CHSE Odisha Vocational Banking (BANK) cheat sheet

Evolution milestones: indigenous bankers and hundi (pre-colonial) → Presidency Banks (Bank of Bengal 1806, Bombay 1840, Madras 1843) → Imperial Bank of India 1921 → State Bank of India 1955 → nationalisation of 14 major banks 1969 and 6 more 1980 → NABARD 1982, RRBs from 1975 → liberalisation and new private banks from 1993.

Banking Regulation Act, 1949 Section 5(b) defines banking as accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.

Scheduled bank = a bank included in the Second Schedule of the RBI Act, 1934; conditions include paid-up capital and reserves of at least Rs 5 lakh and satisfaction that affairs are not conducted in a manner detrimental to depositors' interests.

Structure by ownership: public sector (SBI and associates, nationalised banks), private sector (old and new generation), foreign banks, cooperative banks (urban and rural, short-term and long-term), regional rural banks, and small finance and payments banks.

Functions of a commercial bank: primary (accepting deposits, granting loans and advances) and secondary (agency functions such as collections and standing instructions; general utility functions such as lockers, drafts, letters of credit and remittances).

Credit creation: a bank creates derivative deposits when it lends; the theoretical maximum expansion is the initial excess reserve multiplied by 1/reserve ratio, limited in practice by cash drain, statutory reserves and credit demand.

Cooperative credit structure: short-term three-tier (state cooperative bank, district central cooperative bank, primary agricultural credit society); long-term two-tier (state cooperative agriculture and rural development bank, primary cooperative agriculture and rural development bank).

Regional Rural Banks were set up under the RRB Act, 1976 on the recommendation of the Narsimham Working Group (1975); shareholding is Central Government 50%, sponsor bank 35% and State Government 15%.

RBI established 1 April 1935 under the RBI Act, 1934 on the recommendation of the Hilton Young Commission; nationalised on 1 January 1949.

Central board: Governor, up to 4 Deputy Governors, 4 directors nominated by the Central Government, 10 directors elected by shareholders and 1 Government official; the Governor is appointed by the Central Government.

Monetary policy under the amended RBI Act (effective 2016): a six-member Monetary Policy Committee, three members from RBI and three appointed by the Central Government, with the Governor as chair and a casting vote; inflation target is 4% CPI with a band of +/- 2%.

Quantitative tools: repo rate, reverse repo rate, marginal standing facility, bank rate, cash reserve ratio and statutory liquidity ratio; qualitative tools include margin requirements, consumer credit regulation, moral suasion and direct action.

CRR is a cash reserve with RBI under Section 42 of the RBI Act and earns no interest; SLR under Section 24 of the Banking Regulation Act is held in cash, gold or approved securities.

Lender of last resort: RBI provides emergency liquidity to solvent but illiquid banks; it also acts as banker to the Government and to banks, and as custodian of foreign exchange reserves under FEMA, 1999.

Supervisory and regulatory roles: licensing of banks under Section 22 of the Banking Regulation Act, branch authorisation, prudential norms (CRAR, income recognition and asset classification), and deposit insurance through DICGC, which covers up to Rs 5 lakh per depositor per bank.

Payment system oversight: RBI operates RTGS and NEFT and regulates payment systems under the Payment and Settlement Systems Act, 2007; it also issues currency notes other than the one-rupee note, which is issued by the Government of India.

KYC is mandatory before opening an account; officially valid documents include passport, driving licence, Aadhaar, voter identity card, NREGA job card and letter from a bank branch, with simplified KYC permitted for small accounts subject to limits.

Savings bank accounts carry restrictions on the number of withdrawals and on cash handling for non-individual entities; current accounts are meant for business and pay no interest.

Fixed deposits are repayable after a fixed term and attract a penalty for premature withdrawal; recurring deposits require fixed periodic instalments and also carry a premature-closure penalty.

Interest on savings deposits is calculated on the daily closing balance; banks may pay interest on fixed deposits at monthly, quarterly, half-yearly or annual rests, and interest is generally credited to the account.

Nomination is permitted under Section 45ZA of the Banking Regulation Act, 1949; a nominee is a trustee for the depositor's legal heirs and receives the deposit on the depositor's death.

Types of accounts by holder: single, joint (either or survivor, former or survivor, jointly), minor accounts (operated by guardian; a minor above 10 may operate a savings account), and accounts of illiterate and blind persons.

Dormant or inoperative accounts are those with no customer-induced transaction for the period specified by RBI (currently two years); reactivation requires fresh KYC and written request.

Deposit insurance: DICGC insures deposits up to Rs 5 lakh per depositor in the same right and capacity per bank, covering principal and interest; cooperative banks are covered subject to DICGC rules.

Section 13 of the Negotiable Instruments Act, 1881 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer.

Cheque essentials under Section 6: an unconditional order, drawn on a specified banker, signed by the maker, ordering payment of a certain sum of money only to, or to the order of, a certain person or to the bearer.

Crossing: general crossing (two parallel transverse lines) means payment only through a collecting banker; special crossing names a banker; account payee crossing restricts collection to the payee's account.

Endorsement and delivery are required to negotiate an instrument payable to order; a bearer instrument is negotiated by delivery alone. A cheque is valid for three months from its date unless otherwise stated.

Holder in due course under Section 9 must obtain the instrument for value, before maturity, in good faith and without notice of a defect in the transferor's title.

Payment in due course under Section 10 is payment in accordance with the apparent tenor of the instrument, in good faith and without negligence, to a person in possession.

Dishonour of a cheque for insufficiency of funds is an offence under Section 138, attracting imprisonment up to two years or a fine up to twice the amount of the cheque, or both, after a statutory notice period of 15 days following a 30-day demand notice.

Electronic payment systems: NEFT (batch, 24x7 since December 2019), RTGS (real-time, minimum Rs 2 lakh), IMPS (24x7 through NPCI), UPI (instant mobile payments), and card networks; the RBI operates RTGS and NEFT.

Canons of lending: safety, liquidity, profitability, purpose, security, spread and suitability of the borrower; the 5 Cs are character, capacity, capital, collateral and conditions.

Forms of advances: cash credit (hypothecation of stock, running account), overdraft (current account, temporary limit), demand loan (lump sum, repayable on demand), term loan (fixed repayment schedule) and bill discounting or purchase.

Modes of security: pledge (possession with banker), hypothecation (possession with borrower, charge created), mortgage (immovable property, by registered instrument or deposit of title deeds), lien (banker's right to retain) and assignment (life policies, book debts).

Working capital assessment: the Nayak Committee (1991) recommended the turnover method for small borrowers (up to Rs 5 crore), permitting 20% of projected annual turnover as working capital limit, with a minimum of Rs 10 lakh.

Prudential norms: income recognition on non-performing assets is stopped; NPAs are classified as substandard (up to 12 months), doubtful (over 12 months) and loss assets; provisioning and CRAR requirements apply.

A loan is an NPA when interest or instalment remains overdue for more than 90 days; for overdrafts and cash credit, the account is treated as NPA if it remains out of order for 90 days.

Priority sector lending target is 40% of adjusted net bank credit for commercial banks, including 18% for agriculture and 7.5% for micro enterprises; shortfalls may be deposited with NABARD or SIDBI.

Credit information: CIBIL, CRIF and other bureaus provide credit scores; RBI requires banks to obtain a credit report before sanctioning loans above the prescribed threshold.

The relationship is contractual: debtor–creditor when the customer has a credit balance, creditor–debtor when the bank has advanced funds, and trustee–beneficiary when valuables are held in safe custody.

Special relationships include bailee–bailor for articles in safe custody, agent–principal for collection and standing instructions, and lessor–lessee for locker hire.

General lien under Section 171 of the Indian Contract Act, 1872 permits a banker to retain goods and securities of the customer until a general balance of account is paid.

Right of set-off allows the bank to combine two accounts of the same customer in the same right and capacity; it is not available for trust accounts or accounts in different capacities.

Banker's obligation of secrecy under Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and common law; exceptions include statutory disclosure, court orders, RBI inspection and customer consent.

Garnishee order: an order attaching the customer's account; if received before the bank has notice of the customer's death, the bank must comply; the bank must honour cheques issued before receipt of the order.

Customer grievances: the RBI Integrated Ombudsman Scheme, 2021 covers banks and non-bank entities; the complainant must first approach the regulated entity and may escalate after 30 days, with the Ombudsman's award binding on the entity.

Customer services include issue of cheque books, passbooks or statements, ATM and debit cards, internet and mobile banking, standing instructions, locker facilities and nomination.

Ancillary or para-banking services include remittances, letters of credit, bank guarantees, safe deposit lockers, merchant banking, leasing, factoring, forfaiting and mutual fund distribution.

Bancassurance: banks distribute insurance products as corporate agents under IRDAI regulations; a bank may act as a corporate agent for one life, one general and one health insurer.

Insurance fundamentals: insurable interest, utmost good faith, indemnity (for general insurance), contribution, subrogation, proximate cause and mitigation of loss.

Life insurance contracts are not contracts of indemnity; the sum assured is paid on the insured event, and the policy may acquire surrender value after the stipulated period.

Financial inclusion: RBI's plan of 2005 and the Rangarajan Committee (2008) defined inclusion as access to timely and adequate credit and other financial services at an affordable cost to vulnerable groups.

Initiatives: Pradhan Mantri Jan-Dhan Yojana (2014) with RuPay cards and overdraft facility, Business Correspondent model, Simplified KYC small accounts, Direct Benefit Transfer, Aadhaar-enabled payment systems and payment banks.

Lead Bank Scheme (1969) assigns a lead bank in each district to coordinate credit and branch expansion; the District Consultative Committee monitors implementation.

Self Help Groups and the SHG-Bank Linkage Programme (NABARD, 1992) provide collateral-free group lending; joint liability groups are also used for small borrowers.

Double-entry bookkeeping: every transaction has equal debits and credits; the accounting equation is Assets = Liabilities + Capital.

Principal books of a bank branch: cash book (receipts and payments), general ledger (control accounts), subsidiary day books, bills registers, and the customer ledger or pass sheets.

Cash book: the cash receipt book records credits to cash and the payment book records debits; the closing balance must agree with the physical cash in the vault.

Trial balance lists ledger balances and must tally; the profit and loss account and balance sheet are prepared from the trial balance after adjustments.

Final accounts of a bank are prepared under the Banking Regulation Act, 1949, in the formats prescribed by RBI, with schedules for capital, reserves, deposits, borrowings, advances, investments and other assets and liabilities.

Reconciliation: bank reconciliation statement explains the difference between the cash book and pass book balances; causes include cheques issued but not presented, cheques deposited but not collected, bank charges and interest credited.

Practical skills: fill deposit and withdrawal slips correctly, verify signatures and account numbers, use MICR and IFSC codes, handle clearing, and maintain the know-your-customer file and record retention as per RBI instructions.

Audit and control: internal audit and inspection, concurrent audit at large branches, statutory audit under the Banking Regulation Act, and returns such as CRR and SLR statements to RBI.

Banking Regulation Act, 1949 Section 5(b) defines banking as accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.

Scheduled bank = a bank included in the Second Schedule of the RBI Act, 1934; conditions include paid-up capital and reserves of at least Rs 5 lakh and satisfaction that affairs are not conducted in a manner detrimental to depositors' interests.

Functions of a commercial bank: primary (accepting deposits, granting loans and advances) and secondary (agency functions such as collections and standing instructions; general utility functions such as lockers, drafts, letters of credit and remittances).

Credit creation: a bank creates derivative deposits when it lends; the theoretical maximum expansion is the initial excess reserve multiplied by 1/reserve ratio, limited in practice by cash drain, statutory reserves and credit demand.

RBI established 1 April 1935 under the RBI Act, 1934 on the recommendation of the Hilton Young Commission; nationalised on 1 January 1949.

Monetary policy under the amended RBI Act (effective 2016): a six-member Monetary Policy Committee, three members from RBI and three appointed by the Central Government, with the Governor as chair and a casting vote; inflation target is 4% CPI with a band of +/- 2%.

Quantitative tools: repo rate, reverse repo rate, marginal standing facility, bank rate, cash reserve ratio and statutory liquidity ratio; qualitative tools include margin requirements, consumer credit regulation, moral suasion and direct action.

CRR is a cash reserve with RBI under Section 42 of the RBI Act and earns no interest; SLR under Section 24 of the Banking Regulation Act is held in cash, gold or approved securities.

KYC is mandatory before opening an account; officially valid documents include passport, driving licence, Aadhaar, voter identity card, NREGA job card and letter from a bank branch, with simplified KYC permitted for small accounts subject to limits.

Savings bank accounts carry restrictions on the number of withdrawals and on cash handling for non-individual entities; current accounts are meant for business and pay no interest.

Nomination is permitted under Section 45ZA of the Banking Regulation Act, 1949; a nominee is a trustee for the depositor's legal heirs and receives the deposit on the depositor's death.

Deposit insurance: DICGC insures deposits up to Rs 5 lakh per depositor in the same right and capacity per bank, covering principal and interest; cooperative banks are covered subject to DICGC rules.

Section 13 of the Negotiable Instruments Act, 1881 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer.

Crossing: general crossing (two parallel transverse lines) means payment only through a collecting banker; special crossing names a banker; account payee crossing restricts collection to the payee's account.

Holder in due course under Section 9 must obtain the instrument for value, before maturity, in good faith and without notice of a defect in the transferor's title.

Dishonour of a cheque for insufficiency of funds is an offence under Section 138, attracting imprisonment up to two years or a fine up to twice the amount of the cheque, or both, after a statutory notice period of 15 days following a 30-day demand notice.

Canons of lending: safety, liquidity, profitability, purpose, security, spread and suitability of the borrower; the 5 Cs are character, capacity, capital, collateral and conditions.

Modes of security: pledge (possession with banker), hypothecation (possession with borrower, charge created), mortgage (immovable property, by registered instrument or deposit of title deeds), lien (banker's right to retain) and assignment (life policies, book debts).

A loan is an NPA when interest or instalment remains overdue for more than 90 days; for overdrafts and cash credit, the account is treated as NPA if it remains out of order for 90 days.

Priority sector lending target is 40% of adjusted net bank credit for commercial banks, including 18% for agriculture and 7.5% for micro enterprises; shortfalls may be deposited with NABARD or SIDBI.

The relationship is contractual: debtor–creditor when the customer has a credit balance, creditor–debtor when the bank has advanced funds, and trustee–beneficiary when valuables are held in safe custody.

General lien under Section 171 of the Indian Contract Act, 1872 permits a banker to retain goods and securities of the customer until a general balance of account is paid.

Right of set-off allows the bank to combine two accounts of the same customer in the same right and capacity; it is not available for trust accounts or accounts in different capacities.

Banker's obligation of secrecy under Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and common law; exceptions include statutory disclosure, court orders, RBI inspection and customer consent.

Ancillary or para-banking services include remittances, letters of credit, bank guarantees, safe deposit lockers, merchant banking, leasing, factoring, forfaiting and mutual fund distribution.

Insurance fundamentals: insurable interest, utmost good faith, indemnity (for general insurance), contribution, subrogation, proximate cause and mitigation of loss.

Financial inclusion: RBI's plan of 2005 and the Rangarajan Committee (2008) defined inclusion as access to timely and adequate credit and other financial services at an affordable cost to vulnerable groups.

Lead Bank Scheme (1969) assigns a lead bank in each district to coordinate credit and branch expansion; the District Consultative Committee monitors implementation.

Double-entry bookkeeping: every transaction has equal debits and credits; the accounting equation is Assets = Liabilities + Capital.

Cash book: the cash receipt book records credits to cash and the payment book records debits; the closing balance must agree with the physical cash in the vault.

Reconciliation: bank reconciliation statement explains the difference between the cash book and pass book balances; causes include cheques issued but not presented, cheques deposited but not collected, bank charges and interest credited.

Audit and control: internal audit and inspection, concurrent audit at large branches, statutory audit under the Banking Regulation Act, and returns such as CRR and SLR statements to RBI.