Banking Operations: Jaiib/DBF Paper 2 (Module D) Unit-1

Banking Operations: Jaiib/DBF Paper 2 (Module D) Unit-1

Dear bankers,

As we all know that  is Banking Operations for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Banking Operations (Unit-1), Banking Operations and Accounting Functions (Module D), Accounting Finance for Bankers-Paper 2.

♦Function of a Bank

  • Banking as defined by Section 5 of the Banking Regulation Act means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft and order or otherwise.
  • In additional to banking business, a bank is permitted under Section 6 of the Banking Regulation Act, 1949 to engage in certain classes of business which are incidental to the business of Banking. Section 8 of the Act ibid prohibits a bank from buying, selling or dealing in goods except in connection with the realization of a security held by it or in connection with the business of collection with the business of collection or negotiating bills of exchange.

Some of the main functions of modern commercial banks are:

  • Accepting deposit
  1. Demand Deposits – withdrawable on demand
  2. Current Account
  3. Savings Deposits
  4. Term Deposits – Received for a fixed period
  • Granting loans and advances
  1. Overdraft
  2. Cash Credit:
  3. Discounting of Bills
  4. Loans and Advances
  • Dealing in securities, on its own account or on behalf of its customers.
  • Opening letters of credit/ issuing guarantees.
  • Dealing of foreign exchange.
  • Remittances: Through demand drafts, RTGS, NEFT, etc.
  • Locker Facility
  • Traveller’s Cheques
  • Letter of Credit
  • Collection of Statistics
  • Underwriting Securities
  • Gift Cheques
  • Acting as Referee
  • Foreign Exchange Business
  • Derivatives
  • Prepaid payment instruments

Para Banking Activities

  • Mutual Fund Business
  • Money Market Mutual Funds
  • Cheque Writing Facility for Investors of Mutual Funds/Money Market Mutual Funds
  • Primary Dealership Business
  • Underwriting Activities
  • Equipment Leasing, Hire Purchase Business and Factoring Services
  • Investment in Venture Capital Funds
  • Sponsors to Infrastructure Debt Funds
  • Insurance Business
  • Pension Fund Management
  • Referral Services
  • Trading on/Membership of SEBI approved Stock Exchanges
  • Portfolio Management Services

♦Outsourcing of Services by Banks

  • The ‘Outsourcing’ may be defined as a bank’s use of a third party (either an affiliated entity within a corporate group or an entity that is external to the corporate group) to perform activities on a continuing basis that would normally be undertaken by the bank itself, now or in the future. “Continuing basis” would include agreements for a limited period.

Scope of RBI Guidelines includes:

  • Activities that should not be outsourced
  • Bank’s role and regulatory and supervisory requirements
  • Risk management practices for outsourced financial services
  • Role of Board of directors and senior management
  • Evaluation of risk
  • Evaluation the capability of the services provider
  • Outsourcing agreement
  • Confidentiality and security
  • Responsibility of DSA/DMA/Recovery agents
  • Monitoring of Outsourced activities
  • Redressal of grievances related to outsourced services
  • Reporting of transactions to financial Intelligence Unit
  • Off-shore outsourcing of financial services

♦Front office and Bank office in a Bank

  • The terms “Front office” and “Bank office” come from the building layout of early companies where the front office would contain the sales and other customer-facing staff and the bank office would be those manufacturing or developing the products or involved in administration but without being seen by customers.

♦Banking operations Manual

  • The Banking operation Manual is prepared with a view to provide a ready guide to the officers and staff of the Bank-in day to day banking operations. The manual is prepared based on the extant banking law practices and is an attempt to provide guidance to the front office functionaries in the Banking operations of the Bank.
  • A banking operations manual helps you get the very best out of each employee. It also helps to ensure that each one knows not only their duties but also the policies, products and how to do things the right way.

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