Corporation Bank Report Final

CHAPTER- 1

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INTRODUCTION TO INDIAN BANKING SYSTEM
The Indian banks can be broadly categorized into nationalized (government owned), private banks, specialized banking institutions and co-operative banks as shown in figure below.

Figure 1.1 Classification of banks

banks

nationalized banks

private banks

specialized banking institutions

co-operative banks

Over the years the nationalized banks have acquired a place of prominence and have seen tremendous progress. The need to become highly customer focused has forced these slowmoving banks to adopt a fast track approach. On the other hand private banks have been fast on the uptake and are reorienting their strategies using the internet as a medium.

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Complementing the roles of the nationalized and private banks are the specialized financial institutions or Non Banking Financial Institutions (NBFCs). With their focused portfolio of products and services, these Non Banking Financial Institutions act as an important catalyst in contributing to the overall growth of the financial services sector. NBFCs offer loans for working capital requirements, facilitate mergers and acquisitions, IPO finance, etc. apart from financial consultancy services. Trends are now changing as banks (both public and private) have now started focusing on NBFC domains. Co-operative banks are nimble footed in approach and armed with efficient branch networks which focus primarily on the retail segments. These banks which focus on areas of agriculture, rural development etc. has lower overheads. This enables them to give a marginally higher percentage on savings deposits. Among the above stated banks the Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. Moreover, to control the actions of these banks, the Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Over the years, the Indian banking has gone through two main phases or changes which need to be Noticed and are therefore explained in the following paragraphs.

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1. Nationalization of banks
By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate was ensued about the possibility to nationalize the banking industry. So for this, Indira Gandhi, the-then Prime Minister of India expressed this intention of the GOI (Government Of India) in the annual conference of the All India Congress Meeting in a paper. The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969.This nationalism was described as a "masterstroke of political sagacity” by one of the national leaders of India. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. The nationalized banks were credited by some; including Home minister P. Chidambaram, to have helped the Indian economy resist the global financial crisis of 2007-2009. List of Public Sector Banks in India is as follows: Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of India (SBI), State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra, State Bank of Travancore, Syndicate Bank, UCO Bank, Union Bank of India.
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2. Liberalization of banks
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. The examples of private banks include Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. Effects of Liberalization: The liberalization brought huge changes in the banking industry. Some of these changes are stated below. • The reserve which needed to be kept with the RBI was reduced to a great degree. The reduction of the CRR and SLR resulted in increased flexibility for banks in determining both the volume and terms of lending. • There was deregulation of interest rates which aimed at promoting financial savings and growth of the organized financial system. • Because of the lowering of entry barriers, competition has significantly increased since the beginning of the1990s. Seven new private banks entered the market between 1994 and 2000. In addition, over 20 foreign banks started operations in India since 1994.After the episodes of nationalization and liberalization, the next stage for the Indian banking had been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights.

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CHAPTER- 2

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ALL ABOUT PSC BANK HISTORY OF PUNJAB STATE COOPERATIVE BANK
Punjab State Cooperative Bank was established on 31st August, 1949 at Shimla vide registration No. 720 has a principle financing institution of the cooperative movement in Punjab. In 1951 its Head Office was shifted to Jalandhar from where it moved in 1963 to its present building at Chandigarh. In the cooperative Banking structure, the position of the Punjab State Cooperative Bank is extremely important as the whole credit system revolves around it.

It has 19 branches and 3 extension counters in Chandigarh. There are 20 District Central Cooperative Banks having 808 branches all over Punjab, mostly in rural areas of the State.

THE PUNJAB STATE COOPERATIVE BANK LTD.CHANDIGARH

It has 19 branches and 3 extension counters in the city of Chandigarh. 20 Central Cooperative Banks having 788 branches and 29 Extension Counters in the State of Punjab are affiliated with the bank. In the Cooperative banking structure the position of the Punjab State Coop Bank is extremely important as a the whole short term credit system revolves around it. This bank ensures that its member central cooperative banks follow sound banking practices and observe strict financial discipline. The Central Cooperative Banks are financing the farmers through PACS at the village Level. There is no arena of life where this premier institution has not played its part. From a farmer, artisan to traders/businessman, everybody has been covered in the fold of this institution. The green, white and sweet revolutions in the state of Punjab are some of the
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major achievement in which this institution has plays a vital role.

The Punjab State Cooperative Bank has already been awarded "BEST PERFORMANCE AWARD" from NABARD and NAFSCOB. For the year 2003-04, Punjab Cooperative Bank has been selected for NABARD‟s “Best Performance Award “ which is based on performance of all the SCBs in the country. Similarly our Jalandhar DCCB has also been selected for NABARD‟s Best Performance Award out of all the DCCBs in the country for the year 2003

OBJECTIVES

To serve as a Balancing Centre for Cooperative Societies in the State for Cooperative Societies in the State of Punjab registered under the Punjab Cooperative Societies Ac, 1961 for the time being in force. To promote the economic interest of the member banks and cooperative societies in the state in accordance with cooperative principles and to facilitate the development and funding of any cooperative society registered under the said act. To carry on banking and credit business.

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CHAPTER- 3

OBJECTIVE OF STUDY
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

The objective of my study is to know the working and functioning of the bank. How all internal work is done there, how entries are being recorded, how loan is passed and how the clearing of cheques take place.

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I also want to know about saving and other different accounts, about fixed deposits and long term deposits.

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Another objective of my study was to know the RBI norms concerned with the cooperative banks.

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To study various classification of banks and the procedure for getting a loan. To study various interest rates charged on loan and FD.

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CHAPTER- 4

METHODOLOGY
Research methodology is a way to systematically solve the research problem. The Research methodology includes the various methods and techniques for conducting a research. “Marketing Research is the systematic design, collection analysis and
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reporting of data and finding relevant solution to a specific marketing situation or problem.” Define the Research Problem and Objectives: It is said,” A problem well defined is “Half solved”. The first step in Research methodology is to define the problem and deciding the research objective. The objective of this study knows the customer perception regarding on line advertisement. Data collection and analysis: Source of data collection was both primary and secondary. Primary data was collected by interacting with employees in PSC bank. Secondary data was collected by reading manuals which were published for banks which state various rules and procedures of bank and its functioning. Also secondary data was collected from various sites .

Sampling design: sampling can be defined as the section of some part of an
aggregate or totality on the basic of which judgment or an interference about aggregate or totality is made. The steps involved in sampling design are as follows: Sample size: Area: Chandigarh Sample unit: employees in PSC bank Sample size: 50 employees

Limitations of the Study
  Limited scope: the sample size is small and hence cannot be the basis of generalization. Existence of biases: while filling the questionnaire, personal biases of respondents might affect the responses.
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Hard enough to fetch the information: Respondents are sometimes unwilling and hesitant in replying to answers. They may not have accurate knowledge about various norms of RBI.

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Results may be inaccurate: the accuracy of the results is also limited to reliability of methods of investigation, measurements and analysis of data. Less Time:Sometime people don‟t have time to fulfill questionnaire, so they give only few information.

Data collection error may be there due to wrong response from employees as some time they are not right person who takes actual decisions

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CHAPTER- 5

DEPOSITS Introduction

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Deposits are the prime source of funds for the banks. The enormity of deposits replicates the amount of profit that a bank can make. This is so because large chunk of deposits are given away as loans which renders higher interest rate than that given on deposits. So, it is customary to encourage large number of huge deposits. This can be done by providing different types of deposits according to the needs of varied customers. These deposits as offered are explained below A. Current B. Savings C. Loan account D. Fixed E. Recurring F. Locker

Current Account
• It is basically used for business purposes. It doesn‟t give any interest on deposits.

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• It can be held in the name of firms (include partnership firm, pvt. Ltd. Co., ltd. Co., trust, association), person. • Its prime purpose is to serve the customers for their daily business transactions. • A customer having current account can withdraw money in the form of cash or cheque in a infinite number of times and so is unrestricted.

Savings Account
• These deposits too are used for transactions purpose. For example if you want to pay electricity bill, telephone bill etc. you can give a cheque from your savings a/c rather than giving hard cash. Other things such as paying fees, paying dues etc. can be done from this a/c. • This deposit is usually held in the name of individual as it is used for personal purposes and gives interest at the rate of 3.5% per annum. • Note that trust and association can hold current as well as savings account. • A customer having savings account can withdraw money in the form of cash or cheque any no. of times. Note that this withdrawing power can be different for different banks according to the rules and regulations of that particular bank. .

.Fixed Deposits (FD)

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• It is a deposit which offers the highest interest rate than any other above mentioned deposits. So it is mainly used for long-term saving purposes. For example: a couple having a child of the age of 10 keeps an FD account so as to use the matured amount for the child‟s college fees in future. • These deposits and its interest rates are explained in detail in the future sections that are to come. Recurring • It is a type of FD with deposits kept for 12 or more months. Here the deposits are given at installment by the customer. The interest rate for these deposits is same as FD.

Locker
• If person is having locker facility from bank then person will be charged Rs 500 per annum plus service tax as a rent of a locker and if person is not able to pay this amount than he will be charged plenty of Rs 25 per quarter.

Cash Certificate deposit
• This is a type of FD. Here, the amount is compulsorily required to be deposited for 12 or more months. The interest on the deposits is calculated quarterly and is added to the principal which makes these deposits even more lucrative.

Current account
a. Filling of form (given in Appendix 1) b. Prerequisites
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1. PAN card (compulsory): It is taken as photo proof as well as address proof. If there is a proprietor to a business then his PAN card is needed, but if there is a partnership or association firm then PAN card of all the partners as well as PAN card of the business is required. 2. Address (business proof). 3. Photos. 4. Reference (names of references). 5. KYC (Know Your Customer) Form: it is made mandatory from last 1 year (given in appendix 2)

Savings account
a. Address proof: residential address b. PAN card is not compulsory, but can be accepted as photo proof. For photo proof a customer can give ID card/ pass port/ election card c. KYC compulsory d. People not having PAN card should fill form no.60(given in Appendix 3)

Methods of Transaction

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Basically there are three methods by which a depositor can make a transaction i.e. credit or debit his deposits. They are 1. Cash 2. Cheque of own bank 3. Cheque of other bank These transactions can be understood by bifurcating them as credit transactions and debit transactions as follows:

Credit transactions
Here suppose a depositor having his account in bank wants to credit his account, then he can do this in following ways: 1. Cash: He can bring cash and deposit the same in his account (current, savings etc.) 2. Cheque of own bank: He can present a self cheque or a cheque from his customer (having his Account in bank) in his name. The cheque amount is then credited to his account. 3. Cheque of other bank: He can present a cheque of some other bank which is written in his name. He can present this cheque at the clearing desk and can then credit his account with the amount mentioned in the cheque.

Debit transactions
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Here suppose a depositor having his account wants to debit his account, then he can do this in following ways. 1. Cash: He can withdraw the cash from his account by issuing a self cheque. (Current, savings etc.) 2. Cheque of own bank: Here he can debit his account by issuing a cheque to his Customer. Now his customer can have one of the following possibilities: a. He can present it in bank (if he is having his account in bank) b. He can present the cheque at some other bank which through clearing comes for realization. In both the above cases the account of the depositor gets debited by the particular amount mentioned in the cheque.

Fixed Deposits (FD)
From the before stated deposits only FD has a separate section of its own due to the high demand ofit. FDs award higher return on investment for a depositor as compared to any other deposits. the following interest rate was prevalent during my tenure of SIP.

Table 3.1 FD interest rate
Time for which deposit is kept Interest rate per annum
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Time period 7 to 14 days 15 to 45 days 46 to 90 days 91 to 179 days 180 to < 1 year 1 to < 2 year 2 to <5 year 5 year and above

Rate of interest 2.5% 3% 4% 5% 5.5% 6.75% 7% 7.25%

If a depositor is a senior citizen (above 60 years) and if the deposit kept by him is for 12 or more months and amount is more than 5000 then he would be given 0.5% more interest on his deposits. FD once matured, if not renewed in 14 days of its maturity, then according to the rules of RBI only 4% interest is given on the days after maturity.

At fixed deposits counter, depositor comes for three things as stated below: 1. Depositing new FDs
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2. Renewal of matured FDs 3. Cash withdrawal from FDs Now, the procedure followed by the banker at PSC when the depositor comes for the above stated three services is as follows

1. Depositing new FDs
Here the depositor can give cash, cheque of the same bank, cheque of other bank. The pre requisites for this are FD form Photo proof, PAN card and KYC form. The depositor also mentions the time period for which he wants to deposit the amount. After completing the formalities on the depositor side the procedure followed by banker is _ He follows the path: Fixed _ master transaction _create new which is applicable to PSC only. Here he creates new account where the account number is automatically given by the system. In the new account the banker enters the period for which the deposit is to be kept and rate of interest for that particular time period. The print of the receipt created is taken and is given to the customer.

2. Renewal of matured FDs
Here depositor comes for renewal of his FDs. He follows the following procedure.
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a. He should have brought the earlier receipt of his FD. b. He should mention the time for which the FD should be renewed. c. After this banks fill up a slip containing FD a/c number, name, matured amount, date (all this data from earlier receipt) d. After this the officer debits the current receipt by following the path: Fixed _ transaction posting. Here a/c number, receipt number is entered and then the receipt is debited. e. Then credit to other receipt is done by following the path: Fixed _ master transaction _ Specialize (Here by putting a/c number customer‟s a/c details are shown) _ Add new: Here the banker enters the details of new receipt such as date for renewal, period for which FD should be renewed and amount f. Thereafter print of the new receipt is taken which is given to the client. Note: Here sometimes people come for cashing the interest of FD keeping FD intact. In this case the only extra thing is to fill a form which is given to savings department after which the customer withdraws the interest from saving a/c.

3. Cash withdrawal for FDs

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Here depositor withdraws cash and first and fourth step of the above procedure is followed. That is only the receipt is debited. After this for the customer to withdraw the cash, the amount is credited to savings a/c (If he is having the a/c in this bank) or he is given pay slip (if he is not having a/c in this bank).

Transfer
This is one of the busiest sections in a bank. The work done here can be classified into two as follows: 1. The transfer of fund from one a/c to another with both the accounts held in PSC bank 2. The transfer of fund from one a/c to another with one held at PSC and other held at some other bank. In the first case, a cheque is issued by one PSC customer to another (both having their accounts at PSC). Here, the beneficiary presents the cheque at transfer section with a filled slip showing the details of his a/c. After this the transfer section makes entry as per the slip and the cheque and transfers the fund from the remitting customer‟s a/c (a/c number mentioned in cheque) to beneficiary customer‟s a/c. In the second case, the cheques are provided by the clearing department to the transfer section. Here there can be two cases 1. A remitting customer can have an a/c at PSC, in which case the transfer section debits his a/c and credits the a/c of the bank whose cheque is presented by clearing section to transfer section.

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2. A beneficiary customer can have an a/c at PSC, in which case the transfer section credits his a/c and debits the a/c of the bank whose cheque is presented by clearing section to transfer section.

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CHAPTER -6

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CASH HANDLING AT BANK
The handling of hard cash is one of the important jobs of the bank. Besides facing the threat of robbery, theft etc. the cash department also needs to be alert about the small recklessness which can send a large amount of money out of the bank without any notice. For this there should be no loopholes in the procedure that is to be followed while giving and taking cash. Basically, the cash department has two functions that are to give cash and take cash from its depositors. It will be easy to understand this department by knowing what work is done on different desks and how it is done which are explained below.

SCROLL: Here the customer‟s and its deposit or withdrawal details are entered into the system through PC. The procedure is as follows 1. Here the depositor comes with a slip and the withdrawer comes with a cheque. 2. From the details of the slip or cheque, the banker here enters the data into the system through PC. 3. First he enters R or P, R for receipt by the bank, P for payment by the bank. 4. Second he enters a/c type for example current, savings, Hypothecation etc. Note that the colour of slip can be seen as an indicator of different accounts. For example red colour slip is used for Hypothecation, green slip is used for savings, white slip for current etc. In case of cheque, the a/c type is mentioned on the same.

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5. Next he enters the a/c number of the customer as mentioned in the cheque or slip. 6. After entering a/c number, another window will get displayed which will show the data of customer. The banker verifies the details of this window with the slip or cheque filled by the depositor. 7. Then he enters the amount mentioned in the slip into the system (PC). 8. After this a window will get displayed which shows the scroll number and other details. The banker writes the scroll number on the slip and returns the slip to the depositor. For withdrawer the banker gives a token which signifies the scroll number. 9. After this the clerk at the scroll section hands over the slip to cash taker or cheque for authorization, whatever the case may be.

CASH RECEIPT: Here the cash is taken from the customer and this cash is then credited to the customer‟s a/c. The procedure is as follows 1. Here the system (on which the person is seated) will display the pending activities i.e. the activities (receipt only) which are already scrolled but are not finished. 2. Here the customer comes with the slip that is scrolled. On this slip the scroll number is already written (from scroll). 3. The banker here looks at the scroll number in the slip and enters into the same scroll number in his system.

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Table 4.1 Cash receipt window

Notes x number 1000x 500x 100x 50x 20x 10x 5x 2x 1x Total

amount

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Table 4.2 Filling of cash receipt window

Notes x number 1000 x 50 500 x 30 100 x 50 x 20 x 10 x 5x 2x 1x total

Amount 50000 15000

65000

The numbers displayed in red are entered and the amount in yellow is calculated by the system itself.

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For convenience of the person two note counting machines are kept besides him. 4. Next the banker verifies the slip , both part the slip has two parts, one is to be retained by the customer and one is kept with the banker. He initially verifies both the part of the slips as both can have different figures (mistakenly). 5. After verifying the notes the banker imposes a stamp “received” on the slip and gives back a part of the slip to the customer. The process gets completed. 6. He then hands over the slip to authorization section.

CASH PAYMENT: Here the cash is disbursed to the customer. The procedure followed is similar to the cash receipt. 1. Here the banker has the queued activities on the system. His work starts as soon as the customer approaches him with the token as mentioned before. 2. After this he takes the token and looks at that particular token number in his queue. He enters the particular token number in the system which again displays the window showing the notes as in cash receipt. Here he enters the note given by him to the customer. 3. For convenience he maintains bundles of notes which are not required to be counted. So that he can quickly disburse the cash as soon as the customer approaches him. Note that according to bank sources the fraud can happen only here in cash payment.

AUTHORIZATION: Here the authorization of different transactions is done. This is done by officer. The authorization is done of both the cash receipt and cash payment by bank. In the
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former case authorization is done at last (3rd step). In the latter authorization is 2nd step, cash payment being the last. In authorization the officer acknowledges that the transaction occurred is right. He has a window showing the pending activities. He clicks on those and acknowledges these transactions. If the authorization is required to be done for regular customer then he directly authorizes and if not so then he verifies the sign of customer with the cheque.( in case of cash payment by bank). Note that in case of cash receipt by bank, no customer would intentionally deposit the amount in somebody else‟s a/c. So, here there is no need to verify the signature. Note that in case of cash receipt by the bank the order followed is 1. SCROLL 2. CASH RECEIPT 3. AUTHORIZATION Whereas in case of cash payment by bank it is as follows 1. SCROLL 2. AUTHORIZATION 3. CASH PAYMENT A transaction between cash received and cash payment section As mentioned earlier that the cash receiver receives and cash payer pays the cash. So on one side the payer wants cash to give it to the customers on need and on the other side receiver receives huge amount of cash which can be difficult to handle. So to solve both the problems a transaction happens between the cash receipt

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and cash payment section, where cash receipt section gives away money to the cash payment section. The procedure followed is mentioned below 1. At first, the cash payer enters into the window of demand. Here he demands money from the cash taker (name is available in his window). 2. Now after the demand is place neither of them can proceed. So, the cash taker has to open his demand fulfillment window and place a window showing notes to be given by him. After his acceptance of paying, the cash payer receives the cash. Note that once such transaction is in process, no other work can happen on the system, so as to avoid the delay and confusion.

CONCLUSION
Cash being an easily recognized wealth, is searched for by almost every person in the world. So it is necessary to have a stringent system of give and take of cash which can avoid any mishaps of fraud at the bank. Also accepting depositor‟s cash is less risky than giving cash to him. So for this, in case of giving of cash, authorization is done before the payment of cash.

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CHAPTER -7

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CLEARING Introduction
Although RTGS (Real Time Gross Settlement) and NEFT (National Electronic Fund Transfer) Systems are already introduced, there is still time left for these systems to become ubiquitous. Until that time, the clearing section has to work full-fledge and perform its duty. This section deals with two types of transactions 1. First transaction: It can be understood by following example. Mr. X having his a/c at PSC, is given ICICI bank cheque by Mr. Y for the services rendered to him by Mr. X. Here Mr. X presents this cheque at clearing section of PSC.PSC credits Mr. X a/c by the amount in cheque although the cheque is not of PSC. This is called outward clearing and is explained in later in this chapter. 2. Second transaction: The example is as follows. Mr. A having his a/c at PSC, Gives PSC‟s cheque to Mr. B for services rendered by Mr. B to him. Mr. B is not having a/c at PSC and so goes to his bank HDFC for crediting the cheque to his a/c. Now, HDFC takes this cheque and performs certain formalities and gives the cheque to PSC for debiting Mr. A‟s a/c by the amount mentioned in the cheque. This is called inward clearing for PSC and is explained later. In short clearing is debiting one a/c and crediting other a/c irrespective of the type of a/c and the bank in which the a/c is held. That is irrespective of the bank and type of a/c of remitting and

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beneficiary customer, the remitting customer will always get his a/c debited and the beneficiary customer will get it credited.

Outward Clearing
Procedure: Here a customer comes with cheque/s and a slip attached to it. The slip colour is indicative of the a/c type and its details contain a/c type and a/c number of beneficiary customer, name of the beneficiary customer/firm, and amount to be credited. The cheque too contains the details such as name of the beneficiary customer/firm, a/c number and a/c type of the remitting customer and the amount. After providing the slip and cheque to the bank‟s clearing departm ent, the procedure followed by banker is as follows 1. First the details of the slip viz. a/c type and a/c number of the beneficiary customer and amount are entered into the system (PC). Here as soon as you enter the a/c number of the beneficiary customer, the database of the system will show the name of the beneficiary customer/firm. Verify this name with that mentioned on the slip, so that the amount doesn‟t get credited to anybody else‟s a/c. 2. Next the details of the cheque viz. remitting bank code and branch code (fetched from database of the bank), cheque number (mentioned on the cheque) and the amount is entered. This finishes the process. Note that if there is any mistake in the entry of the above transaction, then it can be corrected while tallying in the afternoon, after which it is sent to clearing house.

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Inward Clearing
Procedure: Here the cheques are received from clearing house when a banker from bank approaches the clearing house. After this the procedure followed by him is as follows 1. The cheques are segregated according to the a/c type viz. savings, current, etc 2. After this any bunch is selected for data entry. Here once the a/c type is entered for the first cheque, every other after that goes into that a/c type only. 3. After having entered the a/c type, the cheque details such as a/c number of the remitting customer, cheque number, date and amount is entered. This finishes the process. Note that no tallying is required in inward clearing because unless the a/c number of the remitting customer and cheque number don‟t coincide, the system will not allow entering the data. This is so because the database here already contains the information about which customer has been issued which cheque book.

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CHAPTER- 8

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LOAN Introduction
Lending of money as loans is one of the most important way in which the bank earns its profit. It is a service given by bank in which it lends money to the customer and gets it back at some later stage with interest as a profit. Being a profitable service to offer, the banks always try to give away maximum number of loans at optimal risk. Moreover, to cover the needs of different customers the bank offers different types of loans, which are described below. 1. Hypothecation-cash credit: This loan is basically given to business people on their trading stock. 2. Industrial: Like Hypothecation this loan is also given to firms but here it is given on finished goods. The other things are same as Hypothecation. 3. Overdraft (OD): For the businesses like brokerage firms and trading firms, where there is no record of the stock, but has to keep large amount of funds to felicitate trade, hypothecation and industrial loans cannot be given. So for the liberation of these firms, OD loans can be given. Here these firms are given loans on the basis of their record of balance sheet and PNL (Profit and Loss) account. These loans are of 2 type‟s viz. FOD and SOD. FOD is the loan given against fixed deposit whereas SOD means Secured OD and is given on the mortgaging of the property of the business land or property 4. Pledge: Here stock is under the control of bank. For example the key of the warehouse in which the goods are kept is with the bank. Example of a fridge stock. Suppose a warehouse of

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fridge is under the control of bank. Now, bank will give the keys to the stockholder only if he pays a part of loan which he has taken on the stock of fridge. TERM LOANS: These are loans in which monthly installments are made for disbursement or paying off of loans. The term for these loans is agreed upon in advance by the bank and customer. These are mentioned below. 5. Consumption: This is called self-mortgaging loan where the people usually comes for taking loans on their personal income. It is the only type of loan where the purpose of the loan is not mentioned. 6. Staff Consumption: This is similar to the consumption loan except that it is provide to staff people at a slightly lesser rate. 7. Commercial loan: This loan is provided to the small vendors, who are in need of money for running their business. This is usually given to the people running small provision stores, pan shops and others. 8. Vehicle loan: As the name implies the bank gives loan on the purchase of vehicle. Here a customer may want an old vehicle or a new vehicle. In the former case the valuation of the vehicle is must. This valuation can be done by the bank or the customer himself. In the later case of new vehicle the bill quotation is used for considering vehicle‟s value and 75% of the value can be given as loan. However, in case of old vehicle 50% of the value of vehicle is given as loan. 9. Building loan: This loan is given on the purchase or construction of building for residential or business purposes. This type of loan is also one of the major contributors to the credit of the bank. These loans are basically taken by the public for housing and are also taken by the builders for construction purpose. The loan to the builders is given on the amount of the work done. For

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example when the construction is about to start the first installment of loan is sanctioned. Thereafter, after the construction of 1st slab, another installment is given and so on. 10. Consumable loan: This loan is given for consumable such as fridge, TV, AC, etc. This is a type of personal loan wherein it is necessary to define the purpose of the loan. 11. Machinery loan: This is a loan given to industries on the purchase of the machinery. Herein, if it is a new machinery then bill quotation is used as valuation. On the other hand if it is an old machinery then a valuer of bank is asked to give valuation report, based on which loan is sanctioned. 12. Gold loan: Here the loan is given on the purchase of gold. This loan is a rarity now. 13. Bill purchase: Here the customers give their receipts receivables to the bank. Bank pay the total amount of bills to the customer and then it itself collects the receivables on behalf of the customers. Rate of interest on certain loans which were charged in PSC bank.

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Figure 6.1 rate of interest
LOAN ACCOUNT HOUSING LOAN CAR LOAN TWO WHEELAR LOAN PROPERTY LOAN RATE OF INTEREST 10% 11% 11% Charged against 150% value of property EDUCATION LOAN DAIRY LOAN R.C LIMIT 9% 10.5% 11%

Procedure for loan to get passed For the loan to get passed it has to pass through many hands as shown in the figure below.

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Figure 6.1 Procedure for getting a loan.
giving away of loan

reception

insurance

credit rating

meeting

inspection

loan manager

Reception: Here a person inquires about the loan rates and other prerequisites that are to be
submitted. He is provided this information by the clerk at the reception. For example in case of hypothecation, he is informed to submit his stock letters and details of other things which he wishes to mortgage for taking loan.

Credit rating: Based on the documents submitted by the customer, the credit rating of the
customer is done i.e. how much the loan amount should be granted to the customer is calculated. This is done as follows 1. First the total value of the customer‟s assets is calculated. For example if loan is on a stock plus if he has provided the papers of his business land, then in this case his credit will be calculated as a sum of the value of both these assets .i.e. total value = value of stock + value of land

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2. Now, according to the rules of bank some percentage of the value of these assets can only be given as loan. This percentage varies for different types of loans and based on it the sanctioned loan amount is calculated.

Inspection: After having calculated the credit and the amount that can be sanctioned for loan,
the file is forwarded for inspection. Here, the officer verifies the work done by the clerk at the credit rating desk. Moreover, he checks the bank‟s database to see if the loan taker has any previous obligations which are remaining to be met (if he is an old customer). After the satisfaction with all the parameters, he hands over the file to the loan manager.

Loan Manager: Here the file is again examined and the interest rate for the loan is put down.
This interest rate is same for all the loans at 15% per annum.

Meeting: After having examined the file, the file is then put forward before the Chairman and
Managing Director (MD) in a meeting. This file is then cross examined and is then made ready for disbursement of loan amount.

Insurance: Before issuing the loan amount or opening of a/c for loan, the customer is required
to get insurance on the thing on which he wishes to take loan. This is done by bank with the help of United India (UI) Insurance Company. Moreover, if any other thing is mortgage for taking loan, then the insurance is taken on that particular thing also. This is explained in detail in the coming sections.

Giving away of loans After paying the insurance amount, the loan amount or account is
handed over to the customer. Prerequisites for taking a loan- From the customers‟ point of view, there are some formalities and prerequisites that are to be complied with before taking a loan. Among these prerequisites,
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some are more or less general which can apply to almost all types of loans mentioned above. However, there are some other prerequisites which are specific to particular loans. These general and specific prerequisites are mentioned below General Prerequisites 1. Letter of Continuing Security ( Rs. 50 stamp) 2. Demand promissory note: In this note it is stated that the customer is seeking loan from the bank and promises to payback the same in due time. 3. Receipt showing the receiving of loan amount by the customer: It is similar to the demand promissory note. 4. Acceptance of Loan amount: It shows the amount, the interest rate „r‟, the penal interest rate, sign of customer and his guarantors. It also shows the guarantors making a promise of payback incase customer defaults. 5. Letter of guarantors: It shows that the name of the people who are agreeing to be guarantors and making a promise of payback in case the customer defaults. 6. It is a rule of RBI that any customer who wants to take loan form a co-operative bank has to be necessarily the shareholder of the bank. It was decided by RBI that for secured* loans the loan taker should possess 2.5% and for unsecured *loans he should possess 5% of the sanctioned loan amount. 7. 1.5% of the sanctioned amount is to be given as document charge to the bank. These documents involve all the above letters.

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*Secured loans are loans on which enough properties for mortgaging is provided to cover the loan amount whereas unsecured loans are loans on which there are not enough properties for mortgaging to cover the loan amount. Specific Prerequisites Consumption and Commercial Loans: The prerequisites for these loans involve all the above 7. Besides these the following prerequisite is also required. 1. Papers of assets kept for mortgaging Vehicle loan or machinery loan: Here too the prerequisites involve all the points mentioned above. Besides these some other involve 1. Valuation report: this report shows the value of vehicle or machinery. The loan amount is then sanctioned on the percentage amount of this value. Hypothecation loan: Here all except 1st of the general prerequisites are required. In addition to these others involve 1. Letter of guarantors on Rs. 50 stamp 2.Agreement on Rs. 50 stamp

Insurance
The customer will be taking loan on things such as stock, building, etc. On these things the bank issues insurance which is compulsory. The insurance amount is to be paid by the customer. At first time when the customer has just issued the loan, he is asked to give a cheque or pay cash to the bank for taking

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Stock maintenance
For the loans such as hypothecation, industrial and others, where the loan is taken on stock of goods, it is required to maintain a stock file or database in which the stock letters of customers is maintained. This is required so as to know the capability of the customer in pay-back of the loan. Moreover, it also shows that whether the loan facility given by the bank is properly used or not. The person here maintains the stock letter which shows the stock of the customer every month. The bank when it gives loan to a customer on stock at the first time physically checks the stock. Thereafter, it commands the customer to provide the bank with the stock letter. Every time the customer gives the stock letter, his stock maintenance is checked against the amount of bank‟s money which he is using. According to the rule of RBI for co -operative society, 70% of his stock value should be greater than the amount of bank‟s money used by him. Note that one may think here that when the customer comes for loan he can show a huge stock and then in the next show case on paper may show fake stock. This can create a fraud if the customer runs away with the money. However, it must be noticed here that besides the stock the bank asks for mortgaging of land, machinery and other. So even if a customer wants cash credit of 1 crore and he has stock = 1 crore, then too he is required to mortgage the land, machinery and other things. Getting back to the person on this desk, he is required to send the letters to customers every month telling them to send the stock letter. Along with this letter he sends a form in which customer is asked to note down its stock.
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Every time the customer provides the banker with the stock letter, the database (a physical register) is updated to inform the system that the customer has given his stock letter. At the end of the closing date for the stock letter, the customers who are still left to give their stock letter are given a call.

Loan Recovery section
This is the only less significant section of the whole bank as people here are having no work or less work. This is so because the PSC bank has almost zero NPA (Non Performing Asset) and has very few defaulters. As the name implies this section deals with the recovery of loan which is in danger of becoming NPA. The process here starts with the regular sight on the loan repayment instalments of the customer. The person here keeps updates of the loan repayment of customers. He keeps a look at the loan repayment by all the customers as to whether they are able to successfully repay the loan or not. For a term loan, usually a phone call is made initially when the customer is unable to pay the instalment till the 4th week after it is due. After this on the non-payment till 5-6 weeks, he is given informal notice of bank. Here the notice is also sent to the 2 guarantors of the customer. This is so because the guarantor will push the customer to repay the loan instalments as his image will be at stake. Next the officer here visits his place for collection of loan amount. Even after this if the customer is unable to pay the instalment then the formal court notice is sent to him. The same procedure is applicable to other loans too. Earlier under the law, the bank had to approach the court and then do the needful. But after some amendments to the law, the bank can now itself take steps such as auction the property of the customer etc. So nowadays the non repayment of loans is less as compared to the previous days as the power has moved into the hands of banks. When repayment of the loan occurs after the
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force of loan recovery section, then the additional document charge (consisting of court papers etc.) is charged to the customers. A copy of notice sent to the customer is kept with the bank. If a customer is unable to repay the full amount then his guarantor is required to pay the remaining or full amount. But in rare case such a situation happens.

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CHAPTER- 9

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RBI NORMS ON PRIORITY SECTOR LENDING Introduction
RBI has incessantly believed that in giving the loans and advances, the commercial banks should give priority to certain sections of the society such as agriculturists, small scale industrialists etc. and for certain purposes such as housing loans, education loans etc. This lending of money by bank is called “Priority Sector Lending”. After its formalization in 1972, RBI has over the years modified the regulations regarding lending to priority sector. In September 2005, after examining and reviewing the regulations, the RBI has decided to include only those sectors as part of the priority sector that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises. Accordingly, the broad categories of priority sector for UCBs (Urban Co-operative Banks) will be as under:

1. Agriculture (Direct and Indirect finance)
Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers without limit for taking up agriculture/allied activities. Direct finance may be limited to regular members and not to nominal members or to agencies like primary agriculture credit societies (PACS), primary land development banks etc. Indirect finance to agriculture include loans given for agriculture and allied activities indirectly.

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Some of these loans include loans granted to NGOs/MFIs provided they have been admitted as members for on-lending to individual farmers, loans given to State Electricity Boards (SEBs) for providing low tension connection from step-down point to individual farmers.

2. Small Enterprises (Direct and Indirect Finance)
Direct finance to small enterprises shall include all loans given to micro and small (manufacturing) enterprises engaged in manufacture/ production, processing or preservation of goods, and micro and small (service) enterprises engaged in providing or rendering of service. The micro and small (service) enterprises shall include small road & water transport operators, small business, professional & self-employed persons, and all other service enterprises. Indirect finance to small enterprises shall include finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.

3. Retail Trade
Retail trade shall include retail traders/private retail traders dealing in essential commodities (fair price shops).

4. Micro Credit
This include provision of credit and other financial services and products of amounts not exceeding Rs. 50,000 per borrower or the maximum permissible limit on unsecured advances whichever is lower.

5. Education loans
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Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions.

6. Housing loans
Loans up to Rs. 20 lakh to individuals for purchase/construction of dwelling unit per family, and loans given for repairs to the damaged dwelling units of families up to Rs. 1 lakh in rural and semiurban areas and up to Rs. 2 lakh in urban and metropolitan areas.

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CHAPTER- 10

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RBI NORMS ON MAINTENANCE OF CRR AND SLR
All primary (urban) co-operative banks (PCBs) (scheduled as well as non-scheduled) are required to maintain stipulated level of cash reserve ratio (CRR) and statutory liquidity ratio (SLR). For this the Reserve Bank of India has been periodically issuing instructions to these banks. In regard to CRR, there are different provisions which govern the scheduled and nonscheduled banks. However, for SLR each and every commercial bank is governed under the same provision. Before going further and learning about the maintenance in detail, it will be beneficial to learn certain terms which are a part of the future explanation. These terms are specified in detail by RBI and are stated below Demand and Time Liabilities (DTL) Liabilities of the bank to the banking system is classified into two broad categories viz. Demand Liabilities and Time Liabilities. Demand Liabilities‟ to the banking system are further classified as under: (a) Balances in current accounts maintained with PCBs, by • SBI • SBI Subsidiary Banks • Nationalised Banks (b) Other demand liabilities comprises of –Balances in current accounts maintained with

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PCBs by RRB, Banking Companies i.e. Private Sector Banks & Foreign Banks, Cooperative Banks, Other „Notified‟ financial institutions and others. In short the balances with the bank which are payable to other banks and others on demand are called demand liabilities. Similarly, the time liabilities are the liabilities which are not payable on demand but are payable only when the time is due for that particular liability. These time liabilities include (a) All types of time deposits from the banks (b) Certificates of deposits from the banks (c) Participation Certificates issued to banks which are not payable on demand (d) Interest accrued on time deposits of banks Fortnight It shall mean the period from Saturday to second following Friday, both days inclusive. Maintenance of CRR According to the Banking Regulation Act, every non-scheduled PCB is required to maintain on daily basis a cash reserve, an amount not less that 3 per cent of its DTL as obtained on the last Friday of the second preceding fortnight and shall submit to the Reserve Bank before fifteenth day of every month a return showing the amount so held on alternate Fridays during a month with particulars of demand and time liabilities in India on such Fridays and if any such Friday is a public holiday, at the close of business on the preceding working day. This balance may be maintained by way of cash resources with itself or by way of balance in a current account with the Reserve Bank or the State Co-operative Bank of the State concerned or by way or net balance in current accounts with the Central Co-operative Bank of the district concerned. Note that

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according to RBI rules, for CRR purpose the reserves can be held only in current account of any bank and balances in any other account cannot be taken as CRR. Reporting Requirements (i) Non-scheduled banks are required to submit a Return in Form I, as per proforma given in Table 6.1Annex 4, to the concerned Regional Office not later than 20 days after the end of the month to which it relates showing the position of cash reserve maintained by the banks as at the close of business on each alternate Friday during the month, with particulars of its DTL in India on such Fridays or if any such Friday is a public holiday, at the close of business on the preceding working day. (ii) Non-scheduled banks are required to show the position of the (a) cash reserve required to be maintained. (b) cash reserve actually maintained, and the (c) extent of deficit/surplus for each day of the month.

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CHAPTER -11

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RBI NORMS ON CAPITAL ADEQUACY Introduction
Capital acts as a buffer in times of crisis or poor performance by a bank. Sufficiency of capital also instils depositors‟ confidence. As such, adequacy of capital is one of the pre-conditions for licensing of a new bank as well as its continuance in business. So to enforce the banks to be capital adequate, capital adequacy norms were introduced amongst UCBs in April 25, 2001. Statutory Requirements According to the Banking Regulation Act, no cooperative bank shall commence or carry on banking business unless the aggregate value of its paid up capital and reserves is not less than one lakh rupees. Share linking to Borrowings Traditionally, UCBs have been augmenting their share capital by linking the same to the borrowings of the members. The Reserve Bank has prescribed the following share linking norms: (i) 5% of the borrowings, if the borrowings are on unsecured basis. (ii) 2.5% of the borrowings, in case of secured borrowings. This traditional approach to sufficiency of capital does not capture the risk elements in various types of assets in the balance sheet as well as in the off-balance sheet business and compare the capital to the level of the assets.

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Capital to Risk Asset Ratio (CRAR)
To overcome the shortcoming of the traditional approach, Capital to Risk Asset Ratio (CRAR) framework has been adopted by most of the regulatory authorities as the basis of measurement of capital adequacy. CRAR takes into account the element of risk associated with various types of assets reflected in the balance sheet as well as in respect of off-balance sheet items and the level of capital held by the banks. Initially RBI had introduced a minimum CRAR of 8% in 1992, for the commercial banks. This committee felt that the continued financial stability of UCBs could not be ensured unless they were subjected to the CRAR discipline. The committee was of the view that CRAR norms should be implemented in respect of UCBs on account of the following: i) CRAR serves as a buffer, which can absorb the unforeseen losses a UCB may incur in future; ii) UCB sector is an important segment of the financial system and exclusion of this segment from CRAR discipline would undermine the stability of the whole system; and iii) UCBs perform the same banking functions as commercial banks and are subject to similar risks. To exempt UCBs from the CRAR discipline would, therefore, be untenable.

Returns
Banks should furnish to the respective Regional Offices annual return indicating (i) capital funds, (ii) conversion of off-balance sheet/non-funded exposures (iii) calculation of risk weighted assets, (iv) calculation of capital funds and risk assets ratio.

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BIBLOGRAPHY

www.rbi.org.in/ http://en.wikipedia.org/wiki/Banking_in_India http://www.indiaonline.in/Utilities/Banks/banks.asp

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