Modern Day Banking
1. Modern Day Banking
Modern day bankers have identified another area of activity itself viz. realizing book debts on behalf of its clients. Such services are commonly known as factoring services. Factoring is a mechanism of managing, financing, and collection of receivables by a specialist organization on behalf of business enterprises. In a firm trade, credit constitutes a significant position of current assets and working capital. A proper management is essential because it involves a lot of time, cost and risk. Big and mega organizations can assign credit management and collection to specialist organizations called factoring organization. Banks in India were permitted to enter Factoring Service in July 1990.
Banks for the convenience of their account holders introduced the teller system at some of their branches. Under this system, the time taken in payment is considerably reduced. Usually when a cheque is presented for payment it passes through a number of persons, for example the ledger keeper, accountant, cashier etc. which is really a time consuming procedure. Under the teller system a cashier is designated as teller who makes payment of cheques to specified amount immediately on presentation of a cheque by the payee, another service provided by modern bank is safe deposit vaults. Most of the banks provide the facility of safe deposit vaults to the public at their branches. For this purpose, they arrange strong room equipped with safe deposit lockers. A reasonable rent called lease money is charged for the facility.
Forfeiting is another product developed by commercial banks. It is purchasing the medium term export receivables from an exporter without resources to him. It is different from international factoring in as much as it deals with receivables relating to deferred payment exports while factoring deals with short-term receivables.
Leasing is the next one. Leasing can be defined as a transaction in which the owner of the asset that is the bank gives the same to the consumer for his uses for a specified period of time in consideration of payment of Lease rentals. Thus in a lease transaction, the banker retains the ownerships in the assets and the borrower acquires its possession and use. Banks normally undertake financial lease, operating lease, leverage lease, sale and lease back.
22.3 Hire purchase
Hire purchase is an agreement between the bank and the borrower under which goods are let on hire.
Hire purchase involves delivery of possession of goods to the hirer. On payment of the last installment, the property passes to the borrower. Securitization is the process by which the selected pool of credit assets (loans) of the bank is sold to a trust that is turn issues securities against banking of such assets and sells the same to prospective investors. Even after sale, the bank undertakes to service the debts and passes on the recovery to the trust for distribution among investors.
22.4 Portfolio Management
In Portfolio management, Bank manages the investment portfolio of a client which involves investment of a client s fund in stock and securities and to buy and sell securities with an objective to achieve higher return for the client.
22.5 Custodial Service
Custodial service is another product. It is a product offered to the shareholders whereby the banks undertake to collect dividend on behalf of their clients, arrange for transfer of shares and attend annual general meeting on their behalf since liberalization and globalization, the foreign exchange market in India is witnessing a sea change. RBI permitted commercial banks to offer the following products to its customers to enable them to hedge the risks involved in investments and reduce overall risks significantly.