Tag: University of Mumbai BMS Notes

GUI is an interface that uses icons or other visual indicators to interact with electronic devices, rather than only text via a command line. For example, all versions of Microsoft Windows is a GUI, whereas MS-DOS is a command line. The GUI was first developed at Xerox PARC by Alan Kay, Douglas Engelbart, and a group of other researchers in 1981. Later, Apple introduced the Lisa computer with a GUI on January 19, 1983.

The actions in a GUI are usually performed through direct manipulation of the graphical elements. Beyond computers, GUIs are used in many handheld mobile devices such as MP3 players, portable media players, gaming devices, smartphones and smaller household, office and industrial controls. The term GUI tends not to be applied to other lower-display resolution types of interfaces, such as video games (where head-up display (HUD) is preferred), or not including flat screens, like volumetric displays because the term is restricted to the scope of two-dimensional display screens able to describe generic information, in the tradition of the computer science research at the Xerox Palo Alto Research Center.

How does a GUI work?

A GUI uses windows, icons, and menus to carry out commands, such as opening, deleting, and moving files. Although a GUI operating system is primarily navigated using a mouse, the keyboard can also be used to navigate using keyboard shortcuts or the arrow keys.

As an example, if you wanted to open a software program on a GUI operating system, you would move the mouse pointer to the program’s icon and double-click the icon.

Benefits of GUI

Unlike a command line operating system or CUI, like Unix or MS-DOS, GUI operating systems are much easier to learn and use because commands do not need to be memorized. Additionally, users do not need to know any programming languages. Because of their ease of use, GUI operating systems have become the dominant operating system used by today’s end-users.

What are examples of a GUI operating system?

• Microsoft Windows
• Apple System 7 and macOS
• Chrome OS
• Linux variants like Ubuntu using a GUI interface.

Are all operating systems GUI?

No. Early command line operating systems like MS-DOS and even some versions of Linux today have no GUI interface.

What are examples of a GUI interface?

• GNOME
• KDE
• Any Microsoft program (e.g., Word, Excel, and Outlook).
• Internet browser (e.g., Internet Explorer, Chrome, and Firefox).

How does the user interact with a GUI?

The user uses a pointing device such as the mouse to interact and use most aspects of the GUI. However, it is also possible to interact with a GUI using a keyboard or other input devices.

Windows operating system

Functions of an Operating System

An operating system performs various functions, and each function serves a specific purpose:

1. Process Management: Manages the creation, deletion, and execution of processes. It provides mechanisms for synchronization and communication among processes to ensure efficient utilization of system resources.
2. Memory Management: Allocates and de-allocates memory space to programs, handling the organization and retrieval of data from primary and secondary memory.
3. File Management: Controls file-related activities, including storage, retrieval, naming, sharing, and protection of files. It ensures efficient access and manipulation of data stored in files.
4. Device Management: Keeps track of all devices connected to the system, handling the allocation and de-allocation of devices for various processes.
5. I/O System Management: Hides hardware peculiarities from the user, ensuring seamless input and output operations between the user and the hardware devices.
6. Secondary-Storage Management: Manages different levels of storage, such as primary storage, secondary storage, and cache storage. It ensures that instructions and data are appropriately stored for efficient program execution.
7. Security: Protects the computer system’s data and information from unauthorized access and malware threats, ensuring the integrity and confidentiality of sensitive data.
8. Command Interpretation: Interprets commands given by users and directs system resources to process these commands effectively.
9. Networking: Facilitates communication and coordination among distributed systems, enabling processors to communicate through a network without shared memory or hardware devices.
10. Job Accounting: Keeps track of the time and resources utilized by different jobs and users for monitoring and billing purposes.

11. Communication Management: Coordinates and assigns software resources (e.g., compilers, interpreters) among various users of the computer system.

Types of Operating system

• Batch Operating System
• Multitasking/Time Sharing OS
• Multiprocessing OS
• Real Time OS
• Distributed OS
• Network OS
• Mobile OS

Batch Operating System

Some computer processes are very lengthy and time-consuming. To speed the same process, a job with a similar type of needs are batched together and run as a group.

The user of a batch operating system never directly interacts with the computer. In this type of OS, every user prepares his or her job on an offline device like a punch card and submit it to the computer operator.

Multi-Tasking/Time-sharing Operating systems

Time-sharing operating system enables people located at a different terminal(shell) to use a single computer system at the same time. The processor time (CPU) which is shared among multiple users is termed as time sharing.

Real time OS

A real time operating system time interval to process and respond to inputs is very small. Examples: Military Software Systems, Space Software Systems.

Distributed Operating System

Distributed systems use many processors located in different machines to provide very fast computation to its users.

Network Operating System

Network Operating System runs on a server. It provides the capability to serve to manage data, user, groups, security, application, and other networking functions.

Mobile OS

Mobile operating systems are those OS which is especially that are designed to power smartphones, tablets, and wearables devices.

Some most famous mobile operating systems are Android and iOS, but others include BlackBerry, Web, and watchOS.

Difference between Firmware and Operating System

Difference between 32-Bit vs. 64 Bit Operating System

Advantage of using Operating System

• Allows you to hide details of hardware by creating an abstraction
• Easy to use with a GUI
• Offers an environment in which a user may execute programs/applications
• The operating system must make sure that the computer system convenient to use
• Operating System acts as an intermediary among applications and the hardware components
• It provides the computer system resources with easy to use format
• Acts as an intermediator between all hardware’s and software’s of the system

Disadvantages of using Operating System

• If any issue occurs in OS, you may lose all the contents which have been stored in your system
• Operating system’s software is quite expensive for small size organization which adds burden on them. Example Windows
• It is never entirely secure as a threat can occur at any time

An Operating System performs all the basic tasks like managing file,process, and memory. Thus operating system acts as manager of all the resources, i.e. resource manager. Thus operating system becomes an interface between user and machine.

Types of Operating Systems: Some of the widely used operating systems are as follows:

1. Batch Operating System:
   This type of operating system does not interact with the computer directly. There is an operator which takes similar jobs having same requirement and group them into batches. It is the responsibility of operator to sort the jobs with similar needs.

Advantages of Batch Operating System:

• It is very difficult to guess or know the time required by any job to complete. Processors of the batch systems know how long the job would be when it is in queue
• Multiple users can share the batch systems
• The idle time for batch system is very less
• It is easy to manage large work repeatedly in batch systems

Disadvantages of Batch Operating System:

• The computer operators should be well known with batch systems
• Batch systems are hard to debug
• It is sometime costly
• The other jobs will have to wait for an unknown time if any job fails

Examples of Batch based Operating System: Payroll System, Bank Statements etc.

2. Time-Sharing Operating Systems:
   Each task is given some time to execute, so that all the tasks work smoothly. Each user gets time of CPU as they use single system. These systems are also known as Multitasking Systems. The task can be from single user or from different users also. The time that each task gets to execute is called quantum. After this time interval is over OS switches over to next task.

Advantages of Time-Sharing OS:

• Each task gets an equal opportunity
• Less chances of duplication of software
• CPU idle time can be reduced

Disadvantages of Time-Sharing OS:

• Reliability problem
• One must have to take care of security and integrity of user programs and data
• Data communication problem

Examples of Time-Sharing OSs are: Multics, Unix etc.

3. Distributed Operating System:
   These types of operating system is a recent advancement in the world of computer technology and are being widely accepted all-over the world and, that too, with a great pace. Various autonomous interconnected computers communicate each other using a shared communication network. Independent systems possess their own memory unit and CPU. These are referred as loosely coupled systems or distributed systems. These system’s processors differ in size and function. The major benefit of working with these types of operating system is that it is always possible that one user can access the files or software which are not actually present on his system but on some other system connected within this network i.e., remote access is enabled within the devices connected in that network.

Advantages of Distributed Operating System:

• Failure of one will not affect the other network communication, as all systems are independent from each other
• Electronic mail increases the data exchange speed
• Since resources are being shared, computation is highly fast and durable
• Load on host computer reduces
• These systems are easily scalable as many systems can be easily added to the network
• Delay in data processing reduces

Disadvantages of Distributed Operating System:

• Failure of the main network will stop the entire communication
• To establish distributed systems the language which are used are not well defined yet
• These types of systems are not readily available as they are very expensive. Not only that the underlying software is highly complex and not understood well yet

Examples of Distributed Operating System are- LOCUS etc.

4. Network Operating System:
   These systems run on a server and provide the capability to manage data, users, groups, security, applications, and other networking functions. These type of operating systems allow shared access of files, printers, security, applications, and other networking functions over a small private network. One more important aspect of Network Operating Systems is that all the users are well aware of the underlying configuration, of all other users within the network, their individual connections etc. and that’s why these computers are popularly known as tightly coupled systems.

Advantages of Network Operating System:

• Highly stable centralized servers
• Security concerns are handled through servers
• New technologies and hardware up-gradation are easily integrated to the system
• Server access are possible remotely from different locations and types of systems

Disadvantages of Network Operating System:

• Servers are costly
• User has to depend on central location for most operations
• Maintenance and updates are required regularly

Examples of Network Operating System are: Microsoft Windows Server 2003, Microsoft Windows Server 2008, UNIX, Linux, Mac OS X, Novell NetWare, and BSD etc.

5. Real-Time Operating System:
   These types of OSs serves the real-time systems. The time interval required to process and respond to inputs is very small. This time interval is called response time.

Real-time systems are used when there are time requirements are very strict like missile systems, air traffic control systems, robots etc.

Two types of Real-Time Operating System which are as follows:

• Hard Real-Time Systems:
  These OSs are meant for the applications where time constraints are very strict and even the shortest possible delay is not acceptable. These systems are built for saving life like automatic parachutes or air bags which are required to be readily available in case of any accident. Virtual memory is almost never found in these systems.
• Soft Real-Time Systems:
  These OSs are for applications where for time-constraint is less strict.

Advantages of RTOS:

• Maximum Consumption: Maximum utilization of devices and system,thus more output from all the resources
• Task Shifting: Time assigned for shifting tasks in these systems are very less. For example in older systems it takes about 10 micro seconds in shifting one task to another and in latest systems it takes 3 micro seconds.
• Focus on Application: Focus on running applications and less importance to applications which are in queue.
• Real time operating system in embedded system: Since size of programs are small, RTOS can also be used in embedded systems like in transport and others.
• Error Free: These types of systems are error free.
• Memory Allocation: Memory allocation is best managed in these type of systems.

Disadvantages of RTOS:

• Limited Tasks: Very few tasks run at the same time and their concentration is very less on few applications to avoid errors.
• Use heavy system resources: Sometimes the system resources are not so good and they are expensive as well.
• Complex Algorithms: The algorithms are very complex and difficult for the designer to write on.
• Device driver and interrupt signals: It needs specific device drivers and interrupt signals to response earliest to interrupts.
• Thread Priority: It is not good to set thread priority as these systems are very less prone to switching tasks.

Examples of Real-Time Operating Systems are: Scientific experiments, medical imaging systems, industrial control systems, weapon systems, robots, air traffic control systems, etc.

An Analog signal is any continuous signal for which the time varying feature (variable) of the signal is a representation of some other time varying quantity, i.e., analogous to another time varying signal. It differs from a digital signal in terms of small fluctuations in the signal which are meaningful.

A digital signal uses discrete (discontinuous) values. By contrast, non-digital (or analog) systems use a continuous range of values to represent information. Although digital representations are discrete, the information represented can be either discrete, such as numbers or letters, or continuous, such as sounds, images, and other measurements of continuous systems.

Properties of Digital vs Analog signals

Digital information has certain properties that distinguish it from analog communication methods. These include

• Synchronization: Digital communication uses specific synchronization sequences for determining synchronization.
• Language: Digital communications requires a language which should be possessed by both sender and receiver and should specify meaning of symbol sequences.
• Errors: Disturbances in analog communication causes errors in actual intended communication but disturbances in digital communication does not cause errors enabling error free communication. Errors should be able to substitute, insert or delete symbols to be expressed.
• Copying: Analog communication copies are quality wise not as good as their originals while due to error free digital communication, copies can be made indefinitely.
• Granularity: For a continuously variable analog value to be represented in digital form there occur quantization error which is difference in actual analog value and digital representation and this property of digital communication is known as granularity.

Differences in Usage in Equipment

Many devices come with built in translation facilities from analog to digital. Microphones and speaker are perfect examples of analog devices. Analog technology is cheaper but there is a limitation of size of data that can be transmitted at a given time.

Digital technology has revolutionized the way most of the equipments work. Data is converted into binary code and then reassembled back into original form at reception point. Since these can be easily manipulated, it offers a wider range of options. Digital equipment is more expensive than analog equipment.

Comparison of Analog vs Digital Quality

Digital devices translate and reassemble data and in the process are more prone to loss of quality as compared to analog devices. Computer advancement has enabled use of error detection and error correction techniques to remove disturbances artificially from digital signals and improve quality.

Differences in Applications

Digital technology has been most efficient in cellular phone industry. Analog phones have become redundant even though sound clarity and quality was good.

Analog technology comprises of natural signals like human speech. With digital technology this human speech can be saved and stored in a computer. Thus digital technology opens up the horizon for endless possible uses.

Advantages of Digital Communication

As the signals are digitized, there are many advantages of digital communication over analog communication, such as:

• The effect of distortion, noise, and interference is much less in digital signals as they are less affected.
• Digital circuits are more reliable.
• Digital circuits are easy to design and cheaper than analog circuits.
• The hardware implementation in digital circuits, is more flexible than analog.
• The occurrence of cross-talk is very rare in digital communication.
• The signal is un-altered as the pulse needs a high disturbance to alter its properties, which is very difficult.
• Signal processing functions such as encryption and compression are employed in digital circuits to maintain the secrecy of the information.
• The probability of error occurrence is reduced by employing error detecting and error correcting codes.
• Spread spectrum technique is used to avoid signal jamming.
• Combining digital signals using Time Division Multiplexing TDM

is easier than combining analog signals using Frequency Division Multiplexing FDM

• The configuring process of digital signals is easier than analog signals.
• Digital signals can be saved and retrieved more conveniently than analog signals.
• Many of the digital circuits have almost common encoding techniques and hence similar devices can be used for a number of purposes.
• The capacity of the channel is effectively utilized by digital signals.

Elements of Digital Communication

The elements which form a digital communication system is represented by the following block diagram for the ease of understanding.

Following are the sections of the digital communication system.

Source

The source can be an analog signal. Example: A Sound signal

Input Transducer

This is a transducer which takes a physical input and converts it to an electrical signal (Example: microphone). This block also consists of an analog to digital converter where a digital signal is needed for further processes.

A digital signal is generally represented by a binary sequence.

Source Encoder

The source encoder compresses the data into minimum number of bits. This process helps in effective utilization of the bandwidth. It removes the redundant bits unnecessary excess bits,i.e.,zeroes

Channel Encoder

The channel encoder, does the coding for error correction. During the transmission of the signal, due to the noise in the channel, the signal may get altered and hence to avoid this, the channel encoder adds some redundant bits to the transmitted data. These are the error correcting bits.

Digital Modulator

The signal to be transmitted is modulated here by a carrier. The signal is also converted to analog from the digital sequence, in order to make it travel through the channel or medium.

Channel

The channel or a medium, allows the analog signal to transmit from the transmitter end to the receiver end.

Digital Demodulator

This is the first step at the receiver end. The received signal is demodulated as well as converted again from analog to digital. The signal gets reconstructed here.

Channel Decoder

The channel decoder, after detecting the sequence, does some error corrections. The distortions which might occur during the transmission, are corrected by adding some redundant bits. This addition of bits helps in the complete recovery of the original signal.

Source Decoder

The resultant signal is once again digitized by sampling and quantizing so that the pure digital output is obtained without the loss of information. The source decoder recreates the source output.

Output Transducer

This is the last block which converts the signal into the original physical form, which was at the input of the transmitter. It converts the electrical signal into physical output (Example: loud speaker).

Output Signal

This is the output which is produced after the whole process. Example: The sound signal received.

This unit has dealt with the introduction, the digitization of signals, the advantages and the elements of digital communications. In the coming chapters, we will learn about the concepts of Digital communications, in detail.

The organization of the capital market in India presents a striking contrast to the institutional structure in the industrially advanced countries of the West. The rise of institutional finance for industry abroad has been the result mainly of institutionalization of personal savings through savings media like life insurance, pension and provident funds and unit trusts and so on.

The growth of institutional finance for industry in India has come largely through industrial financing institutions created by the government both at the national and regional levels, collectively referred to as development banks.

In other words, a pronounced feature of the system of industrial financing in India is the heavy domination of its structure by the development banks and the relatively minor role of the normal channels of financing.

As a result, industry has come to rely very heavily on the development banks as far as its financing requirements are concerned. In terms of their massive role development banks have out-grown their supplementary character of suppliers of finance in terms of their conception as ‘gap-fillers’.

It, undoubtedly, redounds to their credit that they have been able to channel sufficient funds into the productive system despite un-favourable conditions in the investment market.

The rigorous, exacting and detailed appraisal that development banks conduct is an integral part of term lending, tones up the quality of projects and ensures efficient use of available resources. Moreover, the evaluation of projects by them is objective and impersonal.

This has led to the availability of funds to varied types of enterprises, in particular new or relatively new firms of industries. The provision of financial facilities to such enterprises is of special significance at the present stage of India’s industrialization.

The relevance of the development banks in the industrial financing system is not merely quantitative; it has overwhelmingly qualitative dimensions in terms of their promotional and innovational function.

With the evolution of a meaningful industrial strategy, the accent in financing by the development banks is geared so that industrial development would sub-serve the basic economic objectives of balanced regional development, growth of new entrepreneurial talents and small enterprises and development of indigenous industrial technology, and thus, contribute to the emergence of a widely-diffused yet viable process of industrialization consistent with the socio-economic objective of State policy.

The development banks, in fact, constitute the backbone of the Indian capital market.

This overwhelming relevance of development banks in India notwithstanding their phenomenal growth and the massive reliance of industry on them in consequence have far-reaching implications in so far as the ability of the market to cope with the future requirements of the accelerated programmes of industrial development is concerned.

The present experience of the supply of industrial capital gives a distorted view of this ability. This ‘distortion’ has, inter alia, two serious dimensions.

The first aspect of this ‘distortion’ relates to the real ability of the financing system to cope with the growing requirements of an expanding corporate sector of private industry resulting from accelerated program of industrial development under the five-year plans.

The relevance of capital markets to economic development is based on mobilization of savings and their distribution to productive enterprises. These two interrelated functions are a sine-qua- none of an efficient capital market.

Judged in these terms development banks play rather partial and limited role and a system of industrial financing so heavily dominated by them as the one in India has certainly failed to grow pari-pasu with the planned growth of industry.

This is because the development banks, as financial intermediaries, are essentially distributive agencies as they derive most of their funds from their sponsors and, to that extent, a divorce between collection of savings and their allocation has come into being.

This is a serious obstacle to the growth of an autonomous financing system in the sense of equilibrium between the demand for, and supply of, capital funds. Attention to this weakness of the Indian capital market was drawn in the following words:-

“A weakness of the present institutional structure with its heavy dependence on special institutions is that the system is not organically linked to the ultimate source of savings and depends a little too much on ad-hoc allocation from the treasury. It will be desirable to forge links between the distributory mechanism, on the one hand, and the normal channels of savings on the other, so that the distributing mechanism becomes increasingly capable of growing autonomously with the needs of the economy on the basis of available savings.”

The domination of the institutional structure of the capital market by development banks in India has created yet another serious ‘distortion’ in the form of financial practices of questionable prudence. Since the development banks provided most of the funds in the form of term loans, there is a preponderance of debt in the financial structure of corporate enterprises.

There is, of course, no doubt that term loans, as a form of financing, reduce the dependence of investment on the erratic stock exchanges and the detailed scrutiny of the loan agreement have the effect of promoting greater financial discipline among the borrowers, on the one hand, and more effective public control over the private enterprise, on the other, but the predominant position of debt capital has made the capital structure of the borrowing concerns lopsided and unbalanced and, on considerations of orthodox canons of corporate financing, highly imprudent.

The sympathetic and flexible attitude of development banks as public financial institutions in case of defaults arising out of temporary difficulties can, of course, permit a greater use of debt than is warranted by the traditional concept of a sound capital structure but it does not justify the unlimited use of debt capital as it is likely to jeopardize the future of the company itself.

The solution to the problem implicit in these distortions obviously lies in securing an organic link between the distributive mechanism and the ultimate pool of the savings of community.

The banking system in India is regulated by the Reserve Bank of India (RBI), through the provisions of the Banking Regulation Act, 1949. Some important aspects of the regulations that govern banking in this country, as well as RBI circulars that relate to banking in India, will be explored below.

Exposure limits

Lending to a single borrower is limited to 15% of the bank’s capital funds (tier 1 and tier 2 capital), which may be extended to 20% in the case of infrastructure projects. For group borrowers, lending is limited to 30% of the bank’s capital funds, with an option to extend it to 40% for infrastructure projects. The lending limits can be extended by a further 5% with the approval of the bank’s board of directors. Lending includes both fund-based and non-fund-based exposure.

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

Banks in India are required to keep a minimum of 4% of their net demand and time liabilities (NDTL) in the form of cash with the RBI. These currently earn no interest. The CRR needs to be maintained on a fortnightly basis, while the daily maintenance needs to be at least 95% of the required reserves. In case of default on daily maintenance, the penalty is 3% above the bank rate applied on the number of days of default multiplied by the amount by which the amount falls short of the prescribed level.

Over and above the CRR, a minimum of 22% and a maximum of 40% of NDTL, which is known as the SLR, needs to be maintained in the form of gold, cash or certain approved securities. The excess SLR holdings can be used to borrow under the Marginal Standing Facility (MSF) on an overnight basis from the RBI. The interest charged under MSF is higher than the repo rate by 100 bps, and the amount that can be borrowed is limited to 2% of NDTL. (To learn more about how interest rates are determined, particularly in the U.S., consider reading more about who determines interest rates.)

Provisioning

Non-performing assets (NPA) are classified under 3 categories: substandard, doubtful and loss. An asset becomes non-performing if there have been no interest or principal payments for more than 90 days in the case of a term loan. Substandard assets are those assets with NPA status for less than 12 months, at the end of which they are categorized as doubtful assets. A loss asset is one for which the bank or auditor expects no repayment or recovery and is generally written off the books.

For substandard assets, it is required that a provision of 15% of the outstanding loan amount for secured loans and 25% of the outstanding loan amount for unsecured loans be made. For doubtful assets, provisioning for the secured part of the loan varies from 25% of the outstanding loan for NPAs that have been in existence for less than one year, to 40% for NPAs in existence between one and three years, to 100% for NPA’s with a duration of more than three years, while for the unsecured part it is 100%.

Provisioning is also required on standard assets. Provisioning for agriculture and small and medium enterprises is 0.25% and for commercial real estate it is 1% (0.75% for housing), while it is 0.4% for the remaining sectors. Provisioning for standard assets cannot be deducted from gross NPA’s to arrive at net NPA’s. Additional provisioning over and above the standard provisioning is required for loans given to companies that have unhedged foreign exchange exposure.

Priority sector lending

The priority sector broadly consists of micro and small enterprises, and initiatives related to agriculture, education, housing and lending to low-earning or less privileged groups (classified as “weaker sections”). The lending target of 40% of adjusted net bank credit (ANBC) (outstanding bank credit minus certain bills and non-SLR bonds) – or the credit equivalent amount of off-balance-sheet exposure (sum of current credit exposure + potential future credit exposure that is calculated using a credit conversion factor), whichever is higher – has been set for domestic commercial banks and foreign banks with greater than 20 branches, while a target of 32% exists for foreign banks with less than 20 branches.

The amount that is disbursed as loans to the agriculture sector should either be the credit equivalent of off-balance-sheet exposure, or 18% of ANBC – whichever of the two figures is higher. Of the amount that is loaned to micro-enterprises and small businesses, 40% should be advanced to those enterprises with equipment that has a maximum value of 200,000 rupees, and plant and machinery valued at a maximum of half a million rupees, while 20% of the total amount lent is to be advanced to micro-enterprises with plant and machinery ranging in value from just above 500,000 rupees to a maximum of a million rupees and equipment with a value above 200,000 rupees but not more than 250,000 rupees.

The total value of loans given to weaker sections should either be 10% of ANBC or the credit equivalent amount of off-balance sheet exposure, whichever is higher. Weaker sections include specific castes and tribes that have been assigned that categorization, including small farmers. There are no specific targets for foreign banks with less than 20 branches.

The private banks in India until now have been reluctant to directly lend to farmers and other weaker sections. One of the main reasons is the disproportionately higher amount of NPA’s from priority sector loans, with some estimates indicating it to be 60% of the total NPAs. They achieve their targets by buying out loans and securitized portfolios from other non-banking finance corporations (NBFC) and investing in the Rural Infrastructure Development Fund (RIDF) to meet their quota.

New bank license norms

The new guidelines state that the groups applying for a license should have a successful track record of at least 10 years and the bank should be operated through a non-operative financial holding company (NOFHC) wholly owned by the promoters. The minimum paid-up voting equity capital has to be five billion rupees, with the NOFHC holding at least 40% of it and gradually bringing it down to 15% over 12 years. The shares have to be listed within three years of the start of the bank’s operations.

The foreign shareholding is limited to 49% for the first five years of its operation, after which RBI approval would be needed to increase the stake to a maximum of 74%. The board of the bank should have a majority of independent directors and it would have to comply with the priority sector lending targets discussed earlier. The NOFHC and the bank are prohibited from holding any securities issued by the promoter group and the bank is prohibited from holding any financial securities held by the NOFHC. The new regulations also stipulate that 25% of the branches should be opened in previously unbanked rural areas.

Willful defaulters

A willful default takes place when a loan isn’t repaid even though resources are available, or if the money lent is used for purposes other than the designated purpose, or if a property secured for a loan is sold off without the bank’s knowledge or approval. In case a company within a group defaults and the other group companies that have given guarantees fail to honor their guarantees, the entire group can be termed as a willful defaulter.

Willful defaulters (including the directors) have no access to funding, and criminal proceedings may be initiated against them. The RBI recently changed the regulations to include non-group companies under the willful defaulter tag as well if they fail to honor a guarantee given to another company outside the group.

The Bottom Line

The way a country regulates its financial and banking sectors is in some senses a snapshot of its priorities, its goals, and the type of financial landscape and society it would like to engineer. In the case of India, the regulations passed by its reserve bank give us a glimpse into its approaches to financial governance and shows the degree to which it prioritizes stability within its banking sector, as well as economic inclusiveness.

Though the regulatory structure of India’s banking system seems a bit conservative, this has to be seen in the context of the relatively under-banked nature of the country. The excessive capital requirements that have been set are required to build up trust in the banking sector while the priority lending targets are needed to provide financial inclusion to those to whom the banking sector would not generally lend given the high level of NPA’s and small transaction sizes.

Since the private banks, in reality, do not directly lend to the priority sectors, the public banks have been left with that burden. A case could also be made for adjusting how the priority sector is defined, in light of the high priority given to agriculture, even though its share of GDP has been going down. (For related reading, see “The Increasing Importance of the Reserve Bank of India”)

Primary Operational Aspects of Commercial Bank in India

Refer to the basic functions of commercial banks that include the following:

Accepting Deposits

Implies that commercial banks are mainly dependent on public deposits.

There are two types of deposits, which are discussed as follows:

• Demand Deposits: Refer to kind of deposits that can be easily withdrawn by individuals without any prior notice to the bank. In other words, the owners of these deposits are allowed to withdraw money anytime by simply writing a check. These deposits are the part of money supply as they are used as a means for the payment of goods and services as well as debts. Receiving these deposits is the main function of commercial banks.
• Time Deposits: Refer to deposits that are for certain period of time. Banks pay higher interest on rime deposits. These deposits can be withdrawn only after a specific time period is completed by providing a written notice to the bank.
• Advancing Loans: Refers to one of the important functions of commercial banks. The public deposits are used by commercial banks for the purpose of granting loans to individuals and businesses. Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange.

Secondary Operational Aspects of Commercial Bank in India

Refer to crucial functions of commercial banks. The secondary functions can be classified under three heads, namely, agency functions, general utility functions, and other functions.

These functions are explained as follows:

1. Agency Functions

Implies that commercial banks act as agents of customers by performing various functions, which are as follows:

(a) Collecting Checks

Refer to one of the important functions of commercial banks. The banks collect checks and bills of exchange on the behalf of their customers through clearing house facilities provided by the central bank.

(b) Collecting Income

Constitute another major function of commercial banks. Commercial banks collect dividends, pension, salaries, rents, and interests on investments on behalf of their customers. A credit voucher is sent to customers for information when any income is collected by the bank.

(c) Paying Expenses

Implies that commercial banks make the payments of various obligations of customers, such as telephone bills, insurance premium, school fees, and rents. Similar to credit voucher, a debit voucher is sent to customers for information when expenses are paid by the bank.

2. General Utility Functions

Include the following functions:

(a) Providing Locker Facilities

Implies that commercial banks provide locker facilities to its customers for safe keeping of jewellery, shares, debentures, and other valuable items. This minimizes the risk of loss due to theft at homes.

(b) Issuing Traveler’s Checks

Implies that banks issue traveler’s checks to individuals for traveling outside the country. Traveler’s checks are the safe and easy way to protect money while traveling.

(c) Dealing in Foreign Exchange

Implies that commercial banks help in providing foreign exchange to businessmen dealing in exports and imports. However, commercial banks need to take the permission of the central bank for dealing in foreign exchange.

(d) Transferring Funds

Refers to transferring of funds from one bank to another. Funds are transferred by means of draft, telephonic transfer, and electronic transfer.

3. Other Functions

Include the following:

(a) Creating Money

Refers to one of the important functions of commercial banks that help in increasing money supply. For instance, a bank lends Rs. 5 lakh to an individual and opens a demand deposit in the name of that individual.

Bank makes a credit entry of Rs. 5 lakh in that account. This leads to creation of demand deposits in that account. The point to be noted here is that there is no payment in cash. Thus, without printing additional money, the supply of money is increased.

(ii) Electronic Banking

Include services, such as debit cards, credit cards, and Internet banking.

A cheque is a very common form of negotiable instrument. You need a savings bank account or current account in a bank, in order to issue a cheque in your own name or in favor of others, thereby directing the bank to pay the predetermined amount to the individual named in the cheque.

This transaction has to be handled very delicately as it may lead to some serious banking frauds. Read a Banking awareness book to manage your account and safeguard your transactions from frauds and scams.

A cheque is a document which ensures the payment of a particular amount of money on demand to a certain individual or to the bearer of the instrument. It is a printed form which you can use to make payment from your bank account. When you write a cheque you enter the amount of money that you want to send to the person and who is to be paid to, sign and hand it over to the individual you want to make payment to. Your bank then pays the money to that individual (payee) from your account.

It is one of the safest and convenient modes of making payments and is transferred by mere delivery.

One of the benefits of the cheque is that you can transfer a high-value transaction without any hassle which would be very difficult if hard cash was used instead.

The issuer of the cheque has an account (savings or current) with the bank to which it is connected. There are various types of cheque books which depend on the type of account you have.

Cheque refers to a negotiable instrument that contains an unconditional order to the bank to pay a certain sum mentioned in the instrument, from the drawer’s account, to the person to whom it is issued, or to the order of the specified person or the bearer.

Parties to Cheque

Basically, there are three parties to a cheque

• Drawer: The person who draws the cheque, i.e. signs and orders the bank to pay the sum.
• Drawee: The bank on which the cheque is drawn or who is directed to pay the specified sum written on the cheque.
• Payee: The beneficiary, i.e. to whom the amount is to be paid.

Apart from these three, there are two more parties to a cheque:

Endorser: When a party transfers his right to take the payment to another party, he/she is called endorser.

Endorsee: The party in whose favour, the right is transferred, is called endorsee.

Sometimes, the drawer and payee can be the same person, when the drawer writes a self-cheque.

Some of the important details which should be present in a cheque are as follows:

• A cheque should be dated.
• A cheque should mention the amount of money in figures and words.
• A cheque must be signed by the person (Drawer) issuing the cheque
• A cheque must be drawn upon a specified bank (Drawee).
• A cheque must have the name of the recipient (Payee) of the cheque.

Some of the most common types of cheque are listed here.

1. Bearer Cheque

The first among the types of cheques is the bearer cheque. This cheque is payable to the bearer of the check or whose name the cheque carries in the column meant for the name of the drawee. Ideally, this cheque has “or bearer” printed at the end of the dotted lines, which is meant to have the name of the drawee. This cheque can be presented over the counter of the drawee bank and is payable to the one presenting it. It is a transferable instrument and thus can be passed on to another by mere delivery, there is no need to endorse this type of cheque.

2. Order Cheque

In this cheque, the printed word “bearer” is canceled thereby making it payable only to the person whose name is written in the place of drawee. Once “bearer” has been canceled on the cheque, it is automatically understood that this is an order cheque and the bank can only complete the transaction once they have identified, to their satisfaction, the bearer of the cheque to be the same person, as named in it.

3. Crossed Cheque

In a crossed cheque, the drawer makes two parallel transverse lines at the top left corner of the cheque with or without writing “a/c payee”. This makes sure that no matter who presents the cheque to the drawer bank, the transaction is made into the account of the person named in the cheque only. The advantage of cross cheque is that it reduces the risk of money being given to an unauthorized person because this type of cheque can only be cashed by the drawee’s bank.

4. Open Cheque

Also known sometimes as an uncrossed cheque. Any cheque that is not crossed comes under open cheque category. This cheque can be presented to the drawer’s bank and is payable to the person presenting it. The drawee of this cheque can also transfer it to another person by writing their name on the cheque and thereby making them the drawee. To make the cheque open, the word OPEN should not be crossed off, and the person issuing the cheque must ensure his/her signatures on both the front and the back of the cheque. Otherwise, the payee may be denied the payment by the bank. The payee is also expected to sign at the back of the cheque while receiving the amount.

5. Post- Dated Cheque

A cheque bearing a later date than the one on which it is actually issued, is called as a post-dated cheque. This cheque maybe presented to the drawee bank at any time after its issuance, but the money will not be transferred from the account of the payer until the date mentioned on the cheque. The payee can also present the cheque after the date mentioned on the cheque too. It will still be valid, and the money will be transferred to the payee’s account.

6. Stale Cheque

As the name suggests, a stale cheque is one which is past its validity period and can no longer be encashed. Initially, this period was six months from the date of issue. Now, this period has been reduced to three months.

7. Travelers’ Cheque

These may be equated with a universally accepted currency. A travelers’ cheque is available almost everywhere and comes in various denominations. This is an instrument issued by the bank itself to make payments from one place to another. There is no expiry date of a travelers’ cheque and thus it can be used during your next travel as well, or you have the option to encash it once you land back in India.

8. Self Cheque

The drawer usually issues a self-cheque to his or her self. The name column of the drawee has the word “self” written in it. A self-cheque is drawn when the drawer wishes to withdraw money from the bank in cash for his use. This cheque can only be encashed in the account holder’s or the drawer’s bank. This cheque must be used carefully because if it is lost, another person may easily get it encashed by visiting the drawer’s bank.

9. Bankers Cheque

A banker’s cheque, as is self-explanatory here, is a cheque issued by the bank on behalf of the account holder in order to make payment of a specified sum, by order, to another person within the same city. It is valid only for three months from the date of issue, but if needed, can be re-validated upon fulfilling certain legal obligations.

The written notice taken by a grand jury of any offence, from their own knowledge or observation, without any bill of indictment laid before them at the suit of the government upon such presentment, when ‘proper, the officer emloyed to prosecute, afterwards frames a till of indictment, which is then sent to the grand jury, and they find it to be a true bill. In an extended sense presentments include not only what is properly so called, but also inquisitions of office, and indictments found by a grand jury.

The difference between a presentment and an inquisition, is this, that the former is found by a grand jury authorized to inquire of offences generally, whereas the latter is an accusation found by a jury specially returned to inquire concerning the particular offence. The writing which contains the accusation so presented by a grand jury, is also called a presentment.

In general the presentment for payment should be made to the maker of a note, or the drawee of a bill for acceptance, or to the acceptor, for payment; but a presentment made at a particular place, when pavable there, is in general sufficient. A personal demand on the drawee or acceptor is not necessary; a demand at his usual place of residence of his wife or other agent is sufficient.

When a bill or note is made payable at a particular place, a presentment, as we have seen, may be made there; but when the acceptance is general, it must be presented at the house or place of business of the acceptor.

In treating of the time for presentment, it must be considered with reference to:

• A presentment for acceptance
• One for payment

When the bill is payable at sight, or after sight, the presentment must be made in reasonable time; and what this reasonable time is depends upon the circumstances of each case. The presentment of a note or bill for payment ought to be made on the day it becomes due, and notice of non-payment given, otherwise the holder will lose the security of the drawer and endorsers of a bill and the endorsers of a promissory note, and in case the note or bill be payable at a particular place and the money lodged there for its payment, the holder would probably have no recourse against the maker or acceptor, if he did not present them on the day, and the money should be lost.

The excuses for not making a presentment are general or applicable to all persons, who are endorsers; or they are special and applicable to the particular’ endorser only. Among the former are:

• Inevitable accident or overwhelming calamity
• The prevalence of a malignant disease, by which the ordinary operations of business are suspended
• The breaking out of war between the country of the maker and that of the holder
• The occupation of the country where the note is payable or where the parties live, by a public enemy, which suspends commercial operations and intercourse
• The obstruction of the ordinary negotiations of trade by the vi’s maj or
• Positive interdictions and public regulations of the state which suspend commerce and intercourse
• The utter impracticability of finding the maker, or ascertaining his place of residence

Among the latter or special excuses for not making a presentment may be enumerated the following:

• The receiving the note by the holder from the payee, or other antecedent party, too late to make a due presentment; this will be an excuse as to such party
• The note being an accommodation note of the maker for the benefit of the endorser
• A special agreement by which the endorser waives the presentment
• The receiving security or money by an endorser to secure himself from loss, or to pay the note at maturity. In this case, when the indemnity or money is a full security for the amount of the note or bill, no presentment is requisite
• The receiving the note by the holder from the endorser, as a collateral security for another debt

A want of presentment may be waived by the party to be affected, after a full knowledge of the fact.

Presentment for Acceptance

A bill of exchange is a negotiable instrument in writing containing an unconditional order, directing a certain person to pay a certain amount only to or to the order of a certain person or to the bearer. The drawer is the person who draws the bill and presents it to the drawee for acceptance. Out of all the negotiable instruments, only bills of exchange require presentment for acceptance.

All kinds of bills of exchange do not require presentment for acceptance. Bills payable on demand or on a fixed date do not require this. However, the following bills require presentment for acceptance in the absence of which the parties to it will not be liable on it:

• Bill payable after sight in order to fix the maturity of the bills.
• A bill that consists of an express stipulation that presentment for acceptance is necessary before presentment for payment.

As per section 15, the presentment for acceptance shall be made to the drawee or his duly authorized agent, in case of drawee’s death to his legal representative and in case of his insolvency to his official receiver or assigner.

We shall present the bill to the following persons:

• Drawee or his duly authorized agent.
• In case of more than one drawee, to all the drawees.
• In the case of drawee’s death, to his legal representative.
• Where the drawee becomes insolvent, to his official receiver.
• When the original drawee refuses to accept the bill, to a drawee in case of need.
• The acceptor for honour.

The presentment for acceptance shall be done before maturity, within a reasonable time after it is drawn, on a business day during business hours at a business place or residence of the drawee.

The following are the rights of a collecting banker:

1. The banker should present the cheque to the paying banker for encashment within a reasonable time. What is reasonable time depends upon the facts of each case. As per the prevailing practice, the collecting banker should present the cheques received for collection from customers at least by the following or next day after he receives it. Any undue delay in collection would render the banker liable to the customer for any loss the latter may suffer on account of the delay.
2. If the cheque presented in clearing is realized, then the proceeds of the realized cheque should be credited to the account of the customer without any delay.
3. In case the cheque sent for collection is dishonoured by the drawee bank, the collecting bank should return the cheque to the customer within a reasonable time so as to enable the customer to recover the amount of the cheque from parties liable thereto. If he fails to send the notice of dishonour of the cheque to the customer within a reasonable time and the customer suffers a loss as a consequence of the omission to send the notice, the collecting banker becomes liable to compensate the customer.

The Following are the rights and duties of a collecting banker.

• Cheque crossed generally be paid only to banker
• A cheque crossed specially should be paid only to through banker
• Second special crossing in favour of the banker
• A banker cannot ignore the crossing

Liabilities of Paying Banker

1. Proper Form

A banker should see whether the cheque is in the proper form. That means the cheque should be in the manner prescribed under the provisions of the commercial code. It should not contain any condition.

2. Open or Crossed Cheque

The most important precaution that a banker should take is about crossed cheques. A banker has to verify whether the cheque is open or crossed. He should not pay cash across the counter in respect of crossed cheques. If the cheque is a crossed one, he should see whether it is a general crossing or special crossing. If it is a general crossing, the holder must be asked to present the cheque through some banker. It should be paid to a banker. If the cheque bears a special crossing, the banker should pay only the bank whose name is mentioned in then crossing. If it is an open cheque, a banker can pay cash to the payee or the holder across the counter. If the banker pays against the instructions as indicated above, he is liable to pay the amount to the true owner for any loss sustained. Further, a banker loses statutory protection in case of forged endorsement.

For example, Madras Bank Ltd. Vs South India Match Factory Ltd., a cheque was issued by a purchaser in favour of the official liquidator of a company towards the purchase price of certain properties. The bank paid the amount of the crossed cheque to the liquidator across the counter. The liquidator mis-appropriated the amount. The court held that the banker committed breach of statutory duty and was negligent in paying direct to the liquidator over the counter and hence, was not entitled to legal protection.

If it is a ‘Not Negotiable’ crossing, the paying banker has to verify the genuineness of all the endorsements. If it is an ‘Account Payee’ crossing, the banker can credit the account of the payee named in the cheque and not that of any other person.

3. Place of Presentment of Cheque

A banker can honour the cheques provided it is presented with that branch of the bank where the drawer has an account. If the cheque is presented at another branch of the same bank, it should not be honoured unless special arrangements are made by the customer in advance. The reasons are:

• A banker undertakes to pay cheques only at the branch where the account is kept.
• The specimen signature of the customer will be with the office of the bank at which he has an account.
• It is not possible for other branches to know that the customer has adequate balance to meet the cheque.

Bank of India Vs Official Liquidator: In this case, it was held that if customer has an account in a bank which has several branches, the branches at which he has no account are justified in refusing to honour his cheques.

4. Date of the Cheque

The paying banker has to see the date of the cheque. It must be properly dated. It should not be either a post-dated cheque or a stale-cheque. If a cheque carries a future date, it becomes a post-dated cheque. If the cheque is presented on the date mentioned in the cheque, the banker need not have any objection to honour it. If the banker honours a cheque before the date mentioned in the cheque, he loses statutory protection. If the drawer dies or becomes insolvent or countermands payment before the date of the cheque, he will lose the amount. The undated cheques are usually not honoured.

A stale cheque is one which has been in circulation for an unreasonably long period.

The custom of bankers in this respect varies. Generally, a cheque is considered stale when it has been in circulation for more than six months. Banker does not honour such cheques. However, banker may get confirmation from the drawer and honour cheques which are in circulation for a long time. So, verification of date is very important.

5. Mutilated Cheque

The banker should be careful when mutilated cheques are presented for payment. A cheque is said to be mutilated when it has been cut or torn, or when a part of it is missing. Mutilation may be either accidental or intentional.

If it is accidental, the banker should get the drawer’s confirmation before honouring it. If it is intentional, he should refuse payment. The cheque is to be returned with a remark ‘Mutilated cheque’ or ‘Mutilation Requires Confirmation’. In Scholey Vs Ramsbottom, the banker was held liable for wrong payment of a cheque which was dirty and bore visible marks of mutilation.”

6. Words and Figures

The amount of the cheque should be expressed in words, or in words and figures, which should agree with each other. When the amount in words and figures differ, the banker should refuse payment. However, there is difference between the amount in words and figures; the amount in words is the amount payable. If the banker returns the cheque, he should make a remark ‘amount in words and figures differ.

7. Alterations and Overwritings

The banker should see whether there is any alteration or over-writing on the cheque. If there is any alteration, it should be confirmed by the drawer by putting his full signature. The banker should not pay a cheque containing material alteration without confirmation by the drawer. The banker is expected to exercise reasonable care for the detection of such alterations.

Otherwise, he has to take risk. Material alterations make a cheque void.

8. Proper Endorsements

Cheques must be properly endorsed. In the case of bearer cheque, endorsement is not necessary legally. In the case of an order cheque, endorsement is necessary. A bearer cheque always remains a bearer cheque. The paying banker should examine all the endorsements on the cheque before making payment. They must be regular. But it is not the duty of the paying banker to verify the genuineness of the endorsements, unless the cheque bears ‘Not-Negotiable’ crossing. He is not expected to know the signatures of all payees. So he gets statutory protection in case of forged endorsements. In India, even in the case of bearer cheques, bankers insist on endorsement though it is not required.

9. Sufficiency of Funds

The banker should see whether the credit balance in the customer’s account is sufficient to pay the cheque or not. If there is an overdraft agreement, he should see that the limit is not exceeded. The banker should not make part-payment of the cheque. He should pay either full amount or refuse payment. In case of insufficiency of funds, the banker should return the cheque with the remark ‘No Funds’ or ‘Not Sufficient Funds’.

10. Verification of Drawer’s Signature

The banker takes specimen signatures of his customers’ at the time of opening the account. He should compare the drawer’s signature on the cheque with the specimen signature of the customer. He should carefully examine the signature to find out whether the drawer’s signature is forged or not. If there is any difference or doubt, he should not honour the cheque. He should get the confirmation of the drawer. If there is forgery and there is negligence on the part of the banker to detect the same, there is no protection to the banker.

Liabilities of Collecting Banker

1. Due Care and Diligence in the Collection of Cheques

The collecting banker is bound to show due care and diligence in the collection of cheques presented to him.

In case a cheque is entrusted with the banker for collection, he is expected to show it to the drawee banker within a reasonable time. A cheque is not presented for payment within a reasonable time of its issue, and the drawer or person in whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage, through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a large amount than he would have been if such cheque had been paid.

In case a collecting banker does not present the cheque for collection through proper channel within a reasonable time, the customer may suffer loss. In case the collecting banker and the paying banker are in the same bank or where the collecting branch is also the drawee branch, in such a case the collecting banker should present the cheque by the next day. In case the cheque is drawn on a bank in another place, it should be presented on the day after receipt.

2. Serving Notice of Dishonor

When the cheque is dishonored, the collecting banker is bound to give notice of the same to his customer within a reasonable time. It may be noted here, when a cheque is returned for confirmation of endorsement, notice must be sent to his customer. If he fails to give such a notice, the collecting banker will be liable to the customer for any loss that the customer may have suffered on account of such failure.

Whereas a cheque is returned by the drawee banker for confirmation of endorsement, it is not called dishonor. But in such a case, notice must be given to the customer. In the absence of such a notice, if the cheque is returned for the second time and the customer suffers a loss, the collecting banker will be liable for the loss.

3. Agent for Collection

In case a cheque is drawn on a place where the banker is not a member of the ‘clearing-house’, he may employ another banker who is a member of the clearing-house for the purpose of collecting the cheque. In such a case the banker becomes a substituted agent.  An agent, holding an express or implied authority to name another person to act in the business of the agency has accordingly named another person, such a person is a substituted agent. Such an agent shall be taken as the agent of a principal for such part of the work as is entrusted to him.

4. Remittance of Proceeds to the Customer

In case a collecting banker has realized the cheque, he should pay the proceeds to the customer as per his (customer’s) direction. Generally, the amount is credited to the account of the customer on the customer’s request in writing; the proceeds may be remitted to him by a demand draft. In such circumstances, if the customer gives instructions to his banker, the draft may be forwarded. By doing so, the relationship between principal and agent comes to an end and the new relationship between debtor and creditor will begin.

5. Collection of Bills of Exchange

There is no legal obligation for a banker to collect the bills of exchange for its customer. But, generally, bank gives such facility to its customers. In collection of bills, a banker should examine the title of the depositor as the statutory protection.

Thus, the collecting banker must examine very carefully the title of his customer towards the bill. In case a new customer comes, the banker should extend this facility to him with a trusted reference.

From the above discussion, there is no doubt to say that the banker is acting as a mere agent for collection and not in the capacity of a banker. If the customer allows his banker to use the collecting money for its own purpose at present and to repay an equivalent amount on a fixed date in future the contract between the banker and the customer will come to an end.