COM 3506 Theory and Practice of Banking

This is an intermediate level course that provides the student with knowledge of the theory and practice of the banking operation especially in the context of banking system in Sri Lanka.

  • To provide students with a good understanding of the role of banks and other financial institutions in the financial system, the rationale for their regulation, the ways in which they are regulated and their contribution to the global financial crisis, so this can be used for advanced study.

Upon completion of this course, the students will be able to:

  • Describe and understand the function of the banking system and the other main financial institutions and round the world
  • Understand the structure and degree of independence of central banks and conduct of monetary policy
  • Demonstrate knowledge of the theory and practice of regulation of the financial system and banking in particular
  • Show an understanding of the role of banks in causing the global financial crisis and how central banks responded to the crisis
  • Understand how to benefit from the role of banks as intermediaries in the economy and to understand the risks that are involved in banking as bankers, depositors and borrower.

1. Banking System in Sri Lanka
1.1 As a constituent part of the financial system.
1.2 Financial Intermediation process.
1.3 New trends in the Sri Lankan Banking system

2. Banker customer relationship
2.1 Legal and statutory provisions regarding the relationship.
2.2 Evolution of Bank customer relationship and current developments of the relationship.
2.3 General principles, obligations and rights of Banker and Customer.
2.4 Prevention of incidents of money laundering and terrorist financing through the Banking system, Financial Intelligence unit – CBSL.

3. Negotiable Instruments
3.1 Characteristics of negotiable instruments.
3.2 Uses of negotiable instruments in commercial activities.

4. Cheque
4.1 Introduction to cheques
4.1.1 Definition
4.1.2 Bearer cheques and order cheques.
4.1.3 Main parties of a cheque.
4.1.4 Holder in due course, Holder for value and Holder.
4.2 Cheques and crossings
4.2.1 Types of Crossings. General Crossings Special Crossings.
4.2.2 Persons authorized for crossing and cancellation of crossings.
4.2.3 Effect of Crossing.
4.3 Cheques and Endorsements
4.3.1 Types of Endorsements.
4.3.2 Valid Endorsement.
4.3.3 Endorsement and Drawee.

5. Payment of Cheques
5.1 Facts to be considered by a banker prior to the payment of a cheque.
5.2 Statutory protection for drawee.
5.3 Notice of Dishonour.
6. Collecting of cheques
6.1 Liabilities of a collecting banker.
6.2 Collecting banks and third parties.
6.3 Conversion.
6.4 Estoppel.
6.5 Contributory negligence.
6.6 Statutory Law Protection for collecting banks.

7. Collection and clearing process of cheques and other related instruments
7.1 Evolution of payment and settlement system in Sri Lanka
7.2 CITS (cheque Imaging and Truncating System)
7.3 Bankers involvement in the clearing process
7.4 Cheques in clearing practices in view of image clearing.

8. Opening and Operation of different types of accounts
8.1 Documents required to open a current account
8.2 Legal position according to the type of the customer
8.3 Prevention of money laundering and terrorist financing at the time of opening accounts.
8.4 Know your customer (KYC) and customer due diligence (CDD).

9. Services provided by bankers
9.1 Types of savings
9.2 Time deposits.
9.3 NRFC / RFC.

10. Types of Advances
10.1 Loans, Overdraft, Pledge, Bank draft, Trust receipts, guarantee facilities, Hypothecation leasing, and pawning, Hire Purchase.
10.2 Types of securities.
10.3 Securities and documents obtained in granting loans and advances.
10.4 Registration of security documents.
10.5 Stamp duty.
10.6 Credit evaluation process and Managing credit risk.

11. Services provided by commercial Banks using modern technology
11.1 Credit Card.
11.2 Personal Banking facilities / Home Banking / M-banking.
11.3 Telegraphic Transfers / Fax Transfers.
11.3 SLIPS – Sri Lanka Interbank Payment System.
11.4 SWIFT – Society for Worldwide Interbank Financial Telecommunication.
11.5 Automated Teller Machine.

Lectures, seminars, course manuals, workshops, assignments, self study.

  1. Chorley Lord, Law of Banking, Sir Isaac Pitman & Sons Ltd., London.
  2. Doyle E.P., Practice of Banking, Macdonald & Evans Ltd., London.
  3. Holden J.M., Studies in Practical Banking, sir Isaac Pitman & Sons Ltd., London.
  4. Holden J.M., The law & Practice of Banking, Sir Isaac Pitman & Sons Ltd., London.
  5. Jones W., Studies in Practical Banking, Isaac Pitman & Sons Ltd., London.
  6. Journals and Publications Published by the Institute of Bankers of Sri Lanka.
  7. Journals Published by the Commercial Banks.
  8. Karunatilake H.N.C., Banking & Financial Institutions in Ceylon.
  9. Marketing Borchures, Published by the Commercial Banks.
  10. Megrah, Maurice Tyder, F.R., Paget’s Law of Banking.
  11. Perry F.E., Law & Practice relating to Banking, Penguin Books Ltd., London.
  12. Training Institute of Ceylon.
  13. Weerasooriya, W.S., Case book on the law of Banking cheques in Ceylon, Bankers’