCOUNTS CLASSIFIED AS NPAs
1. if arrears of interest and principal are paid by the borrower in the case of loan accounts classified
as NPAs, the account may be classified as ‘standard’ accounts immediately.
2. Restructured accounts: After one year after the date when first payment of interest or of principal,
whichever is earlier, falls due, subject to satisfactory performance during 12 months period from the
date of starting payment after moratorium period.
Financial inclusion or inclusive financing is the delivery of financial products, at affordable costs to
sections of disadvantaged and low-income segments of society. It is in contrast to financial exclusion,
where those services are not available or affordable.
As per United Nations, the goals of financial inclusion is, to ensure access to a full range of financial
services, at a reasonable cost, to ensure continuity and certainty of investment.
India: RBI set up the Rangarajan Committee in 2004 to look into financial inclusion.
Financial inclusion first featured in 2005 when Mangalam became the first village in India where all
households were provided banking facilities.
1. Opening of no-frills accounts (replaced by basic saving bank accounts)
2. Relaxation KYC norms for small deposit accounts.
3. Allowing engaging business correspondents (BCs)
4. Effective use of information and communications technology (ICT), to provide doorstep banking
5. Implementation of electronic benefit transfer ( EBT) by leveraging ICT-based banking 6. Issue of
general credit cards for amount up to Rs.25000
7. Simplified branch authorization for tier III to tier VI centres (population of less than 50,000) under
Financial Inclusion Index: On June 25, 2013, CRISIL, launched an index (Inclusix) to measure the
status of financial inclusion in India. Inclusix is a one-of-its-kind tool to measure the extent of
inclusion in India, in each of the 632 districts. It is a relative index on a scale of 0 to 100, and
combines 3 critical parameters of basic banking services : branch penetration, deposit penetration,
and credit penetration, into one metric.
RBI Roadmap for Financial Inclusion
Under RBI’s earlier roadmap (of Sep 2010) 74,414 unbanked villages were allocated to banks for
opening of banking outlets. Banks opened banking outlets in 74,199 (99.7%) villages by March 2012.
New roadmap: To take financial inclusion to the next stage of providing universal coverage and
facilitating Electronic Benefit Transfer, banks have been advised) to draw up FIP for 2013-16 and
disaggregate the FIPs to the controlling office and branch level. RBI advised State Level Bankers’
Committees (SLBCs) to prepare a roadmap covering all unbanked villages of population less than
2000 and notionally allot these villages to banks for providing banking services, in a time-bound
manner to provide with at least one banking outlet. The lead banks are to constitute a Sub-
Committee of the District Consultative Committees (DCCs) to draw up a roadmap for provision of
banking services in every village having a population below 2000 (2001 census) for providing banking
services, in a time bound manner.
DIRECT BENEFIT TRANSFER (DBT) SCHEME
DBT is being rolled out in a phased manner (43 districts taken up in the first phase from January 1,
2013 and extended to 78 more districts from July 1, 2013). Eventually, all districts in the country
would be covered under the DBT scheme.
To facilitate DBT for delivery of social welfare benefits by direct credit to the bank accounts of
beneficiaries, banks were advised by RBI (May 10, 2013) to:
1. open accounts for all eligible individuals in camp mode with the support of local government
put in place an effective mechanism to monitor and review the progress in the implementation of
DBT.2. seed the existing -accounts or the new accounts opened with Aadhaar numbers and
SLBC Convenor Banks and Lead Banks should institute a monitoring and review mechanism to
periodically assess and evaluate the progress made in the implementation.
The SLBC Convenor banks shall submit a monthly statement of district wise progress made in
implementing DBT from the month ended April 30, 2013 by the 10th of the succeeding month to
respective RBI Regional Office.
RBI initiatives :
(1) RBI has undertaken a project titled ‘Project Financial Literacy’ to disseminate information
regarding banking concepts to various target groups, such as, school and college going children,
women, rural and urban poor, defence personnel and senior citizens.
(2) RBI launched a financial education website on November 14, 2007.
(3) RBI circulated a comprehensive Financial Literacy Guide for conduct of Financial Literacy Camps &
Financial Literacy. Material as also a Financial Diary and a set of 16 posters.
In terms of RBI circular dated Jun 06, 2012, all the Financial Literacy Centres and rural branches
are required to prepare an annual calendar of locations for conduct of outdoor Financial Literacy
At every location, the program should be conducted in 3 stages to be spread over a period of 3
months comprising of 3 sessions of minimum 2 hours each plus a visit to ensure timely delivery
of cards. 2nd, session is to be conducted a fortnight after first session. After 15 days of the second
session, branch officials should visit the village to ensure delivery of cards to the villagers. They will
also make sure that the BC has started operations and villagers are able to make transactions. 3rd
Session is to be conducted, 2months after holding of second session.
PRADHANMANTRI JAN DHAN YOJANA
Prime Minister Narendra Modi on August 28 launched his government’s mega scheme ‘Pradhan
Mantri Jan Dhan Yojana’, an ambitious scheme for comprehensive financial inclusion. According to
Prime Minister, in a country where 40 per cent of the population does not have access to banking
services, this programme would mark the beginning of the end of “financial untouchability” and rid
the country of poverty. The scheme has been started with a target to provide ‘universal access to
banking facilities’. On the inaugural day, a record 1.5 crore bank accounts were opened across the
country, the largest such exercise on a single day possibly anywhere in the world. Currently, around
41% of the population is unbanked, of which 33% are in urban areas and 46% in rural. Salient points
of Prime Minister’s ambitious Jan Dhan Yojana are given below:
1. About 15 million accident insurance policies done on a single day and same number of bank
2. Programme held at around 77,000 locations.
3. Target to cover 7.5 crore households with at least one account will be achieved by Jan 26, 2015.
4. Coverage of all households with at least one basic banking account.
5. Account holders will be provided zero-balance bank account with RuPay debit card, in addition to
inbuilt accidental insurance cover of Rs 1 lakh.
6. Additional Rs.30,000 free life assurance cover for those opening bank accounts before Jan 26,
7. Holders can avail overdraft of Rs 5,000 subject to satisfactory operations of the account for six
8. Universal access to banking facilities for all households through a bank branch or a fixed point
business correspondent called “BankMitra”.
9. Financial literacy to be imparted up to village level.
10. Under the Jan Dhan Yojana, all benefits from the Centre/states/local bodies are proposed to be
transferred to the accounts of beneficiaries.
11. Platform has been built by the National Payment Corporation of India that connects all banks and
all telephone networks in the country. With the introduction of new technology introduced by
National Payments Corporation of India (NPCI), a person can transfer funds, check balance through a
12. Mobile banking for the poor would be available through National Unified USSD Platform (NUUP)
for which all banks and mobile companies have come together.
13. The second phase of rollout will involve providing micro-insurance to people and schemes like
14. Households being targeted instead of only being villages targeted earlier.
15. For the entire exercise, the existing banking network will be strengthened – it will rope in an
additional 50,000 business correspondents and set up about 7,000 branches and 20,000 new
automated teller machines, in the first phase.
16. PMJDY also aimed at eliminating corruption as it would facilitate routing of subsidies directly into
the accounts of intended beneficiaries.
17. Presently, one account is being opened for one adult of each household and by 2018, the
mandate is to make it two per household, with the compulsory inclusion of the lady of the house.
18. The government would institute a credit guarantee fund post-August 2015.
The financial literacy or financial education stands for ability to know and effectively use financial
resources to enhance the well-being and economic security of oneself, one’s family, and one’s
It primarily relates to personal finance that enables individuals to take effective action to improve
their overall wellbeing and avoid distress in financial matters.
Benefits: Financial literacy promotes financial inclusion and ultimately financial stability. In India, its
need is even greater, due to low levels of literacy and the large section of the population, remaining
out of the formal financial set-up.