MERCHANT BANKING &

FINANCIAL SERVICES.

Module - 1
Bank and Banking
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BANK & BANKING:
 The functions & activities of Banks in India are
regulated by the Banking Regulations Act, 1949.
Section 5(b) defines banking as “ accepting
deposit, for the purpose of lending or investment,
deposits of money from the public, repayable on
demand or otherwise and withdrawal by cheque,
draft, order or otherwise”.

 Any business undertaking which satisfies the

above

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 PERMITTED BANKING
definition and also operates within the provisions
of the Banking Regulation Act, 1949 is deemed to
be a Bank or a banking institution.
Thus there is a implied condition that the moment
there is deviations in the nature, manner and the
objective of functioning of a banking institution
the permission is deemed to be withdrawn from
that moment & such institution shall cease to be
a Banking undertaking.

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 HISTORY OF BANKING IN INDIA.
 Formerly, banking companies in India were governed by
the Indian Companies Acts of 1913 and 1936 which
contained certain provisions regarding banking companies.
But with the development of Banking in the country, the
need for a separate legislation to deal with business of
banking & banking activities was felt. As a result The
Banking Companies Act, 1949 was passed in February
1949 and it came into force on 16th March, 1949. The name
of the Act was changed to the Banking Regulations Act,
1949 in March 1966 to make certain provisions of this act
applicable to co-operative banks. This act has been
amended many times to plug the loopholes that have been
notices during its operations.

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 BUSINESS THAT BANK CAN DO.
 Borrowing, accepting deposits for lending or for
investments,
 Lending, advancing of money with or without
security,
 Drawing, making, accepting, discounting, buying,
selling, collecting, dealing with bills of exchange,
hundies, coupons, drafts, railway receipts,
 Issue travel cheque, letters of credit & such other
functions as may be directed by the RBI from
time to time.
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BUSINESS WHICH BANK SHOULD NOT
DO.
 Sec.09. – buying, selling or bartering of goods
directly or indirectly except;
 In connection with realization of securities for
loans granted,
 In connection with the bills of exchange received
for collection or negotiations,
 In connection with the undertaking of the
administration of estates as executor, trustee
etc.,

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 BUSINESS WHICH BANK CANNOT DO.
 Sec.19(1) – prohibits banks from acquiring
controlling interest in another company etc.,
 Sec.19(2) – holding shares of other company as
pledge, mortgage, other hold under absolute
ownership 30% of paid up capital, reserves of
other company.

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 TYPES OF BANKS.
 Central Bank – THE RBI.
 Public Sector Banks,

 Private Sector Banks,

 Co-operate Sector Banks,

 Development/Financial Institutions,

 Other Banks.

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 TYPES OF BANK.
 The Central Bank – RBI
 The Public Sector Banks – Allahabad Bank,
Andhra Bank, Bank of Baroda, Bank of India, Bank
of Maharashtra, Canara Bank, Central Bank of
India, Corporation Bank, Dena Bank, Indian Bank,
Indian Overseas Bank, Punjab & Sind Bank,
Oriental Bank Of Commerce, Punjab National
Bank, Syndicate Bank, UCO Bank, Union Bank of
India, United Bank of India, Vijaya Bank, State
Bank of India.
 SBI & its Associate Banks – B&J, Hy, Indore, Mys,
Saurastra, Travancore
 PRIVATE SECTOR BANK.
 Old Generation Private Bank,
 Foreign Banks operating in India,

 Scheduled Co-operative Banks,

 Non-Scheduled Co-operative Banks.

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 CO-OPERATIVE SECTOR BANKS.
 State Co-operative Sector Banks,
 Central Co-operative Sector Banks,

 Primary Agricultural Credit societies/ Banks,

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 DEVELOPMENT BANKS / FINANCIAL
INSTITUTIONS.
 IFCI,
 ICICI,

 IDBI,

 NABARD,

 NHB,

 SIDBI,

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 IMPORTANCE OF BANKING
INSTITUTIONS IN INDIAN ECONOMY.
 Banks help mobilize small, scattered & idle
savings of the people,
 Banks offer attractive interest on savings thus
promotes habit of thrift & savings,
 Banks offer security & safety for the surplus
money of the public,
 Banks provide convenient methods of settlement
of business obligation,

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 IMPORTANCE OF BANKS,
 Banks provide the safest & foolproof method for
funds transfer & remittances,
 Banks aids in the transfer of capital from regions
where it is plenty to those area where they are
scarce,
 Banks exerts powerful influence on the interest
rates & help money demand & supply and its
economics,

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 IMPORTANCE OF BANKS…..
 Banks help trade, commerce, industry,
agriculture & other service sectors by meeting
their financial requirements,
 Banks encourage development of right type of
activities which the society desire. They
discriminate in favor of essential activities &
non-essential activities.
 Banks act as public conservators of commercial
values.

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 RESERVE BANK OF INDIA.

CENTRAL BANK
RBI

REGULATOR SUPERVISOR FACILITATOR

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 RBI AS REGULATOR.
 Reserve Bank of India is the Central Authority in
the matters of Monetary policies in India. As a
Regulator it exercises its powers in various
matters relating to trade, commerce, industry &
the funds related to these activities.
 Some of the functions of RBI as a Regulator &
Central Authority are as follows;
 Authority in Currency Note Issue,

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 RBI AS REGULATOR.
Credit Control: The credit according to RBI Act
means the total of the banks loans and advances.
The main item among the banks assets is the credit
extended by the banks to their customers.
Hence the regulation of credit involves, regulation
of the pattern of assets of a bank.
The regulations of the monetary system of the
economy, which the responsibility of the RBI as a
Central Bank comprises the control of the

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 RBI AS REGULATOR.
Currency, banking and credit system.
Regulation of Foreign Exchange ; The Exchange
Control Department of RBI is responsible
relating to transaction in foreign exchange
bullion & securities. Under the exchange control,
the rate of exchange is fixed by monetary
authority which undertakes measures to
maintain & enforce the fixed rate exchange.

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 RBI AS REGULATOR.
 Supervision of Indian Banking System including
timely intervention during times of monetary
crises.
 Establishment of institutions for Industry &
agriculture finance,
 Other; Assistance to High Commission,

 Training in Banking including innovative

products & services.

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 RBI AS REGULATOR.
 Organization of Supervision function,
 Establishment of supervisory process,
 On-site supervision,
 Off-site supervision,
 Board for financial supervision,
 Restructuring of system of supervision,
 Corporate Governance & Management guidance,
 Transparency & disclosure,
 Internal controls & housekeeping in banks,
 Core Principles in effective banking supervision
in Banks,
 Future Agenda.
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 RBI AS SUPERVISOR.
 Conducting periodical inspection of different
offices & departments of Banks,
 Investigate & report to Central Government on
such matter as may be required in the interest of
the economy,
 Collect on a continuous basis comprehensive
economic, financial & other banking business
data for interpretation & forecast of commercial
activity,

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 RBI AS SUPERVISOR.
 Over see the Stock Market operations & Money
Market activities in the interest of healthy
economic growth & in the interest of prudent
investors at large,
 Make available to public the result of the
research work undertaken by the relevant dept.
and its publication.

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 RBI AS FACILITATOR.
 Maintain liaison with IMF, the World Bank &
such other institutions,
 Represent bank in discussion with government in
the matter of administration etc.,
 Monitor the functions of banks in the
implementation of GOI policies & programs
under the five year plans etc.

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 BANKER-CUSTOMER
RELATIONSHIP
 DEBTOR-CREDITOR
 CREDITOR-DEBTOR

 AGENT-PRINCIPAL

 LESSOR-LESSEE

 BAILEE-BAILOR

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 BANKER/CUSTOMER RELATIONSHIP
 The banker/customer relationship is a
contractual relationship and is covered by the
general rules of contract law
 It is the relationship of debtor and creditor. Once
the customer deposits funds there is a debt owed
by the bank to the customer
 When the relationship is subject to special
arrangements such as a joint account etc a
special authority is taken as it is necessary to
have written consent to vary the relationship.

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 BANKER AS A BAILEE.
 In accepting articles such as jewellery, valuables,
stocks, bonds certificates etc., for safe custody the
banker’s position is one of bailee, that is, a person
to whom goods are delivered in trust under a
contract, and who is responsible for the custody
and safe return of these articles deposited
according to the terms of bailment.

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 BANKER/CUSTOMER RELATIONSHIP
 Some other banking situations are covered by the
rules of:
 Principle/agent
 Trustee/beneficiary

These areas require separate documentation setting out

the rules of the relationship

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 TERMINATION OF BANKER / CUSTOMER
RELATIONSHIP
 Termination by mutual agreement
 Termination by customer

 Termination by banker

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 TERMINATION OF BANKER / CUSTOMER
RELATIONSHIP
 Termination by mutual agreement

Termination by mutual agreement is when both

the customer and bank agree to close the account.
In this case the bank will pay out any credit
balances.

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 TERMINATION OF BANKER / CUSTOMER
RELATIONSHIP

 Termination by Customer

 The customer is not obliged to give notice to

a banker where the account is in credit. The
customer demands payment of the credit
balance

 A credit balance is closed by paying the

outstanding balance in full plus fees and
charges owing provided they have satisfied
all the terms and conditions of the account.

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 TERMINATION OF BANKER / CUSTOMER
RELATIONSHIP
 Termination by banker
 The banker can terminate the banker /customer
relationship and close the customers account that has
a credit balance provided notice is given allowing a
reasonable time to set up to enable the customer to
set up new banking arrangements.

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 BANKER’S DUTIES
 Duty of care,
 Duty to issue statements,

 Duty of confidentiality / Secrecy.

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BANKERS DUTY OF CARE
 Legally the duty of care is judged on what an
ordinary reasonable person would do, or on what
is normally done in similar circumstances.

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BANKER’S DUTY TO ISSUE STATEMENTS
Code of Banking Practice states that personal
customers must receive a statement of their
account at least at six monthly intervals.
 Except when it is a passbook account or that
there have been no transactions on the account
for the past six months.

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 BANKER’S DUTY OF CONFIDENTIALITY
 The duty of confidentiality relates to:
 Detail’s of the customers account
 Information derived from the customers account
 Information acquired in the course of the
banker/customer relationship
 The duty of confidentiality extends beyond the
duration of the account.

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 BANKER’S DUTY OF CONFIDENTIALITY
CONTINUED
 Exceptions to duty of confidentiality:
 Where the disclosure is under compulsion of
law
 Where there is a duty to the public to disclose
 Where the interests of the bank require
disclosure
 Where the disclosure is made by express or
implied consent of the customer
 Where disclosure is to the tax department

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 BANKER’S RIGHTS

 Right of set-off accounts

 Right to charge fees and interest

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 BANKER’S RIGHT OF SET-OFF
 The following conditions must apply:
 The account must be held by the customer in
the one capacity, eg cannot combine
accounts if one is a personal account the
other a trust account
 There must be no contract including the
right to set off
 The customers indebtedness must have been
incurred to it as a banker not under some
other service

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 BANKERS RIGHT OF SET-OFF CONT.

 Banks tend to cautious about combining accounts

without notice and in the absence of the
customer’s express authority to do so.

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 BANKER’S RIGHT TO CHARGE FEES &
INTEREST
 The bank’s right to charge fees & Commission is
based on universal custom and is an implied term
of the banker/customer contract
 The right to charge interest on unauthorised
overdrafts and debit interest to the account is
also an implied term of the contract. Bank of New
South Wales v Brown (1982-3)

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 BANKER’S RIGHT TO CHARGE FEES &
INTEREST
 The bank’s right to charge fees & Commission is
based on universal custom and is an implied term
of the banker/customer contract
 The right to charge interest on unauthorised
overdrafts and debit interest to the account is
also an implied term of the contract. Bank of New
South Wales v Brown (1982-3)

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 BANKER’S OBLIGATIONS
 A bankers obligation to pay cheques to the value
of the credit balance of the account or to the
arranged overdraft limit of the account provided:
 The cheque is an effective instrument drawn
in proper form
 There are sufficient funds to meet the value
of the cheque
 There are no legal impediments to the banks
honouring the cheque

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TYPES OF ACCOUNTS & CUSTOMERS.
 Type of Accounts.
 Individual Accounts ( single / Joint)

 Joint Accounts,

 Institutional Accounts,

 Government Accounts,

 Safe Custody Accounts,

 Non-Operative Collection Accounts.

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 INDIVIDUAL ACCOUNT
 This is an account which a person as an
individual maintains with the bank in his own
name & operates so. Very popular is a Savings
Bank account. Other examples are;
 Recurring/ Time Deposit Accounts,

 Fixed Deposit Accounts,

 Current Accounts etc.,

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 JOINT ACCOUNT.
 An account held by two or more individuals &
operated jointly is called Joint Account. Very
popular example is account held by wife &
husband jointly. Many partnership firms open a
joint account & two or more of them are
authorized to operate jointly. This can be a
savings bank account or firm’s current account.
The special feature of this account is it will be in
the name of more than one person.

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 INSTITUTIONAL ACCOUNT.
 Business Bodies, firms, business houses, Non
Trading Concerns etc., are recognized as artificial
persons & therefore a bank account can be
opened by the name of respective enterprise. Law
recognizes then as though they are individuals.
But since they are impersonal structures such
accounts are called Institutional accounts.
Normally the name of the account will be the
same as the name of the business enterprise
(Registered or Unregistered).

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 GOVERNMENT ACCOUNT.
 This is a special case of impersonal Account.
Unlike other institutional account there will be
no formal account opening application form etc.,
in this case. These accounts are to facilitate the
transfer of funds from/to Government account
faster. There are special norms governing these
accounts.

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 SAFE CUSTODY ACCOUNTS.
 These are special accounts which are operated by
banks as a custodian of things of importance.
They may be gold, silver, cash, documents, other
confidential papers/records, keys of safes etc.,

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 NON OPERATING COLLECTION
ACCOUNTS.
 These are accounts which banks operate on
behalf of their clients with due understanding.
They may be collection of taxes, fees, levies,
premiums etc., on behalf of clients such as
government, postal authorities, other banks, LIC,
housing society etc., The special feature of these
account is that they are authorized only to collect
& remit in full to their principle but cannot
appropriate from these collections.

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 OTHER POPULAR ACCOUNTS.
 Demat Account, Salary Account,
 NRI Account, Recurring Deposit A/c,
 NRE Account, Over Draft Account,
 FCNR Account, Fixed Deposit Account,
 SB Account, Firm’ Account,
 Cash Credit Account, Proprietorship Account,
 Current Account, Company Account.
 Partnership Account Trust & Admin A/c etc

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 TYPE CUSTOMERS.
 We have discussed various types of Bank
Accounts till here. Behind each one of these
accounts is a person who is a customer. Thus
Banks have variety of customers & he is
identified with the account he maintains with the
bank.

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 TYPES OF CUSTOMERS.
 Minors,
 Minors Students,
 Attorney,
 Illiterate Persons,
 Blind Persons,
 Lunatics,
 Drunkards,
 Purdanashin Ladies,

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 TYPES OF LENDING.
 The deposits mobilized by the Bankers are
invested in order to generate profits.
 A banker has to ensure that Security or safety of
funds, Profitability and Liquidity forms the
criteria to invest funds.
 In India however, the guidelines of RBI restricts
the deployment of funds by bankers.
 Such restrictions are to safeguard the interest of
the deposit holders & to ensure that the money is
properly utilized for productive purposes.
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 EMPLOYMENT OF FUNDS.
 In order to meet the statutory liquidity
requirements or to utilize the surplus funds
banks invest a significant portion of their funds
in stock exchange securities and other securities.
The usual area of deployment of funds are as
below;
 Treasury bills,
 Government Securities,
 Semi-Government or Trustee Securities,
 Securities of public utility undertakings,
 Industrial securities.
 Loans & Advances for business etc. 55
 FORMS OF ADVANCES.
 Commercial banks grants loans and advances to
their customers for meeting their working capital
requirements. These loans & advances take the
form of;
 Loans,

 Overdrafts,

 Cash credits,

 Discounting bills.

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 CHARGING OF SECURITIES.
 When a banker grants loans or extends the
services of discounting of bills etc. there is a need
to ensure safety for such transactions. In order to
ensure safety, a banker also first creates a charge
or reserve a right in respect of properties, goods
& other effects of a business firm. Such an action
is termed as creation of charge. There are various
forms by which such charge is created.

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 KINDS OF CHARGES

 Lien,
 Pledge,

 Hypothecation,

 Mortgage.

 Assignment.

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 LIEN
 Lien is the right of a person to retain possession
of certain things belonging to another till the
later clears the dues of the former.
 When the dues are in respect of the goods that
are in possession, the lien is particular lien.
 When the dues are in respect of goods other than
that is in possession, it is a general lien.
 A negative lien is merely an undertaking not to
part with the possession by means of creation of
charge or other wise.
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 PLEDGE.
 Sec.172 of the Indian Contract Act, 1872 defines
pledge as “ the bailment of goods as a security for
payment of a debt or performance of a promise”.
The person who offers the security is called
pawner, pledger or bailor and the person who
(the creditor) who commands security is the
bailee, pawnee, pledgee.
 The features of a pledge are;
 Movable property is pledged,
 An understanding (can be oral or written)
essential,
 Pledge is complete on exchange of subject matter,
60
 Pledge can be physical or constructive,
 PLEDGE
 The ownership remains with the pledger,
 Pledgee has the right to hold the effects until the
dues are settled or even dispose off to realize
dues,
 Pledgee has the duty to take care of the
possession/effect while in his possession.

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 HYPOTHECATION.
 This is a method of creating a charge on
goods/effects/properties for loans or advances
without having to part with them. It is the
simplest way of creating a charge.
 Features of Hypothecation are;
 Possession and ownership remain with the
borrower,
 Hypothecation are in consideration of a loan or
advance of movable properties,
 A written instrument – Deed
 The borrower is like an agent of the lender,
 The borrower cannot part with the goods other 62
than in the usual course of business.
 MORTGAGE.
 When a borrower offers some immovable
property like land, building to a banker as
security for a loan, a charge is created is called
Mortgage. An instrument called a Deed of
Mortgage follows this charge.
 Features of Mortgage;
 Transfer of partial right (interest) to lender,
 Deed of Mortgage necessary. Right & duty are
contained in the deed,(*)
 Property with more than one owner can be
mortgaged,
 Subject to The Transfer of Property Act, 1882.
63
 The lender can dispose the property to realize
dues.
 BANK & TECHNOLOGY.
 There are many developments in the banking
sector. The developments are on the use of
technology for faster & easier service to
customers. With the adoption of technology in the
day to day operations & service to customers,
there has been an unprecedented banking
activities all round.
 Eg: supply of pass sheet copies on e-media.

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 BANKS &TECHNOLOGY
 Some of the service product in operations as far
as banks are concerned are as follows;
 Core Banking,("centralized online real-time
exchange“)
 Electronic Fund Transfers,

 Tele- Banking & Mobile Banking,

 Any where Banking – ATMs.

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 IT PRODUCTS.
 On line delivery of Financial Products to its
customers through IT usage seem to have
changed the banking scenario in India.
 Today banks have started offering banking
services like checking account status, status of
fund transfer requests, ordering Demand drafts,
writing out cheques via net, alerts through
mobiles from bankers to customers, greetings are
common.
 E-commerce by adoption of B2C, B2B is taking
shape. This ensures various products would be
available to customers via the internet &
customer too need to adopt the type of technology
that bank use for service. s
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 INTERNATIONAL BANKING.
 An offshore bank is a bank located outside the
country of residence of the depositor, typically in
a low tax jurisdiction (or tax haven) that provides
financial and legal advantages.
 These advantages typically include: greater
privacy, low or no taxation (i.e. tax havens) easy
access to deposits (at least in terms of regulation)
protection against local political or financial
instability to its advantage.
 However, many off shore banking is due to
difference in financial services & products offered
& technology & advancement their operation that
attracts in alien countries. Such banking is also 67
called international banking.
 INTERNATIONAL BANKING.
 Offshore banking has often been associated with the
underground economy and organized crime, via tax evasion
and money laundering; however, legally, offshore banking
does not prevent assets from being subject to personal
income tax on interest. Except for certain persons who
meet fairly complex requirements, the personal income tax
of many countries makes no distinction between interest
earned in local banks and those earned abroad. Persons
subject to US income tax, for example, are required to
declare on penalty of perjury, any offshore bank accounts—
which may or may not be numbered bank accounts—they
may have. Although offshore banks may decide not to
report income to other tax authorities, and have no legal
obligation to do so as they are protected by bank secrecy,
this does not make the non-declaration of the income by the
tax-payer or the evasion of the tax on that income legal. 68
 INTERNATIONAL BANKING.
 Following September 11, 2001, there have been
many calls for more regulation on international
finance, in particular concerning offshore banks,
tax havens, and clearing houses.
 Defenders of offshore banking have criticized
these attempts at regulation. They claim the
process is prompted, not by security and financial
concerns, but by the desire of domestic banks and
tax agencies to access the money held in offshore
accounts. They cite the fact that offshore banking
offers a competitive threat to the banking and
taxation systems in developed countries,
suggesting that Organization for Economic Co-
operation and Development (OECD) countries
are trying to stamp out competition. 69
 MERITS-INTERNATIONAL BANKING.
 1. Offshore banks can sometimes provide access
to politically and economically stable
jurisdictions. This will be an advantage for
residents in areas where there is risk of political
turmoil, who fear their assets may be frozen,
seized or disappear. However, developed
countries with regulated banking systems offer
the same advantages in terms of stability.
 2. Some offshore banks may operate with a lower
cost base and can provide higher interest rates
than the legal rate in the home country due to
lower overheads and a lack of government
intervention. Advocates of offshore banking often
characterize government regulation as a form of
tax on domestic banks, reducing interest rates on 70
deposits.
ISSUES IN INTERNATIONAL BANKING.
Host country legislations & Regulations: The host
country laws & conditions are of immense
importance while working off-shores. Usually
where banking business is regulated by the host
country Government more than the market
forces, the foreign banks needs to operate with
care. In India, for example, the RBI has stringent
provisions for Banking business in India and
more so for the alien banks. Even though these
conditions are far more relaxed now due to the
ease of foreign exchange reserves, at any time it
can intervene to off set any imbalance in the
reserves & rates of exchange. However in the
advanced countries all such upheavals are off set
more due to market force operations and the
intervention of central banks do not arise. 71
ISSUES IN INTERNATIONAL BANKING.
 Exchange rate fluctuations: Another factor that
affects international banking is wide fluctuations
in exchange rate. As discussed above any turmoil
in foreign exchange market has immediate
impact on foreign banks as they trade in currency
other than the home currency.
 In the context of off-shore banking, it is also wise
to know that the host country political, geo-
physical status, economy & money market
operations. A well developed money market is
likely to have less impact as compared to the ill
developed. The language, local customs,
traditions & culture do have its impact & off 72
shore banking cannot think of its operations on a
alien soil unless it has a brief account of this vital
 ADVANTAGES OF INTERNATIONAL
BANKING.
 3. Offshore finance is one of the few industries,
along with tourism, in which geographically
remote island nations can competitively engage.
It can help developing countries source
investment and create growth in their economies,
and can help redistribute world finance from the
developed to the developing world.
 4. Interest is generally paid by offshore banks
without tax being deducted. This is an advantage
to individuals who do not pay tax on worldwide
income, or who do not pay tax until the tax
return is agreed, or who feel that they can
illegally evade tax by hiding the interest income. 73
ADVANTAGES OF INTERNATIONAL
BANKING.
 5. Some offshore banks offer banking services
that may not be available from domestic banks
such as anonymous bank accounts, higher or
lower rate loans based on risk and investment
opportunities not available elsewhere.
 6. Offshore banking is often linked to other
structures, such as offshore companies, trusts or
foundations, which may have specific tax
advantages for some individuals.
 7. Many advocates of offshore banking also assert
that the creation of tax and banking competition
is an advantage of the industry. Tax competition
allows people to choose an appropriate balance of
services and taxes.
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ADVANTAGES OF INTERNATIONAL
BANKING.
 Critics of the industry, however, claim this
competition as a disadvantage, arguing that it
encourages a "race to the bottom" in which
governments in developed countries are
pressured to deregulate their own banking
systems in an attempt to prevent the off-shoring
of capital.

75
CAUSES FOR INTERNATIONAL
BANKING.
 Expansion of Business activity,
 Scope trend setters – use of technology,
innovative products & services etc,
 Relative cost advantage & core business location,

76
 DISADVANTAGES OF
INTERNATIONAL BANKING.
 1. Offshore bank accounts are less financially secure. In a
banking crisis which swept the world in 2008 the only
savers who lost money were those who had deposited their
funds in offshore banks. Those who had deposited with the
same banks onshore received all of their money back.
 2. Offshore banking has been associated in the past with
the underground economy and organized crime, through
money laundering. Following September 11, 2001, offshore
banks and tax havens, along with clearing houses, have
been accused of helping various organized crime gangs,
terrorist groups, and other state or non-state actors.
However, offshore banking is a legitimate financial exercise
undertaken by many expatriate and international workers.

77
 BANE OF INTERNATIONAL BANKING.
 3. Offshore jurisdictions are often remote, and therefore
costly to visit, so physical access and access to information
can be difficult. Yet in a world with global
telecommunications this is rarely a problem for customers.
Accounts can be set up online, by phone or by mail.
 4. Offshore private banking is usually more accessible to
those on higher incomes, because of the costs of
establishing and maintaining offshore accounts. However,
simple savings accounts can be opened by anyone and
maintained with scale fees equivalent to their onshore
counterparts. The tax burden in developed countries thus
falls disproportionately on middle-income groups.
Historically, tax cuts have tended to result in a higher
proportion of the tax take being paid by high-income
groups, as previously sheltered income is brought back into
the mainstream economy. 78
DEMERITS OF INTERNATIONAL BANKING.
 5. Offshore bank accounts are sometimes touted as the
solution to every legal, financial and asset protection
strategy but this is often much more exaggerated than the
reality.
 Note: In their efforts to stamp down on cross border
interest payments EU governments agreed to the
introduction of the Savings Tax Directive in the form of the
European Union withholding tax in July 2005. A complex
measure, it forced EU resident savers depositing money in
any country other than the one they are resident in to
choose between forfeiting tax at the point of payment, or
allowing notification by the offshore banks to tax
authorities in their country of residence. This tax affects
any cross border interest payment to an individual resident
in the EU.
 6. Not every bank provides each service. Banks tend to 79
polarize between retail services and private banking
services.
DISADVANTAGES OF INTERNATIONAL
BANKING.
 Retail services tend to be low cost and undifferentiated,
whereas private banking services tend to bring a
personalized suite of services to the client.
 7. In the absence of a system that is in place to collect the
statistics concerning offshore banking, it is very difficult to
regulate banking activity. This is very particularly so for
third world countries. Right now there are no international
laws in place commonly agreed upon by all countries that
helps smooth conduct of international banking.
 8. A series of articles published on June 23, 2006, by The
New York Times, The Wall Street Journal and The Los
Angeles Times revealed that the United States
government, specifically the Treasury Department and the
CIA, had a program to access the SWIFT transaction
database rendering offshore banking for privacy severely
compromised. 80
THANK YOU

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