INTRODUCTION

What Is Banking?
Banking is a kind of business. The banker is a dealer in money, or claims to
money. He accept the deposits from the public agreeing to repay on demand or
after the expiry of a fixed period of time. In doing so he gets a claim on money
of the customer. Banks would not have been so important of their sole business
is linking savers and investors. On account of the multifarious activities of
modern banks . it has been found very difficult to define exactly bank or
banking.
Some
of
its
definition
are:
Banking Regulation Act 1949, defines banking as, Accepting for the
purpose of lending and investment, of deposits of
money from public, repayable on demand, order or
otherwise and withdrawable by cheque, draft, order or
otherwise.
With Regard to the term banking R.S. Sayers said, Ordinary Banking
business consists of giving cash for bank deposits and
bank deposits or cash; transferring bank deposits from
one person or corporation to another; giving bank
deposits in exchange for bills of exchange, government
bonds, the secured promise of businessman to repay
and so forth.1

Banking in India
Banking in India in the modern sense originated in the last decades of the 18th
century. The among the first banks were Bank of Hindustan, which established
in 1770 and liquidated in 1829-32; and General Bank of India, established 1786
but
failed
in
1791.
The largest bank, and the oldest still in existence, is the State Bank of India. It
originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the
Bank of Bengal. This was one of the three banks funded by a presidency
government, the other two were the Bank of Bombay and the Bank of Madras.
The three banks were merged in 1921 to form the Imperial Bank of India, which
upon India's independence, became the State Bank of India in 1955. For many
years the presidency banks had acted as quasi-central banks, as did their
1 Banking theory and practice, Parmod Sharma, Kalyani Publishers.
1

successors, until the Reserve Bank of India was established in 1935, under the
Reserve Bank of India Act, 1934.2

Banking Standards in India

The banking standards are the standards that are set up and followed by the
banks to serve the customers and the micro and small scale industries at their
best. The banking standards are maintained by setting up certain codes of
banking.These are Codes of Customer Rights, which sets minimum standards of
banking practices member banks have to follow while they deal with individual
customers. It provides protection to customers and explains how banks are
expected to deal with customers in their day-to-day operations.
In November 2003, Reserve Bank of India (RBI) constituted the Committee on
Procedures and Performance Audit of Public Services under the Chairmanship
of Shri S.S.Tarapore (former Deputy Governor) to address the issues relating to
availability of adequate banking services to the common person. The mandate to
the Committee included identification of factors that inhibited the attainment of
best customer services and suggesting steps to improve the quality of banking
services to individual customers. The Committee felt that in an effort to
continuously upgrade the package of services that banks offered to their
customers, there was a need for benchmarking of such services. After an indepth study at the grass-roots level, the Committee concluded that there was an
institutional gap for measuring the performance of banks against a bench mark
reflecting the best practices (Code and Standards). Therefore, the Committee
recommended setting up of the Banking Codes and Standards Board of India
(BCSBI). BCSBI was set up to ensure that the common person as a consumer of
financial services from the banking Industry is in no way at a disadvantageous
position and really gets what he/she has been promised.
The Banking Codes and Standards Board of India was registered as a society
under the Societies Registration Act, 1860 in February 2006. It functions as an
independent and autonomous body. Membership of BCSBI is voluntary and
open to scheduled banks. Initially the membership of BCSBI was open to
scheduled commercial banks and has now been extended to include Regional
Rural Banks and select Urban Co-operative Banks.

2 Money Banking And International Trade, Dr. R.R Paul, Kalyani Publishers.
2

The general superintendence, direction and control of the affairs and funds of
the Society is vested in the Governing Council (constituted by RBI) consisting
of members drawn from different disciplines such as banking, economics,
service etc. The first Governing Council relinquished office in December 2011
after which a new Governing Council was constituted.3

The main objectives of the BCSBI (Banking Codes and

Standards
Board
of
India)
-To plan, evolve, prepare, develop, promote and publish comprehensive Codes
and Standards for banks, for providing for fair treatment to their customers.
-To function as an independent and autonomous body to monitor, and to ensure
that the Codes and Standards adopted by banks are adhered to, in letter and
spirit, while delivering services to their customers.
BCSBI has in collaboration with the Indian Banks' Association (IBA), evolved
two codes - Code of Banks Commitment to Customers and the Code of Banks
Commitment to Micro and Small Enterprises - which set minimum standards of
banking practices for member banks to follow when they are dealing with
individual customers and micro and small enterprises. These Codes are subject
to periodical review and revision.. The central objective of these Codes is
promoting good banking practices, setting minimum standards, increasing
transparency, achieving higher operating standards and above all, promoting a
cordial banker-customer relationship which would foster confidence of the
common man in the banking system. The Codes lay great emphasis on
transparency and providing full information to the customer before a product or
service is sold to him. The Codes are not only commitments of banks to their
customers but also in a sense a Charter of Rights for the common person. By
setting the minimum standards of customer service, the Codes make the
customer aware of he can expect each bank to deal with the his / her day-to-day
requirements.
The banking standards are set up and maintained by the BCSBI( Banking codes
and standard board of india) and these standards are maintained with some
codes that are specifically set up. The two main codes set up by BCSBI are:
3 http://www.bcsbi.org.in/Abt_Background.html
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(1).
Code
of
Banks
Commitment
to
Customers
(2). Code of Banks Commitment to Micro and Small Scale Enterprises.
These Can be explained as:

(I) Code of Banks Commitment to Customers4

This is a Code of Customer Rights, which sets minimum standards of
banking practices member banks have to follow while they deal with
individual customers. It provides protection to customers and explains how
banks are expected to deal with customers in their day-to-day operations.

The Objective of the Code Are:

a. promote good and fair banking practices by setting minimum
standards in our dealings with you;
b. increase transparency so that you can have a better understanding
of what you can reasonably expect from us;
c. encourage market forces, through competition, to achieve higher
operating standards;
d. promote a fair and cordial relationship between you and your bank;
e. foster confidence in the banking system.

Application of the code

This Code applies to all the products and services listed below, whether
they are provided by branches or agents acting on behalf,
whether across the counter, over the phone, by post, through interactive
electronic devices, on the internet or by any other method. Some of its
applications are:
4 http://www.bcsbi.org.in/Codes_CommitmentCustomers.html
4

a. Current accounts, savings accounts, term deposits, recurring

deposits, PPF accounts and all other deposit accounts;
b. Payment services such as pension, payment orders, remittances by
way of Demand Drafts, wire transfers and all electronic transactions
e.g. RTGS, NEFT;
c. Banking services related to Government transactions;
d. Demat accounts, equity, Government bonds;
e. Indian currency notes/coins exchange facility;
f. Collection of cheques, safe custody services, safe deposit locker
facility;
g. Loans, overdrafts and guarantees;
h. Foreign exchange services including money changing;
i. Third party insurance and investment products marketed through
our branches and / or our authorised representatives or agents;
j. Card products including credit cards, debits cards, ATM cards,
smart

cards

and

services.

Code of Banks Commitment to Micro and Small

Enterprises5
This is a Code, which sets minimum standards of banking practices for banks to
follow when they are dealing with Micro and Small Enterprises (MSEs) as
defined in the Micro, Small and Medium Enterprises Development (MSMED)
Act, 2006. It provides protection to customers and explains how banks are
expected to deal with them for day to- day operations and in times of financial
difficulty. The Code does not replace or supersede regulatory or supervisory
instructions issued by the Reserve Bank of India (RBI) and BCSBI will comply
with such instructions /directions issued by the RBI from time to time. The
provisions of the Code may set higher standards than what is indicated in the
5 http://www.bcsbi.org.in/Codes_MSE.html
5

regulatory or supervisory instructions and such higher standards will prevail, as

the Code represents best practices agreed by BCSBI as their commitment to
Small scale Enterprises.

The objectives of the Code are:

a. To give a positive thrust to the MSE sector by providing easy access to
efficient banking services.
b. To promote good and fair banking practices by setting minimum standards in
dealing with you.
c. To increase transparency so that you can have a better understanding of what
you can reasonably expect of the services.
d. To improve our understanding of your business through effective
communication.
e. To encourage market forces, through competition, to achieve higher operating
standards.
f. To promote a fair and cordial relationship between you and us and also ensure
timely and quick response to your banking needs.
g. To foster confidence in the banking system.

Application of the Code

As defined in the MSMED Act, 2006, MSEs cover Micro and Small Enterprises
engaged in the manufacturing or production or processing or preservation of
goods and those engaged in providing or rendering of services. Unless it says
otherwise, this Code will apply to all the products and services listed below,
under current regulatory instructions, whether they are provided by branches,
subsidiaries, joint ventures or agents, across the counter, over the phone, by
post, through interactive electronic devices, on the internet or by any other
mode. Its Application are:
a. Current accounts, term deposits, recurring deposits, and all other deposit
accounts.
b. Payment services such as payment orders, remittances by way of Demand
Drafts and wire transfers, all electronic transactions like Real Time Gross
Settlement (RTGS), Electronic Funds Transfer (EFT), National Electronic
Funds Transfer (NEFT) or any other mode.
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c. Banking services related to Government transactions.

d. Demat accounts, equity, government bonds.
e. Indian currency notes exchange facility.
f. Collection of cheques / instruments, safe custody services.
g. Loans and other credit facilities which include fund based such as cash credit,
overdraft, cheque and bill purchase/discounting (both inland and foreign),
negotiation under reserve of documents tendered under Letter of Credit (both
inland and foreign) and non fund based such as establishment of inland and /or
foreign Letter of Credit (D/P or D/A), issuing of Guarantee (both inland and
foreign), Inland or foreign bill or cheque for collection, Co- acceptance and
avalisation of bills, buyers credit, etc.
h. Foreign Exchange Services as permitted under Foreign Exchange
Management Act (FEMA) / Reserve Bank of Indias guidelines including
money changing.
i. Third party insurance and investment products marketed through our branches
and/ or our authorized representatives or agents.
j. Card products like ATM/ Debit/Credit cards, and services.
k. Factoring services.
l. Merchant Services

BASEL NORMS
Keeping in mind the banking standards the Basel Committee on Banking
Supervision developed various basel norms to keep the banking system smooth
and easy. It introduced three basel norms that can be discussed as follows.

What are Basel Norms ?

Basel is a city in Switzerland which is also the headquarters of Bureau of
International Settlement (BIS). BIS fosters co-operation among central banks
with a common goal of financial stability and common standards of banking
regulations. Currently there are 27 member nations in the committee. Basel
guidelines refer to broad supervisory standards formulated by this group of
central banks- called the Basel Committee on Banking Supervision (BCBS).
The set of agreement by the BCBS, which mainly focuses on risks to banks and
the financial system are called Basel accord. The purpose of the accord is to
ensure that financial institutions have enough capital on account to meet
obligations and absorb unexpected losses. India has accepted Basel accords for
the banking system.

Basel I
In 1988, BCBS introduced capital measurement system called Basel capital
accord, also called as Basel 1. It focused almost entirely on credit risk. It
defined capital and structure of risk weights for banks. The minimum capital
requirement was fixed at 8% of risk weighted assets (RWA). RWA means assets
with different risk profiles. For example, an asset backed by collateral would
carry lesser risks as compared to personal loans, which have no collateral. India
adopted Basel 1 guidelines in 1999.

Basel II

In 2004, Basel II guidelines were published by BCBS, which were considered to

be the refined and reformed versions of Basel I accord. The guidelines were
based on three parameters. Banks should maintain a minimum capital adequacy
requirement of 8% of risk assets, banks were needed to develop and use better
risk management techniques in monitoring and managing all the three types of
risks that is credit and increased disclosure requirements. Banks need to
mandatorily disclose their risk exposure, etc to the central bank. Basel II norms
in India and overseas are yet to be fully implemented.

Basel III
In 2010, Basel III guidelines were released. These guidelines were introduced in
response to the financial crisis of 2008. A need was felt to further strengthen the
system as banks in the developed economies were under-capitalized, overleveraged and had a greater reliance on short-term funding. Also the quantity
and quality of capital under Basel II were deemed insufficient to contain any
further risk. Basel III norms aim at making most banking activities such as their
trading book activities more capital-intensive. The guidelines aim to promote a
more resilient banking system by focusing on four vital banking parameters viz.
capital, leverage, funding and liquidity.6

The Basel Norm For Banking in India-BASEL III

These are rules written by the Bank of International Settlement's Committee on
Banking Supervision (BCBS) whose mandate is to define the reform agenda for
the global banking community as a whole. The new rule prescribes how to
assess risks, and how much capital to set aside for banks in keeping with their
risk profile.
Basel III or Basel 3 released in December, 2010 is the third in the series of
Basel Accords. These accords deal with risk management aspects for the
banking sector. In a nut shell we can say that Basel iii is the global regulatory
standard (agreed upon by the members of the Basel Committee on Banking
Supervision) on bank capital adequacy, stress testing and market liquidity risk.
(Basel I and Basel II are the earlier versions of the same, and were less
stringent)7

What does Basel III is all About ?

6 http://articles.economictimes.indiatimes.com/keyword/basel-iii
7 http://www.allbankingsolutions.com/banking-tutor/basel-iii-accord-basel-3norms.shtml
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According to Basel Committee on Banking Supervision "Basel III is a

comprehensive set of reform measures, developed by the Basel Committee on
Banking Supervision, to strengthen the regulation, supervision and risk
management of the banking sector".
Thus, we can say that Basel 3 is only a continuation of effort initiated by the
Basel Committee on Banking Supervision to enhance the banking regulatory
framework under Basel I and Basel II. This latest Accord now seeks to
improve the banking sector's ability to deal with financial and economic stress,
improve risk management and strengthen the banks' transparency.

What are the objectives / aims of the Basel III measures ?

Basel 3 measures aim to:
improve the banking sector's ability to absorb shocks arising from
financial and economic stress, whatever the source
improve risk management and governance
strengthen banks' transparency and disclosures.
Thus we can say that Basel III guidelines are aimed at to improve the ability of
banks to withstand periods of economic and financial stress as the new
guidelines are more stringent than the earlier requirements for capital and
liquidity in the banking sector.

How Does Basel III Requirements Will Affect Indian

Banks
The Basel III which is to be implemented by banks in India as per the guidelines
issued by RBI from time to time, will be challenging task not only for the banks
but also for GOI. It is estimated that Indian banks will be required to rais Rs
6,00,000 crores in external capital in next nine years or so i.e. by 2020 (The
estimates vary from organisation to organisation). Expansion of capital to this
extent will affect the returns on the equity of these banks specially public sector
banks. However, only consolation for Indian banks is the fact that historically
they have maintained their core and overall capital well in excess of the
regulatory minimum.

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What are Three Pillars of Basel II Norms or What are the

changes in Three Pillars of Basel iii Accord ?8
Any one who has ever heard about Basel I and II, is most likely must have
heard about Three Pillars of Basel. Three Pillar of Basel still stand under Basel
3.
Basel III has essentially been designed to address the weaknesses that become
too obvious during the 2008 financial crisis world faced. The intent of the
Basel Committee seems to prepare the banking industry for any future
economic downturns.. The framework enhances bank-specific measures and
includes macro-prudential regulations to help create a more stable banking
sector.
The basic structure of Basel III remains unchanged with three mutually
reinforcing pillars:
Pillar 1 : Minimum Regulatory Capital Requirements based on Risk Weighted
Assets (RWAs) : Maintaining capital calculated through credit, market and
operational risk areas.
Pillar 2 : Supervisory Review Process : Regulating tools and frameworks for
dealing with peripheral risks that banks face.
Pillar 3: Market Discipline :
Increasing the disclosures that banks must
provide to increase the transparency of banks

What are the Major Features of Basel III ?

(a) Better Capital Quality : One of the key elements of Basel 3 is the
introduction of much stricter definition of capital. Better quality capital means
the higher loss-absorbing capacity. This in turn will mean that banks will be
stronger, allowing them to better withstand periods of stress.
(b) Capital Conservation Buffer: Another key feature of Basel iii is that now
8 http://www.allbankingsolutions.com/banking-tutor/basel-iii-accord-basel-3norms.shtml
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banks will be required to hold a capital conservation buffer of 2.5%. The aim of
asking to build conservation buffer is to ensure that banks maintain a cushion of
capital that can be used to absorb losses during periods of financial and
economic stress.
(c) Countercyclical Buffer: This is also one of the key elements of Basel III.
The countercyclical buffer has been introducted with the objective to increase
capital requirements in good times and decrease the same in bad times. The
buffer will slow banking activity when it overheats and will encourage lending
when times are tough i.e. in bad times. The buffer will range from 0% to 2.5%,
consisting of common equity or other fully loss-absorbing capital.
(d) Minimum Common Equity and Tier 1 Capital Requirements : The
minimum requirement for common equity, the highest form of loss-absorbing
capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted
assets. The overall Tier 1 capital requirement, consisting of not only common
equity but also other qualifying financial instruments, will also increase from
the current minimum of 4% to 6%. Although the minimum total capital
requirement will remain at the current 8% level, yet the required total capital
will increase to 10.5% when combined with the conservation buffer.
(e) Leverage Ratio: A review of the financial crisis of 2008 has indicted that
the value of many assets fell quicker than assumed from historical experience.
Thus, now Basel III rules include a leverage ratio to serve as a safety net. A
leverage ratio is the relative amount of capital to total assets (not risk-weighted).
This aims to put a cap on swelling of leverage in the banking sector on a global
basis. 3% leverage ratio of Tier 1 will be tested before a mandatory leverage
ratio is introduced in January 2018.
(f) Liquidity Ratios: Under Basel III, a framework for liquidity risk
management will be created. A new Liquidity Coverage Ratio (LCR) and Net
Stable Funding Ratio (NSFR) are to be introduced in 2015 and 2018,
respectively.
(g) Systemically Important Financial Institutions (SIFI) : As part of the
macro-prudential framework, systemically important banks will be expected to

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have loss-absorbing capability beyond the Basel III requirements. Options for
implementation include capital surcharges, contingent capital and bail-in-debt.

Review Of Literature
Customer Service & Banking Codes and Standards by INDIAN
INSTITUTE OF BANKING AND FINANCE
Designed and developed by IIBF, with close collaborative support of
the Banking Codes And Standards Board of India (BCSBI), Customer
Service & Banking Codes And Standards lays down set norms,
guidelines, and principles of banking, in its courseware, aimed at
improving the customer service aspect of banking. The banking sector
of our country is extremely important, with the BSR data findings of a
2009 study conducted by RBI revealing, that as on March 2009, there
were over 66 crore deposit accounts, and 11 crore credit accounts in
operation, within India. Despite the fact that each person can open
multiple accounts in his name, the fact still remains that banks have
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entirely monopolized the saving services industry, with commercial

banks catering to a phenomenal component of the Indian customer
base. Even though it is vital in this day and age, for every Indian adult
to own a bank account and be a part of mainstream banking, it is
unfortunate that there is still a sizeable chunk of the Indian population
that do not have a bank account and are excluded from the banking
and financial services.

QUESTIONNAIRES
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ANALYSIS
- After conducting the questionnaire we came to a
conclusion that most of the people were not aware about
the Banking Standards which are implemented by the
Indian Institute of Banking and Finance. Rather, people
were only aware about the limited services which were
provided by the banks.
- The customers gave us an overview that the Banking
Standards were not being followed in their respective
banks as stated by the Government Organization.
- In order to rectify this dilemma certain steps should be
taken such as the Bank Manger should be more attached
to the customers so that the problem can be addressed
accurately.
15

The Bank Employees should be more cooperative with the

customers by imparting awareness about the standards, codes
and services.

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Banking Standards
80
70
60
50
40
30
20
10
0

40

60

53

67

27

Banking Standards

BIBLIOGRAPHY
Books
1. Paul R.R., Money Banking And International Trade, Kalyani
Punlishers.
2. Aggarwal Monica, Sharma Parmod, Rangandhachary.
A.V,Banking Theory And Practice, Kalyani Publishers.

Internet References

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1. http://www.bcsbi.org.in/Codes_CommitmentCustomers.h
tml
2. http://www.allbankingsolutions.com/banking-tutor/baseliii-accord-basel-3-norms.shtml
3. http://articles.economictimes.indiatimes.com/keyword/ba
sel-iii

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