Financial literacy

1. Financial Literacy
Unit II: Banking and Digital Payments

2. Financial Institution
Types Of Financial
Institution
Depository Financial
Institution
Non-Depository
Financial Institution
Commercial
Banks
Saving
Institutions
Credit
Unions
Finance
Companies
Securities Firms
Insurance
Companies
Investment
Companies

3. Types of Financial Institutions
Depository institutions
• Financial institutions that accept deposits (which are insured up to a
maximum level) from individuals and provide loans.
• They pay interest on savings deposits and charge interest on loans.
The interest rate charged on loans exceeds the interest rate paid on
deposits.

4. Types of Depository Institutions
• There are three types of depository institutions:
• Commercial banks
• Savings institutions
• Credit unions.

5. Commercial Banks
• Commercial banks are financial institutions that accept deposits in
checking and savings accounts and use the funds to provide
commercial (business) and personal loan.
• The checking accounts normally do not pay interest.
• The savings accounts pay interest, and certain other accounts pay
interest and can be used to write checks.
• Commercial banks provide personal loans for the purchase of a car or
other big- ticket items. They also offer mortgage loans for purchasing
a home.

6. Saving Institutions
• Savings Institutions Savings institutions (also referred to as thrift
institutions) accept deposits and provide mortgage and personal
loans to individuals.
• They differ from commercial banks in that they tend to focus less on
providing commercial loans.

7. Credit Unions
• Credit unions are non-profit depository institutions that serve
members who have a common affiliation (such as the same employer
or community).
• Credit unions have been created to serve the employees of specific
hospitals, universities, and even some corporations.
• Credit unions also provide mortgage and personal loans to their
members.
• They may even issue credit cards, and the financing rates on these
cards are sometimes lower than those issued by other types of
financial institutions.

8. Non-depository Institutions
• Non-depository institutions provide various financial services but do
not receive federal insurance for their deposits.
• The main types of non-depository institutions are-
• Finance companies
• Securities firms
• Insurance companies
• Investment companies

9. Finance Companies
• Finance companies specialize in providing personal loans to
individuals.
• These loans may be used for various purposes, such as purchasing a
car or other products, or adding a room to a home.
• Finance companies tend to charge relatively high rates on loans
because they lend to individuals who they perceive to have a higher
risk of defaulting on the loans.
• Eg Aditya Birla Capital, Bajaj Finserv, Muthoot Fincorp etc.

10. Securities Firms
• Securities firms facilitate the purchase or sale of securities (such as
stocks or bonds) by firms or individuals by offering investment
banking services and brokerage services.
• Investment banking services include
1. Placing securities that are issued by firms
2. Advising firms regarding the sale of securities, which involves determining
the price at which the securities may be sold and the quantity of securities
that should be sold
3. Advising firms that are considering mergers about the valuation of a firm,
the potential benefits of being acquired or of acquiring another firm, and
the financing necessary for the merger to occur.

11. Securities Firms…
• In addition to offering investment banking services, securities firms
also provide brokerage services, which facilitate the trading of existing
securities.
• For example, Zerodha, Motilal Oswal Securities Ltd., ICICI direct, Angel
broking, Kotak securities, etc.

12. Insurance Companies
• Insurance companies are non-depository institutions that provide
insurance to protect individuals or firms from the financial consequences
of possible adverse events.
• Life insurance companies provide insurance in the event of a person’s
death.
• Property and casualty companies provide insurance against damage to
property, including automobiles and homes.
• Health insurance companies insure against specific types of health care
costs.
• For example, LIC (PSU), Bajaj Allianz General insurance, PMJBY (Sector
specific insurance), General Insurance Corporation of India (PSU) etc.

13. Investment Companies
• Investment companies use money provided by individuals to invest in securities
to create mutual funds.
• The minimum amount an individual can invest in a mutual fund is typically
between Rs 100 and Rs 3,000.
• The investment company pools the money it receives from individuals and invests
in a portfolio of securities, an individual who invests in a mutual fund is part
owner of that portfolio.
• For example, Nippon Indian Fund, Aditya Birla Son life Mutual Fund, Parag Parikh
etc.

14. Banking Services Offered
• Some of the important banking services offered to individuals are
described here
• Checking Services
• Check float
• Savings Accounts
• Credit Card Financing
• Automated Teller Machines (ATMs)

15. Checking Services
• You use a checking account to draw on funds by using a debit card,
making online payments, or writing checks against your account.
• Most individuals maintain a checking account for paying bills and to
avoid having to carry large amounts of cash to make purchases.
• People today increasingly use debit cards, online payment systems, or
mobile apps for making payments, checks are still used, especially for
large transactions.

16. Checking Services…
1. Debit Card
• A debit card is a payment card that can be used to make purchases that are
charged against the cardholder’s checking account.
• If you use a debit card to pay $100 to a car repair shop, your checking account
balance is reduced by $100, while the account balance at the car repair shop
is increased by $100.
• Do not share any details related to debit to avoid theft.
• For example, Rupay Debit card, Visa Debit Card, Mastercard Debit card etc.

17. Types of Debit Card

18. Checking Services…
2. Mobile Banking
• Many financial institutions now offer mobile applications that enable you to
bank via your smartphone. Using your phone, you can check your account
balance and review recent transactions.
• For e.g. Paytm Payment Bank, YONO bank, Cent Mobile etc.

19. Mobile Banking…

20. Checking Services…
3. Check Float
• When you write a check, your checking account balance is not reduced until
the check is cashed by the recipient and the check clears.
• The time from when you write a check until your checking account balance is
reduced is referred to as the float.
• The float is partially due to the time it takes for the bank where the check is
deposited to send information to your bank.
• Some individuals do not have sufficient funds in their account at the time that
they write a check, expecting that the float will take a few days. This gives
them time to deposit enough funds in their checking account before the
check clears.

21. Savings Accounts
• In addition to checking accounts, financial institutions offer savings
accounts, where you can deposit money that you do not intend to use
for daily expenses.
• Unlike most checking accounts, savings accounts pay interest on the
funds deposited there, although in recent years the interest rate has
been quite low.
• Generally, you cannot write checks on the funds in your savings
account or use the funds for purchases with a debit card. However,
you can transfer funds from your savings account to your checking
account.

22. Credit Card Financing
• Individuals use credit cards to purchase products and services on
credit.
• At the end of each billing cycle, you receive a bill for the credit you
used over that period.
• Mastercard and Visa cards allow you to finance your purchases
through various financial institutions.
• Thus, if you are able to pay only the minimum balance on your card,
the financial institution will finance the outstanding balance and
charge interest for the credit that it provides to you.

23. Automated Teller Machines (ATMs)
• Bank customers are likely to deposit and withdraw funds at an automated teller
machine (ATM) by using their ATM card and entering their personal identification
number (PIN).
• Located in numerous convenient locations, these machines allow customers
access to their funds twenty-four hours a day, any day of the year.
• Some financial institutions have ATMs throughout the United States and in
foreign countries.
• You can usually use ATMs from financial institutions other than your own, but you
may be charged a service fee, which is often at least $1 per transaction.
• Some banks now offer mobile apps that allow customers to deposit and withdraw
funds at ATMs by using their smartphone instead of a card.

24. Automated Teller Machines (ATMs)…

25. Automated Teller Machines (ATMs)…
• Finding an ATM Nearby Application:
• Use the ATM Hunter app (by Mastercard) to find a nearby ATM. You can use
your current location when searching or input an address or an airport.
• To Find It:
• Search for the “ATM Hunter” app on your mobile device.

26. Cash Deposit Machines
• The Cash Deposit Machine, better known as Automated Deposit cum Withdrawal
Machine (ADWM) is an ATM like machine that allows you to deposit cash directly
into your account using the ATM cum debit card.
• You can use this machine to instantly credit your account without visiting the
branch.
• The transaction receipt also gives you your updated account balance.
• Some of the salient features of this product are-
• Instant credit of cash deposit into your own account
• Quick and convenient way to deposit cash
• Paperless transaction

27. Cash Deposit Machines…