TYPES OF BANK CUSTOMERS: Individual

Individuals
Accounts of individuals form a major chunk of the deposit accounts in the personal segment of most banks.
Individuals who are major and of sound mind can open a bank account.

a) Minors:
In case of minor, a banker would open a joint account with the natural guardian. However to encourage the habit of savings, banks open minor accounts in the name of a minor and allows single operations by the minor himself/herself. Such accounts are opened subject to certain conditions like

(i) the minor should be of some minimum age say 12 or 13 years or above

(ii) should be literate

(iii) No overdraft is allowed in such accounts

(iv) Two minors
cannot open a joint account.

(v) The father is the natural guardian for opening a minor account, but RBI has authorized mother also to sign as a guardian (except in case of Muslim minors)

(b) Joint Account Holders:
A joint account is an account by two or more persons. At the time of opening the account all the persons should sign the account opening documents. Operating instructions may vary, depending upon the total number of account holders. In case of two persons it may be

(i) jointly by both account holders

(ii) either or survivor

(iii) former or survivor In case no specific instructions is given, then the operations will be by all the account holders jointly, The instructions for operations in the account would come to an end in cases of insanity, insolvency, death of any of the joint holders and operations in the account will be stopped.

(c) Illiterate Persons
Illiterate persons who cannot sign are allowed to open only a savings account (without cheque facility) or fixed deposit account. They are generally not permitted to open a current account. The following additional requirements need to be met while opening accounts for such persons:
– The depositor’s thumb impression (in lieu of signature) is obtained on the account opening form in the
presence of preferably two persons who are known to the bank and who have to certify that they know
the depositor.
– The depositor’s photograph is affixed to the ledger account and also to the savings passbook for
identification.
Withdrawals can be made from the account when the passbook is furnished, the thumb impression is verified
and a proper identification of the account holder is obtained

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WHO IS A CUSTOMER OF A BANK

The term ‘customer’ of a bank is not defined by law. Ordinarily, a person who has an account in a bank is
considered is customer. Banking experts and the legal judgments in the past, however, used to qualify this
statement by laying emphasis on the period for which such account had actually been maintained with the bank.
In Sir John Paget’s view “to constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business.” This definition of a customer of a bank lays emphasis on the duration of the dealings between the banker and the customer and is, therefore, called the ‘duration theory’. According to this viewpoint a person does not become a customer of the banker on the opening of an account; he must have been accustomed to deal with the banker before he is designated as a customer. The above-mentioned emphasis on the duration of the bank account is now discarded. According to Dr. Hart, “a customer is one who has an account with a banker or for whom a banker habitually undertakes to act as such.” Supporting this viewpoint, the Kerala High Court observed in the case of Central Bank of India Ltd. Bombay vs. V.Gopinathan Nair and others (A.I.R.,1979, Kerala 74) : “Broadly speaking, a customer is a person who has the habit of resorting to the same place or person to do business. So far as banking transactions are concerned he is a person whose money has been accepted on the footing that banker will honour up to the amount standing to his credit, irrespective of his connection being of short or long standing.”
For the purpose of KYC policy, a ‘Customer’ is defined as :
– a person or entity that maintains an account and/or has a business relationship with the bank;
– one on whose behalf the account is maintained (i.e. the beneficial owner);
– beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered
Accountants, Solicitors etc. as permitted under the law, and
– any person or entity connected with a financial transaction which can pose significant reputational or
other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.
Thus, a person who has a bank account in his name and for whom the banker undertakes to provide the facilities as a banker, is considered to be a customer. It is not essential that the account must have been operated upon for some time. Even a single deposit in the account will be sufficient to designate a person as customer of the banker. Though emphasis is not being laid on the habit of dealing with the banker in the past but such habit may be expected to be developed and continued in figure. In other words, a customer is expected to have regular dealings with his banker in future.

Thus, to constitute a customer the following essential requisites must be fulfilled:
(i) a bank account – savings, current or fixed deposit – must be opened in his name by making necessary
deposit of money, and
(ii) the dealing between the banker and the customer must be of the nature of banking business.
A customer of a banker need not necessarily be a person. A firm, joint stock company, a society or any
separate legal entity may be a customer. Explanation to Section 45-Z of the Banking Regulation Act, 1949,
clarifies that section “customer” includes a Government department and a corporation incorporated by or under any law.

Banking Sector in India

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.

Indian banking industry has recently witnessed the roll out of innovative banking models like payments and small finance banks. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.

The digital payments system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments Innovation Index (FPII). *

Market Size

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions. As of July 2020, the total number of ATMs in India increased to 209,989 and is further expected to increase to 407,000 by 2021.

Public sector banks’ assets stood at Rs. 72.59 lakh crore (US$ 1,038.76 billion) in FY19.

During FY16-FY20, credit off-take grew at a CAGR of 13.93%. As of FY20, total credit extended surged to US$ 1,936.29 billion.

During FY16-FY20, deposits grew at a CAGR of 6.81% and reached US$ 1.90 trillion by FY20. Credit to non-food industries increased 3.3% y-o-y, reaching US$ 1.26 trillion on February 28, 2020 and US$ 1.42 trillion on March 13, 2020.

Investments/Developments

Key investments and developments in India’s banking industry include:

• In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife Programme’, a holistic healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform.
• In 2019, banking and financial services witnessed 32 M&A (merger and acquisition) activities worth US4 1.72 billion.
• In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in green bonds through private placement.
• In February 2020, the Cabinet Committee on Economic Affairs gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20 – till 2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI.
• In October 2019, Department of Post launched the mobile banking facility for all post office savings account holders of CBS (core banking solutions) post office.
• Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs. 1.06 lakh crore (US$ 15.17 billion.
• In October 2019, Government e-Marketplace (GeM) signed a memorandum of understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services.
• In August 2019, the Government announced major mergers of public sector banks, which included United Bank of India and Oriental Bank of Commerce to be merged with Punjab National Bank, Allahabad Bank to be amalgamated with Indian Bank and Andhra Bank and Corporation Bank to be consolidated with Union Bank of India.
• The NPAs (Non-Performing Assets) of commercial banks recorded a recovery of Rs. 400,000 crore (US$ 57.23 billion) in the last four years including record recovery of Rs. 156,746 crore (US$ 22.42 billion) in FY19.
• Allahabad Bank’s board approved the merger with Indian bank for the consolidation of 10 state-run banks into the large-scale lenders.
• The total equity funding of microfinance sector grew at 42 y-o-y to Rs. 14,206 crore (US$ 2.03 billion) in 2018-19.

Origin of banking in India

Modern banking in India originated in the last decade of the 18th century. Among the first banks were the Bank of Hindustan, which was established in 1770 and liquidated in 1829–32; and the General Bank of India, established in 1786 but failed in 1791.

The largest and the oldest bank which is still in existence is the State Bank of India (SBI). It originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks founded by a presidency government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India’s independence, became the State Bank of India in 1955. For many years, the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India[5] was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969, the Government of India nationalised 14 major private banks; one of the big banks was Bank of India. In 1980, 6 more private banks were nationalised. These nationalised banks are the majority of lenders in the Indian economy. They dominate the banking sector because of their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector banks. The SBI has merged its Associate banks into itself to create the largest Bank in India on 01 April 2017. With this merger SBI has a global ranking of 236 on Fortune 500 index. The term commercial banks refers to both scheduled and non-scheduled commercial banks regulated under the Banking Regulation Act, 1949.

Generally the supply, product range and reach of banking in India is fairly mature-even though reach in rural India and to the poor still remains a challenge. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development (NABARD) with facilities like microfinance.

Links to additional notes

Limitations of cost accounting

Like other branches of accounting, cost accounting is also having certain
limitations. The limitations of cost accounting are as follows:

1. Expensive: It is expensive because analysis, allocation and absorption of
   overheads require considerable amount of additional work, and hence additional
   money.
2. Requirement of Reconciliation: The results shown by cost accounts differ
   from those shown by financial accounts. Thus Preparation of reconciliation
   statements is necessary to verify their accuracy.
3. Duplication of Work: It involves duplication of work as organization has to
   maintain two sets of accounts i.e. Financial Account and Cost Account.
4. Inefficiency: Costing system itself does not control costs but its usage
   does.

Types of responsibility centres

With the growth of an organisation, its functions, organisational structure and other related functions are also growing in terms of volume and complexity. To have a better control over the organisation, management delegates its responsibility and authority to various departments or persons. These departments or persons are known as responsibility centres and are held responsible for performance in terms of expenditure, revenue, profitability and return on investment. Performance of these responsibility centres are measured
against some set standards (input-output ratio, budgets etc.) and evaluated against organisational goal and performance targets. There are four types of responsibility centres:
(i) Cost Centres
(ii) Revenue Centres
(iii) Profit Centres
(iv) Investment Centres
(i) Cost Centres: The responsibility centre which is held accountable for incurrence of costs which are under its control. The performance of this responsibility centre is measured against pre-determined standards or budgets.
The cost centres are of two types:
(a) Standard Cost Centre and (b) Discretionary Cost Centre
(a) Standards Cost Centres: Cost Centre where output is measurable and input required for the output can be specified. Based on a well-established study, an estimate of standard units of input to produce a unit of output is set. The actual cost for inputs is compared with the standard cost. Any deviation (variance) in
cost is measured and analysed into controllable and uncontrollable cost. The manager of the cost centre is supposed to comply with the standard and held responsible for adverse cost variances. The input-output ratio for a standard cost centre is clearly identifiable.
(b) Discretionary Cost Centre: The cost centre whose output cannot be measured in financial terms, thus input-output ratio cannot be defined. The cost of input is compared with allocated budget for the activity. Example of discretionary cost centres are Research & Development department, Advertisement department
where output of these department cannot be measured with certainty and corelated with cost incurred on inputs.
(ii) Revenue Centres: The responsibility centres which are accountable for generation of revenue for the entity. Sales Department for example, is the responsible for achievement of sales target and revenue generation. Though, revenue centres does not have control on expenditures it incurs but some time expenditures related with selling activities like commission to sales person etc. are
incurred by revenue centres.
(iii) Profit Centres: These are the responsibility centres which have both responsibility of generation of revenue and incurrence of expenditures. Since, managers of profit centres are accountable for both costs as well as revenue, profitability is the basis for measurement of performance of these responsibility centres. Examples of profit centres are decentralised branches of an organisation.
(iv) Investment Centres: These are the responsibility centres which are not only responsible for profitability but also has the authority to make capital investment decisions. The performance of these responsibility centres are measured on the basis of Return on Investment (ROI) besides profit. Examples of investment
centres are Maharatna, Navratna and Miniratna companies of Public Sector Undertakings of Central Government.

Cost Object | Cost Units | Cost Driver

Cost object

Cost object is anything for which a separate measurement of cost is required.
Cost object may be a product, a service, a project, a customer, a brand category,
an activity, a department or a programme etc. Examples of cost object are:
Smart phone, Tablet computer, SUV Car, Book etc.

Cost Units
It is a unit of product, service or time (or combination of these) in relation to
which costs may be ascertained or expressed.
We may for instance determine the cost per ton of steel, per ton-kilometre of a
transport service or cost per machine hour. Sometime, a single order or a contract
constitutes a cost unit. A batch which consists of a group of identical items and
maintains its identity through one or more stages of production may also be
considered as a cost unit.
Cost units are usually the units of physical measurement like number, weight, area,
volume, length, time and value.
A few typical examples of cost units are given below:

Industry or Product Cost Unit Basis
Automobile Number
Cement Ton/ per bag etc.

Electricity Kilowatt-hour (kWh)

Cost Driver
A Cost driver is a factor or variable which effect level of cost. Generally, it is an
activity which is responsible for cost incurrence. Level of activity or volume of
production is the example of a cost driver. An activity may be an event, task, or
unit of work etc.
CIMA Official terminology defines cost driver as “Factor influencing the level of
cost. Often used in the context of ABC to denote the factor which links activity
resource consumption to product outputs, for example the number of purchase
orders would be a cost driver for procurement cost.”
Examples of cost drivers are number of machines setting ups, number of purchase
orders, hours spent on product inspection, number of tests performed etc.

ESSENTIALS OF A GOOD COST ACCOUNTING SYSTEM

The essential features, which a good cost accounting system should possess, are
as follows:
(a) Informative and simple: Cost accounting system should be tailor-made,
practical, simple and capable of meeting the requirements of a business concern.
The system of costing should not sacrifice the utility by introducing inaccurate
and unnecessary details.
(b) Accurate and authentic: The data to be used by the cost accounting
system should be accurate and authenticated; otherwise it may distort the output
of the system and a wrong decision may be taken.
(c) Uniformity and consistency: There should be uniformity and consistency
in classification, treatment and reporting of cost data and related information. This
is required for benchmarking and comparability of the results of the system for
both horizontal and vertical analysis.
(d) Integrated and inclusive: The cost accounting system should be integrated
with other systems like financial accounting, taxation, statistics and operational
research etc. to have a complete overview and clarity in results.
(e) Flexible and adaptive: The cost accounting system should be flexible
enough to make necessary amendment and modifications in the system to
incorporate changes in technological, reporting, regulatory and other
requirements.
(f) Trust on the system: Management should have trust on the system and its
output. For this, an active role of management is required for the development of
such a system that reflect a strong conviction in using information for decision
making.

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