BANKING RELATED MATERIAL

TYPES OF BANK ACCOUNTS IN INDIA (Deposit Accounts)

There are two types of deposits:
 Demand deposits: The money we keep in our saving or current accounts is called Demand deposits.
This is because ownership of this deposit may be transferred from one person to another via
cheques or electronic transfers.
 Time/Term Deposits: If we deposit our money in an FD in the bank, it becomes a Time Deposit on
which no cheque is drawn. Term Deposits are of three kinds:
1. Fixed deposits:
2. Re-investment deposits:
3. Recurring deposits:
Hence, banks in India have five types of deposit accounts, namely
1. Current Accounts
2. Saving Banking Accounts
3. Recurring Deposits
4. Fixed Deposits
5. Reinvestment deposits
However, in recent years, due to ever increasing competition, some banks have introduced new products,
which combine the features of above two or more types of deposit accounts. These are known by different
names in different banks, e.g
1. 2-in-1 deposits,
2. Smart Deposits,
3. Power Saving Deposits,
4. Automatic Sweep Deposits etc.
Banks cannot accept interest free deposits other than in current account.
Savings Bank Account
1. A saving account is always a Demand Deposit
2. The 'saving account' is generally opened in bank by salaried persons or by the persons who have a
fixed regular income
3. Saving accounts are opened to encourage the people to save money
4. Who are eligible
i. Adult individuals, singly or jointly with other adults
ii. Minors, who have attained 10 years of age.
iii. Trusts, Societies and other organizations approved by RBI
5. Requirements
i. Introduction by an account holder having a satisfactory account with the bank for
atleast six months.
ii. proof of identity
iii. proof of address ( local or permanent)
iv. Permanent Account Number (PAN) or declaration in Form No. 60 or 61 as per Section
39A of I.T. Act
6. Minimum amount Rs. 100/- to Rs. 10,000/-. The Minimum amount varies from bank to bank. Not
maintaining the minimum balance invites penalties and may also lead to closure of the account by
bank.
7. Maximum amount: No Maximum limit
8. Nomination facility available
9. Transferability from one place to another available
10. They do not have any fixed maturity as these are on continuous basis accounts
11. most liquid deposits
12. Cheque book facility is provided.
13. The money can be withdrawn either by cheque or withdrawal slip of the respective bank or Debit
card. Pass books are required for withdrawing cash by a withdrawal form.
14. Most of the banks have rules for the maximum number of withdrawals in a period and the
maximum amount of withdrawal, but hardly any bank enforces these.
15. With effect from October, 2011, saving bank deposit interest rate stands deregulated. Accordingly,
banks are free to determine their savings bank deposit interest rate, subject to the following two
conditions:
(a) First, each bank will have to offer a uniform interest rate on savings bank deposits up to
Rs.1 lakh, irrespective of the amount in the account within this limit.
(b) Second, for savings bank deposits over Rs.1 lakh, a bank may provide differential rates of
interest
Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank
and Yes Bank pay higher interest on deposit of more than 1 lac (6-7%).
16. savings bank interest is calculated based on the daily balance method.
17. The interest is credited to on accounts at quarterly or longer rests.
18. From the FY 2012-13, interest earned upto Rs 10,000 in a financial year on Saving Bank accounts is
exempted from tax.
19. TDS: not applicable
20. Usually saving accounts have low transactions while current accounts have large transactions.
21. Savings accounts involve personal handling of assets, while current accounts are aimed to make the
account holder free of personal handling of liquid funds.
22. Banks allow the saving bank holders the facility of paying electricity bill, telephone bill and other
regular monthly payments through ECS etc.
23. Standing instructions are accepted e.g. EMI payments for housing loan
24. A pass book is issued in all Savings Bank Accounts. Some banks send statements of accounts at
monthly intervals.
25. Local and outstation cheques are accepted for realization.

26. Service charges are recovered for cheques returned unpaid.

27. Payment of cheques can be stopped by the holder(s) of the account.

28. Immediate credit is usually provided for outstation collections up to Rs 20000/- for accounts that
are satisfactorily conducted.

29. Banks will pay interest for delays in collection of outstation cheques.

30. mandatory PAN (Permanent Account Number) details are required to be furnished for doing cash
transactions exceeding र 50,000.

31. No loan facility is provided against saving account.

32. No operation in the account for 12 / 24 months, makes an account 'Dormant' / 'Inoperative'.

33. Banks offer various other facilities/services with these accounts like ATM cards, ATM-cum-Debit
cards, Credit cards, Online or Internet banking etc.

34. Overdraft facility is not available in Saving Bank Accounts.

35. To boost financial inclusion, the Reserve Bank of India (RBI) in march 2014 said that banks were at
liberty to allow minors above 10 years to independently open and operate savings bank accounts.
As of now, banks allow minors below the age of 18 to operate bank accounts only along with a
parent or a guardian. RBI also allowed banks to offer additional facilities like internet banking, ATM,
debit card and cheque book to a minor. However, such accounts should always remain in credit.
36. RBI said in march 2014 that banks cannot slap charges on customers for not maintaining the
minimum balance in inoperative savings and current accounts — in which no transactions have
 been made for two years. Banks should limit services available on such accounts to those available
to Basic Savings Bank Deposit Accounts and restore the services when the balances improve to the
minimum required level,"
Basic Savings Bank Deposit Account (BSBDA)
 The aim is Financial Inclusion
 An individual is eligible to have only one 'Basic Savings Bank Deposit Account' in one bank.
 Banks are required to convert the existing 'no-frills' accounts’ into 'Basic Savings Bank Deposit
Accounts'.
 normal saving bank account can be converted into BSBDA at the request of customer
 Holders will not be eligible for opening any other savings bank account in that bank
 This should be considered as a normal banking service available to all customers,
 Banks are advised not to impose restrictions like age and income criteria
 If 'Basic Savings Bank Deposit Account’ is opened on the basis of simplified KYC norms, the account
would additionally be treated as a 'Small Account'
 The services available free in the 'Basic Savings Bank Deposit Account’ will include deposit and
withdrawal of cash; receipt / credit of money through electronic payment channels or by means of
deposit / collection of cheques at bank branches as well as ATMs.
 There is no requirement for any initial deposit for opening a BSBDA.
 No minimum balance requirements
 banks are required to provide free of charge minimum four withdrawals, through ATMs and other mode
s (in a normal saving bank account, this is five free withdrawals in a month)
 Banks should offer the ATM Debit Cards free of charge
 BSBDA does not envisage cheque book facility in the minimum facilities
 Bank is free to extend any additional facility including cheque book facility free of charge
 One can have Term/Fixed Deposit, Recurring Deposit etc., accounts in the bank where one holds 'Basic
Savings Bank Deposit Account'.
 All the accounts opened earlier as 'no-frills' should be renamed as BSBDA
 It would be subject to provisions of Know Your Customer (KYC).
 Decision to allow services with or without charges beyond the minimum prescribed has been left to the
discretion of the banks However such accounts enjoying additional facilities will not be treated as
BSBDAs.
 If a customer opens a BSBDA, ha has to close his existing Savings Bank Account within 30 days
 instructions on Deregulation of Savings Bank Deposit Interest Rate, are applicable to deposits held in
‘Basic Savings Bank Deposit Account’.
 Foreign Banks in India are also required to open BSBDA
BSBDA-Small Accounts:
i. Total credits in such accounts should not exceed one lakh rupees in a year.
ii. Maximum balance in the account should not exceed fifty thousand rupees at any time
iii. The total of debits by way of cash withdrawals and transfers will not exceed ten thousand rupees in
a month
Current Account
1. Most of the current account are opened in the names of firm / companies.
2. A current account is always a Demand Deposit
3. They do not have any fixed maturity as these are on continuous basis accounts
4. These deposits are the most liquid deposits
5. Cheque book facility is provided.
6. The money can be withdrawn either by cheque or withdrawal slip of the respective bank.
7. The main objective of Current Account is to enable people (mostly businessmen) to conduct their
business transactions smoothly.
8. provide flexible payment methods to the business people e.g. overdraft facility, standing orders,
direct debits, offset mortgage facility.
 9. There are no restrictions on the number of times, deposit in cash / cheque can be made or the
amount of such deposits
10. Usually banks do not have any interest on such current accounts. On the other hand, banks may
charge certain service charges
11. These are never used for the purpose of investment or savings.
12. In case of death of the current account holder, his legal heirs are paid interest at the rates applicable
to Savings bank deposit from the date of death till the date of settlement
Recurring Deposit Accounts
4. These are popularly known as RD accounts
5. These are special kind of Term Deposits
6. These are suitable for people who do not large amount of savings, but are ready to save a small
amount every month.
7. Normally, such deposits earn interest on the amount already deposited (through monthly
installments) at the same rates as are applicable for Fixed Deposits / Term Deposits.
8. These are best if you wish to create a fund for your child's education or marriage of your daughter
or buy a car without loans or save for the future.
9. Under these type of deposits, the person has to usually deposit a fixed amount of money every
month (usually a minimum of Rs,100/- p.m.).
10. However, some Banks besides offering a fixed installment RD, have also introduced a flexible /
variable RD. Under these flexible RDs, the person is allowed to deposit even higher amount of
installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed
upon.
11. These accounts can be funded by giving Standing Instructions, by which bank withdraws a fixed
amount on a fixed date of the month from the saving bank of the customer, and the same is
credited to RD account.
12. Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120
months.
13. A Pass book is usually issued wherein the person can get the entries for all the deposits made by
him and the interest earned. Banks also indicate the maturity value of the RD assuming that the
monthly installments will be paid regularly on due dates.
14. In case installment is delayed, the interest payable in the account will be reduced and some nominal
penalty charged for default in regular payments.
15. Premature withdrawal of accumulated amount is usually allowed (however, penalty may be
imposed for early withdrawals).
16. These accounts can be opened in single or joint names.
17. Nomination facility is also available.
Fixed Deposit Accounts
1. for periods from 7 days to 10 years.
2. The term "fixed" in Fixed Deposits (FD) denotes the period of maturity
3. However, in case of need, the depositor can ask for closing (or breaking) the fixed deposit
prematurely by paying a penalty. Banks have the freedom to determine their own penal rates of
interest for premature withdrawal of term deposits. Banks may not normally refuse premature
withdrawal of term deposits
4. Some banks introduced variable interest fixed deposits. The rate of interest on such deposits
keeps on varying with the prevalent market rates i.e. it will go up if market interest rates goes and it
will come down if the market rates fall.
5. The rate of interest for Fixed Deposits differs from bank to bank (unlike earlier when the same were
regulated by RBI and all banks used to have the same interest rate structure).
6. Usually a bank FD is paid in lump sum on the date of maturity.
7. Interest on term deposits is payable at quarterly or longer rests.
8. People prefer to deposit their savings in fixed deposits as these earn higher rate of interest than
normal savings account.
 9. auto renewal of the deposits are offered by most of the banks these days
10. Differential rates of interest can be paid on single term deposits of Rs.15 lakh and above and not on
the aggregate of individual deposits where the total exceeds Rs.15 lakh.
11. Whenever the due dates fall on Saturday/Sunday/non-business working day/holidays, banks are
permitted to pay interest for that day
12. Banks can formulate special fixed deposit schemes specifically for resident Indian senior citizens
offering higher and fixed rates of interest as compared to normal deposits of any size.
How to Avoid TDS
(A) Tax Exemption : For FY 2012-13, interest earned upto Rs 10,000 in saving bank accounts has been
exempted from Tax. However, interest income from other kind of deposits (like from fixed deposits /
recurring deposits ) are not exempted from tax.
(B) Deduction of TDS : No TDS is deducted by banks on interest earned in Saving Bank accounts and
Recurring Deposit accounts. Usually, TDS is deductible on interest earned on Fixed Deposits.
(C) banks are required to deduct tax at source (TDS) on deposits if the total interest earned on all your
fixed deposits in a bank (at all branches of the bank) is more than Rs.10,000 in a financial year (even if a
fixed deposit is in the name of a minor, TDS is deducted). However, the depositors can claim the credit for
such TDS in their income tax returns.
In case of minors, this credit for TDS can be claimed by the person who manages the minor's income
TDS is deducted even on interest accrued (but not yet paid) at the end of the financial year i.e. 31st March
every year.
(D) present applicable rates are : -

Resident Individuals &

Tax Rate Surcharge Education Cess TOTAL
HUF
Payment upto 10 lacs 10% ---- 3% 10.30%
Payment equal to &
10% 10% 3% 11.33%
above 10 lacs
(E) TDS is deduced at applicable rate or 20% whichever is higher where PAN is not registered with Bank.
RBI has made PAN compulsory for opening of fixed deposits
(F) If you feel that your total interest income for the year will not fall within overall taxable limits, then you
should inform your bank and request not to deduct TDS on deposit, by submitting a form as per the
provisions of the Income Tax Act. The forms required for different categories have been listed below:

Category of Account Form Required

Individual 15 G or 15H

Trusts 15AA
 15H/15AA Forms are valid only for the particular financial year in which they are issued.
 For any TDS deducted by the bank, it will issue a Form 16A which can be used while filing the
income tax returns. Such TDS is also reflected in the AS26 form which can be generated from
income tax website.
(G) Thus, in case you do not want the TDS to be deducted, you can split your Bank Deposits in two or more
Banks so that the total interest earned at one Bank is less than Rs.10,000/-.
Difference between form 15G and 15H A person who is below 65 years can file the Form 15 G . However,
only a person of 65 years or more is eligible to file Form 15 H.
Difference between Form 60 and Form 61
FORM NO. 60 : Form of declaration to be filed by a person who does not have a permanent
account number or General Index Register Number
FORM NO. 61: Form of declaration to be filed by a person who has agricultural income
RISK IN BANK DEPOSITS - DICGC COVER
 At present Banks are compulsorily required to get their deposits insured from Deposit Insurance
and Credit Guarantee Corporation (DICGC).
 However, DICGC at present insures deposits only upto Rs.1 lakh.
 Thus, deposits in banks upto Rs.1 lakhs are safe and secure from the default by the bank.
 The type of deposits insured by DICGC are savings, fixed, current and recurring deposits.
 However, deposits kept in different branches of a bank will be bunched together for the purpose of
insurance cover.
 However, deposits with different banks are insured separately
TIPS FOR LOANS AGAINST BANK DEPOSITS

 Banks usually allow you loan upto 75% of the total deposit PLUS the interest earned
till date of sanction of loan.
 However, now many banks have allowed higher percentage of loans which have
shorter maturities.
Banks usually charge 2% more than the interest payable on the deposits against

which the loan is sought
BANK DEPOSITS VS. OTHER INVESTMENTS
BANK DEPOSITS OTHER INVESTMENTS
 Investments in equities, company deposits, debentures,
 Bank deposits are one of the safest
mutual funds etc. are more risky. However, investments
investments and risk of default is
in RBI Bonds, PPF, Government Securities are even more
minimal
safe.
 The returns from equities, mutual funds is not assured.
 Banks deposits give an almost The company deposits and debentures may stop
assured, fixed and uninterrupted servicing of interest any time due to losses. However,
returns investments in RBI bonds, PPF, Government securities
give assured returns.
 It is easy to choose a deposit
scheme at a Bank as they are  The investments in equities and mutual funds is much
simple and can be understood by a more complicated and complex for a layman.
layman
 There are no rebates available
under Income Tax for deposits in  Deposits in schemes like NSC, PPF, Infrastructure bonds
Banks, except under special allows rebates in Income Tax.
schemes now floated by Banks

 These can give higher returns, but have higher degree of

 Bank deposits give lower rate of
risk.
returns
Schemes like 2-in1 deposits or smart deposits or auto sweep,
 bank keeps a minimum sum in your saving account all the time and all the amounts above that will be
automatically shifted to a fixed deposit.
 Such banks even allow automatic pre-mature cancellation as and when some cheques are presented for
payment.
CASA Deposits:
CASA Deposits refers to Current Account Saving Account Deposits.
CASA deposits are low interest deposits for the Banks compared to other types of the deposits.
So banks tend to increase the CASA deposits
for this they offer various services such as salary accounts to companies, and encouraging merchants to
open current accounts, and use their cash-management facilities.
The Bank with high CASA ratio (CASA deposits as % of total deposits) are in a more comfortable position
than the Banks with low CASA ratios , which are more dependent on term deposits for their funding.
Foreign Currency Non-Resident Account: (FCNR)
 FCNR account is opened ONLY in the form of Term Deposits and NOT in the form of Demand Deposits.
 The term is from 1 year to 5 years.
 The maturity proceeds inclusive of interest is fully repatriable
Public Provident Fund (PPF)
 It is a savings-cum-tax-saving instrument in India.
 It also serves as a retirement-planning tool for many
 The account can be opened in designated post offices, State Bank of India branches and branches of
some nationalised banks.
 ICICI Bank was the first private sector bank which was authorized to open PPF accounts.
 A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account, and a
maximum deposit of Rs.100,000/= can be made in a PPF account in any given financial year.
 The investments can be made in multiples of Rs. 500, either as a whole sum, or in installments (not
exceeding 12 in a year, though more than one deposit can be made in a month).
 The current interest rate effective from 1 April 2013 is 8.70% Per Annum(compounded annually).
 Interest is calculated on the lowest balance between the close of the fifth day and the last day of
every month.
 The minimum tenure of the PPF account is 15 years, which can be further extended in blocks of 5
years each for any number of blocks.
 The extension can be with or without contribution.
 An account holder, continuing with fresh subscription, can withdraw up to 60% of the balance
 The rate of interest charged on loan taken by the subscriber of a PPF account shall be 2% p.a.
 The entire balance can be withdrawn on maturity.
 Interest received is tax free
 All the balance that accumulates over time is exempt from wealth tax.
 it has low risk – risk attached is Government risk.
 There is a lock-in period of 5 years.
 However, pre-mature withdrawals can be made from the end of the sixth financial year from when
the PPF commenced.
 The maximum amount that can be withdrawn pre-maturely is equal to 50% of the amount that
stood in the account at the end of 4th year preceding the year in which the amount is withdrawn or
the end of the preceding year whichever is lower.
 Annual contributions qualify for tax rebate under Section 80C of income tax.
 If the PPF account holder fails to deposit the minimum of Rs .500 in a given financial year, the
account is considered to be discontinued and also loans and withdrawals are not allowed.
Monthly Income Scheme (MIS) Account
 Specially suited for retired employees/ Senior Citizens
 Rate of interest 8.40%.
 Maturity Period - Five Years.
 No Bonus on Maturity
Type of Account Minimum limit Maximum limit
Single INR 1500/- INR 4.5 lakhs
Joint INR 1500/- INR 9 lakhs
National Savings Certificates (NSC)
NSC VIII Issue
 Scheme specially designed for Government employees, Businessmen and other salaried classes who
are Income Tax assesses.
  No maximum limit for investment.
 No Tax deduction at source.
 Certificates can be kept as collateral security to get loan from banks.
 Investment up to INR 1,00,000/- per annum qualifies for IT Rebate under section 80C of Income Tax
Act.
 Trust and HUF cannot invest.
 Rate of interest 8.50%.
 5 yr maturity
NSC IX Issue
 No maximum limit for investment.
 Minimum INR. 100/-
 Rate of interest 8.80%.
 10 yrs maturity
5 yr senior citizen saving scheme:
 rate on interest is 9.2%
SWIFT Codes of Banks in India
 The full form of SWIFT is "Society for Worldwide Interbank Financial Telecommunication".
 The headquarter of this Society is at Belgium
 SWIFT codes are a standard format of Bank Identifier Codes and each bank has a unique
identification code. Thus SWIFT is also sometimes known as BIC.
 The SWIFT code is used for exchanging messages between banks.
 The most popular messages sent through SWIFT relate to transferring money between banks i.e.
international wire transfers.
 The full SWIFT code for a branch consists of 11 characters (last three characters are branch code)
New Payment Initiatives
 For Customer Convenience and Paperless Banking
 Include RTGS/NEFT/ECS (Electronic Clearing System)
 vast repetitive nature of transactions are being routed through Electronic Clearing System (ECS)
mode,
 RBI has regulated the service charges with a cap of Rs.50/- and Rs.25/- on outward RTGS and NEFT
transactions respectively.
 RTGS/NEFT transactions comprises of two types viz., Inward and Outward.
 Outward is the one which originates at bank branch by the remitter (account holder), where as
Inward is the one which takes place at beneficiary bank branch.
RTGS is "Real Time Gross Settlement
 RTGS can be defined as "as the continuous (real-time) settlement of funds transfers individually on
an order by order basis (without netting")
 Word 'Real Time' refers to the process of instructions that are executed at the time they are
received, rather than at some later time.
 "Gross Settlement" means the settlement of funds transfer instructions occurs individually (on an
instruction by instruction basis).
 The settlement of funds actually takes place in the books of RBI and thus the payments are
considered as final and irrevocable.
 the beneficiary branches are expected to receive the funds on real time basis i.e. as soon as funds
are transferred by the remitting bank.
 RBI has allowed the beneficiary banks to credit the beneficiary's account within two hours of
receiving the funds transfer message.
What is NEFT ?
 The full form of NEFT is "National Electronic Funds Transfer (NEFT).
 in case of NEFT the settlement in on batch basis and net basis.
RTGS NEFT
  Minimum Amount : RS 2 lakhs No minimum limit
Maximum Amount : No upper ceiling No upper ceiling
Electronic Clearing Services
 ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in
nature. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank
accounts or vice versa.
 There are two variants of ECS - ECS Credit and ECS Debit.
 ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension,
etc., of the user institution.
 ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax collections, loan
installment repayments etc
 Based on the geographical location of branches covered, there are three broad categories of ECS
Schemes – Local ECS, Regional ECS and National ECS.
 National ECS is at Mumbai
 MICR is an acronym for Magnetic Ink Character Recognition. The MICR Code is a numeric code that
uniquely identifies a bank-branch participating in the ECS Credit scheme. This is a 9 digit code to
identify the location of the bank branch; the first 3 characters represent the city, the next 3 the bank
and the last 3 the branch. The MICR Code allotted to a bank branch is printed on the MICR band of
cheques issued by the bank
 There is no value limit on the amount of individual transactions
 Originating banks are required to pay a nominal charge of 25 paise and 50 paise per transaction to
the Clearing house and destination bank respectively. Bank branches do not generally levy
processing / service charges for debiting the accounts of customers maintained with them.
Negotiable Instruments Act 1881
The act has provisions for Negotiable Instruments
What is a Negotiable Instrument?
 Negotiability means transfer of an instrument from a person to another person.
 Currency Note is not a negotiable instrument
Examples of negotiable instruments include promissory notes, bills of exchange, DRAFTS and cheques.
Following are not negotiable instruments
 Bills of lading
 Deeds
 IOUs
 Letters of credit
 Currency Note
Promissory Note (PN)
 PN means a paper with a writing which has a promise. The promise is to pay money
 normally a revenue stamp is affixed on the PN signed by the promissory.
 The PN can be Demand Promissory Note or Usance Promissory Note. Demand Promissory Note has
to be paid immediately on demand and Usance Promissory Note has to be paid after certain time
period.
 The currency is excluded from NI act and governed by Indian Currency Act. So Currency notes are
not promissory Notes.
Bill of Exchange
Hundi:
 Hundi is the Desi version of a bill of Exchange.
 They are not stamped and a vernacular language is written on them.
 They are governed by local practices only.
Cheque
 A cheque is a bill of exchange in which one party (Drawee) is a Bank. So a Drawer (account Holder)
draws the Cheque on the Drawee (bank) in the name of a Payee.
 The Drawer has to write the amount in both in figures and words.
  If the amount is written in words only and NOT in figure than NO payment will be made because it
would be Inchoate.
Bearer Cheque:
 Bearer cheque is payable to the bearer.
 Sometimes "Self" is written, that is also a bearer cheque payable to the account holder.
 Normal validity is 3 months but can be restricted by the account holder.
 The check older than 3 months is called Stale Cheque
 After the stale Cheque is returned , it can be revalidated for any number of times and each time it
becomes valid for next 3 months.
 A post dated check can bear any date of future and the payment can be stopped.
Crossing:
 Crossing provides an additional security.
 Crossing means that sum of that cheque can only recovered from a specified banker and it will be
credited to the holders account.
 The crossed cheques are not paid at the counter.
 Crossing is applicable in case of cheques only and not in case of Bill of Exchange or promissory
notes.
 Crossing may be General crossing or Special crossing. General crossing is where a cheque bears two
parallel lines with words such as a/c payee etc.
 In Special crossing, the cheque bears the name of the banker also.
Endorsing
 It is signing in the instrument either on face or on back, for the purpose of negotiation of a NI.
 If he signs only and does not mention anything else it is called Blank Endorsement.
 If he endorses and adds a direction to pay the amount to a specified person it is called Endorsement
in full.
 If he signs and adds direction for restriction on further negotiability, then it is called Restrictive
Endorsement.
Difference between a Crossed cheque and A/C Payee cheque
 Crossing a cheque by making two parallel lines is a direction to the bank to not to pay the cheque
across the counter.
 In case of a crossed cheque, the payee is free to make further endorsements.
 A/C payee cheque cannot be further endorsed
Demand Draf
 A Demand draft is an order to pay money drawn at one office of a Bank upon another office of the
same bank
 A Demand Draft is payable on demand
 A Demand Draft can NOT be paid to a bearer
 A DD is negotiable and its features are similar to Bill of Exchange and NOT a Cheque.
 If a Bank fails to honor the Draft, the Bank is liable and not the person.
 If there are wrong signatures on the Bank Draft, the Bank is liable.
 If there is a prior arrangement , the DD can be payable by different bank also.
 when a Bank draft is purchased , the relations between the purchaser and bank are that of a debtor
and creditor , and as soon as this bank reaches the Payee, the Payee becomes beneficiary and the
Bank becomes trustee. When a draft reaches a payee, the relationship between the purchaser and
Bank comes to an end.
 once, the payee gets a DD, the payment CANNOT be stopped unless there is an order by a
competent court.
 A demand draft can be prepared with cash payment if the value is less than ` 50,000.
 For a value of ` 50,000 or more, it can be paid through bank account only.
 Draft is valid for 3 months. On expiry of this date, the draft can be revalidated by the Bank.
Difference between a Cheque and Draf
  Cheque has been defined in Negotiable Instruments Act 1881 section 6A. Demand draft has been
defined by Negotiable Instruments Act 1881 in section 85.
 A cheque can be made payable to bearer but a Demand Draft cannot.
 A demand draft can be cleared only in a specified branch of the issuer bank
 A cheque can get dishonored but Demand draft is always honored.
 An issuer party of the cheque is liable to the cheque and not backed by a Bank Guarantee. A
demand draft is backed by a bank guarantee
 Payment of cheque can be stopped and not that of a draft
Retail Banking
In this, banks directly execute transactions with consumers rather than through other banks or
corporations.
The main products of the retail banking in India are as follows:
 Deposits products such as flexi deposits.
 Loan products such as housing, auto, education and personal loans
 Card products such as credit cards
 Travel products such as traveler's cheques etc.
Cross Selling
When an existing customer is offered and sold additional services it is called cross selling.
Advantages are
 Serving an existing customer is a low cost affair than serving a new customer.
 Improvement of the Brand value.
 The smaller value personal loans provide banks a wider margin spread.
Business correspondents.
 Recently, the Reserve Bank of India has allowed the banks (October 1, 2010) to engage business
correspondents.
 Retired government employees and teachers, owners of kirana stores, operators of public call
offices, agents of insurance companies and local entities such as post offices and self-help groups,
can make up a formidable army which can take banking to the farthest corners of the country
 In making this decision, RBI has excluded the Non Banking Financial Companies
Credit Card Business
 Credit card allows its holder to buy goods and services based on the holder's promise to pay for
these goods and services.
Credit Card v/s Debit Card:
 In credit card, credit facility is provided by the issuer bank. However, in the case of debit cards, the
customer uses money from his own banks account.
 In case of a credit card, the card holder uses it within a sanctioned limit. In case of debit cards, the
card holder limit is the amount of balance in his bank account
 In debit card, payment is made immediately on purchases. In credit card, it is delayed by a specified
no. of days
 Debit card needs a bank account with issuing bank. In credit card, no account is needed.
 In credit card, there are charges beyond a particular time. In debit card, there are no charges for the
transaction.
The shape and size of the Credit and Debit Cards is specified by the ISO/IEC 7810 (ID-1) as 85.60 × 53.98
mm.
Swipe Card:
Swipe card or magstripe or Magnetic stripe card has a band of magnetic material on the card and is capable
of storing data.
Credit Card Number:
 is a numbering system for the identification of issuers of cards
 The Length of the number is from 14 to 19.
 The first 6 digits are known as the Issuer Identification Number (IIN).For example, the card number
which begins with 4 is a Visa card.
Ways and Means Advances
 RBI works as a banker to the State Governments by agreement
 All state Governments are required to maintain a minimum reserve balance with RBI,
 However, there are times, when there is a temporary mismatch in the cash flow of the receipts and
payments of the State Governments. To handle this mismatch, there is a WMA scheme
 RBI makes WMA to the state governments for a period of 90 Days.
 WMA limits, if exceeded, are called overdraft.
o A state Government can withdraw an overdraft for maximum of 14 days consecutively.
o The rate of interest is linked to repo rate.
Lender of the Last Resort (LORL)
The banks can borrow from the RBI on the basis of eligible securities or any other arrangement
Thus RBI works as Lender of the Last Resort (LORL) for banks.
How RBI regulates Commercial Banks
1. To do a business of commercial banking in India, whether it is India or Foreign, a license from RBI
is required.
2. Opening of Branches is handled by the Branch Authorization Policy.
3. RBI policy ensures high quality corporate governance in banks.
4. CRR and SLR:
5. Interest Rates:
6. RBI issues "Prudential Norms" to be followed by the commercial banks to
a. strengthen the balance sheets of banks.
b. public disclosure norms
c. KYC norms
7. Annual Onsite Inspection:
8. OSMOS: It refers to Off Site Surveillance and Monitoring System. On the basis of OSMOS, RBI
analyzes the health of the banks.
What are Nostro & Vostro Accounts ?
A nostro account is maintained by an Indian Bank in the foreign countries for a facility of easy clearing of
their transactions.
A vostro account is maintained by a foreign bank in India with their corresponding bank.
What is Gold Standard?
A system of setting currency values whereby the participating countries commit to fix the prices of their
domestic currencies in terms of a specified amount of gold.
Back-to-Back Loan
 also known as Parallel Loan or Credit Swap Loan.
 the funds move within the country but serve the purpose of cross border loans.
Validity of cheques, drafs cut to 3 months
 From April 1, 2012, the cheques and bank drafts will have a life of just three months instead of the
earlier six months.
 some persons were taking undue advantage of the six-month validity of cheques/drafts/pay
orders/banker's cheques by circulating them like cash for this period.
Shadow Banking
 Shadow financial system consists of non-depository banks and other financial entities (e.g.,
investment banks, hedge funds, money market funds and insurers) that play an increasingly critical
role in lending businesses the money necessary to operate
 In Indian Context, Shadow Banking includes non-banking financial companies (NBFCs) focused on
serving low-income families and small businesses, MFIs, chit funds, credit cooperatives, etc.
 Usha Thorat Committee was on Shadow Banking
Know Your Customer
 Know your customer (KYC) is a bank regulation that financial institutions must perform to identify
their clients and ascertain relevant information pertinent to doing financial business with them.
 India-is On Path of Unified KYC
  Know your customer policies are becoming increasingly important globally to prevent identity theft,
fraud, money laundering and terrorist financing.
 In January 2012, the Capital markets regulator SEBI launched India’s first Know Your Customer
Registration Agency – KRA at Bombay Stock Exchange.
 The system avoids duplication of customer details and is interoperable, which means that other
market participants can share the data and bring in more uniformity.
 Recently, RBI relaxed KYC norms by allowing individuals to open bank accounts with a proof of one
address which can be permanent or local. In case the proof of address furnished by the customer is
not the local address, the bank will just take a declaration of the local address on which all
correspondence will be made with the customer.
 This will bring migrant workers, students and people with a transferable job into the banking fold
 This will provide a boost to the process of financial inclusion,
 Before this, RBI had allowed minors above 10 years of age to open and operate savings bank
accounts independently
 By linking Aadhaar numbers to KYC norms, the RBI had earlier already paved the way for
universalising bank accounts
 According to the Mor committee, the situation in both urban and rural India is very grim overall
with only 45 per cent of the urban residents and 32 per cent of the rural residents having bank
accounts. The Mor committee has suggested that by January 1, 2016, each resident above the age
of 18 would have electronic bank account. It also proposed that every resident should be issued a
Universal Electronic Bank Account (UEBA) automatically at the time of receiving their Aadhaar
number by a national, full-service bank.
Bulk Deposit
 means "Rupee Term Deposits of Rs 1 crore and above".
What is Differential Rate of Interest
 It has been decided that wef 1st April, 2013, the permission to offer differential rates of interest for
the deposits of the same maturity will be applicable to bulk deposits (i.e. Rs. 1 crore and above).
 For deposits below Rs 1 crore, the same rate will apply for deposits of the same maturity.
 WEF 1st April, 2013, Rupee term deposits will include domestic term deposits as well as term
deposits under NRO and NRE accounts.
 Can Banks Pay Interest Based on Negotiations with the Depositor ? No
Premature Withdrawal of Deposits
wef 1st April, 2013
(a) Banks will have the discretion to disallow premature withdrawal of a term deposit in respect of bulk
deposits (i.e. Rs 1 crore and above)
(b) allow withdrawal of a Rupee term deposits of less than Rs 1 crore, before completion of the period of
the deposit
(c) Bank will have the freedom to determine its own penal interest rates. Bank should ensure that the
depositors are made aware of this in beginning
What is a Dormant Account or an Inoperative Account ?
 In terms of RBI guidelines "A savings as well as current account should be treated as
inoperative / dormant if there are no transactions in the account for over a period of two
years".
 "for the purpose of classifying an account as ‘inoperative’ both the type of transactions i.e.,
debit as well as credit transactions induced at the instance of customers as well as third party
should be considered.
 However, the service charges levied by the bank or interest credited by the bank should not be
considered".
 when the interest on Fixed Deposit account is credited to the Savings Bank accounts as per the
mandate of the customer, it is treated as a customer induced transaction.
 accounts in India which have not been operated upon for 10 years are considered as unclaimed
deposits.
  Banks are required to make an annual review of accounts in which there are no operations
 In case there have no "transactions", the bank is required to inform the account holder to
activate the account by putting through any single debit or credit transaction
 Interest on savings bank accounts should be credited on regular basis whether the account is
operative or not.
 The purpose for segregation of inoperative accounts is to reduce the risk of frauds
 Can a customer issue a cheque on a dormant account ? yes
 Can Bank charge for account remaining as dormant? Yes, bank can charge as per the schedule
of charges declared by the bank.
 However, banks can not charge any fee for converting a dormant / inoperative account as
operative.
 RBI has advised banks that they should display the list of accounts which are inoperative for
ten years or more on their respective websites. The list so displayed on the websites must
contain only the names of the account holder (s) and his/her address
RIGHTS OF BANK CUSTOMERS
a) banks should do away with stapling of any note packet and instead secure
note packets with paper bands,
b) banks should sort notes into re-issuables and non-issuables, and issue
Clean Note Policy
only clean notes to public; and,
c) banks should stop writing of any kind on watermark window of bank
notes.
Cheque return charges shall be levied only in cases where the customer is at
fault.
customers should not be compelled to drop the cheques in the drop box No
branch should refuse to give an acknowledgement if the customer tenders
the cheque at the counters.
nomination facility is available for joint deposit accounts also.

Scheme Rate of Interest w.e.f. Rate of Interest w.e.f.

Rate on interest 01.04.2012 01.04.2013

PPF, 1968 8.8% p.a 8.7% p.a

Global economic slowdown and its impact on the financial services industry in India
1. tightening in lending standards,
2. deterioration in asset quality
3. deceleration in consumer loan demand
4. direct slowdown in employment and growth
5. Terms-of-trade losses due to soaring commodity prices
Credit Information Bureau (India) Limited (CIBIL)
 over 500 Members
 The Credit Information Companies (Regulation) Act, 2005 has empowered CIBIL to collect the data
from various types of credit grantors (i.e. lenders). and then share the same within the group
without obtaining borrower consent
 CIBIL caters to both company and individuals
 CIBIL's equity was held by State Bank of India and Housing Development Finance Corporation
Limited. The shareholding pattern has now been diversified
 A Credit Information Report (CIR) is a factual record of a borrower's credit payment history. Its
purpose is to help credit grantors make informed lending decisions - quickly and objectively.
  Rules allow consumers to purchase their "CIBIL TransUnion Score" directly from CIBIL.
 TransUnion Score helps the consumers to assess their credit history better and enable them to 'see
themselves as lenders do.
 The score is provided along with the CIBIL Credit Information Report (CIR).
 The TransUnion Score is a three-digit numeric summary (ranging from 300 to 900)
 The closer the score is to 900, the more confidence the credit institution will have in the individual's
ability to repay the loan and hence, the better the chances of his application getting approved.
 Is CIBIL a list of defaulters? No. It is an indicator of the credit-worthiness of a customer.
 Details of liability accounts such as savings, fixed deposits and recurring deposits are not sent to
CIBIL.
 CIBIL only reports loan and credit-card information such as repayment track, loan type, amount
outstanding, loan amount disbursed, various dates, etc. The report also contains a customer's
personal information like name, address, date of birth, phone number(s), passport number, voter's
ID number, PAN, etc.
 The credit report does not provide any opinion or comment on whether a loan should be extended
to a customer
 A customer's name cannot be removed from CIBIL's database
 If a customer's family member has defaulted, will it affect the customer's status in CIBIL's records?
No
Pledge vs Hypothecation vs Mortgage
These terms are used for creating a charge on the assets which is given by the borrower to the lender as a
security for any loan.
Pledge
1. It is used when the lender (pledgee) takes actual possession of assets.
2. Such securities or goods are movable securities.
3. In case there is default by the borrower, the pledgee has a right to sell the goods in his possession
and adjust its proceeds towards the amount due (i.e. principal and interest amount).
4. Some examples of pledge are Gold /Jewellery Loans, Advance against goods/stock, advances
against National Saving Certificates etc.
Hypothecation
1. used for creating charge against the security of movable assets,
2. but here the possession of the security remains with the borrower itself.
3. in case of default by the borrower, the lender will have to first take possession of the security and
then sell the same.
4. The best example of this type of arrangement are Car Loans
Mortgage
1. used for creating charge against immovable property which includes land
2. The best example is when someone takes a Housing Loan / Home Loan.
3. In this case house is mortgaged in favour of the bank / financer but remains in possession of the
borrower
Difference Between Pledge, Hypothecation and Mortgage at a Glance:
Pledge Hypothecation Mortgage
Type of Security Movable Movable Immovable
Usually
Possession of Remains with lender Remains with Remains
the security (pledgee) Borrower with
Borrower
What is an Assignment ?
1. Assignment occurs when the owner of a contract, known as the assignor, gives a contract to another
party, known as the assignee.
2. The assignee assumes all responsibilities and benefits of the contract.
 3. One example is when life insurance policy is used as a collateral for a loan
Wilful Defaulters – RBI Guidelines for Banks
A "wilful default"is
(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has
the capacity to honour the said obligations.
b. diverted the funds for other purposes.
c. siphoned off the funds
d. disposed off the assets given for the purpose of securing a term loan without the knowledge of the
bank/lender.
Limit for Reporting Purposes :
 Rs.25 lakh & above are required to be reported to RBI on quarterly basis.
 reported to CIBIL
 also sent to SEBI so as to prevent the access to the capital markets by the willful defaulters.
Penal measures
 No additional facilities should be granted by any bank / FI
 debarred from institutional finance for floating new ventures for a period of 5 years
 The legal process should be initiated expeditiously
 banks and FIs should adopt a proactive approach for a change of management
Brown Label ATMs
 Automated Teller Machines where hardware and the lease of the ATM machine is owned by a
service provider, but cash management and connectivity to banking networks is provided by a
sponsor bank
 The `brown label' has come up as an alternative between bank-owned ATMs and 'white label' ATMs
 ATM is under the brand and logo of the sponsor bank
 results in tremendously cutting costs
White Label ATM
 owned and operated by Non Bank entities.
 These would be called "White Label ATM Operators" (WLAO) and such ATMs would be called "White
Label ATMs" (WLAs).
 They would be permitted to set up WLAs in India, after obtaining authorisation from RBI under the
Payment and Settlement Systems (PSS) Act 2007.
 They should have a minimum net worth of Rs 100 crore
 From such White Label ATM, customer from any bank will be able to withdraw money, but will need
to pay a fee for the services.
 will not display logo of any particular bank
 are likely to be located in non traditional places espec Tier III and IV centres
 purpose is to expand ATM network
 The white label automated teller machines are likely to benefit customers as well as banks. With
the expansion of ATM network, customers will be able to withdraw funds at more locations which
will be convenient and located near to their home or place of work. Banks are likely to reduce pre-
transaction cost for them and will be free from the problems relating to maintaining and running
such a payment channel
 Problems:
o Face inconvenience in case of failed transactions as dispute resolution mechanism will
involve three entities — the WLA operator, the sponsor bank of the operator, and the
customer's bank.
o high cost for customer as they are likely to pay for use of such ATMs
PAN (PERMANENT ACCOUNT NUMBER)
Q
QUESTION ANSWER
NO.
1 What is PAN
 Permanent Account Number (PAN) is a ten-digit alphanumeric number allotted
by Income Tax Department. Normally it is, issued in the form of a laminated
card, by the IT Department.

Is it necessary to It is mandatory w.e.f.1 January 2005 to quote PAN on challans for any payments
2
obtain PAN due to Income Tax Department.
 Sale and purchase of immovable property or motor vehicle;
 Payments in cash, of amounts exceeding Rs. 25,000/-to hotels and
restaurants;
For which type of
 In connection with travel to any foreign country.
transactions it
3  For obtaining a telephone or cellular telephone connection.
necessary to quote
 For making a time deposit exceeding Rs. 50,000/- with a Bank Post
PAN
Office;
 depositing cash of Rs. 50,000/- or more in a Bank.

How to apply for

4 PAN application has to be made on Form 49A.
PAN?
Analysis of PAN Digits :
1. First three characters are alphabetic series running from AAA to ZZZ
2. Fourth character of PAN represents the status of the PAN holder.
• C — Company
• P — Person
• H — HUF (Hindu Undivided Family)
• F — Firm
• A — Association of Persons (AOP)
• T — AOP (Trust)
• B — Body of Individuals (BOI)
• L — Local Authority
• J — Artificial Juridical Person
• G — Government
3. Fifth character represents first character of the PAN holder’s last name/surname.
4. Next four characters are sequential number running from 0001 to 9999.
5. Last character in the PAN is an alphabetic check digit.
BANCASSURANCE
 Bancassurance is the provision of insurance (assurance) products by a bank.
 Bancassurance concept originated in France
 banks can often sell insurance at better prices (i.e., higher premiums)
 they have low costs as they use the same infrastructure (branches and systems) that they use for
banking.
 Banks are allowed to enter the insurance business after obtaining prior approval of Reserve Bank of
India.
Advantages of Bancassurance:
1. Bancassurance offers another area of profitability to banks with little or no capital outlay.
2. provide complete financial planning services to its customers under one roof.
3. Opportunities for sophisticated product offerings.
4. Diversify and grow revenue base from existing relationships.
5. Diversify risks by tapping another area of profitability.
6. to increase percentage of non-interest income
7. Cost effective use of premises
Various Models for Bancassurance
Various models are used by banks for bancassurance.
(a) Strategic Alliance Model : Under this Model, there is a tie-up between a bank and an insurance
company. The bank only markets the products of the insurance company.
(b) Full Integration Model: The bank sells the insurance products under its brand
c. Mixed Models: Under this Model, the marketing is done by the insurer's staff and the bank is responsible
for generating leads only. In other words, the database of the bank is sold to the insurance company.