Unit -2: Retail liability

products

By Dr. Mohd Shafeeq

 Topic I: Different Types of Customers in Banking
Definition of Customer: According to John Paget, “a Customer constitutes a person who has an
account with a bank, whether fixed or savings, and has dealing of banking nature”. Dealings of
banking nature refer to those transactions of deposit and withdrawal of money at frequent intervals.
The above definition is popularly known as the ‘Duration Theory’.
A bank opens accounts for various types of customer’s like,
• Individual/s- either singly or jointly with other individuals
• Hindu Undivided Family
• Limited Liability Partnership firm
• Limited Company (Joint Stock Company)
• One – Person Company Ltd.,
• Club and Association, Institution, Society
• Trust
• Executor and Administrator
• Official Liquidator
• Co-operative Society
Who can open an account?
• As the banker- customer relationship is a contractual relationship, all the essential features of a
valid contract must be present when a banker opens an account. Even though the actual formalities
will differ depending on the type of the customer, certain formalities are common to all.
• The common formalities are: The banker must ensure that the customer is competent to contract.
For entering into a valid contract, a person needs to fulfil the basic requirements of being a Major
(18 years of age or above) and possessing sound mental health (ie., not being a lunatic). A person
who fulfils these basic requirements, as also other requirements of the banks as mentioned below
can open an account.
• However, minors (below 18 years of age) can also open SB accounts with certain limitations. A
person who wants to open a deposit account has to fill up and sign the prescribed account opening
application form and furnish:
• Acceptable proof of his/her identity and residential address,
• His/her photographs, and
• Initial deposit not less than the prescribed minimum (varies from bank to bank according to
the types of deposit accounts)
Introduction not Mandatory for opening accounts:
• Introduction was obtained primarily by banks to get protection under Section 131 of the
Negotiable Instruments Act, 1881.
• The legal protection given to bankers in respect of cheques collected “in good faith and without
negligence” was available only if the account was opened with proper introduction. However,
even though there was no legal responsibility on the part of the introducer, the introducer is
deemed to have connived with the account holder, for conversion (Collection of instruments not
legitimately owned by the customer).
• Now RBI has informed that introduction is not necessary for opening of accounts. Hence banks
should not insist on introduction of existing customer while opening a new account.
• But the branches should clearly verify the identity of the customers through any one or more of the
various KYC identification documents.
Types of Customers:
INDIVIDUALS – SINGLE INDIVIDUAL
• This is purely a personal account in the name of an individual and is normally operated upon by
the account holder himself. The account holder may authorise another person to operate on his
account. For this purpose, he gives a Mandate or executes a Power of Attorney in favour of such a
person.
• In order to avoid legal complications that may arise after the death of the account holder, it is
desirable to suggest the opening of a joint account in the names of two individuals (unless it is
essential in certain circumstances to open an account in the single name only), and/or to obtain the
proper nomination.
• Special Types of Individual Customers:
Certain persons lack the legal capacity to make valid agreement - Minors, Drunkards, etc. The
position of the banker in regard to these persons and the precautions to be taken in dealing with this
category of persons is given below:
I) Minors: According to Section 3 of Indian Majority Act, a person attains majority at the age of 18,
except in cases where a guardian is appointed by a Court where the age of majority is 21. According
to the Indian Contract Act, a minor is not under a legal capacity to enter into a contract and therefore
any contract with a minor is void.
• Thus, the minor has a guardian to maintain his / her property. Section 6(a) of Hindu Minority and
Guardianship Act, 1956 recognizes that either of the parents, father or mother, can be the natural
guardian. Normally, bankers do not open accounts in the name of the minor individually, but open
accounts in the joint name of the minor and the natural guardian.
• Sometimes, the Court may appoint someone who is not a natural guardian as minor’s guardian. In
such cases the account should be in the name of the minor and the Court - appointed guardian.
Usually, the account should be operated by the guardian on behalf of the minor
• The account opening form should contain details:
• Name of the Minor
• Age of the Minor
• Date of birth of the Minor
• Date of attaining majority
• Name of the Guardian
• Signature of the Guardian
• When the minor attains the age of majority, he/she alone can operate the account and the guardian
should not be allowed to operate the account.
• Other Issues in Opening Account in the Minor’s Own Name:
i. A minor of any age can open a SB/FD/RD account through his /her natural or legally appointed
guardian.
ii. Minors above the age of 10 years may be now allowed to open and operate savings bank
accounts independently, if they so desire. Keeping in view their risk management systems, banks
may fix limits in terms of age and amount up to which minors may be allowed to operate the
deposits account independently. Banker can also decide, in his own discretion, as to what
minimum documents are required for opening of accounts by minors.
iii. On attaining majority, the minor should confirm the balance in his account and if the account is
operated by the natural guardian / legal guardian, fresh operating instruction and specimen
signature of the minor should be obtained and kept on record for all operational purposes.
II) Illiterate Persons
• A person who cannot read or write is considered as an illiterate person. The banker while opening an
account in favour of an illiterate person, should adopt the following procedures:
• The illiterate person will have to be introduced by an existing literate account holder of the branch.
• The left hand thumb impression has to be attested by a judicial officer or by any witness who is
also the account holder of the bank
• The illiterate person should not be given cheque book.
• Three passport size photographs should be obtained. One will be affixed in the passbook, the other
in the ledger and the third in the account opening form.
• While withdrawing money from the account, the withdrawal slip should be accompanied by the
pass book.
• The left hand thumb impression affixed in the withdrawal slip should carry the sign of a witness.
• While endorsing any cheque, the thumb impression should carry the signature of witness.
• No bank employee should fill up the withdrawal slip for the illiterate customer and he can be
assisted by any other customer of the bank.
• In the account opening form the banker should obtain two identification marks from the illiterate
person.
• If the illiterate person is unable to come to the bank in person for withdrawal of cash, he can send a
messenger with an authorization letter which should contain the signature of two witnesses
authorising his left hand thumb impression.
• Illiterate persons are the people who cannot either read or write, A banker can always open an
account in the name of the illiterate person. The banker however needs to observe following
precautions.
i. Thumb impression As the illiterate person cannot sign, it is necessary for the banker to
obtain the thumb impression of such a customer. The thumb impression has to be compared
with the thumb found on the cheques drawn by him.
ii. Photograph The banker should obtain the photograph of the illiterate customer. The
photograph will help identify the illiterate easily
iii. Identification Mark Besides the photograph, the banker should also obtain brief details of
the physical identification marks of the illiterate customer.
III) Married Woman:
• An account can be opened in the name of a married woman. She has the power to draw cheques
and give discharge. But if a loan is given to a married woman, the banker will have no remedy
against her if she has no separate means.
• Bank must insist for the guarantee of her husband, because the married woman can plead for and
get validated that her debts to the bank are void if the explicit written consent of the husband is not
recorded by the lending bank. This is possible by virtue of provisions in Married Women’s
Property Act
IV) Lunatics
Under Section 1 of the Indian Contract Act, persons of unsound mind are disqualified from
contracting. But the disqualification does not apply to contracts entered into during the periods of
sanity. However, no banker would knowingly open an account in the name of a person of unsound
mind because he then would have to face the difficulty of choosing whether cheque was made during
a period of sanity and pay it or it was made during a period when it was not and so dishonour it.
• If a banker receives notice and is sure that an account – holder has become a lunatic, he
should stop all operations in the account till such time the customer becomes normal. The
banker should obtain a Certificate of Sanity from a competent authority after which such a
person is allowed to operate on the account.
• Lunatics are the people who are unsound in mind. They are incapable of entering into valid
contracts. Hence, a banker cannot open an account in the name of lunatic. In the same manner,
a customer who subsequently becomes a lunatic loses his capacity to contract and therefore
cannot continue to be the customer of the bank. In such a situation where a banker honors the
cheque issued by a customer who subsequently becomes lunatic cannot be held liable unless it
is proved that the banker had knowledge of the unsound mind of the customer.
• The banker has to take the following precautions on coming to know of the insanity of the
customer:
a. Return Cheques On coming to know of the unsound nature of mind of the customer, the
banker must immediately return all the cheques drawn by him with the remark ‘refer to
drawer’.
b. Lunacy Order The order of lunacy on being received from the Court should be entered in the
proper records of the banker
c. Account operation The banker may allow the operation of the account of the lunatic
customer only on the basis of the guidance of the Court Of Law. The customer should not be
allowed to operate the account in any manner

V) Drunkards
Generally, drunkenness does not affect a person’s capacity to contract. However, no one should take
advantage of a person who is drunk. The drunkard may evade responsibility for an instrument if the
Court is satisfied that he was compelled to sign the instrument when he was under influence or
liquor. If a customer tenders a self cheque for cash payment when he is drunk, it is prudent for the
banker to secure witness to the signature and the payment.
INDIVIDUAL - JOINT ACCOUNTS
• A Joint Account is an account opened by two or more persons.
• Opening of Joint Account: The Account Opening Forms should be signed by all the joint account
holders. The names, addressed and other details of all of them should be obtained on the Account
Opening Form. The account – holders should also indicates how the account is to be operated the
banker should obtain specific directions as to one or more of them will operate on the account.
When a joint account is in the name of two persons, the operations may be by:
i. both survivor
ii. both jointly
iii. Either or survivor
iv. Former or survivor
v. Latter or survivor
• In case the account is a term deposit, upon death of any one of the joint holder, balance can paid to
survivor in the following cases.
i. Either or survivor
ii. Former or survivor
iii. Latter or survivor
• A joint account in the name of more than two persons may be payable to, a) All of them or
survivors b) Any one or more of them or survivor or survivors.
• In the absence of such explicit instructions, the operations will be by all the persons jointly. Since
all the instructions are given by the account – holders jointly at the time of opening the account,
they cannot be revoked by any one of them singly. All fresh instructions and changes in the
existing instructions must be given in writing signed by all the account holders. However, any one
of them can stop payment of a cheque issued by any other joint account holder. Any request for
granting of an advance should be made by all parties jointly.
• Insanity of a joint account holder: The instructions for operations in the account will stand
countermanded and the operations in the account should be stopped till the banker receives
instructions from the same account holder and a competent authority in regard to his sanity.
• Insolvency of the joint account holder: Insolvency puts an end to the mandate and the operations
on the account will be stopped. Payments from the account should be made on the joint
instructions of the trustee of the insolvent and the solvent joint account holders. However, while
returning the cheques of the solvent account holders a suitable reason has to be given so that their
credit – worthiness is not affected.
HINDU UNDIVIDED FAMILY(HUF)
• Hindu Undivided Family’ otherwise known as ‘Joint Hindu Family’ property, business or ancestral
estates and its common possession, enjoyment ownership is the basis of the formation of HUF.As per
Hindu law, the Hindus, Buddhists, Sikhs & Jains can form HUF.
• HUF is governed basically by two schools of thought. In Bengal and Assam, it is governed by
Dayabhag Law. In other parts of India, it is governed by Mitakshara Law. The law governing the
Hindu Undivided Family is codified under the Hindu Code and now, succession among Hindus is
governed by the Hindu Succession Act, 1956. Parts of this Act were amended in 2005 by the Hindu
Succession (Amendment) Act, 2005.Creation of Hindu Law under which all major members of the
family get right by birth in the ancestral property of the family.
• HUF property is managed by a senior member called ‘Manager’ or ‘Karta’. Upon the death of Karta,
the next senior coparcener becomes Karta. Joint owners of HUF are known as coparceners. It consists
of one common living ancestor and his all male & female (female included from Sept. 2005)
descendent up to three generations next to him. HUF cannot enter into a partnership as per the
Supreme Court judgment of 1998.
• The HUF account is operated by Karta. Karta has the authority to borrow money for family necessities
& for ancestral family business. Documents are to be executed by Karta. All major coparceners are to
be made guarantors. The liability of the ‘Karta’ is unlimited, whereas the liability of the coparceners is
limited to their shares in the joint family estate.
SOLE PROPRIETARY FIRMS
• A business is wholly owned by an individual. In law, there is no difference between the proprietor
& the firm. In all respects, it is an account in the name of an individual only except that it is
operated upon by the proprietor on behalf of the firm. The firm should have PAN or GST Number.
A proprietorship letter in the bank’s Performa is to be obtained. Proof of proprietorship to be
obtained. Creditors have recourse not only against assets of the firm but also against the private
assets of the proprietor. The proprietor can authorize another person to operate the account through
Mandate or Power of Attorney.
• For opening an account in the name of a sole proprietary firm, the CDD of the individual
(proprietor) shall be carried out. In addition to the above, any two of the following documents as
proof of business/ activity in the name of the proprietary firm shall also be obtained:
a. (a) Registration certificate
b. Certificate/license issued by the municipal authorities under the Shop and Establishment Act.
c. Sales and income tax returns.
d. CST/VAT/ GST certificate (provisional/final).
e. Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities.
f. IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT or
Licence/certificate of practice issued in the name of the proprietary concern by any
professional body incorporated under a statute.
g. Complete Income Tax Return (not just the acknowledgment) in the name of the sole
proprietor where the firm’s income is reflected, duly acknowledged by the Income Tax
authorities.
h. Utility bills such as electricity, water, landline telephone bills, etc.
PARTNERSHIP FIRM
• Partnership is the relation between persons who have agreed to share profits of business carried on
by all or any one of them acting for all (Indian Partnership Act 1932). As per RBI instruction now
Registration Certificate and Partnership deed to be obtained. The Indian Partnership Act does not
mention anything about the maximum number of partners in a partnership firm. The Central
Government has prescribed a maximum number of partners in a firm to be 50 vide Rule 10 of the
Companies (Miscellaneous) Rules, 2014. Thus, in effect, a partnership firm cannot have more than
50 members”. A partnership is not a distinct legal person from the partners who have made a
partnership firm. HUF cannot enter into a partnership as per the Supreme Court judgment of 1998.
The firm should have PAN or GST Number. A partner cannot delegate his authority to operate the
account.
• In case of death/retirement/insolvency of a partner account should be stopped, if the balance is in
debit and a fresh account should opened after fresh sanction of limit. In case of dispute when one
partner revokes the authority against the other partner, operation in the account should be stopped.
• Dissolution of the Partnership firm can take place by the following ways:
i. By mutual consent;
ii. Death/insolvency/retirement of a partner;
iii. Operation of Law (insolvency of all partners, business becoming unlawful, dissolution by
a competent court; and
iv. In case of automatic dissolution.
LIMITED LIABILITY PARTNERSHIP (LLP)
• A limited liability partnership (LLP) is a partnership in which some or all partners (depending on
the jurisdiction) have limited liabilities. LLP is governed by the Limited Liability Partnership Act
2008.
• Liability is limited to the extent of his contribution in the LLP.
• Minimum 2 designated partners and no limit on the maximum number of Partners.
• A partner is not liable for another partner’s misconduct or negligence, except in certain cases.
• LLP is a legal entity separate from its partner.
• It has own assets in his name, sue and be sued. Since LLP contains element of both ‘a corporate
structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a
partnership.
• It has perpetual succession (the death of a partner does not affect the existence of LLP).
• Partners have a right to manage the business directly.
• Firms and companies can get themselves converted into LLP.
• LLP cannot raise funds from the public.
COMPANIES
• Companies are defined in the Indian Company Act 1956. As per the provision of Company Act
2013 (implemented with effect from 1st April 2014), recognizes a joint Stock Company is a legal
person with perpetual entity & is distinct from its members.
• A company or association of persons can be created at law as a legal person so that the company in
itself can accept limited liability for civil responsibility.
• Because companies are legal persons, they also may associate and register themselves as
companies otherwise it will be treated as illegal.
• Address of the registered office is compulsory. It is the address at which all the documents &
notices may be served upon the company. Cheques favouring company are not to be credited to
the personal accounts of the Directors or other officers of the company.
• The following documents are required for the account opening of a company:
i. Certificate of Incorporation: Issued by Registrar of Companies. It is conclusive proof for
incorporation of the company & compliance of all formalities by promoters.
ii. Certificate of commencement of business: A company having share capital cannot commence
business until it has obtained the certificate to commence business (COB) from the concerned
Registrar of Companies. Certificate of commencement of business is not required by Private
Ltd. Co. as its shares are closely held & it can commence business on its incorporation.
iii. Memorandum of Association: Company’s fundamental & unalterable law. Embodies
Company’s name, Authorized capital, Objectives of the company, Liability of shareholders.
iv. Article of Association: Regulations controlling internal management of the company. Rights &
powers of the Directors, rules about conduct of company meetings & business, Procedure for
borrowing & limit on borrowing etc.
v. Copy of Board Resolution: Certified copy of Board Resolution authorizing to borrow from the
Bank with details of limit, security etc., Persons who are authorized to sign the security
documents & operate the Bank Account, persons in whose presence Seal of the company will
be affixed to the security documents.
vi. Company identification Number (CIN): As per RBI guidelines Company Identification
Number (CIN) assigned by the ROC is now compulsory for opening of bank account of the
company.
vii. Company common Seal: The common seal if any, of the company available, should be
embossed on the bank`s documents. As per Companies (Amendment) Act, 2015 and RBI
instructions Company Common Seal is not necessary if other documents are available during
the current account opening.
Different types of companies in India:
i. Private Company: Private Company has shareholders with limited liability and its shares may
not be offered to the general public. Private Limited Company has a no minimum paid-up share
capital limitation now. (As per the Companies (Amendment) Act, 2015, paid-up share capital of
one lakh rupee or such higher paid-up share capital as may be prescribed is omitted now). It
has a minimum of two members and a maximum member restricted to two hundred and a
Minimum two directors and no maximum number of directors is restricted.
ii. Public Company: Public company means a company that is not a private company and has no
minimum paid-up share capital limitation now (As per Companies (Amendment) Act, 2015,
paid-up share capital of five lakh rupee or such higher paid-up share capital as may be
prescribed is omitted now). Shares are offered to the public & are listed on the stock exchange.
Minimum seven members no limit of maximum number. Minimum 3 directors maximum 15
director limits. Provided that a company may appoint more than fifteen directors after passing a
special resolution (As per Companies Act 2013, no Central Govt. permission is required now).
At least one-woman director shall be on Board. A certificate of commencement of business is a
must to do any type of business.
iii. Government Company: “Government Company” means any company in which not less than
fifty one percent. Of paid-up share capital is held by the Central Government, or by any State
Government, or partly by the Central Government and partly by one or more State
Governments and includes a company which is a subsidiary company of such a Government
company.
iv. One Person Company: The Companies Act 2013 Act introduces a new type of entity to the
existing list i.e. apart from forming a public or private limited company, the 2013 act enables
the formation of a new entity a ‘one-person company’ (OPC). An OPC means a company with
only one person having a sole member [section 3(1) of 2013 Act]. An OPC can be formed only
by an Indian Resident and citizen.
v. Other Companies: As per the Companies Act 1956, companies can be classified on the basis
of time, place of incorporation and nature of working share capital as follows:
a. Foreign Company: It means a company incorporated outside India and having a place of
business in India whether by itself or through an agent, physically or through electronic
mode and conducting any business activity in India in any other manner.
b. Existing Company: A company which is established before the Company Act 1956 is
called Existing Company.
c. Holding Company: A company is known as the holding company of another company if it
has control over another company.
d. Subsidiary Company: A company is known as a subsidiary of another company when
control is exercised by the latter over the former called a subsidiary company. A company
is to be deemed to be a subsidiary company of another.
Operations in the Accounts of Limited Companies:
i. Issue of cheques by the company- If the company is to be bound by a negotiable instrument, it
should show , on the face of it, that it has been drawn, made, accepted or endorsed by the
company. This may be done either by showing the name of the company itself or by the
statement of the person signing the instrument that he is doing so on behalf of the company
ii. Death of a Director- As the company has an existence separate from that of the share holders/
directors, the death of a director does not affect the operations in the account. Even if a cheque
signed by an authorized director who is dead, is presented after his death, the banker cannot
return the cheque for this reason.
iii. A cheque payable to the company should never be deposited in the personal account of
directors, as it would amount to conversion under Section 131 of the Negotiable Instruments
act.
iv. Advances to Companies:
a. The purpose of the advance should be within the scope of the memorandum of Association
of the company- if it is not, advance will not be binding on the company
b. The /memorandum of Association should specifically empower the company to borrow.
c. Board of Directors of a Public company shall not borrow limits in excess of the company
and its free reserves. If such amounts are to be borrowed, it should be only after getting
consent of the share- holders in a general meeting.
d. All charges created on a company’s assets (except pledge) have to be registered with the
Registrar of Companies within 30 days of creation of the charge. Otherwise, the charge is
void. The following charges need to be registered.
 Securing any issue of debenture;
 Uncalled share capital;
 any immovable property and interest therein;
 any movable property and interest therein;
 book debts;
 movable property other than pledge; vii. floating charge on any undertaking or any
property including stock in trade on call made , but not paid;
 Ship or any share in a ship;
 Goodwill, patient or license under a patent, trademark copyright or licence under a copy
right. While a charge may be registered even after 30 days, Subject to Certain formalities,
a duly registered subsequent charge will get priority over the earlier charge which has
 e. A banking company cannot grant advances to any of its directors or to any company in
which any of its directors are interested as per Section 20 of the Banking Regulation act.
f. In the case of winding up of a company all the powers of the directors will cease from the
commencement of the winding – up except to the extent sanctioned by the liquidators. The
bank should not honour cheques drawn by directors after it has received the notice of
resolution for winding up of company.
Non-Trading Institutions:
• A banker is expected to observe the following precautions while dealing with the societies and
other non-trading institutions.
a. The banker must ensure whether or not the society seeking to open an account is incorporated
or not under the Societies Registration Act, or the Companies Act.
b. The banker should obtain the copies of Memorandum of Association and Article of Association.
c. The banker must also obtain a copy of the resolution of ‘Managing Committee’ authorizing the
opening account.
d. The banker must ascertain the names of person who are authorized to sign cheques or borrow.
e. It is important for the banker to ensure that he does not mix the personal account of the official
with that of the society account.
TRUST
• Trusts are governed by the Indian Trust Act, 1882. A trust is created when ownership of a property
is transferred to someone for holding or managing it for the benefit of another person(s).
• A trust may be a public charitable trust or a private trust (for the benefit of private individuals).
Trusts are managed by trustees. Loan can be granted if it is for the purpose of the trust.
• The trustee is authorised to borrow as per the trust deed. Original Trust Deed to be examined
before financing. Certificate of Registration under Public Trust Act to be examined & copy to be
kept on record.
CLUB AND ASSOCIATION
• Clubs and Associations, Committees, Funds etc. are non – trading organizations. They have no
legal entity, unless they are incorporated under the Companies act. As they have no contractual
powers, they cannot be used. The individual members of such organizations are not liable for any
overdraft as long as the members are signing the cheques in their representative capacity and not
in their personal capacity.
• Opening of Accounts in the name of Clubs & Associations:
i. If the society or club is registered under the Societies Registration Act 1960 or Companies
Act, a copy of the Registration Certificate or the Certificate of Incorporation should be
obtained.
ii. The bank should obtain a certified copy of the by-laws, rules and regulations.
iii. A list of the members of the Managing committee is to be obtained.
iv. A certified copy of the resolution passed by the committee to open a bank account together
with the details of authorized signatories and instruction regarding the operation of the
account should be obtained.
v. The account must be properly introduced.
vi. POI+ POA not only for the constituent but also for every authorized signatory are to be
obtained.
Operations in the Accounts in the name of Clubs & Associations:
i. No advance, not even a temporary overdraft should be permitted.
ii. If the person authorized to operate the account has his personal account also in the bank, the
banker has to ensure that no cheque payable to the club/ association is credited to the
signatory’s account and no transfer of funds takes place from the club/association account to the
signatory’s account.
iii. Only clubs/associations etc. meant for charitable purposes, registered under the Societies
Registration Act and that have submitted Income Tax exemption Certificate from IT department
are eligible for interest on savings bank accounts.
iv. In the case of death or registration of an authorized signatory, the operations in the account
should be stopped until the receipt of the fresh resolution , appointing new signatories.
SOCIETIES
• These entities are established under Co-operative Societies Act in various States. They are
governed by their respective rules and by- laws. Before opening the accounts, these rules have to
be scrutinized to see if there are any restrictions on opening of bank accounts.
• In some states , the co-c-operative Societies cannot open the accounts with commercial banks
without prior permission from the Registrar of Co-operative Societies and the Registrar may also
impose certain conditions like maximum balances. All such conditions should be observed while
opening the accounts.
 Topic II: Operational Issues for Different Types of Deposits

• Operational Issues in Current Account

• Operational Issues in Saving Account
• Operational Issues in Term deposit
• Operational issues in banking in non resident business
Operational Issues in Current Account:
• Operational issues related to current deposits in the context of the Reserve Bank of India (RBI)
may involve several aspects. The RBI, as the central banking authority in India, sets guidelines
and regulations for banks operating in the country. Here are some operational issues specific to
current deposits within the regulatory framework of the RBI:
• Transaction Processing and Settlement:
• High transaction volumes in current accounts can pose challenges in terms of timely
processing and settlement. Efficient transaction processing systems are essential to prevent
delays and ensure real-time updates.
• Overdraft Management:
• Current accounts often come with overdraft facilities. Managing overdraft limits, ensuring
compliance with RBI guidelines on overdraft facilities, and monitoring customer usage to
prevent excessive overdrawing are operational considerations for banks.
• Customer Verification and KYC Compliance:
• The RBI emphasizes Know Your Customer (KYC) compliance to prevent money laundering
and fraud. Banks must continually update customer information and ensure proper
verification procedures, contributing to the operational workload.
• Regulatory Compliance and Reporting:
• Adherence to RBI guidelines and reporting requirements for current accounts is crucial.
Compliance issues may arise if banks fail to follow regulations related to interest rates,
charges, or other operational aspects of current deposits.
• Digital Transactions and Cybersecurity:
• With the increasing use of digital banking, ensuring the security of online transactions,
protecting customer data, and preventing cyber threats are significant operational challenges.
RBI guidelines on cybersecurity need to be strictly followed.
• Customer Service and Dispute Resolution:
• Effective customer service is essential for addressing queries, resolving disputes, and
providing timely information about account balances and transactions. Ensuring customer
satisfaction aligns with RBI's focus on customer protection.
• Fraud Prevention and Risk Management:
• Implementing robust systems for fraud detection, risk management, and transaction
monitoring is crucial. The RBI encourages banks to have effective mechanisms in place to
prevent fraudulent activities.
• Communication with RBI:
• Banks need to maintain effective communication with the RBI, especially in terms of
reporting requirements, seeking clarifications on guidelines, and keeping the central bank
informed about any operational challenges.
• Technology Upgrades and Innovations:
• Adopting new technologies and innovations in banking requires careful planning and
implementation to ensure compliance with RBI guidelines. Any technological upgrades or
innovations should align with regulatory expectations.
• Compliance with Circulars and Notifications:
• Staying abreast of and implementing the latest circulars, notifications, and guidelines issued
by the RBI is critical for operational efficiency and compliance.
• Addressing these operational issues in current deposits requires a proactive approach from banks,
involving continuous monitoring, adherence to RBI regulations, investment in technology, and
ongoing staff training to ensure compliance and a seamless banking experience for customers.
Operational Issues in Saving Account:
• Operational issues in savings accounts within the regulatory framework set by the Reserve Bank
of India (RBI) can encompass a range of challenges. Savings accounts are widely used by
individuals for everyday banking transactions and usually offer interest on the deposited amount.
Here are some common operational issues in savings accounts, with a focus on compliance with
RBI regulations:
• Interest Rate Management:
• Setting and Revision: Banks need to manage interest rates on savings accounts in compliance
with RBI guidelines. Changes in interest rates, if not communicated transparently, can lead to
customer dissatisfaction.
• Regulatory Compliance:
• KYC (Know Your Customer): Compliance with KYC norms is essential to prevent money
laundering and ensure the legitimacy of customer identities. Regular updates and adherence to
RBI guidelines are crucial.
• Interest Payment Compliance: Ensuring that the interest paid on savings accounts aligns with
RBI regulations and disclosure requirements.
• Transaction Processing and Settlement:
• Timely Processing: Efficient processing of transactions and settlement is vital for providing
customers with real-time access to their funds.
• Digital Transactions: As digital transactions increase, ensuring secure and smooth digital
banking experiences is a key operational challenge.
• Customer Service:
• Query Resolution: Timely and effective resolution of customer queries, complaints, and
concerns is crucial for maintaining customer satisfaction.
• Communication: Clear communication regarding changes in terms, conditions, or policies
related to savings accounts is essential for transparency.
• Fee Structure and Charges:
• Transparent Fee Structure: Managing the fee structure for services associated with savings
accounts and ensuring transparency in disclosing charges to customers.
• Compliance with RBI Guidelines: Adherence to RBI guidelines on charges for services and
penalties is crucial to prevent disputes and regulatory issues.
• Security and Fraud Prevention:
• Transaction Monitoring: Implementing robust systems for monitoring transactions to detect
and prevent fraudulent activities in savings accounts.
• Customer Authentication: Ensuring secure customer authentication processes to protect
against unauthorized access and identity theft.
• Technology Upgrades and Innovations:
• Digital Transformation: Adapting to technological advancements, including the
implementation of digital banking platforms, to enhance the overall customer experience.
• Cybersecurity: Investing in robust cybersecurity measures to protect customer data and
prevent cybersecurity threats.
• Regulatory Reporting:
• Reporting to RBI: Meeting reporting requirements to regulatory authorities, including the
submission of necessary reports and data as per RBI guidelines.
• Compliance Audits: Conducting regular internal audits to ensure compliance with RBI
regulations and guidelines.
• Account Statements and Communication:
• Timely Statements: Providing accurate and timely account statements to customers, allowing
them to keep track of their transactions.
• Communication with Customers: Ensuring effective communication with customers regarding
changes, updates, or any issues related to their savings accounts.
• Financial Inclusion:
• Accessibility: Ensuring that banking services, including savings accounts, are accessible to a
broader section of the population, aligning with RBI's goals of financial inclusion.
• Addressing these operational issues requires a comprehensive and proactive approach, with a
focus on compliance with RBI guidelines, investment in technology, effective communication, and
continuous monitoring to ensure a smooth and secure operation of savings accounts.
Operational Issues in Term deposit:
• Operational issues in term deposits within the regulatory framework set by the Reserve Bank of
India (RBI) can involve several aspects. Term deposits are fixed-term investments where
customers deposit a specific amount for a predetermined period, typically earning interest. Here
are some common operational issues in term deposits, with a focus on compliance with RBI
regulations:
• Interest Rate Management:
• Setting and Revision: Managing interest rates on term deposits in accordance with RBI
guidelines. Changes in interest rates need to be communicated transparently to customers, and
adherence to the interest rate structure outlined by the RBI is crucial.
• Regulatory Compliance:
• KYC (Know Your Customer): Ensuring compliance with KYC norms for customers opening
term deposit accounts, with regular updates and adherence to RBI guidelines.
• Interest Payment Compliance: Ensuring accurate calculation and timely payment of interest
on term deposits in compliance with RBI regulations.
• Maturity and Renewal Processing:
• Efficient Handling: Streamlining the maturity and renewal processes to prevent disruptions
and ensure a smooth experience for customers.
• Communication with Customers: Informing customers well in advance about maturity dates,
renewal options, and any changes in terms or conditions.
• Early Withdrawals:
• Policy Implementation: Establishing clear policies for early withdrawals from term deposits,
including penalties and communication with customers about withdrawal terms.
• Regulatory Compliance: Adhering to RBI guidelines on early withdrawals and penalties
associated with premature closures of term deposit accounts.
• Documentation and Record Keeping:
• Accurate Record Keeping: Maintaining accurate and secure records of customer information,
transactions, and communication to meet compliance requirements.
• Document Verification: Ensuring effective procedures for verifying and updating customer
documentation in line with regulatory standards.
• Customer Service:
• Query Resolution: Timely and effective resolution of customer queries, concerns, and
complaints related to term deposits.
• Communication: Clear and transparent communication with customers about the terms,
conditions, and performance of their term deposits.
• Technology Upgrades and Innovations:
• Digital Transformation: Integrating technological advancements, including online platforms,
to enhance the overall customer experience with term deposits.
• Cybersecurity: Implementing robust cybersecurity measures to protect customer data and
prevent unauthorized access to term deposit accounts.
• Interest Rate Risk Management:
• Monitoring Market Conditions: Regularly monitoring market conditions and interest rate
trends to manage interest rate risk associated with long-term deposits.
• Strategic Planning: Developing strategies to adapt to changing interest rate environments and
optimizing the interest rate structure for term deposits.
• Communication with RBI:
• Reporting Requirements: Meeting reporting requirements to regulatory authorities, including
the submission of necessary reports and data as per RBI guidelines.
• Compliance Audits: Conducting regular internal audits to ensure compliance with RBI
regulations and guidelines related to term deposits.
• Financial Inclusion:
• Accessibility: Ensuring that term deposit products are accessible to a broader section of the
population, aligning with RBI's goals of financial inclusion.
• Addressing these operational issues in term deposits requires a comprehensive and proactive
approach, with a focus on compliance with RBI guidelines, investment in technology, effective
communication, and continuous monitoring to ensure a smooth and secure operation of term
deposit accounts.
Operational issues in banking in non resident business:
• Non-resident business accounts, which involve banking services for businesses located outside the
country, may encounter specific operational issues within the regulatory framework set by the
Reserve Bank of India (RBI). Here are some common operational issues in non-resident business
banking:
• Cross-Border Transactions:
• International Regulations: Compliance with international regulations, as well as RBI
guidelines, for cross-border transactions involving non-resident business accounts.
• Currency Exchange: Managing currency exchange services and ensuring competitive rates for
businesses dealing with multiple currencies.
• Documentation and Compliance:
• KYC Requirements: Ensuring strict adherence to Know Your Customer (KYC) requirements
for non-resident business customers, including thorough documentation and verification.
• Anti-Money Laundering (AML) Compliance: Implementing robust AML procedures to
prevent money laundering and illicit financial activities.
• Communication and Reporting:
• Communication with Non-Resident Clients: Establishing effective communication channels
with non-resident business clients to address queries, provide updates, and facilitate smooth
banking transactions.
• Reporting to Regulatory Authorities: Meeting reporting requirements to regulatory authorities,
including the submission of necessary reports and data as per RBI guidelines.
• Transaction Monitoring and Security:
• Fraud Prevention: Implementing advanced systems for monitoring transactions to detect and
prevent fraudulent activities in non-resident business accounts.
• Cybersecurity Measures: Investing in robust cybersecurity measures to protect sensitive
financial data and prevent unauthorized access.
• Interest Rate and Fee Structures:
• Interest Rate Management: Managing interest rates on non-resident business accounts and
ensuring compliance with RBI guidelines regarding interest payment.
• Transparent Fee Structure: Providing a transparent fee structure for services associated with
non-resident business accounts, ensuring clarity for clients.
• Legal and Regulatory Changes:
• Adapting to Regulatory Changes: Staying informed about changes in international and
domestic banking regulations and promptly adapting operational processes to comply with
these changes.
• Technology Upgrades and Innovations:
• Digital Banking Solutions: Implementing digital banking solutions to enhance the
accessibility and efficiency of non-resident business banking services.
• Secure Online Platforms: Ensuring the security of online banking platforms to facilitate
remote access and transactions for non-resident businesses.
• Risk Management:
• Credit Risk: Assessing and managing credit risk associated with non-resident business
accounts to prevent defaults and financial losses.
• Operational Risk: Identifying and mitigating operational risks, including errors, system
failures, and process inefficiencies, that may impact non-resident business banking services.
• Customer Support and Education:
• Dedicated Support: Providing dedicated customer support for non-resident business clients to
address their unique needs and challenges.
• Educational Resources: Offering educational resources to non-resident businesses regarding
regulatory requirements, account features, and transaction processes.
• Performance Monitoring and Audits:
• Internal Audits: Conducting regular internal audits to monitor the performance of non-
resident business banking operations and ensure compliance with internal policies and
regulatory guidelines.
• External Audits: Preparing for and participating in external audits to demonstrate compliance
with RBI regulations and other relevant standards.
• Addressing these operational issues requires a comprehensive approach that involves compliance
with regulatory guidelines, investment in technology, effective communication, risk management
practices, and continuous monitoring to ensure the smooth operation of non-resident business
banking services.