1) As per Section 5(b) of the Banking Regulation Act, 1949, "banking" means the

accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or
otherwise.

As per Section 5(c) of the Banking Regulation Act, 1949 a "Banking Company" means any
company which transacts the business of banking in India.

Explanation: Any company which is engaged in the manufacture of goods or carries on any trade
and which accepts the deposits of money from public merely for the purpose of financing its
business as such manufacturer or trader shall not be deemed to transact the business of banking
within the meaning of this clause."

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

As per Section 5(d) of the Banking Regulation Act, 1949, "company" means any company as
defined in Section 3 of the Companies Act, 1956 and includes a foreign company within the
meaning of Section 591 of that Act.

As per section 51 of the Banking Regulation Act, 1949, certain provisions of the Banking
Regulation Act are also applicable to the State Bank of India , any corresponding new bank, a
regional rural bank and any subsidiary bank. "Corresponding new bank" has been defined under
clause (ee) of section 2 of the DICGC Act to mean a corresponding new bank constituted under
the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 or 1980.

Reserve Bank of India is India's central bank, headquartered at Bombay. Central bank of a
country execute multiple functions such as overseeing monetary policy, issuing currency,
managing foreign exchange, working as a bank of government and as banker of scheduled
commercial banks, etc.

2) Main Role and Functions of RBI

Monetary Authority: Formulates implements and monitors the monetary policy for A)
maintaining price stability, keeping inflation in check; B) ensuring adequate flow of credit to
productive sectors.

Regulator and supervisor of the financial system: lays out parameters of banking operations
within which the countrys banking and financial system functions for- A) maintaining public
confidence in the system, B) protecting depositors interest; C) providing cost-effective banking
services to the general public.
Regulator and supervisor of the payment systems: A) Authorizes setting up of payment
systems; B) Lays down standards for working of the payment system; C)lays down policies for
encouraging the movement from paper-based payment systems to electronic modes of payments.
D) Setting up of the regulatory framework of newer payment methods. E) Enhancement of
customer convenience in payment systems. F) Improving security and efficiency in modes of
payment.

Manager of Foreign Exchange: RBI manages forex under the FEMA- Foreign Exchange
Management Act, 1999. in order to A) facilitate external trade and payment B) promote
development of foreign exchange market in India.

Issuer of currency: RBI issues and exchanges currency as well as destroys currency & coins not
fit for circulation to ensure that the public has adequate quantity of supplies of currency notes
and in good quality.

Developmental role: RBI performs a wide range of promotional functions to support national
objectives. Under this it setup institutions like NABARD, IDBI, SIDBI, NHB, etc.

Banker to the Government: performs merchant banking function for the central and the state
governments; also acts as their banker.

Banker to banks: An important role and function of RBI is to maintain the banking accounts of
all scheduled banks and acts as banker of last resort.

Agent of Government of India in the IMF.

And also another article

1. Issue of Bank Notes:

The Reserve Bank of India has the sole right to issue currency notes except one rupee notes
which are issued by the Ministry of Finance. Currency notes issued by the Reserve Bank are
declared unlimited legal tender throughout the country.

This concentration of notes issue function with the Reserve Bank has a number of advantages: (i)
it brings uniformity in notes issue; (ii) it makes possible effective state supervision; (iii) it is
easier to control and regulate credit in accordance with the requirements in the economy; and (iv)
it keeps faith of the public in the paper currency.

2. Banker to Government:

As banker to the government the Reserve Bank manages the banking needs of the government. It
has to-maintain and operate the governments deposit accounts. It collects receipts of funds and
makes payments on behalf of the government. It represents the Government of India as the
member of the IMF and the World Bank.
3. Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the
cash reserves of the commercial banks.

4. Custodian of Countrys Foreign Currency Reserves:

The Reserve Bank has the custody of the countrys reserves of international currency, and this
enables the Reserve Bank to deal with crisis connected with adverse balance of payments
position.

5. Lender of Last Resort:

The commercial banks approach the Reserve Bank in times of emergency to tide over financial
difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of
interest.

6. Central Clearance and Accounts Settlement:

Since commercial banks have their surplus cash reserves deposited in the Reserve Bank, it is
easier to deal with each other and settle the claim of each on the other through book keeping
entries in the books of the Reserve Bank. The clearing of accounts has now become an essential
function of the Reserve Bank.

7. Controller of Credit:

Since credit money forms the most important part of supply of money, and since the supply of
money has important implications for economic stability, the importance of control of credit
becomes obvious. Credit is controlled by the Reserve Bank in accordance with the economic
priorities of the government.

3) The advantages of saving account are as follows:

Saving account encourages savings habit among salary earners and others who have fixed
income.

It enables the depositor to earn income by way of saving bank interest.

Saving account helps the depositor to make payment by way of issuing cheques.

It shows income of a salaried and other person earned during the year.

Saving account passbook acts as an identity and residential proof of the account holder.

It provides a facility such as Electronic fund transfer (EFT) to other people's accounts.

It helps to do online shopping via facility like internet banking.

It aids to keep records of all online transactions carried on by the account holder.

It provides immediate funds as and when required through ATM.

The bank offers number of services to the saving account holders.

4) Moral Hazard

Moral hazard is a situation in which one party gets involved in a risky event knowing that it is
protected against the risk and the other party will incur the cost. It arises when both the parties
have incomplete information about each other. A moral hazard is a situation where a person or
business will have a tendency to take risks or alter their behavior, because the negative costs or
consequences that could result will not be felt by the person taking the risk. Simply stated, the
financial cost or consequence will be felt by someone else.

5) Short Notes on FATF

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by
the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and
promote effective implementation of legal, regulatory and operational measures for combating
money laundering, terrorist financing and other related threats to the integrity of the international
financial system. The FATF is therefore a policy-making body which works to generate the
necessary political will to bring about national legislative and regulatory reforms in these areas.

The FATF has developed a series of Recommendations that are recognised as the international
standard for combating of money laundering and the financing of terrorism and proliferation of
weapons of mass destruction. They form the basis for a co-ordinated response to these threats to
the integrity of the financial system and help ensure a level playing field. First issued in 1990,
the FATF Recommendations were revised in 1996, 2001, 2003 and most recently in 2012 to
ensure that they remain up to date and relevant, and they are intended to be of universal
application.

The FATF monitors the progress of its members in implementing necessary measures, reviews
money laundering and terrorist financing techniques and counter-measures, and promotes the
adoption and implementation of appropriate measures globally. In collaboration with other
international stakeholders, the FATF works to identify national-level vulnerabilities with the aim
of protecting the international financial system from misuse.

The FATF's decision making body, the FATF Plenary, meets three times per year.
 6) KYC

Know Your Customer is nothing but a process of identifying true identity of a customer. KYC is
made mandatory now because it resembles beneficial ownership of accounts, nature of
customers business, source of income, reasonableness of operations in the customers account
etc.

KYC was introduced in 2002 in our Country also 1st August of every year is called KYC day for
all banks.

KYC Rules has mainly 3 purposes:

Proper identification of depositor or borrower.

To stop Strap Frauds.

KYC is a Customer Identification Procedure (CIP) and Anti Money Laundering (AML) activity.
Money laundering is nothing but turning Black money into White money. Especially by opening
a bank account depositing or withdrawal of money which is over bank limit.

7) FIU-IND

To provide quality financial intelligence for safeguarding the financial system from the abuses of
money laundering, terrorism financing and other economic offences. To become a highly agile
and trusted organization that is globally recognized as an efficient and effective Financial
Intelligence Unit.

8) General Lien and Particular Lien

Particular lien is one in which the person has a right to retain the possession of goods for which
the charges are due. Particular lien is available only to bailee against those goods in respect of
which he has rendered some service involving the exercise of labour or skill.

Example 1:

A delivered some gold to B, a goldsmith for the purpose of making ornaments. B made the
ornaments. Here, B is entitled to retain the ornaments till he is paid for the services he has
rendered.
When the bailee is entitled to retain any goods bailed to him for any amount due to him in
respect of those goods or any other goods, it is called General Lien.

General lien gives the banker the right to retain goods and securities delegated to him in his
capacity as a banker, in the absence of a contract contradictory to the right of lien. It extends to
all goods/properties placed with him as a banker by his customer which are not particularly
identified for another purpose

Example of General Lien

K deposited certain jewels with a bank to secure certain debt. After payment of this debt, he
demanded the return of these jewels from the bank. He was still indebted to the bank for certain
other debts. On banks refusal to return, it was held that he could not recover unless he proved
that the bank had agreed to give up its general lien.

Law provides that bailees coming within the following categories have a general lien: bankers,
factors, wharfingers, attorneys of High Court and policy brokers.

Such bailees can retain all goods of the bailor so long as anything is due to them. The general
lien in all these cases may not exist if there is a contract to the contrary. Bailees falling in
categories other than those mentioned above may have a general lien if there is an express
agreement to that effect.

9) Rights of a Banker

1. Right of General Lien

One of the most important rights enjoyed by a bank is the right of general lien. Lien is a right of
a person to retain goods belonging to another; until the demands of the person in possession are
satisfied. Section 171 of the Indian Contract Act confers the right of general lien on the bankers.
General lien entitles the banker in possession to retain goods and securities till all its claims
against the customer are satisfied. You should note that the banker can exercise his right of
general lien only as a banker and not as a bailee, Bankers lien is an implied pledge in the sense
that if a default is made by the debtor, the banker can, after giving a reasonable notice to the
customer, sell the goods in his possession and recover the amount. If some valuables are
deposited with a bank for safe custody, then it is bailment and the bank cannot exercise the right
of general lien.
You should note that the right of general lien cannot be exercised in the following cases:
a) When valuables are deposited for safe custody,
b) When money or documents are deposited for a specific purpose,
c) When some securities are left with the bank by mistake,
d) When the property is held by the customer as trustee and the bank has the notice of trust, and
e) When there is an express agreement that the bank shall not exercise the right of general lien.

2. The Right of Set-off

Right of set-off is the right of a debtor to adjust the amount due to him from a creditor against the
amount payable by him to the creditor to determine the net balance payable by one to another,
Like any other debtor, a bank also has a right of set- off. When a customer has two or more
accounts in the same name and capacity in a bank, the bank has the right to adjust the amount
standing to the credit of the customer against the debit balance in the other account. The bank has
a right to combine the two accounts.

Lets take an example: Mr Ram has overdrawn his current account to the extent of Rs. 1,00,000
and he has a credit balance of Rs.80,000 in his savings account. The bank can combine these two
accounts and claim the balance of Rs.20,000 after adjusting the credit balance of savings account
against the debit balance of current account,

3. Right of Appropriation

A customer may owe several distinct debts to the bank. When the customer deposits some money
in the bank without specific instructions and the amount is not sufficient to discharge all debts,
then the problem arises as towards which debt this amount should be adjusted. In the absence of
any specific instructions, the bank has the right to appropriate the deposited amount to any loan,
even to a time barred debt. But the banker must inform the customer about the appropriation.

4. Right to Charge Interest and Commission

The bank has the implied right to charge interest on loans and advances, and also to charge
commission for services rendered by the bank, such as SMS notification service, retail banking,
multi city cheque service etc. The bank can debit such charges to the customers account.

5. Right to Close the Account

If the bank is of the opinion that an account is not being operated properly, it may close the
account by sending a written intimation to the customer. But the notice is mandatory, without
sending such notice a banker can not close any customers account.

Termination of Banker Customer Relationship

The relationship between banker and customer terminates in the following grounds:

a. Voluntary termination.
b. Death of the customer

c. Bankruptcy of the customer

d. Liquidation of the company

e. Insanity of the customer.

10) Fractional Reserve Bank

Fractional reserve banking is a banking system in which only a fraction of bank deposits are
backed by actual cash on hand and are available for withdrawal. This is done to expand the
economy by freeing up capital that can be loaned out to other parties. Many U.S. banks were
forced to shut down during the Great Depression because too many people attempted to
withdraw assets at the same time.

Banks are required to keep a certain amount of the cash depositors give them on hand available
for withdrawal. That is, if someone deposits $100, the bank can't lend out the entire amount. That
said, it isn't required to keep the entire amount either. Most banks are required to keep 10% of
the deposit, referred to as reserves. This reserve requirement is set by the Federal Reserve and is
one of the Fed's tools to implement monetary policy. Increasing the reserve requirement takes
money out of the economy, while a decrease in the reserve requirement puts money into the
economy.

11) Chat Bots

Conversational AI is huge with Indian banking sector, and its getting bigger

While we have earlier covered a feature on how 2016 was the year of chatbots, 2017 seem to be
not different. As various sectors such as retail, e commerce, education etc. have been convinced
by the prowess that conversational AI brings along with it, the scenario is no different for the
Indian banking sector. Being fuelled by innovative initiatives, banks and other financial
establishments have been investing heavily on AI to boost their overall offerings.

Chatbots in Indian Banking sector gaining popularity-

The recent advancements in AI and ML has made the experience much preferred by both
customers and banks alike. While natural conversation has allowed the banks to develop a
genuine relationship with customers over the time, its simplicity and scalability adds to its
popularity.
AIM lists down few of such recent developments where chatbots and conversational AI have
been introduced in Indian banking system.

1. SBI utilizing IBM Watson-

SBI, in its recent blogpost had mentioned that its new digital platforms like SBI inTouch is
widely using bots and artificial intelligence such as IBM Watson, to perform a variety of jobs,
especially in improving the customer experience. It said Men and machines shall coexist in
banks for some time, like they do in any modern walk of life.

2. YES Bank along with Payjo launch AI-led digital initiatives-

YES Bank took an AI leap in the form of partnership with Payjo, a leading AI Banking Platform
based out of Silicon Valley, California. The company stated that YES Pay Bot would be the first
AI-driven Bot for a wallet and would complement the already trusted and popular YES Pay
wallet service with over half-a-million users.

The AI-powered YES Pay Bot not only carries out financial transactions over a friendly chat
but also answers banking queries and requests in a conversant manner. The technology enables
the bot to give quick, personalized responses and real-time insights on transactions, the
company said.

3. YES TAG Chatbot by YES Bank-

It allows customer to carry banking transactions in 5 different messaging apps to check their
balance, mini statement, fixed deposit details, cheque status, transfer money and much more. It is
currently available on Android and will be available soon on Apple App Store.

4. ICICI Bank vouches to Software Robotics

ICICI Bank, one of Indias leading private banks had introduced software robotics back in
September 2016 to power banking operations. Deploying it over 200 business process over
various functions, it emulates human actions to automate and perform repetitive, high volume
business transactions. According to the company blog, the bank has implemented the Software
Robotics platform mostly in-house, leveraging recent advancements in artificial intelligence
such as facial and voice recognition, natural language processing, machine learning and bots
among others.

5. Digibank by DBS-

Digibank, an offering by Asias largest bank, DBS Bank, is Indias first chatbot staffed mobile
bank that can address all the banking related queries in real-time. This chatbot is powered by
New York based start-up Kasisto that has a trained AI platform called KAI on various banking
queries that can be asked by customers.
6. Axis banks intelligent banking chatbot in partnership with Active.ai

To enable intelligent banking, Axis Bank partnered with Singapore-based Active AI to bring
mobile banking services for its customers in the form of conversational interface. The users can
chat through banks mobile banking app and messaging platforms, hence enabling its customers
an easy conversational interface.

7. HDFC Bank launched OnChat in association with Niki.ai

HDFC in association with Niki.ai introduced a conversational banking chatbot to facilitate

ecommerce and banking transactions with much ease. Currently available on Facebook
messenger, HDFC chatbot is available to anyone and not just those with HDFC bank account.
Called On chat, it lets the user recharge phone, book cabs, pay utility bills etc.

8. HDFC Banks another conversational chatbot- EVA

HDFC Bank also flaunts a chatbot exclusively for customer serviceEVA, which is an
electronic virtual assistant powered by artificial intelligence. The chatbot can answer millions of
customer queries across multiple channels. The Chatbot is powered by Senseforth, a Bengaluru-
based AI start-up.

9. YES BANKs mPower is a chatbot for loan products

YES Bank in partnership with Gupshup, a leading bot platform, launched YES mPower a
banking chatbot for its loan products. It helps customers get information about Loan products
offered by the bank. With YES mPower, customer can get information on personal loans, auto
loans, loan against securities and products like used car loans, etc.

10. Lakshmi Bot by City Union Bank-

The humanoid Lakshmi, by City Union Bank, is a friendly robot powered by AI that can chat
with customers on more than 125 subjects including current interest rates on loans, account
balance and other transactional history.

12) Distinguish between Solvency and Liquidity

At the time of making an investment, in any company, one of the major concerns of all the
investors is to know its liquidity and solvency. These are the two parameter which decides
whether the investment will be beneficial or not. This is because these are related measures and
helps the investors to examine the financial health and position carefully.
Many people juxtapose liquidity for solvency, but there exist a fine line of difference between
these two. While liquidity is how effectively the firm is able to cover its current liabilities,
through current assets. Solvency determines how well the company maintains its operation in the
long run. So, take a glance at the article provided to you, to have a clear understanding on the
two.

13) Distinguish between Cheque and a draft

Cheque and Demand drafts (DD) are both negotiable instruments. Both are mechanisms used to
make payments.

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.

Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank acts as guarantor to
make payment in full when the instrument is presented

In a business transaction cheque is not usually accepted as the drawer and payee are unknown
and there will be credit risk. So, in such cases Demand draft is accepted where the transfer of
money is guaranteed.

Let us understand this with an example. Let us say that you want to make payment for the
purchase of a flat. On the day of registration, if you hand over a cheque and the property is
registered and the cheque bounces for some reason, you cannot reverse a property that is
registered.

Here are few other differences between cheque and DD: The cheque is issued by the customer,
whereas Demand draft is issued by the bank.

In cheque payment is made after presenting the cheque to the bank, while in DD is given after
making payment to the bank.

A cheque can bounce due to insufficient balance. DD cannot be dishonored as the amount is paid
beforehand.

Payment of cheque can be stopped by the drawee, whereas payment cannot be stopped in DD.

A cheque can be paid to bearer or order. While DD is paid to a person on order.

In cheque drawer and payee are different persons. In DD, both parties are banks.

A cheque needs signature to transfer amount, While DD does not require signature to transfer
funds.
However, banks do charge certain amount depending on the amount on Demand draft. Outstation
cheque are also charged.

Cheques and demand draft are increasingly losing their place as instruments that are used for
payments. This is because, most individuals are today making payments through the RTGS and
NEFT mechanism. These methods are faster than the traditional methods and there is also no
worry of dishonour of a cheque.

Having said that there is a minimum charge that is applicable on NEFT and RTGS transactions.
The charges though are very nominal and compared to the convenience, these are much better
way of remittance as compared to demand drafts and cheques.