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Retail Banking is typical mass-market banking where individual customers use local branches of larger commercial banks. Services offered include: savings and checking accounts, mortgages, personal loans, debit cards, credit cards, and so forth. Wholesale Banking is banking services between merchant banks and other financial institutions. Universal banking (universalbank): People often say that the universal bank is able to engage all the major financial operations of banks, excluding non-financial business. First, universal banking financial intermediaries, followed by a multi-financial business in one of the financial mix, and the third means that mixed operation. wholesale banking (wholesalebank): refers to the major banks to provide services. Retail Banking (retailbank): refers primarily to provide services to consumers and small business banks. In fact, the definition of retail banks in the world are not uniform Thus, the customer can not distinguish between the object and the wholesale retail business, only determined by customer demand services, service mode, service channel before is the difference between retail and wholesale business, the main tool.

Mechanism of Letter of Credit

Importer and Exporter enter into a contract through Performa invoice to export and import goods from one country to another. They agree to certain terms to be incorporated in the letter of credit. Importer applies to his band of opening of LC, and hence after is called opener or applicant. After going through their internal procedure, importer's bank opens a Letter of Credit, in favors of the exporter, who shall, hence after be called as beneficiary. Opening bank sends letter of credit their correspondent bank in beneficiary's country for advising to beneficiary such bank is called Advising Bank. Advising bank, after establishing its authenticity, forwards the letter of credit to beneficiary under their covering letter. On receipt of letter of credit the beneficiary ships the goods and prepares documents in terms of the LC for submission to bank nominated in the LC, as negotiating bank. Beneficiary submits documents for negotiation to negotiating bank. Negotiating bank after having determined that documents are strictly in terms of LC negotiates the documents. (Negotiation means giving value of documents to beneficiary). On negotiation the negotiating bank claims reimbursement from the bank mentioned in the LC as reimbursing bank and forwards negotiated documents to opening bank. Opening bank on receipt of documents, examines the documents to ascertain that these conform to terms of the LC. If found in order, documents are lodged and presented to opener for payment Opener makes payment for

the documents and gets the documents from opening bank duly endorsed in his favors, for release of goods. A letter of credit is a document issued by a bank that allows the holder of the letter to draw the funds as stated on the letter from the issuing bank. In contrast to a confirmed letter of credit, if the seller does not seek the second guarantee, the document would be called a unconfirmed letter of credit.

a) Statutory Liquidity Ratio

refers to the amount that the commercial banks require to maintain in the form of cash, or gold or govt. approved securities before providing credit to the customers. Statutory Liquidity Ratio is determined and maintained by the Reserve Bank of India in order to control the expansion of bank credit.

Statutory Liquidity Ratio or SLR refers to the amount that all banks require maintaining in cash or in the form of Gold or approved securities. Here by approved securities we mean, bond and shares of different companies. b) Real time gross settlement systems (RTGS) are funds transfer systems where transfer of money or
securities takes place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable.

c) The Marginal Standing Facility Scheme has been introduced on the lines of the existing Liquidity Adjustment Facility Repo Scheme (LAF Repo). The salient features of the Scheme are as under:

1. Effective Date This facility will be effective from May 9, 2011.

2. Eligibility

All Scheduled Commercial Banks having Current Account and SGL Account with Reserve Bank, Mumbai will be eligible to participate in the MSF Scheme.

3. Tenor and Amount Under the facility, the eligible entities can avail overnight, up to one per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of the second preceding fortnight. But for the intervening holidays, the MSF facility will be for one day except on Fridays when the facility will be for three days or more, maturing on the following working day. In the event, the banks SLR holdings fall below the statutory requirement up to one per cent of their NDTL, banks will not have the obligation to seek a specific waiver for default in SLR compliance arising out of use of this facility in terms of notification issued under sub section (2A) of Section 24 of the Banking Regulation Act, 1949.

4. Timing The Facility will be available on all working days in Mumbai, excluding Saturdays between 3.30 P.M. and 4.30 P.M.

5. Rate of Interest The rate of interest on amount availed under this facility will be 100 basis points above the LAF repo rate, or as decided by the Reserve Bank from time to time.

6. Discretion to Reserve Bank The Reserve Bank will reserve the right to accept or reject partially or fully, the request for funds under this facility.

7. Mechanics of operations i) The requests will be submitted electronically in the Negotiated Dealing System (NDS). Eligible members facing genuine system problem on any specific day, may submit physical requests in sealed cover in the box provided in the Mumbai Office, Reserve Bank of India, to the Manager, Reserve Bank of India, Securities Section, Public Accounts Department (PAD), Mumbai Office by 4.30 P.M.

ii) The NDS provides for submission of single or multiple applications by the member. However, as far as possible only one request should be submitted by an applicant. iii) The MSF will be conducted as "Hold-in-Custody" repo, similar to LAF - Repo. iv) On acceptance of MSF requests, the applicants RC SGL Account will be debited by the required quantum of securities and credited to Banks RC SGL Account. Accordingly, the applicants current account will be credited with the MSF application amount. The transactions will be reversed in the second leg. In case the second leg falls on a holiday, the reversal date will be the next working day. v) The MSF transactions between Reserve Bank and counter parties which would involve operation of the RC SGL Account would not require separate SGL forms. vi) Pricing of all securities including Treasury Bills will be at face value for MSF operations by Reserve Bank. Accrued interest as on the date of transaction will be ignored for the purpose of pricing of securities.

7. Minimum request size Requests will be received for a minimum amount of Rs. One crore and in multiples of Rs. One crore thereafter.

8. Eligible Securities MSF will be undertaken in all SLR-eligible transferable Government of India (GoI) dated Securities/Treasury Bills and State Development Loans (SDL).

9. Margin Requirement A margin of five per cent will be applied in respect of GoI dated securities and Treasury Bills. In respect of SDLs, a margin of 10 per cent will be applied. Thus, the amount of securities offered on acceptance of a request for Rs.100 will be Rs.105 (face value) of GoI dated securities and Treasury Bills or Rs.110 (face value) of SDLs.

10. Settlement of Transactions

The settlement of all applications received under the MSF Scheme will take place on the same day after the closure of the window for acceptance of applications.

d) The present banking system is called a fractional reserve banking system, as the banks are required
to keep only a fraction of their deposit liabilities in the form of liquid cash with the central bank for ensuring safety and liquidity of deposits. The Cash Reserve Ratio (CRR) refers to this liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities. For example if the CRR is 10% then a bank with net demand and time deposits of Rs 1,00,000 will have to deposit Rs 10,000 with the RBI as liquid cash.

Promissory note

A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand to the payee, or at fixed or determinable future time, certain in money, to order or to bearer. (see Sec.194) Bank note is frequently referred to as a promissory note, a promissory note made by a bank and payable to bearer on demand.

Bill of exchange
A bill of exchange or "draft" is a written order by the drawer to the drawee to pay money to the payee. A common type of bill of exchange is the cheque (check in American English), defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of exchange were a common means of exchange.
Cheque is an important negotiable instrument which can be transferred by mere hand delivery. Cheque is used to make safe and convenient payment. It is less risky and the danger of loss is minimised.

1. Bearer Cheque

When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

2. Order Cheque

When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a

cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).

3. Uncrossed / Open Cheque

When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.

4. Crossed Cheque

Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.

5. Anti-Dated Cheque

If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto six months from the date of the cheque.

6. Post-Dated Cheque

If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.

7. Stale Cheque

If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. A stale cheque is not honoured by the bank.

The following are the points of distinction between a promissory note and a bill of exchange:

There are three parties to a bill of exchange, namely, the drawer, the drawee and the payee, while in a promissory note there are only two parties - maker and payee. In a bill of exchange there is an unconditional order to pay, while in a promissory note there is an unconditional promise to pay. A bill of exchange requires an acceptance of the drawee before it is presented for payment, while a promissory note does not require any acceptance since it is signed by the person who is liable to pay. The liability of a maker of a bill of exchange is primary and while the liability of a drawer of a bill of exchange is secondary and conditional. It arises only when the drawee fails to pay that the drawer would be liable as a surety. A bill of exchange can be drawn in sets; but promissory note cannot be drawn in sets.

1. Safety

"Safety first" is the most important principle of good lending. When a banker lends, he must feel certain that the advance is safe; that is, the money will definitely come back. If, for example, the borrower invests the money in an unproductive or speculative venture, or if the borrower himself is dishonest, the advance would be in jeopardy. Similarly, if the borrower suffers losses in his business due to his incompetence, the recovery of the money may become difficult. The banker ensures that the money advanced by him goes to the right type of borrower and is utilized in such a way that it will not only be safe at the time of lending but will remain so throughout, and after serving a useful purpose in the trade or industry where it is employed, is repaid with interest.

2. Liquidity

It is not enough that the money will come back; it is also necessary that it must come back on demand or in accordance with agreed terms of repayment. The borrower must be in a position to repay within a reasonable time after a demand for repayment is made. This can be possible only if the money is employed by the borrower for short-term requirements and not locked up in acquiring fixed assets, or in schemes which take a long time to pay their way. The source of repayment must also be definite. The reason why bankers attach as much importance to 'liquidity' as to safety' of their funds, is that a bulk of their deposits is repayable on demand or at short notice. If the banker lends a large portion of his funds to borrowers from whom repayment would be coming in but slowly, the ability of the banker to meet the demands made on him would be seriously affected in spite of the safety of the advances. For example, an advance of Rs.50 lakhs (approx. $111,354.60 USD) on the security of a legal mortgage of a bungalow of the market value of Rs. 100 lakhs (approx. $222,716.82 USD), will be very safe. If, however, the

recovery of the mortgage money has to be made through a court process, it may take a few years to do so. The loan is safe but not liquid.

3. Purpose

The purpose should be productive so that the money not only remain safe but also provides a definite source of repayment. The purpose should also be short termed so that it ensures liquidity. Banks discourage advances for hoarding stocks or for speculative activities. There are obvious risks involved therein apart from the anti-social nature of such transactions. The banker must closely scrutinize the purpose for which the money is required, and ensure, as far as he can, that the money borrowed for a particular purpose is applied by the borrower accordingly. Purpose has assumed a special significance in the present day concept of banking.

4. Profitability

Equally important is the principle of 'profitability' in bank advance like other commercial institutions, banks must make profits. Firstly, they have to pay interest on the deposits received by them. They have to incur expenses on establishment, rent, stationery, etc. They have to make provision for depreciation of their fixed assets and also for any possible bad or doubtful debts. After meeting all these items of expenditure which enter the running cost of banks, a reasonable profit must be made; otherwise, it will not be possible to carry anything to the reserve or pay dividend to the shareholders. It is after considering all these factors that a bank decides upon its lending rate. It is sometimes possible that a particular transaction may not appear profitable in itself, but there may be some ancillary business available, such as deposits from the borrower's other concerns or his foreign exchange business, which may be highly remunerative. In this way, the transaction may on the whole be profitable for the bank. It should, however, be noted that lending rates are affected by the Bank Rate, inter-bank competition and the Federal / Central Bank's directives (e.g Directives of Reserve Bank of India, RBI), if any. The rates may also differ depending on the borrower's credit, nature of security, mode of charge, and form and type of advance, whether it is a cash credit, loan preshipment finance or a consumer loan, etc.

5. Security

It has been the practice of banks not to lend as far as possible except against security. Security is considered as an insurance or a cushion to fall back upon in case of an emergency. The banker carefully scrutinizes all the different aspects of an advance before granting it. At the same time, he provides for an unexpected change in circumstances which may affect the safety and liquidity

of the advance. It is only to provide against such contingencies that he takes security so that he may realize it and reimburse himself if the well-calculated and almost certain source of repayment unexpectedly fails. It is incorrect to consider an advance proposal from the point of view of security alone. An advance is granted by a good banker on its own merits, that is to say with due regard to its safety, likely purpose etc., and after looking into the character, capacity and capital of the borrower and not only because the security is good. Apart from the fact that taking of security reserves as a safety valve for an unexpected emergency it also renders very difficult, if not impossible, for the borrower to raise a secured advance from another source against the very security.

6. Spread

Another important principle of good lending is the diversification of advances. An element of risk is always present in every advance, however secure it might appear to be. In fact, the entire banking business is one of taking calculated risks and a successful hanker is an expert in assessing such risks. He is keen on spreading the risks involved in lending, over a large number of borrowers, over a large number of industries and areas, and over different types of securities. For example, if he has advanced too large a proportion of his funds against only one type of security, he will run a big risk if that class of security steeply depreciates. If the bank has numerous branches spread over the country, it gets a wide assortment of securities against the advances. Slump does not normally affect all industries and business centres simultaneously.

7. National Interest, Suitability, etc.

Even when an advance satisfies all the aforesaid principles, it may still not be suitable. The advance may run counter to national interest. The Federal / Central Bank (e.g Reserve Bank of India, RBI) may have issued a directive prohibiting banks to allow the particular type of advance. The law and order situation at the place where the borrower carries on his business may not be satisfactory. There may be other reasons of a like nature for which it may not be suitable for the bank to grant the advance.

In the changing concept of banking, factors such as purpose of the advance, viability of the proposal and national interest are assuming a greater importance than security, especially in advances to agriculture, small industries, small borrowers, and export-oriented industries. 1. Disposal of Applications All loan applications for SSI up to a credit limit of Rs. 25,000/- should be disposed of

within 2 weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in all respects and accompanied by a 'check list'. 2 Collaterals The limit for all SSI borrowal accounts for obtaining collateral security is Rs 5 lakh. Banks, on the basis of good track record and financial position of the SSI units, may increase the limit of dispensation of collateral requirement for loans up to Rs.25 lakh (with the approval of the appropriate authority). 3. Composite loan A composite loan limit of Rs.1 crore can be sanctioned by banks to enable the SSI entrepreneurs to avail of their working capital and term loan requirement through Single Window. 4. Specialised SSI/SME branches Public sector banks have been advised to open at least one specialised branch in each district. Further, banks have been permitted to categorise their SSI general banking branches having 60 per cent or more of their advances to SSI sector as Public sector banks have been advised to open at least one specialised SSI branch, in order to encourage them to open more specialised SSI branches for providing better service to this sector as a whole. As per the policy package announced by the Government of India for stepping up credit to SME sector, the public sector banks will ensure specialized SME branches in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. The existing specialised SSI branches may be also be redesignated as SME branches. Though their core competence will be utilized for extending finance and other services to SME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers. Section b
1 As a result of the reforms, the number of banks increasedrapidly. In 1991, there were 27 public-sector banks and 26 domestic private banks with 60,000 branches, 24 foreign banks with 140 branches, and 20foreign banks with a representative office. Between January 1993 and March1998, 24 new private banks (nine domestic and 15 foreign) entered themarket; the total number of scheduled commercial banks, excludingspecialized banks such as the Regional Rural Banks rose from 75 in 1991/92to

99 in 1997/98.Entry deregulation was accompanied by progressivederegulation of interest rates on deposits and advances. From October 1994,interest rates were deregulated in a phased manner and by October 1997, banks were allowed to set interest rates on all term deposits of maturity of more than 30 days and on all advances exceeding Rs 200,000.While the CRR and SLR, interest rate policy, and prudentialnorms have always been applied uniformly to all commercial banks, theReserve Bank of India treated foreign banks differently with respect to theregulation that requires a portion of credit to be allocated to priority sectors.In 1993, foreign banks which used to be exempt from this requirementwhile all other commercial banks were required to earmark 40 per cent of credit were required to allocate 32 per cent of credit to priority sectors

After the 13 years of economic and financial sector reforms, banking sector has also achieved:Widespread branch network, varied client base Recapitalisation has bolstered bank balance sheets Public confidence in PSBs Risk averseness: limited exposure to risky sectors Investment in retail branches in an earlier era has given PSBscompetitive advantage of access to stable, low cost deposits But the large staff strength, age profile, Government regulations(on loss making branches, CVC) and slow pace of change in PSBs could bea hindrance to dynamic growth in todays fast paced world.

Section c

Monetary Policy
WHAT IS MONETARY POLICY? Monetary policy is the management of money supply and interest rates by central banks to influence prices and employment. Monetary policy works through expansion or contraction of investment and consumption expenditure. Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls (i) the supply of money (ii) availability of money

(iii) cost of money or rate of interest , in order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy. Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation What monetary policy at its best can deliver is low and stable inflation, and thereby reduces the volatility of the business cycle. When inflationary pressures build up, it is monetary policy only which raises the short-term interest rate (the policy rate), which raises real rates across the economy and squeezes consumption and investment. The pain is not concentrated at a few points, as is the case with government interventions in commodity markets. Monetary policy in India underwent significant changes in the 1990s as the Indian Economy became increasing open and financial sector reforms were put in place. In the 1980s, monetary policy was geared towards controlling the quantum, cost and directions of credit flow in the economy